Earnings Release • Jul 29, 2016
Earnings Release
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REGULATED INFORMATION
29/07/2016 7:00 AM CET
The results of former Cytec are consolidated in the Group's income and cash flow statements since January 1, 2016. Comparative information for the second quarter and 1st half year 2015 is presented on an unaudited pro forma basis as if the acquisition of Cytec had taken place on January 1, 2015.
Besides IFRS accounts, Solvay also presents underlying Income Statement performance indicators to provide a more consistent and comparable indication of the Group's financial performance. 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 15 are on an underlying basis, unless otherwise stated.
Solvay delivered strong results in the second quarter, with underlying EBITDA up 8% despite continued headwinds in some markets. This reflects the strength and breadth of the portfolio and the continued momentum of our excellence programs. Free cash flow was significantly higher in the first half of 2016, in line with our commitment to convert profits into cash more efficiently. The integration of Cytec is going very well with fast delivery on synergies and we are particularly pleased with our recent award, together with Mubadala, to supply primary structure composite materials to Boeing's 777X program. This represents a strategic milestone for Solvay and positions us well for long-term growth in a key market.
Based on current market conditions, Solvay reaffirms its full year 2016 guidance of high single-digit underlying EBITDA growth and free cash flow in excess of € 650 m.
[1] The underlying and IFRS data presented in the highlights compare to unaudited pro forma 2015 figures, as if the Cytec acquisition had taken place on January 1, 2015. The endof-period balance sheet data compare to the position at the start of the period, which already included Cytec.
[2] Underlying net debt includes the perpetual hybrid bonds, accounted for as equity under IFRS.
| Q2 key data | IFRS | Underlying | ||||
|---|---|---|---|---|---|---|
| (in € m) | Q2 2016 | Q2 2015 pro forma |
% yoy | Q2 2016 | Q2 2015 pro forma |
% yoy |
| Net sales | 2,946 | 3,135 | (6.0)% | 2,946 | 3,135 | (6.0)% |
| EBITDA | 630 | 549 | 15% | 652 | 603 | 8.1% |
| EBITDA margin | 21% | 18% | 3.9pp | 22% | 19% | 2.9pp |
| EBIT | 366 | 286 | 28% | 453 | 412 | 10% |
| Net financial charges | (86) | (87) | 1.5% | (119) | (116) | (2.9)% |
| Income taxes | (75) | (72) | (5.1)% | (94) | (92) | (3.1)% |
| Result from discontinued operations | (7) | 31 | n.m. | - | 33 | n.m. |
| Non-controlling interests | (14) | (21) | 35% | (16) | (21) | 23% |
| Net income, Solvay share | 185 | 138 | 34% | 223 | 216 | 3.5% |
| Basic earnings per share (in €) | 1.79 | 1.33 | 35% | 2.16 | 2.08 | 3.9% |
| Free cash flow | 174 | 192 | (9.4)% | 174 | 192 | (9.4)% |
| Free Cash Flow (continuing operations) | 174 | 137 | 27% | 174 | 137 | 27% |
| Capex (continuing operations) | (215) | (243) | 12% | (215) | (243) | 12% |
| Net debt | 4,812 | 7,012 |
[1] Underlying net debt includes the perpetual hybrid bonds, accounted for as equity under IFRS.
Net sales totaled € 2,946 m, down (6)%, principally a result of unsupportive foreign exchange fluctuations and (2)% price decrease in a context of lower raw material and energy costs. Volumes were up, with solid growth across segments overcoming declines in Advanced Formulations.
Underlying EBITDA grew 8% at € 652 m despite the negative impact of foreign exchange on conversion. This reflected pricing power for a 10th straight quarter. The Group also benefitted from delivery of excellence initiatives and synergies, as well as a higher contribution from the RusVinyl joint-venture.
The underlying EBITDA margin widened to a record 22% of net sales, up 2.9 percentage points.
Underlying EBIT was € 453 m, after deduction of amortization and depreciation charges of € (199) m, slightly up versus € (191) m, as the asset base grew.
Underlying net financial charges were € (119) m versus € (116) m in the same quarter last year.
Underlying income taxes were € (94) m versus € (92) m in 2015.
Discontinued operations, in the second quarter of 2016 consisted of the Latin American chlorovinyls activity Indupa, which had no contribution to underlying results. In the second quarter of 2015, however, discontinued operations still included the European chlorovinyls business, which have been integrated in the Inovyn joint venture since July 2015. These activities contributed € 33 m to the Group's net income at that time.
Underlying net income, Solvay share, after deduction of the € (16) m share of non-controlling interests, was € 223 m versus € 216 m in 2015. Underlying basic earnings per share thereby amounted to € 2.16, compared to € 2.08 pro forma in 2015.
Free cash flow from continuing operations was € 174 m versus € 137 m last year, thanks to higher EBITDA, lower capex and continued focus on working capital management, with working capital needs of € (85) m. Capex was € (215) m, € 28 m lower than in 2015, in line with the strategy to reduce capex intensity. In the absence of a contribution from discontinued operations, the total free cash flow equaled € 174 m as well, compared to € 192 m the year before, which still included the free cash flow generated by the European chlorovinyls business.
Underlying net debt, which includes 100% of the € (2,200) m hybrid perpetual bonds (classified as equity under IFRS) as debt, rose from € (6,761) m at the end of March to € (7,012) m, following seasonal payments, namely, € (200) m final dividend to Solvay shareholders, € (58) m of perpetual hybrid bond coupons and net interest payments of € (108) m, partly offset by the strong free cash flow in the period. Other changes in net debt include € (89) m of conversion impacts. The underlying leverage ratio remained at 2.9x. Net debt on an IFRS basis rose from € (4,561) m at the end of March to € (4,812) m at the end of the period. As announced, Solvay exercised its first call option on the deeply subordinated € (500) m hybrid debt issued in 2006 and maturing in 2104. This bond, which was classified as net debt under IFRS, was repaid in June.
A full reconciliation of IFRS and underlying income statement data can be found on page 16 of this report.
| H1 key data | IFRS | Underlying | |||||
|---|---|---|---|---|---|---|---|
| (in € m) | H1 2016 | H1 2015 pro forma |
% yoy | H1 2016 | H1 2015 pro forma |
% yoy | |
| Net sales | 5,877 | 6,239 | (5.8)% | 5,877 | 6,239 | (5.8)% | |
| EBITDA | 1,133 | 988 | 15% | 1,253 | 1,195 | 4.9% | |
| EBITDA margin | 19% | 16% | 3.4pp | 21% | 19% | 2.2pp | |
| EBIT | 472 | 387 | 22% | 861 | 817 | 5.3% | |
| Net financial charges | (180) | (178) | (1.3)% | (245) | (236) | (3.7)% | |
| Income taxes | (75) | (100) | 25% | (174) | (178) | 2.0% | |
| Tax rate | 30% | 51% | - | 29% | 31% | (1.67)pp | |
| Result from discontinued operations | (1) | 52 | n.m. | - | 57 | n.m. | |
| Non-controlling interests | (15) | (36) | 58% | (26) | (42) | 39% | |
| Net income, Solvay share | 200 | 126 | 59% | 416 | 418 | (0.6)% | |
| Basic earnings per share (in €) | 1.93 | 1.21 | 60% | 4.02 | 4.03 | (0.3)% | |
| Free cash flow | 183 | (166) | n.m. | 183 | (166) | n.m. | |
| Free Cash Flow (continuing operations) | 200 | (146) | n.m. | 200 | (146) | n.m. | |
| Capex (continuing operations) | (428) | (507) | 16% | (428) | (507) | 16% | |
| Net debt | 4,812 | 7,012 |
[1] Underlying net debt includes the perpetual hybrid bonds, accounted for as equity under IFRS.
Net sales totaled € 5,877 m, down (6)%, due to declining prices in a context of lower raw material and energy costs, scope changes and foreign exchange impacts. Volumes were stable overall, with a decrease in Advanced Formulations offset by growth in the other segments.
