Earnings Release • Jul 31, 2014
Earnings Release
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REGULATED INFORMATION 31/07/2014 7:30 AM CET
All 2013 data are restated for comparison purposes for the Group's application of IFRS 11 effective January 1st 2014.
Furthermore, Solvay presents Adjusted Income Statement performance indicators that exclude non-cash Purchase Price Allocation (PPA) accounting impacts related to the Rhodia acquisition.
Following signature on July 30th of binding agreement to sell Eco Services,
Solvay will report Eco Services businesses under Assets Held for Sale and discontinued operations as from Q3 2014. Consequently, Solvay will restate its 2013 Income and Cash Flow Statements, and 2014 Financial Statements, to reflect the discontinuation of the business no later than at the occasion of the Group's Q3 2014 earnings publication.
This announcement represents a "non-adjusting event" for the Q2 2014 financial statements.
Solvay reported another set of solid results in the second quarter with double-digit operating profit growth and an encouraging underlying dynamic. Innovation-driven demand bolstered volumes at our growth engines Advanced Formulations and Advanced Materials, while Chemlogics beat our expectations. In addition, Group-wide excellence measures amply offset unfavorable foreign exchange rates and contributed to a significant margin expansion. This strong quarterly performance confirms that Solvay's transformation is delivering on all fronts. For the remainder of the year, the Group will focus on completing its current portfolio projects as demonstrated with Eco Services divestment announced today, and build on its growth and excellence momentum.
Solvay reiterates its confidence that 2014 should show good operating performance. The Group confirms its guidance and expects high single-digit year-on-year REBITDA growth in 2014 at prevailing foreign exchange rates. This expectation reflects the eventual restatement in 2013 and 2014 reference periods for the discontinuation of Eco Service business.
| Key data | Adjusted | IFRS | ||||
|---|---|---|---|---|---|---|
| (in € m) | Q2 2014 | Q2 2013 | % yoy | Q2 2014 | Q2 2013 | % yoy |
| Net sales | 2,640 | 2,582 | 2% | 2,640 | 2,582 | 2% |
| REBITDA | 485 | 440 | 10% | 485 | 440 | 10% |
| REBIT | 337 | 284 | 18% | 308 | 235 | 31% |
| Non-recurring items | (46) | (97) | 53% | (46) | (97) | 53% |
| EBIT | 291 | 187 | 56% | 262 | 137 | n.m. |
| Net financial charges | (75) | (51) | (47)% | (75) | (51) | (47)% |
| Result before taxes | 216 | 135 | 60% | 187 | 87 | n.m. |
| Income taxes | (65) | (20) | n.m. | (57) | (10) | n.m. |
| Result from continuing operations | 150 | 115 | 31% | 129 | 77 | 68% |
| Result from discontinued operations | (481) | 48 | n.m. | (481) | 48 | n.m. |
| Net income | (331) | 163 | n.m. | (352) | 124 | n.m. |
| Non-controlling interests | 39 | (14) | n.m. | 39 | (14) | n.m. |
| Net income Solvay share | (292) | 148 | n.m. | (313) | 110 | n.m. |
| Basic EPS (in €) | (3.50) | 1.79 | n.m. | (3.76) | 1.32 | n.m. |
| Total free cash flow | 89 | 64 | 40% | 89 | 64 | 40% |
In the second quarter, Group net sales grew 2% to € 2,640 m driven by organic volume growth of +3% and the favorable scope effect from Chemlogics' contribution of +3%. Prices stood stable, while unfavorable foreign exchange effects continued to weigh, taking (4)% off sales. Net sales grew 21% in Advanced Formulations and 2% in Advanced Materials, both supported by strong demand. They fell (1)% in Performance Chemicals where foreign exchange rates outweighed slight volume and price increases and fell (7)% in Functional Polymers due to the divestment of Benvic, lower raw-material prices and foreign exchange rates.
REBITDA grew 10% to € 485 m from € 440 m in the second quarter of 2013 supported by organic volume growth of € 19 m or +4% thanks to good demand dynamics across businesses. Unfavorable foreign exchange rates and CER phase-out continued to weigh negatively € (60) m in the yoy comparison. External growth, mostly Chemlogics, contributed € 24 m or +6%.
The wide range of excellence measures spanning from manufacturing to innovation, marketing and sales continued to strengthen operating performance and to offset the inflation in our fixed cost base.
In a deflationary raw material context, the Group reported sustained positive pricing power: the reduction of selling prices of € (4) m yoy was more than offset by a € 9 m decline in raw material prices resulting in a € 4 m positive net price effect on REBITDA despite the negative € (11) m transaction forex impacts.
Growth engines Advanced Formulation and Advanced Materials contributed the most to Solvay's REBITDA increase while the other operating segments reported a positive or stable contribution.
The Group's REBITDA margin on net sales widened by 140 basis points to 18.4% from 17% in the same quarter in 2013, a substantial improvement on an underlying basis when taking into account the impacts from both forex and the CER phase-out between the periods.
Non-recurring Items of € (46) m (€ (97) m in 2013) included restructuring expenses of € (13) m (€ (81) m in Q2 2013), as well as other costs primarily linked to environmental, litigation and portfolio management provisions for a combined € (34) m (€ (16) m in the prior year quarter).
Adjusted EBIT grew 56% to € 291 m (€ 187 m in 2013). Besides amortization and depreciation charges of € (160) m, it included € 13 m pre-operational gains related to the Rusvinyl joint venture and the ruble revaluation since the end of the prior quarter, and € (2) m for Chemlogics holdback payments. On an IFRS basis, EBIT totaled € 262 m. The difference between IFRS and adjusted figures reflects the Rhodia non-cash purchase price allocation (PPA) depreciation impact of € (29) m.
Net Financial Expenses increased to € (75) m (€ (51) m in 2013). Net charges on net debt fell to € (32) m versus € (41) m in 2013, mainly thanks to the repayment in 2014 of €1.3 billion of gross debt which significantly lowered the Group's negative cost of carry. However, the cost of discounting provisions for environmental and pension liabilities widened to € (43) m from € (13) m in 2013. This was chiefly related to environmental reserves impacted by a 50bps reduction in Eurozone discount rates in the quarter or € (15) m, whereas the same quarter last year benefited from a € 17 m one-off in a context of increasing discount rates.
Adjusted Income Taxes rose to € (65) m from € (20) m in 2013. The nominal tax rate including non-recurring items was 33%, whereas the underlying tax rate was 34%, in line with our full-year expectations.
Net result from discontinued operations was € (481) m against € 48 m in the same 2013 quarter, mainly related to the impairment loss before minorities of € (477) m of the European chlorovinyls assets to be contributed to the INOVYNTM joint venture project.
