Full press release (including also IFRS financial statements) is available in the attached PDF file.
SOLVAY GROUP NINE-MONTH 2004 RESULTS UP 40%
Sales up 4% for the first 9 months of 2004, up 9% for 3rd quarter 2004.
Pharmaceuticals sector results up 11%:
Acceleration of research: major positive impact of agreements with Wyeth, Bristol Myers Squibb and Quintiles/Pharmabio.
Strong growth in Plastics results (+94%) thanks to Special Polymers and Vinyls.
Marked month-to-month improvement in Chemicals activities.
Sales of the Solvay Group for the first 9 months of 2004 reached EUR 5,890 million, up 4% from the same period in 2003. They were up 9% for the 3rd quarter of 2004, as a result of improvement in all sectors.
Net income of the Group was EUR 415 million, a 40% increase from the results for the first 9 months of 2003 (EUR 297 million). Results for the 3rd quarter of 2004 (EUR 179 million) were up 83%, benefiting from a German tax credit of EUR 63 million.
Pharmaceuticals sector results were up 11% for the first 9 months of 2004. They benefited from the positive impact of agreements with Wyeth and Bristol Myers Squibb. Also noteworthy is the recent signing of a collaboration agreement with Quintinles/Pharmabio that will allow a significant acceleration in the development of new molecules. American sales in the 3rd quarter 2004 were down 2% (in USD) versus 3rd quarter 2003; however agreements were signed with the majority of US distributors at the end of the 3rd quarter which should improve future sales. Prescriptions continued to develop according to expectations.
The Chemicals sector saw a significant increase in Caustic Soda prices starting in June and good recovery in the performance of Hydrogen Peroxide. For the first 9 months of 2004, however results were still down 9% versus 2003 levels, despite month-to-month improvement (+22% between the 2nd and 3rd quarters).
Plastics sector results continued their growth (+94% in the first 9 months of 2004) thanks to strong improvement in Specialty Polymers and vinyls. Results for the Processing sector for the first 9 months of 2004 were generally stable despite pressure on margins and successive price increases for raw materials.
The Group actively pursues its objective of improving its productivity. In this context, restructuring measures, particularly in the Chemicals sector and in Processing, have led to mostly non recurring recording of provisions of about EUR 80 million for the first 9 months of 2004, the most significant of which related to the closing of Soda Ash production at the Ebensee, Austria, site.
Although Group results for the 4th quarter 2004 should be lower than those for the 3rd quarter 2004, we confirm that the results for the full year 2004 should reflect good growth compared to those of 2003.
1 REBIT : Recurrent Earnings Before Interests and Taxes, recurring operational results
2 Cash flow is the sum of the net income of the Group and depreciation and amortization
3 Calculated on the basis of the weighted average number of shares outstanding during the quarter, after deducting shares purchased to cover stock option programs, or a total of 82,760,311 shares for the nine months of 2003 and 82,513,146 shares for the nine months of 2004.
COMMENTS ON KEY FIGURES and BALANCE SHEET for the first 9 months of 2004
Non-recurring items for the first 9 months of 2004 amounted to EUR -28 million, with, on the one hand, significant provisions for restructuring (including the closing of soda-ash production at Ebensee, Austria), and, on the other hand, gains on the sale of Solvay’s interest in the ESCO salt joint venture and of Hedwin, an Industrial Films company.
Charges on net indebtedness amounted to EUR 71 million, up 8% from the first 9 months of 2003, following the extension of long-term debt coverage.
Taxes fell to EUR 87 million, as a result of tax credits (63 million EUR) in Germany in the 3rd quarter of 2004.
Income from investments represents annual dividends paid by Fortis and Sofina in the 2nd quarter.
Equity earnings from the high density polyethylene activities improved very slightly during the 3rd quarter of 2004 (with a profit of EUR 7 million). For the first 9 months of 2004, the results remained slightly negative (- EUR 1 million), compared to a EUR 24 million loss in the same period of 2003.
