SOURCE: SOLVAY

October 29, 2009 02:49 ET

SOLVAY : Operating result in the third quarter (EUR 285 million) in line with last year's (-2%) and improved compared to the two preceding quarters

BRUSSELS, BELGIUM--(Marketwire - October 29, 2009) -


REGULATED INFORMATION

Operating result in the third quarter (EUR 285 million) in line with last year's (-2%) and improved compared to the two preceding quarters

- Sales (EUR 6,286 million) down by 13% compared to the first nine months of 2008. Developments by Sector contrasted.

- Operating result (EUR 592 million for nine months 2009):

--Pharmaceuticals (EUR 410 million): up by 10% (+36% not including miscellaneous income during the first nine months of 2008); sustained growth for the main products

--Chemicals (EUR 178 million): limited decrease notwithstanding weak demand and pressure on some prices, especially caustic soda

-- Plastics (EUR 46 million): sharply down compared to the end of September 2008, with the global economic crisis still having an impact on the primary markets in this Sector (construction, automobile, electronics); significant improvement in the third quarter

- Net income of Group (EUR 354 million), down by 17% from the net result of EUR 426 million for the first nine months of 2008

- Interim dividend of 0.90 EUR net per share (1.20 EUR gross per share)

- Solid financial structure:

--Net debt to equity ratio: 36%

-- No significant maturity dates for debt reimbursement before 2014

Group sales at the end of September 2009 (EUR 6,286 million) were down by 13% compared to last year. The development by Sector was contrasted: Pharmaceuticals: +5%, Chemicals: -11%, Plastics: -26%. Demand improved in the third quarter in some activities in the Chemicals and Plastics Sectors; the overall level, however, remained decidedly lower than last year, taking into account the negative effects of the global economic crisis since the last quarter of 2008. Sales for the third quarter were down by 10% compared to the same period of last year and amounted to EUR 2,235 million.

Group operating result (REBIT1; EUR 592 million) was down by 30% compared to the first nine months 2008. In the third quarter, it amounted to EUR 285 million, greatly improved from the second quarter and in line with the third quarter of last year (-2%). Operating result in the Pharmaceuticals Sector at the end of September 2009 (EUR 410 million) was up by 10% compared to last year. In the third quarter (EUR 204 million), it was up significantly (+63%) compared to last year. The operating result from our industrial activities continued to be affected by the difficult economic environment. The Chemicals Sector held up well despite low demand and pressure on some prices, especially caustic soda. It posted a REBIT of EUR 178 million at the end of September 2009, down by 14%. In Plastics, at the end of September 2009, REBIT was EUR 46 million. In the third quarter (EUR 39 million), it improved compared to the two preceding quarters.

The Group's operating margin (REBIT on sales) was 9.4% at the end of September 2009 compared to 11.6% at the end of September 2008. The decrease was limited through strict cost controls and continued structural changes (adapting production and reducing headcount). At constant scope and EUR/USD exchange rate, the Group reduced fixed production costs and commercial and administrative costs in total for about EUR 140 million compared to nine months 2008. Headcount continued to decrease (at a constant scope by about 1,200 people for the first nine months of the year).

The net income of the Group (EUR 354 million) decreased by 17% compared to nine months 2008.

REBITDA2 was EUR 962 million, down by 19% compared to the end of September 2008; it was stable in the third quarter. In the context of the current crisis, priority continues to be given to generation of cash and maintenance of a sound financial situation. Aside from cost-reduction measures, this priority generated a significant decrease in working capital needs (by EUR 759 million) and investment expenditures (by 43%, in line with reduction goals) compared to the end of September 2008. The net debt to equity ratio reached 36% at the end of September 2009 compared to 39% at the end of September 2008. It should be noted that the first significant maturity for debt reimbursement will not occur until 2014.

The Board of Directors decided on October 28, 2009 to declare for the current year an interim dividend of 0.90 EUR net per share (1.20 EUR gross per share), representing, as usual, 40% (rounded) of last year's total dividend.

