Nine months 2008 results
See also the attached PDF files :
- full press release (including also IFRS financial statements)
- nine months 2008 key data
- nine months 2008 results presentation
- acquisition of Innogenetics nv : additional disclosures as of 30/09/2008
Operating results for Solvay Group (EUR 840 million)
down by 9% compared to the excellent results
of the first nine months 2007
Good resistance in the third quarter (-6%)
- Sales (EUR 7,217 million) stable (+3% at constant exchange rates) for the first 9 months and up by 4% in the third quarter
- Operating results (EUR 840 million): -9% compared to the high level of the first nine months of 2007 (-6% in the third quarter)
- Pharmaceuticals (+11% in the first nine months; -4% in the third quarter): Growth in the principal products and miscellaneous income largely compensated for the unfavorable exchange rates and sustained R&D investments, as well as the co-promotion of Simcor® 1 .
- Chemicals (-25% in the first nine months; -19% in the third quarter): Generally good demand; price increases in caustic soda in the third quarter; high energy and coke costs
- Plastics (-17% in the first nine months; stable in the third quarter): Generally good demand; improvement in performances for Specialty Polymers in the third quarter; increases in sales prices in Vinyls in the third quarter to compensate for the price increase of ethylene.
- Net income of Group (EUR 426 million, -34%), impacted positively by an adjustment in book value of US soda ash and negatively by one of Fortis holdings, for a total net amount of EUR -192 million
- Interim dividend of 0.90 EUR net per share (1.20 EUR gross per share)
- Strong financial structure: no significative debt maturity before 2014
Group sales (EUR 7,217 million) in the first nine months 2008 were stable compared to the first nine months 2007; they were up by 4% in the third quarter. Demand for our principal industrial products remained good overall but the unfavorable exchange rates weighed on the evolution in sales. At constant exchange rates, they would have increased by 3%.
Group operating results (REBIT 2 ; EUR 840 million) posted a decline of 9% compared to the first nine months of 2007 taking into account the pronounced degradation of margins in the Chemicals sector and European vinyls activities. The decline was limited to 6% in the third quarter, taking into account, notably, the increases in sales price for caustic soda and vinyl products in Europe. Cost-control measures and targeted restructurings (Inspire, fluorinated commodities, etc.) also contributed to the operating performance.
The operating margin (REBIT on sales) was 11.6% compared to 12.8% in the first nine months 2007. It amounted to 11.7% in the third quarter 2008.
The net income of the Group (EUR 426 million) declined by 34% compared to the first nine months 2007. This result was impacted by a write-down (non-cash charge) on holdings in Fortis (EUR 256 million). The major part of this amount (EUR 164 million) had already been charged against equity at the end of June 2008. In addition, it benefits from the reversal of an impairment of a trona mine (natural soda ash) in the United States (EUR 64 million, after taxes).
The REBITDA 3 was EUR 1,184 million (-7%); the decline was limited to 4% in the third quarter.
Solvay has a strong financial structure. The net debt to equity ratio reached 39% at the end of September 2008, after payment of EUR 157 million for the acquisition of Innogenetics shares, compared to 33% at the end of September 2007. It is to be noted that the first significant debt maturity will not occur until 2014.
On October 29, 2008, the Board of Directors decided, for the current period, to declare an interim dividend of 0.90 EUR net per share (1.20 EUR gross per share), representing, as usual, 40% (rounded) of last year’s total dividend.
Sales from the Pharmaceuticals Sector (EUR 1,944 million) were up 1% compared to the first nine months of 2007 (+2% in the third quarter). At constant exchange rates, they would have increased by 6% in the first nine months (and 7% in the third quarter). Principal products growth in emerging countries and in Europe and miscellaneous income largely compensated for the negative effects. These were unfavorable exchange rates and significant pressures resulting from generic drug competition, especially in France and in the United States (for Marinol®). Operating results (EUR 372 million) were up by 11% compared to the first nine months of 2007 (-4% in the third quarter). They included results (EUR 71 million) on sale of non-strategic products (Baldrian®, Flammazine® and Alvityl®) during the first half of 2008. These factors more than compensated for the unfavorable exchange rates as well as the sustained investments in R&D (17.4% of sales) and in the co-promotion of Simcor® in the United States. In the first nine months, R&D expenses (EUR 338 million) were up by EUR 16 million compared to 2007, and in line with the 2008 budget of EUR 430 million focused primarily on development of molecules for the cardiometabolic and neuroscience franchises.