Adjusted Net Income was € (331) m (€ 163 m in 2013). Adjusted Net income Group Share came in at € (292) m and included a € (422) m impairment charge after minorities relating to the JV project INOVYNTM . Adjusted basic earnings per share amounted to € (3.50). On an IFRS basis, Net income Group Share amounted to € (313) m.
| Key data | Adjusted | IFRS | ||||
|---|---|---|---|---|---|---|
| (in € m) | H1 2014 | H1 2013 | % yoy | H1 2014 | H1 2013 | % yoy |
| Net sales | 5,192 | 5,098 | 2% | 5,192 | 5,098 | 2% |
| REBITDA | 953 | 862 | 11% | 953 | 862 | 11% |
| REBIT | 626 | 552 | 13% | 569 | 469 | 21% |
| Non-recurring items | (76) | (137) | 45% | (76) | (137) | 45% |
| EBIT | 551 | 415 | 33% | 493 | 332 | 49% |
| Net financial charges | (173) | (135) | (28)% | (173) | (135) | (28)% |
| Result before taxes | 378 | 280 | 35% | 320 | 197 | 62% |
| Income taxes | (118) | (76) | (55)% | (100) | (56) | (78)% |
| Result from continuing operations |
260 | 204 | 27% | 221 | 141 | 56% |
| Result from discontinued operations |
(470) | 60 | n.m. | (470) | 60 | n.m. |
| Net income | (210) | 264 | n.m. | (250) | 201 | n.m. |
| Non-controlling interests | 25 | (30) | n.m. | 25 | (30) | n.m. |
| Net income Solvay share | (186) | 235 | n.m. | (225) | 172 | n.m. |
| Basic EPS (in €) | (2.23) | 2.81 | n.m. | (2.70) | 2.07 | n.m. |
| Total free cash flow | (8) | 53 | n.m. | (8) | 53 | n.m. |
In the first half of 2014, Group net sales grew 2% to € 5,192 m. The increase was driven by organic volume growth +3% and Chemlogics' contribution +3%, but was held back by unfavorable foreign exchange developments (4)% (primarily the U.S. dollar, Japanese yen, Brazilian real and other emerging markets' currencies). Net sales grew 15% in Advanced Formulations and 2% in Advanced Materials, both supported by innovation-driven demand, stood stable in Performance Chemicals with volume growth offset by forex, and fell (6)% in Functional Polymers due to lower raw material prices and unfavorable forex.
REBITDA grew 11% to € 953 m from € 862 m in the first half of 2013, supported by organic volume growth of € 56 m or +6%. Unfavorable foreign exchange rates and the CER phase-out weighed € (89) m. External growth, mostly Chemlogics, contributed € 52 m or +6%.
The wide range of excellence measures spanning from manufacturing to innovation, marketing and sales strengthened operating performance and offset the inflation in our fixed cost base.
In a deflationary raw material context, the Group continued reporting a positive pricing power: the reduction of selling prices of € (22) m yoy was more than offset by a € 31 m decline in raw material prices, resulting in a € 9 m positive net price effect on REBITDA despite the negative € (22) m transaction forex impacts.
All operating segments contributed to Solvay REBITDA increase: Innovation-driven demand bolstered volumes and profit at our growth engines Advanced Formulations and Advanced Materials, while Performance Chemicals and Functional Polymers benefited from positive pricing thanks to the success of breakthrough operational excellence initiatives.
The Group's REBITDA margin on net sales widened 140 basis points to 18.3% from 16.9% in 2013, a substantial improvement on an underlying basis when taking into account the adverse forex impacts and the CER phase-out between the first-half periods.
Non-recurring Items of € (76) m compared with € (137) m in 2013 included restructuring expenses of € (18) m (€ (97) m in H1 2013), as well as other costs primarily linked to environmental, litigation and portfolio management provisions for a combined € (58) m that compared to € (40) m in the prior year semester.
Adjusted EBIT grew 33% to € 551m from € 415 m in 2013. Besides amortization and depreciation charges of € (320) m, it included € 2 m pre-operational net gain related to Rusvinyl and the ruble revaluation since year end 2013. It also included a € (7) m adjustment for Chemlogics inventories at fair value and holdback payments. On an IFRS basis, EBIT totaled € 493 m. The difference between IFRS and adjusted figures reflects the Rhodia non-cash purchase price allocation (PPA) depreciation impact of € (58) m.
Net Financial Expenses increased to € (173) m (€ (135) m in 2013). Net charges on net debt fell to € (67) m from € (86) m in 2013, mainly following the repayment of €1.3 billion of gross debt in the first half of 2014, which significantly lowered the Group's negative cost of carry. Net financial expenses also included a negative one-off of € (19) m due to the settlement of interest rate swaps.
The cost of discounting provisions for environmental and pension liabilities widened to € (86) m from € (50) m in 2013. This was chiefly related to environmental reserves impacted by a 100bps reduction in Eurozone discount rates or € (29) m in the semester, whereas H1 2013 benefited from a € 17 m one-off in a context of increasing discount rates.
Adjusted Income Taxes amounted to € (118) m (€ (76) m in 2013). The nominal tax rate including non-recurring items was 33%, whereas the underlying tax rate was 34%, in line with our expectations.
Net result from discontinued operations was € (470) m (€ 60 m in the same 2013 period), and related mainly to the pre-minorities impairment loss of € (477) m of the European chlorovinyls assets to be contributed to the JV project INOVYNTM .
Adjusted Net Income was € (210) m (€ 264 m in 2013). Adjusted Net income Group Share came in at € (186) m and included a € (422) m impairment charge after minority relating to the JV project INOVYNTM . Adjusted basic earnings per share amounted to € (2.23). On an IFRS basis, Net income Group Share amounted to € (225) m.
Solvay has signed a binding agreement to sell its sulfuric acid virgin production and regeneration business Eco Services to CCMP Capital, following a bidding process. The divestment of Eco Services is another step in Solvay's transformation. Eco Services has a market leading position and generates stable cash flows, but has a business profile that differs from Solvay's strategic ambitions. The transaction terms correspond to an enterprise value of US\$ 890 m, which represents just over 8.0x adjusted EBIDTA for the last twelve months ending June 30th, 2014. Solvay will report Eco Services business under discontinued operations as from Q3 2014. Completion of the transaction is expected in the fourth quarter.
The joint venture, expected to be effective by year-end following divestments required by the European Commission, is another key step in Solvay's transformation. The terms have been simplified and adjusted to the remedies and market conditions. At closing, Solvay will receive upfront € 175 m and transfer liabilities worth € 250 m into the JV. After three years, Solvay will exit INOVYN™ and receive extra cash targeted at € 250 m but with a guaranteed minimum of € 75 m. To be headquartered in London, INOVYN's™ will have proforma 2013 sales of more than € 3 bn and 14 sites in eight European countries.
(Further references may be found in page 25 of this document)
Solvay Novecare opened a new laboratory and production facility in North America's Bakken Shale Formation, expanding its extensive tailored formulations capability for oil & gas customers in the field. Most of Novecare's lab-to-well services are in Texas, but, as one of the first specialty chemical players based at the heart of the Bakken area, it can now also seize growth opportunities in North America's second largest reserve of tight oil and shale gas.
