Solvay Offsets PVC Problems and Performs Well in Second Quarter

Belgian chemicals and plastics group Solvay reiterated its full-year forecast as its high growth divisions and cost cuts offset tough conditions in its PVC operations. Solvay's net sale in Q2 2012 grew about 1 % compared to last year and now accounts for € 3,33 billion. Compared to Q1 2012 the net sale grew about 3 %, showing that following the acquisition of Rhodia Solvay is on a good way. Despite the uncertain economic and financial situation in global and especially European markets, Solvay CEO Jean-Pierre Clamadieu is optimistic for the future: "We reinforced our expansion in high-growth countries, namely in China and India, with the commissioning of new production and R&D facilities. The building of the new Solvay is now well on-track and we are committed to realize our value-creative ambition."

The "new Solvay" is not yet completed, but already generated a recurring EBITDA of € 565 million with a margin of 17 % in this quarter. Compared to last year the REBITDA sank about 6 % (Q2 2011: € 604 million), but the growth of 8 % from Q1 to Q2 in 2012 (Q1: € 523 million) again displays Solvay's upward trend this year.


Solvay has suffered as a struggling construction sector buys less of its PVC for use in drainage pipes and window frames. However, the company, which bought French specialty chemicals group Rhodia last year for €3.4 billion, is now benefiting from record results in the divisions on which it has pinned its growth hopes. "The quality of the numbers is good because it's really the growth drivers that performed well," said Filip De Pauw, an analyst at ING. "It's a beat on consensus, it's a quality beat, and they reiterated full-year guidance."

It made record results in its specialty polymers division, due to strong demand for high performance materials in the oil and gas, water and healthcare sectors, and in its consumer chemicals division, which supplies ingredients for skin and hair care products.


However, despite tough conditions in its key PVC operations, Solvay said that the strong performance of its growth divisions and its cost savings program mean that it expected to make a recurring core profit this year roughly the same as last year.

In the past month, Solvay's shares have fallen by around 9% as investors have fretted that it may have to trim its forecast due to the torrid European markets.

In its PVC operations, Solvay said it continued to suffer from low demand and difficult market conditions. Chief Executive Jean-Pierre Clamadieu said in May that the company may consider selling off its PVC operations "in a few years".


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