Speech by Baron Daniel Janssen Chairman of the Board of Directors
"Solvay: a reliable, growing enterprise in an uncertain and troubled world"
Ladies and Gentlemen,
Let me first of all welcome you all to this General Meeting. The fact that so many of you are here today is an encouraging sign of your confidence and interest in our Group.
Slide 3 : An uncertain and troubled world
The world we have known in 2001 and 2002 is severely unsettled and cause for concern. We have been shaken by political events such as 11 September 2001 in New York, followed by the war in Afghanistan, the build-up of violence between Israël and Palestina, and much more, alas. Terrorism and violence appear to be spreading to the detriment of the ideals of all those who call for negotiation and peace.
These political deeds have had fearful human, but also economic consequences. Oil prices are again erratic, the number of air flights are reduced, leading to bankruptcies, the economy has gone from a boom at the start of 2000 to quasi-recession at the end of 2001. Certain poor countries have become even poorer.
Globalisation is called into question by some and increased by others.
In the field of business economics, the Enron bankruptcy in the United States poses, and rightly so, the question of law and rules, and of their application and supervision, in order to minimise the dangers of dishonesty, excess or incompetence.
Financial markets, sometimes driven by a frenetic short-term speculation on stock values, led some companies and some senior managers to launch actions which resulted into unsteadiness or even disaster for their enterprise.
The bursting of the "Internet bubble" on the stock market has ended the excessive illusions of the so-called "new economy" and brought recession to the ICT (Information and Communication Technology) sectors, despite these being vectors of future progress.
A reliable, growing enterprise
In this shaken and troubled world certain enterprises, out of fashion in the mind of the public for a short season, are once again the object of esteem: those with solid value systems, a realistic vision, an efficient strategy and the desire to meet the expectations of all their stakeholders; and so, with the faithful and permanent support of stable shareholders, who prefer long-term growth rather than short-term speculation.
Slide 4 : Our 5 key values
We can all be proud that Solvay is one such enterprise. This year’s annual report highlights our values, our mission and our vision. We do not let ourselves be diverted from our course by ephemeral fashions or illusory mirages. We have a strategy of change with which to adapt to the shocks of this world and the forward leaps of technology. We are making every effort to apply this strategy with determination and with humanity. This is why our reputation has improved again in 2001 and in 2002.
Slide 5 : Our industrial strategy
Our industrial strategy
Our industrial strategy can be summed up in two points:
Strengthening of our leadership in all of our activities, by developing their competitiveness and ability to innovate
faster development of Pharmaceuticals and of the Specialities in the three other Sectors: Chemicals, Plastics and Processing.
A strategy to which we have given specific and spectacular form during 2001.
Let me quote here two major initiatives:
Slide 6 : Two major strategic initiatives
First of all the acquisition of Ausimont (from the Montedison group), announced at the end of 2001 and executed at the beginning of May once we had the green light from both the European and US competition authorities. This acquisition, totalling EUR 1.3 billion, is the largest in the history of the Solvay group. It makes the Group into a world leader in the fast-growing, high added-value and research-intensive sector of fluorinated specialities (polymers, elastomers, chemical compounds).
This acquisition follows on the major agreements concluded with BP. Under these agreements, which came into effect on 1 October 2001, Solvay acquired BP’s specialty polymers operations, Solvay and BP set up two joint-owned high density polyethylene producing enterprises, one in the USA and the other in Europe, and Solvay sold its polypropylene operations to BP.
Doing so, we considerably reduced our exposure to cyclical plastic commodities, while increasing our presence in fast-growing, highly profitable specialty polymers.
Slide 7 : Three other important initiatives
Let me mention in passing, three other significant operations:
the setting up of a joint venture with the German Kali und Salz Group in the field of salt in Europe, at the start of 2002,
the sale of our Decoration activities to the German Langbein-Pfanhauser Werke (LPW) group at the end of 2001, in parallel with the acquisition of LPW’s calendered and laminated foils activities in the United Kingdom and the USA.
the sale of the car air intake systems to German group Mann+Hummel at the start of 2002.
