General Meeting on 5 June 2007
Ladies and Gentlemen,
Dear shareholders,
The economic environment in 2006 was once again hardly favourable for the group, as raw material prices remained high and the Dollar remained weak. Nevertheless, there was an improvement in our business in the last quarter, even though its impact on the 2006 financial statements remained small. This improvement is continuing in 2007 and is the reason for the favourable results we have shown since the start of the year.
The group’s operating result rose slightly in comparison with 2005, but this increase conceals considerable differences between the business groups.
Chemicals improved its results considerably, mainly thanks to an increase in the selling prices of its main products.
Plastics Converting continued to make progress in its three business units: plastic pipe systems, profiles and compounds.
However, these improvements were partly offset by a very marked deterioration in Specialities, mainly because of chloro-toluene intermediates, which faced a critical situation: high raw material prices, overcapacity in Europe, relocation of customers and strong competition from Asia.
The closure of a site in the UK was an initial response to this situation and is the reason for the adjustment in Specialities’ results, which we announced in the first quarter of 2007. Additional measures still need to be taken in 2007 to continue this adjustment.
Once again with the exception of our European plastic pipe systems business, the best performances came from the Americas and China.
Our US subsidiary, which uses sulphur derivatives from refining, had an excellent year.
Our gelatin business in Argentina and North America continues to show excellent results, which are still compensating for the poor results of the same business in Europe. In November, we therefore set up a majority-owned joint venture in China to benefit both from low production costs and the promising outlook for the Chinese market.
Our Chinese fine chemicals subsidiary also showed positive results, in the same business that is experiencing very serious difficulties in Europe. In May, a new investment that will enable us to double our production capacity was started up successfully.
2006 was mainly dominated by the implementation of the Target 2007 plan.
This resulted in substantial costs and provisions, which weighed heavily on final net result. These efforts should, however, be seen as investments for the future. The target of 30 million EUR savings for 2007 will be met. The first effects were already felt in the first quarter of 2007, when they contributed to the improvement in the results. This programme is being continued and should also make additional recurrent savings of 20 million EUR in 2008.
At the same time as controlling costs, the group has also set itself 5-year strategic objectives for its portfolio of businesses.
The first of these is to reduce the share of commodities to below 30 % over this period.
The second is to obtain a return on capital employed (ROCE) of at least 12 % in all its businesses.
To achieve these objectives:
The resources available for development will be mainly allocated to three business areas:
Plastics Converting, with special emphasis on development in the countries of eastern Europe.
Gelatin, with the aim of maintaining our position among the leaders by reinforcing our international presence.
Businesses combining services and valorisation of by-products, which are activities close to customers, drawing on the strong experience we have already accumulated in this area.
Joint ventures will be favoured wherever they can increase our competitiveness in the main commodities.
Businesses that are unable to meet the return on capital employed target will have to leave our portfolio.
We are already working on this programme and will provide information about it as it progresses.
The already tangible success of the measures taken and the drop in group indebtedness from 58 % of equity at the end of 2006 to 47 % at the end of the first quarter have encouraged your Board of Directors, despite the negative net result/, to remain consistent with the dividend policy we have followed for a number of years, by maintaining the net dividend at 0.90 EUR per share.
This year, too, your Board of Directors has decided to offer all the staff of the group the opportunity to subscribe for an increase in the company capital reserved exclusively for them. The aim of this operation is to involve all the employees more closely in the development and growth of the group. As in previous years, this capital increase will comprise up to 150,000 new shares. The subscription price is fixed at 34.13 EUR. After deduction of the dividend, this price corresponds to the maximum discount allowed by law for this type of operation.
The start of the year has been very promising, with one of the best first-quarter results in the group’s history. The outlook remains good for the second quarter, which, although not achieving the results of the first quarter, will not fall too far short of them. We must remain to some extent cautious about the year as a whole, since the outlook regarding some of our businesses remains uncertain after the summer, but we nevertheless expect to be able to record an increase in our recurring result of about 50 % over the previous year.
