Arkema Sa · EURONEXT:AKE
Arkema Sa — H1 2006 Earnings Presentation
38 slides from Arkema Sa's earnings presentation, Sep 13, 2006
Slide 1: 2006 Mid Year Review
2006 MID YEAR REVIEW Paris, September 13th, 2006
Slide 2: Build a strong company
Build a strong company Creation of Spin off 2008 Arkema Prepare for Restore Establish a independence profitability competitive and growing Negotiate a strong Strong emphasis on balance sheet productivity chemical player Launch of 6 major Focus on profitable restructuring projects growth Improve free
Slide 3: Where we stand today
Where we stand today Increase of second quarter operating income 6 major restructuring plans on track Other significant productivity initiatives Growth fuelled by new projects A 2006 forecast in the higher range of our target (( Pro-active and pragmatic )) 3
Slide 4: 2Q 2006 financials
2Q 2006 financials (( A good start after spin off ))
Slide 5: A robust second quarter 2006
A robust second quarter 2006 Sales increase +3%* to €1,531m Recurring operating income of €76m up +9%* Positive net income of €28m Performance Products EBITDA margin at 10% (( First impact of productivity initiatives )) 5 * Compared to 2Q 2005
Slide 6: 2Q 2006 key figures
2Q 2006 key figures In €m 2Q’05 2Q’06 Variation* 1Q’06 Sales 1,486 1,531 3.0% 1,545 EBITDA (recurring) 126 131 4.0% 117 EBITDA margin 8.5% 8.6% 7.6% Operating income (rec.) 70 76 8.6% 61 Operating income margin 4.7% 5.0% 3.9% Operating income 53 58 9.4% 39 Net income**- Group share 33 28 (15.2)% 9 *
Slide 7: Sales growth supported by price increases
Sales growth supported by price increases 3.9% 0.2% (0.1)% €1,531m €1,486m (1.0)% Conversion Scope effect Volume Price + Performance Products + All three - Industrial Chemicals segments - Vinyl Products (restructuring plan) +3% Sales Sales 2Q’05 2Q’06 7
Slide 8: Strong impact of productivity programs
Strong impact of productivity programs €16m €131m €126m €(5)m €(12)m €6m + Price initiatives Other Inflation Major plans productivity + Growth projects initiatives - Acrylics cycle + €14m - Raw material & (fixed costs savings) energy costs - €8m (volume loss) +/- other impacts +4% EBITDA EBITDA 2Q’0
Slide 9: Strong improvement of Performance Products
Strong improvement of Performance Products +2.8% +5.6% +1.2% 657 639 496 524 Sales (€m) 345 349 2Q’05 2Q’06 2Q’05 2Q’06 2Q’05 2Q’06 16.4% 4.0% 9.9% 12.3% 105 7.3% EBITDA (€m) 14 81 52 Margin (%) 0.6% 36 2 2Q’05 2Q’06 2Q’05 2Q’06 2Q’05 2Q’06 Vinyl Products Industrial Chemicals Performance Products Hi
Slide 10: 1H 2006 review
1H 2006 review (( On target ))
Slide 11: 1H 2006 highlights
1H 2006 highlights GLOBAL ECONOMIC ARKEMA’S ENVIRONMENT HIGHLIGHTS Price increase initiatives Strong demand in US and Asian markets Vinyl Products and other five major restructuring Increased raw material plans on track and energy costs Additional fixed cost and Significant decrease headcount reduct
Slide 12: 6 major restructuring plans on track
6 major restructuring plans on track PMMA Sheet Europe Chlorochemicals Urea Formaldehyde Resins 165 positions 523 positions 132 positions 106 p. year to date 223 p. year to date 31 p. year to date COMPLETE 4Q’06 COMPLETE 4Q’07 COMPLETE 2Q’07 Thiochemicals France Thiochemicals US 74 positions COMPLET
Slide 13: Evolution of headcount since creation
Evolution of headcount since creation 19,167 Asia and ROW 17,713 North America (107) employees Europe (excl. France) (219) employees France (1,096) employees 12/31/2004 06/30/2006 (( nearly half related to the 6 major plans )) 13
Slide 14: Vinyl Products: competitive assets at end of plan
