Quarterly Report • Nov 7, 2019
Quarterly Report
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First nine months 2019 Financial report
Published on November 7, 2019, at 7:00 a.m.
IFRS 16 has been implemented in the Group's financial statements since January 1, 2019. Comparative information for the first nine months of 2018 in the business review is presented on an unaudited pro forma basis as if the implementation had taken place on January 1, 2018. This information is labelled "pro forma" or "PF". The balance sheet evolution is compared with January 1, 2019, which includes the IFRS 16 impact versus December 31, 2018.
Besides IFRS accounts, Solvay also presents alternative performance indicators to provide a more consistent and comparable indication of the Group's underlying financial performance and financial position, as well as cash flows. These indicators provide a balanced view of the Group's operations and are considered useful to investors, analysts and credit rating agencies as these measures provide relevant information on the Group's past or future performance, position or cash flows. These indicators are generally used in the sector it operates in and therefore serve as a useful aid for investors to compare the Group's performance with its peers. The underlying performance indicators adjust IFRS figures for the non-cash Purchase Price Allocation (PPA) accounting impacts related to acquisitions, for the coupons of perpetual hybrid bonds, classified as equity under IFRS but treated as debt in the underlying statements, and for other elements that would distort the analysis of the Group's underlying performance. The comments on the results made on pages 3 to 11 are on an underlying basis, unless otherwise stated.
Solvay expects organic underlying EBITDA growth [4] between ‑2% and ‑3% year on year and free cash flow to Solvay shareholders from continuing operations [5] of around €490 million, in line with previous full year guidance. At current exchange rates, the expected underlying EBITDA translates into around €2,330 million, broadly flat compared to 2018.
| 9M key figures | IFRS | Underlying | ||||
|---|---|---|---|---|---|---|
| 9M 2018 | 9M 2018 | |||||
| (in € million) | 9M 2019 | PF | % yoy | 9M 2019 | PF | % yoy |
| Net sales | 7,803 | 7,683 | +1.6% | 7,803 | 7,683 | +1.6% |
| EBITDA | 1,707 | 1,544 | +11% | 1,796 | 1,799 | -0.2% |
| EBITDA margin | 23.0% | 23.4% | -0.4pp | |||
| EBIT | 114 | 758 | -85% | 1,197 | 1,229 | -2.6% |
| Net financial charges [6] | (175) | (150) | -17% | (246) | (259) | +5.1% |
| Income tax expenses | (7) | (116) | n.m. | (231) | (230) | -0.3% |
| Tax rate | 25.8% | 24.6% | +1.2pp | |||
| Profit from discontinued operations | 208 | 158 | +32% | 222 | 169 | +32% |
| (Profit) loss attributable to non-controlling interests | (31) | (30) | +2.6% | (31) | (30) | +2.4% |
| Profit attributable to Solvay shareholders | 110 | 620 | -82% | 911 | 878 | +3.8% |
| Basic earnings per share (in €) | 1.06 | 6.00 | -82% | 8.84 | 8.50 | +4.0% |
| of which from continuing operations | (0.96) | 4.48 | n.m. | 6.68 | 6.86 | -2.7% |
| Capex in continuing operations | (570) | (550) | -3.7% | |||
| FCF to Solvay shareholders from continuing operations |
345 | 128 | n.m. | |||
| FCF to Solvay shareholders | 527 | 273 | n.m. | |||
| Net financial debt [7] | (3,770) | (5,570) | ||||
| Underlying leverage ratio | 2.1 |
| Q3 key figures | IFRS | Underlying | ||||
|---|---|---|---|---|---|---|
| Q3 2018 | Q3 2018 | |||||
| (in € million) | Q3 2019 | PF | % yoy | Q3 2019 | PF | % yoy |
| Net sales | 2,578 | 2,591 | -0.5% | 2,578 | 2,591 | -0.5% |
| EBITDA | 591 | 569 | +3.9% | 601 | 599 | +0.4% |
| EBITDA margin | 23.3% | 23.1% | +0.2pp | |||
| EBIT | (492) | 311 | n.m. | 397 | 407 | -2.6% |
| Net financial charges [6] | (62) | (52) | -20% | (80) | (88) | +9.7% |
| Income tax expenses | 120 | (42) | n.m. | (61) | (76) | +20% |
| Profit from discontinued operations | 58 | 69 | -16% | 59 | 63 | -6.0% |
| (Profit) loss attributable to non-controlling interests | (11) | (11) | +2.9% | (11) | (11) | +3.9% |
| Profit attributable to Solvay shareholders | (387) | 275 | n.m. | 304 | 295 | +3.0% |
| Basic earnings per share (in €) | (3.76) | 2.67 | n.m. | 2.95 | 2.86 | +3.2% |
| of which from continuing operations | (4.32) | 2.00 | n.m. | 2.37 | 2.25 | +5.6% |
| Capex in continuing operations | (215) | (187) | -15% | |||
| FCF to Solvay shareholders from continuing operations |
313 | 146 | n.m. | |||
| FCF to Solvay shareholders | 335 | 195 | +72% | |||
| Net financial debt [7] | (3,770) | (5,570) | ||||
| Underlying leverage ratio | 2.1 |
(in € million) 2,591 -8 +65 -87 +16 2,578
Third quarter net sales were down -0.5%, with forex conversion effects compensating for -2.7% organic [2] growth, as a result of lower volumes.
Year-to-date net sales were up +1.6%, supported by positive forex conversion effects. Organically [2] , net sales were down -0.7%, lower volumes being partly compensated by higher prices.
Year-to-date underlying EBITDA was down -0.2%, and -2.6% organically [2] , mostly on lower volumes and the net negative impact of some one-time events.
Other elements reflect the strong contribution from the PVC and peroxide joint ventures which more than compensated for the -0.6% net impact of one-time events. These include a €12 million gain on an energy-related settlement in the second quarter of 2019 versus a €23 million pension-related synergy benefit booked in the same period last year.
Third quarter underlying EBITDA was up +0.4%, and -1.8% organically [2] excluding forex conversion. Positive net pricing effects and a strong contribution from joint ventures offset lower volumes, while fixed costs were kept stable. The underlying EBITDA margin was slightly up (+0.2pp) at 23%.
Third quarter 2019 underlying earnings per share [3] from continuing operations were up +5.6% at €2.37, reflecting the positive forex effects on EBITDA, lower net financial charges and a lower tax rate, more than offsetting higher depreciation and amortization. Total underlying earnings per share in the third quarter went up accordingly.
| 8.50 | 8.84 | ||||||
|---|---|---|---|---|---|---|---|
| 1.63 | -0.03 | -0.28 | +0.13 | +0.09 | -0.10 | - | 2.16 |
| cont. ops. 6.86 |
EBITDADepreciation, amortization & impairments |
Net financial charges |
Tax base |
Tax rate change Taxes -0.01 |
Non-ctrl interests & other |
cont. ops. 6.68 |
|
| 9M 2018 PF | -2.7% | 9M 2019 |
Year-to-date underlying earnings per share [3] from continuing operations were down -2.7% at €6.68. Lower net financial charges, following the repayment of higher interest-yielding debt in June 2018 and May 2019, partly offset higher depreciation and amortization charges. Total underlying earnings per share in the first nine months went up thanks to a strong contribution from discontinued operations, including the sale of some €33 million of carbon credits.
Free cash flow (FCF)
Third quarter free cash flow to Solvay shareholders from continuing operations was €313 million, more than doubling year on year, benefitting from strict working capital management. Working capital needs turned positive at €106 million compared to a €(98) million outflow in 2018. Total FCF to Solvay shareholders was €335 million.
Year-to-date free cash flow to Solvay shareholders from continuing operations was €345 million, up €217 million year on year, thanks to better working capital phasing.
Provision payments and taxes were largely in line with last year.
Working capital needs were €219 million lower than the same period last year, thanks to targeted measures in the supply chain and improved receivables.
As a consequence, total free cash flow to Solvay shareholders amounted to €527 million in the first nine months.
Underlying net financial debt[7] was €(5.6) billion, lower than the end of June, and slightly up from €(5.5) billion at the start of the year, due to €(79) million of forex impacts, mainly the US\$ appreciation, and €(81) million M&A outflows. Strong free cash flow led operational deleveraging to end well positive at €140 million over the first nine months, despite the €(386) million dividend payments concentrated in the first half. This represents a €241 million improvement. The underlying leverage ratio [12] remained flat at 2.1x.
Underlying gross financial debt was €(6.5) billion, including €(1.8) billion perpetual hybrid bonds. Solvay called a €0.70 billion hybrid bond at 4.20% in May 2019, which was partly pre-financed by a €0.30 billion hybrid bond at 4.25% issued in November 2018. In September this year Solvay also redeemed the outstanding US\$800 million 3.400% notes due 2020, and partly replaced it by the issuance of a €600 million new bond at 0.50% in August.
