SOURCE: SOLVAY

February 19, 2009 01:54 ET

SOLVAY: 2008 operating result (EUR 965 million) down by 19% compared to the record result of 2007

BRUSSELS, BELGIUM--(Marketwire - February 19, 2009) - The full press release is available on http://www.solvay-investors.com/

REGULATED INFORMATION

2008 operating result (EUR 965 million) down by 19% compared to the record result of 2007

Fourth quarter affected by economic crisis and inventory depreciation

- Sales for 2008 (EUR 9,490 million) slightly lower compared to 2007 (+1% at constant exchange rates); Decrease by 4% in the fourth quarter

- Operating result for 2008 (EUR 965 million): -19% compared to the record result of 2007 (-53% for the fourth quarter)

. Pharmaceuticals (+11%): Record operating result due to growth in sales of the principal products and geographic expansion

. Chemicals (-31%) and Plastics (-40%): Significant increase in energy and raw materials costs, partially compensated by increases in sales prices; fourth quarter marked by a strong contraction in demand and by significant inventory depreciation, mainly in Plastics

- Net income of Group for 2008 (EUR 449 million, -46%), impacted by adjustments to book values, of which for holdings in Fortis, for an amount of EUR -309 million

- Dividend proposed: 2.9333 EUR gross (2.20 EUR net) per share (stable compared to 2007)

- Solid financial structure:

. Net debt to equity ratio: 34%

. No significant maturity dates for debt reimbursement before 2014

The Solvay Group succeeded in coping with the world economic crisis over the past months due to the diversification of its activities, the rigor of its balance sheet management and the measures it took to reinforce its competitiveness: dynamic management of its working capital needs, strict cost controls, temporary reduction of some production and timely targeted restructuring. These measures will be continued and the 2009 capital expenditure budget was greatly reduced in order to maintain a solid financial situation while continuing to selectively implement the strategy of sustainable and profitable growth. We are confident that the Group will pass through the current crisis while maintaining its values and strong bases, and being ready to rebound as soon as the business recovers.

Group sales for 2008 (EUR 9,490 million) declined slightly compared to 2007 (-1%); in the fourth quarter, they were down by 4%. The demand for our principal products, which held steady for the first nine months of the year, contracted sharply during the fourth quarter, following the global economic crisis that led, especially in December, to a quasi-paralysis of certain activities of our customers. Additionally, exchange rates weighed on the evolution of sales. At constant exchange rates, sales would have increased by 1% compared to 2007.

Group operating result (REBIT(1); EUR 965 million) declined by 19% compared to 2007. In the Chemicals and Plastics Sectors, the significant increase in costs of energy and raw materials observed during the first half became more pronounced in the second half and were only partially compensated by increases in selling price for certain products. Besides, operating result for the fourth quarter declined importantly (-53% compared to 2007) due to the significantly degraded global economic context. The operating margin for 2008 (REBIT on sales) was 10.2% compared to 12.5% in 2007.

The net income of the Group (EUR 449 million) declined by 46% compared to 2007. This result was impacted by adjustments in book value (non cash), positive for US soda ash and negative for holdings in Fortis, for a total net amount of EUR -243 million, including EUR -51 million in the fourth quarter.

REBITDA(2) was EUR 1,436 million (-14%). It amounted to EUR 252 million in the fourth quarter.

The net debt to equity ratio reached 34% at the end of 2008 compared to 29% at the end of 2007, reflecting the Group's policy of rigorous balance sheet management. It should be noted that the first significant debt maturity will not occur until 2014.

On February 18, 2009, the Board of Directors agreed to propose to the General Shareholders Meeting on May 12, 2009 the payment of a dividend of 2.9333 EUR gross (2.20 EUR net) per share, stable compared to 2007.

