2007 results
See also the attached PDF files :
- full press release (including also IFRS financial statements)
- 2007 key data
- 2007 results presentation
Record operating results for Solvay in 2007
of EUR 1.2 billion, up 9% from 2006
(+24% in the 4th quarter)
- Sales (EUR 9,572 million) up 2% (up 4% at constant exchange rates); +1% in the 4th quarter 2007.
- Operating results (EUR 1,192 million) up 9% (+24% in the 4th quarter 2007); at a record level in each of the three sectors :
- Increase of 9% in results in Chemicals and 8% in Plastics;
- Results in Pharmaceuticals comparable (+1%) to 2006, in line with our guidance. +42% in the 4th quarter.
- Net income of the Group (EUR 828 million) exceeding (+1%) the record level of 2006. +25% in the 4th quarter.
- Increase of 4.8% of the net dividend for 2007 to 2.20 EUR per share (2.9333 EUR gross per share).
Sales reached EUR 9,572 million in 2007, up 2% compared to 2006, despite the unfavorable impact of exchange rates. In the 4th quarter of 2007, they were stable (+1%) and reached EUR 2,366 million. At constant exchange rates, they would have increased by 4% (+4% in the 4th quarter 2007).
REBIT1 (EUR 1,192 million) was up 9% over the record level of 2006. The Pharmaceuticals sector posted results comparable (+1%) to those from last year; the Chemicals (+9%) and Plastics (+8%) sectors continued to grow. In the 4th quarter 2007, REBIT amounted to EUR 267 million and improved by 24% compared to the 4th quarter 2006, taking into account the improvement in Pharmaceuticals and Chemicals results, up respectively 42% and 14%.
The operating margin (REBIT on sales) amounted to 12.5%, compared to 11.7% in 2006.
The net income of the Group (EUR 828 million) surpassed (+1%) the record level of 2006; it was up 25% in the 4th quarter 2007, reflecting the improvement in operating results (+24% in the 4th quarter). In 2007, it included positive non-operating items2 of EUR 31 million (compared to a negative balance of EUR 40 million in 2006). However, tax charges were significantly higher (+EUR 158 million) in 2007 taking into account the improvement in results and the one-time effect of tax-rate changes in Germany and Italy (a negative “non cash” effect of EUR 82 million in 2007).
Cash flow3 in 2007 increased by 6% and reached EUR 1,421 million; REBITDA4 amounted to EUR 1,662 million. The net debt to equity ratio was 29% at the end of December 2007, comparable to the situation at the end of December 2006 (28%).
On February 14, 2008 the Board of Directors approved proposing to the Ordinary Shareholders’ Meeting on May 13, 2008 the payment of a net dividend of 2.20 EUR per share (2.9333 EUR gross per share), up 4.8% compared to 2006.
Sales for the Pharmaceuticals Sector in 2007 amounted to EUR 2,591 million, comparable to 2006 despite the unfavorable impact of the USD – it would have increased by 3% at a constant exchange rates. Sales of major products improved, in particular given the excellent performances of Androgel®, fenofibrates and flu vaccines, as well as growth in emerging countries. This compensated for the significant pressure on prices in Europe due to increased competition from generic drugs and the loss of marketing rights to Pantoloc® in Canada. Operating results (EUR 457 million) and the operating margin (17.6%) were comparable to 2006. In the 4th quarter 2007, operating results (EUR 122 million) increased by 42% compared to the 4th quarter 2006. Results in the latter quarter were affected by the more aggressive management of inventories by distributors and especially sustained R&D efforts. Research and Development expenses (EUR 415 million) amounted to 16% of sales for 2007 (14% for the 4th quarter 2007). The “INSPIRE”5 efficiency improvement plan (for a EUR 300 million cost reduction by 2010) continued as planned.
The Chemicals Sector improved in 2007 due to the persistence of a continued favorable global balance between supply and demand. Sales in 2007 (EUR 3,031 million) were comparable (+1%) to 2006 (stable in the 4th quarter). Results (REBIT of EUR 345 million) recorded a growth of 9% compared to 2006 (+14% in the 4th quarter). The “Minerals” and “Oxygen” clusters as well as the “Electrochemistry” activities (caustic soda) continued to record excellent results. The fluor chemical commodities remained under heavy pressure and the announced restructuring is under way.
