BELGIQUE, July 30, 2004 (PRIMEZONE) -- Solvay:
- Pharmaceuticals Sector:
. Acceleration of strategy: major positive impact of agreements with Wyeth and Bristol Myers Squibb, and parallel strengthening of research programs. Filing of registration dossier for cilansetron in the United Kingdom for the European Union and in the United States.
. Temporary negative effects on sales and results of the second quarter from current renegotiations of American distribution contracts.
- Month by month improvement in the Chemicals activities.
The Solvay Group's sales in the first half of 2004 reached EUR 3,831 million, up slightly (+1%) compared to the first half of 2003 and up 4% in the second quarter of 2004. At constant exchange rates, sales would have increased 4% in the first half of 2004 and 6% in the second quarter of 2004.
The Group's net income amounted to EUR 236 million, up 19% compared to the first half of 2003 (EUR 198 million).
Results from the Pharmaceuticals sector increased by 25% in the first half of 2004. As part of an acceleration of its strategy aiming at, among others, the conclusion of partnerships, the sector benefited in the first half of 2004 from the positive impact of the agreements with Wyeth and Bristol Myers Squibb and was thus able to considerably increase (+24%) in parallel its research expenditures. In the second quarter, however, sales and results were affected by the renegotiations now under way for contracts with American distributors, who reduced their purchases and their inventories. The evolution of the numbers of prescriptions was not affected by the renegotiations. This situation is gradually getting back to normal and should not have a persistent negative effect on margins. In addition, Solvay Pharmaceuticals Inc. collected the first instalment (USD 18 million) of compensation from litigation with Barr. Note also that Solvay Pharmaceuticals filed a registration dossier for cilansetron in the United Kingdom for the European Union and in the United States.
Results from the Chemicals sector in the first half of 2004 are still lower than the first half of 2003 (-19%), but trends in both volumes and prices have been improving month by month.
Results
from the Plastics (+45%) and Processing (+5%) improved over the six months, with significant growth in the Specialty Polymers and Vinyls activities in particular.
The Group is actively pursuing its restructuring measures, especially in the Chemicals sector. These measures are part of the program to reduce the sector's principal operating costs by 20% over 3 years.
We believe that the favorable trends noted over the first 6 months of 2004 will continue. The results from the Pharmaceuticals sector for 2004 should be in line with those from 2003. For the Group as a whole, we remain confident that full-year results for 2004 will compare positively with those of 2003.
KEY FIGURES 1st half 2003 1st half 2004 1st half 2004/
1sthalf 2003
%
Millions of EUR
Sales 3,790 3,831 1%
REBIT(1) 342 367 7%
EBIT 328 367 12%
Charges on net
indebtedness -41 -47 15%
Income taxes -75 -92 23%
Equity earnings -29 -8 -72%
Income from
investments 15 16 7%
Net income of
the Group 198 236 19%
Net income
(Solvay share) 181 218 20%
Depreciation &
Amortization 209 217 4%
Cash flow(2) 407 453 11%
EUR
Earning
per share(3) 2.19 2.63 20%
KEY FIGURES
2nd quarter 2nd quarter 2nd quarter 2004/
2003 2004 2nd quarter 2003
var %
Millions of EUR
Sales 1,883 1,954 4%
REBIT(1) 159 166 4%
EBIT 148 164 11%
Charges on
net indebtedness -20 -24 20%
Income taxes -29 -33 14%
Equity earnings -13 -4 -69%
Income from
investments 15 16 7%
Net income
of the Group 100 119 19%
Net income
(Solvay share) 92 109 18%
Depreciation &
Amortization 102 112 10%
Cash flow(2) 202 231 14%
EUR
Earning
per share(3) 1.11 1.32 19%
COMMENTS ON KEY FIGURES and BALANCE SHEET in the first half of 2004
Non-recurring items in the first half of 2004 individually were not very significant and on balance were negligible.
Charges on net indebtedness amounted to EUR 47 million, up 15% compared to the first half of 2003, following the extension of long-term debt coverage.
