Annual Report • Apr 3, 2019
Annual Report
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2018 Annual Integrated Report
ALICE
Every day, with all our energy, we work on products that improve your daily life. When you drive a car, take a plane, use a smartphone, a shampoo, our technologies bring you innovative functionalities.
We do this by partnering and innovating with scientists and customers to develop solutions that contribute to ever more sustainable mobility and help optimize the use of natural resources.
Our 2018 Annual Integrated Report explains how our 24,500 employees across the world, through their constant commitment and expertise, strive to achieve the best and serve you, our stakeholders.
AMANDINE
AUGUSTIN
| Who we are | 02 |
|---|---|
| About this report | 02 |
| 2018 Key figures | 04 |
| Presidents' message | 06 |
| Helping to create a more sustainable future | 08 |
| In conversation with | 10 |
| Our sustainable value creation model | 12 |
| Our strategic journey | 14 |
| A highly focused journey | 14 |
| Accelerating innovation | 17 |
The new CEO's priority will be to further accelerate the Group's transformation to unleash its full potential.
This report is also available online with expanded content, including interactive GRI Content Index:
annualreports.solvay.com/2018/en
For greater insight into the Group, visit our corporate website: www.solvay.com
| 2 | CORPORATE GOVERNANCE STATEMENT | 21 |
|---|---|---|
| 3 | RISK MANAGEMENT | 54 |
| 4 | BUSINESS REVIEW | 66 |
| 5 | EXTRA-FINANCIAL STATEMENTS | 91 |
| 6 | FINANCIAL STATEMENTS | 149 |
| 7 | AUDITOR'S REPORTS & DECLARATION BY THE PERSONS RESPONSIBLE |
257 |
We leverage new ways of working, fostering collaboration and empowerment, and focusing firmly on our customers.
Our two growth engines serve fast-growing markets, primarily focusing on sustainable mobility and resources efficiency.
John Bradfute, Sealed Air
Solvay Executive Committee members discuss with stakeholders to better meet their expectations.
For Solvay, 2018 was a year of extensive transformation and growth. We are now ready to unleash our full potential. Our Annual Integrated Report explains how. It also reflects our progress on an integrated management journey that began six years ago.
Our Annual Integrated Report explains how we are completing the ongoing transformation of our portfolio to deliver sustainable solutions created to play their part in meeting the key challenges of caring for our planet. How we continue to deliver through an ever-sharper focus on our customers, through innovation, through collaboration with all our stakeholders to create more sustainable value for them. How in 2018, we have worked to shape an organization and a culture to support a Solvay that is now ready to deliver growth as an advanced materials and specialty chemicals company.
Jean-Pierre Clamadieu has substantially transformed the Group since 2011 and initiated the change in its organization and culture. His successor, Ilham Kadri, will begin a new chapter in this company's history, building on the potential of its portfolio and its employees, and taking it to the next level.
We are convinced that collaboration makes a real difference and we are continuing to progress in building closer relationships with our stakeholders. In this year's report, we highlight how much we care about collaboration at Solvay, by sharing direct conversations between stakeholders and members of our Executive Committee on a number of central topics. This too is part of delivering on our commitments.
Solvay's third Annual Integrated Report reflects our progress on an integrated management journey that began in 2012 when the Group introduced an integrated thinking approach to strengthen the connection between its businesses, sustainability and finance. Since then, our business and product portfolio decisions have been made with both economic value creation and sustainability in mind.
Integrated thinking at Solvay is not about compliance, it is about the way we are doing business every day. Integrated reporting is a highly demanding approach that adds transparency and, for us, it is becoming the new standard. The Integrated Thinking Award we received in 2018 from the Institut du Capitalisme Responsable is a recognition of our progress. We still have more to do."
KARIM HAJJAR Member of the Executive Committee and Chief Financial Officer
Once again, this report is based on the guiding principles and content elements of Integrated Reporting, as established by the International Integrated Reporting Council (IIRC).
The report details the Group's new, streamlined business model. It also highlights stakeholder engagement, sharing the outcomes of these interactions.
Links in the Understanding Solvay section lead to the Management Report which provides a more detailed analysis of key topics, including a focus on high materiality issues. Information on the materiality assessment process and other reporting guidelines are illustrated in our Extra-financial statements, within the "basis of preparation" and "materiality analysis" sections.
From day one, the Board of Directors has supported the Group's integrated management approach, which is fully in line with Solvay's values and culture. All the Group's Governance bodies – the Comex, the CEO and the Board – were involved in preparing, reviewing and approving this Annual Integrated Report, which complies with Belgian legislation and governance code, the 2014/95/EU directive on non-financial reporting, IFRS financial reporting rules and
The 2018 Annual Integrated Report builds on last year's report, and integrates feedback from our stakeholders, including several recognized bodies such as the Global Reporting Initiative (GRI) and the World Business Council for Sustainable Development (WBCSD).
This year, for the first time, we also brought together a panel of employees and asked for their feedback on the report, with the aim of making it clearer and more reader-friendly, and meeting their expectations in terms of content.
It is aligned with GRI Standards and the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Its contents also serve as a progress report on implementation of the ten principles of the UN Global Compact and the Sustainable Development Goals (SDGs).
Sections with the Sustainable Development Goals (SDGs)
icon show how the individual goals are implemented
Further Reading & Features
Solvay is an advanced materials and specialty chemicals company, committed to developing chemistry that addresses key societal challenges. Solvay innovates and partners with customers worldwide in many diverse end markets. Its products are used in planes, cars, batteries, smart and medical devices, as well as in mineral and oil & gas extraction, enhancing efficiency and sustainability. Its lightweighting materials promote cleaner mobility, its formulations optimize the use of resources and its performance chemicals improve air and water quality. In 90% of its portfolio, Solvay ranks among the world's top three leaders. Solvay is headquartered in Brussels.
Underlying and restated 2016, 2017 & 2018 information (except for CFROI, and for environmental and social figures).
NET SALES
4
| FINANCIAL STRATEGIC |
UNDERLYING EBITDA | UNDERLYING EARNINGS PER SHARE |
|---|---|---|
| OBJECTIVES | in € million | in € |
| 2,230 2,230 2,075 |
10.57 9.08 8.19 |
|
| 2017 2018 2016 |
2017 2016 2018 |
|
| FREE CASH FLOW FROM CONTINUING OPERATIONS in € million |
CFROI as percentage |
DIVIDEND in € per share |
| 830 782 658 |
6.9 6.9 6.3 |
3.75 3.60 3.45 |
| 2017 2018 2016 |
2017 2018 2016 |
2017 20181 2016 |
| SOCIAL AND ENVIRONMENTAL |
GREENHOUSE GAS INTENSITY Kg CO2 eq. per € EBITDA |
SUSTAINABLE SOLUTIONS (SPM) as percentage of Group sales |
| STRATEGIC | ||
| OBJECTIVES | 5.5 5.9 5.5 2017 2018 2016 |
50 49 43 2017 2018 2016 |
| OCCUPATIONAL ACCIDENTS AT GROUP SITES2 |
EMPLOYEE ENGAGEMENT INDEX |
EMPLOYEES INVOLVED IN SOCIETAL ACTIONS |
| per million hours worked | as percentage of employees | as percentage of employees |
| 0.77 0.65 0.54 |
76 77 75 |
33 33 23 |
| 2017 2018 2016 |
2017 2018 2016 |
2017 2018 2016 |
1 Recommended to the Shareholders meeting on May 14, 2019
2 Rate of accidents with medical treatment, with or without work stoppage
5 SOLVAY · 2018 Annual Integrated Report
In 2018, Solvay successfully concluded a cycle in its history, delivering on the mid-term objectives set in 2016, which covered both sustainability and financial performance as integrated signals of progress. Solvay has shifted its position towards advanced materials and specialty chemicals. The Group will now focus on fully unleashing its growth potential.