Provisions rose from €(3.8) billion to €(4.0) billion as remeasurements more than offset operational deleveraging.
The total operational deleveraging was €97 million, mostly on employee benefits, for €70 million.
Remeasurements led to an increase in liabilities of €(351) million and were mainly due to decrease of discount rates applicable to post-employment provisions across all regions, partly offset by the return of plan assets.
(in € million) Other Other Payments: cont. 283 discont. 8 Net new provisions Discounting costs Remeasurements [9] Changes in scope & other (3,820) 291 (135) (59) (351) 66 (4,007) Employee benefits (2,925) Environment (701) Environment (691) Employee benefits (2,672) Operational deleveraging 97
January 1, 2019
Provisions
September 30, 2019
| Segment review | Underlying | ||||||
|---|---|---|---|---|---|---|---|
| Q3 2018 | 9M 2018 | ||||||
| (in € million) | Q3 2019 | PF | % yoy | 9M 2019 | PF | % yoy | |
| Net sales | 2,578 | 2,591 | -0.5% | 7,803 | 7,683 | +1.6% | |
| Advanced Materials | 1,141 | 1,082 | +5.4% | 3,443 | 3,292 | +4.6% | |
| Advanced Formulations | 704 | 788 | -11% | 2,183 | 2,293 | -4.8% | |
| Performance Chemicals | 731 | 720 | +1.5% | 2,172 | 2,091 | +3.8% | |
| Corporate & Business Services | 2 | 1 | +81% | 5 | 6 | -16% | |
| EBITDA | 601 | 599 | +0.4% | 1,796 | 1,799 | -0.2% | |
| Advanced Materials | 301 | 299 | +0.6% | 891 | 943 | -5.6% | |
| Advanced Formulations | 123 | 143 | -14% | 388 | 411 | -5.6% | |
| Performance Chemicals | 216 | 200 | +7.6% | 646 | 581 | +11% | |
| Corporate & Business Services | (39) | (44) | +12% | (128) | (136) | +5.9% | |
| EBIT | 397 | 407 | -2.6% | 1,197 | 1,229 | -2.6% | |
| Advanced Materials | 213 | 218 | -2.3% | 640 | 706 | -9.3% | |
| Advanced Formulations | 83 | 106 | -21% | 268 | 299 | -10% | |
| Performance Chemicals | 163 | 150 | +8.8% | 487 | 428 | +14% | |
| Corporate & Business Services | (63) | (66) | +5.8% | (198) | (203) | +2.6% |
| Key figures | Underlying | |||||||
|---|---|---|---|---|---|---|---|---|
| (in € million) | Q3 2019 | Q3 2018 PF | % yoy | 9M 2019 | 9M 2018 PF | % yoy | ||
| Net sales | 2 | 1 | +81% | 5 | 6 | -16% | ||
| EBITDA | (39) | (44) | +12% | (128) | (136) | +5.9% | ||
| EBIT | (63) | (66) | +5.8% | (198) | (203) | +2.6% |
Third quarter underlying EBITDA costs were €(39) million, €5 million better than in 2018. Relentless focus on cost improvements and the benefits from the simplification plan, more than offset inflation, stranded costs from the on-going divestments and the adverse effect of forex conversion.
Year-to-date underlying EBITDA was €(128) million, €8 million better, benefiting from the cost containment measures and favorable conditions on the energy market.
| Key figures | Underlying | |||||
|---|---|---|---|---|---|---|
| Q3 2018 | 9M 2018 | |||||
| (in € million) | Q3 2019 | PF | % yoy | 9M 2019 | PF | % yoy |
| Net sales | 1,141 | 1,082 | +5.4% | 3,443 | 3,292 | +4.6% |
| Specialty Polymers | 489 | 509 | -3.9% | 1,478 | 1,534 | -3.6% |
| Composite Materials | 329 | 262 | +25% | 974 | 794 | +23% |
| Special Chem | 209 | 202 | +3.2% | 651 | 631 | +3.1% |
| Silica | 115 | 109 | +4.8% | 340 | 333 | +2.4% |
| EBITDA | 301 | 299 | +0.6% | 891 | 943 | -5.6% |
| EBITDA margin | 26.4% | 27.6% | -1.3pp | 25.9% | 28.7% | -2.8pp |
| EBIT | 213 | 218 | -2.3% | 640 | 706 | -9.3% |
Third quarter net sales were up +5.4%, of which +3.0% on an organic [2] basis excluding forex conversion effects. Double-digits volume growth in Composite Materials more than offset the decline in Specialty Polymers. Prices benefited from transactional forex effects, with price increases in Specialty Polymers.
industry, increased sales of process chemicals for semiconductors offset weaker demand for capacitor materials.
Silica sales were up +4.8%, with higher volumes, mostly in Europe, in a slow market environment.
Third quarter underlying EBITDA increased by +0.6% and was down -1.6% organically [2] excluding forex conversion effects, as the volume increase mitigated higher costs. These were higher due mainly to destocking effects in Specialty Polymers as the business aligned production to the lower demand levels. Productivity measures to improve production yield and optimize the supply chain, especially in Composite Materials, contained inflation. The underlying EBITDA margin fell 1.2pp to 26%.
Year-to-date net sales increased by +4.6% overall and by +1.8% organically [2]. Lower volumes in Specialty Polymers' automotive and electronics were offset by double-digit growth in Composite Material's aerospace business. Prices were up in Specialty Polymers and benefited from transactional forex effects.
Year-to-date underlying EBITDA was down -5.6% and -8.4% organically [2]. Higher volumes, as well as cost containment and productivity measures were not sufficient to compensate for the higher cost base. These resulted from the expanded production capabilities in Composite Materials, destocking effects in Specialty Polymers and higher raw material costs. The one-time pension-related synergy benefit of €19 million, booked in the second quarter of 2018, had a -1.8pp impact on the first nine months. The EBITDA margin was down -2.8pp at 26%.
| Key figures | Underlying | |||||
|---|---|---|---|---|---|---|
| Q3 2018 | 9M 2018 | |||||
| (in € million) | Q3 2019 | PF | % yoy | 9M 2019 | PF | % yoy |
| Net sales | 704 | 788 | -11% | 2,183 | 2,293 | -4.8% |
| Novecare | 436 | 509 | -14% | 1,390 | 1,522 | -8.7% |
| Technology Solutions | 159 | 175 | -9.5% | 474 | 474 | +0.1% |
| Aroma Performance | 109 | 103 | +5.5% | 319 | 298 | +7.3% |
| EBITDA | 123 | 143 | -14% | 388 | 411 | -5.6% |
| EBITDA margin | 17.5% | 18.2% | -0.7pp | 17.8% | 17.9% | -0.2pp |
| EBIT | 83 | 106 | -21% | 268 | 299 | -10% |
Third quarter net sales were down -11% in the third quarter, and -13% organically [2], due mainly to the weakening demand and loss of cost competitiveness of Solvay's technologies in the North American shale oil & gas stimulation activities, and to a lesser extent to weaker demand in agro and mining solutions.
In Aroma Performance, sales were up +5.5% on improved mix and prices. The flavors and fragrances business benefitted from sustained growth in natural vanillin. Industrial applications were positively impacted by mix effects, mainly in polymerization inhibitors.
Third quarter underlying EBITDA decreased by -14% and excluding forex conversion effects -17% organically [2], due to the lower volumes. These were partly compensated by cost reductions, as significant measures were taken to improve the profitability and drive costs down. The underlying EBITDA margin of the third quarter was thereby sustained at 18%.
Year-to-date net sales were down -4.8% and -7.9% organically [2]. Prices were overall stable. Volumes declined -10% primarily linked to the soft shale oil & gas stimulation market in North America, exacerbated by loss of competitiveness.
Year-to-date underlying EBITDA was down -5.6% and -10% organically [2], including the one-time negative impact of the €4 million pension-related synergy benefit booked in the second quarter of 2018. The significant volume decline was partly offset by the cost containment measures and price increases. The EBITDA margin was stable at 18%.