Vinyl Products: competitive assets at end of plan VCM sites* General Purpose PVC sites* Balan/Saint-Fons Berre/Fos/Lavéra • 525 Kt capacity • 325 Kt capacity Lavéra • 3rd largest site in Europe Balan • 5th largest site in Europe Martorell • 415 Kt capacity • 290 Kt capacity Fos** • 5th largest site
Slide 15: Pursue development focused on strong lines
Pursue development focused on strong lines Specialty chemicals Specialty chemicals Inowroclaw Fluorochemicals Honfleur Technical Polymers Organic Peroxides Becancour Jinhae Calvert-City Carling Changshu PMMA H2O2 Fluorochemicals Acrylics Technical Polymers Shanghai Mourenx Mont H2O2 Beaumont Thioche
Slide 16: 1H 2006 key figures
1H 2006 key figures In €m 1H’05 1H’06 Variation* Sales 2,907 3,076 5.8% EBITDA (recurring) 260 248 (4.6%) EBITDA margin 8.9% 8.1% Operating income (rec.) 150 137 (8.7%) Operating income margin 5.2% 4.5% Operating income 8 97 x 12 Net income (36) 37 n.m. (( Positive net income )) 16 * 1H’06 vs 1H’05
Slide 17: More balanced EBITDA across segments
More balanced EBITDA across segments 1H’05* 1H’06* Vinyl Products Vinyl Products Performance 10% Performance 9% Products 24% Products 34% 66% 57% Industrial Industrial Chemicals Chemicals Improved profitability of Performance Products segment Solid performance of Industrial Chemicals despite declini
Slide 18: Initial net debt negotiated with Total
Initial net debt negotiated with Total 567 Net debt as of 12/31/05 Estimate of cash out of pre-spin off non-recurring items 580 Pre-spin off NR items* • €435m covered by provisions • €45m 2006 NR items €580m • €100m Vinyl Plan Capex (532) Capital increase by Total before spin off €350/400m 615 “Nego
Slide 19: 1H 2006 free cash flow
1H 2006 free cash flow 1H’06 Recurring Cash Flow 191 Recurring Capex (121) In line with forecast Operating Free Cash Flow 70 Working Capital (128) Raw materials and seasonality Other items (20) NR items and cost of debt Recurring Cash Flow (78) Pre Spin-off NR items cash out (72) Included in net deb
Slide 20: 2006 outlook
2006 outlook 2006 EBITDA in the higher range of the target (+15% above 2005) Seasonal pattern Positive net income Capex in line with the €350m forecast (out of which €50m for Vinyl consolidation plan) 20
Slide 21: 2006 priority
2006 priority (( Reshape the Performance Products segment ))
Slide 22: Productivity measures already launched in 1H 2006
Productivity measures already launched in 1H 2006 BU - SITES ACTIONS ALREADY TAKEN IN 2006 Urea Formaldehyde Resins: Definitive closure of VSP plant in 2Q’06 Villers-Saint-Paul (France) Closure of Pierrefitte-Nestalas plant Specialty Chemicals*: Pierrefitte-Nestalas (France) New production capacitie
Slide 23: New initiatives in 2H 2006
New initiatives in 2H 2006 PERFORMANCE PRODUCTS UREA TECHNICAL SPECIALTY ORGANIC ADDITIVES AGROCHEMICALS FORMALDEHYDE POLYMERS CHEMICALS PEROXIDES RESINS Merger* Common end-markets Plan to divest Synergies in: the remaining plant in Leuna • SG&A (Germany) • R&D (nanotechnologies) Target of SG&A savi
Slide 24: Tangible outcome from R&D
Tangible outcome from R&D New development in Debottlenecking molecular sieves: of our assets hydrocarbons filtration in Poland and in France and medical oxygen €11m capex Polyamide ultrafine Increase by 40% powders (Orgasol®): of the production new development capacity in Mont for laser sintering Pa
Slide 25: Accelerate pace of change
Accelerate pace of change ARKeEMA
Slide 26: Accelerate the transformation process
Accelerate the transformation process Further cost reduction initiatives Chase expenses throughout the company Entrepreneurial culture Selective portfolio management Working capital optimization 26
Slide 27: Further cost reduction initiatives