Sales from the Pharmaceuticals Sector (EUR 2,699 million) were up by 4% compared to 2007. At constant exchange rates, they would have increased by 8%. Sales growth of the major products (in particular: the fenofibrate franchise, Androgel® and Creon®) and miscellaneous income largely compensated for the negative effects. These were unfavorable exchange rates and significant pressures resulting from generic drug competition, especially in France and the United States (for Marinol®). Sales in emerging markets today represent about 20% of sales in the Pharmaceuticals Sector. In the fourth quarter, sales increased by 15%. It should be noted that the approval of TrilipixTM at mid-December generated revenues of EUR 39 million as a result of sales in the United States among others in order to fill the distribution network. Operating result (EUR 509 million) improved by 11% compared to 2007. In the fourth quarter, it increased by 13% despite the unwinding of the sale of Flammazine® (reversal in the fourth quarter of EUR 27 million recorded in the first quarter), as a result of the buyer's difficulty in financing the transaction. It should be recalled that two other non-strategic products (Baldrian® and Alvityl®) were sold during the first half of 2008, generating results of EUR 44 million. These sales partially compensated for the unfavorable exchange rates and expenses linked to co-promotion of Simcor® in the United States. R&D investments (EUR 428 million) were up by EUR 13 million compared to 2007.

For the Chemicals and Plastics Sectors, 2008 was marked by the significant and continuous increase in costs of energy and raw materials, which led to decrease the gross margin, partially compensated for by increased sales prices, and by a sharp contraction in demand during the fourth quarter, especially in Plastics.

Chemicals Sector sales in 2008 (EUR 3,096 million) improved by 2% due to the generally sustained demand during the first ten months and to the price increases for certain products. Despite the economic crisis, sales in the fourth quarter improved (+3%) compared to last year, owing to the price increases and to the good resistance of the sales of soda ash. The slowdown in demand at the end of the year led to a reduction of some production. Operating result for 2008 (EUR 238 million) declined by 31% (-54% in the fourth quarter). The Minerals cluster continued its improvement in sales but its results were affected by energy costs. In the Electrochemistry and Fluorinated Products cluster, the fourth-quarter drop in demand for caustic soda was lower than that of production. This was explained by the drop in demand for chlorine, the byproduct of caustic soda used as a raw material for PVC; consequently, the increase in the selling price of caustic soda continued. Results from epichlorohydrin were sharply down from 2007. The Oxygen cluster was faced with a slowdown in demand, in Europe and also in the United States, along with very high energy and raw material costs.

In 2008, Plastics Sector sales (EUR 3,695 million) declined by 6% compared to 2007, especially following a significant drop in demand in the fourth quarter. The economic crisis had a negative impact on operating result for 2008 (EUR 264 million, down 40% compared to the excellent result of 2007). In the fourth quarter, the loss in Vinyls explained the negative operating results of the sector (EUR -26 million). It resulted from the sharp drop in demand and prices while the cost of ethylene still remained at a high level. The reduction of production in this context weighed on results but prevented a high inventory surplus. Negative adjustments to inventory valuation (EUR -30 million), taken at the end of the year following a drop in selling prices, were thus limited to a minimum. Sales volumes of Specialty Polymers also fell off at the end of the year; evolution throughout the year 2008, however, remained positive (volumes up by 2%). Various measures were taken to further reinforce their competitiveness and sustain their results (such as gradual selling price increases to mitigate the impact of the hike in raw material costs). Considering the global context, the Specialty Polymers showed a good resistance.

The macro-economic and financial uncertainties limit the visibility in 2009. Market conditions remain difficult at the beginning of the year. The competitive positions of the Group, its diversification, the measures taken to support the profitability and maintain its healthy financial standing will help to cope

