29 April 2003 11:46 [Source: ICIS news]
LONDON (CNI)--Embattled French specialty chemicals company Rhodia forecast on Tuesday a slight improvement in profit margins during the second quarter followed by a more substantial recovery during the second half of this year.
Rhodia said it appeared to have reached a turning point in margin performance - based upon a recovery in its selling prices at the end of the first quarter combined with the beginning of a gradual decline in raw material costs.
Its more optimistic outlook was delivered together with confirmation of a major decline in first quarter profits which buckled under pressure from high petrochemical raw material costs, weakening demand and the negative impact of the rise in value of the euro.
Rhodia made a net loss of Euro63m ($69m) including goodwill amortisation of Euro10.8m - up Euro57m from the Euro6m deficit in Q1 last year. Net debt at the end of March rose to Euro2.30bn from Euro2.13bn at the end of 2002 due to an increase in working capital requirements.
As forecast earlier this month, Rhodia's first quarter earnings before interest, tax, depreciation and amortisation (EBITDA) plunged to Euro112m. This represented a 20% drop compared with the restated figure Euro140m in Q1 last year but a 44% slump against the unadjusted figure of Euro197m. On a constant structure and exchange rate basis, the EBITDA/sales ratio fell from 10.2% in January to March last year to 7.8% in Q1 this year, with all divisions apart from automotive, electronics and fibres registering declines.
Operating income in the three months to 31 March plummeted 80.4% to Euro9m compared with the restated figure of Euro46m in Q1 last year. Against the reported number of Euro79m, however, operating profits fell 88.6%. Operating profits were affected by restructuring provisions - Euro7m more than in Q1 last year - plus an extraordinary cost of Euro7m to resolve problems in the restarting of a pharmaceutical intermediates production unit operated for a third party.
Group sales were down 16.5% to Euro1.43bn, with exchange rate fluctuations accounting for Euro175m or 10.2% of the decline and changes in group structure Euro168m or 9.8%. Rhodia said that when Q1 revenues last year are restated on a comparable basis, sales grew 4.4% despite the unfavourable economic environment. The rise was driven by a 3% increase in volumes and a 1.4% hike in prices.
Rhodia said all divisions contributed to underlying sales growth apart from the pharmaceuticals and agrochemicals division which suffered a 5.9% decline to Euro208m compared with the restated Euro221m last time. The division slumped to an operating loss of Euro21m against a restated profit of Euro2m and recorded an EBITDA deficit of Euro3m compared with a gain of Euro19m. In addition to higher raw material prices and decline in value of the dollar, the pharmaceuticals and agrochemicals business also suffered from the postponement of new drug approvals by the US Food and Drug Administration (FDA).
The food and consumer care division managed to partly offset significantly higher raw materials and energy costs with higher sales volumes but still suffered a 18.8% decline to Euro39m in operating income compared with the restated Euro48m last year. EBITDA fell 4% to Euro73m but sales were up 2.2% at Euro554m. Rhodia said all consumer markets, apart from Asia, felt the effects of weak demand.
Operating profits from the industrial care and services business tumbled by 47% to Euro9m from a restated Euro17m under the pressure from higher feedstock costs and foreign exchange fluctuations. EBITDA was down 13.2% to Euro33m from a restated Euro38m. However, sales growth in all industrial care and services businesses apart from silicones helped the division boost revenues by 8.9% to Euro330m from a restated Euro303m. Rhodia said silicones continued to suffer from weak demand and higher raw material costs. The paints and construction materials business, however, overcame these handicaps to record strong sales growth and silica systems made progress, particularly in the tyre market.
The best divisional performance by far came from the automotive, electronics and fibres business which alone managed to achieve increases in profits and sales. Operating income soared by 9.4% to Euro13m from a restated Euro9m. EBITDA was up 18.2% to Euro39m on sales 11.3% higher at Euro363m.
Rhodia said the electronics and catalysts business achieved growth in its automotive pollution control activities and the electronics market saw early signs of recovery. The technical fibres unit achieved enhanced results, despite a deeply depressed textile fibres business.
The first quarter results and slightly rosier outlook for the second quarter and second half were delivered ahead of a crunch annual general meeting (AGM) at which chairman and chief executive Jean-Pierre Tirouflet faces demands from some shareholders for his resignation.
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