The Solvay Group announced at the end of September 2009 its decision to refocus its activities and to sell its entire pharmaceutical business in order to accelerate its strategy of profitable and sustainable growth. This transaction should close in the first quarter of 2010, subject to approval by the relevant authorities. At closure the divestment of activities would in the consolidated financial statements lead to a capital gain of an amount estimated at EUR 1.7 billion as at September 30, 2009. One must however deduct from this the provisions for risks and take into account the variations in net asset value of the activities until closure. Furthermore, provisions to adapt the organization of the Group will have to be created. These amounts are not determined at this stage and will be part of subsequent communication. The results of the Pharmaceuticals Sector will be reported as "discontinued operations" until closure of the transaction.

Pharmaceuticals Sector sales (EUR 2.043 million) were up by 5% compared to the end of September 2008 (+3% at constant exchange rates) and by 8% in the third quarter. They benefited from the sustained growth of certain drugs such as Androgel® (EUR +88 million), Creon® (EUR +35 million) and Influvac® (EUR +34 million), and overall positive exchange rate effects (EUR +33 million). On the other hand, they were negatively impacted by significant pressure from generic competition (impact of EUR -37 million for Marinol®, which became generic in June 2008). Earnings for the fenofibrate franchise in the United States in 2009 were lower following the significant revenues in December 2008 (EUR 39 million) related to the launch of TrilipixTM after its approval by the FDA and following a decrease in inventory in the United States. Sales in emerging markets continued to improve, despite the negative effects of exchange rates. Operating result (EUR 410 million) improved (+10%) compared to the end of September 2008 (EUR 372 million). The latter included miscellaneous income in a total amount of EUR 71 million linked to the sale of non-strategic products. Excluding these items, the operating result at the end of September 2009 would be clearly higher than at the end of September 2008 (+36%). In the third quarter (EUR 204 million), it was up significantly (+63%) compared to last year. Research and Development expenditures amounted to EUR 316 million, or 15.5% of sales.

Sales in the Chemicals Sector at the end of September 2009 (EUR 2,064 million) decreased by 11% following a significant decline in demand compared to last year. The sales volume for chemicals has slightly improved over the past several months. However, this improvement was coupled with pressure on prices. At the end of September 2009, operating result (EUR 178 million) was down by 14% compared to last year. In the third quarter 2009, it amounted to EUR 56 million compared to EUR 71 million last year, primarily due to the sharp drop in caustic soda prices. Strict cost controls at all levels and the drop in energy costs limited the impact on results of the drop in sales volumes and the evolution of prices since the start of 2009.

Plastics Sector sales (EUR 2,180 million) dropped by 26% compared to the end of September 2008. The impact of the crisis was still significant for the Sector's primary markets, which are automotive and construction, as well as electronics and electricity. It should be noted, however, that demand improved in the past several months in most activities, which is reflected in the Sector's operating result of the third quarter (EUR 39 million), improved compared to the two preceding quarters. On a cumulative basis, at the end of September 2009 (EUR 46 million) it however remained much lower than last year (EUR 291 million). Aside from seasonal adjustments, the improvement in demand in Plastics continued at the start of the fourth quarter while threats from American PVC imports are materializing, which would place more pressure on margins of European manufacturers. Strict cash control and cost reduction at all levels ensured good resistance of the Sector.

The decision to sell its entire pharmaceutical business, as announced on September 28, will not impact 2009 Group's operating performance. As announced, the Pharmaceuticals Sector will achieve in 2009 a higher operating result than last year.

The Chemicals and Plastics Sector showed good resilience against the crisis thanks to their competitive positions and to the measures taken, but the market conditions remain difficult. Full year operating result of the Group will be lower than last year.

