BELGIUM, Oct. 31, 2003 (PRIMEZONE) -- SOLVAY GROUP:
-- Pharmaceuticals Sector: 14% increase in results in third quarter of 2003; positive developments in R&D : forthcoming introduction of registration dossiers for cilansetron and move to Phase III trials for bifeprunox -- Plastics Sector: results down 71% in the third quarter of 2003, primarily due to vinyls in Europe
Sales of the Solvay group for the first nine months of 2003 were EUR 5,685 million, down 5% compared to the same period of 2002. At constant exchange rates, they would have increased by 1%.
Consolidated net income (EUR 297 million) was down 25% compared to the very good first nine months of 2002 (EUR 396 million). Third quarter 2003 income was at a level comparable to that of the two preceding quarters and was lower than that for the third quarter of 2002, which was the best quarter of that year.
The result for the first nine months of 2003 were recorded in a very difficult economic context, marked by the effect on prices of the significant destocking from the second quarter of 2003 in vinyls and in the chlor-alkali chain and by the strengthening of the EUR, which weighed down both margins on exports and the conversion into EUR of results recorded in USD.
However, in the past several weeks, some signs of improvements going for price increases were achieved in PVC and caustic soda.
In this difficult context, the Group has nevertheless been able to rely on the competitiveness of its activities and the continued strength of results of the Pharmaceuticals Sector (up 14% in the third quarter of 2003). It has also monitored carefully the selection of its capital investments and has carried out a series of restructurings aimed at improving its cost structure. Strict measures to control working capital have also been taken. Net debt to equity ratio remained stable.
Regarding trends, the results of the Group for the fourth quarter of 2003 should be close to those of the fourth quarter of 2002. For the whole of 2003, it has been confirmed that the Group's results will be down from the record year 2002 and should be in line with the 2001 results.
KEY FIGURES
Millions of EUR 9 months 2002 9 months 2003 9 months 2003/ 9 months 2002 Var% Sales 6,014 5,685 -5% REBIT(1) 623 493 -21% EBIT 598 487 -19% Charges on net indebtedness -69 -66 -4% Income taxes -129 -115 -11% Equity earnings -19 -24 26% Income from investments 15 15 - Net income of the Group 396 297 -25% Net income (Solvay share) 375 272 -27% Depreciation & Amortization 384 319 -17% Recurring depreciation & amortization 331 321 -3% Cash flow(2) 780 616 -21% EUR Net earning per share (3) 4.51 3.29 -27% Millions of EUR 3rdQ 2002 3Q 2003 3rd quarter 2003/ 3rd quarter 2002 Var% Sales 1,965 1,895 -4% REBIT(1) 204 151 -26% EBIT 211 159 -25% Charges on net indebtedness -25 -25 - Income taxes -27 -40 48% Equity earnings -4 5 n.s. Income from investments - - - Net income of the Group 155 98 -37% Net income (Solvay share) 143 91 -36% Depreciation & Amortization 105 111 6% Recurring depreciation & amortization 106 111 5% Cash flow(2) 260 209 -20% EUR Net earning per share (3) 1.72 1.10 -36%
(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 the 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 83,056,229 shares for the nine months of 2002 and 82,760,311 shares for the nine months of 2003.
COMMENTS ON KEY FIGURES for the nine months of 2003 and BALANCE SHEET
Non-recurring items for the first nine months of 2003 amounted to -- EUR 6 million, including, on the one hand, significant provisions for restructuring (among others the shutdown of the VCM and PVC units at Ludwigshafen) and a charge linked to internal transfer of a pharmaceutical product and, on the other hand, the reversal of reserves no longer needed. In addition, there have been no new developments in 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 these results.
Charges on net indebtedness amounted to EUR 66 million, down 4% compared to the first nine months of 2002.
Income taxes were EUR 115 million, with an average tax rate of about 27%.
Income from Investments represent annual dividends paid by Fortis and Sofina in the second quarter.
Equity earnings of the joint ventures with BP in high-density polyethylene remained negative (-EUR 24 million). Improvement was noted in the third quarter of 2003, which translated into improvement in market conditions and margins in the United States and Europe.
The net income of the Group was EUR 297 million, down 25% compared to the first nine months of 2002. Minority interests were EUR 25 million, of which EUR 20 million represents preferred dividends linked to the financing of EUR 800 million for the Ausimont acquisition. Net earnings per share fell 27% to EUR 3.29.