Underlying EBITDA grew 5% at € 1,253, despite unfavorable scope changes, foreign exchange effects on conversion, and a slightly negative impact of the volume mix. Pricing power, excellence and synergies were supportive, underpinned by transactional foreign exchange gains. The € 30 m one-off benefit recognized in the first quarter of 2015 and linked to U.S. post-retirement benefits was compensated, partly by the growing contribution of the RusVinyl joint venture.
The underlying EBITDA margin widened to 21% of net sales, up 2.2 percentage points.
Underlying EBIT was € 861 m, up 5%, with amortization and depreciation charges of € (393) m. These were slightly up year on year, as the asset base has grown.
Underlying net financial charges were € (245) m versus € (236) m in the same quarter last year.
Underlying income taxes were € (174) m versus € (178) m in 2015, resulting in an underlying tax rate of 29%, 1.2 percentage points lower than in the full year 2015.
Discontinued operations, in the first half of 2016 consisted of the Latin American chlorovinyls activity Indupa and legacy impacts from the pharma divestment. There was no contribution to underlying results from these operations. In the first half of 2015 discontinued operations also included the European chlorovinyls business, which has been integrated in the Inovyn joint venture since July 2015. These activities contributed € 57 m to the Group's net income at that time.
Underlying net income, Solvay share, after the € (26) m share of non-controlling interests, was € 416 m versus, largely in line with the € 418 m generated in the first half of 2015. Underlying basic earnings per share thereby amounted to € 4.02, compared to € 4.03 pro forma in 2015.
Free cash flow from continuing operations was € 200 m versus € (146) m last year, thanks to higher EBITDA, lower capex and sustained working capital management efforts, which reduced the seasonal working capital outflow to € (296) m. Capex was 22% lower year on year at € (428) m as anticipated. With a lower inflow from discontinued operations following the scope change, the total free cash flow was € 183 m, compared to € (166) m the year before.
Underlying net debt, rose to € (7,012) m from € (6,579) m at the end of 2015, and includes 100% of the € (2,200) m hybrid perpetual bonds (classified as equity under IFRS) as debt. The debt increase reflects the front end-loaded financial payments in the year with net interest payments of € (148) m, coupons on perpetual hybrid bonds of € (58) m and the full dividend to Solvay shareholders for € (337) m, partly mitigated by the strong free cash flow in the period. The underlying leverage ratio thereby came at 2.9x, up from 2.8x at the start of the period. Net debt on an IFRS basis rose from € (4,379) m at the end of 2015 to € (4,812) m at the end of the period. Solvay repaid the € (300) m EIB loan, which came to maturity in January, and in June exercised its first call option on the deeply subordinated € (500) m hybrid debt issued in 2006 and maturing in 2104. This bond was classified as net debt under IFRS.
A full reconciliation of IFRS and underlying income statement data can be found on page 16 of this report.
Based on current market conditions, Solvay reaffirms its expectation of underlying EBITDA in 2016 to grow by high single-digits compared to the 2015 pro forma underlying EBITDA of € 2,336 m. The EBITDA growth will be underpinned by excellence programs and delivery of Cytec synergies.
These expectations are derived from the following key factors:
Underlying EBITDA growth combined with disciplined capital expenditure will lead to free cash flow in excess of € 650 m.
The Group is committed to maintaining its investment grade credit rating.
This 2016 outlook is based on a number of assumptions, which remain unchanged, in particular no recovery in the U.S. oil and gas exploration-related activities, and on a 1.10 US\$/€ exchange rate.
Solvay and Mubadala are forming a 50/50 joint venture that will deliver carbon fiber preimpregnated composite materials for the empennage and floor beams of Boeing's new 777X program. The JV, announced in early July, will be located in the United Arab Emirates and should be operational by 2021, building on an earlier strategic partnership between both companies to reinforce Abu Dhabi's aerospace industry and to strengthen the creation of prepreg manufacturing capabilities. The composite content of next-generation aircraft is expanding as plane makers aim to reduce weight, fuel consumption and CO2 emissions.
GKN Aerospace awarded this to Solvay in early July, for its sustained performance across quality, delivery, and technical partnering as its supplier of lightweight composite materials with fireretardancy, chemical resistance and high impact strength.
Solvay celebrates the safe return of Solar Impulse and its pilots Bertrand Piccard and André Borschberg from their world flight, powered by only solar energy. Ever since Solvay became the first partner of the project in 2004, it has deployed its expertise and innovation capacities in lightweighting materials and in optimizing its energy storage and consumption. Solvay's products were used in more than 6,000 parts, including the critical composite material parts for the wing structure and rear stabilizer.
PORTFOLIO MOVES
Solvay signed an agreement with Brazilian chemical group Unipar Carbocloro to sell its 70.59% stake in Solvay Indupa, which has two production sites in Brazil and Argentina. Completion of the transaction is subject to the customary closing conditions. Solvay had already classified Solvay Indupa as an "Asset held for sale". This divestment follows Solvay's early exit of its European PVC joint venture Inovyn as Solvay is transforming into a multi-specialty chemicals group.
Solvay and Eastman Chemical Company ended their cellulose acetate production joint venture Primester with Solvay acquiring Eastman's 50 percent stake in the U.S.-based plant and becoming its sole owner. Through this transaction has Solvay secured the most economical long term supply for its own tow businesses in Germany, Brazil and Russia, while adapting capacity to demand.
Solvay suspended soda ash production in Alexandria, Egypt, as sharply higher energy costs have undermined the plant's profitability. Customers will be served from Solvay's other soda ash plants. The asset impairment amounts to € 90 million, after tax. Solvay aims to minimize the impact of this temporary decision on its employees with measures including finding alternative uses for this conveniently located industrial platform. Production of quicklime, used in steel, pulp and paper and gold mining, will continue with good prospects in the region.
