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RHODIA 2002
Annual Results 2002 ANNUAL RESULTS Simplified income
statement
* €16 million reported in
2001 after amortization of goodwill ** Average number of
shares: 178,765,518. Other financial details
* - 0.13 reported in 2001
after amortization of goodwill. IMPROVED OPERATING
PROFITABILITY ·
9%
decline in net sales due principally to the impact of structure and
conversion rates. Rhodia
reported net sales of €6,617 million in 2002, representing a 9.1%
decline compared with 2001. Structural changes related to the different
divestments completed in 2001 and 2002 reduced sales by a total of 3.8%. The
foreign currency translation effect had a negative impact of 3.9% overall. On
a comparable basis (constant structure and exchange rates), net sales
declined by 1.5% with a 2.4% decrease in prices and a 0.9% increase in
volumes. Weaker prices principally affected the results of the Polyamide
Division, owing to the decline in raw material prices and the Services
& Specialties Division, due to the indexing of its Eco
Services businesses’ contracts in the United States to the price of gas. All
the Group’s Divisions noted an increase in sales volumes with the exception
of the Consumer Specialties Division, which increased the proportion
of products in its overall sales that generate higher profit margins. ·
Enhanced
profit margins driven by actions taken by the Group The
Group’s Operating Income was €351 million in 2002, against €91 million
in 2001, on an historic basis (€16 million reported in 2001 after
amortization of goodwill). In 2002, Rhodia was able to increase its
profitability in higher value added segments, by taking advantage of the decline
in raw material prices in all its Divisions. EBITDA, at
€798 million, rose 26.1% compared with the €633 million reported in 2001. The
EBITDA/Sales ratio increased 3.4 points, rising from 8.7% in 2001 to
12.1% in 2002. All the Group’s Divisions recorded increases in their
EBITDA/Sales ratios in 2002. In
addition to the impact directly related to the business activities divested
in 2002, a number of external factors limited the growth of the EBITDA/Sales
ratio. These included unfavorable foreign currency conversion rates linked to
the US dollar and the Brazilian real, the absence of economic recovery in
2002 and the decision of the Food and Drug Administration (FDA) in the United
States to postpone approval of new molecules in the pharmaceutical industry. The
Group managed to offset these negative effects and increase its margins due
to the positive impact of two main factors: 1.
Following
the wide-reaching restructuring program launched at the end of 2001 (closure
of 18 sites or production units), Rhodia succeeded in reducing fixed costs,
as planned, by approximately €58 million, net of inflation.
The
following table shows changes in Net Sales, EBITDA and operating margin for
all four quarters of 2002:
·
Significant
increase in Net Income, impacted by €37 million in net capital losses on
divestments For
2002 as a whole, Net Income improved significantly with losses limited
to €4 million against a reported loss of €213 million in 2001. Before
amortization of goodwill paid on acquisitions, Net Income was €43 million in
2002 against a loss of €138 million in 2001. The
impact on Net Income of asset divestments completed in 2002 amounts to €37
million. With the exception of Rhodia-ster, all divestments generated capital
gains. Total capital gains, however, were unable to offset the full amount of
€109 million in capital losses represented by Rhodia-ster. In 2002, these
divestitures had a dilution effect on net income of approximately €16
million. Net interest expenses, which amounted to €123 million, declined by almost 35%
compared with the €186 million reported in 2001 under the combined impact of
lower interest rates and a reduction in the average level of financial debt. Net earnings per share, calculated on the basis of the average number of shares
outstanding in 2002 (178,765,518 shares), generated a loss of €0.02 compared
with a loss of €1.19 in 2001. However, the Board of Directors of Rhodia has
proposed to maintain the same net dividend per share as distributed in 2001
of €0.12 per share. This dividend proposal will be submitted for approval at
the General Shareholders’ Meeting on June 23, 2003. €500 MILLION TARGET
FROM ASSET divestitures EXCEEDED In line with the Group’s
commitment, Rhodia divested a large number of non-strategic assets in 2002.