Income taxes amounted to EUR 92 million, with a tax rate on average of about 29%.
Income from investments represented the annual dividends paid by Fortis and Sofina in the second quarter.
Equity earnings from the high-density polyethylene activities, despite improvement, remained negative (-EUR 8 million). Net income of the Group was EUR 236 million, up 19% compared to the first half of 2003 (EUR 198 million). Minority interests in the results were EUR 18 million, of which EUR 12 million represented the preferred dividends linked to the financing of 800 million EUR for acquisition of Ausimont. Net earnings per share for the first half of 2004, amounted to 2.63 EUR. Depreciation and amortization increased by EUR 8 million (+4%) compared to the first half of 2003. Cash flow was EUR 453 million, up by 11%. The Group's net indebtedness as of June 30, 2004 (EUR 1,263 million) was up by 13% compared to December 31, 2003, following payment of the dividend in June and a seasonal increase in working capital needs. The net debt to equity ratio at the end of the second quarter of 2004 amounted to 34%, against 32% at the end of 2003 and 41% at the end of the second quarter of 2003.
RECURRING RESULTS BY SEGMENT(4)
1st half 1st half 1st half. 2004/ 2nd quarter
2003 2004 1sthalf 2003 2003
%
Millions of EUR
Group sales 3,790 3,831 1% 1,883
Pharmaceuticals 882 808 -8% 447
Chemicals 1,208 1,185 -2% 599
Plastics 909 1,043 15% 437
Processing 726 729 0% 379
Non-allocated
items - - - -
- Discontinuing
operations - 66 66 0% 22
Group REBIT 342 367 7% 159
Pharmaceuticals 89 111 25% 47
Chemicals 97 79 -19% 40
Plastics 94 136 45% 38
Processing 41 43 5% 24
Non-allocated
items -21 -23 10% -3
- Discontinuing
operations - 41 22 -46% 12
2nd quarter 2ndquarter 2004/
2004 2nd quarter 2003
Var %
Millions of EUR
Group sales 1,954 4%
Pharmaceuticals 394 -12%
Chemicals 607 1%
Plastics 535 22%
Processing 393 4%
Non-allocated items - -
- Discontinuing operations - 24 9%
Group REBIT 166 4%
Pharmaceuticals 18 -62%
Chemicals 45 13%
Plastics 79 108%
Processing 28 17%
Non-allocated items -10 233%
- Discontinuing operations - 6 -50%
PHARMACEUTICALS SECTOR
- Acceleration of strategy through reinforcement of R&D programs and conclusion of major partnerships for development and commercialization of new products.
Solvay currently has a rich research portfolio of about 30 molecules that will drive future growth of the sector.
In order to accelerate this development, Solvay over the past few months has concluded major partnership agreements enabling it to strengthen its research programs by taking advantage of additional resources and cost sharing.
These include co-development and co-marketing agreements with Wyeth Pharmaceuticals for psychiatric medications including bifeprunox and with Bristol Myers Squibb for SVL319, designed to treat obesity.
Other concrete results have also been obtained recently. A registration dossier was filed for cilansetron in the United Kingdom for the European Union and in the United States; Teveten(R) Plus, a promising medication for treatment of hypertension, was approved in Europe and Canada; Estrogel(R) was launched in the USA for female hormone replacement therapy; the anti-flu vaccine Invivac(R) was approved in Europe; and the marketing territory for Androgel(R) was expanded.
- Results from the Pharmaceuticals sector in the first half of 2004 were up 25%. The sector benefited from the positive impact of the agreements with Wyeth and Bristol Myers Squibb and that allowed it to increase considerably (+24%) its research expenditures (EUR 166 million). Also, the results were strained by the temporary reduction in American sales, primarily in the second quarter, the weakness of the US dollar and the growth of administrative and commercial costs in preparation for launches of products. Finally, Solvay Pharmaceuticals Inc. collected the first instalment (USD 18 million) of compensation from litigation with Barr.