Depreciation and amortization fell by EUR 65 million compared to the first nine months of 2002, due to recording of significant non-recurring depreciation (EUR 58 million) in the first quarter of 2002, linked to the sublicense of Teveten(r) anti-hypertensive in the US to Biovail and the voluntary withdrawal of Luvox(r) from the American market. Cash flow was EUR 616 million for the first nine months of 2003, down 21%. It more than covered the increase of the working capital requirements and the industrial investments, leading to the Group's policy of rigorously controlling the levels of both.
Net indebtedness of the Group at 30 September 2003 amounted to EUR 1,376 million, slightly up from 31 December 2002. The net debt to equity ratio at the end of the third quarter of 2003 amounted to 38%, compared to 37% at the end of 2002.
RECURRING RESULTS BY SEGMENT
The results by segment include the results of the four sectors of the Group and 'Discontinuing operation' 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 9 months 2002 9 months 2003 9 months 2003/ 9 months 2002 Var% Group Sales 6,014 5,685 -5% Pharmaceuticals 1,393 1,370 -2% Chemicals 1,998 1,892 -5% Plastics 1,482 1,354 -9% Processing 1,138 1,067 -6% Unallocated items - - - Discontinuing operation 3 2 -33% REBIT Group 623 493 -21% Pharmaceuticals 179 168 -6% Chemicals 195 154 -21% Plastics 200 117 -42% Processing 72 58 -19% Unallocated items -52 -34 -35% Discontinuing operation 28 31 11% Millions of EUR 3rd quarter 3rd quarter 3rd quarter 2003/ 2002 2003 3rd quarter 2002 Var% Group Sales 1,965 1,895 -4% Pharmaceuticals 471 488 3% Chemicals 651 619 -5% Plastics 486 446 -8% Processing 356 341 -4% Unallocated items - - - Discontinuing operation 1 1 - REBIT Group 204 151 -26% Pharmaceuticals 69 79 14% Chemicals 57 48 -16% Plastics 78 23 -71% Processing 17 17 - Unallocated items -26 13 -50% Discontinuing operation 9 -2 n.s.
Pharmaceuticals Sector
-- 14% increase in results in the third quarter of 2003; positive developments in R&D: forthcoming introduction of registration dossiers for cilansetron and move to Phase III trials for bifeprunox. -- Current forecasts indicate that the Pharmaceuticals Sector results for the second half of 2003 should be above those for the second half of 2002.
The Pharmaceuticals Sector's sales, expressed in EUR, fell by 2% for the first nine months 2003 but were up 3% from the third quarter of 2002 to the third quarter of 2003. At constant exchange rates, they were up 7% for the first nine months 2003.
Sales in Cardiology increased 13% compared to the first nine months of 2002, thanks to the growth in sales (+30%) of Teveten(r) anti-hypertensive medication. Influvac(r) anti-influenza vaccine experienced a very successful third quarter of 2003 and an equally strong showing for the first nine months of the year (up 15%). Mental health products grew 1% while Gynecology/Andrology and Gastroenterology were down 3% and 2% respectively.
American sales increased 18% in USD (-1% in EUR) under the influence of the growth in sales of the drug Androgel(r)(up 56% in USD), Promertrium(r) (up 34% in USD) and Marinol (up 89% in USD). Sales of Estratest(r) declined 19% in USD under competitive pressure, the effect of the debates on hormone treatments and the reduction of distributor inventories. Discussions in progress with the FDA (Food and Drug Administration) on the administrative status of Estratest(r) are being pursued constructively but at the same time that status generated two lawsuits in the United States. In addition the Women's Health Initiative (WHI) study gave rise to private suits in the US against producers of female hormone treatments, including Solvay Pharmaceuticals, Inc., even though our products do not contain the same hormones as those included in the WHI study.
European sales and results continued to experience significant pressures on prescription pricing and volumes.
The Group has intensified its R&D program (up 12% for the first nine months of 2003 compared to the same period in 2002). R&D expenses represent about 16% of sector sales, as a result of the intensification of research efforts and the large number of R&D projects. Worth noting was the move into Phase III trials for bifeprunox, a treatment for psychosis and schizophrenia co-developed with Lunbeck. Furthermore, as announced on October 29, 2003, it has been decided to expedite the preparation of the registration dossiers of cilansetron (treatment of irritable bowel syndrome) following the positive results of first two of three Phase III clinical trials. Submission of these dossiers is scheduled for the beginning of 2004.
The results of the Pharmaceuticals Sector (EUR 168 million) for the first nine months of 2003 are down 6% - at constant exchange rates they would have been up 7%- compared to the first nine months of 2002. It should be noted that the results of the third quarter of 2003 are up 14% from the same period of the previous year, despite the drop in the USD.