Higher annual prices lead to a strong increase of Q3 returns in the soda ash and peroxide activities, while demand was stable. Results also benefited from continued operational efficiency measures.
| Key figures | Underlying | |||||
|---|---|---|---|---|---|---|
| Q3 2018 | 9M 2018 | |||||
| (in € million) | Q3 2019 | PF | % yoy | 9M 2019 | PF | % yoy |
| Net sales | 731 | 720 | +1.5% | 2,172 | 2,091 | +3.8% |
| Soda Ash & Derivatives | 423 | 399 | +5.9% | 1,250 | 1,163 | +7.4% |
| Peroxides | 172 | 165 | +4.4% | 515 | 484 | +6.3% |
| Coatis [11] | 136 | 156 | -13% | 407 | 443 | -8.2% |
| EBITDA | 216 | 200 | +7.6% | 646 | 581 | +11% |
| EBITDA margin | 29.5% | 27.9% | +1.7pp | 29.7% | 27.8% | +1.9pp |
| EBIT | 163 | 150 | +8.8% | 487 | 428 | +14% |
(in €million)
Third quarter net sales in the segment were up +1.5% thanks to forex conversion, while largely flat organically [2] . Higher prices for soda ash and peroxides, more than compensated weaker sales in Coatis.
Third quarter underlying EBITDA rose +7.6%. Excluding scope and forex conversion effects it grew +4.4%. This was the result of the higher prices for soda ash and peroxides as well as continued productivity gains over the total supply chain, primarily in Soda Ash & Derivatives. Strong performance of the Brazilian peroxide and Russian PVC joint ventures contributed to the result. Consequently, the segment EBITDA margin grew +1.7pp to 30%.
Year-to-date net sales in the segment were up +3.8% and +3.4% organically [2] , reflecting the higher prices on annual contracts for soda ash and peroxides, demonstrating the resilience of these businesses in the current economic environment.
Year-to-date underlying EBITDA grew +11% and +8.7% organically [2] . Higher prices more than compensated higher raw material and energy costs, and were complemented by productivity gains and a strong contribution from the Russian PVC joint venture. A one-time gain of €12 million, contributing +2.0pp, was booked in the second quarter on the settlement of an energy contract in Solvay's European soda ash business. The EBITDA margin was up +1.9pp at 30%.
Solvay measures its financial performance using alternative performance metrics, which can be found below. Solvay believes that these measurements are useful for analyzing and explaining changes and trends in its historical results of operations, as they allow performance to be compared on a consistent basis. For comparability purposes the 2018 reference figures are on a pro forma basis, as if IFRS 16 had been implemented in 2018. The balance sheet evolution is compared with January 1, 2019, which includes the IFRS 16 impact versus December 31, 2018.
| Tax rate | Underlying | ||
|---|---|---|---|
| 9M 2018 | |||
| (in € million) | 9M 2019 | PF | |
| Profit for the period before taxes | a | 951 | 970 |
| Earnings from associates & joint ventures | b | 71 | 51 |
| Interests and realized foreign exchange gains (losses) on the RusVinyl joint venture | c | (16) | (18) |
| Income taxes | d | (231) | (230) |
| Tax rate | e = -d/(a-b-c) | 25.8% | 24.6% |
Underlying tax rate = Income taxes / (Result before taxes – Earnings from associates & joint ventures – Interests & realized foreign exchange results on the RusVinyl joint venture) – all determined on an underlying basis. The adjustment made to the denominator regarding associates and joint ventures is done because these contributions are already net of income taxes.
| Q3 2018 | 9M 2018 | ||||
|---|---|---|---|---|---|
| (in € million) | Q3 2019 | PF | 9M 2019 | PF | |
| Cash flow from operating activities | a | 582 | 392 | 1,295 | 1,016 |
| Cash flow from investing activities | b | (253) | (223) | (631) | (553) |
| of which capital expenditures required by share sale agreement |
c | (15) | (8) | (44) | (25) |
| Acquisition (-) of subsidiaries | d | (2) | (2) | (4) | (12) |
| Acquisition (-) of investments - Other | e | (12) | 1 | (15) | (1) |
| Loans to associates and non-consolidated companies | f | 2 | - | 4 | - |
| Sale (+) of subsidiaries and investments | g | (11) | (28) | (18) | 22 |
| Recognition of factored receivables | h | (23) | (21) | (23) | (21) |
| Payment of lease liabilities | i | (29) | (23) | (79) | (69) |
| FCF | j = a+b-c-d-e-f-g-h+i | 362 | 204 | 684 | 431 |
| FCF from discontinued operations | k | 23 | 49 | 182 | 144 |
| FCF from continuing operations | l = j-k | 339 | 155 | 502 | 287 |
| Net interests paid | m | (26) | (6) | (65) | (68) |
| Coupons paid on perpetual hybrid bonds | n | - | - | (87) | (84) |
| Dividends paid to non-controlling interests | o | (1) | (3) | (4) | (6) |
| FCF to Solvay shareholders | p = j+m+n+o | 335 | 195 | 527 | 273 |
| FCF to Solvay shareholders from discontinued operations |
q | 23 | 49 | 182 | 145 |
| FCF to Solvay shareholders from continuing operations | r = p-q | 313 | 146 | 345 | 128 |
Free cash flow is calculated as cash flows from operating activities (excluding cash flows linked to acquisitions or disposals of subsidiaries and cash outflows of Additional Voluntary Contributions related to pension plans as they are of deleveraging nature as reimbursement of debt), cash flows from investing activities (excluding cash flows from or related to acquisitions and disposals of subsidiaries and other investments, and excluding loans to associates and non-consolidated investments, as well as related tax elements and recognition of factored receivables) and payment of lease liabilities. Prior to the adoption of IFRS 16, operating lease payments were included in the free cash flow. Following the application of IFRS 16, because leases are generally considered to be operating in nature, the free cash flow incorporates the payment of the lease liability (excluding the interest expense). Not including this item in the free cash flow would result in a significant improvement of the free cash flow compared to prior periods, whereas the operations themselves have not been affected by the implementation of IFRS 16.
Free cash flow to Solvay shareholders is calculated as free cash flow after payment of net interests, coupons of perpetual hybrid bonds and dividends to non-controlling interests. This represents the cash flow available to Solvay shareholders, to pay their dividend and/or to reduce the net financial debt.
| Q3 2018 | 9M 2018 | ||||
|---|---|---|---|---|---|
| (in € million) | Q3 2019 | PF | 9M 2019 | PF | |
| Acquisition (-) of tangible assets | a | (195) | (160) | (502) | (458) |
| Acquisition (-) of intangible assets | b | (27) | (28) | (81) | (100) |
| Payment of lease liabilities | c | (29) | (23) | (79) | (69) |
| Capex | d = a+b+c | (251) | (211) | (662) | (627) |
| Capex in discontinued operations | e | (37) | (24) | (92) | (77) |
| Capex in continuing operations | f = d-e | (215) | (187) | (570) | (550) |
| Underlying EBITDA | g | 601 | 599 | 1,796 | 1,799 |
| Cash conversion | h = (f+g)/g | 64.3% | 68.8% | 68.2% | 69.4% |
Capex is defined as cash paid for the acquisition of tangible and intangible assets presented in cash flows from investing activities, and cash paid on the lease liabilities (excluding interests paid), presented in cash flows from financing activities.
Cash conversion is a ratio used to measure the conversion of EBITDA into cash. It is defined as (Underlying EBITDA + Capex from continuing operations) / Underlying EBITDA.
| Net working capital | 2019 | ||||
|---|---|---|---|---|---|
| September | January | December | |||
| (in € million) | 30 | 1 | 31 | ||
| Inventories | a | 1,749 | 1,685 | 1,685 | |
| Trade receivables | b | 1,447 | 1,434 | 1,434 | |
| Other current receivables | c | 670 | 718 | 719 | |
| Trade payables | d | (1,243) | (1,431) | (1,439) | |
| Other current liabilities | e | (768) | (850) | (850) | |
| Net working capital | f = a+b+c+d+e | 1,855 | 1,557 | 1,550 | |
| Sales | g | 2,777 | 2,830 | 2,830 | |
| Annualized quarterly total sales | h = 4*g | 11,109 | 11,321 | 11,321 | |
| Net working capital / sales | i = f / h | 16.7% | 13.8% | 13.7% | |
| Year-to-date average | j = µ(Q1,Q2,Q3,Q4) | 16.5% | 13.8% |
Net working capital includes inventories, trade receivables and other current receivables, netted with trade payables and other current liabilities.
| Net financial debt | 2019 | 2018 | ||
|---|---|---|---|---|
| September | January | December | ||
| (in € million) | 30 | 1 | 31 | |
| Non-current financial debt | a | (3,421) | (3,520) | (3,180) |
| Current financial debt | b | (1,273) | (723) | (630) |
| IFRS gross debt | c = a+b | (4,694) | (4,243) | (3,810) |
| Other financial instruments | d | 140 | 101 | 101 |
| Cash & cash equivalents | e | 784 | 1,103 | 1,103 |
| Total cash and cash equivalents | f = d+e | 924 | 1,205 | 1,205 |
| IFRS net debt | g = c+f | (3,770) | (3,038) | (2,605) |
| Perpetual hybrid bonds | h | (1,800) | (2,500) | (2,500) |
| Underlying net debt | i = g+h | (5,570) | (5,538) | (5,105) |
| Underlying EBITDA (last 12 months) | j | 2,325 | 2,330 | 2,230 |
| Adjustment for discontinued operations [12] | k | 385 | 315 | 305 |
| Adjusted underlying EBITDA for leverage calculation [12] | l = j+k | 2,709 | 2,645 | 2,536 |
| Underlying leverage ratio [12] | m = -i/l | 2.1 | 2.1 | 2.0 |
(IFRS) net debt = Non-current financial debt + Current financial debt – Cash & cash equivalents – Other financial instruments. Underlying net debt represents the Solvay share view of debt, reclassifying as debt 100% of the hybrid perpetual bonds, classified as equity under IFRS. Leverage ratio = Net debt / Underlying EBITDA of last 12 months. Underlying leverage ratio = Underlying net debt / Underlying EBITDA of last 12 months.