On behalf of Solvay, I would like to thank Jean-Pierre Clamadieu for his achievements at the helm of the Group. Thanks to his vision and leadership, we can lean on a strong basis today with Ilham Kadri, who after a rigorous process emerged as the obvious choice to take our Group to the next level and to step up value creation."
2018 was a pivotal year, during which the Group's governance played its full role. In preparation for Jean-Pierre Clamadieu's succession, the Board of Directors reaffirmed Solvay's priorities: further accelerate transformation to unlock the Group's full potential.
2018 was a year of growth, as Solvay posted strong organic growth thanks to both good volume dynamics and the ability to manage prices effectively. Cash Flow generation was strong and contributed to further deleveraging the Group's balance sheet. Solvay's robust operational performance as well as its ability to optimise financial charges are reflected in the EPS' double-digit growth. As a consequence, the Group was able to keep duly rewarding the commitment of its shareholders and proposed to increase the 2018 dividend by 4.2%.
Solvay also delivered its medium-term extra-financial objectives. Regarding safety at work, the number of accidents decreased overall on Solvay sites, and the Group's objective over the next years will be to curb the persisting occurrence of severe accidents. Half of the Group's activities now qualify
NICOLAS BOËL
I am honored to join the Solvay community as the Group's 11th CEO. My excitement is shared by our 24,500 highly engaged employees looking forward to embarking into a new chapter of our company's transformation. Sharper customer focus, innovation, collaboration, disciplined capital allocation and a clear sense of purpose will drive Solvay's new growth trajectory."
as "sustainable solutions", with respect to both their impact on end-markets and their manufacturing footprint. Solvay has exceeded its initial greenhouse gas emission reduction targets and it has thus raised its ambitions to reduce CO2 targets in absolute terms.1
Lastly, the 2018 Group-wide survey revealed that employee engagement remained high, demonstrating that Solvay teams stay proud and committed as they navigate through change.
Solvay pressed ahead with the transformation of its portfolio, and the divestment of its polyamides business was approved by the European Commission in the first weeks of 2019. This was an important step in an intense sequence of more than 50 Mergers & Aquisitions operations since 2012, during which Solvay has evolved to become more of an advanced materials and specialty chemicals company.
Looking ahead, the Group will continue to transform, as we want to grow in pace with the accelerating needs of the society we serve. We intend to engage our teams, rally behind a single overarching vision and become truly customer-obsessed. Solvay's key drivers will be technologies, innovation and people, to deliver superior solutions to our clients. Companies with a strong sense of purpose innovate, adapt better and deliver consistent growth. We want our Group to join the ranks of the few highly successful companies that have managed to embed their purpose in all of their actions.
Some uncertainty prevails, with looming trade wars, disturbance in Europe and questions about the solidity of the global economy, but we are confident in our ability to succeed by leveraging our portfolio and innovating with our customers in order to deliver value. Our Group has made bold stragegic choices and is well equipped, with solid business solutions and a strong presence in future markets. Let us all move Solvay to the next level, delivering more value for all stakeholders.
ILHAM KADRI NICOLAS BOËL Chairman of the Board of Directors
ILHAM KADRI Chairman of the Executive Committee and CEO
1 Based on currently anticipated Soda Ash capacity
Solvay believes in a future where innovation means progress for all. Our vision for that future is rooted in our history. 155 years of connecting with the world through science to create a sustainable future for our customers, for our people, for society and for our planet.
At Solvay, we have a strong conviction: growth cannot be sustainable if it is achieved at the expense of our planet and its resources. We aim to be recognized as the preferred partner in creating sustainable innovations that offer our customers the solutions that matter, now and in the future. As a leader in advanced materials and specialty chemicals and a key player in the value chain, we take our responsibilities seriously. We find it very motivating to work alongside organizations such as the Ellen McArthur Foundation, in its efforts to drive the transition to a Circular Economy forward, or the World Alliance for Efficient Solutions founded by Bertrand Piccard, to develop and implement concrete solutions to meet environmental and health objectives.
Achieving all this means building deep relationships with our stakeholders. Partnering with our customers to build sustainable value and innovative, tailored solutions. Partnering with other scientists, with business, with academic leaders to foster open innovation. Always aligning our expertise with the challenges facing our world.
Since its creation in 2016, Solvay's multidisciplinary Well-Being@Work Council has developed dedicated training sessions for managers and for local teams that directly support well-being. It will deploy e-learning trainings in 2019 to raise awareness among all employees.
Its priorities include the development of competencies in stress prevention and the implementation of positive behaviors within the Group, with training for managers extending right through to the members of the Group's Executive Committee and Leadership Council.
In 2018, the Council held nine training sessions for managers in six countries, with more than 530 participants in Germany and China alone.
Our people are the lifeblood of our Group. And in a fast-changing world, disrupted by digital, they are the key enablers of Solvay's success. In today's transformed Solvay, we encourage them to champion collaboration among teams. We seek to create a climate of trust and collaboration that fosters empowerment, puts customers at the forefront of our actions, encourages smart risk taking, creates a sense of inclusion. And we take care to build trust and create the best possible environment for each and every one of them, because our people are the architects of our unique and innovative solutions. Through policies that promote a diverse and inclusive company culture, through facilitating mobility, training and development opportunities, through Solvay Cares, a universal benefits package that exceeds local market standards.
Employee engagement index Employee turnover 76% 9%
83% 49%
employees feel proud e-Learning exposure to work at Solvay*
72%
employees say they have the opportunity to continuously learn and grow*
*from 2018 internal Solvay Employee Survey
This year, our Annual Integrated Report showcases the relationships Solvay has built with its stakeholders and how we engage with them. As part of this ongoing dialog, representatives of our employees, our customers and our investors discussed their views and expectations with members of our Executive Committee.
"Heritage", "Caring", "Innovation", "Global", "Sustainable". These are some of the key topics that inspire the people who work for Solvay. They value the Group's 155-year heritage and are proud of their contribution. They see Solvay as a Group with strong values, that cares about and invests in its talents and offers opportunities to grow and move.
"Over all these years, it is innovation that has been motivating people at Solvay to keep making progress and bring added value to society."
PETYA TSEKOVA Export Maritime Logistics Manager EMEA, GBU Soda Ash & Derivatives
Solvay's people also see a need for more diversity as a way of driving the company's transformation forward. They want to be part of a more agile, solutions-driven Group that moves and takes decisions more quickly, simplifying bureaucracy to better meet customers' needs.
"We need to become more solution-driven with more frontline thinking from people across the organization."
