Rhodia in Line with 2006 Objectives; First Quarter 2006 Results

Business Wire, May 11, 2006

PARIS -- Rhodia (NYSE:RHA) reported:

--Net Sales(a) up 9.4% to 1,354 million euros, compared with a particularly strong first quarter 2005

--Recurring EBITDA margin of 13.7%; growth in recurring EBITDA(b) up to 185 million euros from 170 million euros in the first quarter 2005

--Increase in Operating Profit to 81 million euros from 75 million euros in the first quarter 2005

--Positive Net Income from continuing operations of 9 million euros, versus a 57 million euros loss in the first quarter 2005

--Consolidated Net Debt stable at 2.1 billion euros due to rigorous management of Working Capital Requirement

Summary income statement

                     Q1 2005
In millions of       Restated      Q1 2005       Q1 2006
 euros              before the    after the     after the
                    impact of     impact of     impact of
                   discontinued  discontinued  discontinued     %
                    operations    operations    operations   Variation
------------------ ------------ ------------- ------------- ----------
Net Sales(a)             1,316         1,238         1,354        9.4%
------------------ ------------ ------------- ------------- ----------
Recurring
 EBITDA(b)                 163           170           185        8.8%
------------------ ------------ ------------- ------------- ----------
Recurring EBITDA
 margin                   12.4%         13.7%         13.7%         -
------------------ ------------ ------------- ------------- ----------
Operating Profit            58            75            81        8.0%
------------------ ------------ ------------- ------------- ----------
Income/(loss) from
 continuing
 operations                  -           (57)            9          -
------------------ ------------ ------------- ------------- ----------
Income/(loss) from
 discontinued
 operations                  -           (17)          (44)         -
------------------ ------------ ------------- ------------- ----------
Net Income/(loss)          (74)          (74)          (35)         -
------------------ ------------ ------------- ------------- ----------

1. Operating performance in line with 2006 objectives

Net Sales(a) rose 9.4% to 1,354 million euros in the first three months of 2006, from 1,238 euros million a year earlier. This increase results from a 2% growth in volumes, a 2% rise in prices as well as a 7% positive currency effect due to the appreciation of the dollar and the Brazilian real against the euro.

Recurring EBITDA(b) amounted to 185 million euros for the quarter, up 8.8% compared with a particularly strong first quarter 2005. The recurring EBITDA margin increased from 12.4% before the impact of discontinued operations in the first quarter 2005 to 13.7% primarily reflecting the refocusing of the business portfolio and a solid level of demand over the quarter.

The sharp increase in raw material and energy prices compared to the first quarter 2005 was partially offset by further price increases, for which the full impact is expected in the second quarter 2006.

(a) Excluding other revenues

    (b) Before restructuring, amortization and depreciation, other
        operating income and expense, and capital gains and losses on
        divestments

Operating Profit increased by 8% to 81 million euros from 75 million euros in the first quarter 2005.

The Financial Result was a negative 59 million euros, compared to a negative 124 million euros in the first quarter 2005 which was impacted by non-recurring items. The reduction in consolidated debt compared to the first quarter 2005 resulted in a decrease in interest expenses.

Net Income from continuing operations amounted to 9 million euros. Discontinued operations generated a loss of 44 million euros, reflecting the final impact of the divestment of the pharmaceutical custom synthesis business and particularly the reclassification of the translation reserve. The total Net Loss was 35 million euros, compared to a loss of 74 million euros in the first quarter 2005.

2. Consolidated Net Debt stable at 2.1 billion euros

The ratio of Working Capital Requirement to total sales improved to 12.4% versus 15.5% in the first quarter 2005, demonstrating the Group's ability to manage effectively the seasonal increase in Working Capital Requirement.

Capital Expenditure totaled 66 million euros in the first quarter.

Free Cash Flow(a) remained negative at 82 million euros, from a negative 226 million euros the year before.

At 2.1 billion euros, consolidated Net Debt was stable compared with December 31, 2005.

3. A Group committed to building for the future

Divestment of the pharmaceutical custom synthesis business and the latex operations was completed during the quarter, marking a major new milestone in the strategic refocusing of the business portfolio.

The Group is continuing to expand in businesses in which it holds solid leadership positions. In February 2006, Rhodia Polyamide brought on stream a new engineering plastics facility in Shanghai, which is now operating at full capacity. Recently, the Group announced the construction of a polymerization unit at its production platform in Onsan, South Korea, with start-up scheduled for the end of 2007.