| Segment review | Underlying | ||||||
|---|---|---|---|---|---|---|---|
| (in € m) | Q2 2016 | Q2 2015 pro forma |
% yoy | H1 2016 | H1 2015 pro forma |
% yoy | |
| Net sales | 2,946 | 3,135 | (6.0)% | 5,877 | 6,239 | (6)% | |
| Advanced Materials | 1,082 | 1,138 | (4.9)% | 2,164 | 2,245 | (4)% | |
| Advanced Formulations | 650 | 740 | (12)% | 1,312 | 1,484 | (12)% | |
| Performance Chemicals | 753 | 757 | (0.5)% | 1,473 | 1,513 | (3)% | |
| Functional Polymers | 461 | 499 | (7.7)% | 923 | 994 | (7)% | |
| Corporate & Business Services | 1 | 1 | (42)% | 5 | 2 | n.m. | |
| EBITDA | 652 | 603 | 8.1% | 1,253 | 1,195 | 5% | |
| Advanced Materials | 293 | 275 | 6.3% | 560 | 539 | 4% | |
| Advanced Formulations | 124 | 139 | (11)% | 246 | 275 | (11)% | |
| Performance Chemicals | 224 | 187 | 20% | 423 | 373 | 13% | |
| Functional Polymers | 64 | 52 | 24% | 129 | 94 | 38% | |
| Corporate & Business Services | (53) | (50) | (5.5)% | (104) | (85) | (23)% | |
| EBITDA margin | 22% | 19% | 2.9pp | 21% | 19% | 2.2pp | |
| Advanced Materials | 27% | 24% | 2.9pp | 26% | 24% | 1.9pp | |
| Advanced Formulations | 19% | 19% | 0.2pp | 19% | 19% | 0.2pp | |
| Performance Chemicals | 30% | 25% | 5.1pp | 29% | 25% | 4.1pp | |
| Functional Polymers | 14% | 10% | 3.6pp | 14% | 9% | 4.5pp | |
| EBIT | 453 | 412 | 10% | 861 | 817 | 5.3pp | |
| Advanced Materials | 222 | 213 | 4.2% | 422 | 413 | 2.0pp | |
| Advanced Formulations | 85 | 101 | (16)% | 169 | 203 | (16.7)pp | |
| Performance Chemicals | 178 | 140 | 27% | 332 | 281 | 17.9pp | |
| Functional Polymers | 37 | 23 | 59% | 75 | 37 | n.m. | |
| Corporate & Business Services | (68) | (66) | (3.6)% | (137) | (118) | (16.1)pp |
[1] Excluding Corporate & Business Services
| Key data | Underlying | |||||
|---|---|---|---|---|---|---|
| (in € m) | Q2 2016 | Q2 2015 pro forma |
% yoy | H1 2016 | H1 2015 pro forma |
% yoy |
| Net sales | 1,082 | 1,138 | (4.9)% | 2,164 | 2,245 | (3.6)% |
| Specialty Polymers | 475 | 475 | - | 944 | 926 | 1.9% |
| Composite Materials | 277 | 297 | (6.8)% | 559 | 597 | (6.4)% |
| Special Chem | 214 | 234 | (8.5)% | 432 | 463 | (6.6)% |
| Silica | 115 | 131 | (12)% | 229 | 258 | (12)% |
| EBITDA | 293 | 275 | 6.3% | 560 | 539 | 3.9% |
| EBITDA margin | 27% | 24% | 2.9pp | 26% | 24% | 1.9pp |
| 1,138 | (32) | (35) | 17 | (6) | 1,082 |
|---|---|---|---|---|---|
| Scope (2.8)% |
Conversion forex (3.1)% |
Volume & mix 1.5% |
Price (0.5)% |
||
| Q2 2015 pro forma |
Q2 2016 |
Net sales totaled € 1,082 m, a (5)% decrease from the second quarter in 2015, with (3)% related to unfavorable foreign exchange impacts and (3)% attributable to the scope effect from the sale of Special Chem's refrigerants and PCC businesses in 2015. Volumes were up about 2% primarily due to growth in Special Chem related to catalysts for automotive, high purity H2O2 for semiconductors and specialty products for the medical imaging market. Growth was further supported by Specialty Polymers and mainly due to strong demand in automotive markets, healthcare and consumer goods which more than compensated for the reduced demand in smart devices. Sales volumes of Composite Materials [1] into aerospace were slightly down, related to anticipated legacy aircraft rate reductions and reduced demand in business jets and rotorcraft markets which did not yet offset the growth from new aircraft programs. Sales volumes of composites sold into industrial markets were slightly up due to high performance auto and wind energy markets. In Silica, business remained intrinsically flat with growth in the energy-efficient tire market offset by the strong devaluation of Venezuelan currency. Pricing across the advanced materials segment was relatively stable in the quarter.
Underlying EBITDA rose 6% to € 293 m versus the same period last year, supported by net volume growth. Operational excellence programs led to significant efficiency gains which also supported EBITDA expansion and mitigated the negative impacts from scope effects and currency conversion fluctuations. The resulting underlying EBITDA margin widened by 2.9 percentage points from 24% to 27%.
[1] Combination of the former Cytec business units "Aerospace Materials" and "Industrial Materials"
Net sales totaled € 2,164 m, a (4)% decrease from the first half of 2015, with (3)% attributable to the scope effect from the sale of Special Chem's refrigerants and PCC businesses in 2015 and (2)% related to unfavorable foreign exchange. Volumes were up 2% supported by growth in Specialty Polymers and Special Chem. The anticipated inventory reductions in the smart device markets in Specialty Polymers were more than offset by broad-based market growth. Sales volumes in Composite Materials [1] were slightly down mainly due to the anticipated rate declines of older aircraft programs and reduced sales to industrial markets in the first quarter. Special Chem reported good demand for automotive catalysts and growth from the new high-purity H2O2 units in the U.S. In Silica, sales growth in the energy-efficient tire market was offset by the currency impact in Venezuela. Average pricing in the Advanced Materials segment was stable versus the first half of 2015.
Underlying EBITDA in the first half rose 4% to € 560 m driven primarily by volume growth. Operational excellence programs led to significant operational efficiency gains, while net pricing was favorable. Scope effects and currency fluctuation impacts on conversion had a negative impact on the segment's EBITDA. The resulting underlying EBITDA margin widened by 1.9 percentage points from 24% to 26% year on year.
| Key data | Underlying | |||||
|---|---|---|---|---|---|---|
| (in € m) | Q2 2016 | Q2 2015 pro forma |
% yoy | H1 2016 | H1 2015 pro forma |
% yoy |
| Net sales | 650 | 740 | (12)% | 1,312 | 1,484 | (12)% |
| Novecare | 400 | 482 | (17)% | 821 | 986 | (17)% |
| Technology Solutions | 165 | 163 | 1.5% | 323 | 320 | 1.1% |
| Aroma Performance | 85 | 95 | (11)% | 167 | 179 | (6.6)% |
| EBITDA | 124 | 139 | (11)% | 246 | 275 | (11)% |
| EBITDA margin | 19% | 19% | 0.2pp | 19% | 19% | 0.2pp |
Net Sales decreased by (12)% year on year to € 650 m, as the headwinds in the unconventional oil and gas markets in North America persisted, impacting Novecare's sales by (17)%. Volume represented (4)% of the decline in the segment. The North American rig count was down ~50% year on year, but stabilized toward the end of the second quarter. Volume growth in other Novecare markets, including home & personal care, agro, and coatings, mitigated part of the oil and gas impact. Sales in Technology Solutions [1] remained stable despite the reduced production levels in the mining industry driven by the lower copper and aluminum prices. Although vanillin sales grew, Aroma Performance sales were down overall as competitive price pressure continued in the business. Across the Advanced Formulation's segment, price and foreign exchange each had a negative impact of (4)% in the quarter.
Underlying EBITDA fell (11)% year on year to € 124 m in the quarter, primarily due to the volume decline in Novecare's oil and gas business, which was only partially compensated by growth in other markets. Although price declined in the quarter, this was offset by operational excellence measures. As a result underlying EBITDA margin remained largely stable at 19%.
Net Sales decreased by (12)% year on year to € 1,312 m, as the headwinds in the North American unconventional oil and gas markets persisted, impacting Novecare's first half sales by (17)%. The oil and gas market challenges impacted volumes and prices significantly versus strong comparables in the first half of 2015. Volume growth in other Novecare markets, such as home & personal care, agro, and coatings, mitigated only part of the impact. Overall segment volumes were down by (5)% in the first half. Sales in Technology Solutions [1] remained stable despite reduced production levels in the mining industry as older less efficient mines are closing and new mines are not yet ramping up. Aroma Performance sales were down, with the exception of vanillin, as competitive price pressure remained intense in the business. Price contributed (4)% to the segment decline related to Novecare and Aroma Performance, and foreign exchange had a (2)% negative impact.
Underlying EBITDA fell (11)% to € 246 m in the first half of 2016, mainly due to the volume drop in Novecare's oil and gas business, which was only partially compensated by growth elsewhere. Foreign exchange effects also had a slight negative effect. Despite the significant headwinds, the underlying EBITDA margin for the first half of 2016 remained stable at 19% thanks to continued operational improvements.
[1] Combination of the former Cytec business units "In Process Separation" and "Additive Technologies"
| Key data | Underlying | |||||
|---|---|---|---|---|---|---|
| (in € m) | Q2 2016 | Q2 2015 pro forma |
% yoy | H1 2016 | H1 2015 pro forma |
% yoy |
| Net sales | 753 | 757 | (0.5)% | 1,473 | 1,513 | (2.7)% |
| Soda Ash & Derivatives | 397 | 385 | 3.2% | 772 | 769 | 0.4% |
| Peroxides | 135 | 134 | 1.0% | 272 | 269 | 1.2% |
| Acetow | 136 | 130 | 4.7% | 262 | 257 | 2.0% |
| Coatis | 85 | 108 | (22)% | 167 | 218 | (23)% |
| EBITDA | 224 | 187 | 20% | 423 | 373 | 13% |
| EBITDA margin | 30% | 25% | 5.1pp | 29% | 25% | 4.1pp |
| 757 | 4 | (28) | 35 | (14) | 753 |
|---|---|---|---|---|---|
| Scope 0.6% |
Conversion forex (3.8)% |
Volume & mix 4.6% |
Price (1.9)% |
||
| Q2 2015 pro forma |
Q2 2016 |
Net sales increased 1% to € 753 m, mainly due to 5% volume growth in the quarter which was offset by (4)% foreign exchange and (2)% price. In Soda Ash & Derivatives demand returned for both Europe and seaborne markets following a slow first quarter. Volumes of bicarbonate were at record levels driven by the Thailand plant ramp up. Peroxides sales were up slightly related to the traditional wood pulp bleaching market and overall good global demand. Acetow volumes were also up year on year as the recovery in the acetate tow market continued in most of the world with the exception of China. Coatis remained challenged by the difficult conditions in the domestic Latin American market, significantly impacting sales.
