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Rhodia Reports Strong Results for the Third Quarter 2006
Friday November 10, 9:33 am ET

PARIS--(BUSINESS WIRE)--Specialty chemicals company Rhodia reported net sales(a) at 1,179 million euros, up 9.3% vs. Q3 2005, driven by strong volume growth (up 5.5%) and price increases (up 7%) to offset the rise in the cost of raw materials and energy.

Recurring EBITDA(b) climbed 60% to 160 million euros; recurring EBITDA Margin of 13.6% compared with 9.3% in Q3 2005.

Sharp rise in Operating Profit, to 112 million euros from 8 million euros in Q3 2005.

Net Income of 71 million euros, against a loss of 121 million euros in Q3 2005.

1. Strong improvement in Q3 2006 operating performance

Net Sales(a) rose 9.3% to 1,179 million euros in the third quarter 2006, from 1,079 million euros a year earlier. The increase reflected the very significant impact of price increases (up 7%) and the strong growth in volumes (up 5.5%), driven by robust demand across all businesses.

Recurring EBITDA increased by 60%, to 160 million euros from 100 million euros in the third quarter 2005. Recurring EBITDA Margin rose to 13.6% from 9.3% year on year. This operating performance reflected the solid demand during the period and the Group's ability to increase prices to offset the rise in raw material and energy costs.

Operating Profit climbed to 112 million euros from 8 million euros a year earlier, driven by the improvement in operating performance and the reduction in restructuring costs. In addition, a 27 million euros profit was recorded in connection with the setting up of Orbeo, the 50-50 joint venture with Societe Generale to trade Rhodia's carbon emissions credits.

The Financial Result improved to (62) million euros from (88) million euros in the third quarter 2005, primarily due to the decline in interest expense following the reduction in consolidated debt. The third quarter 2005 was also impacted by a 14 million euros unrealized foreign exchange loss.

Net Income was 71 million euros compared to a net loss of 121 million euros a year earlier. Net Income in the third quarter 2006 included the recognition of 34 million euros of deferred tax assets following the return to profit of the Group's North American operations.

Consolidated net debt slightly down from June 30, 2006

Capital Expenditure totaled 68 million euros during the period, while Working Capital Requirement rose a modest 13 million euros. The ratio of operational Working Capital Requirement to total sales improved to 13.5% at September 30, 2006 from 13.9% a year earlier.

Free Cash Flow(c) was negative, at (5) million euros, after including 17 million euros of restructuring cash costs.

Consolidated net debt totaled 1,921 million euros, a 149 million euros decrease compared to June 30, 2006. The reclassification of the debt linked to discontinued operations under "liabilities associated with assets classified as held for sale" led to 111 million euros of debt reduction, relating to Silicones for the most part.

2. Building for the future

  • On the back of its improved operating performance, Rhodia took advantage of favorable market conditions in October to issue 1.1 billion euros in floating rate notes to refinance part of its debt. The transaction enabled the Group to extend its debt maturity profile, provide greater flexibility and reduce interest expenses.
  • The planned sale of Rhodia's Silicones business to China National BlueStar Corporation will contribute further to the refocusing on businesses in which the Group holds strong leadership positions and in which Rhodia expects to generate its future growth.
  • The Group is pursuing its development in Asia, with the announcement of the construction of a polyamide intermediates (HMD) plant in China and a new specialty surfactants unit in India. These projects will strengthen the Asian presence of Rhodia Polyamide and Novecare.
  • Rhodia has submitted ahead of plan its first request to the United Nations Framework Convention on Climate Change Secretariat (UNFCCC) to obtain CERs. This follows a third party audit of its greenhouse gas emissions reduction at the Onsan plant in South Korea. As a consequence, Rhodia expects to receive 1 million tonnes of CERs before the end of the year. The greenhouse-gas abatement unit in Brazil is scheduled to come on stream in the fourth quarter. The Group confirms that it will have a total of 11 to 13 million tonnes a year of CERs available starting in 2007.

3. Outlook

Market conditions should remain satisfactory in the fourth quarter, in an environment still shaped by high, volatile raw material and energy prices. For the year as a whole, price increases made by the Group should offset higher raw material and energy costs.

Rhodia remains confident it will meet its 2006 objectives:

  • A recurring EBITDA Margin of at least 13%.
  • A positive Net Income for 2006.
  • A ratio of net debt to recurring EBITDA no higher than 2.9 times.

Looking further ahead, the Group reiterates its medium-term objectives.

(a) Excluding other revenues

(b) Before restructuring, amortization and depreciation, other operating income and expense, and capital gains and losses on divestments

(c) Defined as "net cash provided by operating activities" less "additions to property, plant and equipment" and "other capital investments"

Source: Rhodia

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