The Plastics Sector again showed improvement due to the excellent performance of two of its activities (“Specialties” and “Vinyls”). Sales increased by 4% in 2007 (+3% in the 4th quarter 2007) and reached EUR 3950 million. Results (REBIT of EUR 441 million) increased by 8% despite the unfavorable effects of USD and JPY exchange rates, impacting mainly Specialty Polymers. In the 4th quarter, the overall business context remained favorable, especially in Specialties. For Vinyls, the seasonal slowdown in Europe was more marked in the 4th quarter 2007 compared to the same period in 2006.
| “The record results of 2007 are the fruit of our strategy of sustainable and profitable growth which we will continue. At the start of the year 2008, the business context on our main markets remains favorable and we remain attentive to the volatile evolution of global macroeconomic conditions.” |
SOLVAY Group – Summary Financial Information6
|
Millions EUR |
2006 |
2007 |
2007/ |
4th quarter 2006 |
4th quarter 2007 |
4th quarter 2007/ |
|
Sales |
9,399 |
9,572 |
+2% |
2,349 |
2,366 |
+1% |
|
REBIT |
1,099 |
1,192 |
+9% |
216 |
267 |
+24% |
|
REBIT/Sales |
11.7% |
12.5% |
|
9.2% |
11.3% |
|
|
Non-recurring items |
-143 |
+31 |
n.s. |
-25 |
+12 |
n.s. |
|
EBIT7 |
956 |
1,223 |
+28% |
191 |
279 |
+46% |
|
Charges on net indebtedness |
-82 |
-82 |
0% |
-16 |
-21 |
+27% |
|
Income from investments |
+19 |
+24 |
+22% |
0 |
0 |
n.s. |
|
Earnings before taxes |
893 |
1,165 |
+31% |
175 |
258 |
+48% |
|
Income taxes |
-179 |
-337 |
+88% |
-29 |
-76 |
n.s. |
|
Discontinued operations |
+103 |
0 |
n.s. |
0 |
0 |
n.s. |
|
Net income of the Group |
817 |
828 |
+1% |
146 |
182 |
+25% |
|
Net income (Solvay share) |
791 |
781 |
-1% |
142 |
171 |
+20% |
|
Total depreciation |
522 |
593 |
+14% |
139 |
205 |
+47% |
|
REBITDA |
1,568 |
1,662 |
+6% |
339 |
385 |
+14% |
|
Cash flow |
1,339 |
1,421 |
+6% |
285 |
386 |
+36% |
|
(per share, in EUR) |
||||||
|
Earnings per share8 |
9.57 |
9.46 |
-1% |
1.72 |
2.07 |
+20% |
|
Net debt to equity |
28% |
29% |
– |
– |
– |
– |
Notes on Solvay Group summary financial information
Non-recurring items amounted to EUR 31 million in 2007 compared to EUR -143 million in 2006. They include:
- On the one hand, non-recurring income, which is primarily the capital gain (EUR 151 million) booked in the 4th quarter on the sale of the caprolactones activity, the capital gains on the sale of Sofina shares (EUR 73 million) and the sale of rights to subscribe to the increase in capital of Fortis9 (EUR 37 million), and
- On the other hand, non-recurring charges for restructuring costs in the fluorides activities announced in the 4th quarter (EUR 99 million, including EUR 65 million of non-recurring amortization) as well as, in the Pharmaceuticals Sector, for the “INSPIRE” project (EUR 59 million) and for the amortization of an asset (the odiparcil project) due to a reallocation of R&D priorities.
In 2006, non-recurring charges included EUR 133 million for the INSPIRE project.
Charges on net indebtedness were stable and amounted to EUR 82 million. At the end of December 2007, about 100% of the financial debt was covered at a fixed rate of 5.4% with a duration of 7.7 years.
Income on investments represented the dividends paid by Fortis and Sofina in 2007.
Tax charges greatly increased in 2007 (+EUR 158 million) and amounted to EUR 337 million, or an average tax rate of 29%. This is principally due to the improvement in results and the one-time charge of EUR 82 million, without cash effect. In effect, following a drop in the tax rate in Germany in the 3rd quarter and in Italy in the 4th quarter, deferred tax assets were reduced, which generated this non-cash charge.
In 2007, there were no results from discontinued activities, while this amounted to EUR 103 million before taxes in 2006 following the sale of industrial foils.
Net income of the Group amounted to EUR 828 million compared to EUR 817 million in 2006. It improved by 25% in the 4th quarter 2007. Minority interests (EUR 47 million) increased compared to 2006 (EUR 26 million) due to the favorable trend of earnings from investments in which minority interests were present. The resulting net earnings per share amounted to 9.46 EUR in 2007 (compared to 9.57 EUR in 2006).
Cash flow improved 6% and amounted to EUR 1,421 million; REBITDA amounted to EUR 1,662 million. Depreciation (EUR 593 million) was significantly up in 2007 taking into account non-recurring amortization linked to restructuring in Fluor activities and in Pharmaceuticals.
Total equity amounted to EUR 4,459 million at the end of December 2007, stable compared to the end of 2006. The net debt of the Group at the end of 2007 (EUR 1,307 million) was up slightly compared to that of December 31, 2006 (EUR 1,257 million). The increase in working capital compared to December 31, 2006 was the result especially of an increase in current assets at the end of 2007 taking into account the expected receipt in 2008 of the proceeds of the sale of the caprolactones activities finalized in 2007. The net debt to equity ratio was 29% at the end of December 2007, compared to 28% at the end of 2006. This situation reflects the Group’s policy of having a sound financial situation, in line with the objective of not persistently exceeding a net debt to equity ratio of 45%.