Solvay's new Research & Innovation (R&I) center on the campus of Ewha Womans University in Seoul brings the Group close to key Asian customers and universities to develop products for the growing battery, electronics and car markets. Research will focus on Organic Light Emitting Diodes (OLED) display and lighting technologies, on materials for the high value-added markets of lithium-ion batteries to enable optimal energy storage, and the development of new materials that reduce energy use of cars. The center is Solvay's fourth in Asia and by end 2015 will employ some 60 scientists.
RoW: Rest of the Word
| (in € m) | Q2 2014 | Q2 2013 | % yoy | H1 2014 | H1 2013 | % yoy |
|---|---|---|---|---|---|---|
| Net sales | 2,640 | 2,582 | 2% | 5,192 | 5,098 | 2% |
| Advanced Formulations | 725 | 599 | 21% | 1,388 | 1,208 | 15% |
| Advanced Materials | 670 | 659 | 2% | 1,329 | 1,298 | 2% |
| Performance Chemicals | 798 | 803 | (1)% | 1,580 | 1,586 | - |
| Functional Polymers | 448 | 483 | (7)% | 896 | 951 | (6)% |
| Corporate & Business Services | (1) | 38 | n.m. | (1) | 55 | n.m. |
| REBITDA | 485 | 440 | 10% | 953 | 862 | 11% |
| Advanced Formulations | 119 | 92 | 29% | 221 | 205 | 8% |
| Advanced Materials | 187 | 161 | 16% | 362 | 316 | 15% |
| Performance Chemicals | 189 | 191 | (1)% | 377 | 357 | 6% |
| Functional Polymers | 38 | 27 | 40% | 78 | 60 | 28% |
| Corporate & Business Services | (47) | (30) | (53)% | (85) | (76) | (12)% |
€ 119 m Q2 2014 REBITDA
22% Solvay REBITDA*
As one of Solvay's growth engines, the businesses grouped under Advanced Formulations stand out for their innovation capacity and relatively low capital intensity. Their offerings address major societal trends, meeting ever stricter requirements to respect the environment and save energy, and challenges of the mass consumer markets.
| (in € m) | Q2 2014 | Q2 2013 | % yoy | H1 2014 | H1 2013 | % yoy |
|---|---|---|---|---|---|---|
| Net sales | 725 | 599 | 21% | 1,388 | 1,208 | 15% |
| Novecare | 518 | 378 | 37% | 988 | 776 | 27% |
| Coatis | 121 | 128 | (5)% | 241 | 250 | (4)% |
| Aroma Performance | 86 | 93 | (7)% | 158 | 182 | (13)% |
| REBITDA | 119 | 92 | 29% | 221 | 205 | 8% |
Net Sales at Advanced Formulations grew 21% to € 725 m in the quarter from € 599 m in the second quarter of 2013. Chemlogics contributed 16%, while volumes at constant perimeter grew 11%, and prices increased 1%. Forex headwinds had an adverse impact of (7)%.
REBITDA increased 29% to € 119 m in the second quarter. Strong demand in the unconventional Oil&Gas market (and low comparative base) led to significant volume growth, on top of a remarkable contribution from Chemlogics.
Unfavorable foreign exchange rates led to a decline of € (8) m in the quarter.
Novecare benefited from strong underlying demand mainly driven by good dynamics in the Oil & Gas market where customers recognize Solvay's broad portfolio and formulation capabilities. Chemlogics advanced in ramping up its Chemplex business in North Dakota and reached record profitability. Novecare's Agro business continued to suffer from the short season in the U.S that was marked by extreme weather conditions in the first quarter. Home & Personal Care was disappointing both in terms of volume and price. Overall adverse foreign exchange developments weighed on the GBU's growth compared to last year.
At Coatis, business performance was poor due to the worsening of Brazil's economic situation. Domestic prices for labor and energy eroded local industry competitiveness, thereby favoring imports of finished goods. The GBU continued its operational excellence efforts to mitigate inflation on variable costs and to minimize fixed costs.
Aroma Performance benefited from positive market trends overall, both in Aroma ingredients and in Inhibitors. The force majeure in the first quarter came to an end. Now that the technical issue causing the manufacturing outage has been solved, the ramp-up is taking place gradually.
A leader in markets with high entry barriers and strong returns on investment, the Advanced Materials segment is a major contributor to the Group's performance and growth. Innovation, its global presence feature and long-term partnerships with customers provide a compelling competitive edge with industries seeking increasingly energy efficiency and less polluting functionalities.
| (in € m) | Q2 2014 | Q2 2013 | % yoy | H1 2014 | H1 2013 | % yoy |
|---|---|---|---|---|---|---|
| Net sales | 670 | 659 | 2% | 1,329 | 1,298 | 2% |
| Specialty Polymers | 361 | 333 | 8% | 707 | 645 | 10% |
| Silica | 115 | 108 | 6% | 223 | 212 | 5% |
| Rare Earth Systems | 62 | 77 | (19)% | 132 | 159 | (17)% |
| Special Chemicals | 133 | 141 | (6)% | 266 | 281 | (5)% |
| REBITDA | 187 | 161 | 16% | 362 | 316 | 15% |
Net sales of Advanced Materials increased 2% to € 670 m in the quarter (€ 659 m in 2013). Growth was supported by strong volumes +7% but partially held back by lower rawmaterial led prices (2) % mainly at Rare Earth Systems, as well as by unfavorable foreign exchange rates (3) %.
REBITDA for Advanced Materials rose 16% to a € 187 m record thanks to innovation-driven demand and continued to post a strong 28 % REBITDA margin. The operating segment's record performance was reflected in all four businesses with volume growth in most end markets. Excellence programs in manufacturing, purchasing and commercial activities also supported this performance. However, negative foreign currency developments of mainly the U.S. dollar, Brazilian real and Japanese yen had an adverse impact of € (15) m, both from currency conversion and transaction.
At Specialty Polymers, strong sales growth came from all regions and from most end markets. Growth in the automotive market came from light weighting technologies and smart devices were bolstered by new product launches. Electrical & Electronics were strong thanks to LED developments, while the industrial market benefited from strong demand in wire & cable. Other end markets also showed strong growth.
Silica showed continued good performance mainly due to volume growth at the Original Equipment Manufacturing (OEM) and tire replacement market. Demand in Europe lifted volumes overall in the second quarter.
At Rare Earth Systems, the catalysis market remained strong with good volumes boosted by new regulation and innovation and better margins. Electronics showed mixed dynamics with lower sales in lighting but a recovery in polishing and semi-conductor.
Special Chemicals benefited from good business trends in most of its end markets, especially in Automotive and Semiconductors and Electronics. The GBU's profit and margin improved thanks to the refocussing of its portfolio.