XIAOWEI HUANG Project management officer, Comex Organization
Members of the Executive Committee Cécile Tandeau de Marsac and Pascal Juéry agreed with several points. They confirmed the need to simplify the ways of working, cutting down red tape and focusing on innovating for the end-consumer.
Solvay and packaging specialist Sealed Air. have decided to launch a feedback program with dialog at many levels of the company.
"We have a really active partnership with Solvay. We listen to each other and we've been able to develop core actions that help both companies."
JOHN BRADFUTE Global Resin Purchasing Director, Sealed Air
Augusto Di Donfrancesco, Member of the Executive Committee, points out the importance of promoting a culture of active listening across all frontline teams to fostering a much more customer-centric culture throughout the Group.
Powertrain cooler manufacturer TitanX faced a series of problems with its new Aluminium-Brazing-Flux supplier and Solvay stepped in with solutions.
"Thanks to their fast reaction and expertise, we were able to implement a new product. We have now switched back to Solvay and are looking at extending our relationship."
BRUNO JOUANNET Vice President of Operations NA, TitanX Engine Cooling
Hua Du, Member of the Executive Committee, stressed how crucial it is to understand customer needs to create value on both sides.
ExCom member Vincent De Cuyper commented on the sustainability profile of Solvay products.
Discussing with ExCom members, Stéphanie Halver stressed that Solvay really invests in its people and develops them.
Bruno Jouannet hailed the responsiveness of Solvay's teams and their ability to develop solutions.
In the employees' conversation with ExCom, Marcelo Burdelis stated that at Solvay, we are not afraid to put ourselves in question.
Sustainable Portfolio Management (SPM) tool, and how it guides strategic resources allocation and portfolio choices. ExCom member Vincent De Cuyper explained that the tool is particularly useful because "the same product may have a different sustainability profile from one market application to another".
The exchanges also focused on Solvay's internal CO2 price, which is higher than market price, the move toward green chemistry, including using renewables for energy supply, and the training and education on the circular economy. The investors also stressed the importance of quality ESG indicators to bring value and help investors understand the company.
"I think a holistic approach to capturing value is why ESG so important. It is about the ability to price companies more accurately with a more detailed representation of the cost of capital challenges, how the risks might play out in business."
AN ANALYST
Read more about these conversations online: annualreports.solvay.com/2018/en
100 nationalities. 49% of our employees are located in Europe, 18% in Asia and rest of the world, 23% in North America and 10% in South America. 8% work in Research & Innovation.
24,500 23%
Employees1 of women
We have invested €711 million of Capex from continuing operations and €352 million in our Research & Innovation activities.
energy, the Group overall raw materials expenses amounted to circa €2.8 bn in 2018.
Energy consumption 127 pj Total water intake 488 M m3
How we create value
Soda Ash & Peroxyde Chemicals PERFORMANCE CHEMICALS
Performance Chemicals operates in mature and resilient markets and has leading positions in chemical intermediates.
of Group EBITDA 30%
of Group EBITDA
21%
Surface & Liquid Chemistry FORMULATIONS
ADVANCED
Advanced Formulations provides customized specialty formulations that influence surface chemistry and liquid behavior to optimize efficiency and yield while minimizing environmental impact.
Advanced Materials offers a unique portfolio of high-performance polymers and composite technologies used primarily in sustainable mobility applications. Our solutions enable weight reduction and enhance performance while improving CO2
of Group EBITDA
Polymer & Composite Technologies
ADVANCED MATERIALS
and energy efficiency.
49%
1 Excluding the Polyamide business
We aim to optimize the use of our resources and we leverage our unique Sustainable Portfolio Management (SPM) tool to integrate sustainability into our decision-making process and create more sustainable value for our stakeholders. Our business model focuses on two growth engines, Advanced Materials and Advanced Formulations, that serve fast-growing markets driven by sustainability trends – Next generation mobility and Resources efficiency – and deliver 70% of the Group's Ebitda. Our resilient Performance Chemicals businesses contribute to support our growth.
Our Sustainable Portfolio Management (SPM) analysis tool allows us to engage with customers on the sustainability profile of value chains, and to initiate discussions on the transition to a Circular Economy.
155 years of scientific and open innovation culture makes them part of our DNA. We have established multiple partnerships with scientific institutes and start-ups.
All our R&I projects are assessed through our SPM tool.
Caring for our people has always been a priority to us. Our Solvay Cares program extends at least minimum level company benefits to all employees worldwide.
Providing sustainable solutions to CUSTOMERS More than 80% of our portfolio has been assessed through our SPM tool.
50% Net sales with Sustainable
solutions Employee Net Promoter 42%
Dividend growth over 30 years and strong cash generation. We are driven by focus on cash returns.
Underlying EBITDA €2.2 bn
CFROI 6.9%
FCF from continuing operations €830 M €3.75
per share Dividend 2018 recommended3
We are developing initiatives to increase the share of renewables in energy consumption, and promoting energy efficiency through our Solwatt® program.
| 5.5 32.4 Kg CO2 eq. per |
|
|---|---|
| € EBITDA Industrial Greenhouse hazardous gas intensity waste4 |
thousand tons |
AIR EMISSIONS
thousand tons Nitrogen oxides thousand tons Sulfur oxides 3.7
We are leveraging digital tools to encourage new ways of working that will accelerate our cultural transformation toward more collaboration and empowerment.
| Score | 76% | 0.542 | 9% |
|---|---|---|---|
| engage ment index |
Occupa tional accidents |
||
| per million hours worked |
We aim to develop collaborative relationships with our major suppliers to help them improve their sustainability performance, contributing to the creation of more valuable solutions for our customers, across the value chain.
| 40,000 | 810 | 76% |
|---|---|---|
| Suppliers | Critical | Local |
| suppliers | suppliers |
We encourage employees to get involved in local projects that focus on the environment, science, youth and education, solidarity and philanthropy.
33%
Employees involved in local societal actions
2 Rate of accidents with medical treatment, with or without work stoppage 3 Recommended to the Shareholders meeting on May 14, 2019 4 Not treated in a sustainable way
Solvay's strategic journey has a constant focus: a step-by-step transformation towards unleashing potential. First, an in-depth overhaul of our portfolio that made us an advanced materials and specialty chemicals group. Next, a reshaped organization and culture to focus firmly on our customers. Now, a strong position to continue our journey, delivering on growth as we travel.
Sales with Sustainable solutions
More than
70%
Sales with specialty products
Sales in GDP+ markets
~33%
Sales in each main region
In 2012, we began a strategic journey to comprehensively redefine our business model. We transformed our portfolio and, in doing so, transformed Solvay. We moved from being a commodity chemicals company to become an advanced materials and specialty chemicals group.
We are a solutions provider and have refocused our business on high-growth markets that now account for the majority of our sales, and many new names stand out among our top customers.
Our business transformation has allowed us to generate substantial synergies. We have moved away from a largely diversified portfolio, reliant on cyclical markets, to a focused portfolio of highly specialized products and solutions that are
tailor-made to solve our customers' challenges. This means we are creating more value for our customers and for Solvay. Sustainability is central to our business, our ambition and our strategy. Far-reaching sustainability targets, and our Integrated Thinking approach, Sustainable Portfolio Management tool and Solvay Way program embed sustainability in all of our decisionmaking, from innovation to investment projects. As a result, it is now a key driver of our business growth.
