BELGIUM, Feb. 13, 2004 (PRIMEZONE) -- Despite a very strong EUR and a weak economic environment, the Solvay group ends 2003 with a net income decrease of only 13% compared to record 2002 results
Pharmaceuticals:
- results negatively affected by the USD (-8% in EUR, +2% at constant exchange rates)
- strong increase of US sales (+15% in USD)
- favorable development of the R&D portfolio confirmed
Chemicals:
- to maintain market shares and volumes required suffering a decline in profits
Plastics:
- recent recovery of major specialty polymers markets
- significant decrease of Vinyls in Europe but upturn in the 4th quarter
Processing:
- very good performance in the 4th quarter
The Solvay group's 2003 sales totaled EUR 7,555 million, down 5% from 2002. At constant exchange rates, they would have risen by 1%.
The strengthening of the EUR has had a negative effect from the conversion of USD results in EUR and has weighed down results, particularly in Pharmaceuticals. Also of note were increases in certain costs such as pensions, insurance and transport.
Cash flow generation and rigorous screening of capital investments have permitted the Group, despite difficult conditions, to improve its already very healthy financial situation. The Group's net indebtedness was reduced by EUR 210 million (to EUR 1, 117 million). The Group is accelerating a series of restructuring and cost-reduction measures.
The year 2003 was characterized by an uncertain and difficult economic environment which generated stocking and destocking as well as oil prices volatility. In 2004, the lack of visible growth in Europe and the risk of a persistently very strong EUR are factors that must be taken into account. The significant contribution of Pharmaceuticals and Specialties, combined with all efforts to increase competitiveness, and the continuing improvement of the product portfolio, should allow the Solvay group to face these pressures.
KEY FIGURES
Millions of EUR 2002 2003 2003/2002
Var.%
Sales 7,919 7,555 -5%
REBIT(1) 844 673 -20%
EBIT 758 662 -13%
Charges on net indebtedness -88 -85 -3%
Income taxes -151 -114 -25%
Equity earnings -38 -48 26%
Income from investments 15 15 n.s.
Net income of the Group 495 430 -13%
Net income (Solvay share) 465 396 -15%
Depreciation and amortization 554 429 -23%
Recurring Depreciation &
Amortization 440 429 -3%
Cash flow(2) 1,049 859 -18%
Net earnings per share(3) (in EUR) 5.6 4.78 -15%
Millions of EUR 4th Q 4th Q 4th Q 2003/
2002 2003 4th Q 2002
Var.%
Sales 1,905 1,870 -2%
REBIT(1) 221 180 -19%
EBIT 160 175 9%
Charges on
net indebtedness -19 -19 n.s.
Income taxes -22 1 n.s.
Equity earnings -19 -24 26%
Income from
investments 0 0 n.s.
Net income of the Group 99 133 34%
Net income (Solvay share) 90 124 38%
Depreciation and
amortization 170 110 -35%
Recurring Depreciation &
Amortization 109 108 -1%
Cash flow(2) 269 243 -10%
Net earnings
per share(3)
(in EUR) 1.09 1.5 38%
(1) REBIT: Recurring Earnings Before Interests and Taxes, results of ongoing operations.
(2) Cash flow is the sum of Group net income and depreciation and amortization.
(3) Calculated on the basis of the weighted average number of shares outstanding during the quarter, after deducting shares purchased by Solvay to cover stock options; this amounted to 83,059,168 shares in 2002 and 82,748,169 shares in 2003.
COMMENTARY ON KEY FIGURES AND THE BALANCE SHEET FOR 2003
Non-recurring items amounted to -- EUR 11 million in 2003, including significant reserves for restructuring (such as the closing of the VCM and PVC units at Ludwigshafen), as well as, in the Pharmaceuticals Sector, an exceptional compensation charges and the remaining costs related to the withdrawal of Luvox(R); partially offset by reversal of reserves no longer required. Additionally, 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.
Charges on net indebtedness were EUR 85 million, down 3% from 2002.
Income taxes were EUR 114 million, with an average tax rate of around 20%, reflecting the favorable impact of the recognition in the 4th quarter of 2003 of the write-off of a deferred tax asset (EUR 40 million) related to the acquisition of Ausimont.
Income from investments represents annual dividends paid by Fortis and Sofina in the second quarter.
Equity earnings, from the high density polyethylene activities, remained negative (- EUR 48 million). They were affected negatively in the 4th quarter by the increase in ethylene prices.
Net income of the Group was EUR 430 million, a decline of only 13% from the record level of 2002 (EUR 495 million). Minority interests were EUR 34 million, of which EUR 26 million represent preferred dividends related to the financing of 800 million EUR for the acquisition of Ausimont. Net earnings per share declined 15% to EUR 4.78.
Depreciation and amortization dropped by EUR 125 million from 2002 because of the recording in 2002 of significant non-recurring amortization linked to the sublicense of Teveten(R) antihypertension medication in the United States to Biovail and the voluntary withdrawal of Luvox(R) tablets from the American market, as well as some exceptional amortization of miscellaneous goodwill.