€ 189 m Q2 2014 REBITDA
Operating in mature resilient markets, this Segment's success is based on economies of scale, competitiveness and quality of service. Solidly cash-generating, the Performance Chemicals businesses are engaged in programs of excellence to create additional sustainable value.
| (in € m) | Q2 2014 | Q2 2013 | % yoy | H1 2014 | H1 2013 | % yoy |
|---|---|---|---|---|---|---|
| Net sales | 798 | 803 | (1)% | 1,580 | 1,586 | - |
| Soda Ash & Derivatives | 335 | 338 | (1)% | 667 | 660 | 1% |
| Peroxide | 123 | 116 | 6% | 245 | 234 | 5% |
| Acetow | 167 | 167 | - | 330 | 330 | - |
| Eco Services | 74 | 74 | - | 138 | 141 | (2)% |
| Emerging Biochemicals | 99 | 108 | (9)% | 200 | 222 | (10)% |
| REBITDA | 189 | 191 | (1)% | 377 | 357 | 6% |
Net sales of Performance Chemicals fell (1)% to € 798 m and were +3% higher at constant foreign currency rates. Price increases of 2% and volume growth of 1% could not compensate for the adverse foreign exchange developments which lowered the segment's sales by (4) %).
The operating segment's REBITDA decreased (1)% to € 189 m. Despite good pricing, performance at Soda Ash & Derivatives and at Peroxide suffered from logistic and maintenance issues, respectively. Acetow's continuous profit growth was held back by adverse currency developments at Eco-Services and the poor performance at Emerging Biochemicals. The segment reported positive pricing across most of the GBUs. The breakthrough competitive program put in place in Soda Ash & Derivatives was able to offset the inflation on fixed costs and the unfavorable currency developments (€ (7) m).
At Soda Ash and Derivatives, demand in export markets continued to improve compared to last year. Production at the Green River plant in the U.S. suffered from a disruption in rail logistics following the extreme weather conditions in the first quarter. Prices were higher overall. However, the GBU remained affected by adverse currency developments, especially the devaluation of the U.S. dollar against the euro. The targeted € 100 m annual cost savings plan is well on track to be achieved by the end of 2015.
At Peroxides, overall demand of hydrogen peroxide (H2O2) increased thanks to new applications in Europe, including fish farming, as well as good volumes in the North American pulp & paper industry. Sustained demand at Hydrogen Peroxide propylene oxide (HPPO) boosted operating rates. Fixed costs suffered from prolonged maintenance turnarounds in Longview in the U.S., in Jemeppe, Belgium, and in Voikka, Finland.
At Acetow, activities were underpinned by higher sales prices and strong industrial performance.
Eco Services posted volumes growth both in sulfuric acid regeneration and virgin businesses. The positive impact of lower raw materials, mainly sulfur, was neutralized by a price reduction of mostly indexed contracts. Based in the U.S., the business unit's net sales continued to be impacted by the lower U.S. dollar rate against the euro.
At Emerging Biochemicals, tough conditions persisted in the South-east Asian PVC market and while demand for Epichlorohydrin improved slightly, levels remained low.
News: On July 30th , Solvay signed a binding agreement to sell its sulfuric acid virgin production and regeneration business Eco Services to CCMP Capital. Solvay will report Eco Services businesses under discontinued operations as from the third quarter 2014.
Completion of the transaction, expected in the fourth quarter, is subject to customary closing conditions.
€ 38 m Q2 2014 REBIDTA 7% Solvay REBITDA*
The key success factors of this Segment, which primarily groups the Polyamide activities, are continuous manufacturing optimization and innovation. Solvay is one of few players to operate across the entire polyamide 6.6 chain.
| (*) Excludes Corporate & Business Services | ||||
|---|---|---|---|---|
| -- | -- | -------------------------------------------- | -- | -- |
| (in € m) | Q2 2014 | Q2 2013 | % yoy | H1 2014 | H1 2013 | % yoy |
|---|---|---|---|---|---|---|
| Net sales | 448 | 483 | (7)% | 896 | 951 | (6)% |
| Polyamide | 408 | 427 | (5)% | 799 | 840 | (5)% |
| Chlorovinyls | 40 | 55 | (27)% | 98 | 111 | (12)% |
| REBITDA | 38 | 27 | 40% | 78 | 60 | 28% |
Reminder: Solvay's European Chlorovinyls businesses planned to be contributed to the joint venture project with INEOS, INOVYN's™, as well as its Indupa activities, are classified as discontinued operations.
As from December 31, 2013, Benvic is presented in the Balance Sheet under "Assets Held for Sale", but as continued operations in the Income Statement. A definitive sale transaction was completed with OpenGate Capital in June 2014.
The remaining Chlorovinyls businesses refer to the residual trading activities not included in the Ineos joint venture agreement and the activity of Benvic PVC compounding up until its sale on June 2, 2014.
Functional Polymers reported net sales of € 448 m in the quarter compared to € 483 m in the same quarter of 2013. The sale of the Benvic PVC compounding business represented a € (15) m decline. Furthermore, volume growth of 1% could not compensate for a decline prices of (3)% and unfavorable foreign exchange rates taking off (2)%.
REBITDA increased 40% to € 38 m from € 27 m in 2013. Polyamide operating performance improved compared to
the second quarter of 2013 supported by a reduction in fixed and variable costs. Growing volumes in Europe and in Asia have however been offset by lower volumes in Latin America. Fibras continued to be impacted by the poor macro-economic conditions and further competitive erosion of the domestic industry. The profit restoration plan continued to deliver on fixed and variable costs as well as on commercial excellence programs.
Discontinued Operations: Performance of the European chlorovinyls business that should become part of the planned INOVYNTM joint venture is suffering from difficult market environment with low prices and weak margins. Quarterly net sales amounted to € 465 m and REBITDA came in at € 20 m.
The Net Income Group share from our discontinued chlorovinyls activities (including Solvay Indupa) amounted to € (414) m during the quarter, including a € (422) m impairment charge, after non-controlling interests, related to the INOVYN™ project.
N.B.: Rusvinyl, the chlorovinyls JV with SIBUR in Russia, is expected to become operational in the second half of the year.
€ (47) m Q2 2014 REBITDA This Segment includes the Solvay Energy Services business which delivers energy optimization programs within the Group as well as for third parties. It also includes the corporate functions.
| (in € m) | Q2 2014 | Q2 2013 | % yoy | H1 2014 | H1 2013 | % yoy |
|---|---|---|---|---|---|---|
| Net sales | (1) | 38 | n.m. | (1) | 55 | n.m. |
| Energy Services | (1) | 38 | n.m. | (1) | 54 | n.m. |
| Other Corporate & Business Services | - | - | n.m. | - | - | n.m. |
| REBITDA | (47) | (30) | (53)% | (85) | (76) | (12)% |
Net sales were nil compared to € 38 m in the same period last year. The last carbon credit (CER) sales occurred in 2013 and were phased out entirely in the first half of that year.
REBITDA amounted to € (47) m compared to € (30) m in Q2 2013. No material REBITDA contribution came from Energy Services in the quarter while for the first half it was at € 12 m Last year the Group sold 3.5 MT of CERs for € 44 m in sales in the second quarter. Over the semester, CER sales totaled € 58 m (4.6 MT of CERs)
Expenses related to corporate structure and corporate functions were lower than last year due to tight cost control, the phasing of certain corporate programs and favorable impacts from devaluated currencies. These elements fully compensated for inflation.
In the next quarters, the Group will continue to invest in the deployment of best-in-class Business Support Services and expects to report the impact of the phasing of planned corporate programs in the second half.