2018 was decisive in simplifying and streamlining our organization and processes to make Solvay more agile, more outward-looking, with a sharper focus on our customers' needs across the Group, from the Board to the shop floor. Solvay builds on its ability to understand its customers and forge long-lasting relationships to co-create innovative solutions that meet their challenges.
We also began an in-depth cultural transformation to support growth and unlock our potential. By introducing new working practices and encouraging three behaviors – I trust, I take smart risks, I focus on customer needs – we aim to take customerfocus and collaboration ever further, empower our people and accelerate innovation in 2019 and beyond. We are seizing the opportunities of digitalization to build on the excellence that has always been one of Solvay's features, enhance employee experience, support us as we transform our culture, and bring innovation to our industrial processes.
Innovating, working together, acting sustainably for society, being open and connected with the world - this is the spirit guiding the transformation of Solvay and the reinvention of the 22-hectare site which has housed many of its activities since 1953.
Solvay's ambition is to bring its employees together in one modern building and to turn the site into a buzzing campus that showcases the new Solvay and expresses the Group's humanist vision of science, fosters innovation, attracts talent and makes its people proud.
The site will be dedicated to high-technology innovations in chemistry and advanced materials. From there, Solvay's mission is to grow its own Research & Innovation activities, as well as those with its partners: startups, universities and research institutions creating solutions for a rapidly advancing society.
Today and tomorrow, Solvay is committed to maximizing organic growth. Unflagging customer focus and sustainable innovation will be its dual drivers, supported by our new culture and our committed people. We aim to be the lead provider of sustainable solutions for our customers. We have confirmed our 2025 extra-financial targets. Regarding GHG, we switched to a commitment in absolute terms, aiming at reducing our emissions by 1 million tons.
We will innovate faster by embedding new, collaborative ways of working and leveraging internal and external connections. Innovation is a key enabler of customer-intimacy and we will step up collaboration with customers at our 21 major research centers. In Brussels, we have decided to build a unique Advanced Material Science Applications Center, where we will co-develop with our customers, designing and testing prototypes, mainly in the aerospace and automotive industries. With 1,000 scientists and engineers, our new Research & Innovation Center in Lyon will be world-class and Solvay's largest. Its digital expertise will accelerate and enhance the quality of our research.
We will continue to ensure all our innovation projects meet sustainability targets, leveraging our SPM methodology. We will also champion collaborative innovation to accelerate the transition to a Cicular Economy, an increasingly strategic priority for customers.
We drive customer-intimacy right across the Group, investing in and training our frontline teams, ensuring researchers and marketing colleagues work together to develop solutions that create value for the customer. We are developing feedback
programs between our frontline teams and our customers, to drive continuous imrovement, changes in behaviors and differentiation for priority accounts. Our new integrated Excellence Center will also coordinate all our key competencies and support GBUs in getting the best from our assets. Our Sustainable Portfolio Management (SPM) analysis tool allows us to engage with customers on the sustainability profile of value chains, and to initiate discussions on the transition to a Circular Economy.
We will continue to ensure our talents make the difference to the quality of our projects. We empower them by supporting an entrepreneurial and collaborative mindset. As increasing the diversity of our teams is a priority, we are seeking out the profiles that will continue to drive innovation and building the skills that our growth businesses need. Composed of both change agents and specialists, the Excellence Center will also act as a talent incubator to spread the excellence culture across the Group.
May 2018 saw the launch in Europe of a pilot program on entrepreneurial leadership for Solvay's "Leaders of the Future". The pilot, developed in partnership with Ashoka, one of the world's top 10 most influential NGOs, invited five Solvay Talents to work with five Ashoka Fellows Social Entrepreneurs. The Talents said the program helped them to be responsible, effective leaders and create an entrepreneurial mindset. Building on the first pilot, a second one was launched in North America in November 2018 for six Solvay Talents.
Solvay has also been awarded the LinkedIn Talent Awards 2018 - Best Employer Brand in recognition of its communication strategy to attract talents worldwide.
The seeds of Solvay's passion for innovation were sown by our founder, Ernest Solvay, and continue to flourish across the Group today. Our customers trust us for our scientific excellence and our extensive, yet balanced, portfolio of technologies. These are just two of the assets that enable us to create and innovate, bringing society sustainable solutions that address the issues of the future, with a focus on internal and external teamwork that facilitates breakthrough innovation.
A healthy innovation pipeline is a priority for Solvay and we use verifiable data to assess all projects on sustainability, probability of success, value and availability of internal resources. That means our innovations are aligned with market needs from Proof of Concept on.
We use our Sustainable Portfolio Management (SPM) tool to carry out a full analysis of all R&I projects at every one of their key stages. That ensures we select only those that offer proven sustainability.
2,200
Employees
More than
80%
Expected revenue of the R&I pipeline that should come from "Sustainable Solutions"
264 1,500
€352 M
R&I effort
18%
New sales ratio*
*% of products/applications < 5 years
Patent applications Intellectual Property agreements with customers and academic bodies
We have decided to put in place a process to enhance our ability to deliver breakthrough innovation, focusing on exploring new territories in clean mobility and resource efficiency to create options for future growth, being jointly governed by R&I and businesses."
NICOLAS CUDRÉ-MAUROUX Group General Manager Research & Innovation
We champion collaboration. The increasing complexity of technologies means we can no longer innovate alone. Collaboration is key to innovation at Solvay, within our teams and beyond. We encourage our teams to work together across entities, sharing best practices to build synergies. We undertake open innovation projects in cooperation with external research institutes and academia, startups or customers.
Investment in or close collaboration with startups allows Solvay to widen its portfolio and accelerates its solution delivery. In some cases, external teams take novel technologies right through to late-stage development, allowing us to focus our expertise on swiftly finalizing development and bringing the solution to market. Our recent investment in Solid Power (USA), a leader in solid-state battery, and NOHMs Technologies (USA), a provider of solutions for safer batteries, are examples of this approach focused on electrical vehicles.
Allocated to evergreen funds and start-ups
Solvay and the Ecole polytechnique fédérale de Lausanne (EPFL) are partnering to use atomic-scale modeling to increase understanding of key chemical reactions and optimize the properties of the composites involved. For EPFL, pooling expertise in chemistry, quantum modeling and machine learning, makes it possible to study complex chemical reactions from a whole new angle, while for Solvay, modeling helps both identify the best potential composites and manage costs. "Innovation is about more than transferring technology from laboratory to industry and can be enhanced by bringing the challenges of industry into the equation," says Marc Gruber, Vice President for Innovation at EPFL. Other projects are likely to follow.
We get closer to our customers. Solvay's researchers work closely with their marketing colleagues to sharpen their understanding of customer needs and so develop solutions that feature the expected functionalities.
We empower our teams and foster diversity. Successful innovation also depends on motivated and diverse teams. As well as pure chemists, Solvay's research teams feature physicists and mathematicians, for example, because scientists with different profiles take different pathways to new ideas. And we empower our R&I teams to take an entrepreneurial approach, encouraging scientists to undertake short term missions that enhance their work and share their expertise across entities and geographies.
