Full press release (including also IFRS financial statements) is available in the attached PDF file.
Sales (+16%) and operating profits (+33%)
up strongly in the 1st half of 2005
Group net profit (EUR 509 million)
more than doubled in the 1st half
Sales (EUR 4,039 million), operating profits (REBIT 1 of EUR 428 million) and operating margin (11%) up strongly thanks to Chemicals and Plastics activities. The Pharmaceuticals sector recorded sales up 13% (+24% in the 2nd quarter) and continues its strategic development with the major acquisition of Fournier Pharma.
Significant non-operating items :
net capital gain on the sale of the interest in the polyethylene activities to BP (EUR 443 million);
negative non-recurring items of EUR 281 million.
Sales for the 1st half of 2005 reached EUR 4,039 million, up 16% compared to the 1st half of 2004 (+17% in the 2nd quarter). Sales of all three sectors improved: Plastics (+18%), Chemicals (+16%) and Pharmaceuticals (+13%).
REBIT (EUR 428 million) increased 33% in the 1st half of 2005 compared to the 1st half of 2004 (+43% in the 2nd quarter), with an operating margin (REBIT divided by sales) reaching nearly 11%.
Group net profit reached EUR 509 million in the 1st half of 2005, close to the full year 2004 record level (EUR 541 million). For the 2nd quarter of 2005, it amounted to EUR 184 million, up 57% from the 2nd quarter of 2004.
Beyond the improvement in operating profits (REBIT, +33% for the 1st half of 2005), the Group’s net profits for 2005 included a net capital gain from the sale of our interest in the high density polyethylene activities to BP (EUR 443 million) and negative non-recurring items of EUR 281 million, resulting mainly from a profit on the sale of buildings
(EUR 125 million, including EUR 92 million in the 2nd quarter) and provisions of EUR 382 million in the 1st half of 2005, including EUR 32 million in the 2nd quarter.
Cash flow2 for the 1st half of 2005 reached EUR 728 million and the net debt to equity ratio was 20% at the end of the 1st half of 2005. Also, available cash at the end of June 2005 (EUR 1.6 billion) will allow the Group readily to finance the acquisition of Fournier Pharma for a base price of EUR 1.2 million; while, the Group’s ratings were recently confirmed by Moody’s and S&P.
Chemical sector profits (REBIT of EUR 163 million) for the 1st half of 2005 doubled from the 1st half of 2004 and were up 82% in the 2nd quarter. Firming of markets that continued in the 2nd quarter of 2005, together with the confirmation of price increases and strict cost controls, led to the restoration of operating margins, in a context of very high energy costs.
Plastics sector profits (REBIT of EUR 218 million) were up 39% from the 1st half of 2004 (+18% for the 2nd quarter), in a context of high raw material and utilities costs. Specialty polymers, major contributors to Group results, stood up well to the weakening of demand in certain segments and recorded good earnings. Vinyls improved but, primarily in Europe in the 2nd quarter, suffered erosion of demand, primarily from inventory draw-downs by customers, which accelerated price decreases. In Mercosur and Asia, sales were sustained. The divestiture of Industrial Films 3 is confirmed with the signature of the final agreement with Renolit.
Pharmaceuticals sector sales were up 13% from the 1st half of 2004 (+24% in the 2nd quarter). Sales increased in all therapeutic areas and grew well in NAFTA as well as in emerging countries.
Profits for the 1st half of 2005 were EUR 76 million, including payment of the arbitration award from Barr (EUR 15 million) and gains on the divestiture of minor products (EUR 12 million). It should be noted that the profits for the 1st half of 2004 included a series of positive one off items, and in particular the amount of EUR 88 million linked to the partnering agreements with Wyeth and Bristol Myers Squibb and the first compensation payment from Barr (EUR 15 million). Operating profits (REBIT) for the 2nd quarter reached EUR 34 million, double those of the 2nd quarter of 2004, the latter having been affected by renegotiations with American distributors.
The Pharmaceuticals Sector also completed an important step in the acceleration of its strategic development with the acquisition of Fournier Pharma, and proceeded with restructuring to improve its efficiency.