Factors influencing net sales yoy evolution (% of Q2 2013 net sales)
Factors influencing net sales yoy evolution (% of H1 2013 net sales)
| Adjusted | IFRS | |||
|---|---|---|---|---|
| (in € m) | Q2 2014 | Q2 2013 | Q2 2014 | Q2 2013 |
| Sales | 2,722 | 2,655 | 2,722 | 2,655 |
| Other non-core revenues | 82 | 74 | 82 | 74 |
| Net sales | 2,640 | 2,582 | 2,640 | 2,582 |
| Cost of goods sold | (2,048) | (2,017) | (2,048) | (2,017) |
| Gross margin | 674 | 639 | 674 | 639 |
| Commercial & administrative costs | (304) | (291) | (304) | (291) |
| Research & innovation costs | (62) | (66) | (62) | (66) |
| Other operating gains & losses | 8 | (9) | (21) | (59) |
| Earnings from associates & joint ventures accounted for using the equity method |
20 | 12 | 20 | 12 |
| REBIT | 337 | 284 | 308 | 235 |
| Non-recurring items | (46) | (97) | (46) | (97) |
| EBIT | 291 | 187 | 262 | 137 |
| Cost of borrowings | (36) | (45) | (36) | (45) |
| Interest on loans & short-term deposits | 5 | 4 | 5 | 4 |
| Other gains & losses on net indebtedness | (1) | 1 | (1) | 1 |
| Cost of discounting provisions | (43) | (13) | (43) | (13) |
| Income/loss from available-for-sale investments | - | 2 | - | 2 |
| Result before taxes | 216 | 135 | 187 | 87 |
| Income taxes | (65) | (20) | (57) | (10) |
| Result from continuing operations | 150 | 115 | 129 | 77 |
| Result from discontinued operations | (481) | 48 | (481) | 48 |
| Net income | (331) | 163 | (352) | 124 |
| Non-controlling interests | 39 | (14) | 39 | (14) |
| Net income Solvay share | (292) | 148 | (313) | 110 |
| Basic EPS from continuing operations (in €) | 1.62 | 1.23 | 1.37 | 0.76 |
| Basic EPS (in €) | (3.50) | 1.79 | (3.76) | 1.32 |
| Diluted EPS from continuing operations (in €) | 1.60 | 1.21 | 1.35 | 0.75 |
| Diluted EPS (in €) | (3.47) | 1.76 | (3.72) | 1.30 |
| Adjusted | IFRS | |||
|---|---|---|---|---|
| (in € m) | H1 2014 | H1 2013 | H1 2014 | H1 2013 |
| Sales | 5,388 | 5,319 | 5,388 | 5,319 |
| Other non-core revenues | 195 | 221 | 195 | 221 |
| Net sales | 5,192 | 5,098 | 5,192 | 5,098 |
| Cost of goods sold | (4,074) | (4,066) | (4,074) | (4,066) |
| Gross margin | 1,313 | 1,253 | 1,313 | 1,253 |
| Commercial & administrative costs | (595) | (602) | (595) | (602) |
| Research & innovation costs | (119) | (120) | (119) | (120) |
| Other operating gains & losses | 10 | (7) | (48) | (90) |
| Earnings from associates & joint ventures accounted for using the equity method |
17 | 28 | 17 | 28 |
| REBIT | 626 | 552 | 569 | 469 |
| Non-recurring items | (76) | (137) | (76) | (137) |
| EBIT | 551 | 415 | 493 | 332 |
| Cost of borrowings | (90) | (91) | (90) | (91) |
| Interest on loans & short-term deposits | 30 | 9 | 30 | 9 |
| Other gains & losses on net indebtedness | (26) | (4) | (26) | (4) |
| Cost of discounting provisions | (86) | (50) | (86) | (50) |
| Income/loss from available-for-sale investments | - | 2 | - | 2 |
| Result before taxes | 378 | 280 | 320 | 197 |
| Income taxes | (118) | (76) | (100) | (56) |
| Result from continuing operations | 260 | 204 | 221 | 141 |
| Result from discontinued operations | (470) | 60 | (470) | 60 |
| Net income | (210) | 264 | (250) | 201 |
| Non-controlling interests | 25 | (30) | 25 | (30) |
| Net income Solvay share | (186) | 235 | (225) | 172 |
| Basic EPS from continuing operations (in €) | 2.85 | 2.10 | 2.38 | 1.35 |
| Basic EPS (in €) | (2.23) | 2.81 | (2.70) | 2.07 |
| Diluted EPS from continuing operations (in €) | 2.83 | 2.08 | 2.36 | 1.35 |
| Diluted EPS (in €) | (2.21) | 2.78 | (2.68) | 2.04 |
| (in € m) | Q2 2014 | Q2 2013 | % yoy | H1 2014 | H1 2013 | % yoy |
|---|---|---|---|---|---|---|
| EBIT IFRS | 262 | 137 | n.m. | 493 | 332 | 49% |
| Non recurring items (-) | 46 | 97 | (53)% | 76 | 137 | (45)% |
| REBIT IFRS | 308 | 235 | 31% | 569 | 469 | 21% |
| Amortization of Rhodia PPA on fixed assets |
29 | 50 | (42)% | 58 | 83 | (30)% |
| Adjusted REBIT | 337 | 284 | 18% | 626 | 552 | 13% |
| IFRS depreciation & amortization (recurring) excluding Rhodia PPA |
160 | 155 | 3% | 321 | 310 | 3% |
| Adjustments of Chemlogics inventories at FV (PPA) & holdback payments |
2 | n.m. | 7 | n.m. | ||
| Equity Earnings Rusvinyl (pre operational stage) |
(13) | n.m. | (2) | n.m. | ||
| REBITDA (key performance indicator monitored by management) |
485 | 440 | 10% | 953 | 862 | 11% |
| (in € m) | Q2 2014 | Q2 2013 | % yoy | H1 2014 | H1 2013 | % yoy |
|---|---|---|---|---|---|---|
| Net income | (352) | 124 | n.m. | (250) | 201 | n.m. |
| Other comprehensive income |
||||||
| Recyclable components | ||||||
| Hyperinflation | (2) | n.m. | (16) | n.m. | ||
| Gains & losses on available for-sale financial assets |
3 | n.m. | (1) | 7 | n.m. | |
| Gains & losses on hedging instruments in a cash flow hedge |
4 | (3) | n.m. | (2) | (28) | n.m. |
| Currency translation differences |
62 | (212) | n.m. | 37 | (65) | n.m. |
| Non recyclable components | ||||||
| Remeasurement of the net defined benefit liability |
(87) | 84 | n.m. | (149) | 78 | n.m. |
| Income tax relating to recyclable & non recyclable components |
||||||
| Income tax relating to components of other comprehensive income |
17 | 27 | (39)% | 29 | 16 | 80% |
| Other comprehensive income, net of related tax effects |
(5) | (105) | n.m. | (102) | 7 | n.m. |
| Comprehensive income attributed to |
(356) | 19 | n.m. | (352) | 209 | n.m. |
| Owners of the parent | (337) | 32 | n.m. | (336) | 190 | n.m. |
| Non-controlling interests | (19) | (13) | (50)% | (16) | 19 | n.m. |
| (in € m) | 30/06/2014 | 31/12/2013 |
|---|---|---|
| Non-current assets | 11,384 | 11,217 |
| Intangible assets | 1,564 | 1,621 |
| Goodwill | 3,118 | 3,096 |
| Tangible assets | 5,098 | 5,015 |
| Available-for-sale investments | 40 | 38 |
| Investments in joint ventures & associates – equity method | 678 | 582 |
| Other investments | 107 | 115 |
