BELGIUM, July 31, 2003 (PRIMEZONE) -- Solvay Group (Other OTC:SVYSY): the strategy of strengthening Specialties is bearing fruit, in particular the growing share of Specialty Polymers for which the results and the margin are increasing.
Sales of the Solvay Group in the first half of 2003 reached EUR 3,790 million, down 6% compared to the first half of 2002. At constant exchange rates, they increase by 1%.
Consolidated net income (EUR 198 million) declined 18% compared to the first half of 2002 (EUR 241 million). As announced during the General Shareholders' meeting on June 5, 2003, results of the second quarter of 2003 compare unfavorably with the second quarter of 2002 which was particularly good. The EUR continued to strengthen in the second quarter of 2003; in addition, destocking in some markets and slowing of the world economy also affected results.
Recurring operational results (REBIT) of the 4 activity sectors were down compared to the first half of 2002.
- The Pharmaceuticals Sector, although increasing between the first and second quarter of 2003, saw its results affected (-19%), from one half to the other, by the weakening of the USD, by debates in the US over female hormone therapies and increasing pressure on prescription drugs prices and volumes in Europe.
Current forecasts indicate that the results of the second half of 2003 should be above those of the second half of 2002.
- The Chemicals Sector was down 23% due to a slowdown in all the activities, mainly European, of our customers, to the impact of a stronger EUR on our exports and to contraction of the chlor-alkali chain. A drop in sales was also recorded for certain fluorinated gases, mainly Solkane(R) 141b, combined with startup costs of the production unit for its HFC substitute, Solkane(R) 365mfc.
- The Plastics Sector (-23%) was affected by the significant drop in Vinyls in the 2nd quarter of 2003 after a pronounced growth in the first quarter of 2003. Results and margins for Specialty Polymers continue to increase.
- Despite results being up 41% in the second quarter of 2003 compared to the first quarter of 2003, the sluggishness of certain markets explain the first-half drop of 25% in the Processing Sector.
At this stage, there are no clear signs allowing an assertion on changes in the upcoming months. Major uncertainties remain regarding the economic recovery and the evolution of exchange rates between the EUR and the USD. Therefore, the results of the Group for 2003 could be down compared to the record year experienced by the Group in 2002, although a recovery of results could take place in the 4th quarter 2003. KEY FIGURES
Millions of EUR
1st half 2002 1st half 2003 1st half 2003/ 1st half 2002
Var%
Net sales 4,049 3,790 -6%
REBIT(a) 419 342 -18%
EBIT 387 328 -15%
Charges on net
indebtedness -44 -41 -7%
Income taxes -101 -75 -26%
Equity earnings -15 -29 93%
Income from investments 15 15 0%
Net income of the Group 241 198 -18%
Net income (Solvay share) 232 181 -22%
Depreciation &
Amortization 279 209 -25%
Recurring depreciation &
amortization 225 210 -7%
Cash flow(b) 520 407 -22%
EUR
Earning per share(c) 2.79 2.19 -22%
Millions of EUR
2Q 2002 2Q 2003 2Q 2003/2Q 2002 Var%
Net sales 2,065 1,883 -9%
REBIT(a) 248 159 -36%
EBIT 212 148 -30%
Charges on net
indebtedness -15 -20 33%
Income taxes -57 -29 -49%
Equity earnings 0 -13 n.s.
Income from
investments 15 15 0%
Net income of
the Group 154 100 -35%
Net income
(Solvay share) 146 92 -37%
Depreciation &
Amortization 109 102 -6%
Recurring depreciation &
amortization 113 103 -9%
Cash flow(b) 263 202 -23%
Earnings
per share(c) 1.76 1.11 -37%
(a) REBIT : Recurrent Earnings Before Interests and Taxes, recurring operational results
(b) Cash flow is the sum of the net income of the Group and the depreciation and amortization
(c) 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 83,042,244 shares during the first half of 2002 and 82,787,308 shares in the first half of 2003.
