Arkema: 2nd Quarter 2013 Results

Regulatory News:

The Board of Directors of Arkema (Paris:AKE) met on July 31^st 2013 to close the condensed consolidated accounts of Arkema for 1^st half 2013. At the end of the meeting, Thierry Le Hénaff, Chairman and CEO, stated:

« In 2^nd quarter, Arkema confirmed the strength of its results in a less favorable economic environment than last year which also shows strong disparities from one geographic region to another. Market conditions in Europe are challenging, in particular in France where growth prospects have deteriorated since the end of last year and where the Group continues to consider ways to improve its productivity. Nevertheless, the Group benefited from its balanced geographic presence worldwide, its growing footprint in North America, and its diversified end-markets and continued to benefit from its positioning in high added value specialty businesses.

The Group actively reinforced its assets as shown by the capacity extension of its acrylic production capacities in North America in the 2^nd quarter, and the construction of its Thiochemicals platform in Malaysia. »

2^ND QUARTER 2013 KEY FIGURES

* For 2^nd quarter 2012, adjusted net income of continuing operations (excluding impact of vinyl activities sold beginning of July 2012).

2^ND QUARTER 2013 PERFORMANCE

Sales in 2^nd quarter 2013 stood at €1,629 million against €1,719 million in 2^nd quarter 2012. The +3.5% growth in volumes was mainly supported by the Coating Solutions segment which benefited from an increasing presence in North America where the housing market has been gradually improving. The -5.2% price / product mix effect reflected in particular the decrease in certain raw material costs and a different product mix than in 2012 in High Performance Materials. The -2.3% scope of business effect related to the divestment of the tin stabilizer business finalized on 1^st October 2012. The -1.2% translation effect mostly corresponded to the slight strengthening of the euro versus the US dollar.

In an economic environment that was less favorable than last year, EBITDA, as expected, stood at €273 million in-between the high reference of the 2^nd quarter 2012 (€306 million) and the 1^st quarter of 2013 (€234 million), thereby confirming the strength of the portfolio of the Group’s specialty activities and its balanced geographic presence. The performance of High Performance Materials improved compared to 1^st quarter 2013, but was still below last year due to ongoing weak demand in the photovoltaic market and to delays in certain oil and gas projects. Industrial Specialties continued to deliver a high level of performance despite weaker fluorogas business versus last year. Coating Solutions reported a strong and stable result compared with last year, with improving conditions in North America offsetting the more challenging market conditions in decorative paints and construction in Europe. Finally, EBITDA was negatively impacted by the strengthening of euro versus US dollar and by the drop of the yen which resulted in a negative transaction effect.

EBITDA margin maintained a very good level at 16.8% and once again stood among the highest in the industry.

Recurring operating income stood at €195 million against €229 million in 2^nd quarter 2012, following deduction of €78 million depreciation and amortization, virtually stable compared to last year.

Non-recurring items stood at -€13 million against -€25 million in 2^nd quarter 2012. They included in particular some restructuring charges. In 2^nd quarter 2012, these items mostly included the impact of the shortage in the supply of CDT (the raw material for polyamide 12) amounting to -€16 million in total as well as various charges related to divestment and acquisition operations.

Financial result stood at -€13 million, close to 2^nd quarter 2012 (-€14 million).

Income taxes amounted to €57 million, i.e. 29.2% of recurring operating income. They included a €3 million tax due on the dividend paid in June 2013. Excluding this tax, the tax rate would stand at 27.7% of the recurring operating income, reflecting the geographic spread of the results with a significant part of the Group’s results achieved in North America and a smaller part in Europe.

Net income Group share stood at €112 million against a -€12 million loss in 2^nd quarter 2012.

SEGMENT PERFORMANCE IN 2^ND QUARTER 2013

HIGH PERFORMANCE MATÉRIALS

High Performance Materials sales reached €477 million against €572 million in 2^nd quarter 2012. The divestment of the tin stabilizer activities represented nearly half of the sales decrease. The negative price effect mostly reflected the lower raw material costs and a different product mix than in 2012. Finally, volumes were slightly down compared to last year.

With €93 million EBITDA and a 19.5% EBITDA margin, the performance of the segment showed a significant improvement compared to 1^st quarter 2013 (€70 million EBITDA) while being below the 2^nd quarter 2012 (€109 million EBITDA). The decrease compared to 2012 resulted mainly from weaker demand in photovoltaic market and by delays in some oil and gas projects already mentioned in the 1^st quarter 2013. Specialty Polyamides delivered an excellent performance which reflected the innovation momentum in the field of lightweight materials and a stronger seasonality than expected. The Organic Peroxides EBITDA margin benefited from its reshaped portfolio of businesses following the divestment of the tin stabilizer business.