Sales of the Pharmaceutical Sector, expressed in EUR, dropped 8% in the first half of 2004 compared to the first half of 2003. At constant exchange rates, the decrease would have been limited to 5%.
Sales in the United States in the first half of 2004 dropped 15% in US dollars. Like other pharmaceuticals firms, our American subsidiaries are renegotiating their distribution contracts; this translates into a significant reduction of distributor inventories and a readjustment of distributor commissions. This situation is gradually returning to normal and should not have a persistent negative effect on the margins. However, this has resulted in a one-time loss of American sales of about USD 66 million (about 20% of first half sales in the US), was recorded, for the most part in the second quarter, whereas the number of prescriptions for our products was not affected by the renegotiations. Thus, the sales of Androgel(R) and Marinol(R) in the first half of 2004 dropped by 10% and 5%, respectively, whereas the prescriptions recorded during that same period continue going up (+9% and +20%, respectively). Sales of Estratest(R) (USD 62 million, -26%), like prescriptions, have been dropping due to debates on female hormone replacement therapy since 2002, and to competitive pressures.
Sales of pharmaceuticals products in Western Europe continue to be under significant pressure on prescription prices and volumes. This is compensated for by a marked growth of sales in Central and Eastern Europe and Asia.
- As indicated in the General Shareholders' meeting in June, results from the Pharmaceuticals sector are entering a transition phase before the arrival of new products on the market; through the course of the year, the pharmaceuticals sector should show results in line with those from 2003.
The debate over hormone replacement therapy, especially the publication in July 2002 of the study from the Women's Health Initiative (WHI), generated claims in the US against manufacturers of feminine hormone replacement therapies. Even though our specialty products do not have the same hormone compounds as the products included in the WHI study, Solvay Pharmaceuticals Inc is facing an increased number of individual claims. We consider these claims to be without merit.
Discussions under way with the FDA (Food and Drug Administration) on the administrative status of Estratest(R) are continuing on a constructive basis; at the same time Solvay Pharmaceuticals is facing two lawsuits linked to this same status, one in California, the other in Minnesota. Solvay Pharmaceuticals considers these to be without merit and is opposing them vigorously. This position prevailed in a similar lawsuit concluded in Georgia.
CHEMICALS SECTOR
- Continued reinforcement of competitiveness through restructuring, rationalizations, acquisitions or partnerships
These measures are proving to be important in improving the margins of the Group's chemical activities -- especially for the essential products -- which are undergoing intense competitive pressures. Among the actions taken were the closing of the electrochemical unit at Zurzach (Switzerland), the project for a partnership with NCI/Sinopec in China, the reorganization of the American chemical activities and the closure of the perborate unit in Torrelavega (Spain).
- Improvement of Chemicals activities month by month. Results from the second quarter of 2004 exceeded by 32% those of the first quarter of 2004. Results from the first half of 2004 however still remain lower compared to those of the first half of 2003.
. In Soda Ash, results were affected by the strong increase in energy costs (coke and gas) and the increase in transportation costs. In Europe, volumes are increasing since the second quarter. In the USA, soda ash benefits from better volumes and better prices.
. The prices of Caustic Soda remain very low. However market conditions improved in June 2004 and prices are going up.
. The Hydrogen Peroxide activities continue to improve despite the hike in the price of gas. The business is strong in all regions, driven primarily by the paper industry.
. Results of the Fluor activities are improving, despite the negative effects of the weak dollar.
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.
PLASTICS SECTOR
- Growth of Specialty Polymers, major contributors to the Group's results, and consolidation of the vinyl chain activities
The combination of the Plastics and Processing Sectors, to create effective June 1, 2004 a single new Plastics Sector also dovetails with the Group's desire to increase its competitiveness and efficiency of its structures.
- Results from Plastics showed strong improvement (+45%) in the first half of 2004, due to Specialty Polymers and Vinyls.
. Specialty Polymers, primary contributors to the sector's results, witnessed a significant uptick in volumes following recovery of numerous markets, especially semi-conductors and electronics in general.