SOLVAY Group - Summary Financial Information

+-----------------------+--------+--------+--------------+-------+-------+
|Million EUR            |9 months|9 months|9 months 2009/|  3rd  |  3rd  |
+-----------------------+--------+--------+--------------+-------+-------+
|(except for per-share  |    2008|    2009| 9 months 2008|quarter|quarter|
|figures in EUR)        |        |        |              |       |       |
+-----------------------+--------+--------+--------------+-------+-------+
|                       |        |        |              |   2008|   2009|
+-----------------------+--------+--------+--------------+-------+-------+
|                       |  Total3|  Total3|    % on total| Total3| Total3|
+-----------------------+--------+--------+--------------+-------+-------+
|Sales                  |   7,217|   6,286|          -13%|  2,486|  2,235|
+-----------------------+--------+--------+--------------+-------+-------+
|REBIT                  |     840|     592|          -30%|    292|    285|
+-----------------------+--------+--------+--------------+-------+-------+
|REBIT/Sales            |   11.6%|    9.4%|              | 11,70%| 12,80%|
+-----------------------+--------+--------+--------------+-------+-------+
|Non-recurring items    |      50|     -64|              |     84|    -30|
+-----------------------+--------+--------+--------------+-------+-------+
|EBIT4                  |     890|     527|          -41%|    376|    255|
+-----------------------+--------+--------+--------------+-------+-------+
|Charges on net         |     -64|    -117|           83%|    -13|    -46|
|indebtedness           |        |        |              |       |       |
+-----------------------+--------+--------+--------------+-------+-------+
|Income from investments|    -247|      -3|              |   -256|      0|
+-----------------------+--------+--------+--------------+-------+-------+
|Earnings before taxes  |     580|     407|          -30%|    107|    209|
+-----------------------+--------+--------+--------------+-------+-------+
|Income taxes           |    -153|     -53|          -66%|    -32|    -36|
+-----------------------+--------+--------+--------------+-------+-------+
|Net income of the Group|     426|     354|          -17%|     75|    173|
+-----------------------+--------+--------+--------------+-------+-------+
|Net income (Solvay     |        |        |              |       |       |
|share)|                |     376|     328|          -13%|     41|    160|
+-----------------------+--------+--------+--------------+-------+-------+
|Total depreciation     |     278|     395|           42%|     32|    133|
+-----------------------+--------+--------+--------------+-------+-------+
|REBITDA                |   1,184|     962|          -19%|    411|    410|
+-----------------------+--------+--------+--------------+-------+-------+
|Cash flow              |     705|     749|            6%|    107|    306|
+-----------------------+--------+--------+--------------+-------+-------+
|Results by share5      |    4.52|    3.99|          -12%|   0.49|   1.95|
+-----------------------+--------+--------+--------------+-------+-------+
|Net debt to equity     |        |        |              |       |       |
|ratio                  |     39%|     36%|              |       |       |
+-----------------------+--------+--------+--------------+-------+-------+

+-------------------------+------------------+
|Million EUR              |3rd quarter 2009/ |
+-------------------------+------------------+
|(except for per-share    | 3rd quarter 2008 |
|figures in EUR)          |                  |
+-------------------------+------------------+
|                         |                  |
+-------------------------+------------------+
|                         |       % on total |
+-------------------------+------------------+
|Sales                    |             -10% |
+-------------------------+------------------+
|REBIT                    |              -2% |
+-------------------------+------------------+
|REBIT/Sales              |                  |
+-------------------------+------------------+
|Non-recurring items      |                  |
+-------------------------+------------------+
|EBIT4                    |             -32% |
+-------------------------+------------------+
|Charges on net           |             265% |
|indebtedness             |                  |
+-------------------------+------------------+
|Income from investments  |                  |
+-------------------------+------------------+
|Earnings before taxes    |              95% |
+-------------------------+------------------+
|Income taxes             |              14% |
+-------------------------+------------------+
|Net income of the Group  |             129% |
+-------------------------+------------------+
|Net income (Solvay share)|             290% |
+-------------------------+------------------+
|Total depreciation       |             317% |
+-------------------------+------------------+
|REBITDA                  |               0% |
+-------------------------+------------------+
|Cash flow                |             185% |
+-------------------------+------------------+
|Results by share5        |             294% |
+-------------------------+------------------+
|Net debt to equity ratio |                  |
+-------------------------+------------------+

Notes on Solvay Group summary financial information

Non-recurring items amounted to EUR -64 million for the first nine months of 2009 (EUR -30 million in the third quarter). They included asset write- downs of EUR 14 million in the Organics cluster and EUR 12 million in the Pharmaceuticals Sector as well as various charges for restructuring (mothballing of the hydrogen peroxide unit at Bitterfeld, shutdown of the precipitated calcium carbonate production unit at Angera).

