UpdateCosts key to Arkema's 2008 profits

05 March 2008 11:25  [Source: ICIS news]

(Releads, updates with analyst reaction throughout and adds latest share price)

By Nigel Davis and Serene Cheong

LONDON (ICIS news)--Arkema's cost-cutting strategy since its spin-off should help drive profits growth in the “more challenging conditions we expect in 2008”, Citigroup said on Wednesday after the Paris-based specialty group’s 2007 results.

The key drivers to EBITDA (earnings before interest, tax, depreciation and amortisation) margin retention in 2008 would be internal cost-cutting initiatives, further portfolio adjustments and continued supportive demand growth, it added.

Citigroup forecast a 9.7% EBITDA margin in 2008 against Arkema’s guidance of 10%. The producer's target for 2010 is 12%.

Arkema said its fourth quarter-operating profit (EBIT – earnings before interest and tax) was 58% ahead at €41m ($62m) on growth from its performance and industrial and performance chemicals segments.

Fourth-quarter sales were down marginally at €1.32bn. Full-year EBIT was up 47% at €293m.

Arkema reported an 18.5% jump in fourth-quarter EBITDA from €76m to €107m. Net profit was €18m against a €13m deficit in the previous corresponding period.

The full-year came in slightly ahead of expectations, the bank said in a note to clients.

Operating profits for the whole year saw a 47% rise to €293m while the company posted a close to three-fold surge in 2007 net profit to €122m from €45m the previous year despite the weakening American dollar and higher raw material and energy costs, Arkema said.

Its EBITDA also climbed 26% from €411m to €518m for the year ended 31 December, backed by healthy sales figures, the launch of new high value-added products in Europe and increased production capacity in Asia.

Arkema, which increased sales prices 1.7% to offset the impact of higher costs, saw moderate sales growth in its vinyl products, industrial chemicals and performance products sectors.

The 2.6% EBITDA rise from the sale of vinyl products was mainly due to Europe’s sustained demand for polyvinyl chloride (PVC) while its marginal 1.4% rise in industrial chemicals sales EBITDA was credited to the company’s hydrogen peroxide (H202), thiochemicals and polymethyl methacrylate (PMMA) projects.

The firm plans to double its production capacity at its hydrogen peroxide (H202) facility in Leuna, Germany, to 80,000 tonnes/year by mid-2010 to meet increasing demands of customers in the paper industry.

Arkema also expects to double the capacity of its H202 plant in Shanghai, China, due for completion in the summer of 2008.

The company's share price was up almost 4% in late morning trading at €37.15.

($1= €0.66)

By: Nigel Davis
+44 20 8652 3214

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