Cash flow was EUR 859 million in 2003, down 8% excluding non-recurring amortization and depreciation in 2002. It covered increases in working capital and capital investments levels which were rigorously controlled in accordance with the Group's policy.
SUMMARY BALANCE SHEET
In millions of EUR December 31, December 31,
2002 2003
Tangible and intangible
assets 4,025 3,862
Financial assets 1,308 1,098
Net deferred taxes &
current income taxes 389 387
Net working capital 1,137 1,193
TOTAL 6,859 6,540
Equity 3,574 3,533
Provisions 1,880 1,813
Dividends 78 77
Net indebtedness 1,327 1,117
TOTAL 6,859 6,540
Net debt to equity ratio 37% 32%
The Group's net indebtedness at December 31, 2003 declined by EUR 210 million from the figure at the end of 2002, to a total of EUR 1,117 million. The net debt to equity ratio at the end of 2003 amounted to 32%, down from the 37% ratio for 2002. It should be noted that through its Euro Medium Term Notes program, the Group in 2003 was able to issue EUR 800 million of notes on favorable conditions.
CAPITAL EXPENDITURES, RESEARCH AND DEVELOPMENT
2003 capital expenditures amounted to EUR 555 million, as a result of a selective policy. R&D expenses were EUR 404 million. This includes EUR 284 million for the Pharmaceuticals Sector, up 6% from 2002.
The 2004 capital investment and R&D budgets are EUR 612 million and EUR 411 million respectively. In 2004, the Pharmaceuticals Sector research effort should represent 68% of the Group's R&D expenses.
RECURRING RESULTS BY SEGMENT
The results by segment include the results of the four sectors of the Group and 'discontinuing operations' relating to the high density polyethylene activities in joint ventures with BP. As required by IFRS, elements not allocated by sector, which include primarily general expenses and non-sectoral research as well as miscellaneous income and expenses not directly linked to the activities of the Group, are presented separately.
REBIT by segment is operational results before non-recurring items. For the four sectors, REBIT is comparable to EBIT presented in annual and half-year results in prior years, without unallocated items. Sales are reflected after elimination of sales between the sectors.
Millions of EUR 2002 2003 2003/2002
Var.%
Group Sales 7,919 7,555 -5%
Pharmaceuticals 1,863 1,832 -2%
Chemicals 2,636 2,508 -5%
Plastics 1,937 1,802 -7%
Processing 1,479 1,410 -5%
Unallocated items 0 0 n.s.
--Discontinuing operation-- 4 3 -25%
Group REBIT 844 673 -20%
Pharmaceuticals 263 243 -8%
Chemicals 259 195 -25%
Plastics 247 155 -37%
Processing 80 70 -12%
Unallocated items -50 -41 -18%
--Discontinuing operation-- 45 50 11%
Millions of EUR
4th quarter 4th quarter 4th quarter 2003/
2002 2003 4th quarter 2002
Var.%
Group Sales 1,905 1,870 -2%
Pharmaceuticals 470 462 -2%
Chemicals 638 616 -3%
Plastics 455 448 -2%
Processing 341 343 1%
Unallocated items 0 0 n.s.
--Discontinuing operation-- 1 1 n.s.
Group REBIT 221 180 -19%
Pharmaceuticals 84 75 -11%
Chemicals 64 41 -36%
Plastics 47 38 -19%
Processing 8 12 50%
Unallocated items 2 -7 n.s.
--Discontinuing operation -- 17 19 12%
PHARMACEUTICALS SECTOR
- Results negatively affected by the USD (-8% in EUR, +2% at constant exchange rates)
- Strong increase of US sales (+15% in USD)
- Favorable development of the R&D portfolio confirmed
The Pharmaceuticals Sector's 2003 sales, expressed in EUR, declined 2% from 2002 because of the weakness of the USD. They would have increased by 6% at constant exchange rates.
In 2003, Cardiology sales increased 14% from 2002, thanks to growth of Teveten(R) anti-hypertension medication (+25%). Influvac influenza (R) vaccine grew significantly in 2003 and continues to perform strongly (+13% compared to 2002). Mental health and Gastroenterology remained stable; Gynecology/Andrology registered a decline of 4%.
American sales increased 15% in USD (-4% in EUR), with the increase in sales of the Androgel(R) (+51% in USD), Prometrium(R) (+30% in USD) and Marinol(R) (+53% in USD) products. Also of note was the 19% increase (in EUR) of Pantaloc(R) in Canada. Sales of Estratest(R) tablets declined by 24% in USD as a result of competitive pressures and debates over hormone therapies. Ongoing discussions with the FDA (Food and Drug Administration) on the regulatory status of Estratest(R) are continuing constructively, but have, in parallel, generated two lawsuits in the United States, one of which has been won in first instance by Solvay Pharmaceuticals. In addition, the Women's Health Initiative (WHI) study gave rise in the US to a very limited number of individual suits against Solvay Pharmaceuticals, Inc., although our products do not contain the same hormones as in the products used in the WHI study. Finally, the FDA has just approved marketing of EstroGel(R), the first transdermal estrogen gel in the United States, a product in the Women's Health franchise.
