Full press release (including also IFRS financial statements) is available in the attached PDF file.
Sales (+15%) and operating results (+24%)
for the first 9 months of 2005 greatly improved for the Group in its three sectors
Group net income (EUR 685 million) up 65% with
cash flow exceeding EUR 1 billion
Sales for the first 9 months of 2005 reached EUR 6,238 million, up 15% compared to the first 9 months of 2004 (+14% in the 3rd quarter). Sales from the three sectors were up: Pharmaceuticals (+19%), Chemicals (+15%) and Plastics (+13%).
REBIT (EUR 676 million) improved by 24% compared to the first 9 months of 2004 (+12% in the 3rd quarter), with an operating margin (REBIT on sales) of nearly 11%.
The net income of the Group reached EUR 685 million for the first 9 months of 2005, surpassing by 27% the net income for the full year 2004 (EUR 541 million). In the 3rd quarter of 2005, it amounted to EUR 176 million, slightly down (EUR -5 million) compared to the 3rd quarter of 2004 which had benefited from a tax credit of EUR 63 million in Germany.
Beyond the increase in operating results (REBIT, +24% for the first 9 months of 2005), net income of the Group included a net capital gain on the sale to BP of investments in the polyethylene activities (EUR 443 million) and a negative balance of non-recurring items of EUR 295 million, primarily recorded in the 1st half of 2005, representing among others the income on the sale of buildings (EUR 125 million) and provisions of EUR 386 million.
Cash flow1 for the first 9 months of 2005 exceeded EUR 1 billion (EUR 1,020 million) and the net debt to equity ratio amounted to 46% at the end of the 3rd quarter 2005, after paying for the acquisition of Fournier Pharma for EUR 1.2 billion.
Results of the Chemicals sector (REBIT of EUR 232 billion) for the first 9 months of 2005 increased by 73% compared to the low level of the first 9 months of 2004. The growth was 25% for the 3rd quarter despite the impact of unit maintenance charges during that period. Markets remain firm, price are oriented upward and the costs under strict control. Nevertheless, the Chemicals sector suffered over the past weeks, particularly in the USA, a new surge of gas prices accelerated by the recent hurricanes.
Results of the Plastics Sector (REBIT of 296 million EUR) were up by 15% compared to the first 9 months of 2004; -23% in the 3rd quarter 2005 compared to the very high level of the 3rd quarter 2004, following the decrease of the Vinyls results. Demand and prices in this activity have been recently recovering, fueled by a significant rise in ethylene prices. Specialty polymers which are major contributors to the Group’s results, held steady despite the slowdown in certain segments of the market (automotive in particular) and an increase in some raw material prices.
Since August 1, 2005, results of the Pharmaceuticals sector have included results from Fournier Pharma, which for 2 months had sales of EUR 99 million, with an operating result of EUR 29 million. These results are above our expectations.
Sales improved by 19% compared to the first 9 months of 2004 (+29% in the 3rd quarter). Sales were up in all therapeutic areas except gastroenterology and are developing well in NAFTA as well as in emerging countries. REBIT amounted to EUR 194 million, including the Barr compensation payment (EUR 23 million), as well as income from the sale of minor products (EUR 12 million). It should be reminded that results for the first 9 months of 2004 included a series of positive non-recurring items, the most significant of which were an amount of EUR 88 million linked to partnership agreements with Wyeth and Bristol Myers Squibb and the first installment of a compensation payment from Barr (EUR 15 million).
Operating results for the 3rd quarter of 2005 amounted to EUR 118 million (including the two months of results from Fournier Pharma), up significantly (+55%) compared to the 3rd quarter of 2004.
In total, as announced in July, the Group confirms that its operating results for the year 2005 will be significantly improved compared to the very good results of 2004. Net earnings will again reach a record level.
1 Net income plus total depreciation
2 Figures subjected to a limited review by Deloitte
3 Financial items restated following effectiveness of IFRS Rule 5 (“discontinued operations”) as of January 1, 2005.
4 REBITDA : REBIT, before recurring depreciation and amortization.
5 Cash flow is the sum of Group net earnings plus depreciation and amortization.
6 Calculated on the basis of the weighted average of the number of shares for the period, after deducting shares purchased to cover stock option programs, or a total of 82,513,146 shares at the end of the 3rd quarter of 2004 and 82,983,272 at the end of the 3rd quarter of 2005.
Notes on Solvay Group summary financial information
Non-recurring items for the first 9 months of 2005 showed a negative balance of EUR 295 million, most of which was recorded in the 1st half of 2005. They included, among others, capital gains of EUR 125 million on the sale of buildings and, on the other hand, non-recurring provisions of EUR 386 million of which EUR 348 million for various risks in the pharmaceutical area and potential consequences of the ongoing proceedings of competition authorities concerning peroxygens, as well as EUR 38 million for restructuring at several sites in Europe and the United States.
Charges on net indebtedness amounted to EUR 60 million, down 13% compared to the charges for the first 9 months of 2004, after the payment at the end of July 2005 of EUR 1.2 billion for acquisition of Fournier Pharma.
Income taxes amounted to EUR 115 million in the first 9 months of 2005. This tax amount is not comparable to that from last year due to the establishment, in 2005, of significant provisions that in part are not tax deductible, and the recording in the 3rd quarter 2004 of a tax credit (EUR 63 million) in Germany.
With IFRS standard 5 becoming effective on 1st January 2005, results of discontinuing operations are not reflected in a separate segment but are recorded as a net entry, below EBIT, on a separate line in the Group results, with restatement of the year 2004. These results represent:
For the first 9 months of 2004, the net income related to high-density polyethylene activities, salt activities (transferred to K+S in July 2004), and the industrial foils activities, the divestiture of which the Group announced in 2005, with rigid sheets being transferred to Ineos and other industrial film activities to Renolit (for an amount of EUR 330 million).
For the first 9 months of 2005, the net capital gain (EUR 443 million) on the sale, on January 6, 2005, of the Group’s American and European shares in high-density polyethylene activities to BP for a price of the order of EUR 1 billion, and the net income from the industrial films activities.
Income from investments represented the annual dividends paid by Fortis and Sofina. In 2005, aside from dividends from 2004 paid in the 2nd quarter, this result was favorably influenced by payment by Fortis of an interim dividend in the 3rd quarter.
The net income of the Group amounted to EUR 685 million.
Net earnings per share for the first 9 months of 2005 amounted to EUR 8.01, compared with EUR 4.60 for the same period in 2004 and EUR 5.92 for all of 2004.
Depreciation and amortization amounted to EUR 335 million, stable compared to that for the first 9 months of 2004. Cash flow exceeded EUR 1 billion (EUR 1,020 million).
Stockholders’ equity amounted to EUR 3,849 million at the end of the 3rd quarter of 2005, up EUR 57 million compared to the end of 2004, after redemption of preferred shares in the amount of EUR 800 million issued by Solvay Finance Jersey and net income of EUR 685 million.
The net indebtedness of the Group as of September 30, 2005 (EUR 1,770 million) was up EUR 974 million compared to December 31, 2004, following payment of the acquisition price of Fournier Pharma in the amount of EUR 1.2 billion. The net debt to equity ratio thus became 46%.
Moody’s and S&P confirmed the long- and short-term ratings for Solvay (respectively A/A2 and A1/P1) after the acquisition of Fournier Pharma.
7 Including two months from Fournier Pharma: sales : EUR 99 million and REBIT : EUR 29 million.
8 Following combination of the Plastics and Processing sectors as of June 1, 2004, results from these two former sectors are presented under a single new Plastics sector as of January 1, 2005.