. In Vinyls, the globally sustained demand and increase in PVC prices permitted significant improvement in results in the three regions where Solvay is active (Europe, Asia, Mercosur).
. Performance Compounds made progress mainly due to the growth recorded in the Americas.
- Results from Processing were up by 5% compared to the first half of 2003.
. Inergy
Automotive Systems recorded volume growth of 6% compared to the first half of 2003, to 6.5 million fuel systems, thus achieving a performance greater than that of the major American, European and Japanese automakers. Results integrate the startup of a new plant in Japan and the strong pressure exerted on the margins by the automobile market.
. Results of Specialties (swimming pools and medical equipment especially) in Industrial Films showed progress due to a significant increase in sales.
. Pipelife (pipes and fittings) recorded results that were up compared to the first half of 2003 despite the hike in price of PVC. This favorable evolution is the result of restructuring done over the past years and sustained volumes.
With the approval of the Banking, Finance and Insurance Commission, the 2003 and 2004 books have been prepared and presented in accordance with IFRS (International Financial Reporting Standards). Deloitte & Touche have conducted a limited review of the quarterly consolidated situation which closed on June 30, 2004. 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 intermediate statements.
Key dates for financial communication in 2004
- 29 October 2004: Nine-month 2004 results.
- Mid-February 2005: 2004 annual results
To obtain further information, contact Solvay Investor Relations
Tel. 32-2-509-6016, Fax 32-2-509-7240, E-mail: investor.relations@solvay.com,
Web site: www.solvay-investors.com
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 2003 1st half 2004 2Q 2Q
2003 2004
Sales 3,790 3,831 1,883 1,954
Cost of
goods sold -2,555 -2,526 -1,284 -1,339
Gross margin 1,235 1,305 600 615
Commercial
and
administrative
costs -686 -666 -350 -335
Research and
development -197 -227 -93 -98
costs
Other operating
gains & losses -29 -35 -11 -12
Other financial
gains & losses 19 -10 14 -4
REBIT 342 367 159 166
Non-recurring
items -14 0 -12 -2
EBIT 328 367 148 164
Charges on
net
indebtedness -41 -47 -20 -24
Income taxes -75 -92 -29 -33
Equity earnings -29 -8 -13 -4
Income from
investments 15 16 15 16
Net income of
the Group 198 236 100 119
Minority
interests -17 -18 -8 -10
Net income
(Solvay share) 181 218 92 109
Earnings
per share 2.19 2.63 1.11 1.32
Diluted income
per share 2.19 2.63 1.11 1.32
(1)
(1) calculated on the number of shares diluted by stock options issued
Consolidated Cash Flow Statement
in millions of EUR
1st half 2003 1st half 2004
Cash flow from
operating activities 229 299
EBIT 328 367
Depreciation and
amortization 209 217
Changes in
working capital -264 -243
Changes in
provisions -9 11
Income taxes paid -43 -48
Other non-cash items 7 -5
Cash flow from
investing activities -145 -153
Acquisition/sale
of investments -48 -1
Acquisition/sale of assets -185 -194
Income from investments 19 16
Changes in financial receivables 71 21
Effect of changes
in method of consolidation -1 5
Cash flow from financing activities 29 -232
Increase/Decrease of capital 0 -4
Acquisition/sale of own shares -15 -21
Changes in borrowings 282 41
Charges on net indebtedness -41 -47
Dividends -196 -201
Net change in cash and
cash equivalents 113 -86
Currency translation differences -11 5
Opening cash balance 444 1,206
Ending cash balance 546 1,125
Consolidated Balance Sheet
in millions of EUR
At the end of 2003 At the end of the 1st half 2004
ASSETS
Non-current assets 5,502 5,536
Intangible assets 245 258
Consolidation
differences 155 157
Tangible assets 3,459 3,488
Investments -