I refer you to our annual report for a whole series of other salient facts that we can be proud of in 2001.
The list of our recent initiatives is an impressive one. I will entrust to Mr Michielsen, the artisan of these initiatives along with the Executive Committee, the task of detailing to you how these initiatives impact our results and our balance sheet structure.
ign="justify">The return on Solvay shares
You have all already been able to see the impact of all this on the Solvay share.
Slide 8 : Solvay share price from 1991 to 2002
After seeing it fall during 2000 faster than the Market average, we watched with pleasure as, during the twelve months of 2001, our share value appreciated by 15%, whilst the EURONEXT 100 index fell by over 18% over the same period.
And during the first five months of 2002, it has appreciated by a further 9 % (as against a further fall of 7 % for the EURONEXT index).
Slide 9 : Return on Solvay share from 1991 to 2001
During the last ten years, from 1991 to 2001, the Solvay share has provided a total average return of 11.7% a year.
Slide 10 : Net dividend, 1991 to 2001
Coming to our dividend, despite the 6% fall in profits in 2001, the Board of Directors proposes to you that it be kept unchanged at EUR 1.70 a share.
You are already acquainted with our dividend policy. This is to increase our dividend whenever possible and, if possible, never to reduce it. Our proposal is therefore in keeping with our permanent policy.
Corporate Governance
You will find our rules on Corporate Governance set out on pages 10 and 11 of our annual report. These ensure the transparency of the way we work and both the independence and the competence of our Board. They are one of the outcomes from our system of values and one of the drivers for our strictness and perseverance during troubled times. They also reflect the values of the founder families of our Group.
We have decided, starting from this 2001 report, to extend this transparency to the remuneration policy applied collectively to the Board of Directors on the one hand and to the Executive Committee, on the other hand.
Two directors are leaving us this year, as they are reaching the age of 70 in 2002. We would very warmly thank our French colleague, Mr de Royère, for his six years of enlightened advice on the Board. His industrial experience, his management rigour and his clear judgement have been a major help to us. We would also thank Baron José del Marmol, a Director since 1990, but who has been present in the Solvay S.A. Board of Auditors for 40 years.
May I propose a round of applause to express our deep thanks to both of them.
Slide 11 : Changes in the Board of Directors
The Board proposes to the General Meeting that it appoint, effective 30 October 2002, another great French industrialist, Mr Jean-Martin Folz, CEO of the Peugeot-Citroën group, as a Director to replace Mr de Royère.
I am very happy that Jean-Martin Folz, a figurehead of French industry and of another great family enterprise, has accepted to take office on our Board. He has made time to be with us today, despite other commitments. I thank him for this, and would ask you to welcome him with a round of applause.
The Board also proposes that Mr Jean van Zeebroeck be appointed to replace Baron José del Marmol. Jean van Zeebroeck is General Secretary and Senior Counsel in the Owens Corning group. He is also a Director of Solvac S.A., a post he will be resigning from to join our Board. Mr van Zeebroeck is also among us and I would ask you to give him your applause too.
Finally, on behalf of the Board of Directors, I would like to thank all our Solvay Group employees, who have carried out so many important changes in 2001 and 2002.
Thank you for your attention, and I now give the floor to Mr Michielsen.
Speech by Mr. Aloïs Michielsen Chairman of the Executive Committee
LOOKING AT SOLVAY DIFFERENTLY
1. Introduction
Ladies and Gentlemen,
Let me in turn thank you for travelling here to our Annual General Meeting of Shareholders, which once again provides an occasion for presenting to you the situation of our company and for constructive dialogue on the future of our Group.
2001: a turbulent year
As Baron Janssen has just said, 2001 was a turbulent year, but our Group remained on course, better than others perhaps, thanks to its solid values and clear strategy.
2. Reminder of the strategy : implementation in 2001
Slide 2 : Solvay's strategy in two basic directions
The strategy of leadership in everything we do and of faster growth of the Pharmaceuticals Sector and the Specialties has been implemented particularly vigorously. The determination to do so has turned out to be worth it during recent upheavals.
