Solvay’s 4Q11 results were lower than expected on the key REBITDA level which was down 23% on a pro-forma basis (including Rhodia in 4Q10) to € 355m (KBCS € 402m, css € 405m). Sales grew by 5% on a pro-forma basis to € 2,988m (KBCS € 3,064m, css € 2,990m) while net profit landed at € -23m (KBCS € 76m, css € 72m) mainly due to PPA (purchase price allocation) adjustments related to the Rhodia acquisition.
Chemicals grew 4Q revenue by 5% to € 695m (KBCS € 677m, css € 693m) whereas REBITDA declined by 15% to € 103m (KBCS € 97m, css € 102m). Special Chemicals saw sales increase by 5% to € 138m (KBCS expected flat at € 134m) while REBITDA declined by 95% to € 1m (KBCS € 10m). Essential Chemicals grew revenue by 5% to € 558m (KBCS € 543m) with REBITDA down 3% to € 101m (KBCS € 87m). Business conditions remained broadly unchanged with the biggest exception probably epichlorohydrin, which faced a continued slowdown in demand.
Plastics saw revenue decline by 3% to € 824m (KBCS € 856m, css € 778m) whereas REBITDA declined by 52% to € 68m (KBCS and css € 105m). Specialty Polymers grew 4Q sales by 7% to € 306m (KBCS € 290m) while REBITDA grew by 10% to € 76m (KBCS € 77m). As expected Vinyls saw earnings coming under pressure on the back of weak construction markets in Europe, increased import pressure from US producers in Latin America and floodings affecting customer sites in Thailand. Vinyls 4Q revenue declined by 7% to € 518m (KBCS € 566m) with REBITDA dived into a 4Q loss of € -9m (KBCS € 28m)
Rhodia grew revenue by 11% to € 1479m (KBCS € 1,532m, css € 1,518m) whereas REBITDA declined by 3% to € 231m (KBCS € 220m, css € 214m). Consumer Chemicals grew revenue by 28% to € 617m (KBCS € 593m) while REBITDA grew by 53% to € 90m (KBCS € 72m). Advanced Materialsgrew revenue by 45% to € 218m (KBCS € 218m) while REBITDA grew by 65% to € 56m (KBCS € 57m). Polyamide Materials saw revenue decline by 6% to € 406m (KBCS € 438m) while REBITDA declined by 78% to € 14m (KBCS € 44m). Acetow & Eco Services grew revenue by 13% to € 228m (KBCS € 206m) while REBITDA grew by 35% to € 54m (KBCS € 40m).Energy Services saw revenue decline by 17% to € 55m (KBCS € 50m) while REBITDA declined by 25% to € 44m (KBCS € 37m).
Net debt landed at about € 1.8bn at year-end 2011 which is close to our estimate. The company proposes an unchanged dividend of € 3.0667. did not issue a precise guidance for 2012but stated that market conditions seem to progressively recover. Prices increases have been realized for products like soda ash, caustic soda and hydrogen peroxide.
Conclusion:
posted clearly weakerthan expected 4Q results with REBITDA down 23% on a pro-forma basis. The shortfall was mainly caused by Vinyls and Polyamides, with results being impacted by the drive for cash. We expect a negative share price reaction today but decided to maintain our Accumulate rating and € 90 TP given the perceived cost cutting potential (€ 120m Horizon savings target and € 250m savings target from Rhodia integration), increased emerging markets exposure (roughly 40% of total revenue) and reasonable valuation.