INDUSTRIAL SPECIALTIES

With an EBITDA margin above 21%, the performance of Industrial Specialties segment was maintained at a very high level despite fluorogas business being down versus last year on adverse weather conditions in Europe and competitive pressure in China and Europe on certain gases. Sales reached €540 million against €566 million in 2^nd quarter 2012. EBITDA stood at €114 million reflecting the ongoing favorable environment in the United States where the Group has developed over the years a strong industrial presence.

The solid results of Thiochemicals were supported by refining and petrochemicals markets in the US. In PMMA, performances in North America and in Europe were mixed reflecting different momentum in the automotive and construction markets by region. Finally, Hydrogen Peroxide performance remained stable overall.

COATING SOLUTIONS

Coating Solutions sales reached €602 million against €575 million in 2^nd quarter 2012. This 4.7% increase reflected mostly higher volumes in North America, supported by a gradual improvement in demand in the residential housing market and the startup of the acrylic acid production capacity extension in Clear Lake (Texas).

EBITDA stood at €84 million and EBITDA margin at 14.0% against €83 million and 14.4% respectively in 2^nd quarter 2012. Acrylics benefited from volumes up year-on-year while unit margins were lower than their high level of the 2^nd quarter 2012 which was then supported by sharply decreasing propylene prices. Market conditions in Coating Resins remained mixed. Demand grew in North America, but remained lackluster in Europe where weather conditions remained adverse in the quarter. Finally, the performance of Sartomer and Coatex remained resilient sustained by new product development.

HIGHLIGHTS SINCE 1^ST APRIL 2013

Organic growth projects

On 5^th June 2013, Arkema announced the startup of the acrylic acid capacity extension at its Clear Lake site in the United States. This project, which raises the site’s capacity to some 270KT per year, represents the main part of the US$110 M investment plan announced in November 2010.

On 18^th June 2013, Arkema announced a 15% increase in its bis-peroxide global capacities at both its Spinetta (Italy) and Franklin (Virginia, United States) sites. These new capacities, already operational, represent the first stage of a program designed to increase bis-peroxyde global capacity by 30% by end of 2014. These will help meet strong demand in the synthetic rubber industry for crosslinking agents, in particular in Asia, while also supporting recent developments.

Acquisitions

Arkema completed two acquisitions in line with its strategy in High Performance Materials:

• Securing access to its strategic raw materials:

On 11^th April 2013, Arkema signed an agreement with Indian company Jayant Agro, one of the world leading producers of castor oil and derivatives, with a view to acquiring a stake of around 25% in Ihsedu Agrochem, one of its subsidiaries specializing in castor oil production. This operation will provide Arkema with competitive and secure long-term access to this strategic raw material for the manufacture of its biosourced polyamides (PA 10 and PA 11). This project should be finalized in 3^rd quarter 2013.

• Speeding up development through innovation:

On 3^rd April 2013, Arkema announced its acquisition of a majority stake in AEC Polymers, which produces in particular structural adhesives from methacrylates developed by an Arkema technology.

Other highlights

On 3^rd July 2013, the Fonds Stratégique de Participation (FSP), a mutual fund set up by four major insurance companies in France – BNP Paribas Cardif, CNP Assurances, Crédit Agricole Assurances through its subsidiary Predica, and Sogécap (Société Générale Group) – in order to promote long-term investment in listed companies, announced that it now owns 6% of Arkema’s share capital.

Arkema considers this acquisition of a stake in its share capital as a positive sign showing the confidence of the FSP in the long-term strategy implemented by the Group and in its management.

With a prospect of maintaining a long-term investment of at least 6% of Arkema's share capital, the FSP has shared with the Board of Directors its intent to seek the appointment of a representative on the Board of Directors. The Board of Directors will consider favorably this request for the appointment of an independent representative made by the FSP.

1^ST HALF 2013 KEY FIGURES

* For 1^st half 2012, adjusted net income of continuing operations (excluding impact of vinyl activities sold beginning of July 2012).

CASH FLOW AND NET DEBT AT 30^TH JUNE 2013

In 2^nd quarter 2013, free cash flow¹ stood at +€44 million against -€28 million in 2^nd quarter 2012. Over the 1^st half of the year, it stood at -€16 million against -€23 million in 1^st half 2012. On the first 6 months, this flow included a -€156 million variation in working capital related to the traditional increase in sales in the first half of the year. The working capital to sales ratio, however, remained well under control at 17.3%, at the same level as at 30^th June 2012. Capital expenditure reached €174 million in the first six months and should accelerate in the 2^nd half of the year, as it is the case each year, to reach €500 million for the full year 2013.

The Group also paid on 11^th June a €1.80 dividend per share, totaling €113 million. Moreover, as part of its commitments previously made regarding Kem One, Arkema cashed out an amount of €75 million in the 2^nd quarter. This amount was already fully booked in the accounts at the end of the 1^st quarter.

Net debt stood at €1,150 million at 30^th June 2013 (€900 million at 31^st December 2012), i.e. 49.6% gearing, close to last year’s level (48.7% at 30^th June 2012). However, the Group confirmed its objective to reduce its gearing to around 40% by the end of the year.