Charges on net indebtedness amounted to EUR -117 million at the end of September 2009. They were affected by financing charges in local currencies on our development in eastern countries, especially Russia and Bulgaria, and by the low yield on cash. Financial debt is covered at 80% at an average fixed rate of 5.1% with a duration of 6.5 years; the first significant maturity of the debt will not occur until 2014. In May 2009, the Group issued a 6-year bond in the amount of EUR 500 million at 5%. This issue permitted consolidation of its long-term financing structure, among other things by refinancing the commercial paper issued on short term.

Income taxes amounted to EUR -53 million. The effective tax rate at the end of September 2009 was 13%, due among others to tax credits for research.

The net income of the Group (EUR 354 million) declined by 17% compared to the end of September 2008. It improved significantly in the third quarter (EUR 173 millions compared to EUR 75 million in 2008). It should be recalled that the net result of the third quarter 2008 had been affected by the extraordinary write-down (EUR 256 million) of holdings in Fortis. Minority interests amounted to EUR 26 million. The net result per share amounted to 3.99 EUR (compared to 4.52 EUR at the end of September 2008).

REBITDA amounted to EUR 962 million (down by 19% compared to 2008). It was stable in the third quarter. It should be noted that total depreciation (EUR 395 million) significantly increased compared to the first nine months of 2008 (EUR 278 million) following the reversal of the impairment (EUR 89 million) on the trona mine (natural soda ash) in the third quarter 2008.

Equity amounted to EUR 4,925 million at the end of September 2009, up by EUR 180 million compared to the end of 2008 (EUR 4,745 million).

The Group set as a major priority the maintenance of a solid financial situation, in particular in the current economic climate. At the end of September 2009 the net debt to equity ratio was 36% (compared to 39% at the end of September 2008). Net debt amounted to EUR 1,759 million compared to EUR 1,597 million at the end of 2008. Working capital (EUR 1,220 million) declined by EUR 759 million compared to the end of September 2008. This decline occurred in particular in industrial working capital (down by EUR 561 million); this reflects a strong focus of the management of the Group in this area.

RESULTS BY SEGMENT (6)

+-----------------------+--------+--------+--------------+-------+--------+
|                       |9 months|9 months|9 months 2009/|  3rd  |  3rd   |
+-----------------------+--------+--------+--------------+-------+--------+
|Million EUR            |    2008|    2009| 9 months 2008|quarter|quarter |
+-----------------------+--------+--------+--------------+-------+--------+
|                       |        |        |              |   2008|   2009 |
+-----------------------+--------+--------+--------------+-------+--------+
|GROUP Sales7           |   7,217|   6,286|          -13%|  2,486|  2,235 |
+-----------------------+--------+--------+--------------+-------+--------+
|Chemicals              |    2,33|   2,064|          -11%|    802|    658 |
+-----------------------+--------+--------+--------------+-------+--------+
|Plastics               |   2,942|    2,18|          -26%|    988|    827 |
+-----------------------+--------+--------+--------------+-------+--------+
|Corporate and business |       0|       0|              |      0|      0 |
|support                |        |        |              |       |        |
+-----------------------+--------+--------+--------------+-------+--------+
|Pharmaceuticals -      |   1,944|   2,043|            5%|    696|    751 |
|Discontinued Operations|        |        |              |       |        |
+-----------------------+--------+--------+--------------+-------+--------+
|REBIT GROUP            |     840|     592|          -30%|    292|    285 |
+-----------------------+--------+--------+--------------+-------+--------+
|Chemicals              |     206|     178|          -14%|     71|     56 |
+-----------------------+--------+--------+--------------+-------+--------+
|Plastics               |     291|      46|          -84%|    104|     39 |
+-----------------------+--------+--------+--------------+-------+--------+
|Corporate and business |     -29|     -43|           50%|     -8|    -13 |
|support                |        |        |              |       |        |
+-----------------------+--------+--------+--------------+-------+--------+
|Pharmaceuticals -      |     372|     410|           10%|    125|    204 |
|Discontinued Operations|        |        |              |       |        |
+-----------------------+--------+--------+--------------+-------+--------+
|REBITDA GROUP          |   1,184|     962|          -19%|    411|    410 |
+-----------------------+--------+--------+--------------+-------+--------+
|Chemicals              |     325|     303|           -7%|    112|     98 |
+-----------------------+--------+--------+--------------+-------+--------+
|Plastics               |     431|     203|          -53%|    153|     91 |
+-----------------------+--------+--------+--------------+-------+--------+
|Corporate et Business  |     -22|     -37|           69%|     -6|    -11 |
|Support                |        |        |              |       |        |
+-----------------------+--------+--------+--------------+-------+--------+
|Pharmaceuticals -      |     450|     492|           10%|    152|    231 |
|"Discontinued          |        |        |              |       |        |
|Operations"            |        |        |              |       |        |
+-----------------------+--------+--------+--------------+-------+--------+