Sales (volumes and prescription prices) continue to be under significant pressures in Western Europe. On the other hand, there was a significant increase (+8%) in export sales (Central and Eastern Europe, Asia, Latin America,).
The Group intensified its R&D program (up 6% in 2003 from 2002). R&D expenditures represent around 16% of the sector's sales, reflecting the intensification of research efforts and the significant number of R&D projects. Notable were the move to Phase III of bifeprunox, a treatment for psychosis and schizophrenia, co-developed with Lundbeck, and the ongoing preparation of registration applications for cilansetron, a treatment for irritable bowel syndrome, following positive results in Phase III clinical trials. Submission of the cilansetron applications is scheduled for the end of the 1st quarter of 2004.
CHEMICALS SECTOR
- To maintain market shares and volumes required suffering a 25% decline in profits
Soda ash:
In Europe, the SBU Soda Ash recorded a decline in volumes in 2003 as a result of increased imports linked to the weakness of the USD. It was able to partially compensate for this reduction in volume by increasing exports but had to accept reduced margins. In the United States, volumes increased compared to 2002 but with weaker prices. However, a better balance between supply and demand allowed a modest price increase at year end. Sodium bicarbonate, a specialty product, continued its growth in Europe, thanks, among other factors, to the entirely new production unit in Torrelavega, Spain.
Hydrogen Peroxide:
Peroxides experienced sustained growth in 2003 with, in particular, strong improvement in the 4th quarter. Prices and volumes increased worldwide.
Electrochemistry :
2003 results were down from 2002, the slowdown of the economy having led to a reduction in volumes. The average price of caustic soda in 2003 remained at the same low level as that of 2002.
Fluor:
2003 results were significantly down from 2002, following the weakness of the USD, which put pressure on export prices of certain fluorinated gases, the gradual shutdown of production of Solkane(R)141b and costs of launching its substitute, Solkane(R) 365 mcf, sales of which are developing in accordance with expectations.
PLASTICS SECTOR
- Recent recovery of major Specialty Polymers markets
- Significant decrease of Vinyls in Europe but upturn in the 4th quarter
Specialty Polymers:
In accordance with the Group's strategy of strengthening its position in Specialties, the Specialty Polymers SBU is a significant contributor to the Group's results. In 2003, although prices overall remained stable, results were affected by the strengthening of the EUR, which diminished both the US results when converted into EUR from USD and export margins; in addition, volumes declined because of weakness in end-use markets, except for certain high-performance polymers and fluorinated fluids and elastomers. However, there have recently been signs of recovery in the primary markets (semiconductors, automotive, etc.).
Vinyls:
World demand for PVC was affected by the general weakness of demand. In Europe, after a very good first quarter characterized by significant inventory increases, the Vinyls results for the 2nd quarter were affected by a significant drop in demand linked to draw-downs of inventories. Since August, however, there have been gradual price and demand increases that, despite leveling-off at the end of the year, continued to grow in a context of high ethylene prices. Mercosur, particularly Argentina, benefited from significant competitive advantages and continued its improvement. Asia continued its sustained growth thanks to good volumes and price increases.
Performance compounds:
HDPE compounds experienced significant growth. PP compounds were affected by the sluggishness of the American automotive market. PVC compounds suffered from weaker demand, particularly in Europe, and from the increase in PVC prices.
PROCESSING SECTOR
- Very good performance in the 4th quarter
Inergy: volumes grew thanks to the quality of the products as well as the strategy and thanks to Asia (with the start-up of a new production facility in Japan), and thanks to the recovery on the US market since September while Europe remained generally stable. The results, although affected by the weakness of the USD, were at a level comparable to that of 2002.
Industrial Films and Pipelife (pipes and fittings) were down in 2003, but saw a recovery since September.
Pipes volumes grew in Central Europe and Scandinavia and numerous measures were taken to improve competitiveness and refocus the business on strategic markets. Industrial Films experienced a strong year-end thanks to a recovery in medical supplies and flexible technical films, as well as the good performance of Decorative Laminates.
With the approval of the Commision Bancaire et Financiere, the 2003 accounts have been prepared and presented in accordance with IFRS (International Financial Reporting Standards). The 2002 accounts have been restated under IFRS.
Deloitte & Touche have conducted a limited review of the consolidated situation as of 31 December 2003. 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 2003 statements. The final audit review is in progress.
Key dates for financial communication in 2004
- 26 March 2004: consolidated financial statements for 2003 and announcement of the dividend relating to 2003.
- 29 April 2004: three-month 2004 results.
- 30 July 2004: six-month 2004 results.
- 29 October 2004: Nine-month 2004 results.