Underlying EBITDA was € 224 m, representing a 20% increase from the same quarter in 2015. The significant improvement was driven by volume increases in Acetow, Soda Ash, and Peroxides, with added € 11 m from the sale of surplus assets within Soda Ash & Derivatives. The segment was further aided by benefits from excellence programs which contributed to the profitability in the quarter. The resulting underlying EBITDA margin grew 5.1 percentage pointsto 30%.
Net sales fell (3)% to € 1,473 m, mainly due to the adverse impact of foreign exchange movements on conversion, with the depreciation of the Brazilian real affecting Coatis' performance. Volumes were up by 2% and pricing impacted sales by (1)% in the first half. In Soda Ash & Derivatives, the domestic European and U.S. soda ash markets, as well as the seaborne market, started the year slowly before significantly increasing the second quarter. The newly opened bicarbonate plant in Thailand also contributed nicely to volume improvement in the second quarter after a weak start of the year. Peroxides sales were up slightly due to higher volumes to the traditional wood pulp bleaching market which offset weaker sales in specialties. Acetow volumes were up year on year as the recovery in the acetate tow market outside of China continues. Coatis remained impacted by the difficult conditions in the domestic Latin American market, affecting volumes.
Underlying EBITDA was € 423 m, a 13% increase from the first half 2015 largely attributable to the performance in Acetow and Soda Ash & Derivatives just described in the second quarter. The underlying EBITDA margin in the first half 2016 grew 4.1 percentage pointsto 29% as a result of the improvement in the second quarter.
| Key data | Underlying | |||||
|---|---|---|---|---|---|---|
| (in € m) | Q2 2016 | Q2 2015 pro forma |
% yoy | H1 2016 | H1 2015 pro forma |
% yoy |
| Net sales | 461 | 499 | (7.7)% | 923 | 994 | (7.2)% |
| Polyamide | 351 | 383 | (8.5)% | 702 | 759 | (7.5)% |
| Chlorovinyls | 110 | 116 | (5.2)% | 221 | 235 | (6.1)% |
| EBITDA | 64 | 52 | 24% | 129 | 94 | 38% |
| EBITDA margin | 14% | 10% | 3.6pp | 14% | 9.4% | 4.5pp |
Net sales fell (8)% to € 461 m as a result of (6)% lower pricing and (5)% conversion foreign exchange impacts, offset partially by 2% volume improvement. The lower raw material costs were partially passed through to customers. Polyamide demand was satisfactory. In Chlorovinyls, good demand in South East Asia led to higher PVC volumes, which were partially offset by limited production of caustic soda.
Underlying EBITDA was € 64 m, 24% higher year on year, reflecting both volume and cost improvements in Chlorovinyls. The contribution from the RusVinyl joint venture to equity earnings was up significantly compared to early 2015 when the plant was still in start-up. Polyamide margins flattened due to a planned maintenance turnaround which occurs every 3 years. The underlying EBITDA margin of the segment widened by 3.6 percentage points to 14%.
Net sales fell (7)% to € 923 m as a result of (5)% lower pricing and (5)% conversion foreign exchange impacts from currency depreciations versus the euro in Brazil, Korea, and Thailand, where Solvay operates major sites. The lower prices resulted from a decrease in raw material costs, which were partially passed through to customers. Volumes were up both in Polyamide and in Chlorovinyls, where higher PVC volumes were partially offset by limited production of caustic soda.
Underlying EBITDA came in at € 129 m, 38% higher year on year, reflecting the volume increase and cost optimization programs. The contribution from the RusVinyl joint venture to equity earnings was also well up compared to early 2015 when the plant was still in start-up. The plant is operating close to full capacity now. Consequently the underlying EBITDA margin of the segment widened by 4.5 percentage points to 14%.
CORPORATE & BUSINESS SERVICES
Underlying EBITDA at € (53) m in Q2 2016, benefiting from pursued cost optimization programs and delivery of synergies from the Cytec integration.
| Key data | Underlying | ||||||
|---|---|---|---|---|---|---|---|
| (in € m) | Q2 2016 | Q2 2015 pro forma |
% yoy | H1 2016 | H1 2015 pro forma |
% yoy | |
| EBITDA | (53) | (50) | (5.5)% | (104) | (85) | (23)% |
Net underlying EBITDA costs were € (53) m, compared to € (50) m in the second quarter of 2015. In Energy Services the business conditions for energy and carbon management services as well as investments in biomass-based energy plants proved more challenging in a low commodity price environment. Costs in Other Corporate & Business Services reduced significantly as the operational excellence programs continued to bear fruit and the Cytec integration is progressing on track and delivering synergies.
Net underlying EBITDA costs were € (104) m, compared to € (85) m in the first half of 2015, when a € 30 m one-off benefit was recognized related to post-retirement benefits in the U.S. In Energy Services the business conditions for energy and carbon management services as well as investments in biomass-based energy plants proved more challenging in a low commodity price environment. Costs at Other Corporate & Business Services reduced significantly as the operational excellence programs continued to bear fruit and the Cytec integration is progressing on track and delivering synergies.
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. The 2016 data are compared to unaudited pro forma 2015 data including Cytec, as if the acquisition had taken place on January 1, 2015.
| Q2 consolidated income statement | Q2 2016 | Q2 2015 pro forma |
||||
|---|---|---|---|---|---|---|
| (in € m) | IFRS | Adjust ments |
Under lying |
IFRS | Adjust ments |
Under lying |
| Sales | 3,053 | - | 3,053 | 3,242 | - | 3,242 |
| of which revenues from non-core activities | 107 | - | 107 | 107 | - | 107 |
| of which net sales | 2,946 | - | 2,946 | 3,135 | - | 3,135 |
| Cost of goods sold | (2,200) | - | (2,200) | (2,373) | 1 | (2,372) |
| Gross margin | 854 | - | 853 | 870 | 1 | 870 |
| Commercial & administrative costs | (380) | 13 | (367) | (399) | 14 | (385) |
| Research & innovation costs | (77) | 1 | (77) | (82) | - | (82) |
| Other operating gains & losses | (34) | 58 | 23 | (60) | 60 | - |
| Earnings from associates & joint ventures | 26 | (5) | 20 | 4 | 4 | 8 |
| Result from portfolio management & reassessments [1] |
(7) | 7 | - | (33) | 33 | - |
| Result from legacy remediation & major litigations [1] | (15) | 15 | - | (14) | 14 | - |
| EBITDA | 630 | 22 | 652 | 549 | 54 | 603 |
| Depreciation, amortization & impairments | (264) | 65 | (199) | (264) | 72 | (191) |
| EBIT | 366 | 87 | 453 | 286 | 126 | 412 |
| Net cost of borrowings | (58) | - | (58) | (61) | 5 | (56) |
| Coupons on perpetual hybrid bonds | - | (28) | (28) | - | (28) | (28) |
| Interests and realized foreign exchange losses on RusVinyl (joint venture) |
- | (5) | (5) | - | (6) | (6) |
| Cost of discounting provisions | (29) | - | (29) | (25) | - | (25) |
| Result from available-for-sale financial assets | 1 | (1) | - | - | - | - |
| Result before taxes | 281 | 53 | 334 | 199 | 97 | 296 |
| Income taxes | (75) | (19) | (94) | (72) | (20) | (92) |
| Result from continuing operations | 205 | 34 | 240 | 127 | 77 | 204 |
| Result from discontinued operations | (7) | 7 | - | 31 | 1 | 33 |
| Net income | 198 | 41 | 240 | 158 | 78 | 237 |
| Non-controlling interests | (14) | (2) | (16) | (21) | - | (21) |
| Net income, Solvay share | 185 | 39 | 223 | 138 | 78 | 216 |
| Basic earnings per share (in €) | 1.79 | 0.37 | 2.16 | 1.33 | 0.75 | 2.08 |
| of which from continuing operations | 1.82 | 0.34 | 2.16 | 1.12 | 0.75 | 1.87 |
| Diluted earnings per share (in €) | 1.78 | 0.37 | 2.16 | 1.32 | 0.75 | 2.07 |
| of which from continuing operations | 1.82 | 0.34 | 2.16 | 1.11 | 0.75 | 1.85 |
[1] These two line items were previously classified as "Non-recurring items" (see note 2).