| Deferred tax assets | 554 | 500 |
| Loans & other non-current assets | 225 | 250 |
| Current assets | 5,863 | 7,306 |
| Inventories | 1,429 | 1,300 |
| Trade receivables | 1,518 | 1,331 |
| Income tax receivables | 25 | 38 |
| Dividends receivable | 6 | 1 |
| Other current receivables – Financial instruments | 23 | 481 |
| Other current receivables – Other | 567 | 572 |
| Cash & cash equivalents | 1,101 | 1,961 |
| Assets held for sale | 1,195 | 1,621 |
| TOTAL ASSETS | 17,247 | 18,523 |
| Total equity | 6,884 | 7,453 |
| Share capital | 1,271 | 1,271 |
| Reserves | 5,306 | 5,804 |
| Non-controlling interests | 307 | 378 |
| Non-current liabilities | 5,808 | 6,927 |
| Long-term provisions: employees benefits | 2,819 | 2,685 |
| Other long-term provisions | 861 | 793 |
| Deferred tax liabilities | 444 | 473 |
| Long-term financial debt | 1,483 | 2,809 |
| Other non-current liabilities | 202 | 166 |
| Current liabilities | 4,555 | 4,144 |
| Other short-term provisions | 338 | 342 |
| Short-term financial debt | 1,285 | 775 |
| Trade liabilities | 1,309 | 1,340 |
| Income tax payable | 46 | 21 |
| Dividends payable | 4 | 113 |
| Other current liabilities | 627 | 604 |
| Liabilities linked to assets held for sale | 946 | 949 |
| TOTAL EQUITY & LIABILITIES | 17,247 | 18,523 |
| Revaluation reserve (fair value) |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in € m) | Share capital | Issue premiums | Retained earnings | Hybrid bond | Treasury shares | Currency translation differences | Available-for-sale investments | Cash flow hedges | Defined benefit pension plans | Total reserves | Non-controlling interests | Total equity |
| Balance at 31/12/2013 | 1,271 | 18 5,987 1,194 (132) | (770) | (6) | 6 (494) | 5,804 | 378 7,453 | |||||
| Net profit for the period | - | - | (225) | - | - | - | - | - | - | (225) | (25) | (250) |
| Items of OCI | (11) | 28 | (1) | (2) | (125) | (111) | 9 | (102) | ||||
| Comprehensive income | - | - | (236) | - | - | 28 | (1) | (2) | (125) | (336) | (16) | (352) |
| Cost of stock options | 5 | 5 | 5 | |||||||||
| Dividends | (156) | (156) | (3) | (158) | ||||||||
| Hybrid bond dividends | (15) | (15) | (15) | |||||||||
| Acquisitions/sale of treasury shares | 5 | 5 | 5 | |||||||||
| Other, of which increase (decrease) through changes in ownership interests in subsidiaries that do not result in loss of control (1) |
(2) | (2) | (52) | (54) |
(1) Of which a reclassification of NCI (€ 52 m) to non current liabilities that reflects the re-purchase obligation towards non controlling interest (EBRD initial investment in pre-operational Rusvinyl) existing since 2011. The related impact of this is immaterial on the debt to equity ratio, and does not affect Solvay's other key performance indicators (i.e. Group net sales, REBITDA, EBIT, net result, net result Group share, free cash flow).
| (in € m) | Q2 2014 | Q2 2013 | H1 2014 | H1 2013 |
|---|---|---|---|---|
| Net income | (352) | 123 | (250) | 201 |
| Depreciation, amortization & impairments (-) | 678 | 228 | 894 | 436 |
| Earnings from associates & joint ventures accounted for using the equity method (-) |
(20) | (12) | (17) | (28) |
| Net financial charges & income / loss from available-for sale investments (-) |
85 | 59 | 194 | 151 |
| Income tax (-) | 65 | 26 | 121 | 82 |
| Changes in working capital | (36) | (64) | (345) | (243) |
| Changes in provisions | (41) | (90) | (94) | (142) |
| Dividends received from associates & joint ventures accounted for using equity method |
4 | 3 | 7 | 5 |
| Income taxes paid | (93) | (96) | (117) | (157) |
| Others | 2 | 36 | (2) | 52 |
| Cash flow from operating activities | 293 | 212 | 390 | 357 |
| Acquisition (-) of subsidiaries | (54) | 1 | (57) | 1 |
| Acquisition (-) of investments - Other | (47) | (1) | (75) | (14) |
| Loans to associates & non consolidated subsidiaries | 5 | (9) | 9 | (9) |
| Sale (+) of subsidiaries & investments | 11 | (6) | 11 | (6) |
| Acquisition (-) of tangible & intangible assets | (203) | (175) | (394) | (333) |
| Sale (+) of tangible & intangible assets | 4 | 3 | 7 | 18 |
| Income from available-for-sale investments | - | 2 | - | 2 |
| Changes in non-current financial assets | (5) | 22 | (11) | 9 |
| Cash flow from investing activities | (289) | (163) | (511) | (332) |
| Acquisition (-) / sale (+) of treasury shares | 3 | (41) | 5 | (11) |
| Changes in borrowings | (305) | 51 | (752) | 113 |
| Changes in other current financial assets | 473 | (62) | 462 | (142) |
| Net cash out related to cost of borrowings & interest on lendings & term deposits |
(158) | (110) | (211) | (158) |
| Dividends paid | (171) | (204) | (282) | (307) |
| Other | 73 | 6 | 40 | (21) |
| Cash flow from financing activities | (85) | (359) | (738) | (526) |
| Net change in cash & cash equivalents | (81) | (311) | (859) | (501) |
| Currency translation differences | (1) | (46) | (3) | (28) |
| Opening cash balance | 1,193 | 1,614 | 1,972 | 1,787 |
| Ending cash balance | 1,111 | 1,258 | 1,111 | 1,258 |
| Free Cash Flow | 89 | 64 | (8) | 53 |
| From continuing operations | 98 | 10 | (61) | (122) |
| From discontinued operations | (9) | 54 | 53 | 175 |
| (in € m) | Q2 2014 | Q2 2013 | H1 2014 | H1 2013 |
|---|---|---|---|---|
| Cash flow from operating activities | 13 | 88 | 100 | 219 |
| Cash flow from investing activities | (22) | (33) | (47) | (46) |
| Cash flow from financing activities | (5) | 2 | (11) | 1 |
| Net change in cash & cash equivalents | (14) | 56 | 41 | 174 |
Cash flow from operating activities was € 293 m compared to € 212 m last year. Besides net income of € (352) m, it consisted of:
Cash flow from investing activities was € (289) m, and included capital expenditures which amounted to € (203) m, including € (22) m from discontinued operations
Free Cash Flow was € 89 m, and included cash flow from discontinued operations for € (9) m.