Slide 3 : 21 Strategic operations (1)
The list of our recent initiatives is an impressive one. It covers all activities.
You will find them detailed in our Annual Report and also on the next 2 slides. They include acquisitions, creations, expansions, partnerships, as well as closures or sales of activities.
they contribute to reinforce our leadership positions and/or our competitiveness,
to develop our Pharmaceuticals Sector
or our Specialties.
they cover Asia as well as the Americas and Europe, which is the a tangible sign of our will to expand geographically.
all of them fit in with our strategy.
Slide 4 : 21 Strategic operations (2)
21 important, and in some cases hyper-important operations, have been concluded in 2001.
Counting out the holiday periods, this gives more than 2 major operations a month! An unthinkable feat without our top class employees.
We can safely say that, in 2002, our Group presents a very different profile than it did just a year ago.
Whch is why we have chosen "Looking at Solvay differently" as the underlying theme of our Annual Report.
But let us return to 2001, since it is to approve the 2001 results, Ladies and Gentlemen, that we have convened today’s meeting.
3. OVERVIEW OF 2001 RESULTS
On the one hand, the Group ended 2001 with a net profit of MEUR 403, down 7% from the record level of 2000. I would stress here, though, that our second-half earnings were 10% higher than for the same period in 2000.
Slide 5 : Net current earnings
Last year’s figures bring the 5-year average growth of our net current profit to 11%. Obviously in 2001, taken on its own, we did not meet our growth objective of a 10% a year rise in net current profit, but I have always insisted that this objective is an average growth figure. And I am equally confident that we will soon be back there again.
The good news is that the 2001 earnings show that our Group is able to face, with greater resilience, difficult, if not very difficult, economic climates. This explains the good welcome given to our performance by the financial markets.
Let us cast an eye on the main components of our income statement.
Slide 6 : Key figures 2001
We see:
sales of MEUR 8,725, down slightly (1.6%) on 2000. This reduction is due mainly to changes in the consolidation group brought about by certain operations which I have just shown you.
an EBIT of MEUR 628. I will come back in a minute with a breakdown and development of this EBIT figure by sector.
income taxes up MEUR 12 (+10 %). The average tax on our profits comes out at 25%, a very reasonable rate, it should be said.
and, as I have already indicated, net current profit of MEUR 403 on an annual basis.
finally, we recorded a cash flow of MEUR 925 - the EUR billion is not far away!
Slide7 : 2001 EBIT by sector
margins are improving in the Chemicals Sector, with EBIT up 23% on 6% higher sales. Our Alkalis, soda ash and caustic soda, did very well last year.
the Plastics Sector took the full blast of market weakness, in particular in the USA (EBIT down 70% to MEUR 70). Also, this Sector benefited only very partially in 2001 from the acquisition of BP’s specialty polymers: these did not enter the Solvay consolidation group until 1 October 2001. Results from the Plastics Sector are significantly improving since the beginning of 2002.
EBIT in the Processing Sector remained stable between 2000 and 2001.
the Pharmaceuticals Sector has surged ahead in 2001, with EBIT up 51% and above MEUR 200 for the first time. We should see in this the success of recently launched products, in particular in the USA, where sales rose 23% between 2000 and 2001. In 2001, the Pharmaceuticals Sector alone represented nearly one-third of total Group EBIT.
I will not detail extensively the performance of each individual Sector along 2001: you can read them in our Annual Report.
I would like, however, to insist on two major issues which will ensure the future growth of Solvay: Specialty polymers and pharmaceutical development.
Specialty Polymers
Slide 8 : Our specialty polymers and compounds portfolio
In Specialty Polymers, our acquisition of BP’s polymer activities and those of Ausimont significantly enrich our product portfolio.
These two deals have given us a whole range of high performance polymers like polysulfones, polyamides, liquid crystal polymers, and fluorinated polymers and elastomers.
