Nov 6, 2008
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Rhodia keeps full-year goals, confident for future

Nov 6, 2008

* Sees signs of lower demand for polyamide products

* Passed on higher raw materials costs to customers in Q3

* Seeing lower raw material, energy prices since end Q3

* Shares down 5.3 percent (Adds analysts, detail, background)

By Caroline Jacobs

PARIS, Nov 6 (Reuters) - Rhodia on Thursday stuck to its forecasts for 2008 as its ability to pass on higher raw material prices to its customers helped third-quarter performance and said it was hopeful for further growth.

But the French specialty chemicals maker also signalled the first signs of lower demand for products from its Polyamide unit, its biggest division, due to a slowdown in the car and textile sectors.

Rhodia's products are used in a range of goods, including light bulbs, animal food, cleaning products, perfumes and shampoos and tyres.

Its earnings follow those of Swiss rival Clariant , which earlier this week also confirmed its forecast, and Ciba , which cut its outlook due to slowing demand in Europe and in the United States.

Rhodia said it had been able to pass on higher raw material prices to its clients. Its record 14 percent price hike in the quarter fully offset record raw material and energy prices and a negative impact from currency swings.

Rhodia Chairman and Chief Executive Jean-Pierre Clamadieu expressed his confidence for the group's future performance, despite the financial downturn and uncertainty ahead.

"What gives me confidence is the capacity of the group to react," he said at a conference call.

More reasonable raw material and energy prices since the end of September should benefit its accounts from the start of 2009, he said.

Rhodia still expected a 2008 recurring EBITDA within 5 percent of the level of 799 million euros ($1.03 billion) it achieved in 2007 and an increase of its earnings per share from 2007. It also expected debt to decline further.

Third-quarter net profit rose 24 percent to 56 million euros, helped by the sale of a business unit. Recurring earnings before interest tax, depreciation and amortisation fell to 168 million euros from 179 million on sales up at 1.224 billion from 1.187 billion. "It's a resilient set of numbers given the circumstances, they appear very confident to keep with guidance although there will be some scepticism about what is likely to be a very tough fourth quarter," Societe Generale analyst Peter Clark said.

"But at the moment one has to admit they keep delivering, the question appears to be how long can it last."

Rhodia shares fell as much as 7.5 percent and by 0848 GMT were down 5.3 percent at 7.56 euros -- broadly in line with the DJ Chemical index -- giving a market capitalisation of 778 million euros.

Even though analysts said Rhodia's quarterly performance and confidence for the future was positive, there were some concerns.

" ... free cash-flow is still negative, polyamide was disappointing in Europe and net profit was lifted by a 22 million euro exceptional item and if restated, net profit came in below expectations," Natixis analyst Clement Celerier said.

Although Polyamide sales fell, Clamadieu pointed out that the slowdown seen in the car sector, which represents about 10 percent of Rhodia sales, did not affect all its business lines.

Silcea sales benefited from increasing demand for so-called green tires. The low rolling resistance tires help save fuel and are increasingly replacing carbon black tires.

"It has to be considered segment by segment," Clamadieu said. "We see first signs of a slowdown in volumes of polyamide, but we registered good volumes in silica's especially for tyre making ... this is a resilience factor of the silica business."

Rhodia returned to profit in 2006 following years of restructuring and it is still keen on cost control. Its Energy Services business sells carbon emission reduction certificates and its market share of issued CERs last year was 23.4 percent.

"Certainly relative to its specialty peers Rhodia appears very tightly run, but is also has the benefits of its carbon credit story which provides support to earnings especially if we enter a deep recession," Clark said.

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