We leverage digital. Digital technologies are also key to developing better, faster industrial processes. Artificial intelligence, machine learning or molecular modelling enhance processes and so both improve productivity, safety, cost efficiency and return on capital, and reduce CO2 and resource consumption. To support our efforts in molecular modelling, we have decided to set up new teams of developers hosted with our chemists in our R&I centers. We are using molecular modeling, for example, to speed up the design of new supramolecular polymers for advanced materials.
18 SOLVAY · 2018 Annual Integrated Report
Solvay's internal network of Fellows scientists is a vehicle for sharing technologies, best practices, recruitment, and contacts. "My primary role as a Fellow is to develop competencies and technology platforms to support the development of products that meet the future needs of our customers", say Rob Maskell, Solvay's R&I Fellows Network expert in molecular structure. After a year as a Fellow, he acknowledges he has a much better understanding of the underlying science and technology at a fundamental level available within Solvay as a whole. The Solvay Fellows are all world-renowned external scientific experts who challenge Solvay's research directions and connect the Group with high-potential external partners.
Extending this networking policy at the highest level, Solvay's Science Advisory Board is another team of worldrenowned external scientific experts, including Pr. Ben Feringa (University of Groeningen, Netherlands), Nobel Prize in Chemistry 2016, Pr. Avelino Corma (University of Valencia, Spain), Pr. Zhenan Bao (Stanford University, USA) and Pr. Juan J. de Pablo (University of Chicago, USA). Their key mission is also to challenge Solvay's long-range research directions and to help us detect new challenges or breakthrough opportunities in the chemistry of the future.
19 SOLVAY · 2018 Annual Integrated Report
Solvay Management Report presents the Group's social, environmental and financial performance in 2018, as well as its achievements in terms of governance.
MANAGEMENT REPORT
| 1. Introduction | 22 |
|---|---|
| 2. Capital, Shares and Shareholders | 22 |
| 3. Board of Directors and Board Committees | 25 |
| 3.1. Board of Directors | 25 |
| 3.2. Board committees | 32 |
| 4. Executive Committee | 35 |
| 5. Compensation report | 37 |
|---|---|
| 5.1. Governance | 37 |
| 5.2. Board of Directors compensation | 38 |
| 5.3. Executive Committee compensation | 39 |
| 5.4. Stock options and PSU allotted in 2018 to Executive Committee members |
47 |
| 5.5. Key provisions of Executive Committee members' contractual relationships with the Company and/or an affiliated company, including provisions relating to compensation in the event of early departure |
48 |
| 6. Main characteristics of risk management and internal control systems |
49 |
| 7. External audit | 51 |
| 8. Items to be disclosed pursuant to Article 34 of the Belgian Royal Decree of November 14, 2007 |
52 |
Solvay SA – headquartered in Belgium – is committed to the highest governance principles and seeks to consistently enhance corporate governance performance, emphasizing transparency and promoting a sustainable culture of long-term value creation.
Solvay's governance bodies are responsible for the Group's longterm approach, pursuing the vision of Solvay's founder, and implementing the Group's strategy. The Board of Directors is entrusted with steering Solvay's development strategy while advising the Executive Committee, which oversees its business operations.
This Corporate Governance Statement applies the recommendations of the 2009 Belgian Corporate Governance Code's "comply or explain" principle. It includes information on Solvay's share capital, shareholders and investor relations, governance bodies, Compensation report, risk and internal control, and external auditor.
The Board of Directors of Solvay adopted a Corporate Governance Charter (the "Charter") on December 13, 2016. The Charter is available on Solvay's website and describes the main aspects of the Solvay Group's corporate governance, including its governance structure and the internal rules of the Board of Directors, the Executive Committee, and other committees set up by the Board of Directors.
In accordance with this principle, none of the rules described in this Corporate Governance Statement depart from the 2009 Belgian Corporate Governance Code.
Solvay's capital amounts to €1,588,146,240 and comprises 105,876,416 issued shares. No changes were made to the Company's capital in 2018.
Solvay (SOLB.BE) is listed on Euronext Brussels, its primary listing stock exchange. Solvay has a secondary listing on Euronext Paris. Solvay shares are also traded over the counter (OTC) as a Level 1 sponsored American Depository Receipt (ADR) through Citibank, as of October 1, 2016.
Solvay's stock is a constituent of the BEL20, the main Belgian index. In September 14, 2018 it became part of the Next20 index following the exit from the CAC40 index. The Group is still considered to be the largest (specialty) chemicals company on the Paris stock exchange. Solvay shares are part of other major indexes including the BEL Chemicals, STOXX family (DJ STOXX and DJ Euro STOXX), MSCI index, Euronext 100, Dow Jones Sustainability TM World Index, and FTSE4Good Index.
During 2018, the average share price was €110.07 while the 52-week range was €85.44 – €120.65 per share. Average daily trading volume as reported by Euronext was 277,313 shares in 2018, compared to 245,621 shares in 2017.
The chart below represents Solvay's shareholder structure as of December 31, 2018, based on the notifications made by its shareholders. These transparency notifications are required by Belgian law or pursuant to Solvay's bylaws, when the shareholding crosses the thresholds of 3%, 7.5% or any multiple of 5%.
Solvay received the following declarations in 2018:
The remaining shares for approximately 63% are thereby held by institutional and retail shareholders, with an individual shareholding not exceeding 3%.
At the Ordinary Shareholders' Meeting held on Tuesday, May 8, 2018, shares were deposited and votes casted in respect of 63.94% of Solvay SA's capital.
Solvay's major shareholder is Solvac SA, which holds more than 30% of Solvay's share capital. Solvac SA is a public limited liability company established under Belgian law, founded in 1983. Its assets consist exclusively of the Solvay shares, thereby contributing to the anchorage of Solvay.
Solvac's CEO, Bernard de Laguiche, is a non-independent and non-executive director on Solvay's Board of Directors.
Solvac's shares are traded on Euronext Brussels. It has approximately 14,000 shareholders. Among them, more than 2,300 persons are related to the founding families of Solvay, which combined hold approximately 77% of the Solvac shares.
Solvay Stock Option Management SPRL, is an indirect subsidiary of Solvay, and hold 2.72% of Solvay's capital through shares and purchase options combined. These are held as part of the Group's strategy to hedge the risk linked to stock options granted by Solvay to senior executives of the Group.
Solvay facilitates an open dialog with the investment community to build long-term relationships. Following the guidelines issued by the FSMA (Belgian Financial Services and Markets Authority) it complies with disclosure obligations defined by Belgian law and contained in the Market Abuse Regulation (MAR).
Solvay provides accurate information in a transparent, timely, and meaningful manner to help the investment community understand Solvay's business and strategy, leading to a fair valuation by the market. Extensive information about Solvay's business operations, strategy, and financial performance may be found in a wide variety of regulatory and other publications, such as the Annual Integrated report, financial reports and press releases, as well as on the company's website (www.solvay.com). The website was fully revamped in 2018.
The investor relations team is readily accessible by the investment community via email or phone throughout the year. Executive Committee members and the investor relations team also directly interact with various members of the investment community throughout the year via roadshows and investor conferences.
During our last Investor Update in September, the Executive Committee members communicated the updated Solvay portfolio and illustrated the key markets and main levers that will enable the Group to deliver superior and sustainable value growth.