On February 14, 2008 the Board of Directors agreed to propose to the General Shareholders’ meeting of May 13, 2008 the payment of a net dividend of 2.20 EUR per share (2.9333 EUR gross per share), up 4.8% compared to 2006. On the basis of the share price of February 13, 2008 (83.36 EUR), this represents a gross dividend yield of 3.5% and a net dividend yield of 2.6%.
Considering the prepayment of 0.85 EUR net per share (coupon no. 81), which was paid on January 17, 2008, the balance of the dividend for 2007, 1.35 EUR net per share (coupon no. 82) will be paid on May 20, 2008. In addition it is to be noted that the Group’s dividend policy consists of increasing it anytime possible and, if possible, not decreasing it. For 26 years, the dividend has gradually increased and has never been reduced.
INVESTMENTS and RESEARCH & DEVELOPMENT
The Group is actively pursuing its strategy of sustainable and profitable growth through projects in its three sectors of activity. These are investments targeted to expand its activities and its industrial platforms in certain emerging markets such as Asia, Mercosur and Russia. That is the case, for example, with the Epicerol® process for epichlorohydrin and hydrogen peroxide in Thailand, specialty polymers in India and China or vinyls in Russia and Mercosur. It also includes projects for improvement in our energy efficiency. Simultaneously, the Group is reinforcing exploration of new promising areas in the medium term, especially in membranes for fuel cells (co-enterprise with SolviCore), organic products for electronics, lighting or photovoltaic cells (Plextronics), and nanotechnologies.
Research and Development costs (R&D) in 2007 reached EUR 556 million of which 75% were in the Pharmaceuticals Sector. R&D efforts from this sector amounted to EUR 415 million, or 16% of sales. The R&D budget for 2008 is EUR 578 million, of which 75% is for the Pharmaceuticals Sector.
Investments in 2007 represented EUR 777 million compared to an initial budget of EUR 905 million. For 2008, the investment budget is ambitious and amounts to EUR 1,091 million. These investments permit the Group to implement a series of projects in the framework of its strategy for sustainable and profitable growth and a dynamic management of its portfolio of activities. However, the Group is carefully applying its policy of selectivity, which aims to adapt, to the extent possible, the timing of its investments with the evolution of its performance and the macroeconomic context.
RESULTS BY SEGMENT10
|
Millions EUR |
2006 |
2007 |
2007/ 2006 |
4th quarter 2006 |
4th quarter 2007 |
4th quarter 2007/ |
|
GROUP SALES |
9,399 |
9,572 |
+2% |
2,349 |
2,366 |
+1% |
|
Pharmaceuticals |
2,601 |
2,591 |
0% |
666 |
656 |
-2% |
|
Chemicals |
2,998 |
3,031 |
+1% |
743 |
743 |
0% |
|
Plastics |
3,800 |
3,950 |
+4% |
940 |
967 |
+3% |
|
“Corporate and Business Support” 11 |
– |
– |
– |
– |
– |
– |
|
GROUP REBIT |
1,099 |
1,192 |
+9% |
215 |
267 |
+24% |
|
Pharmaceuticals |
451 |
457 |
+1% |
86 |
122 |
+42% |
|
Chemicals |
315 |
345 |
+9% |
60 |
69 |
+14% |
|
Plastics |
409 |
441 |
+8% |
94 |
92 |
-2% |
|
“Corporate and Business Support” 11 |
-76 |
-51 |
-33% |
-25 |
-16 |
-37% |
|
GROUP REBITDA |
1,568 |
1,662 |
+6% |
339 |
385 |
+14% |
|
Pharmaceuticals |
554 |
559 |
+1% |
115 |
148 |
+29% |
|
Chemicals |
484 |
508 |
+5% |
104 |
109 |
+5% |
|
Plastics |
595 |
636 |
+7% |
142 |
140 |
-1% |
|
“Corporate and Business Support” 11 |
-65 |
-40 |
-39% |
-22 |
-13 |
-41% |
1 Operating results, i.e. EBIT before non-recurring items
2 Non-operating results: i.e. non-recurring items and results from discontinued activities.
3 Net income plus total depreciation.
4 REBITDA: REBIT, before recurring depreciation and amortization.
5 See also comments on page 8.
6 Financial statements audited by Deloitte.
7 EBIT : Earnings Before Interests and Taxes
8 Calculated on the basis of the weighted average of the number of shares outstanding, after deducting shares purchased to cover stock options, or a total of 82,669,267 shares for 2006 and 82,585,998 shares for 2007.
9 It should be recalled that Solvay chose to sell part of its subscription rights concerning an increase in capital of Fortis in order to be able to finance a partial subscription (about 2.5 million new shares).
10 Results by sector include results from the three sectors of the Group, as well as Corporate and Business Support
11 Non-allocated items, after more direct allcoations starting in 2007.