Solvay is right now number two, behind DuPont, on the coveted and promising market of "high performance polymers".
Slide 9 : Our leadership position in high performance polymers
Let me take this occasion to invite those of you who are able to visit the "Fluorinated Products" exhibition in our buildings. Here they will discover a whole range of applications in which these products are involved and in which their remarkable properties play a vital role.
Our Pharmaceuticals Development
Slide 10 : Pharmaceuticals strategy
Our objective is to have our pharmaceuticals activity grow more rapidly. I would remind you that sales reached almost 1.8 billion EUR in 2001 and have increased by nearly 70% over the past 5 years, which is significantly more that the industry average. We are not so far away of the 2 billion EUR!
To maintain and develop this growth dynamic, we are taking initiatives as various levels, both alone and in partnership:
in-house development of the existing product portfolio within our four chosen therapeutic fields;
acquiring / developing new products; for example, Omacor in cardiology, or Anoheal and Incostop in gastroenterology (phase III - NAFTA);
strengthening / optimising our sales teams;
geographic expansion, especially in North America: in the USA + Canada our sales grew by 23% (in euros) in 2001. We have also recently acquired a "Pharma" unit in Brazil, which is developing well. We are already present in India and in every country of Eastern Europe.
I would insist on the importance of intensifying our R&D effectiveness:
Slide 11 : Ongoing pharmaceutical development
Pharma R&D represents a major direction of our growth strategy. The Group devotes over MEUR 220 every year to it. Our developing products portfolio is regularly enriched with new molecules, which we develop either on our own or in partnership, and which form the cornerstone of our future growth.
Right now we have several molecules in development stage III. These include Cilansetron, destined to treat irritable bowel syndrome. We have also selected a partner for carrying out this phase of particularly intensive clinical tests: this is Quintiles Transnational, which is allowing us to access its expertise in this area.
Another molecule at phase III is Tedisamil®, a cardiology medicament aimed at treating cardiac arrhythmia.
A large number of molecules, at earlier development states, are also present in our R&D ‘pipeline’, for example, in cardiology, SLV 306 for treating hypertension and congestive cardiac failure or, in psychiatry, DU127090, a molecule co-developed with Lundbeck for treating Psychosis and Parkinson’s disease. Other examples could be mentioned, as in the field of peptides, an activity where we are doubling our production capacity and in which we are present in the USA.
We are achieving greater efficiency of our R&D activity, by increasingly specialising our R&D centers and subcontracting various clinical research projects to specialist partners, enabling us to speed up their developments.
Let us complete this overview of our pharmaceuticals activity by adding that we are making progress in the USA in solving the problems posed by the Food and Drug Administration’s "Application Integrity Policy". As already mentioned last year, this procedure calls for re-examination of the registration applications made for certain of our oldest products. This does not call into question the safety and effectiveness of the concerned products, but relates to the quality of the reporting of their stability data during the years 1985 and 1993.
As recently announced, we have decided here, for administrative reasons, to voluntarily withdraw Luvox® from the US market, where its exclusivity period has expired, and where therefore a fierce competition from the generics has started. This decision does not in any way affect the presence of fluvoxamine on the other markets like Japan or Europe. This decision will have only a very limited financial impact and in no way calls into question our 2002 prospects in pharmaceuticals.
4. INVESTMENTS AND R&D PROGRAMS
Slide 12 : Investments and R&D programs
In 2001 we invested some very large sums; in the Group as a whole some EUR 3 billion, including MEUR 341 on R&D, two-thirds of it devoted to our Pharmaceuticals Sector.
Among these investments in 2001, two major amounts merit special mention:
firstly an amount of MEUR 606 (non-cash) representing the specialty polymers part of the exchange of assets which we finalised with BP in 2001
a second amount of EUR 1.3 billion, for the purchase of Ausimont, the finalisation of which was announced just a few weeks ago.
In 2002 we are again stating our confidence in the future by including in our budget a total MEUR 1,234 for investment and research. Once more, two-thirds of our research expenditure of MEUR 392 will be going on Pharmaceutical research.