EBITDA on an IFRS basis totaled € 630 m versus € 652 m on an underlying basis. The difference of € 22 m is explained by the following adjustments to IFRS results, in order to improve comparability of underlying results:
EBIT on an IFRS basis totaled € 366 m versus € 453 m on an underlying basis. The difference of € 87 m is explained by the abovementioned € 22 m adjustments on EBITDA level and € 65 m on "Depreciation, amortization & impairments". The latter consist of:
Net financial charges on an IFRS basis were € (86) m versus € (119) m on an underlying basis. The € (34) m adjustment made to IFRS net financial charges consists of:
Income taxes on an IFRS basis were € (75) m versus € (94) m on an underlying basis. The € (19) m adjustment consists of:
Discontinued operations booked a net loss of € (7) m on an IFRS basis, but had no impact on underlying results. The following adjustments were made to the IFRS result from discontinued operations:
Net income, Solvay share, on an IFRS basis was € 185 m after deducting the € (14) m share of non-controlling interests. On an underlying basis the share of non-controlling interests represented € (16) m, adjusted by € (2) m for the impact of the above adjustments.
| H1 consolidated income statement | H1 2016 | H1 2015 pro forma |
||||
|---|---|---|---|---|---|---|
| (in € m) | IFRS | Adjust ments |
Under lying |
IFRS | Adjust ments |
Under lying |
| Sales | 6,105 | - | 6,105 | 6,464 | - | 6,464 |
| of which revenues from non-core activities | 228 | - | 228 | 225 | - | 225 |
| of which net sales | 5,877 | - | 5,877 | 6,239 | - | 6,239 |
| Cost of goods sold | (4,490) | 82 | (4,407) | (4,856) | 82 | (4,774) |
| Gross margin | 1,615 | 82 | 1,698 | 1,608 | 82 | 1,690 |
| Commercial & administrative costs | (745) | 26 | (719) | (772) | 28 | (745) |
| Research & innovation costs | (155) | 1 | (154) | (160) | - | (160) |
| Other operating gains & losses | (117) | 121 | 4 | (106) | 120 | 13 |
| Earnings from associates & joint ventures | 42 | (9) | 32 | 13 | 4 | 18 |
| Result from portfolio management & reassessments [1] |
(142) | 142 | - | (174) | 174 | - |
| Result from legacy remediation & major litigations [1] | (26) | 26 | - | (22) | 22 | - |
| EBITDA | 1,133 | 120 | 1,253 | 988 | 207 | 1,195 |
| Depreciation, amortization & impairments | (662) | 269 | (393) | (601) | 223 | (378) |
| EBIT | 472 | 389 | 861 | 387 | 430 | 817 |
| Net cost of borrowings | (120) | - | (120) | (125) | 10 | (116) |
| Coupons on perpetual hybrid bonds | - | (56) | (56) | - | (56) | (56) |
| Interests and realized foreign exchange losses on RusVinyl (joint venture) |
- | (12) | (12) | - | (12) | (12) |
| Cost of discounting provisions | (61) | 4 | (57) | (52) | - | (52) |
| Result from available-for-sale financial assets | 1 | (1) | - | - | - | - |
| Result before taxes | 292 | 324 | 616 | 209 | 372 | 581 |
| Income taxes | (75) | (99) | (174) | (100) | (78) | (178) |
| Result from continuing operations | 217 | 225 | 441 | 109 | 293 | 403 |
| Result from discontinued operations | (1) | 1 | - | 52 | 5 | 57 |
| Net income | 215 | 226 | 441 | 161 | 299 | 460 |
| Non-controlling interests | (15) | (11) | (26) | (36) | (6) | (42) |
| Net income, Solvay share | 200 | 216 | 416 | 126 | 293 | 418 |
| Basic earnings per share (in €) | 1.93 | 2.08 | 4.02 | 1.21 | 2.82 | 4.03 |
| of which from continuing operations | 1.88 | 2.14 | 4.02 | 0.84 | 2.78 | 3.62 |
| Diluted earnings per share (in €) | 1.93 | 2.08 | 4.01 | 1.20 | 2.80 | 4.00 |
| of which from continuing operations | 1.88 | 2.13 | 4.01 | 0.84 | 2.76 | 3.60 |
[1] These two line items were previously classified as "Non-recurring items" (see note 2).
EBITDA on an IFRS basis totaled € 1,133 m versus € 1,253 m on an underlying basis. The difference of € 120 m is explained by the following adjustments to IFRS results, in order to improve comparability of underlying results:
EBIT on an IFRS basis totaled € 472 m versus € 861 m on an underlying basis. The difference of € 389 m is explained by the abovementioned € 120 m adjustments on EBITDA level and € 269 m on "Depreciation, amortization & impairments". The latter consist of:
Net financial charges on an IFRS basis were € (180) m versus € (245) m on an underlying basis. The € (65) m adjustment made to IFRS net financial charges consists of:
Income taxes on an IFRS basis were € (75) m versus € (174) m on an underlying basis. The € (99) m adjustment reflects the tax impacts of the adjustments made to the underlying result before taxes (as described above). There was no net impact from tax elements related to prior years.
Discontinued operations booked a net loss of € (1) m on an IFRS basis, but had no impact on underlying results. The following adjustments were made to the IFRS result from discontinued operations:
Net income, Solvay share, on an IFRS basis was € 200 m after deducting the € (15) m share of non-controlling interests. On an underlying basis the share of non-controlling interests represented € (26) m, adjusted by € (11) m for the impact of the above adjustments.
Differently from the pages before, where the 2016 data are compared to unaudited pro forma 2015 income statement data including Cytec, as if the acquisition had taken place on January 1, 2015, the 2016 data presented in the consolidated interim financial statements, including the notes, are compared to 2015 IFRS data as previously published.
| (in € m) | Q2 2016 | Q2 2015 | H1 2016 | H1 2015 |
|---|---|---|---|---|
| Sales | 3,053 | 2,782 | 6,105 | 5,547 |
| of which revenues from non-core activities | 107 | 107 | 228 | 225 |
| of which net sales | 2,946 | 2,675 | 5,877 | 5,322 |
| Cost of goods sold | (2,200) | (2,060) | (4,490) | (4,144) |
| Gross margin | 854 | 723 | 1,615 | 1,403 |
| Commercial & administrative costs | (380) | (342) | (745) | (658) |
| Research & innovation costs | (77) | (71) | (155) | (137) |
| Other operating gains & losses | (34) | (24) | (117) | (35) |
| Earnings from associates & joint ventures | 26 | 4 | 42 | 13 |
| Result from portfolio management & reassessments [1] | (7) | (32) | (142) | (43) |
| Result from legacy remediation & major litigations [1] | (15) | (13) | (26) | (21) |
| EBIT | 366 | 244 | 472 | 521 |
| Cost of borrowings | (49) | (27) | (102) | (56) |
| Interest on lendings & deposits | 3 | 3 | 7 | 5 |
| Other gains & losses on net indebtedness | (12) | (11) | (26) | (20) |
| Cost of discounting provisions | (29) | (23) | (61) | (48) |
| Result from available-for-sale financial assets | 1 | - | 1 | - |
| Result before taxes | 281 | 185 | 292 | 403 |
| Income taxes | (75) | (72) | (75) | (155) |
| Result from continuing operations | 205 | 113 | 217 | 248 |
| Result from discontinued operations | (7) | 33 | (1) | 53 |
| Net income | 198 | 146 | 215 | 301 |
| Non-controlling interests | (14) | (21) | (15) | (36) |
| Net income, Solvay share | 185 | 125 | 200 | 265 |
| Basic earnings per share (in €) | 1.79 | 1.50 | 1.93 | 3.18 |
| of which from continuing operations | 1.82 | 1.22 | 1.88 | 2.71 |
| Diluted earnings per share (in €) | 1.78 | 1.49 | 1.93 | 3.16 |
| of which from continuing operations | 1.82 | 1.21 | 1.88 | 2.69 |
[1] These two line items were previously classified as "Non-recurring items" (see note 2).