These divestments enabled it to reduce its net financial debt by €516
million. They were achieved at an average multiple rate of almost 5.5 times
EBITDA. None of the divested
businesses contributed directly to Rhodia’s business model. These divestments
have enabled the Group to focus its business portfolio on front-ranking
technological positions and to pursue the development of high value-added
solutions in the eight key markets where Rhodia has decided to concentrate
its efforts. In 2002, Rhodia completed
the following divestments:
·
Rhodia-ster
(polyester business in Brazil – a subsidiary 88.5%-owned by Rhodia) in
October 2002.
GENERATION OF €132
MILLION IN POSITIVE FREE CASH FLOW In view of its level of
debt and the persistently adverse economic environment, the Group last year
announced its intention to limit capital expenditures to €400 million. Rhodia
exceeded its original commitments by limiting total capital expenditures
in 2002 of €374 million in 2002 against €483 million in 2001. Similarly,
Rhodia has continued to tightly manage its working capital requirements, which
represented 13% of Net Sales at the end of 2002 compared with 19.1% at the
end of 2001. Operating cash flow increased to €277 million in 2002
against €193 million in 2001, despite the financing of restructuring measures
in 2002 totaling €152 million. Due to the general decline in the equity
markets, the Group was obliged to make an exceptional payment of €145 million
into British and American pension funds, resulting in a Free Cash Flow
level of €132 million. In all, as of December
31, 2002, Rhodia’s Net Debt stood at €2,133 million against €2,572
million at December 31, 2001, a decline of €439 million or approximately 17%. ANALYSIS BY DIVISION (the results table per
Division can be found in the Appendices) ·
Fine
Organics Overall,
the Division reported growth in sales volumes. This was true for Rhodia
ChiRex, although the actual increase fell short of our forecasts due to the
FDA’s decision to postpone the market launch of new molecules. The Life
Sciences and Intermediates businesses also experienced strong sales volumes.
In contrast, the Pharmaceutical Ingredients and Perfumery & Specialties
businesses suffered a decline in volumes owing to intense competitive
pressure, especially in the United States. The
increase in the Division’s EBITDA is linked, first, to the growth in volumes
and, second, to the decline in raw material prices. Also, the Pharmaceutical
Ingredients and Perfumery & Specialties businesses started to benefit
from the restructuring measures taken at the end of 2001 in France and the
United States. It should also be emphasized that the Intermediates activity
encountered problems from the beginning of the year related to the
commissioning of one of the production units under its responsibility,
leading to extra costs of approximately €37 million (impacting the EBITDA)
for 2002 as a whole compared with 2001. ·
Consumer
Specialties Division
net sales contracted under the combined impact of changes in structure and
the weakening of the US dollar. The Phosphorus and Performance Derivatives
business experienced rapid growth in volumes driven by its business
activities in Asia. In contrast, volumes declined in all the Division’s other
business areas, which tended to favor sales generating higher margins. This
is true in particular for the business activity related to detergents. The
increase in the Division’s EBITDA is primarily related to the successful
restructuring measures taken at the end of 2001 in Specialty Phosphates and
the industrial and commercial success of phosphorus derivatives. The
profitability of the cosmetics and detergents business is improving through
innovation-driven improvements in its product range. The Food business faces
stiffer competition in the United States. ·
Industrial
Specialties With
the exception of the Silicones business, the Division’s other
activities—Paper, Coatings & Construction Materials (PPMC) and Silica
Systems—experienced growth in volumes. The price effect was positive for the
Silicones and Silica Systems businesses and very marginally negative for
PPMC. For
the Silicones Enterprise, the second half of 2002 was marked by sluggish
demand. The unit’s profitability was also depressed by the closing of one of
its principal production sites to de-bottleneck. PPMC benefited from growth
in both its key paint and coatings markets. Similarly, the profitability of
the Silica System business was improved due to stronger volumes in its
strategic tires and Nutraceuticals markets. ·
Polyamide
2002
was marked by the gradual improvement in earning performance starting in the
second quarter due to the success of the action programs launched at the end
of 2001. Sales drives helped to boost growth in volumes, particularly in
engineering plastics and polyamide intermediates despite the continuing
sluggishness of the economic environment overall. In particular, the textile
market failed to recover in 2002, particularly affecting the Division’s
subsidiary in Brazil and the activities of Nylstar, in which Rhodia owns a
50% interest. The growth in sales volumes achieved by the Division in its