Besides IFRS accounts, Solvay also presents underlying Income Statement performance indicators to provide a more consistent and comparable indication of Solvay's economic performance. These figures adjust IFRS figures for the non-cash Purchase Price Allocation (PPA) accounting impacts related to acquisitions, for the coupons of perpetual hybrid bonds classified as equity under IFRS but treated as debt in the underlying statements, and for other elements to generate a measure that avoids distortion and facilitates the appreciation of performance and comparability of results over time. For comparability purposes the 2018 reference figures are on a pro forma basis, as if IFRS 16 had been implemented in 2018, and were restated for the amendment of IAS 12.
| 9M consolidated income statement | 9M 2019 | 9M 2018 PF | |||||
|---|---|---|---|---|---|---|---|
| Adjust | Under | Adjust | Under | ||||
| (in € million) | IFRS | ments | lying | IFRS | ments | lying | |
| Sales | 8,517 | - | 8,517 | 8,469 | - | 8,469 | |
| of which revenues from non-core activities | 713 | - | 713 | 786 | - | 786 | |
| of which net sales | 7,803 | - | 7,803 | 7,683 | - | 7,683 | |
| Cost of goods sold | (6,214) | 1 | (6,213) | (6,124) | 1 | (6,123) | |
| Gross margin | 2,303 | 1 | 2,304 | 2,345 | 1 | 2,346 | |
| Commercial costs | (286) | - | (286) | (277) | - | (277) | |
| Administrative costs | (714) | 24 | (690) | (746) | 26 | (720) | |
| Research & development costs | (236) | 2 | (234) | (217) | 2 | (215) | |
| Other operating gains & losses | (106) | 138 | 32 | (104) | 148 | 43 | |
| Earnings from associates & joint ventures | 76 | (4) | 71 | 29 | 22 | 51 | |
| Result from portfolio management & reassessments | (891) | 891 | - | (200) | 200 | - | |
| Result from legacy remediation & major litigations | (31) | 31 | - | (72) | 72 | - | |
| EBITDA | 1,707 | 89 | 1,796 | 1,544 | 256 | 1,799 | |
| Depreciation, amortization & impairments | (1,592) | 993 | (599) | (786) | 216 | (570) | |
| EBIT | 114 | 1,083 | 1,197 | 758 | 472 | 1,229 | |
| Net cost of borrowings | (108) | 13 | (95) | (102) | - | (103) | |
| Coupons on perpetual hybrid bonds | - | (81) | (81) | - | (83) | (83) | |
| Interests and realized foreign exchange gains (losses) | - | (16) | (16) | - | (18) | (18) | |
| on the RusVinyl joint venture | |||||||
| Cost of discounting provisions | (71) | 13 | (58) | (47) | (8) | (55) | |
| Result from equity instruments measured at fair value through other comprehensive income |
4 | - | 4 | - | - | - | |
| Profit / (loss) for the period before taxes | (61) | 1,012 | 951 | 608 | 362 | 970 | |
| Income taxes | (7) | (224) | (231) | (116) | (115) | (230) | |
| Profit / (loss) for the period from continuing | |||||||
| operations | (68) | 788 | 720 | 492 | 247 | 739 | |
| Profit / (loss) for the period from discontinued operations |
208 | 14 | 222 | 158 | 11 | 169 | |
| Profit / (loss) for the period | 140 | 802 | 942 | 650 | 258 | 908 | |
| attributable to Solvay shareholders | 110 | 802 | 911 | 620 | 257 | 878 | |
| attributable to non-controlling interests | 31 | - | 31 | 30 | - | 30 | |
| Basic earnings per share (in €) | 1.06 | 7.77 | 8.84 | 6.00 | 2.49 | 8.50 | |
| of which from continuing operations | (0.96) | 7.64 | 6.68 | 4.48 | 2.39 | 6.86 | |
| Diluted earnings per share (in €) | 1.06 | 7.76 | 8.82 | 5.97 | 2.48 | 8.45 | |
| of which from continuing operations | (0.95) | 7.62 | 6.67 | 4.45 | 2.37 | 6.83 |
EBITDA on an IFRS basis totaled €1,707 million, versus €1,796 million on an underlying basis. The difference of €89 million is explained by the following adjustments to IFRS results, which are done to improve the comparability of underlying results:
EBIT on an IFRS basis totaled €114 million, versus €1,197 million on an underlying basis. The difference of €1,083 million is explained by the above-mentioned €89 million adjustments at the EBITDA level and €993 million of "Depreciation, amortization & impairments". The latter consist of:
Net financial charges on an IFRS basis were €(175) million versus €(246) million on an underlying basis. The €(71) million adjustment made to IFRS net financial charges consists of:
Income taxes on an IFRS basis were €(7) million, versus €(231) million on an underlying basis. The €(224) million adjustment includes mainly:
Discontinued operations generated a profit of €208 million on an IFRS basis and €222 million on an underlying basis. The €14 million adjustment to the IFRS profit is made for costs related to the planned divestment of the polyamide activities.
Profit attributable to Solvay shareholders was €110 million on an IFRS basis and €911 million on an underlying basis. The delta of €802 million reflects the above-mentioned adjustments to EBIT, net financial charges, income taxes and discontinued operations. There was no impact from non-controlling interests.
| Consolidated income statement Q3 | Q3 2019 | Q3 2018 PF | ||||
|---|---|---|---|---|---|---|
| (in € million) | IFRS | Adjust ments |
Under lying |
IFRS | Adjust ments |
Under lying |
| Sales | 2,777 | - | 2,777 | 2,840 | - | 2,840 |
| of which revenues from non-core activities | 199 | - | 199 | 249 | - | 249 |
| of which net sales | 2,578 | - | 2,578 | 2,591 | - | 2,591 |
| Cost of goods sold | (2,030) | - | (2,029) | (2,049) | - | (2,049) |
| Gross margin | 748 | - | 748 | 790 | - | 791 |
| Commercial costs | (92) | - | (92) | (93) | - | (93) |
| Administrative costs | (225) | 8 | (218) | (247) | 10 | (237) |
| Research & development costs | (76) | 1 | (76) | (76) | 1 | (75) |
| Other operating gains & losses | (41) | 46 | 5 | (48) | 50 | 2 |
| Earnings from associates & joint ventures | 27 | 2 | 29 | 10 | 8 | 19 |
| Result from portfolio management & reassessments | (827) | 827 | - | 2 | (2) | - |
| Result from legacy remediation & major litigations | (4) | 4 | - | (29) | 29 | - |
| EBITDA | 591 | 10 | 601 | 569 | 30 | 599 |
| Depreciation, amortization & impairments | (1,084) | 879 | (205) | (258) | 66 | (192) |
| EBIT | (492) | 889 | 397 | 311 | 96 | 407 |
| Net cost of borrowings | (45) | 13 | (31) | (33) | - | (33) |
| Coupons on perpetual hybrid bonds | - | (24) | (24) | - | (28) | (28) |
| Interests and realized foreign exchange gains (losses) on the RusVinyl joint venture |
- | (7) | (7) | - | (8) | (8) |
| Cost of discounting provisions | (18) | - | (17) | (18) | - | (19) |
| Result from equity instruments measured at fair value through other comprehensive income |
- | - | - | - | - | - |
| Profit / (loss) for the period before taxes | (554) | 871 | 317 | 260 | 60 | 319 |
| Income taxes | 120 | (181) | (61) | (42) | (34) | (76) |
| Profit / (loss) for the period from continuing operations |
(434) | 690 | 256 | 217 | 26 | 243 |
| Profit / (loss) for the period from discontinued operations |
58 | 1 | 59 | 69 | (6) | 63 |
| Profit / (loss) for the period | (376) | 691 | 315 | 286 | 20 | 306 |
| attributable to Solvay shareholders | (387) | 691 | 304 | 275 | 20 | 295 |
| attributable to non-controlling interests | 11 | - | 11 | 11 | - | 11 |
| Basic earnings per share (in €) | (3.76) | 6.70 | 2.95 | 2.67 | 0.19 | 2.86 |
| of which from continuing operations | (4.32) | 6.69 | 2.37 | 2.00 | 0.25 | 2.25 |
| Diluted earnings per share (in €) | (3.75) | 6.69 | 2.94 | 2.65 | 0.19 | 2.84 |
| of which from continuing operations | (4.31) | 6.68 | 2.37 | 1.99 | 0.25 | 2.24 |
EBITDA on an IFRS basis totaled €591 million, versus €601 million on an underlying basis. The difference of €10 million is explained by the following adjustments to IFRS results, which are done to improve the comparability of underlying results:
EBIT on an IFRS basis totaled €-492 million, versus €397 million on an underlying basis. The difference of €889 million is explained by the above-mentioned €10 million adjustments at the EBITDA level and €879 million of "Depreciation, amortization & impairments". The latter consist of:
Net financial charges on an IFRS basis were €(62) million versus €(80) million on an underlying basis. The €(18) million adjustment made to IFRS net financial charges consists of:
Income taxes on an IFRS basis were €120 million, versus €(61) million on an underlying basis. The €(181) million adjustment includes mainly:
Discontinued operations generated a profit of €58 million on an IFRS basis and €59 million on an underlying basis. The €1 million adjustment to the IFRS profit is made for income from previous M&A deal.