SOLVAY Group - Summary Financial Information

+------------------------+-----+-----+----------+------------+------------+
|Million EUR             |2007 |2008 |2008/2007 |4th quarter |4th quarter |
+------------------------+-----+-----+----------+------------+------------+
|(except for per-share   |     |     |          |       2007 |       2008 |
|figures in EUR)         |     |     |          |            |            |
+------------------------+-----+-----+----------+------------+------------+
|Sales                   |9,572| 9,49|      -1% |      2,366 |      2,273 |
+------------------------+-----+-----+----------+------------+------------+
|REBIT                   |1,192|  965|     -19% |        267 |        125 |
+------------------------+-----+-----+----------+------------+------------+
|REBIT/Sales             |12.5%|10.2%|          |      11.3% |       5.5% |
+------------------------+-----+-----+----------+------------+------------+
|Non-recurring items     |   31|   20|     -36% |         12 |        -31 |
+------------------------+-----+-----+----------+------------+------------+
|EBIT(3)                 |1,223|  985|     -19% |        279 |         94 |
+------------------------+-----+-----+----------+------------+------------+
|Charges on net          |  -82|  -93|      14% |        -21 |        -29 |
|indebtedness            |     |     |          |            |            |
+------------------------+-----+-----+----------+------------+------------+
|Income from investments |   24| -299|          |          0 |        -53 |
+------------------------+-----+-----+----------+------------+------------+
|Earnings before taxes   |1,165|  592|     -49% |        258 |         12 |
+------------------------+-----+-----+----------+------------+------------+
|Income taxes            | -337| -143|     -58% |        -76 |         11 |
+------------------------+-----+-----+----------+------------+------------+
|Net income of the Group |  828|  449|     -46% |        182 |         23 |
+------------------------+-----+-----+----------+------------+------------+
|Net income(Solvay share)|  781|  405|     -48% |        171 |         29 |
+------------------------+-----+-----+----------+------------+------------+
|Total depreciation      |  593|  417|     -30% |        205 |        139 |
+------------------------+-----+-----+----------+------------+------------+
|REBITDA                 |1,662|1,436|     -14% |        385 |        252 |
+------------------------+-----+-----+----------+------------+------------+
|Cash flow               |1,421|  866|     -39% |        386 |        162 |
+------------------------+-----+-----+----------+------------+------------+
|(per share, in EUR)     |     |     |          |            |            |
+------------------------+-----+-----+----------+------------+------------+
|Earnings per share(4)   | 9.46| 4.92|     -48% |       2.07 |       0.35 |
+------------------------+-----+-----+----------+------------+------------+
|Net debt to equity ratio|  29%|  34%|          |            |            |
+------------------------+-----+-----+----------+------------+------------+

+-------------------------+------------------+
|Million EUR              |4th quarter 2008/ |
+-------------------------+------------------+
|(except for per-share    | 4th quarter 2007 |
|figures in EUR)          |                  |
+-------------------------+------------------+
|Sales                    |              -4% |
+-------------------------+------------------+
|REBIT                    |             -53% |
+-------------------------+------------------+
|REBIT/Sales              |                  |
+-------------------------+------------------+
|Non-recurring items      |                  |
+-------------------------+------------------+
|EBIT(3)                  |             -66% |
+-------------------------+------------------+
|Charges on net           |              38% |
|indebtedness             |                  |
+-------------------------+------------------+
|Income from investments  |                  |
+-------------------------+------------------+
|Earnings before taxes    |             -95% |
+-------------------------+------------------+
|Income taxes             |                  |
+-------------------------+------------------+
|Net income of the Group  |             -87% |
+-------------------------+------------------+
|Net income (Solvay share)|             -83% |
+-------------------------+------------------+
|Total depreciation       |             -32% |
+-------------------------+------------------+
|REBITDA                  |             -35% |
+-------------------------+------------------+
|Cash flow                |             -58% |
+-------------------------+------------------+
|(per share, in EUR)      |                  |
+-------------------------+------------------+
|Earnings per share(4)    |             -83% |
+-------------------------+------------------+
|Net debt to equity ratio |                  |
+-------------------------+------------------+

Notes on Solvay Group summary financial information

Non-recurring elements amounted to EUR 20 million in 2008 compared to EUR 31 million in 2007. They included a reversal of an impairment on the trona (natural soda ash) mine in the United States (EUR 92 million), the capital gain (EUR 30 million) on the sale of Solvay Engineered Polymers in the United States, restructuring charges in the Pharmaceuticals Sector (for the "Inspire" project: EUR 48 million) and in the Chemicals Sector (EUR 12 million for depreciation of an asset in the context of restructuring of Girindus' activities in Germany).

Investment income included the extraordinary write-down (EUR -309 million; EUR -53 million in the fourth quarter) of holdings in Fortis (non-cash charge), posted at closing at the end of 2008 (EUR 0.929 per share). This holding was acquired by the Group in between the two world wars. More recently, it generated capital gains close to EUR 200 million (in 1998 and 2007) and a dividend of EUR 20 million in 2007.