COMMENTS ON KEY FIGURES AND BALANCE SHEET IN THE 1st HALF OF 2003
Non-recurring items amounted in the 1st half of 2003 to EUR -14 million. The Group, among other things, provided for the costs related to the announced shutdown of the VCM and PVC unit at Ludwigshafen in Germany. The non-recurring gains recorded by the Group included, among others, the reversal of reserves, no longer needed, following a favorable conclusion of the American AIP procedure in Pharmaceuticals.
Charges on net indebtedness amounted to EUR 41 million, down 7% compared to the first half of 2002.
Income taxes decreased by 26%. The tax rate stands at 26% in the first half of 2003.
Income from investments represents the annual dividends paid by Fortis and Sofina in the 2nd quarter.
Equity earnings of the joint ventures with BP in high-density polyethylene remain very negative (EUR -29 million). The situation for this activity is difficult overall with, however, market conditions in the US that are less unfavorable than in Europe. It should be noted that the losses accounted for under the equity methods were substantially offset by the increase in the value of the put option for our interests in these ventures. Overall, the REBIT of these activities, shown under the 'Discontinuing Operations' segment, amounted to EUR 33 million in the 1st half of 2003 (compared to EUR 19 million in the 1st half of 2002).
The net income of the Group amounted to EUR 198 million, down 18% compared to the first half of 2002. Minority interests were EUR 17 million, of which EUR 14 million represented preferred dividends linked to financing of EUR 800 million for the acquisition of Ausimont. Earnings per share dropped 22% and were at EUR 2.19.
Depreciation and amortization declined by EUR 70 million compared to the 1st half of 2002 due to the significant non-recurring depreciation (EUR 58 million) in the first quarter of 2002, linked to the sublicense of Teveten(R) anti-hypertensive in the United States to Biovail and the voluntary withdrawal of Luvox(R) from the American market. Cash flow amounted to EUR 407 million for the first half of 2003, down 22%. It more than covers the increase of the working capital requirements and the industrial investments.
The net indebtedness of the Group as of June 30, 2003 (EUR 1,454 million) increased 9% compared to December 31, 2002, following payment of dividends in June and an increase in working capital requirements. Shareholders' equity (EUR 3,511 million) declined slightly due to variations in the exchange rate. The net debt to equity ratio at the end of the 2nd quarter 2003 amounted to 41%, compared to 39% at the end of the 1st quarter in 2003 and 37% at the end of 2002.
RECURRING RESULTS1 BY SEGMENT
Results by segment include the results of the four sectors of the Group as well as 'Discontinuing Operations' related to high-density polyethylene joint ventures with BP. As required by IFRS, items not allocated to the sectors, which mainly include overhead and non-sector research costs as well as miscellaneous income and charges not directly linked to Group activities, are presented separately.
The table below presents sales and recurring operational results (REBIT) for the six segments. For the four sectors, recurring operational results are comparable to those presented (EBIT) in annual or six-month releases in prior years, excluding unallocated items. Sales are presented after elimination of inter-sector transfers and REBIT by segment is operational results less non-recurring items.
(1) Figures were subjected to a limited review by the external auditors, Deloitte & Touche.
Millions of EUR 1st half 1st half 1st half. 2003
2002 2003 /1st half 2002
Var%
Group sales 4,049 3,790 -6%
Pharmaceuticals 921 882 -4%
Chemicals 1,347 1,273 -5%
Plastics 996 909 -9%
Processing 782 726 -7%
Non-allocated items 0 0 n.s.
-- Discontinuing operations -- (1) 2 1 -50%
Group REBIT 419 342 -18%
Pharmaceuticals 110 89 -19%
Chemicals 138 106 -23%
Plastics 122 94 -23%
Processing 55 41 -25%
Non-allocated items -26 -21 -19%
-- Discontinuing operations -- (1) 19 33 74%
Millions of EUR 2Q 2002 2Q 2003 2Q 2003/2Q 2002
Var%
Group sales 2,065 1,883 -9%
Pharmaceuticals 465 447 -4%
Chemicals 658 620 -6%
Plastics 523 437 -16%
Processing 418 379 -9%
Non-allocated items 0 0 n.s.