The Chemicals and Plastics activities were marked in the first nine months 2008 by increased costs of energy, coal, coke, ethylene and propylene. This translated into significant pressure on margins, especially in the Chemicals Sector and the European vinyls activities. In this context, Solvay in the third quarter 2008 proceeded with significant price hikes for its main chemicals and plastics products, in particular caustic soda and PVC. These price hikes contributed to an improvement in margins.
In the first nine months 2008, sales from the Chemicals Sector (EUR 2,330 million) improved by 2% due to the continued generally sustained demand. Operating results (EUR 206 million) were down by 25% compared to the first nine months of 2007 (-19% in the third quarter) due to increased costs of energy, coal, coke, propylene, and products distribution as well as production and startup surcharges. The Minerals cluster continued its improvement in sales but its results were affected primarily by energy costs. The Electrochemistry and fluorinated products clusters benefited during the third quarter 2008 from the impact of significant sales price hikes in caustic soda, with demand remaining at good levels; epichlorohydrin was down sharply from last year. The Oxygen cluster was affected by, on the one hand, pressures on hydrogen peroxide prices in Europe and on the other hand, the change in perimeter linked to sale of the caprolactones activity in 2007.
In the first nine months 2008, sales (EUR 2,942 million) of the Plastics Sector were practically stable compared to 2007 due to the overall good demand. Operating results for the first nine months of 2008 (EUR 291 million) were down by 17% compared to the excellent results achieved in the first nine months 2007. Operating results in the third quarter 2008 were equivalent to those of the third quarter 2007, thanks to Specialty Polymers and the Vinyls cluster.
Improvement in volumes of Specialty Polymers continued (+9% in the first nine months). Continued sales price increases of some polymers helped to mitigate the negative impact of increased raw materials costs.
In the Vinyls activities, in the third quarter, significant sales price hikes in Europe compensated for the increased costs of energy and ethylene over these last few months. The situation in Asia and Mercosur remained favorable and margins held at a good level.
| Outlook: “As previously announced, the operating results of the Solvay group for the year 2008 will remain at a sustained level but will not reach the record results of the year 2007. The operating result of the Pharmaceuticals sector should exceed the record level of 2007.” |
SOLVAY Group – Summary Financial Information
|
Million EUR |
9 months 2007 |
9 months 2008 |
9 months 2008/ |
3rd quarter 2007 |
3rd quarter 2008 |
3rd quarter 2008/ |
|
Sales |
7,206 |
7,217 |
0% |
2,399 |
2,486 |
4% |
|
REBIT |
925 |
840 |
-9% |
309 |
292 |
-6% |
|
REBIT/Sales |
12.8% |
11.6% |
– |
12.9% |
11.7% |
– |
|
Non-recurring items |
18 |
50 |
– |
52 |
84 |
61% |
|
EBIT 4 |
944 |
890 |
-6% |
361 |
376 |
4% |
|
Charges on net indebtedness |
-60 |
-64 |
6% |
-22 |
-13 |
-43% |
|
Income from investments |
24 |
-247 |
– |
9 |
-256 |
– |
| Earnings before taxes |
907 |
580 |
-36% |
349 |
107 |
-69% |
|
Income taxes |
-261 |
-153 |
-41% |
-115 |
-32 |
-72% |
|
Discontinued operations |
0 |
0 |
– |
0 |
0 |
– |
|
Net income of the Group |
646 |
426 |
-34% |
233 |
75 |
-68% |
|
Net income (Solvay share) |
610 |
376 |
-38% |
218 |
41 |
-81% |
|
Total depreciation |
388 |
278 |
-28% |
137 |
32 |
-77% |
|
REBITDA |
1,277 |
1,184 |
-7% |
427 |
411 |
-4% |
|
Cash flow |
1,035 |
705 |
-32% |
370 |
107 |
-71% |
|
(per share, in EUR) |
||||||
|
Earnings per share 5 |
7.38 |
4.52 |
-39% |
2.63 |
0.49 |
-81% |
|
Net debt to equity ratio |
33% |
39% |
– |
– |
– |
– |
Notes on Solvay Group summary financial information
Non-recurring items amounted to EUR +50 million in the first nine months 2008 compared to EUR +18 million in the first nine months 2007. They included in the third quarter a reversal of an impairment on the trona mine (natural soda ash) in the United States (EUR 89 million, before taxes). Other items, recorded previously in 2008, included the capital gains before taxes (EUR 29 million) on the sale of Solvay Engineered Polymers in the United States, restructuring charges in the Pharmaceuticals Sector for the “INSPIRE” project (EUR 39 million) as well as EUR 12 million for depreciation of assets in the framework of restructuring activities at Girindus (SBU Molecular Solutions) in Germany.