Chemicals Sector
-- Weakness in the chlor-alkali chain and impact of the strengthening of the EUR on exports, particularly of soda ash and fluorinated gases.
The results of the Chemicals Sector were down 21% for the first nine months of 2003 compared to the same period of the previous year as a result of weakening of activities, among others in the chlor-alkali chain, as well as the competitive pressures resulting from the impact of a stronger EUR, particularly on our exports of soda ash and fluorinated gases. Other activities such as the Hydrogen Peroxide SBU recorded improvement. The increase in caustic soda prices beginning in October 2003, the improvement in results noted in the third quarter of 2003 in fluorinated gases, thanks to the increasing contribution of Solkane(r) 365 mfc HFC, and the continued good performance of hydrogen peroxide, should have a favorable influence on the performance of the Chemicals Sector in the fourth quarter of 2003.
Plastics Sector
-- A significant decline in the third quarter of 2003 in vinyls activities and performance compounds compared to a very good third quarter in 2002. Specialty polymers were unable to reproduce in the third quarter of 2003 the excellent performance of the third quarter of 2002, influenced by the weakness in volumes in certain markets and the negative impact of the strengthening of the EUR.
The Plastics Sector recorded a decline of 42% in its results for the first nine months of 2003 and 71% for the third quarter. Vinyls in Europe experienced a significant drop beginning in June 2003. However, price increases have been achieved recently. Asian and South American vinyl activities posted satisfactory results. Specialty Polymers suffered from weaknesses in volumes in certain segments of the market (e.g. telecommunications and electronics) and the negative impact of exchange rates between the USD and the EUR, particularly in fluorinated polymers. Worthy of note was the good performance of fluorinated fluids and elastomers and of certain high-performance polymers. Overall, selling prices of specialty polymers remained constant. These products remain major contributors to the results of the Group.
Processing Sector
-- Sluggishness of the economic context lessened by deployment and restructuring initiatives.
Even though the results of the Processing Sector for the third quarter of 2003 were equal to those for the third quarter of 2002, cumulative results for the first nine months of 2003 were down 19%. Inergy Automotive Systems (fuel systems) continued its volume growth, thanks to the growth of the Asian market and despite the reduction in volumes experienced by the main American and European automobile manufacturers. Its results were nevertheless affected by the weakness of the USD and strong pressure on selling prices. Results of Industrial Films and Pipelife (pipes and fittings) were affected by a less favorable global economic environment. The impact was lessened, for pipes and fittings, by the effect of restructuring measures and improvement in the product mix, and for industrial films, by the improved performance of certain specialties applications, such as laminates and technical films.
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 et Touche conducted a limited review of the consolidated financial situation as of 30 September 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 dates for financial communication in 2003
-- 18 December 2003: press release about the payment of the interim dividend relating to 2003 (payment on 15 January 2004). -- 13 February 2004: results of the fourth quarter of 2003 and the year 2003 -- 26 March 2004: consolidated financial statements for 2003 and announcement of the dividend relating to 2003.
IFRS FINANCIAL STATEMENTS
(Statements have been subjected to a limited review by the external auditors, Deloitte & Touche)
in millions of EUR 9 months 2002 9 months 2003 Sales 6,014 5,685 Cost of goods sold -4,008 -3,824 Gross margin 2,006 1,862 Commercial and administrative costs -1,055 -1,019 Research and development costs -289 -308 Other operating gains & losses -53 -44 Other financial gains & losses 14 4 REBIT 623 493 Non-recurring items -25 -6 EBIT 598 487 Charges on net indebtedness -69 -66 Income taxes -129 -115 Equity earnings -19 -24 Income from investments 15 15 Net income of the Group 396 297 Minority interests -21 -25 Net income (Solvay share) 375 272 Net earnings per share 4.51 3.29 Diluted net earnings per share (1) 4.5 3.29 in millions of EUR 3rd quarter 2002 3rd quarter 2003 Sales 1,965 1,896 Cost of goods sold -1,307 -1,269 Gross margin 658 627 Commercial and administrative costs -343 -333 Research and development costs -94 -111 Other operating gains & losses -22 -16 Other financial gains & losses 5 -15 REBIT 204 151 Non-recurring items 7 7 EBIT 211 159 Charges on net indebtedness -25 -25 Income taxes -27 -40 Equity earnings -4 5 Income from investments 0 0 Net income of the Group 155 98 Minority interests -12 -8 Net income (Solvay share) 143 91 Net earnings per share 1.72 1.10 Diluted net earnings per share (1) 1.72 1.10
(1)calculated based on the number of shares diluted by the stock options issued.