Cash flow from operating activities was € 390 m compared to € 357 m last year. Besides net income of € (250) m, it consisted of:
Cash flow from investing activities was € (511) m, and included capital expenditures which amounted to € (394) m, including € (47) m from discontinued operations
Free Cash Flow was € (8) m, and included cash flow from discontinued operations for € 53 m.
Solvay is a public limited liability company governed by Belgian law and quoted on NYSE Euronext Brussels and NYSE Euronext Paris.
These condensed consolidated financial statements were authorized for issue by the Board of Directors on July 30, 2014.
The following unusual items had an impact on the condensed consolidated financial statements for the six months ended June 30, 2014: the adoption of IFRS 10 Consolidated Financial Statements, 11 Joint Arrangements and 12 Disclosures of Interests in Other Entities (see 2 below).
On May 8, 2014, the European Commission approved the PVC joint venture between INEOS and Solvay, subject to conditions. On May 18, 2014, Solvay and INEOS signed a non-binding letter of intent for the combination of their respective European chlorovinyls activities into a 50/50 joint venture. On June 26, 2014, the binding agreement has been signed. The proposed transaction is subject to the applicable information/consultation procedures with employee representatives in the countries involved, and fulfillment of the conditions imposed by the European Commission. The occurrence and timing of the completion of the transaction is dependent on the above procedures and approvals. Until the completion, Solvay and INEOS will continue to manage their PVC businesses separately.
Solvay prepares its condensed consolidated 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, 2013.
The condensed consolidated financial statements for the six months ended June 30, 2014 were prepared using the same accounting policies as those adopted for the preparation of the consolidated financial statements for the year ended December 31, 2013, except for the adoption of IFRS 10 Consolidated Financial Statements, 11 Joint Arrangements and 12 Disclosures of Interests in Other Entities.
In this framework, on April 7, 2014 Solvay published restated financial figures for 2013.
Effective January 1, 2013, Solvay is organized into five Operating Segments.
Advanced Formulations serves the consumer products markets. Its growing product offering is directed at societal megatrends: demographic growth, the increasing purchasing power of emerging markets, the appearance of new modes of consumption, and a demand for safer, more sustainable products and renewable materials-based solutions.
Advanced Materials offers ultra-high-performance applications for aerospace, high-speed trains, health, lowenergy tires, automotive emission control, smartphones and hybrid vehicle batteries.
Performance Chemicals operates in mature and resilient markets, where success is based on economies of scale, competitiveness and quality of service.
Functional Polymers include polyamide based solutions serving mainly the automotive, construction, electrical/electronic and different consumer good markets.
Corporate & Business Services includes the Energy Services GBU and Corporate Functions such as Business Services and the Research & Innovation Center. Energy Services' mission is to optimize energy consumption and reduce emissions.
| (in € m) | Q2 2014 | Q2 2013 | % yoy | H1 2014 | H1 2013 | % yoy |
|---|---|---|---|---|---|---|
| Net sales | 2,640 | 2,582 | 2% | 5,192 | 5,098 | 2% |
| Advanced Formulations | 725 | 599 | 21% | 1,388 | 1,208 | 15% |
| Advanced Materials | 670 | 659 | 2% | 1,329 | 1,298 | 2% |
| Performance Chemicals | 798 | 803 | (1)% | 1,580 | 1,586 | - |
| Functional Polymers | 448 | 483 | (7)% | 896 | 951 | (6)% |
| Corporate & Business Services | (1) | 38 | n.m. | (1) | 55 | n.m. |
| REBITDA | 485 | 440 | 10% | 953 | 862 | 11% |
| Advanced Formulations | 119 | 92 | 29% | 221 | 205 | 8% |
| Advanced Materials | 187 | 161 | 16% | 362 | 316 | 15% |
| Performance Chemicals | 189 | 191 | (1)% | 377 | 357 | 6% |
| Functional Polymers | 38 | 27 | 40% | 78 | 60 | 28% |
| Corporate & Business Services | (47) | (30) | (53)% | (85) | (76) | (12)% |
| IFRS depreciation & amortization (recurring) excluding Rhodia PPA |
(160) | (155) | 3% | (321) | (310) | 3% |
| Adjustments of Chemlogics inventories at FV (PPA) & holdback payments |
(2) | - | n.m. | (7) | - | n.m. |
| Equity Earnings Rusvinyl (pre operational stage) |
13 | - | n.m. | 2 | - | n.m. |
| Adjusted REBIT | 337 | 284 | 18% | 626 | 552 | 13% |
| Amortization of Rhodia PPA on fixed assets |
(29) | (50) | (42)% | (58) | (83) | (30)% |
| REBIT IFRS | 308 | 235 | 31% | 569 | 469 | 21% |
| Non recurring items (-) | (46) | (97) | (53)% | (76) | (137) | (45)% |
| EBIT IFRS | 262 | 137 | n.m. | 493 | 332 | 49% |
| Net financial charges | (75) | (51) | (47)% | (173) | (135) | (28)% |
| Result before taxes | 187 | 87 | n.m. | 320 | 197 | 62% |
| Income taxes | (57) | (10) | n.m. | (100) | (56) | (78)% |
| Result from continuing operations |
129 | 77 | 68% | 221 | 141 | 56% |
| Result from discontinued operations |
(481) | 48 | n.m. | (470) | 60 | n.m. |
| Net income | (352) | 124 | n.m. | (250) | 201 | n.m. |
In May 2014 the Group early redeemed its Senior Notes Rhodia in the amount of € 864 m including principal, interests and premiums.
The impairment loss relates to the discontinued operations of the chlorovinyls to be contributed to the 50/50 joint venture with INEOS. The joint venture will pool both groups' assets across the entire chlorovinyls chain, including PVC, caustic soda and chlorine derivatives. The assets classified as held for sale are measured at the lower of their carrying amount and their fair value less costs to sell. This fair value less costs to sell has been calculated based on the agreement signed with INEOS at the end of Q2. It considers the upfront payment of € 175 m at closing, the transfer of liabilities worth € 250 m into the joint venture, as well as Solvay's exit conditions after three years, when it will receive additional cash proceeds targeted at € 250 m. These final cash proceeds at exit will be adjusted based on the joint venture's average REBITDA performance during its three-year period, with a minimum exit payment of € 75 m. Based on this, the fair value less costs to sell amounts to € 328, compared to a carrying amount of € 805 m, resulting in an impairment loss of € 477 m, allocated to goodwill € 143 m, and property plant and equipment € 335 m. For the period ended June 30, 2014, the impact on net income/loss Group share amounts to € (422) m, after taking into account the portion attributable to non-controlling interests.
