Solvay Sees Higher 2011 Profit As Q1 Tops Forecast

10.05.2011 -

Belgian chemicals group Solvay reported a 79% jump in first-quarter operating profit, beating estimates thanks to improved demand and price hikes, and forecast higher full-year 2011 earnings.

"In the context of the globally favorable business climate and based on its strategy of sustainable and profitable growth, Solvay expects to improve its annual operating result, both in chemicals and plastics activities in 2011," it said.

Recurring earnings before interest and taxes from continuing operations (REBIT) was €197 million ($275 million), compared with a forecast for €148 million in a Reuters poll in which the highest estimate was €165 million.

Solvay was expected to report full-year REBIT of €794 million. ING analyst Jan Hein de Vroe said both the consensus and his €750 million forecast will need to be raised in light of the first-quarter figures.

Global chemicals firms have reported solid first-quarter earnings reflecting strong demand, especially in Asia, and because they have been able to raise prices for chemicals and plastics to more than offset higher costs for raw materials, such as crude oil, used in many chemicals products.

Industry leader BASF beat estimates after demand from carmakers picked up, while French specialty chemicals group Rhodia, which Solvay is buying for €3.4 billion, raised its 2011 forecast.

Solvay group sales from continuing operations were €1.67 billion, up 23% from a year-ago restated €1.36 billion, and against a forecast €1.57 billion.

Solvay said sustained demand had allowed it to raise its selling prices across its business to offset increased costs of energy and some raw materials, adding volumes rose 10% and it had raised prices 12%.

"The main good news is in caustic soda, where sales improved 41%," ING's De Vroe said. Caustic soda is used to make detergents as well as in the pulp and paper industry. "They are also talking about improved sales volumes for vinyls, which is not too bad, although some of this might have been a bit of restocking ahead of price increases."

Solvay's plastics unit reported REBIT of €116 million, beating a forecast for 83.5 million, thanks to higher volumes for both specialty plastics and polyvinyl chloride (PVC), which is used in construction.

The PVC market has been problematic for Solvay in recent quarters due to sluggish construction markets, increased competition and higher costs.

In the chemicals unit, record operating profit of €101 million also beat estimates of €78 million.

Solvay's agreed buy-out of Rhodia will lift its exposure to fast-growing markets such as China and Brazil to 40% and allow it to further tap into higher-margin specialty chemicals.

Solvay's shares have risen 18% since it announced the deal, as it removed persistent worries over the type of acquisition the company might make following the sale of its drugs unit to Abbott Laboratories in February 2010.



Rue du Prince Albert 33
1050 Bruxelles