Rhodia Reports 2006 Annual Results; Successful Turnaround Shows First Positive Net Income Since 2000

Business Wire, March 7, 2007

PARIS -- Specialty chemical producer Rhodia (NYSE:RHA) has exceeded its ambitious recovery targets set three years ago:

* 14.2% Recurring EBITDA margin on Net Sales, versus 11.3% in 2005 (2006 target: above 13%)

* Net Income of 62 million euros, versus a loss of [euro]616 million in 2005 (2006 target: positive Net Income)

* Net Debt on Recurring EBITDA ratio of 2.4(1) times (2006 target: below 2.9 times)

Strong operating performance in 2006:

* Recurring EBITDA(2) up 33% to 683 million euros, versus 513 million euros in 2005, driven by strong pricing, solid market demand and reduced fixed costs

* Sharp rise in Operating Profit of 359 million euros, versus 66 million euros in 2005

* Q4 2006 Recurring EBITDA up 65% to 195 million euros, compared to Q4 2005, due to solid volumes, strong pricing and first CER sales

2007 outlook:

* Satisfactory market conditions at the beginning of the year

* Strong growth in Recurring EBITDA expected

* Positive Free Cash Flow

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" 2006 marks the successful delivery of Rhodia's recovery plan. We have beaten the ambitious targets that we set three years ago and are pleased to announce the first positive Net Income since 2000. Today Rhodia is stronger, leaner, more agile and profitable," said Chief Executive Officer Jean-Pierre Clamadieu. "The Group has recovered full flexibility, with a portfolio focused on businesses in which we enjoy solid leadership positions, with a streamlined organization and rigorous financial discipline. We have demonstrated the strength of our operating performance and are in a good shape to continue on our route of profitable growth."

1. Return to positive Net Income with a very strong improvement in operating performance

Net Sales rose by 6.4% to 4,810 million euros from 4,521 million euros in 2005, driven by a 2.9% volume growth and a 4.8% positive impact of price increases to offset the rise in the costs of raw materials and energy.

Recurring EBITDA increased significantly by 33% to 683 million euros, reflecting the impact of sustained pricing power, improved industrial performance and further fixed costs savings. All businesses showed a strong improvement of their operating performance in 2006 in comparison with 2005. Fourth-quarter Recurring EBITDA of 195 million euros was up 65% compared to the same period the year before, due to solid volumes, strong pricing and first CER sales.

Recurring EBITDA margin 2006 increased to 14.2% from 11.3% in 2005.

Operating Profit stood at 359 million euros, versus 66 million euros in 2005, on the back of the improved recurring EBITDA and a reduction in restructuring costs.

The Financial Results saw strong improvement at a negative 305 million euros, versus a negative 432 million euros in 2005, due to reduced interest expenses and despite 77 million euros of non recurring refinancing charges. The foreign exchange gains amounted to 10 million euros (versus an unrealized foreign exchange loss of 69 million euros in 2005).

Net Income Group Share for 2006 was 62 million euros, versus a Net Loss of 616 million euros in 2005.

2. Further Net Debt reduction

Operating Cash Flow (4) was 394 million euros. Working Capital Requirements increased by 142 million euros; this is essentially due to the return to a more sustainable inventory level after an exceptionally low level end of 2005. The ratio of Working Capital Requirement on total sales stood at 12.3% compared with 10.8% the year before. Capital Expenditure amounted to 311 million euros for the year, versus 286 million euros in 2005.

After taking into account 80 million euros in restructuring cash costs, Free Cash Flow (5) was negative at 139 million euros in 2006.

A successful 1.1 billion euros refinancing initiative with the issue of Floating Rate Notes in October 2006, coupled with the reimbursement of the most expensive debt, helped to improve the Group's debt structure, gain greater flexibility, lengthen debt maturity and reduce interest expenses.

Consolidated Net Debt decreased from 2,089 million euros in December 2005, to 1,949 million euros in December 2006. The Net Debt on Recurring EBITDA ratio was 2.8 times. After including the cash proceeds from the Silicones divestiture, which was closed on January 31, 2007, the Net Debt was down on a pro forma basis to 1,657 million euros, which resulted in a Net Debt on Recurring EBITDA ratio of 2.4 times.

3. A quality business portfolio

Over the last three years, the Group refocused very significantly its business portfolio and realized 1.4 billion euros of divestments. The Group pursued this strategy with the divestment of the European Industrial Fibers, the Silicones activities, and its stake in Nylstar. Today, 80% of the Rhodia's sales are in businesses in which it holds strong leadership positions. Based on this strong portfolio, the Group will pursue its profitable growth, with an ongoing focus on its development in Asia.

4. Well on track to benefit from greenhouse gas emissions projects

The two projects under the Kyoto Protocol's Clean Development Mechanism to reduce greenhouse gas emissions at the plants in Onsan, South Korea and Paulinia, Brazil are up and running. The first emissions reductions were audited, and 1.6 million tonnes of Carbon Emission Reduction Credits (CER) were issued and sold in Q4 2006. From 2007 until 2013, Rhodia should dispose of 11 to 13 Mt per year of CERs. The trading platform Orbeo, joint venture between Rhodia and Societe Generale was created in 2006 to optimize the value of the CERs.