Solvay has regular meetings with its major shareholder Solvac. It presents to the Solvac Board and participates to events organized by the founding family shareholders. All these interactions are based on public information and new presentation material is shared on Solvay's website.
In 2018 Solvay management representatives participated at three Solvac board meetings and participated to five events organized by Solvay's founding families.
Solvay undertakes specific actions to interact with institutional investors. Roadshows are organized with Executive Committee members and investor relations representatives. They attend investor conferences around the world. The resulting face-toface interactions enable dialog with the investment community on Solvay's strategy and business performance.
In 2018, Solvay participated in 59 events (among which 26 interactions with Executive Committee members), including roadshows and conferences in 18 countries across Europe, America and Asia, as well as reverse roadshows at Solvay's offices. This resulted in 80 individual meetings. Solvay also hosted a site visit to its research center in Shanghai, China.
Solvay is covered by 20 sell-side analysts who publish active research on the stock. The up-to-date list of covering analysts can be found on Solvay's website. The sell-side analysts are an essential tool in communicating the information on Solvay to the investor community.
Besides the regular individual meetings, emails, phone contacts, Solvay organizes quarterly conference calls between Executive Committee members and the sell-side analysts base following the Group's results publication. Although specifically geared to analysts, these conference calls are accessible live to all investors and available through replay or transcript on Solvay's website afterwards. Twice a year, following full and half year results, Solvay also sets up face-to-face meetings in London and Brussels.
Every shareholder has access to clear, comprehensive, transparent information tailored to his or her individual needs through Solvay's Investors' Club, or through direct contacts with the investor relations team. In addition, Solvay's Registered Share Management Service ([email protected]) responds to all queries and requests for information and services. In 2018 Solvay participated in two investor events in Belgium (in Brussels and Antwerp).
Solvay also engages with private banks, regularly interacting with their analysts and occasionally participates in their events.
The Charter defines the role and mission, functioning, size, composition, training, and evaluation of the Board of Directors. The internal rules of the Board of Directors are attached to the Charter.
As at December 31, 2018, the Board was composed of 16 Directors:
Board meeting attendance is high: 96.87 %
Mr. Denis Solvay and Mr. Bernhard Scheuble left the Board at the Ordinary Shareholders' Meeting of May 8, 2018, and have been replaced by respectively Mr. Philippe Tournay and Mr. Matti Lievonen, who were appointed as Board members for a four-year term;
Their mandate will expire at the end of the Ordinary Shareholders' Meeting to be held in May 2022;
At the end of the Ordinary Shareholders' Meeting of Tuesday, May 14, 2019, the following mandates will expire:
At the same Ordinary Shareholders' Meeting of Tuesday May 14, 2019, it will be proposed:
Year of first appointment Presence at Board meetings in 2018
Nicolas Boël Belgian Non independent Director 1998 10/10
Solvay SA mandates: Chairman of the Board of Directors, Chairman of the Finance Committee and Chairman of the Compensation Committee, Member of the Nomination Committee
Directorship expiry date: 2021
Diplomas: MA in Economics (Université catholique de Louvain, Belgium), Master of Business Administration (College of William and Mary, Virginia, US)
Activities outside Solvay: Director of Sofina
Jean-Pierre Clamadieu(1) French Non independent Director 2012 9/10
Solvay SA mandates: Chairman of the Executive Committee and CEO, Director and Member of the Finance Committee
Directorship expiry date: 2019
Diplomas: Engineering degree from the École des Mines (Paris, France).
Activities outside Solvay: Director of Axa, Airbus. Chairman of Cytec Industries Inc., Chairman of Engie SA, Chairman of the Opéra de Paris
Bernard de Laguiche French/Brazilian Non independent Director 2006 10/10
Solvay SA mandates: Member of the Executive Committee until September 30, 2013, Director, Member of the Finance Committee and Member of the Audit Committee since May 13, 2014
Directorship expiry date: 2021
Diplomas: MA in Economics and Business Administration, HSG (Universität St. Gallen, Switzerland). MBA in Agribusiness, University of São Paulo (USP ESALQ)
Activities outside Solvay: Managing Director of Solvac SA, Chairman of the Board of Peroxidos do Brazil Ltda, Curitiba (Brazil), Board member of Le Pain Quotidien Brasil Ltda, Sao Paulo and Luxembourg, Founder and President of Grupo Ortus SA, Curitiba (Brasil), President of Agro Mercantil Vila Rica Ltda, Parana (Brazil).
Jean-Marie Solvay Belgian Non independent Director 1991 10/10
Solvay SA mandates: Director, Member of the Innovation Board, Member of the Compensation and Nomination Committees since March 2018
Directorship expiry date: 2020
Diplomas: Advanced Management Programme – Insead.
Activities outside Solvay: Chairman of the Board of the International Solvay Institutes. Member of the Board of the Innovation Fund, Brussels. CEO of Albrecht RE Immobilien GmbH & Co. KG., Berlin (Germany)
(1) Employed full time by the Solvay Group.
Denis Solvay Belgian Non independent Director 1997 3/4 Left the Board at the AGM of May 8, 2018
Solvay SA mandates: Director, Member of the Compensation and Nomination Committees
Directorship expiry date: 2018
Diplomas: Business engineering – Solvay Business School (Université Libre de Bruxelles, Belgium).
Activities outside Solvay: Abelag Holding, SA. Voluntary Director of the Healthcare Institute ANBCT and Queen Elisabeth Music Chapel
Prof. Dr. Bernhard Scheuble German Independent Director 2006 4/4 Left the Board at the AGM of May 8, 2018
Solvay SA mandates: Independent Director, Chairman of the Audit Committee
Directorship expiry date: 2018
Diplomas: MSc, Nuclear Physics & PhD, Display Physics (Albert-Ludwigs-Universität Freiburg, Germany).
Activities outside Solvay: Former Chairman of the Executive Committee of Merck KGaA, (Darmstadt, Germany) and former member of the E. Merck OHG Board of Directors
Charles Casimir-Lambert Belgian Independent Director 2007 10/10
Solvay SA mandates: Independent Director, Member of the Audit Committee
Directorship expiry date: 2019
Diplomas: MBA Columbia Business School (New York, USA)/London Business School (London, UK), Master's degree (lic.oec.HSG) in Economics, Management and Finance (Universität St. Gallen, Switzerland). Activities outside Solvay: Management of family's global interests.
Hervé Coppens d'Eeckenbrugge Belgian Independent Director 2009 9/10
Yves-Thibault de Silguy French Independent Director 2010 10/10
Solvay SA mandates: Independent Director, Member of the Finance and Audit Committees
Directorship expiry date: 2021
Diplomas: MA in Law from the Université catholique de Louvain (Belgium), Diploma in Economics and Business, ICHEC (Belgium) Activities outside Solvay: Until June 30, 2013 Group Director Petercam SA, Director of Vital Renewable Energy Company LLC (Delaware), Independent Director, VISONARITY AG (Basel, Switzerland) until April 2018.