Consolidated statement of comprehensive income IFRS
(in € m) Q2 2016 Q2 2015 H1 2016 H1 2015 Net income 198 146 215 301 Other comprehensive income, net of related tax effects 19 (69) (376) 448 Recyclable components 218 (208) (56) 293 Hyperinflation - 6 13 Gains and losses on available-for-sale financial assets 3 2 9 2 Gains and losses on hedging instruments in a cash flow hedge - 45 6 6 Currency translation differences 215 (261) (72) 271 Non-recyclable components (222) 175 (341) 198 Remeasurement of the net defined benefit liability (222) 175 (341) 198 Income tax relating to components of other comprehensive income 22 (36) 21 (43) Total comprehensive income 217 77 (161) 749 attributed to Solvay share 198 69 (176) 691 attributed to non-controlling interests 19 7 15 57
| Consolidated statement of cash flows | IFRS | ||||
|---|---|---|---|---|---|
| (in € m) | Q2 2016 | Q2 2015 | H1 2016 | H1 2015 | |
| Net income | 198 | 146 | 215 | 301 | |
| Depreciation, amortization & impairments (-) | 267 | 262 | 674 | 472 | |
| Earnings from associates & joint ventures (-) | (26) | (4) | (42) | (13) | |
| Net financial charges & result from available-for-sale financial assets (-) | 93 | 52 | 196 | 118 | |
| Income taxes (-) | 73 | 109 | 81 | 195 | |
| Changes in working capital | (79) | (8) | (325) | (509) | |
| Changes in provisions | (44) | (27) | (52) | (92) | |
| Dividends received from associates & joint ventures | 6 | 6 | 13 | 9 | |
| Income taxes paid (excluding income taxes paid on sale of investments) | (88) | (106) | (113) | (147) | |
| Other non-operating and non-cash items | (43) | (20) | (41) | (9) | |
| Cash flow from operating activities | 356 | 410 | 605 | 323 | |
| of which cash flow related to acquisition of subsidiaries | (6) | - | 16 | (3) | |
| Acquisition (-) of subsidiaries | 23 | (23) | 20 | (23) | |
| Acquisition (-) of investments - Other | 1 | (3) | (1) | (17) | |
| Loans to associates and non-consolidated companies | (6) | 2 | (33) | 2 | |
| Sale (+) of subsidiaries and investments | (4) | - | (2) | (6) | |
| Income taxes paid on sale of investments | - | - | - | (232) | |
| Acquisition (-) of tangible and intangible assets (capital expenditure) | (218) | (240) | (437) | (502) | |
| of which tangible assets | (195) | (220) | (392) | (464) | |
| of which intangible assets | (24) | (20) | (45) | (38) | |
| Sale (+) of tangible & intangible assets | 39 | 4 | 48 | 16 | |
| Changes in non-current financial assets | (8) | (7) | (18) | (16) | |
| Cash flow from investing activities | (173) | (267) | (422) | (778) | |
| Sale (acquisition) of treasury shares | (26) | (37) | (49) | 6 | |
| Increase in borrowings | 424 | 547 | 603 | 924 | |
| Repayment of borrowings | (745) | (529) | (1,061) | (576) | |
| Changes in other current financial assets | 33 | (1) | 10 | 276 | |
| Net interests paid | (108) | (90) | (148) | (117) | |
| Coupons paid on perpetual hybrid bonds | (58) | (29) | (58) | (29) | |
| Dividends paid | (208) | (170) | (349) | (282) | |
| of which to Solvay shareholders | (199) | (170) | (337) | (282) | |
| of which to non-controlling interests | (9) | - | (11) | - | |
| Other | (1) | (20) | (20) | (28) | |
| Cash flow from financing activities | (690) | (331) | (1,072) | 174 | |
| Net change in cash and cash equivalents | (507) | (187) | (888) | (281) | |
| Currency translation differences | 24 | (37) | (35) | 47 | |
| Opening cash balance | 1,596 | 1,264 | 2,037 | 1,275 | |
| Closing cash balance | 1,113 | 1,040 | 1,113 | 1,040 | |
| of which cash in assets held for sale | 33 | 43 | 33 | 43 |
| (in € m) | Q2 2016 | Q2 2015 | H1 2016 | H1 2015 |
|---|---|---|---|---|
| Cash flow from operating activities | 3 | 82 | (8) | 35 |
| Cash flow from investing activities | (3) | (25) | (8) | (53) |
| Cash flow from financing activities | (8) | (9) | (17) | (17) |
| Net change in cash and cash equivalents | (8) | 48 | (34) | (35) |
| (in € m) | 30/06 2016 |
31/12 2015 |
|---|---|---|
| Non-current assets | 17,790 | 18,716 |
| Intangible assets | 3,721 | 3,919 |
| Goodwill | 5,770 | 5,840 |
| Tangible assets | 6,787 | 6,946 |
| Available-for-sale financial assets | 46 | 34 |
| Investments in associates & joint ventures | 441 | 398 |
| Other investments | 81 | 92 |
| Deferred tax assets | 715 | 1,059 |
| Loans & other assets | 230 | 427 |
| Current assets | 6,101 | 6,613 |
| Inventories | 1,753 | 1,867 |
| Trade receivables | 1,730 | 1,615 |
| Income tax receivables | 194 | 158 |
| Dividends receivable | 3 | - |
| Other financial instrument receivables | 124 | 111 |
| Other receivables | 976 | 655 |
| Cash & cash equivalents | 1,080 | 2,030 |
| Assets held for sale | 242 | 177 |
| Total assets | 23,891 | 25,329 |
| Total equity | 9,210 | 9,668 |
| Share capital | 1,588 | 1,588 |
| Reserves | 7,362 | 7,835 |
| Non-controlling interests | 259 | 245 |
| Non-current liabilities | 10,537 | 11,330 |
| Provisions for employee benefits | 3,378 | 3,133 |
| Other provisions | 816 | 831 |
| Deferred tax liabilities | 1,020 | 1,456 |
| Financial debt | 5,063 | 5,628 |
| Other liabilities | 259 | 282 |
| Current liabilities | 4,144 | 4,331 |
| Other provisions | 339 | 310 |
| Financial debt | 953 | 892 |
| Trade payables | 1,414 | 1,559 |
| Income tax payables | 204 | 130 |
| Dividends payable | 4 | 144 |
| Other liabilities | 926 | 1,021 |
| Liabilities associated with assets held for sale | 305 | 275 |
| Total equity & liabilities | 23,891 | 25,329 |
| l i d d f h i i C t t t t t o n s o a e s a e m e n o c a n g e s n e q u y |
Re lua ion t va re se rve ( ) fa ir v lue a |
I F R S |
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ha S re ita l cap |
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Solvay is a public limited liability company governed by Belgian law and quoted on Euronext Brussels and Euronext Paris. These consolidated interim financial statements were authorized for issue by the Board of Directors on July 28, 2016.
