Belgium’s Solvay Q1 net profit rises 49% on higher sales

(adds information on divisions performance, outlook from paragraph 4)

LONDON (ICIS)–Solvay reported adjusted first-quarter net income of €158m, representing a 49% increase year on year, on the back of a 6.4% increase in sales, the Belgian chemicals producer said on Wednesday.

March-quarter sales totalled €2.65bn compared with €2.49bn in the same period last year, with operating profit rising 24% year on year to €305m, the company said.

Recurring earnings before interests, taxes, depreciation and amortisation (REBITDA) for the three months to March 2015 were up 12% year on year to €502m, amid better margins and favourable foreign exchange development, it added.

By division, Advanced Formulations’ sales rose in the first quarter 6.1% year on year to €704m, while REBITDA fell 2.5% during the same period to €95m, hit by lower profit reductions derived from the fall of crude oil prices, which especially affected the subdivisions of Novecare and Coatis.

Despite a positive impact from currencies on the back of the euro depreciation observed in the last months, Advanced Formulations faced less demand from the unconventional oil and gas markets, as well as the negative revaluation of inventories at Coatis, also caused by the crude price fall.

“The collapse in oil prices has been impacting Novecare’s performance since February through supply chain adjustments in North American Oil & Gas markets. Stimulation as well as drilling and cementing related activities sharply reduced, whereas chemicals used in production performed well,” said Solvay.

The company added Novecare had already implemented a plan to reduce costs. The division’s activities in Brazil continued to be impacted by an economic slowdown in that country, adding “costly domestic labour” and energy prices had eroded the local industry’s competitiveness, favouring imports of finished goods.

Advanced Materials enjoyed during the first quarter, year on year, jumps in sales and REBITDA of 22% and 19% to €801m and €203m, respectively, supported by volumes, positive foreign exchange and acquisitions, with positive demand coming from the automobile and smart devices markets.

Within Advanced Materials, subdivision Specialty Polymers posted sales growth of 30% to €451m during the first quarter of 2015, while Silica’s revenue rose 18% to €127m and Special Chemicals also registered higher sales at €154m, 15% more than in the first quarter of 2014.

Specialty Polymers benefited from good demand at the consumer electronics markets. Solvay highlighted “good growth” in the automotive markets on light-weighting technologies, as well as positive performances at the industrial, construction, consumer and water applications markets.

Silica benefited from “sustained solid demand” in North America, although Solvay said demand in Europe and Asia “slowed somewhat,” while Special Chemicals’ revenue was positively lift up by good demand for its Fluor subdivision, as well as semi-conductors and electronics.

Within Advanced Materials, the only subdivision with negative sales was Rare Earth Systems (down 3.6% to €68m) on the back of lower sales in lighting. It was unable to offset good performances of catalysis market – boosted by EU emission regulations (Euro 6), polishing and semi-conductors.

Performance Chemicals posted a growth in sales during the first quarter of 5% year on year to €754m and REBITDA at €195m, up 14% during the same period, helped by foreign exchange (5% positive effect) and higher prices (3%), although volumes declined (down 4%) on lower demand at the Acetow subdivision, which manufactures cellulose acetate fibre, mainly used to produce cigarette filters.

Acetow was the only division’s arm to register lower sales (down 22%) to €127m, attributed by Solvay to destocking in the sector which continued to hurt sales volumes.

The other subdivisions registered healthy sales growth rates, with Soda Ash & Derivatives increasing revenue during the first quarter by 16% to €384m, Peroxides by 11% to €136m and Emerging Biochemicals by 5.9% to €107m.

Soda Ash and Derivatives benefited from price increases, as well as implemented cost cutting measures, said Solvay. It added the market of southern Europe and in seaborne trade had registered good growth rates.

Strong demand for hydrogen peroxide in all end markets contributed to a “strong performance” at Peroxides, with the “mega plants” for hydrogen peroxide to propylene oxide (HPPO) in Europe and Asia operating at high capacity rates, helping lift the overall performance at the subdivision.

Higher Emerging Biochemicals sales came on the back of positive foreign exchange and costs reductions, but the division took a hit from lower polyvinyl chloride (PVC) activities, which were impacted in the first quarter by a rise in ethylene prices, while the epichlorohydrin (ECH) market remained low during the period, said Solvay.

Functional Polymers reported a fall in revenue, year on year, of 14% to €387m and REBITDA at €30m, a fall of 24% compared to the first quarter of 2014. Both volumes and prices at this division were down, while positive foreign exchange had a 4% positive impact.

This division’s results are conditioned by the divestment of Benvic in 2014, said Solvay, while joint venture RusVinyl between Russian major SIBUR (owns 50%) and SolVin (remaining 50%) reached 70% of production capacity, not enough yet to make a profit and posting operating losses for the first quarter, added the company. SolVin is a joint venture between Solvay (75%) and German major BASF (25%).

“Polyamide & Intermediates results were hit by the impact of raw material decrease leading to inventories devaluation and a production issue at Chalampé while Engineering Plastics continued its good performance driven by favourable pricing and forex. [Brazil’s] Fibras remained impacted by the poor macroeconomic conditions and competitive erosion of Brazil’s domestic industry,” said Solvay.

Looking at the remaining three quarters of 2015, Solvay just said it is confident it can “generate solid REBITDA growth,” based on current business conditions.

“Recent acquisitions are being integrated successfully while the creation of the planned European PVC joint venture is progressing well,” said Solvay’s CEO, Jean-Pierre Clamadieu, referring to the enterprise with INEOS to produce PVC.

Additional information by Pearl Bantillo