Solvay SA mandates: Independent Director, Member of the Compensation Committee and Chairman of the Nomination Committee, Member of the Finance Committee
Directorship expiry date: 2019
Diplomas: MA in Law from the Université de Rennes (France), DES in public law from Université de Paris I (France), graduate of the Institut d'Études Politiques de Paris and the École Nationale d'Administration (France) Activities outside Solvay: Former European Commissionner of the Economics, Monetary and Financial Affairs (1995-1999), Director and Vice-Chairman of the Board of the Vinci Group, Director of LVMH, Chairman of the Supervisory Board of Sofisport (France), Director of VTB bank (Moscow, Russia), and Chairman of YTSeuropaconsultants
Evelyn du Monceau Belgian Independent Director 2010 10/10
Solvay SA mandates: Independent Director, Member of the Compensation and Nomination Committees
Directorship expiry date: 2021
Diplomas: MA in Applied Economics from the Université catholique de Louvain (Belgium). Activities outside Solvay: Chair of the Board and Chair of the Governance Nomination and Compensation Committees of UCB SA, Member of the Board of Directors of La Financière de Tubize SA, Member of the Corporate Governance Commission.
Françoise de Viron Belgian Independent Director 2013 9/10
Solvay SA mandates: Independent Director, Member of the Compensation and Nomination Committees
Directorship expiry date: 2021
Diplomas: Doctorate of Science (Université catholique de Louvain, Belgium). Master in Sociology (Université catholique de Louvain, Belgium)
Activities outside Solvay: Professor at the Faculty of Psychology and Education Sciences and Louvain School of Management (Université catholique de Louvain, Belgium), Academic Member for Center in Research Entrepreneurial Change and Innovative Strategies, and of the Interdisciplinary Group for Research in Socialization, Education and Training, of the Interdisciplinary Research Group in Adult Education at the Université Catholique de Louvain (Belgium). Chairman and Director of AISBL EUCEN – the European Universities Continuing Education network.
Solvay SA mandates: Independent Director, Member of the Compensation and Nomination Committees
Directorship expiry date: 2021
Diplomas: Degree in Industrial Engineering, ICAI (Universidad Pontifica Comillas, Spain) PDG, IESE Business School (Universidad de Navarra, Spain).
Activities outside Solvay: Former General Manager of IBM Spain, Portugal, Greece, Israel and Turkey Former Chief Operating Officer, International Division (Spain) and Acting CEO, Scottish Power (UK) part of Iberdrola Group. Member of the Boards of the following listed companies: Airbus SE (The Netherlands), Faurecia (until oct.2017) (France), Caixabank SA (Spain), Vodafone plc (UK) .Member of the Consejo rector of Consejo Superior of Investigaciones Cientificas. Member of the Spanish Royal Academy of Economics and Financial Sciences
Rosemary Thorne British Independent Director 2014 10/10
Solvay SA mandates: Independent Director, Member of the Audit Committee (Chairman since May 2018)
Directorship expiry date: 2022
Diplomas: Honours Degree in Mathematics and Economics from the University of Warwick (UK). Fellow of the Chartered Institute of Management Accountants FCMA and CGMA. Fellow of the Association of Corporate Treasurers FCT.
Activities outside Solvay: Former Chief Financial Officer of J. Sainsbury, Bradford & Bingley, and Ladbrokes (UK). Member of the Board and Chair of Audit Committee of Merrill Lynch International (UK). Former Independent Director of Royal Mail Group, Cadbury Schweppes, Santander UK, First Global Trust Bank (UK) and Smurfit Kappa Group (Ireland).
Gilles Michel French Independent Director 2014 9/10
Solvay SA mandates: Independent Director, Member of the Finance Committee, Member of the Compensation and Nomination Committees since March 2018
Diplomas: École Polytechnique (France). École Nationale de la Statistique et de l'Administration Économique (ENSAE) (France). Institut d'Études Politiques (IEP).
Activities outside Solvay: Former CEO Ceramics & Plastics, Saint-Gobain, France. Former member of the Management Board, PSA, France. Former CEO, Fonds stratégique d'Investissement (FSI), France. Former Chairman & CEO, Imerys, France (listed) ; non executive Chairman of the Board. Independent Director IB , Valeo : Independent Director.
Marjan Oudeman Dutch Independent Director 2015 10/10
Solvay SA mandates: Independent Director, Member of the Audit Committee since May 12, 2015
Directorship expiry date: 2019
Diplomas: Law degree, Rijksuniversiteit Groningen (the Netherlands). Masters Degree in Business Administration, Simon E. Business School, University of Rochester (New York, USA), and Erasmus Universiteit Rotterdam (the Netherlands).
Activities outside Solvay: Former member of the Board of Exco, Tata Steel and Akzo Nobel. Former executive President of Utrecht University. Former member of the Board of Statoil ASA (now known as Equinor ASA), ABN Amro, Chairman of the Board of Ronald McDonald Children's Fund. Member of the Supervisory Board of the Rijksmuseum, the Netherlands. Member of the Supervisory Board of Aalberts Industries NV and SHV Holding NV. Board member of UPM-Kymmene Corporation and PJSC Novolipetsk steel.
Agnès Lemarchand French Independent Director 2017 10/10
Solvay SA mandates: Independent Director, Member of the Audit Committee
Directorship expiry date: 2021
Diplomas: Ecole Nationale Supérieure de Chimie de Paris (France), Chemical engineering degree from MIT (Boston, US), MBA degree from INSEAD.
Activities outside Solvay: Former CEO IBFbiotechnics, Rhône-Poulenc (France). Former CEO Prodical, Ciments-Français, (France). Former CEO Lime Division, Lafarge (France). Former Executive Chairman of Steetley Dolomite Ltd (UK). Independent Director of the following listed companies : CGG Veritas (until Oct 2017) (USA/France), Compagnie de Saint-Gobain (France), BioMérieux (France).
Matti Lievonen Finnish Independent Director 2017 5/6
Philippe Tournay Belgian Independent Director 2017 6/6
Born in: 1958
Solvay SA mandates: Independent Director
Directorship expiry date: 2022
Diplomas: BscEng, Electrical Engineering, Kuopio Institute of Technology, Finland eMBA, Helsinki University of Technology, Finland Activities outside Solvay: Neste Corporation, Chairman & CEO until 1st november 2018 , CET member (Finland), Chairman of the Board of Fortum Board, SSAB, Board Member, Vice Chairman (Sweden) until 2018,Member of the Board of Nynäs AB, Ilmarinen, Supervisory Board Member (Finland), HE Finnish Fair Foundation, Member of the Board
Born in: 1959
Solvay SA mandates: Independent Director
Directorship expiry date: 2022
Diploma: MA in economics LSM-UCL (Université Catholique de Louvain,Belgium) Activities outside Solvay: Presa SA Owner & Managing Director (since 2003), Fondation Tournay Solvay, Vice Chairman (since 2007)
SOLVAY 2018 Annual Integrated Report 31
In 2018, the Board held eight meetings. Each director's attendance is shown in the table in section 3.1.1. Structure and composition.
The Board of Directors' discussions, reviews, and decisions focused on the annual review of Group strategy, strategic projects (acquisitions, divestments, capital expenditures, etc.), quarterly financial reporting, approving quarterly financial statements and proposing a dividend to the AGM, Board Committees reports, corporate social responsibility and sustainability policy, risk management, compensation policy and the long-term incentive plan, Board and management succession planning, intragroup restructuring, and the reports and resolution proposals to the General Meeting.