-- Discontinuing
operations -- (1) 1 1 0%
Group REBIT 248 159 -36%
Pharmaceuticals 68 47 -31%
Chemicals 69 37 -46%
Plastics 82 38 -54%
Processing 33 24 -27%
Non-allocated items -8 -3 -63%
-- Discontinuing
operations -- (1) 4 16 300%
(1) Represent the results of our high-density polyethylene joint ventures. REBIT is positive because it includes the increase in value of Solvay's put option on its interest in the joint ventures to BP. The results of such joint ventures recorded under the equity method were EUR -29 million in the first half of 2003 compared to EUR -15 million in the first half of 2002.
Pharmaceuticals Sector
Sales in the Pharmaceuticals Sector, at constant exchange rates, increased 6%. Expressed in EUR, they declined 4% in the first half of 2003 compared to the first half of 2002 while there was an increase of 3% between the 1st and 2nd quarters of 2003.
Sales in Cardiology increased 17% compared to the 1st half of 2002, due to growth of the antihypertensive Teveten(R) (+51%). Other therapeutic areas declined : Gynecology/andrology (-7%), Gastroenterology (-4%) and Mental Health (-4%) :
American sales increased 15% in USD (-7% in EUR) following increased sales of the drug Androgel(R) (+49% in USD), of Prometrium(R) (+34% in USD) and Marinol(R) (+70% in USD). Sales of Estratest(R) declined 17% in USD following competitive pressure and debates over hormone therapy and reduction of intermediate stock with distributors. Discussions underway with the FDA (Food and Drug Administration) over the regulatory status of Estratest(R) are continuing constructively.
European sales and results continue to be subject to significant pressure on prescription pricing and volumes.
The Group intensified its R&D program (up 3% in the first half 2003 compared to the first half of 2002). R&D expenditures represents 15% of the Sector's sales. Phase III clinical trials for Calmactin(R) (cilansetron) are continuing with prospects of beginning introduction of registration applications as planned at the end of 2003.
The results of the Pharmaceuticals Sector (EUR 89 million) in the first half 2003 declined 19% - at constant exchange rates, the decline was 3% - compared to the first half of 2002. It is to be noted that results of the first half of 2002 still included royalties linked to co-promotion agreements which ended during this first half of 2002.
Chemicals Sector
While the Soda ash SBU had well resisted the deterioration in the economic climate in the first quarter of 2003, there was a slowdown in demand in Europe in the second quarter of 2003. American demand remained sustained. Other Chemical Minerals products (Barium and Strontium Carbonates and Advanced Functional Minerals) followed identical trends.
Results from the Electrochemistry SBU were characterized by a gradual contraction both of volumes and prices in the chlor-alkali chain, following weak demand and customers inventory reduction under way.
The Fluorides SBU had its results affected by production shutdown, planned and gradual, of Solkane(R) 141b and by costs linked to startup of the production unit for its substitute Solkane(R) 365mfc, a third-generation HFC which has no impact on the ozone layer and is used in insulation foams. This new product will progressively contribute to the results of the SBU. An increasing negative impact linked to the USD is still being seen.
Hydrogen peroxide and Persalts showed improved results. Caprolactones also did better than during the same period in 2002.
In all, results declined 23% for the first half of 2003. No new development occurred in the issue related to the ongoing inquiry by European competition authorities in the area of hydrogen peroxide activities. The possible impact of this inquiry was not taken into account in results from this half.
Plastics Sector
Following the Group's strategy to get stronger in Specialties, the Specialty Polymers SBU is currently a major contributor to the Group's results. As of the first half of 2003, despite weakness of certain segments of the market and the negative conversion impact of the USD into EUR, its results and its margin rate increased slightly. In particular, improvement in high-performance polymer results and the good progress of fluorinated fluids and elastomers are to be noted.
The Vinyls SBU witnessed a significant contraction of its results in the second quarter of 2003, compared to a vigorous second quarter of 2002. A significant downturn took place in the second quarter of 2003 due our customers' destocking and weakness in the European economy, which translated into a gradual drop both in quantities and prices, whereas the price of ethylene remained high. Asia is undergoing some slowdown while activities in Mercosur continue to benefit from competitive advantages.