Net income of the Group amounted to EUR 415 million, up 40% compared to the first 9 months of 2003 (EUR 297 million). Minority interests were EUR 36 million, of which EUR 18 million represented preferred dividends linked to the financing of EUR 800 million for acquisition of Ausimont and EUR 8 million resulted form the consolidation of 100% of the activities of Solvay Indupa from July 2004.
Net income per share for the first 9 months of 2004 amounted to EUR 4.59 compared to EUR 3.29 in 2003.
Depreciation and amortization increased to EUR 17 million (+5%) compared to the first 9 months of 2003 as a result of extraordinary depreciation primarily linked to the closure of Soda Ash production at Ebensee, Austria. Cash flow was EUR 751 million, up 22%.
The Group’s net indebtedness at 30 September 2004 (EUR 1,089 million) was down (- EUR 31 million) from that at 31 December 2003. The ratio of net indebtedness to equity at the end of the 3rd quarter of 2004 was 28% compared to 32% at the end of 2003 and 38% at the end of the 3rd quarter of 2003.
(4) Results by segment include results of the Group’s 4 sectors, non-allocated items as well as the « discontinuing operations» related to the high-density polyethylene activities in joint ventures with BP and salt activities. The latter, shown previously in the Chemicals sector, are now included in « discontinuing operations » due to signature of an agreement to transfer to Kali und Salz (K+S) all of Solvay’s shares in ESCO, a joint venture between Solvay and K+S, and which was finalized in July. Note also that as of June 1, 2004, the Plastics and Processing sectors were combined into a single new Plastics sector. This operation gives the Group a more compact structure and more interaction between these activities. Presentation of results in a single sector will begin as of January 1, 2005.
PHARMACEUTICALS SECTOR
Acceleration of strategy through strengthening of R&D programs and conclusion of partnering arrangements of the first rank for development and commercialization of new products.
Solvay currently has a rich R&D portfolio with some thirty molecules to feed the sector’s future growth. In order to accelerate development, in recent months Solvay has concluded major partnering agreements, the most recent of which, with Quintiles/Pharmabio, will allow accelerated development of several new molecules from Solvay’s research. Under the terms of this agreement, Quintiles/Pharmabio will participate in the costs of Phase II clinical trials in the amount of USD 25 million from 2004 through 2006.
Also notable were the recent filing of Estrogel® in the US and the filing of the registration application for cilansetron in the United Kingdom (April 2004) and in the United States (June 2004). The US Food and Drug Administration (FDA) recently granted priority status to the review of this application.
The Pharmaceutical sector’s results for the first 9 months of 2004 improved by 11%. The sector benefited from the positive impact of agreements with Wyeth and Bristol Myers Squibb and was able, in parallel, to substantially increase (by 11%) its research efforts (241 million EUR; 18% of sales). At the same time, the results were weighed down by a reduction in American sales and the weakness of the US dollar; finally, preparations for product launches required increasing commercial efforts.
Sales of the Pharmaceuticals sector, expressed in EUR, declined 5% for the first 9 months of 2004; at constant exchange rates, this reduction would have been limited to 1%. For the 3rd quarter of 2004, sales, expressed in EUR, increased 2%, thanks to the growth of certain products: AndroGel®, Pantoloc®, Creon® and Influvac® flu vaccine. In addition, sales of Estratest®, as well as prescriptions, fell as a result of both debates over female hormone therapy since 2002 and competitive pressure.
US sales for the first 9 months of 2004 fell by 11% (in USD) as a result of a significant reduction in distributor inventories and a readjustment of distributor commissions, essentially in the 2nd quarter. Agreements were signed with most American distributors at the end of the 3rd quarter of 2004, which permitted American sales to end the quarter with a decrease limited to 2% (in USD) from the 3rd quarter of 2003. Prescriptions continued to develop normally. Note also the launch of Estrogel® since a few months. The fourth quarter will be affected by the launch of generics to Rowasa®.