Profit / (loss) attributable to Solvay shareholders was €(387) million on an IFRS basis and €304 million on an underlying basis. The delta of €691 million reflects the above-mentioned adjustments to EBIT, net financial charges, income taxes and discontinued operations. There was no impact from non-controlling interests.
The third quarter and first nine months comparable figures used in these financial statements are on a non-pro forma basis: not adjusted for IFRS 16 and restated for the amendments to IAS 12.
| Consolidated income statement | IFRS | |||
|---|---|---|---|---|
| (in € million) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
| Sales | 2,777 | 2,840 | 8,517 | 8,469 |
| of which revenues from non-core activities | 199 | 249 | 713 | 786 |
| of which net sales | 2,578 | 2,591 | 7,803 | 7,683 |
| Cost of goods sold | (2,030) | (2,051) | (6,214) | (6,129) |
| Gross margin | 748 | 789 | 2,303 | 2,340 |
| Commercial costs | (92) | (93) | (286) | (277) |
| Administrative costs | (225) | (248) | (714) | (747) |
| Research & development costs | (76) | (76) | (236) | (217) |
| Other operating gains & losses | (41) | (47) | (106) | (104) |
| Earnings from associates & joint ventures | 27 | 10 | 76 | 29 |
| Result from portfolio management & reassessments | (827) | 2 | (891) | (200) |
| Result from legacy remediation & major litigations | (4) | (29) | (31) | (72) |
| EBIT | (492) | 309 | 114 | 752 |
| Cost of borrowings | (37) | (31) | (110) | (100) |
| Interest on lendings & deposits | 5 | 4 | 12 | 10 |
| Other gains & losses on net indebtedness | (12) | (2) | (11) | - |
| Cost of discounting provisions | (18) | (18) | (71) | (47) |
| Result from equity instruments measured at fair value through other | - | - | 4 | - |
| comprehensive income | ||||
| Profit / (loss) for the period before taxes | (554) | 262 | (61) | 614 |
| Income taxes | 120 | (43) | (7) | (117) |
| Profit / (loss) for the period from continuing operations | (434) | 219 | (68) | 497 |
| attributable to Solvay shareholders | (445) | 208 | (99) | 467 |
| attributable to non-controlling interests | 11 | 11 | 31 | 30 |
| Profit / (loss) for the period from discontinued operations | 58 | 69 | 208 | 158 |
| Profit / (loss) for the period | (376) | 288 | 140 | 655 |
| attributable to Solvay shareholders | (387) | 277 | 110 | 625 |
| attributable to non-controlling interests | 11 | 11 | 31 | 30 |
| Weighted average of number of outstanding shares, basic | 103,061,938 | 103,277,950 | 103,151,275 | 103,302,604 |
| Weighted average of number of outstanding shares, diluted | 103,234,813 | 103,775,603 | 103,359,445 | 103,835,812 |
| Basic earnings per share (in €) | (3.76) | 2.68 | 1.06 | 6.05 |
| of which from continuing operations | (4.32) | 2.01 | (0.96) | 4.52 |
| Diluted earnings per share (in €) | (3.75) | 2.67 | 1.06 | 6.02 |
| of which from continuing operations | (4.31) | 2.00 | (0.95) | 4.50 |
| (in € million) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Profit for the period | (376) | 288 | 140 | 655 |
| Gains and losses on hedging instruments in a cash flow hedge | (12) | 21 | (18) | 4 |
| Currency translation differences from subsidiaries & joint operations | 250 | 31 | 329 | 180 |
| Currency translation differences from associates & joint ventures | 11 | (17) | 36 | (38) |
| Recyclable components | 248 | 35 | 347 | 146 |
| Gains and losses on equity instruments measured at fair value through other comprehensive income |
2 | 2 | 3 | 1 |
| Remeasurement of the net defined benefit liability [14] | (73) | 88 | (290) | 265 |
| Non-recyclable components | (70) | 90 | (287) | 266 |
| Income tax relating to components of other comprehensive income | 20 | (24) | 90 | (61) |
| Other comprehensive income, net of related tax effects | 198 | 100 | 149 | 350 |
| Total comprehensive income | (177) | 388 | 290 | 1,006 |
| attributed to Solvay share | (193) | 378 | 255 | 973 |
| attributed to non-controlling interests | 15 | 10 | 35 | 33 |
| (in € million) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Profit for the period | (376) | 288 | 140 | 655 |
| Adjustments to profit for the period | 1,053 | 383 | 1,965 | 1,264 |
| Depreciation, amortization & impairments (-) | 1,084 | 235 | 1,592 | 717 |
| Earnings from associates & joint ventures (-) | (27) | (10) | (76) | (29) |
| Additions & reversals on provisions (-) | 24 | 34 | 135 | 256 |
| Other non-operating and non-cash items | 1 | 6 | 37 | (4) |
| Net financial charges (-) | 61 | 49 | 176 | 140 |
| Income tax expenses (-) | (89) | 69 | 102 | 186 |
| Changes in working capital | 46 | (150) | (348) | (534) |
| Uses of provisions | (95) | (95) | (291) | (288) |
| Dividends received from associates & joint ventures | 5 | 4 | 21 | 17 |
| Income taxes paid (including income taxes paid on sale of investments) | (51) | (65) | (194) | (180) |
| Cash flow from operating activities | 582 | 365 | 1,295 | 934 |
| Acquisition (-) of subsidiaries | (2) | (2) | (4) | (12) |
| Acquisition (-) of investments - Other | (12) | 1 | (15) | (1) |
| Loans to associates and non-consolidated companies | 2 | - | 4 | - |
| Sale (+) of subsidiaries and investments | (11) | (28) | (18) | 22 |
| Acquisition (-) of tangible and intangible assets (capex) | (223) | (188) | (583) | (558) |
| of which tangible assets | (195) | (160) | (502) | (458) |
| of which capital expenditures required by share sale agreement | (15) | (8) | (44) | (25) |
| of which intangible assets | (27) | (28) | (81) | (100) |
| Sale (+) of tangible & intangible assets | 2 | 3 | 7 | 19 |
| Dividends from financial assets measured at fair value through other | ||||
| comprehensive income | - | - | 4 | - |
| Changes in non-current financial assets | (9) | (10) | (26) | (23) |
| Cash flow from investing activities | (253) | (223) | (631) | (553) |
| Repayment of perpetual hybrid bond | - | - | (701) | - |
| Sale (acquisition) of treasury shares | 1 | 23 | (4) | 1 |
| Increase in borrowings | 594 | 966 | 1,741 | 2,053 |
| Repayment of borrowings | (1,307) | (1,010) | (1,350) | (1,819) |
| Changes in other current financial assets | 16 | (3) | (47) | 10 |
| Payment of lease liabilities | (29) | (79) | ||
| Net interests paid | (26) | (2) | (65) | (56) |
| Coupons paid on perpetual hybrid bonds | - | - | (87) | (84) |
| Dividends paid | (1) | (3) | (391) | (378) |
| of which to Solvay shareholders | - | (387) | (372) | |
| of which to non-controlling interests | (1) | (3) | (4) | (6) |
| Other [15] | (9) | 78 | (2) | 134 |
| Cash flow from financing activities | (760) | 48 | (986) | (140) |
| Net change in cash and cash equivalents | (431) | 190 | (323) | 242 |
| Currency translation differences | (4) | (7) | 4 | (15) |
| Opening cash balance | 1,219 | 1,036 | 1,103 | 992 |
| Closing cash balance | 784 | 1,218 | 784 | 1,218 |
| (in € million) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Cash flow from operating activities | 43 | 63 | 227 | 189 |
| Cash flow from investing activities | (37) | (21) | (92) | (70) |
| Cash flow from financing activities | 4 | (1) | 1 | (1) |
| Net change in cash and cash equivalents | 10 | 41 | 136 | 118 |
| Consolidated statement of financial position | 2019 | 2018 | ||
|---|---|---|---|---|
| September | January | December | ||
| (in € million) | 30 | 1 | 31 | |
| Intangible assets | 2,741 | 2,861 | 2,861 | |