The Performance Compounds SBU was affected by declining volumes for PP compounds designed especially for the automobile market, and to a lesser degree, in PVC compounds, while HDPE compounds have evolved favorably.
In all, results were down 23% in the first half of 2003.
Processing Sector
Inergy Automotive Systems (fuel systems) continued its growth in volume despite declining automobile markets in the US and France. Its sales and results were, however, affected by the weakness of the USD and strong pressure on its sales prices.
Results from Pipelife (pipes and fittings) were affected by overall unfavorable economic conditions. Their impact, however, was reduced by the effect of restructuring measures and improvement in the product mix.
Industrial Films have declined significantly. Specialties (e.g. swimming pool liners, laminates, ...), however, show a better resistance than the Essentials. Efforts to reposition some fields are intensifying with sustained attention to Innovation.
Results declined 25% in the first half of 2003 despite the results of the second quarter 2003 being up 41% compared to the first quarter of 2003.
With the agreement from the Banking and Finance Commission, the 2003 accounts are being drawn up and presented in IFRS (International Financial Reporting Standards). The 2002 accounts are presented on a pro forma IFRS basis as a means of comparison.
Deloitte & Touche conducted a limited review of the consolidated financial situation as of 30 June 2003. This primarily consisted of analyzing, comparing and discussing financial information and therefore was less extensive than a review intended for the audit of annual statements. This review did not reveal factors that would have required significant correction of the intermediate figures.
Key financial communication dates in 2003 :
-- 31 October 2003 : third quarter 2003 results
-- early February 2004 : fourth quarter 2003 results and results for the full year 2003
IFRS FINANCIAL STATEMENTS
(Figures were subjected to a limited review by the external auditors, Deloitte & Touche)
Consolidated Income Statements
in millions of EUR 1st half 2002 1st half 2003 Net sales 4,049 3,790 Cost of goods sold -2,701 -2,555 Gross margin 1,347 1,235 Commercial and administrative costs -712 -686 Research and development costs -195 -197 Other operating gains& losses -30 -29 Other financial gains& losses 9 19 REBIT 419 342 Non-recurring items -32 -14 EBIT 387 328 Charges on net indebtedness -44 -41 Income taxes -101 -75 Equity earnings -15 -29 Income from investments 15 15 Net income of the Group 241 198 Minority interests -9 -17 Net income (Solvay share) 232 181 Earnings per share 2.79 2.19 Diluted income per share (1) 2.78 2.19 in millions of EUR 2nd quarter 2002 2nd quarter 2003 Net sales 2,065 1,883 Cost of goods sold -1,362 -1,284 Gross margin 703 600 Commercial and administrative costs -352 -350 Research and development costs -98 -93 Other operating gains & losses -9 -11 Other financial gains & losses 4 14 REBIT 248 159 Non-recurring items -36 -12 EBIT 212 148 Charges on net indebtedness -15 -20 Income taxes -57 -29 Equity earnings 0 -13 Income from investments 15 15 Net income of the Group 154 100 Minority interests -7 -8 Net income (Solvay share) 146 92 Earnings per share 1.76 1.11 Diluted income per share (1) 1.76 1.11
(1) calculated on the number of shares diluted by stock options issued