Overall, the Group’s operating profits for the year 2005 should be up from 2004’s very good performance. In addition, they will benefit from the profits of Fournier Pharma from August on. Net profit will again set a record.
1REBIT : Recurrent Earnings Before Interest and Taxes
2Net income plus depreciation and amortization.
3Results of Industrial Films have been recorded under the heading « discontinuing activities » in 2004 and 2005.
4Figures subjected to limited review by Deloitte
5 Financial items restated following effectiveness of IFRS Rule 5 (« discontinued operations ») on 1 January 2005.
6REBITDA : REBIT, before recurring and continued depreciation and amortization
7Cash flow is the sum of Group net earnings plus depreciation and amortization.
8Calculated on the basis of the weighted average number of shares outstanding after deducting shares purchased to cover stock option programs, or a total of 82,562,387 in the 1st half of 2004 and 82,987,400 in the 1st half of 2005.
Notes on Solvay Group summary financial information
Non-recurring items for the 1st half of 2005 showed a negative balance of EUR 281 million, including, among others, capital gains of EUR 125 million on the sale of the Group’s headquarters buildings in France, Spain and Italy and, on the other hand, non-recurring provisions of EUR 382 million, the bulk of which (EUR 340 million) were recorded in the 1st quarter for various risks in the pharmaceutical area and potential consequences of the ongoing proceedings of competition authorities concerning peroxygens, as well as EUR 32 million recorded in the 2nd quarter of 2005 for restructuring at several sites in Europe and the United States.
Charges on net indebtedness amounted to EUR 38 million, down 16% from the 1st half of 2004. These charges include interest paid on recently issued long-term obligations that permitted establishment of a strategic financial reserve at historically low rates.
Income taxes amounted to EUR 67 million for the 1st half of 2005. This figure is not comparable to that for the prior year because of the establishment in 2005 of significant provisions that in part are not tax-deductible.
With IFRS standard 5 becoming effective on 1 January 2005, results of discontinued operations are no longer reported in a separate segment but are recorded as a net entry, below EBIT, on a separate line in the Group results, with restatement of the year 2004. These results represent:
in the 1st quarter of 2004, net profits of the high density polyethylene activities and the salt activities (sold to Kali und Salz in July 2004), as well as industrial films, the divestiture of which the Group announced in 2005, with rigid films being sold to Ineos and the other activities to Renolit (for an amount of EUR 330 million); and
in the 1st quarter of 2005, the capital gain (EUR 443 million) on the sale to BP, on 6 January 2005, of Solvay’s American and European interests in the high density polyethylene activities for a price on the order of EUR 1 billion, and net income of the industrial film activities.
Income from investments represents the annual dividends paid by Fortis and Sofina in the 2nd quarter.
Net profit of the Group amounted to EUR 509 million.
Net profits per share in the 1st half of 2005 reached EUR 5.93, compared to EUR 2.62 for the same period of 2004 and to 5.92 EUR for the whole year 2004.
Depreciation and amortization of EUR 219 million, was comparable to that for the 1st half of 2004.
Cash flow amounted to EUR 728 million.
Shareholders’ equity amounted to EUR 3,603 million at the end of the 1st half of 2005, down EUR 189 million from the end of 2004, after redemption of the 800 million EUR preferred shares issued by Solvay Finance Jersey and net profit of EUR 509 million.
Net indebtedness of the Group at 31 June 2005 (EUR 710 million) was down by EUR 86 million compared to the figure at 31 December 2004. The net debt to equity ratio was 20% compared to 21% at the end of 2004.
This very healthy financial situation gives the Group the means to finance its strategy, in particular the acquisition of Fournier Pharma for a base price of EUR 1.2 billion, the closing of which occurred on 28 July 2005, while Moody’s and S&P recently reconfirmed Solvay’s long- and short-term ratings (respectively A/A2 and A1/P1).
9As a result of the combination of the Plastics and Processing Sectors from 1 June 2004, the results of the two old sectors are presented as a single new Plastics Sector from 1 January 2005.