| Goodwill | 4,556 | 5,173 | 5,173 | |
| Tangible assets | 5,507 | 5,454 | 5,454 | |
| Rights-of-use assets | 466 | 428 | - | |
| Equity instruments measured at fair value through other comprehensive income | 59 | 51 | 51 | |
| Investments in associates & joint ventures | 542 | 441 | 441 | |
| Other investments | 41 | 41 | 41 | |
| Deferred tax assets | 1,284 | 1,123 | 1,123 | |
| Loans & other assets | 291 | 272 | 282 | |
| Non-current assets | 15,486 | 15,844 | 15,427 | |
| Inventories | 1,749 | 1,685 | 1,685 | |
| Trade receivables | 1,447 | 1,434 | 1,434 | |
| Income tax receivables | 146 | 97 | 97 | |
| Dividends receivable | - | - | - | |
| Other financial instruments | 140 | 101 | 101 | |
| Other receivables | 670 | 718 | 719 | |
| Cash & cash equivalents | 784 | 1,103 | 1,103 | |
| Assets held for sale | 1,600 | 1,453 | 1,434 | |
| Current assets | 6,535 | 6,592 | 6,574 | |
| Total assets | 22,021 | 22,436 | 22,000 | |
| Share capital | 1,588 | 1,588 | 1,588 | |
| Reserves | 8,162 | 8,927 | 8,920 | |
| Non-controlling interests | 148 | 117 | 117 | |
| Total equity | 9,898 | 10,632 | 10,624 | |
| Provisions for employee benefits | 2,925 | 2,672 | 2,672 | |
| Other provisions | 816 | 868 | 883 | |
| Deferred tax liabilities | 585 | 618 | 618 | |
| Financial debt | 3,421 | 3,520 | 3,180 | |
| Other liabilities | 178 | 121 | 121 | |
| Non-current liabilities | 7,924 | 7,798 | 7,474 | |
| Other provisions | 267 | 281 | 281 | |
| Financial debt [16] | 1,273 | 723 | 630 | |
| Trade payables | 1,243 | 1,431 | 1,439 | |
| Income tax payables | 177 | 114 | 114 | |
| Dividends payable | 4 | 154 | 154 | |
| Other liabilities | 768 | 850 | 850 | |
| Liabilities associated with assets held for sale | 468 | 454 | 435 | |
| Current liabilities | 4,199 | 4,006 | 3,902 | |
| Total equity & liabilities | 22,021 | 22,436 | 22,000 |
The impact of IFRS 16 as of January 1, 2019 is presented in the consolidated statement of financial position, to allow better comparability with the statements as of December 2018 and September 2019. The different impacts of the implementation of IFRS 16 from January 1, 2019 are the following:
| Consolidated statement of changes in equity | Revaluation reserve (fair value) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity instruments measured at fair value |
Defined | |||||||||||
| Share | Share | Treasury | Perpetual hybrid |
Retained | Currency translation |
through other | benefit pension |
Total | Non controlling |
Total | ||
| (in € million) | capital | premiums | shares | bonds | earnings | differences | comprehensive income |
Cash flow hedges |
plans | reserves | interests | equity |
| Balance on December 31, 2017 | 1,588 | 1,170 | (281) | 2,188 | 6,454 | (834) | 5 | 16 | (666) | 8,051 | 113 | 9,752 |
| Adoption IFRS 9 | - | - | - | - | (5) | - | - | - | - | (5) | - | (5) |
| Balance on January 1, 2018 | 1,588 | 1,170 | (281) | 2,188 | 6,449 | (834) | 5 | 16 | (666) | 8,046 | 113 | 9,747 |
| Profit for the period | - | - | - | - | 625 | - | - | - | - | 625 | 30 | 655 |
| Items of other comprehensive income [17] | - | - | - | - | - | 139 | 3 | (5) | 210 | 348 | 3 | 350 |
| Comprehensive income | - | - | - | - | 625 | 139 | 3 | (5) | 210 | 973 | 33 | 1,006 |
| Cost of stock options | - | - | - | - | 7 | - | - | - | - | 7 | - | 7 |
| Dividends | - | - | - | - | (229) | - | - | - | - | (229) | (6) | (235) |
| Coupons of perpetual hybrid bonds | - | - | - | - | (84) | - | - | - | - | (84) | - | (84) |
| Sale (acquisition) of treasury shares | - | - | 1 | - | - | - | - | - | - | 1 | - | 1 |
| Other | - | - | - | - | (3) | - | - | - | 3 | - | - | - |
| Balance on September 30, 2018 | 1,588 | 1,170 | (280) | 2,188 | 6,765 | (695) | 9 | 11 | (453) | 8,714 | 140 | 10,442 |
| Balance on December 31, 2018 | 1,588 | 1,170 | (299) | 2,486 | 6,834 | (618) | 9 | (26) | (636) | 8,920 | 117 | 10,624 |
| Adoption IFRS 16 | - | - | - | - | 8 | - | - | - | - | 8 | - | 8 |
| Balance on January 1, 2019 | 1,588 | 1,170 | (299) | 2,486 | 6,842 | (618) | 9 | (26) | (636) | 8,928 | 117 | 10,632 |
| Profit for the period | - | - | 110 | - | - | - | - | 110 | 31 | 140 | ||
| Items of other comprehensive income [17] | - | - | - | - | - | 360 | 3 | (13) | (204) | 146 | 4 | 149 |
| Comprehensive income | - | - | 110 | 360 | 3 | (13) | (204) | 255 | 35 | 290 | ||
| Perpetual hybrid bond issuance (repayment) | - | - | (697) | (3) | (701) | (701) | ||||||
| Cost of stock options | - | - | 9 | 9 | 9 | |||||||
| Dividends | - | - | (238) | (238) | (3) | (241) | ||||||
| Coupons of perpetual hybrid bonds | - | - | (87) | (87) | (87) | |||||||
| Sale (acquisition) of treasury shares | - | - | (4) | (4) | (4) | |||||||
| Other | - | - | - | - | 4 | - | - | 1 | (5) | - | - | - |
| Balance on September 30, 2019 | 1,588 | 1,170 | (303) | 1,789 | 6,636 | (258) | 11 | (38) | (846) | 8,162 | 148 | 9,898 |
Solvay is a public limited liability company governed by Belgian law and quoted on Euronext Brussels and Euronext Paris. These condensed consolidated financial statements were authorized for issue by the Board of Directors on November 6, 2019.
On January 18, 2019, the European Commission cleared the divestment of Solvay's Polyamides activities to BASF, a key milestone in the completion of Solvay's transformation into an advanced materials and specialty chemicals company. One of the remaining closing conditions included the divestment of a remedy package to a third-party buyer to address the European Commission's competition concerns. BASF has offered remedies involving part of the assets originally in the scope of the acquisition. These entail among others the manufacturing assets of Solvay's polyamide intermediates, technical fibers, and engineering plastics business as well as its innovation capabilities in Europe. On August 14, 2019 Solvay and BASF have reached an agreement with Domo Chemicals whereby Domo Chemicals is to acquire the Solvay Polyamide assets that needed to be divested to a third party as part of the European Commission's merger control clearance process. The agreement is a key step towards completing the divestment of Solvay's remaining Polyamides business to BASF. Domo is a fully integrated nylon 6 specialist, providing specialized engineering materials solutions to its customers in the automotive, electrical, construction, industrial applications and consumer goods industries. The assets acquired by Domo involve Solvay's Performance Polyamides facilities at Belle-Etoile and Valence, as well as a stake in a newly created joint venture between BASF and Domo in Chalampé (France). They also involve sites in Gorzow (Poland), Blanes (Spain) and commercial activities in Germany and Italy. BASF will acquire all the activities that are not included in the remedy package and that are part of the original agreement between Solvay and BASF signed at the end of 2017. Solvay, BASF and Domo will continue to run their businesses separately until completion of the transaction, which remains subject to relevant merger control clearances, required regulatory approvals and completion of employee representatives procedures. The entire transaction, which is based on an aggregate purchase price of €1.6 billion on a debt free and cash free basis, is expected to be completed in the first quarter of 2020.