Sales of pharmaceutical products in Western Europe continued to experience significant pressures on prices and prescription volumes as well as the negative aspect of controversy surrounding female hormone replacement therapy. These negative effects were nevertheless offset by a marked growth in sales in Russia, Central and Eastern Europe and India.
As indicated before, for the whole year 2004, the Pharmaceuticals sector should show results in line with those from 2003.
Concerning US litigation relating to hormone therapy products and discussions with the FDA on the administrative status of Estratest®, the situation remains generally the same as that reported in the press release for the first half of 2004.
CHEMICALS SECTOR
Continuing reinforcement of competitiveness through restructuring, rationalization, acquisitions and partnerships.
These measures have proven important in strengthening margins of the Group’s chemical activities – particularly in essential products – that are subject to intense competitive pressures. Among the actions decided on recently is the already announced closure of the Soda Ash unit at Ebensee, Austria, effective in 2005.
Negotiations concerning the creation of a soda ash joint venture in China are in final phase.
In addition, Solvay is heartened by its privileged partnering position to furnish hydrogen peroxide (H2O2) in large quantities for the production of propylene oxide by BASF and Dow.
Month-to-month improvement in Chemicals activities.
3rd quarter 2004 results surpassed by 22% those of the 2nd quarter of 2004; compared to the 3rd quarter of 2003, the improvement was 10%; results of the first 9 months of 2004 still remain below those of the first 9 months of 2003 (-9%). Prospects are encouraging.
Hydrogen Peroxide activities continued their sustained recovery in most regions. Conditions in the Caustic Soda market improved and significant price increases were recorded beginning in June 2004, even though prices remain slightly below those of 2003. Growth in sales of Solkane® 365mfc permitted improvement in the results of the Fluor activities despite the negative effects of the weakness of the US dollar. Soda Ash results suffered from the impact of significant increases in energy costs (for both coke and gas) and transportation costs, even though market conditions improved in Europe and the US.
Since there has been no new development in the matter of the European authorities’ inquiry concerning the hydrogen peroxide business, the possible financial impact of that inquiry has not been taken into account in recording results.
PLASTICS SECTOR
Plastics results were up strongly (+94%) for the first 9 months of 2004, thanks to sustained growth in Specialty Polymers and Vinyls. Results for the third quarter were up 296% from the same period in 2003.
Specialty Polymers, largest contributors to the sector’s results for the first 9 months of 2004, experienced a strong recovery in volumes, particularly in the United States and Asia, both in high-performance polymers and fluorinated polymers. It should be noted that that this was the result not only of growth in existing applications in certain markets (in particular for use in semi-conductors and electronics in general) but also of the development of new high-added-value applications.
Demand for Vinyls was sustained. The increase in PVC prices allowed an appreciable improvement in results in all three regions in which Solvay is active (Europe, Asia and Mercosur), in an environment of high ethylene prices.
The results of the Processing sector for the first 9 months of 2004 were stable overall despite an environment of pressure on margins and successive increases in raw-material prices.
Even though volumes at Inergy Automotive Systems (fuel systems) were up 6.5% during the first 9 months of 2004, results were affected by strong pressure on margins from the automotive market. Industrial Films improved thanks to Specialties (swimming-pool liners, medical supplies, technical films and decorative laminates) and a number of structural improvements, while Pipelife (pipes and fittings) benefited from its restructuring measures of recent years and sustained volumes.
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With the approval of the Banking, Finance and Insurance Commission, the 2003 and 2004 books have been prepared and presented in accordance with IFRS (International Financial Reporting Standards). Deloitte & Touche have conducted a limited review of the quarterly consolidated situation which closed on September 30, 2004. This consisted principally of analysis, comparison and discussions of financial information and therefore was less extensive than an audit that would be undertaken for annual statements. This review did not disclose any elements that would have required significant corrections in the interim statements.
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Key dates for financial communication in 2004
16 December 2004: press release about the payment of the interim dividend relating to 2004 (payment on 13 January 2005).