Charges on net indebtedness (EUR -93 million) were higher than in 2007 in line with the increase in net average indebtedness. Financial debt at the end of 2008 was covered up to 95% at an average fixed rate of 5.4%, for a duration of 7.4 years; the first significant debt maturity will not occur until 2014.

Income taxes amounted to EUR -143 million. The effective tax rate amounted to 24% compared to 29% in 2007. The 2008 tax rate benefited from the reversals of reserves following favorable tax audit outcomes and write-up of prior tax losses, primarily in the 4th quarter; it has been negatively impacted by the non deductible write-down of holdings in Fortis.

Net income of the Group (Eur 449 million) declined by 46% compared to 2007. Interest from third parties amounted to EUR 44 million compared to EUR 47 million in 2007. Net earnings per share amounted to 4.92 EUR in 2008 (compared to 9.46 EUR in 2007).

REBITDA amounted to EUR 1,436 million (-14%) in 2008 and to EUR 252 million (-35%) in the fourth quarter. Recurring depreciation was stable compared to 2007. Total depreciation (EUR 417 million) was down by 30%, following a reversal of the impairment, in the third quarter 2008, of the trona mine (natural soda ash) and posting in 2007 of the non-recurring depreciation linked to the restructuring in Fluorinated activities and Pharmaceuticals.

Equity amounted to EUR 4,745 million at the end of 2008, up by EUR 286 million compared to the end of 2007 (EUR 4,459 million).

The Group set as a major priority the maintenance of a solid financial situation, in particular in the current economic context. Thus 2008 ended with a net debt to equity ratio of 34% (compared to 29% at the end of 2007). Net debt at the end of 2008 amounted to EUR 1,597 million compared to EUR 1,307 million at the end of 2007. Special efforts were made to manage working capital in the fourth quarter: its level at the end of 2008 was lower than at the end of 2007. The operating cash flow financed the investments and acquisitions in 2008.

In this context, on February 18, 2009, the Board of Directors decided to propose to the General Shareholders Meeting on May 12, 2009 the payment of a gross dividend of 2.9333 EUR (2.20 EUR net) per share, stable compared to 2007. Based on the rate at closing on February 17, 2009 (52.67 EUR), this represents a gross dividend yield of 5.6% and net of 4.2%. Also, it is to be recalled that the Group's dividend policy consists of increasing it anytime possible, and avoiding, if possible, decreasing it. For 27 years, the dividend has gradually increased and has never been reduced.

INVESTMENTS AND RESEARCH AND DEVELOPMENT

Investments in 2008 represented EUR 1,320 million, of which about EUR 100 million were for acquisition of the "Alexandria Sodium Carbonate Company" soda ash plant in Egypt and about EUR 190 million for acquisition of the biotechnology company Innogenetics nv. These two amounts were not included in the announced budget of EUR 1,091 million. Initiatives were also taken for development of specialty polymers in India and China and, in Vinyls, for capacity expansion in Thailand and modernization of the production unit in Brazil. Other capital projects targeted improvement in our energy performance.

The 2009 capital expenditures budget was adapted to the current economic crisis. It amounts to EUR 638 million. It was developed on the basis of the following two principles: limitation of investments to the level of depreciation, while maintaining those related to health, safety and the environment, and beyond that, concentration of investments on a very limited number of strategic projects. These projects were oriented by priority toward geographic expansion of the Group and toward choices made in terms of sustainable development.

Research and Development (R&D) expenditures reached EUR 564 million in 2008 of which about 75% was for the Pharmaceuticals Sector. R&D efforts for the latter represented EUR 428 million, or 16% of sales. The R&D expenditures budget for 2009 is EUR 590 million, of which EUR 435 million, or about 75% of the total, is for the Pharmaceuticals Sector.