Consolidated statement of sources of funds
in millions of EUR 9 months 9 months 2002 2003 Cash flow from operating activities 494 458 EBIT 598 487 Depreciation and amortization 384 319 Changes in working capital -447 -274 Changes in provisions 24 -16 Income taxes paid -23 -69 Other non-cash items -41 11 Cash flow from investing activities -270 -224 Acquisition/sale of investments 26 -72 Acquisition/sale of assets -199 -293 Income from investments 20 19 Changes in financial receivables -113 123 Effect of changes in method of consolidation -5 -2 Cash flow from financing activities -439 -126 Increase/Decrease of capital 8 0 Acquisition/sale of own shares 0 -16 Changes in borrowings -190 178 Charges on net indebtedness -69 -66 Dividends -188 -222 Net change in cash and cash equivalents -215 108 Currency translation differences -26 -14 Opening cash balance 630 444 Ending cash balance 388 538 Consolidated balance sheet in millions of EUR At the end At the end of of 2002 the 3rd quarter 2003 ASSETS Non-current assets 5,738 5,503 Intangible assets 264 250 Consolidation differences 178 160 Tangible assets 3,589 3,481 Investments -- equity accounting 318 280 Other investments 466 501 Deferred tax assets 477 419 Financial receivables and other non-current assets 446 412 Current assets 3,688 3,726 Inventories 1,095 1,089 Trade receivables 1,543 1,496 Other receivables 606 603 Cash and cash equivalents 444 538 TOTAL ASSETS 9,426 9,229 EQUITY AND LIABILITIES Total Shareholders' equity 3,573 3,575 Capital and reserves 2,695 2,706 Minority interests 878 869 Non-current liabilities 3,256 3,432 Long-term provisions 1,775 1,787 Deferred tax liabilities 228 155 Long-term financial debt 1,198 1,467 Other non-current liabilities 55 22 Current liabilities 2,597 2,222 Short-term provisions 96 59 Short-term financial debt 565 447 Trade liabilities 1,141 923 Income tax payable 31 118 Other current liabilities 764 676 TOTAL EQUITY AND LIABILITIES 9,426 9,229
Statement of changes in stockholders' equity
in millions of EUR Capital Issue Reserves Own premiums shares Book value at the end of the previous period (12/31/2002) 1,269 14 1,627 -102 Income for the period 272 Distribution -121 Changes in exchange rates Acquisition/sale of own shares -15 Adjustment to market value of financial assets Book value at the end of the period (30/09/2003) 1,269 14 1,778 -117
in millions of EUR Exchange Direct charges Stockholders' differences to stockholders' equity equity Book value at the end of 2,695 the previous period (12/31/2002) -117 4 Income for the period 272 Distribution -121 Changes in exchange rates -116 -116 Acquisition/sale of own shares -15 Adjustment to market value of financial assets -9 -9 Book value at the end of the period (30/09/2003) -233 -5 2,706
RESULTS BY SEGMENT
This table indicates sales without elimination of sales between sectors as well as the results by sector including non-recurring elements (EBIT).
Millions of EUR
9 months 9 months 9 months 2003/ 2002 2003 9 months 2002 Var% Group sales 6,448 6,152 -5% Pharmaceuticals 1,393 1,370 -2% Chemicals 2,161 2,059 -5% Plastics 1,745 1,647 -6% Processing 1,146 1,074 -6% Unallocated items - - - Discontinuing operation 3 2 -28% Group EBIT 598 487 -19% Pharmaceuticals 156 163 4% Chemicals 175 156 -11% Plastics 215 112 -48% Processing 76 56 -26% Unallocated items -54 -35 -35% Discontinuing operation 30 35 13% 3rd quarter 3rd quarter 3rd quarter 2003/ 2002 2003 3rd quarter 2002 Var% Group sales 2,112 2,038 -3% Pharmaceuticals 471 488 3% Chemicals 707 670 -5% Plastics 572 535 -6% Processing 361 344 -5% Unallocated items - - - Discontinuing operation 1 1 0% Group EBIT 211 159 -25% Pharmaceuticals 48 77 60% Chemicals 58 53 -9% Plastics 96 23 -76% Processing 25 17 -33% Unallocated items -24 -13 -45% Discontinuing operation 8 2 -74%