5. FINANCIAL SITUATION: NET DEBT TO EQUITY RATIO
Slide 13 : Net Debt to equity ratio
These ambitious investment programmes express our confidence in the future of the Group and its ability to generate growing profitability. They have been made possible by the fact that the Solvay Group has a healthy balance sheet and a solid financial structure, and also that we can decide to divest when conditions require.
The net debt to equity ratio reached 27% at the end of 2001, two points below the already moderate level of the end of 2000.
Slide 14 : Strong financial management
Our financial policy consists of keeping this ratio permanently below 35%. This should be realised, even after the acquisition of Ausimont.
Our excellent long-term ratings from Moody’s and Standard & Poors have been confirmed by these agencies after the announcement of this acquistion.
In fact the financing of this acquisition will have only a limited impact on our net debt to equity ratio.
What you need to know is that the agreements setting up the High Density Polyethylene joint venture with BP include a put option, at a previously fixed price, on our stake in this JV. This option can be exercised in November 2004 (with effect in November 2005).
In order to finance the Ausimont acquisition, we ceded a participating interest in the proceeds of the exercise of this put option, in an amount of MEUR 800, to our fully-consolidated subsidiary Solvay Finance Jersey Ltd.
Solvay Finance Jersey is co-owned by various banks which have subscribed the preference capital of MEUR 800, in this way increasing the minority interest in total Group equity.
The remaining balance of MEUR 500 has been come from available funds, strengthened by a reduction of our industrial working capital and by the sale of certain activities.
The Ausimont acquisition will therefore have a double impact on Group equity:
on the one hand this increases by MEUR 800, as set out above
on the other hand it reduces by MEUR 759, equal to the acquisition goodwill. Under a derogation received from the Banking and Finance Commission, this goodwill has been offset against our equity. To which should be added the effect of applying the same treatment to the acquisition goodwill on the BP specialty polymers activities, in an amount of MEUR 185.
Slide 15 : Key balance sheet elements
Given these operations, the Group’s equity fell slightly over the year to MEUR 3,939 at the end of 2001.
ROE in turn is 10.2%. This figure does not yet reflect the improvement of our product mix.
6. QUARTERLY RESULTS AND IAS
Slide 16 : Adoption of international accounting standards & quarterly reporting
Remaining on the subject of our financial information, we shall, out of a concern to offer our shareholders and the financial community more and more regular and finely-tuned information, be publishing Group results on a quarterly basis, as from 2003, and in accordance with the IAS international accounting standards.
7. PROSPECTS FOR 2002
Slide 17 : Prospects
For 2002 as a whole, we are confident. Barring political accident, which no one can escape, Solvay should show a significant improvement of its results owing to:
better-than-expected performances in the Pharmaceuticals Sector
the restructuring of our Polymers portfolio
the favourable influence of our acquisition of Ausimont.
the strong showing of soda ash
the strong performance of our Processing Sector
In 2002 we will be continuing our development in pharmaceuticals and Specialties. This strategy should enable us to continue to increase the share of earnings generated by these activities. With the Ausimont and BP acquisitions, this share should be in excess of 2/3 this year already.
Slide 18 : Higher proportion of specialties and pharmaceuticals
8. ACKNOWLEDGEMENTS
Ladies and Gentlemen, it would be wrong for me to finish my presentation without thanking you, as shareholders, and you the representatives of the press, for your interest and trust in our company.
A company that has radically changed in recent years, to the extent that, today, we can look at it differently.
Our past results and our tomorrow’s favorable outlook are due to several factors: our enterprise culture, basing on solid values and vision, as explained by Baron Janssen; our will to enforce Innovation and Competitiveness as "leitmotiv" for our strategy; and the impressive and precious corner stone of the multiple competencies acquired by the Group since the times of its foundation, in all business areas, from mining operations to E’business.
I would extend my thanks to our entire workforce.
They really did a great work in 2001, as you will have realised from the listing of our most significant operations during this year.
