Rhodia Reports Initial Signs of Business Recovery; Major Steps Achieved in Group's Action Plan

Business Wire, May 17, 2004

Business Editors

PARIS--(BUSINESS WIRE)--May 17, 2004

Rhodia (NYSE:RHA) today published its results for the first quarter of 2004, which were reviewed May 13, 2004 by the Rhodia Board of Directors.

Simplified income statement for the first quarter of 2004

In millions of euros

  2003      2003
Reported Restated(a)                                             2004
-------- ----------- ----------------------------------------- -------
 1,428      1,347    Net sales                                  1,348
-------- ----------- ----------------------------------------- -------
   120        108    EBITDA (bef. restructuring costs)            124
-------- ----------- ----------------------------------------- -------
   8.4%         8%   EBITDA margin (bef. restructuring costs)     9.2%
-------- ----------- ----------------------------------------- -------
   112        101    EBITDA (after restructuring costs)           101
-------- ----------- ----------------------------------------- -------
   7.8%       7.5%   EBITDA margin (after restructuring costs)    7.5%
-------- ----------- ----------------------------------------- -------
     9          2    Operating income                               4
-------- ----------- ----------------------------------------- -------
  - 63          -    Net income (after minorities)              - 108
-------- ----------- ----------------------------------------- -------

(a) Constant structure and exchange rates

Improved EBITDA before restructuring costs

Rhodia reported net sales of 1,348 million euros for the first quarter of 2004, 5.7% lower than the same period in 2003, a result primarily of unfavorable exchange rates due to the continued weakness of the US dollar. On the same basis (constant structure and exchange rates), net sales generated in the first quarter of 2004 remained stable compared with the first quarter of 2003.

The majority of the Group's businesses reported increased volumes, reflecting strong demand particularly in the United States and Asia. Additionally, and even though the comparison of prices between the first quarter 2004 and the same period in 2003 reflects the strong depreciation of the dollar, the price dynamic was more favorable in a number of markets than during the second half of 2003. The initial effects of restructuring plans launched in 2003 reduced fixed costs by 22 million euros compared to the first quarter of 2003 with a further reduction of 7 million euros tied to re-capitalization of leasing contracts at the end of 2003.

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) before restructuring increased for the second consecutive quarter to 124 million euros for the first quarter of 2004, up 3.3% compared with the same period in 2003. On the same basis (constant structure and exchanges rates), EBITDA increased 14.8% compared to the first quarter of 2003.

After restructuring, EBITDA stood at 101 million euros, down 9.8% compared with the first quarter of 2003. On the same basis (constant structure and exchanges rates), it was stable compared with the same period last year.

The EBITDA margin before restructuring rose to 9.2% in the first quarter of 2004, compared to 8.4% for the same period in 2003.

Operating income for the first quarter of 2004 stood at 4 million euros against 9 million euros for the same period last year.

Net income, stood at a loss of -108 million euros for the first quarter of 2004 compared with a loss of -63 million euros for the same period in 2003. This decline was due primarily to the very significant rise in interest expense (40 million euros) related to the financial restructuring of the Group.

Analysis of the Group's financial debt

The Group is continuing to tightly manage capital expenditure, holding investments to 40 million euros during the first quarter of 2004. Due to the seasonal increase in working capital and the reimbursement of the first half of the private placement with US investors, the Group's current cash position stood at 409 million euros at the end of March 2004.

The Group's Net Debt stood at 2,892 million euros at the end of March 2004. Total Net Debt, including off-balance sheet items, stood at 3,536 million euros at the end of March 2004, compared with 3,300 million euros at the end of 2003.

Major steps achieved in Group's action plan

    --  Consolidation of the Group's medium-term financing
        As announced previously, the Group achieved major steps in its
        refinancing plan with the success of its 471 million euro
        capital increase and the issuance of 700 million euros of
        bonds.

    --  Refocusing of the business portfolio
        Since the beginning of the year, Rhodia has achieved
        divestments generating approximately 400 million euros of
        proceeds with an EBITDA multiple for these transactions
        substantially greater than 10. The Group confirms its target
        of generating more than 700 million euros from divestments in
        2004.

    --  Streamlining of Group structures and cost-cutting measures
        The process of streamlining and simplifying Group structures
        is continuing on track and on schedule and will enable Rhodia
        to generate savings of 103 million euros in 2004.
        In order to provide a clearer view of its business activities,
        Rhodia is now accounting for and reporting its results around
        nine Enterprises into which it reorganized in October 2003
        (see appendix tables).