General Meeting 6 June 2006
Ladies and Gentlemen,
Dear shareholders,
The economic environment in 2005 was particularly unfavourable for the group, which had to meet a general rise in prices of its raw materials and electricity of which it is a high consumer.
78% of the group’s major markets are located in Europe and 65% of these are in the construction, public works, and agriculture sectors. These markets did not grow enough to enable such rises in costs to be recovered from the sales prices.
After the year 2004 which had recorded a recovery, the accounts for 2005 therefore show a considerable deterioration.
The main impact was felt in the PVC sector, which experienced a serious setback in its performance from mid 2005 to just about now.
The second disappointment came from fine chemicals which deteriorated again compared to the last year due to the price of toluene, overcapacity in Europe, competition from Asia and the relocation of customers.
It is notable that with the exception of our European activity in pipes and fittings, satisfactory performances came from the Americas and China.
Our American subsidiary, which processes sulphur derivatives, achieved the best year in its history.
Our gelatin business in Argentina and in North America continued to produce excellent results, which made up for the weak activity in this business in Europe.
Our fine chemicals Chinese subsidiary also posted positive results.
This situation has led us to launch a plan aimed at responding in a better way to the structural development of our businesses in Europe. It concerns all the group’s businesses but with a particular focus on chemicals and fine chemical organic chlorine derivatives where the problems are concentrated today. The analysis began at the beginning of this year and includes a close look at the businesses, the organisation and the optimisation of costs. The implementation of the measures of this programme will be spread over several years, with a target of saving a recurrent 30 million EUR by 2007. At the current stage of the analysis, we can already confirm that this target will be reached.
It is in the sector of chemicals that most progress has been made and details of this plan will be announced on 20 June. The details concerning fine chemicals will be announced in September.
We have put a particular emphasis on developing in China, where we want to increase our presence. We are in the process of doubling the capacity of our fine chemicals factory. We have just opened a permanent office in Shanghai and we are actively looking for a new location for a gelatin factory.
2005 was also marked by continuing the construction of our new membrane electrolysis unit. The plant, which you are going to be able to visit after our meeting, is coming on line within the expected time and budget forecasts.
The increase in the price of electricity, much higher than projected when we took the decision to invest, will increase the importance of this new production unit, which is a lower consumer of electricity.
On the other hand, the increase in capacity that this investment will give us, will enable us to strengthen our position in the caustic potash market, where demand is currently high as a result of the withdrawal by competitors, and consequently to become the European market leader.
In addition we have just received the generation licence from the Minister of Energy for a project for a new power plant in Tessenderlo in which we have a stake. This project should improve our competitive position thanks to the reductions in electricity costs that it will bring us as from 2009-2010.
Your board is confident that the measures we have planned will be successful and bring about a recovery. This is why despite the drop in results we are proposing to maintain the net dividend at 90 cents per ordinary share in order to remain consistent with the distribution policy that we have already been applying for several years.
Your board of directors has decided to offer, once again this year, to all the employees of the group the opportunity to subscribe to an increase in the company capital that will be exclusively reserved for them. The aim of this operation is to involve all the employees more closely in the development and the growth of the group. As in previous years, this capital increase will concern a maximum number of 150,000 new shares. The subscription price is fixed at 21.95 euro. This price corresponds, after deduction of the dividend, to the maximum discount allowed by law for this type of operation.
The start of the year experienced the same mediocre trend as in the second half of 2005 with the result that we have had to record a sharp decrease in our results in the first quarter of 2005. We do not expect such a sharp decrease in the second quarter of 2006, which is expected to show similar results to those in 2005. A significant improvement is expected for the third quarter over the same quarter of 2005, which will enable us to reduce some of the lag. It is difficult at this stage to make a forecast over the whole of the year, but we can hope that the recurrent results, excluding the costs linked to the current recovery plan, will be close to those of 2005.
Gérard Marchand