RESULTS BY SECTOR(5)

+-----------------+------+------+----------+------------+------------+
|  Million EUR    |2007  |2008  |2008/2007 |4th quarter |4th quarter |
+-----------------+------+------+----------+------------+------------+
|                 |      |      |          |       2007 |       2008 |
+-----------------+------+------+----------+------------+------------+
|GROUP SALES(6)   |9,572 | 9,49 |      -1% |      2,366 |      2,273 |
+-----------------+------+------+----------+------------+------------+
|Pharmaceuticals  |2,591 |2,699 |       4% |        656 |        754 |
+-----------------+------+------+----------+------------+------------+
|Chemicals        |3,031 |3,096 |       2% |        743 |        766 |
+-----------------+------+------+----------+------------+------------+
|Plastics         | 3,95 |3,695 |      -6% |        967 |        753 |
+-----------------+------+------+----------+------------+------------+
|Corporate and    |      |      |          |            |            |
+-----------------+------+------+----------+------------+------------+
|Business Support |    - |    - |        - |          - |          - |
+-----------------+------+------+----------+------------+------------+
|REBIT GROUP      |1,192 |  965 |     -19% |        267 |        125 |
+-----------------+------+------+----------+------------+------------+
|Pharmaceuticals  |  457 |  509 |      11% |        122 |        138 |
+-----------------+------+------+----------+------------+------------+
|Chemicals        |  345 |  238 |     -31% |         69 |         31 |
+-----------------+------+------+----------+------------+------------+
|Plastics         |  441 |  264 |     -40% |         92 |        -26 |
+-----------------+------+------+----------+------------+------------+
|Corporate and    |      |      |          |            |            |
+-----------------+------+------+----------+------------+------------+
|Business Support |  -51 |  -46 |      -9% |        -16 |        -17 |
+-----------------+------+------+----------+------------+------------+
|REBITDA GROUP    |1,662 |1,436 |     -14% |        385 |        252 |
+-----------------+------+------+----------+------------+------------+
|Pharmaceuticals  |  559 |  617 |      10% |        148 |        167 |
+-----------------+------+------+----------+------------+------------+
|Chemicals        |  508 |  398 |     -22% |        109 |         73 |
+-----------------+------+------+----------+------------+------------+
|Plastics         |  636 |  458 |     -28% |        140 |         27 |
+-----------------+------+------+----------+------------+------------+
|Corporate and    |      |      |          |            |            |
+-----------------+------+------+----------+------------+------------+
|Business Support |  -40 |  -37 |      -8% |        -13 |        -15 |
+-----------------+------+------+----------+------------+------------+
+-----------------+------+------+----------+------------+------------+

+-----------------+------------------+
|  Million EUR    |4th quarter 2008/ |
+-----------------+------------------+
|                 | 4th quarter 2007 |
+-----------------+------------------+
|GROUP SALES(6)   |              -4% |
+-----------------+------------------+
|Pharmaceuticals  |              15% |
+-----------------+------------------+
|Chemicals        |               3% |
+-----------------+------------------+
|Plastics         |             -22% |
+-----------------+------------------+
|Corporate and    |                  |
+-----------------+------------------+
|Business Support |                - |
+-----------------+------------------+
|REBIT GROUP      |             -53% |
+-----------------+------------------+
|Pharmaceuticals  |              13% |
+-----------------+------------------+
|Chemicals        |             -54% |
+-----------------+------------------+
|Plastics         |                  |
+-----------------+------------------+
|Corporate and    |                  |
+-----------------+------------------+
|Business Support |              12% |
+-----------------+------------------+
|REBITDA GROUP    |             -35% |
+-----------------+------------------+
|Pharmaceuticals  |              13% |
+-----------------+------------------+
|Chemicals        |             -33% |
+-----------------+------------------+
|Plastics         |             -81% |
+-----------------+------------------+
|Corporate and    |                  |
+-----------------+------------------+
|Business Support |              17% |
+-----------------+------------------+
+-----------------+------------------+
(1) REBIT: measure of operating performance (this is not an IFRS concept as such)

(2) REBITDA : REBIT, before recurring depreciation.

(3) EBIT: results before financial charges and taxes.

(4) 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 82,585,998 shares for 2007 and 82,317,792 shares for 2008.

(5) Results by sector include results from the three sectors of the Group, as well as Corporate and Business Support.

(6) These are sales after elimination of inter-sector sales.

This information is provided by HUGIN

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