On March 16, 2016, Solvay and INEOS announced their intention to end their 50/50 chlorovinyls Inovyn joint venture earlier than originally foreseen, with INEOS to become the sole shareholder. Solvay and INEOS formed Inovyn in July 2015, with Solvay's exit originally planned in July 2018. On March 31, 2016, Solvay and INEOS announced they have signed the binding agreement to end their chlorovinyls Inovyn joint venture, following their intentions announced on March 16, 2016. Upon completion of the transaction (see note 6. "Events after the reporting period"), Solvay received a payment of € 335 million and INEOS became Inovyn's sole shareholder. In 2017, Solvay will pay a total price adjustment approximating € 80 m.
On April 25, 2016 Solvay issued a formal notification for the exercise of the first call option on the € 500 m hybrid bond, maturing in 2104 after having notified the Luxembourg Stock Exchange, where the bond was listed, as well as the bondholders. This bond, which carried an annual interest rate of 6.375% in the first ten years, was classified as a long-term financial debt in the consolidated statement of financial position as of March 31, 2016, and was repaid on June 2, 2016. The financing of this repayment was secured in December 2015, together with the bonds issued to finance the Cytec acquisition.
On May 2, 2016, Solvay entered into a Share Purchase Agreement with Unipar Carbocloro for the sale of its equity interests held in Solvay Indupa. The fair value less cost to sell at year end 2015 has not materially changed and is expected to adequately cover the significant uncertainties surrounding the valuation between the signing and the closing date.
On May 19, 2016, Solvay and Eastman Chemical Company have signed a definitive agreement to end their cellulose acetate production joint venture Primester with Solvay acquiring Eastman's 50% stake in the U.S.-based plant and becoming its sole owner. Following the transaction, Eastman will provide the long-term supply of basic utilities and raw materials to the plant, based in Kingsport, Tennessee. Closing has occurred on June 2, 2016.
Solvay prepares its 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, 2015.
The consolidated interim financial statements for the six months ended June 30, 2016 were prepared using the same accounting policies as those adopted for the preparation of the consolidated financial statements for the year ended December 31, 2015.
Following the ESMA Guidelines on Alternative Performance Measures issued on June 30, 2015 and effective as from July 3, 2016, Solvay has split the Non-recurring items into two items: (a) Results from portfolio management and reassessments, and (b) Results from legacy remediation and major litigations. The sum of those two items exactly equals what previously was labeled Non-recurring items.
Solvay is organized in operating segments. As of January 1, 2016, following the acquisition of Cytec, Solvay has re-organized its segment set-up to enhance strategic coherence and improve business alignment. Cytec's former "Aerospace Materials" and "Industrial Materials" activities are included in Advanced Materials as the GBU "Composite Materials", while its "In Process Separation" and "Additive Technologies" activities are included in Advanced Formulations, largely as the GBU "Technology Solutions". Solvay's GBU "Coatis" is transferred to Performance Chemicals and the VinyThai activities, formerly the GBU "Emerging Biochemicals", are now included in the GBU "Chlorovinyls" in Functional Polymers.
The 2015 IFRS data, presented below, reflect these changes, considering that Cytec activities did not contribute to the 2015 IFRS results. After the exclusion of Coatis the underlying EBITDA of Advanced Formulations ends up € (8) m lower in the second quarter and € (12) m lower in the first half year than published in 2015. After the inclusion of Coatis and the exclusion of Emerging Biochemicals the underlying EBITDA of Performance Chemicals ends up € 2 m higher in the second quarter and € (7) m lower in the first half year than published in 2015 and the underlying EBITDA of Functional Polymers ends up € 7 m higher in the second quarter and € 19 m higher in the first half year than published in 2015.
| (in € m) | Q2 2016 | Q2 2015 | H1 2016 | H1 2015 |
|---|---|---|---|---|
| Underlying EBITDA | 652 | 500 | 1,253 | 1,002 |
| Advanced Materials | 293 | 214 | 560 | 415 |
| Advanced Formulations | 124 | 91 | 246 | 184 |
| Performance Chemicals | 224 | 187 | 423 | 373 |
| Functional Polymers | 64 | 52 | 129 | 94 |
| Corporate & Business Services | (53) | (43) | (104) | (63) |
| Underlying depreciation, amortization & impairments | (199) | (166) | (393) | (328) |
| Underlying EBIT | 453 | 335 | 861 | 674 |
| Non-cash accounting impact from amortization & depreciation of purchase price allocation (PPA) from acquisitions [1] |
(68) | (39) | (225) | (78) |
| Other legacy costs related to changes in portfolio (e.g. retention premiums) [1] | (3) | (3) | (6) | (5) |
| Net financial charges and remeasurements of equity book value of the RusVinyl joint venture |
5 | (4) | 9 | (4) |
| Result from portfolio management & reassessments | (7) | (32) | (142) | (43) |
| Result from legacy remediation & major litigations | (15) | (13) | (26) | (21) |
| EBIT | 366 | 244 | 472 | 521 |
| Net financial charges | (86) | (58) | (180) | (119) |
| Result before taxes | 281 | 185 | 292 | 403 |
| Income taxes | (75) | (72) | (75) | (155) |
| Result from continuing operations | 205 | 113 | 217 | 248 |
| Result from discontinued operations | (7) | 33 | (1) | 53 |
| Net income | 198 | 146 | 215 | 301 |
| Non-controlling interests | (14) | (21) | (15) | (36) |
| Net income, Solvay share | 185 | 125 | 200 | 265 |
[1] The non-cash PPA impacts can be found in the reconciliation table on pages 16-19. For Q2 2016 these consist of € 1 m recycling into profit & loss of Cytec inventory step-ups, which are adjusted for on the "Cost of goods sold" line, and € (69) m of amortization of intangible assets, which are adjustments for on the "Other operating gains & losses" and "Commercial & administrative costs" lines. The latter is also adjusted for the € (3) m Chemlogics retention premiums. For H1 2016 these consist of € (81) m recycling into profit & loss of Cytec inventory step-ups, which are adjusted for on the "Cost of goods sold" line, and € (143) m of amortization of intangible assets, which are adjustments for on the "Other operating gains & losses" and "Commercial & administrative costs" lines. The latter is also adjusted for the € (6) m Chemlogics retention premiums.
On February 24, 2016 the Board of Directors of Solvay SA decided to grant two long-term incentive plans for part of its key executives:
The details of the stock options plan are as follows:
| Number of stock options accepted | 759,022 |
|---|---|
| Grant date | 24/02/2016 |
| Vesting date | 01/01/2020 |
| Vesting period | 24/02/2016 to 31/12/2019 |
| Exercise price (in €) | 75.98 |
| Exercise period | 01/01/2020 to 23/02/2024 |
The stock option plan is an equity settled share-based plan. As of June 30, 2016, the impact on the consolidated income statement and consolidated statement of financial position is € (1) m.
The details of the performance share units plan are as follows:
| Number of PSU accepted | 348,990 |
|---|---|
| Grant date | 24/02/2016 |
| Vesting date | 01/01/2019 |
| Vesting period | 24/02/2016 to 31/12/2018 |
| Performance conditions | 50% of the initial granted PSU are subject to the underlying EBITDA yoy growth % over 3 years (2016, 2017, 2018); |
| 50% of the initial granted PSU are subject to the yoy CFROI % variation over 3 years (2016, 2017, 2018) |
|
| Validation of performance conditions | By the board of Directors |
The performance share units plan is a cash-settled share-based plan. As of June 30, 2016, the impact on the consolidated income statement and consolidated statement of financial position is € (3) m.
Compared to December 31, 2015, 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 June 30, 2016 is not significantly different from the ones published in Note 37 of the consolidated financial statements for the year ended December 31, 2015.
Solvay's exit from Inovyn against receipt of an additional, performance-based payment qualifies as a derivative financial instrument, of which the fair value amounts to € 335 m at June 30, 2016. Its fair value is largely based on level 3 inputs, and specifically on the binding agreement signed with INEOS on March 31, 2016.
For other financial instruments measured at fair value in Solvay's consolidated statement of financial position, the fair value of those instruments as of June 30, 2016 is not significantly different from the ones as published in the Note 37 of the consolidated financial statements for the year ended December 31, 2015.
During the six months ended June 30, 2016, there were neither reclassification between fair value levels, nor significant changes in the fair value of financial assets and liabilities measured based on level 3 inputs, except as mentioned above.