¹ Cash flow from operations and investments, excluding impact of portfolio management and before the impact of cash-outs related to Kem One situation.

OUTLOOK

Market conditions in the second half of the year should be in the continuity of the first half of the year with a marked contrast by regions and a limited visibility. They should continue to be solid in North America, and challenging but stable in Europe. In Asia, China in particular, growth should remain slower than expected. High Performance Materials should continue to be impacted in the 3^rd quarter by the weakness in photovoltaic market and delays in some oil and gas projects. However, those markets should as expected improve by year end.

In this environment, Arkema should achieve in the second half of the year an EBITDA similar to the record level of the 2^nd half of 2012. Compared to 2012, the 3^rd quarter EBITDA should be lower than the high reference of last year and the 4^th quarter stronger. The Group thereby confirms its ability to achieve a strong annual performance in a macro-economic environment that is less favorable than in 2012. The Group, however, will continue to carefully monitor the macro-economic environment developments and will implement the necessary adjustment initiatives if it was to be necessary.

The Group continues to implement its focused growth strategy with several progresses and confirms its ambition for 2016 to achieve €8 billion sales and 16% EBITDA margin while maintaining gearing below 40%.

The 2^nd quarter 2013 results and the outlook are detailed in the presentation "2^nd Quarter 2013 Results and Highlights” available on the website: www.finance.arkema.com. The 1^st Half 2013 Financial Report is also available on the website.

FINANCIAL CALENDAR

A global chemical company and France’s leading chemicals producer, Arkema is building the future of the chemical industry every day. Deploying a responsible, innovation-based approach, we produce state-of-the-art specialty chemicals that provide customers with practical solutions to such challenges as climate change, access to drinking water, the future of energy, fossil fuel preservation and the need for lighter materials. With operations in more than 40 countries, some 14,000 employees and 10 research centers, Arkema generates annual revenue of €6.4 billion, and holds leadership positions in all its markets with a portfolio of internationally recognized brands.

Disclaimer

The information disclosed in this press release may contain forward-looking statements with respect to the financial conditions, results of operations, business and strategy of Arkema. Such statements are based on management’s current views and assumptions that could ultimately prove inaccurate and are subject to risk factors such as, among others, changes in raw materials prices, currency fluctuations, implementation pace of cost-reduction projects and changes in general economic and business conditions. Arkema does not assume any liability to update such forward-looking statements whether as a result of any new information or any unexpected event or otherwise. Further information on factors which could affect Arkema’s financial results is provided in the documents filed with the French Autorité des marchés financiers.

Balance sheet, income statement, cash flow statement, statement of changes in shareholders’ equity and information by business segment included in this press release are extracted from the consolidated financial statements at 30 June 2013 closed by the Board of Directors of Arkema SA on 31 July 2013.

Quarterly financial information is not audited.

Business segment information is presented in accordance with ARKEMA’s internal reporting system used by the management.

The main performance indicators used are as follows:

• Operating income: this includes all income and expenses of continuing operations other than financial result, 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 expense of a particularly material nature that the Group presents separately in its income statement in order to facilitate understanding of its recurring operational performance. These items of income and expense notably include:
  • Impairment losses in respect of property, plant and equipment and intangible assets,
  • Gains or losses on sale of assets, acquisition expenses, badwills and stock valuation adjustments between the fair value on the acquisition date and the replacement value
  • Certain large restructuring and environmental expenses which would hamper the interpretation of recurring operating income (including substantial modifications to employee benefit plans and the effect of onerous contracts),
  • Certain expenses related to litigation and claims or major damages, whose nature is not directly related to ordinary operations;
• Recurring operating income: this is calculated as the difference between operating income and other income and expenses as previously defined;
• Adjusted net income: this corresponds to "Net income – Group share” adjusted for the "Group share” of the following items:
  • Other income and expenses, after taking account of the tax impact of these items,
  • Income and expenses from taxation of an exceptional nature, the amount of which is deemed significant,
  • Net income of discontinued operations;
• EBITDA: this corresponds to recurring operating income increased by depreciation and amortization;
• Working capital: this corresponds to the difference between inventories, accounts receivable, other receivables and prepaid expenses, income tax receivables and other current financial assets on the one hand and accounts payable, other creditors and accrued liabilities, income tax liabilities and other current financial liabilities on the other hand. These items are classified in current assets and liabilities in the consolidated balance sheet;
• Capital employed: this is calculated by aggregating the net carrying amounts of intangible assets, property, plant and equipment, equity affiliate investments and loans, other investments, other non-current assets (excluding deferred tax assets) and working capital;
• Recurring investments: these correspond to tangible and intangible investments which exclude a small number of investments of an exceptional nature that the Group presents separately in order to facilitate the analysis of cash generation in its financial communication. These investments characterized by their size or their nature are presented either as non-recurring investments or in acquisitions and divestments;
• Net debt: this is the difference between current and non-current debt and cash and cash equivalents.