equity accounting 312 313
Other investments 531 556
Deferred tax assets 511 498
Financial receivables
and other
non-current assets 289 266
Current assets 4,185 4,318
Inventories 1,059 1,104
Trade receivables 1,39 1,569
Income tax
receivables 154 129
Other receivables 376 391
Cash and
cash equivalents 1,206 1,125
TOTAL ASSETS 9,687 9,854
EQUITY AND LIABILITIES
Total
Shareholders' equity 3,532 3,685
Capital and reserves 2,666 2,813
Minority interests 866 872
Non-current
liabilities 3,869 3,901
Long-term provisions 1,759 1,744
Deferred
tax liabilities 162 163
Long-term
financial debt 1,912 1,958
Other non-current
liabilities 36 36
Current liabilities 2,286 2,268
Short-term provisions 64 102
Short-term
financial debt 414 430
Trade liabilities 1,009 1,003
Income tax payable 118 126
Other current
liabilities 681 607
TOTAL EQUITY
AND LIABILITIES 9,687 9,854
Statement of Changes in Equity
Capital Issue Reserves Own Exchange
premiums shares differences
in millions of EUR
Book value at the end
of the
previous period
(12/31/2003) 1,269 14 1,889 -119 -422
Income for the period 218
Distribution -121
Changes in
exchange rates 39
Acquisition/sale
of own shares -21
Adjustment to market value
of financial assets
Other
Book value at the end of the
previous period
(06/30/2004) 1,269 14 1,986 -140 -383
Direct charges to Shareholders' Third Total
shareholders' equity equity Party equity
in millions of EUR
Book value at the end of the
previous period
(12/31/2003) 35 2,666 866 3,532
Income for
the period 218 18 236
Distribution -121 -13 -134
Changes in
exchange rates 39 4 43
Acquisition/sale
of own shares -21 -21
Adjustment to
market value of
financial assets 32 32 32
Other -3 -3
Book value at the end of the
previous period
(06/30/2004) 67 2,813 872 3,685
RESULTS BY SEGMENT
The table below gives sales without elimination of inter-sector sales; results by segment include non-recurring items (EBIT).
1st half 2004/
1st half 2003 1st half 2004 1st half 2003
Millions of EUR %
Group Sales 4,114 4,093 -1%
Pharmaceuticals 882 808 -8%
Chemicals 1,322 1,305 -1%
Plastics 1,112 1,177 6%
Processing 730 737 1%
Unallocated items - - -
- Discontinuing
operations - 66 66 0%
Group EBIT 328 367 12%
Pharmaceuticals 86 110 28%
Chemicals 94 78 -17%
Plastics 90 135 50%
Processing 39 44 13%
Unallocated items -22 -22 0%
- Discontinuing
operations - 41 22 -46%
2nd quarter 2nd quarter 2nd quarter 2004/
2003 2004 2nd quarter 2003
%
Millions of EUR
Group Sales 2,208 2,092 -5%
Pharmaceuticals 447 394 -12%
Chemicals 655 671 2%
Plastics 535 604 13%
Processing 380 399 5%
Unallocated items - - -
- Discontinuing
operations - 23 24 4%
Group EBIT 148 164 11%
Pharmaceuticals 46 19 -59%
Chemicals 39 43 10%
Plastics 31 79 155%
Processing 23 26 13%
Unallocated items -3 -9 200%
- Discontinuing
operations - 12 6 -50%
(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 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 82,787,308 shares during the first half of 2003 and 82,562,387 shares in the first half of 2004.
(4) Results by segment include results of the Group's 4 sectors, non-allocated items as well as the - discontinuing operations - related to the high-density polyethylene activities in joint ventures with BP and salt activities. The latter, shown previously in the Chemicals sector, are now included in - discontinuing operations- due to signature of an agreement to transfer to Kali und Salz (K+S) all of Solvay's shares in ESCO, a joint venture between Solvay and K+S, and which was finalized in July. Note also that as of June 1, 2004, the Plastics and Processing sectors were combined into a single new Plastics sector. This operation gives the Group a more compact structure and more interaction between these activities. Presentation of results in a single sector will begin as of January 1, 2005.