Solvay '03 op profits slump 20% to Euro673m on strong euro

13 February 2004 12:08  [Source: ICIS news]

LONDON (CNI)--Solvay announced Friday a 20% fall to Euro673m ($856m) in operating profits from continuing operations last year, with declines in all four divisions of plastics, processing, chemicals and pharmaceuticals.

 

The Belgian firm said it faced a very strong euro and oil price volatility in 2003. Pension, insurance and transport costs were also higher.

 

After including non-recurring items of Euro11m, operating income was down 13% at Euro662m compared with Euro758m in 2002.

 

The Euro11m costs relate mainly to restructuring such as the closing of the vinyl chloride monomer (VCM) and polyvinyl chloride (PVC) units at Ludwigshafen, Germany, as well as compensation charges related to the withdrawal of obsessive compulsive disorder (OCD) tablets Luvox.

 

As there have been no new developments in the European Commission’s (EC) antitrust inquiry into its hydrogen peroxide (H2O2) business, the possible financial impact of that inquiry has not been taken into account in the 2003 results, said Solvay.

 

Group sales fell 5% to Euro7.56bn in 2003. Net income dropped 13% to Euro430m, compared to record 2002 results, Solvay said.

 

For 2004, Solvay warned about the lack of visible growth in Europe and the risk of a persistently very strong euro. However, Solvay said the significant contribution of pharmaceuticals and specialties, combined with efforts to increase competitiveness and improve the product portfolio, should allow the group to face these pressures.

 

For the fourth quarter of 2003, group operating income from continuing operations fell 19% to Euro180m on sales down 2% at Euro1.87bn.

 

After including discontinued operations, Q4 operating profits rose 9% to Euro175m. Net income grew 34% at Euro133m.

 

In the chemicals division, 2003 operating income dropped 25% to Euro195m on sales down 5% at Euro2.51bn. Solvay said it was forced to accept a decline in profits to maintain market share.

 

The soda ash business recorded a decline in European volumes but partially offset this by increasing exports, albeit with reduced margins. In the US, volumes increased but selling prices were lower. Sodium bicarbonate continued its growth in Europe. Figures were not disclosed at the business unit level.

 

Peroxides experienced sustained growth with strong improvement in the fourth quarter.  Prices and volumes increased worldwide. 

 

Electrochemistry results fell as volumes dropped due to the economic slowdown. The average price of caustic soda remained at the same low level of 2002.

 

In the fluorinated chemicals business, results worsened significantly as the weak dollar put pressure on export prices of certain fluorinated gases and costs were incurred for launching hydrofluorocarbon (HFC) insulating and blowing agent Solkane 365mfc, the substitute for Solkane 141b. Solkane 365 mfc sales are developing in accordance with expectations, said Solvay.

 

Solvay's quest to mantain market share at the expense of margins and the weakness of the dollar against the euro was reflected particularly deeply in the fourth quarter when the division’s operating income plunged 36% to Euro41m on sales down 3% at Euro616m.

 

The plastics division saw a recovery in specialty polymers’ markets towards the end of the year and an upturn in vinyls in Europe in Q4. However, annual operating income last year tumbled by 37% to Euro155m on sales down 7% at Euro1.80bn. Plastics profits were down 19% to Euro38m in Q4 on sales down 2% at Euro448m.

 

In a review of the full year, Solvay said its specialty polymers unit experienced stable prices but its results were affected by the strong euro, which hit both US results and export margins. In addition, volumes declined because of weakness in end-use markets, except for certain high-performance polymers and fluorinated fluids and elastomers. However, there were recently signs of recovery in the primary markets such as semiconductors and automotive, said Solvay.

 

The vinyls business faced weak world demand for PVC in 2003. said Solvay. European prices and demand improved gradually from August on higher ethylene feedstock prices, although they levelled off at year-end. Business in Latin America, particularly Argentina, benefited from significant competitive advantages and continued its improvement. Asia continued its sustained growth thanks to good volumes and price increases.

 

In the performance compounds business, high density polyethylene (hdPE) compounds experienced significant growth. Polypropylene (PP) compounds were affected by the sluggish American automotive market. PVC compounds suffered from weaker demand, particularly in Europe, and from the increase in PVC prices.

 

The processing division was hit by a 12% fall to Euro70m in operating profits on sales down 5% at Euro1.41bn. However, the processing division distinguished itself from Solvay's other business segments by raising operating profits in Q4. They soared 50% to Euro12m despite sales growth of only 1% to Euro343m.

 

For the full year, Solvay said results from Inergy Automotive Systems were flat due to a weak dollar. Volumes grew, thanks partly to Asia with the startup of a new production facility in Japan and to the recovery in the US market since September. However, volumes remained flat in Europe.

 

Profits in the Pipelife pipes & fittings and industrial films businesses were lower but a recovery had been seen since September. Pipes volumes grew in Central Europe and Scandinavia and numerous measures were taken to improve competitiveness and refocus the business on strategic markets, said Solvay. Industrial films experienced a strong year-end, thanks to a recovery in medical supplies and flexible technical films as well as the good performance of decorative laminates.

 

In the pharmaceuticals division, annual operating income fell 8% (up 2% at constant exchange rates – CER) to Euro243m on turnover down 2% (up 6%) at Euro1.83bn. Fourth quarter earnings dropped 11% to Euro75m on revenues down 2% at Euro462m.

 

Over the 12 months to end December last year, cardiology sales increased 14%, thanks to growth of anti-hypertension medication Teveten. Influvac influenza vaccine revenues grew 13%. Mental health and gastroenterology turnover remained stable but gynaecology/andrology registered a decline of 4%.

By: Russell Ong
+44 208 652 3214

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