Investment income included an extraordinary – non cash – write-down (EUR 256 million) of holdings in Fortis, henceforth posted based on a value of EUR 4.30 per share. A major part of this amount (EUR 164 million) had already been charged against equity at the end of June 2008. This participation was acquired by the Group between World War I and II. More recently, it generated capital gains of around EUR 200 million (in 1998 and 2007) and an annual dividend of EUR 20 million in 2007.
Charges on net indebtedness amounted to EUR -64 million. These included in the third quarter an unrealized profit of EUR 13 million on a foreign exchange hedging. Financial debt at the end of September 2008 was covered up to 79% at a fixed rate of on average 5.4%, and with a duration of 7.6 years.
Income taxes amounted to EUR -153 million in the first nine months 2008 (EUR –32 million in the third quarter 2008). They were impacted in the third quarter by tax credits in Belgium and Italy. The effective tax rate for the first nine months 2008 amounted to 26%, compared to 29% in the first nine months 2007.
Net income of the Group (EUR 426 million) declined by 34% compared to nine months 2007. Minority interests amounted to EUR 50 million compared to EUR 36 million in the first nine months 2007. Net earnings per share amounted to 4.52 EUR in the first nine months 2008, compared to 7.38 EUR in the first nine months 2007.
REBITDA amounted to EUR 1.184 million (-7%); it declined by 4% in the third quarter. Recurring depreciation was stable compared with the first 9 months of 2007. Total depreciation (EUR 278 million) was down by 28% due to the reversal of the impairment, in the third quarter, on the trona mine (natural soda ash).
Equity amounted to EUR 4,901 million at the end of September 2008, up by EUR 442 million compared to the end of December 2007 (EUR 4,459 million). Net indebtedness of the Group at the end of September 2008 (EUR 1,896 million) was up compared to the situation at the end of December 2007 (EUR 1,307 million), after payment of EUR 157 million for the acquisition of Innogenetics shares and taking into account the increase of working capital at the end of September. The net debt to equity ratio was 39% at the end of September 2008, compared to 33% at the end of September 2007 and 29% at the end of December 2007.
This ratio reflects the sound financial structure of the Group, in line with its financial targets.
RESULTS BY SECTOR 6
|
Million EUR |
9 months 2007 |
9 months 2008 |
9 months 2008/ |
3rd quarter 2007 |
3rd quarter 2008 |
3rd quarter 2008/ |
|
GROUP SALES 7 |
7,206 |
7,217 |
0% |
2,399 |
2,486 |
4% |
|
Pharmaceuticals |
1,935 |
1,944 |
1% |
683 |
696 |
2% |
|
Chemicals |
2,289 |
2,330 |
2% |
761 |
802 |
5% |
|
Plastics |
2,983 |
2,942 |
-1% |
954 |
988 |
4% |
|
Corporate and Business Support |
– |
– |
– |
– |
– |
– |
|
GROUP REBIT |
925 |
840 |
-9% |
309 |
292 |
-6% |
|
Pharmaceuticals |
336 |
372 |
11% |
130 |
125 |
-4% |
|
Chemicals |
276 |
206 |
-25% |
87 |
71 |
-19% |
|
Plastics |
349 |
291 |
-17% |
104 |
104 |
0% |
|
Corporate and Business Support |
-35 |
-29 |
-19% |
-12 |
-8 |
-33% |
|
GROUP REBITDA |
1,277 |
1,184 |
-7% |
427 |
411 |
-4% |
|
Pharmaceuticals |
411 |
450 |
9% |
155 |
152 |
-2% |
|
Chemicals |
398 |
325 |
-18% |
129 |
112 |
-13% |
|
Plastics |
495 |
431 |
-13% |
153 |
153 |
0% |
|
Corporate and Business Support |
-27 |
-22 |
-20% |
-10 |
-6 |
-40% |
1 Simcor®: combined fixed-dose lipid treatment (Niaspan®/simvastatine) developed by Abbott
2 REBIT: measure of operating performance (this is not an IFRS concept as such)
3 REBITDA : REBIT, before recurring depreciation
4 EBIT: results before financial charges and taxes.
5 Calculated on the basis of the weighted average of the number of shares in the period, after deduction of own shares purchased to cover the stock option programs, or a total of 82,706,652 shares in the first nine months 2007 and 83,218,508 shares in the first nine months 2008.
6 Results by sector include results from the three sectors of the Group, as well as Corporate and Business Support.
7 These are sales after elimination of inter-sector sales