On May 12, 2019, Solvay Finance SA (subsidiary of Solvay) exercised its first call option on its €700 million hybrid bond (ISIN XS0992293570 / Common Code 099229357). This perpetual deeply subordinated bond, bearing an annual interest rate of 4.199%, was treated as equity under IFRS rules. Its repayment was due on May 12, 2019 at the end of the first 5.5 years. As a result, the overall quantum of hybrid bonds in Solvay's balance sheet decreased from €2.5 billion at the end of 2018 to €1.8 billion at the end of the third quarter of 2019.
On August 30, 2019 Solvay announced that Solvay SA placed senior fixed rate bonds for an aggregate nominal amount of €600 million paying a coupon of 0.5% and having its maturity date in September 2029. The notes are listed and admitted to trading on the regulated market of the Luxembourg Stock Exchange with ISIN BE6315847804. Meanwhile, Solvay Finance (America), LLC redeemed its outstanding US\$800 million 3.400% notes due 2020 (CUSIP No. US8344PAA7 (Regulation S Notes) and 834423AA3 (Rule 144A Notes) / ISIN USU8344PAA76 (Regulation S Notes) and US834423AA33 (Rule 144A Notes)) on 30 September 2019.
On September 30, 2019 Solvay and Aquatiq have concluded a joint-venture agreement regarding Aqua Pharma company, under which Solvay acquired 50% of the shares for an amount of €21 million. This reinforces their long-term collaboration to serve aquaculture customers. With this alliance, Solvay and Aqua Pharma aim to become a key aquaculture player by offering a wide range of sustainable and efficient solutions for sea lice control and Amoebic Gill Disease (AGD) to the salmon industry.
After a strategic review performed in Q3 in the context of deteriorating profitability of the oil & gas business, the synergies between this business and the rest of Novecare appear to be too small and future growth opportunities too modest to support the oil & gas business being considered as part of one Novecare Cash Generating Unit. This requires to perform an impairment test at an oil & gas business level rather than at Novecare level. On September 30, 2019, Solvay SA performed an impairment test of its oil & gas business. Taking into account the balance sheet values of the oil & gas business as of September 30, 2019 and the present value of future cash flows, an impairment of €822 million pre-tax and €656 million post-tax has been recognized. See more information on page 27.
Solvay prepares its condensed consolidated interim financial statements on a quarterly basis, in accordance with IAS 34 "Interim Financial Reporting". They do not include all the information required for the preparation of the annual consolidated financial statements and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2018.
The condensed consolidated interim financial statements for the nine months ended September 30, 2019, were prepared using the same accounting policies as those adopted for the preparation of the consolidated financial statements for the year ended December 31, 2018, except for the adoption of new standards, interpretations and amendments effective as of January 1, 2019, that are discussed hereafter. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
As of January 1, 2019, the Group applied, for the first time, IFRS 16 "Leases", the amendments to IAS 12 "Income Taxes" as part of the annual improvements to IFRS standards 2015–2017 cycle, and IFRIC 23 "Uncertainty over Income Tax Treatments". As required by IAS 34 for condensed consolidated interim financial statements, the nature and effect of these changes are disclosed below.
Several other amendments and Interpretations apply for the first time in 2019, but do not have a more than insignificant impact on the condensed consolidated interim financial statements of the Group.
As from January 1, 2019, the Group no longer applies IAS 17 "Leases", IFRC 4 "Determining whether an Arrangement contains a Lease", SIC-15 "Operating Leases – Incentives" and SIC-27 "Evaluating the Substance of Transactions Involving a Legal Form of a Lease". IFRS 16 is applicable for annual periods beginning on or after January 1, 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation, and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model, similar to the accounting for finance leases under IAS 17. At the commencement date of a lease, lessees recognize a lease liability (i.e. a liability to make lease payments), and a right-of-use asset (i.e. an asset representing the right to use the underlying asset over the lease term).
The Group's leased assets relate mainly to buildings, transportation equipment, and industrial equipment.
The right-of-use assets are presented separately in the consolidated statement of financial position, and the lease liabilities are presented as part of financial debt.
On January 1, 2019, the Group:
The following reconciliation to the opening balance for the lease liability as at January 1, 2019 is based upon the operating lease obligations as at December 31, 2018:
| (in € million) | January 1, 2019 |
|---|---|
| Total of future minimum lease payments under non-cancellable operating leases (undiscounted) at December 31, 2018 | 491 |
| Minimum lease payments of finance leases (undiscounted) at December 31,2018 | 90 |
| Other | 24 |
| Lease liabilities (undiscounted) at January 1, 2019 | 606 |
| Discounting | (137) |
| Present value of minimum lease payments of finance leases at December 31,2018 | (36) |
| Additional lease liabilities as a result of the initial application of IFRS 16 as at January 1, 2019 | 433 |
"Other" mainly includes onerous lease contracts, previously recognized in "Other provisions" for €16 million, and accrued lease payments, previously included in "Trade payables" for €8 million.
As a result of the adoption of IFRS 16, for the first nine months of 2019, depreciation and finance expense for continuing operations increased by €82 million and €17 million, respectively, and operating expenses decreased by €(89) million. In addition, the operating cash flows (including discontinued operations) increased by €96 million, against a decrease of financing cash flows.
As from January 1, 2019, the Group applies the amendments to IAS 12, that apply to the income tax consequences of dividends recognized on or after the beginning of the earliest comparative period, i.e. January 1, 2018.
In 2018, the income tax consequences of the coupons on perpetual hybrid bonds classified as equity were recognized in equity. As a result of the adoption of the amendment, those income tax consequences will be recognized in profit or loss.
| (in € million) | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | |
|---|---|---|---|---|---|---|
| Profit for the period, IFRS as published | a | 118 | 235 | 288 | 257 | 897 |
| Tax on hybrids in equity | b | - | 15 | - | 5 | 19 |
| Profit for the period, IFRS restated | c = a+b | 118 | 249 | 288 | 261 | 917 |
| Profit for the period attributable to non-controlling interests, IFRS restated |
d | 10 | 9 | 11 | 9 | 39 |
| Profit for the period attributable to Solvay shareholders, IFRS restated |
e = c-d | 109 | 240 | 277 | 252 | 877 |
| Weighted average of number of outstanding shares, basic |
f | 103,354,210 | 103,275,653 | 103,277,950 | 103,198,714 | 103,276,632 |
| Basic earnings per share (in €), IFRS restated | g = e/f | 1.05 | 2.32 | 2.68 | 2.44 | 8.49 |
In the cash flow statement, increase in "Profit for the period" is offset by lower "Income tax expenses";
In the statement of changes in equity, increase in "Profit for the period" is offset by lower "Other" changes in "Retained Earnings".
As from January 1, 2019, the Group applies IFRIC 23 which clarifies the recognition and measurement requirements when there is uncertainty over income tax treatments. In assessing the uncertainty, an entity shall consider whether it is probable that a taxation authority will accept uncertain tax treatment. The Group has elected to apply the limited exemption in IFRIC 23 relating to transition for classification and measurement and, accordingly, has not restated comparative period. Consistently with IFRIC 23, the uncertain tax liabilities formerly included under provisions have been reclassified to other non-current liabilities for an amount of € 35 million.
At inception of a contract, which generally coincides with the date the contract is signed, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
An asset is typically identified by being explicitly specified in a contract. However, an asset can also be identified by being implicitly specified at the time that the asset is made available for use by the customer. If the supplier has a substantive substitution right, then the asset is not identified.
To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether, throughout the period of use, it has:
The Group determines the lease term as the non-cancellable period of a lease, together with both:
In its assessment, the Group considers the impact of the following factors (non-exhaustive):
the importance of that underlying asset to the Group's operations, including the availability of suitable alternatives;
conditionality associated with exercising the option (i.e. when the option can be exercised only if one or more conditions are met), and the likelihood that those conditions will exist; and
The Group recognizes a right-of-use asset and a lease liability at the lease commencement date, which is the date that the lessor makes the asset available for use by the Group.