other markets made it possible, however, to take advantage of the investments
completed at the Butachimie joint venture facility in Chalampé, France, in
order to boost production capacity. The restructuring programs launched at
the end of 2001 (closure of five production sites or units) made it possible
to carry through plans to reduce fixed costs by a substantial margin in 2002. The
Division’s EBITDA consequently progressed from one quarter to the next to
reach €210 million in 2002 compared with €133 million in 2001. This growth
can be explained not only by the absence in 2002 of restructuring charges and
exceptional expenses related to the increase in Butachimie’s production
capacity but, primarily through the success of sales campaigns and
cost-cutting measures. ·
Services
& Specialties In
2002, Rhodia Acetow confirmed its growth, notably in Russia, China and
Brazil. Eco Services, for its part, saw a decline in its business activities
(due to the mechanical effect of long-term contracts indexed to the price of
raw materials), which impacted the activities of the sulfuric acid
regeneration business in the United States. Restructuring measures were also
taken towards the end of the year in Europe with a view to restoring
competitiveness. After what was already a difficult year in 2001, the
Electronics & Catalysis business continued to suffer from a sharp decline
in demand in the electronics markets. However, it managed to confirm its
front-ranking positions in solutions for automotive pollution control. The
Division’s EBITDA was stable compared to 2001, the good performance achieved
by Acetow offsetting the difficulties encountered by the other business
units. OUTLOOK In these first few weeks
of 2003, forecasts for the coming year have been established against a
background of considerable uncertainty. Starting in the first quarter of
2003, the Group faces the impact of geopolitical instability and its
repercussions on the world economy in general and, more specifically, on the
markets for petrochemicals and other raw materials. In view of this uncertain
environment, Rhodia is committed to intensifying its actions to seize organic
growth opportunities, pursuing the improvement of its operating profitability
and consolidating its financial solidity. Building on its achievements in
2002, Rhodia intends to pursue measures in three main areas: 1.
Continued improvement
in the Group’s performance based on an organic growth policy aimed at
high value-added products and market segments while simultaneously continuing
to reduce its break-even point. To
achieve these objectives, the Group will pursue its efforts by launching a series
of new measures designed to reduce the operating costs of its Enterprises and
support functions as well as improving its industrial and commercial
performance. These combined actions should generate gains of around €200
million in EBITDA for the full year 2004. The cost of these measures is
expected to be close to €100 million in 2003. At
the same time, the drive to focus the business portfolio around high
value-added technologies should increase the percentage of new products
contributing to net sales from 14% to 15% in 2003 and boost the proportion of
sales directly related to Rhodia’s business model from 30% to 33%. In the
medium term, the effects of the Group’s new organization should mean that 40%
of sales are derived from this strategic model, 20% of sales are generated
from products aged five years or less and 75% of Research & Development
programs are carried out on a partnership basis.
By the end of 2003, all of
these actions should enable Rhodia to bring its Debt/EBITDA ratio below 2.5.
These three key drivers, which were committed to in 2001, continued in 2002
and accelerated in 2003, should allow the Group eventually to bring its
Debt/EBITDA ratio below 2. This presentation
contains elements that are not historical facts, including, without
limitation, certain statements on future expectations and other
forward-looking statements. Such statements are based on management’s current
views and assumptions and involve known and unknown risks and uncertainties that
could cause actual results, performance or events to differ materially from
those anticipated. Rhodia is one of the world’s leading
manufacturers of specialty chemicals. Providing a wide range of innovative
products and services to the consumer care, food, industrial care,
pharmaceuticals, agrochemicals, automotive, electronics and fibers markets,
Rhodia offers its customers tailor-made solutions based on the
cross-fertilization of technologies, people and expertise. Rhodia subscribes
to the principles of Sustainable Development communicating its commitments
and performance openly with stakeholders. Rhodia generated net sales of €6.6
billion in 2002 and employs 24,500 people worldwide. Rhodia is listed on the
Paris and New York stock exchanges. Contacts: Press Relations ANNUAL RESULTS 2002
CONSOLIDATED INCOME
STATEMENT
* 16 millions euros
reported in 2001 after goodwill amortization ANNUAL RESULTS 2002
* Unaudited elements
before restructuring costs and other exceptional items. |
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