Further cost reduction initiatives Address remaining structural gaps with competitors • New additional plan launched in July • Merger of Additives and Organic Peroxides Additional optimizations to offset inflation Specific emphasis on G&A • Streamline support functions • Reach “best-in-class” ratio
Slide 28: Chase expenses throughout the company
Chase expenses throughout the company Improve goods and services purchasing • Higher centralization of G&S purchasing • E-procurement implementation Optimize real estate utilization • Sell non-industrial real estate • Headquarters Better control of US welfare and pension benefits • Keep only active
Slide 29: Entrepreneurial culture
Entrepreneurial culture Continue to simplify the organization • Reduce weight of Corporate • A more reactive and efficient organization Increase accountability and performance • Senior management compensation: 30-70% linked to profitability improvement • Personal incentives: free shares allocated on
Slide 30: Selective portfolio management
Selective portfolio management DIVESTMENTS ACQUISITIONS €300 to €400m of sales within Bolt-on acquisitions in our the next three years core activities Take advantage of upstream integration (Acrylics, Fluorochemicals) Disposal of non-core assets Increase the proportion of non-cyclical, low capital i
Slide 31: Confirm the 10 to 15% EBITDA growth target
Confirm the 10 to 15% EBITDA growth target* €540m €475m End 2006 €355m +€80m Additional Inflation Other productivity plans measures 6 major plans Significant growth Projects 2/3 EBITDA growth EBITDA EBITDA 2005 2008 31 * Calculated as an average annual growth for the next three years compared to 200
Slide 32: Mid term target
Mid term target Confirmation of +10 to +15% recurring EBITDA growth • Calculated as an average annual growth for the next 3 years (06-08)* • Despite a less favorable environment in acrylics compared to 2005 Positive free cash-flows from 2007 (before pre-spin off non-recurring items) Reduce working c
Slide 33: Appendix
Appendix
Slide 34: Management compensation
Management compensation FIXED PART FIRST VARIABLE PART SECOND VARIABLE PART Linked to Arkema’s stock price and performance Linked to the improvement of profitability Stock-options and free In line with the indications shares given in the prospectus Main indicator: EBITDA growth target Free shares wi
Slide 35: €580m pre-spin off non-recurring items
€580m pre-spin off non-recurring items* €100m Vinyl plan Capex Social 62 €445m €45m Covered by 2006 pre-spin off provisions NR items booked in B/S end 2005 212 Litigation Antitrust 130 Restructuring 31 Environment 35 * Details of page 18
Slide 36: Vinyl Products: secure long-term competitiveness
Vinyl Products: secure long-term competitiveness Saint-Fons/Balan: -106 p. Address low productivity of some Vinyl Compounds, PVC (+5kt) assets Shutdown of one unit and debottlenecking of the others Initial situation 30/06/06 Target Restructuring plan under 570 p. 538 p. 464 p. implementation: Saint-
Slide 37: Main accounting and financial indicators
Main accounting and financial indicators Operating income: this includes all income and expenses other than the cost of debt, equity in income of affiliates and income taxes. Other income and expenses: these correspond to a limited number of well-identified non-recurring items of income and expenses
Slide 38: Disclaimer
Disclaimer The information disclosed in this document may contain forward-looking statements with respect to the financial condition, results of operations, business and strategy of ARKEMA. Such statements are based on management’s current views and assumptions that could ultimately prove inaccurate