+-------------------------+-------------------+
|                         |3rd quarter 2009 / |
+-------------------------+-------------------+
|Million EUR              |  3rd quarter 2008 |
+-------------------------+-------------------+
|                         |                   |
+-------------------------+-------------------+
|GROUP Sales7             |              -10% |
+-------------------------+-------------------+
|Chemicals                |              -18% |
+-------------------------+-------------------+
|Plastics                 |              -16% |
+-------------------------+-------------------+
|Corporate and business   |                   |
|support                  |                   |
+-------------------------+-------------------+
|Pharmaceuticals -        |                8% |
|Discontinued Operations  |                   |
+-------------------------+-------------------+
|REBIT GROUP              |               -2% |
+-------------------------+-------------------+
|Chemicals                |              -21% |
+-------------------------+-------------------+
|Plastics                 |              -63% |
+-------------------------+-------------------+
|Corporate and business   |               62% |
|support                  |                   |
+-------------------------+-------------------+
|Pharmaceuticals -        |               63% |
|Discontinued Operations  |                   |
+-------------------------+-------------------+
|REBITDA GROUP            |                0% |
+-------------------------+-------------------+
|Chemicals                |              -12% |
+-------------------------+-------------------+
|Plastics                 |              -41% |
+-------------------------+-------------------+
|Corporate et Business    |               89% |
|Support                  |                   |
+-------------------------+-------------------+
|Pharmaceuticals -        |               52% |
|"Discontinued Operations"|                   |
+-------------------------+-------------------+

STRATEGIC REFOCUS OF SOLVAY GROUP ACTIVITIES

The Board of Directors decided at the end of September 2009 to refocus the activities of the Solvay Group and to sell its entire pharmaceutical business in order to accelerate its strategy of profitable and sustainable growth.

This decision resulted from an in-depth analysis and evaluation of the different strategic options for the future development of the pharmaceuticals activities of the Group. Among the different options analyzed, the option to sell the pharmaceuticals activities was selected. It offers to all the Group's activities, pharmaceuticals and non- pharmaceuticals, the best possibilities for their future development.

The Group's pharmaceuticals activities will be sold to Abbott for a total Enterprise Value of about EUR 5.2 billion. This value includes EUR 4.5 billion in cash and additional potential payments of up to EUR 300 million if certain sales objectives for the testosterone franchise (Androgel®) are met between 2011 and 2013. It also includes the assumption of certain liabilities which Solvay today estimates at approximately EUR 400 million.

This transaction is expected to be closed in the first quarter of 2010, subject to approval by the relevant authorities.

After closing, Solvay will commit itself to reinvest the proceeds from the transaction in organic and sizeable external growth, focused on long-term value creation. This will be done by investments in high value-added activities and strategic projects in chemicals and plastics, by continuing the geographic expansion into regions with growth potential, and by pursuing the development of activities and new products with low energy footprint and which we expect will significantly reduce the cyclicality in Solvay's portfolio of activities. Evaluations about such reinvestment are ongoing.

The Solvay Group's philosophy remains unaltered: realize sustained growth with leading positions and maintain a conservative financial structure.

(1) REBIT: measure of operating performance (this is not an IFRS concept as such)

(2) REBITDA: REBIT, before recurring depreciation

(3) Total < >= continuing + discontinued operations as presented in the table "consolidated income statement"

(4) EBIT: results before financial charges and taxes

(5) Calculated on the basis of the weighted average of the number of shares in the period, after deduction of own shares purchased to cover the stock option programs, or a total of 82,372,038 shares for nine months 2008 and 82,136,569 shares for nine months 2009

(6) Results by sector include results from the three sectors of the Group, as well as Corporate and business support. 7 These are sales after elimination of inter-sector sales.

The full press release is available on http://www.solvay-investors.com/

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