On February 24, 2014 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:
| Stock option plan | |||||
|---|---|---|---|---|---|
| Number of stock options | 362,436 | ||||
| Grant date | 24/02/2014 | ||||
| Acquisition date | 01/01/2018 | ||||
| Vesting period | 24/02/2014 to 31/12/2017 | ||||
| Exercise price (in €) | 107.61 | ||||
| Exercise period | 01/01/2018 to 23/02/2022 |
This plan is accounted for as an equity-settled share-based plan. As of June 30, 2014, the impact on the income statement is below € 1 m.
The details of the Performance Share Units plan are as follows:
| Performance share units | ||||
|---|---|---|---|---|
| Number of PSU | 206,495 | |||
| Grant date | 24/2/2014 | |||
| Acquisition date | 01/01/2017 | |||
| Vesting period | 24/2/2014 to 31/12/2016 | |||
| Performance conditions | 50% of PSU Granted depending upon the level of REBITDA at closing Financial Year 2016 50% of PSU Granted depending upon the level of CFROI at closing Financial Year 2016 |
|||
| Validation of performance conditions | By the board of Directors, subject to confirmation by Solvay Statutory Auditors |
The Performance Share Units is qualified as a cash-settled share-based plan. As of June 30, 2014, the impact on the income statement and statement of financial position amounts to € 3 m.
Compared to December 31st, 2013, there are no changes in valuation techniques.
For all financial instruments not measured at fair value in Solvay's statement of financial position, the fair value of those financial instruments is not significantly different from the ones published in note 34 of the consolidated financial statements for the year ended December 31st, 2013.
For all financial instruments measured at fair value in Solvay's statement of financial position, the fair value of those instruments as of June 30, 2014 is not significantly different from the ones as published in the note 34 "Financial instruments measured at fair value in the consolidated statement of financial position" of the consolidated financial statements for the year ended December 31st, 2013.
During the six months ended June 30, 2014, 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.
On July 30, 2014 Solvay has signed a binding agreement to sell its sulfuric acid virgin production and regeneration Eco Services business to CCMP CAPITAL.
Based on this binding agreement, which is considered as a "non-adjusting event" for the Q2 Financial Statements and is expected to be completed in the 4th quarter, Solvay will report Eco Services businesses under Assets Held for Sale and Discontinued Operations as from the 3rd quarter.
Consequently, Solvay will have to restate its 2013 Income and Cash Flow Statements and 2014 Financial Statements to reflect the discontinuation of the business.
Jean-Pierre Clamadieu, Chief Executive Officer, and Karim Hajjar, Chief Financial Officer, of the Solvay Group, declare that to the best of their knowledge:
a. The summarized 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;
b. The half year management report contains a faithful presentation of significant events occurring during the six first months of 2014, and their impact on the summarized financial information;
c. The main risks and uncertainties over the remaining months within the 2014 fiscal year are in accordance with the assessment disclosed in the section "Risk Management" in the Solvay 2013 Annual Report, taking into account the current economic and financial environment.
Solvay SA/NV
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 condensed statement of financial position as at 30 June 2014, the consolidated condensed income statement, the consolidated condensed statement of comprehensive income, the consolidated condensed statement of changes in equity and the consolidated condensed statement of cash flows for the period of six-months then ended, as well as selective notes 1 to 8.
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 condensed statement of financial position shows total assets of 17.247 million EUR and the consolidated condensed income statement shows a consolidated loss (group share) for the period then ended of 225 million EUR.
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, 31 July 2014
The statutory auditor.
BV o.v.v.e. CVBA / SC s.f.d. SCRL
Represented by Eric Nys
To the extent that any statements made in this presentation contain information that is not historical, these statements are essentially forward-looking. The achievement of forward-looking statements contained in this presentation is subject to risks and uncertainties because of 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&D projects and other unusual items.
Consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements can be identified by the use of words such as "expects," "plans," "will," "believes," "may," "could" "estimates," "intends", "goals", "targets", "objectives", "potential", and other words of similar meaning. 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 any forward-looking statements.
Adjusted performance indicators exclusively exclude non-cash Purchase Price Allocation (PPA) accounting impacts related to the Rhodia acquisition.
Adjusted net income (Solvay share) divided by the weighted average number of shares, after deducting own shares purchased to cover stock option programs
Net income (Solvay share) excluding non-cash Purchase Price Allocation (PPA) accounting impacts related to the Rhodia acquisition
Net result excluding non-cash Purchase Price Allocation (PPA) accounting impacts related to the Rhodia acquisition
REBIT excluding non-cash Purchase Price Allocation (PPA) accounting impacts related to the Rhodia acquisition
Net income (Solvay's share) divided by the weighted average number of shares, after deducting own shares purchased to cover stock option programs
Difference between cost of gross debt and yield on cash financed by debt.
EBIT
Operating results
Cash flow from operating activities (including dividends from associates and joint ventures) + Cash flow from investing activities (excluding acquisitions and sales of subsidiaries and other investments).
International Financial Reporting Standards
Net financial expenses comprises cost of borrowings minus accrued interests on lending and short-term deposits, plus other gains (losses) on net indebtedness and costs of discounting provisions (namely, related to Postemployment benefits and HSE liabilities)
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
Operating result, i.e. EBIT before non-recurring items
REBITDA is defined as operating result before depreciation and amortization, non-recurring items, temporary stepup of inventories related to the Rhodia and Chemlogics acquisitions and pre-operational gain/(losses) of Rusvinyl resulting from financial expenses (not capitalized).
REBITDA constitutes the key operating performance indicator monitored by the management.
The comparative financial statements have been restated to include the effects of IFRS 11 applied by Solvay as of January 1, 2013. The Group's European Chlorovinyls activities planned to be contributed to the JV with INEOS and Indupa's results are presented as discontinued operations.
November 13, 2014 Announcement of the 3rd quarter and the nine months 2014 results and the interim dividend for 2014 (payable in January 2015, coupon no. 95) (at 07:30)
Maria Alcón-Hidalgo Investor Relations +32 2 264 1984 [email protected]
Geoffroy Raskin Investor Relations +32 2 264 1540 [email protected]
Edward Mackay Investor Relations +32 2 264 3687 [email protected]
Lamia Narcisse Media Relations +33 1 53 56 59 62 [email protected]
Caroline Jacobs Media Relations +32 2 264 1530 [email protected]
Solvay S.A.
1120 Brussels Belgium
T: +32 2 264 2111 F: +32 2 264 3061
www.solvay.com
As an international chemical group, Solvay assists industries in finding and implementing ever more responsible and value-creating solutions. Solvay generates 90% of its net sales in activities where it is among the world's top three players. It serves many markets, varying from energy and the environment to automotive and aerospace or electricity and electronics, with one goal: to raise the performance of its clients and improve society's quality of life. The group is headquartered in Brussels, employs about 29,400 people in 55 countries and generated 9.9 billion euros in net sales in 2013. Solvay SA SOLB.BE) is listed on NYSE Euronext in Brussels and Paris (Bloomberg: SOLB.BB - Reuters: SOLBt.BR).
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