On July 7, 2016, Solvay has completed the divestment of its shareholding in Inovyn, bringing to an end its chlorovinyls joint venture with INEOS. Solvay received exit cash proceeds amounting to € 335 m. The exit of the joint venture followed regulatory clearances from the relevant authorities.
Jean-Pierre Clamadieu, Chief Executive Officer, and Karim Hajjar, Chief Financial Officer, of the Solvay Group, declare that to the best of their knowledge:
The consolidated interim financial information, prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union, reflects a faithful image of the assets and liabilities, financial situation and results of the Solvay Group;
The six month management report contains a faithful presentation of significant events occurring during the six first months of 2016, and their impact on the consolidated interim financial information;
The main risks and uncertainties are in accordance with the assessment disclosed in the section Risk Management in the Solvay 2015 Annual Report, taking into account the current economic and financial environment.
In the context of our appointment as the company's statutory auditor, we report to you on the consolidated interim financial information. This consolidated interim financial information comprises the consolidated statement of financial position as at 30 June 2016, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the period of six months then ended, as well as selective notes 1 to 7.
We have reviewed the consolidated interim financial information of Solvay SA/NV ("the company") and its subsidiaries (jointly "the group"), prepared in accordance with International Financial Reporting Standard IAS 34 – Interim Financial Reporting as adopted by the European Union.
The consolidated statement of financial position shows total assets of € 23,891 m and the consolidated income statement shows a consolidated profit (group share) for the period then ended of € 200 m.
The board of directors of the company is responsible for the preparation and fair presentation of the consolidated interim financial information in accordance with IAS 34 – Interim Financial Reporting as adopted by the European Union. Our responsibility is to express a conclusion on this consolidated interim financial information based on our review.
We conducted our review of the consolidated interim financial information in accordance with International Standard on Review Engagements (ISRE) 2410 – Review of interim financial information performed by the independent auditor of the entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit performed in accordance with the International Standards on Auditing (ISA) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the consolidated interim financial information.
Based on our review, nothing has come to our attention that causes us to believe that the consolidated interim financial information of Solvay SA/NV has not been prepared, in all material respects, in accordance with IAS 34 – Interim Financial Reporting as adopted by the European Union.
Diegem, 28 July 2016
The statutory auditor
DELOITTE Bedrijfsrevisoren / Reviseurs d'Entreprises BV o.v.v.e. CVBA / SC s.f.d. SCRL Represented by Michel Denayer
Adjustments: Adjustments made to IFRS results for elements distorting comparability over time of the Group underlying performance. These adjustments consist of:
All adjustments listed above apply to both continuing and discontinuing operations, and include the impacts on non-controlling interests.
Basic earnings per share: Net income (Solvay's share) divided by the weighted average number of shares, after deducting own shares purchased to cover stock option programs.
Capital expenditure (capex): Cash paid for the acquisition of tangible and intangible assets
CFROI: Cash flow return on investment, calculated as the ratio between recurring cash flow and invested capital, where
Discontinued operations: Component of the Group which the Group has disposed of or which is classified as held for sale, and:
EBIT: Earnings before interest and taxes.
EBITDA: earnings before interest and taxes, depreciation and amortization.
Free cash flow: Cash flow from operating activities (including dividends from associates and joint ventures and excluding cash flow related to acquisitions of subsidiaries) and Cash flow from investing activities (excluding acquisitions and disposals of subsidiaries and other investments and excluding loans to associates and non-consolidated investments).
GBU: Global business unit.
Gearing ratio: Net financial debt / total equity.
IFRS: International Financial Reporting Standards.
Leverage ratio: Net financial debt / underlying EBITDA of last 12 months.
Net cost of borrowings: cost of borrowings netted with interest on lendings and short-term deposits, as well as other gains (losses) on net indebtedness
Net debt: Non-current financial debt + current financial debt – cash & cash equivalents – other financial instrument receivables.
Net financial charges: net cost of borrowings, costs of discounting provisions (namely, related to post-employment benefits and HSE liabilities) and income / loss from available-for-sale financial assets.
Net pricing: The difference between the change in sales prices versus the change in variable costs.
Net sales: Sales of goods and value added services corresponding to Solvay's know-how and core business. Net sales exclude other revenues primarily comprising commodity and utility trading transactions and other revenue deemed as incidental by the Group.
Net working capital: includes inventories, trade receivables and other current receivables, netted with trade payables and other current liabilities.
OCI: Other Comprehensive Income.
pp: Unit of percentage points or 1.0%, used to express the evolution of ratios.
PPA: Purchase Price Allocation (PPA) accounting impacts related to acquisitions, primarily for Rhodia and Cytec.
Pricing power: The ability to create positive net pricing.
PSU: Performance Share Unit.
Result from legacy remediation and major litigations: It includes (a) the remediation costs not generated by on-going production facilities (shut-down of sites, discontinued activities, previous years' pollution), and (b) the impact of significant litigations.
Results from portfolio management and reassessments: It includes (a) gains and losses on the sale of subsidiaries, joint operations, joint ventures, and associates that do not qualify as discontinued operations; (b) acquisition costs of new businesses; (c)• gains and losses on the sale of real estate not directly linked to an operating activity; (d) major restructuring charges; (e) • impairment losses resulting from the shutdown of an activity or a plant; and (f) impairment losses resulting from testing of CGUs;. It excludes non-cash accounting impact from amortization and depreciation resulting from the purchase price allocation (PPA) from acquisitions.
Results on disposals: It includes gains/(losses) from activities presented as discontinued operations.
SOP: Stock Option Plan.
Tax rate: Income taxes / (Result before taxes – Earnings from associates & joint ventures – interests & realized foreign exchange results on RusVinyl joint venture). The adjustment of the denominator regarding associates and joint ventures is made as these contributions are already net of income taxes.
Underlying: Underlying results are deemed to provide a more comparable indication of Solvay's fundamental performance over the reference periods. They are defined as the IFRS figures adjusted for the "Adjustments" as defined above.
Underlying net debt: Underlying net debt reclassifies as debt 100% of the hybrid perpetual bonds, considered as equity under IFRS.
yoy: Year on year comparison.
FKM: Fluoro-elastomer, polymer type.
HPPO: Hydrogen peroxide propylene oxide, new technology to produce propylene oxide using hydrogen peroxide.
PA: Polyamide, polymer type.
PCC: Precipitated calcium carbonate.
PVC: Polyvinyl chloride, polymer type.
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.
| September 29, 2016 | Capital Markets Day |
|---|---|
| November 8, 2016 | Publication of the 3rd quarter 2016 results |
| February 24, 2017 | Publication of the 4th quarter and full year 2016 results |
| May 3, 2017 | Publication of the 1st quarter 2017 results |
| May 9, 2017 | Annual general meeting |
| August 1, 2017 | Publication of the 2nd quarter and 1st half year 2017 results |
| November 8, 2017 | Publication of the 3rd quarter 2017 results |
+32 2 264 1984
[email protected] +1 973 357 3283 [email protected]
Jodi Allen
+32 2 264 1540 [email protected]
+32 2 264 3687 [email protected]
+32 2 264 1530 [email protected]
Rue de Ransbeek 310 1120 Brussels, Belgium
T : +32 2 264 2111 F : +32 2 264 3061
www.solvay.com
An international chemical and advanced materials company, Solvay assists its customers in innovating, developing and delivering high-value, sustainable products and solutions which consume less energy and reduce CO2 emissions, optimize the use of resources and improve the quality of life. Solvay serves diversified global end markets, including automotive and aerospace, consumer goods and healthcare, energy and environment, electricity and electronics, building and construction as well as industrial applications. Solvay is headquartered in Brussels with about 30,000 employees spread across 53 countries. It generated pro forma net sales of € 12.4 bn in 2015, with 90% made from activities where it ranks among the world's top 3 players. Solvay SA (SOLB.BE) is listed on Euronext in Brussels and Paris (Bloomberg: SOLB.BB - Reuters: SOLB.BR).
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