First Quarterly results of the Solvay Group

The Solvay Group completed the first quarter of 2003 with consolidated net income of EUR 98 million, up 13% from the earnings of the first quarter of 2002 (EUR 87 million).

These results are explained by the marked growth in the Plastics Sector (up 40%), a result of improvement in the fluorinated fluids of Solvay Solexis and in vinyls; and by the Chemicals Sector's ability to maintain its performance despite increasing pressure in certain markets.  Despite the weakness of the US dollar and the intensification of R&D efforts, the Pharmaceuticals Sector recorded results (in EUR) comparable to those of the first quarter of 2002. The Processing Sector was affected by weakness in certain of its markets and declined by 23%.

As indicated in March 2003, the geopolitical context limits the visibility for 2003.  It will be necessary to remain vigilant.  The growing contribution of Pharmaceuticals and Specialties products, combined with the strengthening of competitiveness in Essential Products, should permit the Solvay Group to be well positioned to face future challenges.

 

1   Figures were subjected to a limited review by the external auditors,  Deloitte & Touche.
2   1 EUR = 1.0895 USD (at 31 March 2003)
3   REBIT : Recurrent Earnings Before Interests and Taxes, recurring operational results
4   Cash flow is the sum of the net income of the Group and the depreciation and amortization
5  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  83,004,855 shares during the first quarter of  2002 and 82,825,892 actions during the first quarter of 2003.

 

Sales during the first quarter of 2003 reached EUR 1,906 million, down 4% from the first quarter of 2002.  This reduction is primarily due to the negative translation impact of the US dollar, which resulted in a 9% decline in sales partially offset by 5% increase in activity.

 

Charges on net indebtedness amounted to EUR 21 million, down 28% from the first quarter of  2002.

 

Income taxes increased by 7%. The average tax rate stands to 29% for the first quarter of 2003, compared to 30% for the first quarter of 2002.

Equity earnings of the high density polyethylene joint ventures with BP (-EUR 15 million) remained at the same level as that of the first quarter of 2002.  However, the American market situation improved during the first quarter of 2003 while the European market continued to deteriorate; the situation in Europe remains difficult.  It should be noted that the losses accounted for under the equity method 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 Discontinuing Operations, amounted to EUR 17 million for the first quarter of 2003 (compared to EUR 15 million for the first quarter of 2002).

 

The net income of the Group amounted to EUR 98 million, up 13% compared to the first quarter of 2002.  Minority interests were EUR 9 million, of which EUR 7 million represented preferred dividends linked to the financing of the EUR 800 million for the Ausimont acquisition.  Earnings per share increased  5% to EUR 1.08.

 

Depreciation and amortization declined by EUR 62 million because of the recording of significant extraordinary depreciation in the first quarter of 2002 (EUR 58 million primarily linked to the sublicense of Teveten® anti-hypertensive in the US to Biovail and the voluntary withdrawal of Luvox® from the American market).  Cash flow amounted to EUR 205 million for the first quarter of 2003, which, after exclusion of non-recurring amortization, represented an increase of  4%.

Compared to the end of 2002, net indebtedness of the Group at the end of the first quarter of 2003 (EUR 1,360 million) increased slightly following an increase in working capital requirements.  Shareholders' equity (EUR 3,516 million) declined under the effect of variations in the exchange rate of the US dollar and the revision to market value of financial assets.  The net debt to equity ratio at the end of the first quarter of 2003 increased to 39%, as against 37% at the end of 2002.

 

PRO-FORMA RECURRING RESULTS1 BY SEGMENT

 

Compared to previous releases, results by segment will henceforth include the results of the four sectors of the Group as well as "discontinuing operations" related to the high density polyethylene joint ventures with BP.  As required by IFRS, items not allocated to the sectors 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 (EBIT) presented 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.

In addition, sales by sector without elimination of inter-sector transfers and results by sector including non-recurring items are given in the attachment.

1Figures were subjected to a limited review by the external auditors,  Deloitte & Touche.
2 Represent the results of our high density polyethylene joint venture. REBIT is positive because it includes the increase in value of Solvay's option to put to BP Solvay's interests in the joint ventures, the results recorded under the equity method, were -EUR 15 million in the first quarter of 2003, identical to the amount for the first quarter of  2002.

 

Chemicals Sector
The Chemicals Sector maintained its performance in the first quarter of 2003 thanks to the relative resistance of several Strategic Business Units (SBUs) to the progressive deterioration in the economic climate.  These included in particular soda ash, persalts, barium and strontium carbonates and salt; the last benefited from favorable weather conditions.  The other SBUs were affected by a drop in demand.
As announced in its press release of 14 April, 2003, Solvay is actively collaborating with an ongoing inquiry by the European competition authorities in the area of hydrogen peroxide activities.  The eventual impact of this inquiry was not taken into account in these results.

 

Plastics Sector
The Plastics Sector recorded strong growth  (up 40%) in the first quarter of 2003 even though the sector has recently experienced weakening in its markets.  Vinyls improved in all regions (Europe, Mercosur and Asia) compared to the very weak level of the first quarter of 2002 and specialty polymers benefited from the strong performance recorded by Solvay Solexis in fluorinated fluids among other products.  HDPE compounds developed favorably while compounds of PVC and PP declined because of raw-material price increases and weak volumes.

 

Processing Sector
The results of the Processing Sector declined by 23%. Inergy Automotive Systems (fuel systems) continued its growth in volumes thanks to new sites, notably in Asia; its results nevertheless were affected by the weakness of the US dollar and the decrease of its sales in the United States.  The results of Industrial Films and Pipelife (pipes and fittings) were affected by the increase in raw-material prices combined with globally weak market conditions and, for Pipelife, by the weakness in winter sales.

 

Unallocated items
Unallocated items, composed mainly of general and research expenditures at the Group level, were stable in the first quarter of 2003 compared to the first quarter of 2002.

*****

IFRS figures being established on a proforma basis, the following data1  are presented in order to comply with the provisions of the Belgian Accounting Law.

(1) Figures were subjected to a limited review by the external auditors,  Deloitte & Touche.
(2) 1 EUR = 1.0895 USD (at 31 March 2003)

*****

Deloitte et Touche conducted a limited review of the consolidated financial situation as of 31 March 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 :

Solvay Investor Relations Team
T. +32. 2. 509. 60. 16
F. +32. 2. 509. 72. 40