Consolidated Cash Flow Statement in millions of EUR 1st half 2002 1st half 2003 Cash flow from operating activities 230 229 EBIT 387 328 Depreciation and amortization 279 209 Changes in working capital -402 -264 Changes in provisions -13 -9 Income taxes paid -26 -43 Other non-cash items 6 7 Cash flow from investing activities 69 -145 Acquisition/sale of investments 45 -48 Acquisition/sale of assets -106 -185 Income from investments 20 19 Changes in financial receivables 61 71 Effect of changes in method of consolidation 48 -1 Cash flow from financing activities -463 29 Increase/Decrease of capital -13 0 Acquisition/sale of own shares 0 -15 Changes in borrowings -236 282 Charges on net indebtedness -44 -41 Dividends -172 -196 Net change in cash and cash equivalents -165 113 Currency translation differences -8 -11 Opening cash balance 630 444 Ending cash balance 458 546
Consolidated Balance Sheet
in millions of EUR
End of 2002 End of 1st half 2003
ASSETS
Non-current assets 5,738 5,521
Intangible assets 264 249
Consolidation differences 178 167
Tangible assets 3,589 3,474
Investments - equity
accounting 318 277
Other investments 466 495
Deferred tax assets 477 461
Financial receivables and
other non-current assets 446 400
Current assets 3,688 3,783
Inventories 1,095 1,111
Trade receivables 1,543 1,526
Other receivables 606 600
Cash and cash equivalents 444 546
TOTAL ASSETS 9,426 9,304
EQUITY AND LIABILITIES
Total Shareholders'
equity 3,573 3,511
Capital and reserves 2,695 2,643
Minority interests 878 868
Non-current liabilities 3,256 3,537
Long-term provisions 1,775 1,784
Deferred tax liabilities 228 194
Long-term financial debt 1,198 1,539
Other non-current
liabilities 55 20
Current liabilities 2,597 2,257
Short-term provisions 96 56
Short-term financial debt 565 461
Trade liabilities 1,141 927
Income tax payable 31 84
Other current liabilities 764 729
TOTAL EQUITY AND
LIABILITIES 9,426 9,304
Statement of Changes in Equity
in millions of EUR Capital premiums Issue Reserves
Book value at the end
of the previous
period (12/31/2002) 1,269 14 1,627
Income for the
period 181
Distribution -121
Changes in exchange rates
Acquisition/sale of own shares
Adjustment to market value of financial assets
Book value at the end
of the period (06/30/2003) 1,269 14 1,687
in millions of EUR
Own Exchange Direct offset against shares equity
rate differences Shareholders' equity
Book value at the end of
the previous
period (12/31/2002) -102 -117 4 2,695
Income for the period 181
Distribution -121
Changes in exchange rates - -83
Acquisition/sale of own shares -15 -15
Adjustment to market value
of financial assets -14 -14
Book value at the end of
the period (06/30/2003) -117 -200 -10 2,643
RESULTS BY SEGMENT
The table below gives sales without elimination of inter-sector
sales; results by segment include non-recurring items (EBIT).
Millions d'EUR
1st half 02 1st half 03 1st half 03/1st half 02 Var%
Group Sales 4,336 4,114 -5%
Pharmaceuticals 921 882 -4%
Chemicals 1,454 1,389 -4%
Plastics 1,173 1,112 -5%
Processing 786 730 -7%
Unallocated items 0 0 ns
-Discontinuing
operations-1 2 1 -50%
Group EBIT 387 328 -15%
Pharmaceuticals 108 86 -20%
Chemicals 117 103 -12%
Plastics 119 89 -25%
Processing 51 39 -24%
Unallocated items -30 -22 -27%
-Discontinuing
operations-1 22 33 50%
Millions d'EUR
2Q 2002 2Q 2003 2Q 2003/ 2Q 2002 Var%
Group Sales 2,353 2,208 -6%
Pharmaceuticals 465 447 -4%
Chemicals 720 677 -6%
Plastics 624 535 -14%
Processing 421 380 -10%
Unallocated items 0 0 n.s.
-Discontinuing
operations-1 2 1 -50%
Group EBIT 212 148 -30%
Pharmaceuticals 65 46 -29%
Chemicals 50 36 -28%
Plastics 78 31 -60%
Processing 22 23 5%
Unallocated items -9 -4 -56%
-Discontinuing
operations-1 6 16 167%
(1) The results of our high-density polyethylene activities. EBIT is positive because it includes the increase in value of Solvay's put option on its interest in the high-density polyethylene joint ventures to BP. The results of such joint ventures recorded under the equity method were EUR -29 million in the first half of 2003 compared to EUR -15 million in the first half of 2002.
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