The right-of-use asset is initially measured at cost, which comprises:
After the commencement date, the right-of-use asset is measured at cost less any accumulated depreciation and any accumulated impairment losses. Right-of-use assets are depreciated using the straight-line depreciation method, from the commencement date to (a) the end of the useful life of the underlying asset, in case the lease transfers ownership of the underlying asset to the Group by the end of the lease term, or the lease contains a purchase option that the Group is reasonably certain to exercise, or (b) the earlier of the end of the useful life and the end of the lease term, in all other cases.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the respective Group entity's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise the following:
Service components (e.g. utilities, maintenance, insurance, …) are excluded from the measurement of the lease liability.
After the commencement date, the lease liability is measured by:
Tax impacts relating to the coupons of perpetual hybrid bonds classified as equity are recognized in profit or loss, to the extent that they are considered to stem from past transactions or events that generated distributable profits.
Solvay is organized in the following operating segments:
| (in € million) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Net sales | 2,578 | 2,591 | 7,803 | 7,683 |
| Advanced Materials | 1,141 | 1,082 | 3,443 | 3,292 |
| Advanced Formulations | 704 | 788 | 2,183 | 2,293 |
| Performance Chemicals | 731 | 720 | 2,172 | 2,091 |
| Corporate & Business Services | 2 | 1 | 5 | 6 |
| Underlying EBITDA | 601 | 574 | 1,796 | 1,725 |
| Advanced Materials | 301 | 292 | 891 | 922 |
| Advanced Formulations | 123 | 141 | 388 | 403 |
| Performance Chemicals | 216 | 192 | 646 | 557 |
| Corporate & Business Services | (39) | (51) | (128) | (158) |
| Underlying depreciation, amortization & impairments | (205) | (169) | (599) | (501) |
| Underlying EBIT | 397 | 405 | 1,197 | 1,224 |
| Non-cash accounting impact from amortization & depreciation of purchase price allocation (PPA) from acquisitions [18] |
(55) | (62) | (165) | (177) |
| Net financial charges and remeasurements of equity book value of the RusVinyl joint venture |
(2) | (8) | 4 | (22) |
| Result from portfolio management & reassessments | (827) | 2 | (891) | (200) |
| Result from legacy remediation & major litigations | (4) | (29) | (31) | (72) |
| EBIT | (492) | 309 | 114 | 752 |
| Net financial charges | (62) | (48) | (175) | (138) |
| Profit for the period before taxes | (554) | 262 | (61) | 614 |
| Income taxes | 120 | (43) | (7) | (117) |
| Profit for the period from continuing operations | (434) | 219 | (68) | 497 |
| Profit (loss) for the period from discontinued operations | 58 | 69 | 208 | 158 |
| Profit for the period | (376) | 288 | 140 | 655 |
| attributable to non-controlling interests | 11 | 11 | 31 | 30 |
| attributable to Solvay shareholders | (387) | 277 | 110 | 625 |
The 9M 2018 figures have been prepared using IAS 17. The pro forma 9M 2018 figures, prepared using IFRS 16 have been published outside the IFRS financial statements, and were included in the fourth quarter 2018 Financial Report.
Most of Novecare oil & gas business is linked to the unconventional oil & gas in North America, and in particular the "fracking" stage of the process. Novecare serves other oil & gas applications and other process stages, such as cementing and production, but they represent only a small portion of the total sales.
In the context of difficult and uncertain global oil & gas markets, the fracking chemicals business has proved to be highly volatile and over the last 2 years the value pool for fracking chemicals have significantly reduced and both volumes and prices have come under pressure, as changes in the competitive environment are commoditizing the market. Solvay's oil & gas position, which comprise the Chemlogics and the Rhodia oil & gas businesses, have also been impacted by two further developments that have accelerated and became particularly impactful in 2019:
As a result of these developments, the profitability of the oil & gas business in 2019 has deteriorated significantly and at the full year is expected to be less than 1/3rd of the profit level of 2018. Action has been taken in terms of changing management, adapting cost structures as well as developing plans that are expected to help recovering to a level of profitability that better reflects the competitive landscape.
Further, the strategy review that was undertaken also established that the former Chemlogics business has been relatively more resilient than the former Rhodia guar based business.
As a result the synergies between the oil & gas business and the rest of Novecare are now too small and future growth opportunities too modest to support the oil & gas business being considered as part of one Novecare Cash Generating Unit, which was previously the position. This conclusion requires, in compliance with IAS 36 "Impairment of assets", that oil & gas activities are isolated in a separate CGU and the impairment test to be conducted at an oil & gas business level rather than at Novecare level.
Taking into account the balance sheet values of the oil & gas business and the present value of future cash flows based on the recovery plan, an impairment of €822 million pre-tax and €656 million post-tax has been taken. The magnitude of the impairment is exacerbated both by the evolution of forex rates since the Chemlogics acquisition in 2013, and by an expectation of persistent low oil prices. The latter dampens demand for premium solutions and thereby the recoverable amount of the asset (cash-generating unit), which is its value in use with a WACC of 6.7% (vs WACC of 6.2% used in 2018 for the testing of the Novecare Cash Generating Unit). The impairment loss of €822 million has been recognized by class of assets in the Segment Advanced Formulations as follows: €756 million for Goodwill and €66 million for Intangible Assets.
Compared to December 31, 2018, there are no changes in valuation techniques.
For all financial instruments not measured at fair value in Solvay's consolidated statement of financial position, the fair value of those financial instruments as of September 30, 2019, is not significantly different from the ones published in Note F35 of the consolidated financial statements for the year ended December 31, 2018.
For financial instruments measured at fair value in Solvay's consolidated statement of financial position, the fair value of those instruments as of September 30, 2019, is not significantly different from the ones as published in the Note F35 of the consolidated financial statements for the year ended December 31, 2018.
On October 3, 2019 management decided to stop the planned transfers of the teams based in Paris to Lyon and Brussels, which was part of the simplification and transformation plan announced in 2018. This decision has been announced internally on October 23 and is considered as a non-adjusting subsequent event as it has not been communicated before September 30, 2019, in compliance with IAS 10 « Events after the Reporting Period » and IAS 37 "Provisions, Contingent Liabilities and Contingent Assets". The provision booked and included in the total simplification provision reported in previous periods is still recognized at the end of the third quarter, for an amount of € 48 million. All the impacts of this announcement on the financial statements will be assessed during the fourth quarter.
Ilham Kadri, Chief Executive Officer, and Karim Hajjar, Chief Financial Officer, of the Solvay Group, declare that to the best of their knowledge:
All comparisons are made year on year with 2018 pro forma figures, as if IFRS 16 had already been implemented in 2018, unless stated otherwise.
November 5, 2020 Nine months 2020 results
Bisser Alexandrov +32 2 264 3687
Geoffroy d'Oultremont
+32 2 264 2997
| Investor | Geoffroy Raskin | Jodi Allen |
|---|---|---|
| Relations | +32 2 264 1540 | +1 609 860 4608 |
| [email protected] | [email protected] |
relations Nathalie van Ypersele +32 478 20 10 62 [email protected]
Brian Carroll +32 2 264 15 30 [email protected] Amandine Grison
+33 1 40 75 81 49 [email protected]
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This press release may contain forward-looking information. Forward-looking statements describe expectations, plans, strategies, goals, future events or intentions. The achievement of forward-looking statements contained in this press release is subject to risks and uncertainties relating to a number of factors, including general economic factors, interest rate and foreign currency exchange rate fluctuations, changing market conditions, product competition, the nature of product development, impact of acquisitions and divestitures, restructurings, products withdrawals, regulatory approval processes, all-in scenario of R&I projects and other unusual items. Consequently, actual results or future events may differ materially from those expressed or implied by such forward-looking statements. Should known or unknown risks or uncertainties materialize, or should our assumptions prove inaccurate, actual results could vary materially from those anticipated. The Company undertakes no obligation to publicly update or revise any forward-looking statements.
Solvay is an advanced materials and specialty chemicals company, committed to developing chemistry that addresses key societal challenges. Solvay innovates and partners with customers worldwide in many diverse end-markets. Its products are used in planes, cars, batteries, smart and medical devices, as well as in mineral and oil and gas extraction, enhancing efficiency and sustainability. Its lightweighting materials promote cleaner mobility, its formulations optimize the use of resources, and its performance chemicals improve air and water quality.
Solvay is headquartered in Brussels with around 24,500 employees in 61 countries. Net sales were €10.3 billion in 2018, with 90% from activities where Solvay ranks among the world's top 3 leaders, resulting in an EBITDA margin of 22%. Solvay SA (SOLB.BE) is listed on Euronext Brussels and Paris Bloomberg: SOLB.BB - Reuters: SOLB.BR), and in the United States its shares (SOLVY) are traded through a level-1 ADR program. (Figures take into account the planned divestment of Polyamides.)
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