In particular, the year 2018 was marked by the management succession process initiated by the Board of Directors and led by the Nomination Committee, with strong external support. A sub-committee called the "Search Committee" was established to be in charge of the day-to-day process. The sub-committee comprised of 3 members. The rigourous assessment, development and selection process involved:
There were no transactions or contractual relationships in 2018 between the Group and its Board members giving rise to conflicts of interest.
In 2016, the Board of Directors hired an independent third party to conduct an evaluation and advise it on how it can better follow best practices. Evaluations of this kind are made every two to three years and focus primarily on Board composition, how it functions, disclosures and interactions with executive management, and the composition and functioning of the Committees it creates. Board members were invited to provide input on these points during questionnaire-based interviews by an external consultant (Spencer Stuart).
In light of the focus on succession planning during 2018 and the appointment of a new CEO, the Nomination Committee considered it important to start the Board performance evaluation process in early 2019. Key areas for improvement identified and the progress that has been observed will be presented in next year's report.
As announced, the Board of Directors launched the following evaluation process at the end of 2018.
In 2018, a number of key executives made presentations to the Board on strategy, business and functional topics, making sure the Board stays familiar with and informed on topics that are relevant and important for the Group, even though they do not require immediate decisions.
The Board of Directors visited the industrial and research sites at: Tavaux and Research and Innovation Center Lyon (France). This trip gave the Board members the opportunity to meet local operational teams and come face to face with the reality of the sites' business and industrial conditions.
Every year the Board dedicated a specific session to an update on trends in global sustainable development issues (including climate change risks and opportunities) that impact the Group, its actions, and its performance – including progress on Solvay's five priorities, ratings by sustainable rating agencies, the Solvay Way, and the Integrated Report. This year the session focused on the changing context of sustainability (IPCC Report 2018 and the Science Based Target Initiatives).
The Board of Directors specifically endorsed the new objective for absolute reduction of greenhouse gas emissions (1 MT by 2025 compared to 2017 at constant scope). It was also kept up to date with a review of priorities for 2019, including the deployment of the Group's Climate Plan, the launch of circular economy projects, and the deployment of Solvay Way 3.0.
The Board of Directors has set up the following permanent Committees: Audit Committee, Finance Committee, Compensation Committee, and Nominations Committee.
The terms of all the various Committee members expired on May 8, 2018.
The Board reviewed in 2018 the composition and renewed the terms of the various Committees for a two-year period starting on May 8, 2018, and ending on the date of the Ordinary Shareholders' Meeting in 2020.
As of December 31, 2018, the composition of the four Board committees 2018 was as follows:
| Independent | Compensation | Nominations | |||
|---|---|---|---|---|---|
| Director | Audit Committee | Finance Committee | Committee | Committee | |
| Mr. Nicolas Boël | Chairman | Chairman | Member | ||
| Mr. Jean-Pierre Clamadieu | Member | ||||
| Mr. Bernard de Laguiche | Member | Member | |||
| Mr. Denis Solvay | Member(3) | Member(3) | |||
| Mr. Jean-Marie Solvay | Member(3) | Member(3) | |||
| Prof. Dr. Bernhard Scheuble | x | Chairman(6) | |||
| Mr. Charles Casimir Lambert | x | Member | |||
| Mr. Hervé Coppens d'Eeckenbrugge | x | Member | Member | ||
| Mr. Yves-Thibault de Silguy | x | Member | Member | Chairman(7) | |
| Ms. Evelyn du Monceau | x | Member | Member | ||
| Ms. Françoise de Viron | x | Member | Member | ||
| Ms. Amparo Moraleda Martinez | x | Member | Member(7) | ||
| Ms. Rosemary Thorne | x | Chairman(2) | |||
| Mr. Gilles Michel | x | Member(4) | Member(4) | Member(4) | |
| Ms. Marjan Oudeman | x | Member | |||
| Ms Agnès Lemarchand | x | Member(5) | |||
| Mr. Matti Lievonen | x | Member(1) |
(1) from Feb 2019
(2) since May 2018
(3) Denis Solvay until March 22, 2018 and replaced by Jean-Marie Solvay at same date
(4) Member of the Finance Committe from May 2018, Member of Compensation and Nomination Committees from March 22, 2018
(5) from May 2018
(6) until May 2018
(7) will be replaced as Chairman by A. Moraleda at the AGM of May 2019
The composition, role, responsibilities, and procedures of these four Board Committees are described in the internal rules described in the Governance Charter.
Review and consider reports from the Chief Financial Officer, the head of the Group Internal Audit, and the auditor in charge of the external audit (Deloitte, represented by Mr. Michel Denayer);
The Compensation Committee fulfills the duties imposed on it by Article 526 quarter section 5 of the Companies Code. It advises the Board of Directors on:
The allocation of long-term incentives (performance share units and stock options) to the Company's senior management.
It prepares the annual compensation report for the Corporate Governance Statement and receives a yearly report about the compensation of General Management.
The Nomination Committee gives its opinion on appointments to the Board of Directors (chairman, new members, renewals, and committees), to Executive Committee positions (chairmanship and members), and to general management positions.
In 2018, the Nomination Committee focused its activity on the CEO succession process with the help of a specialized external international consultant. The board decided to set up an ad hoc committee called the "Search Committee" (3 members), in charge of the day-to-day process (14 meetings, 100% attendance). In addition, the Nomination Committee reviewed the current composition of the Board, keeping in mind the overall tenure as well as the skills required on the Board to drive Solvay's long-term strategy. To this end, the Nomination Committee considered that the current composition of the Board was sufficiently refreshed over the recent years through the addition of new Board members with skills relevant for Solvay.
The process involved:
The role, responsibilities, composition, procedures and evaluation of the Executive Committee are described in detail in the Charter. In addition, the internal rules of the Executive Committee are attached to the Charter.
As at December 31, 2018, the Executive Committee was composed of the following seven members.
Year of first appointment Presence at meetings in 2018
Jean-Pierre Clamadieu French 2011 13/13
Term of office ends: 2019
Diplomas and main Solvay activities: Engineering degree from the École des Mines (Paris, France). Chairman of the Executive Committee and CEO.
Born in: 1961
Term of office ends: 2020
Diplomas and main Solvay activities: Chemical engineering degree (Catholic
University of Louvain, Master's in Industrial Management (Catholic University of Leuven), AMP Harvard Executive Committee member.
Vincent De Cuyper
2006 13/13
Belgian
Karim Hajjar British 2013 13/13 Born in: 1963
Term of office ends: 2019
Diplomas and main Solvay activities: BSC (Hons) Economics (The City University, London). Chartered Accountancy (ICAEW) Qualification. Executive Committee member and CFO.
Roger Kearns American 2008 05/05
Pascal Juéry French 2014 13/13
Hua Du Chinese 2018 9/9
Cécile Tandeau de Marsac French 2018 9/9
Born in: 1963
Term of office ends: 2018
Leaves the Group in March 2018
Diplomas and main Solvay activities: Bachelor of Science – Engineering Arts (Georgetown College, Georgetown), Bachelor of Science – Technology, Atlanta, MBA (Stanford University). Executive Committee member.
Born in: 1965
Term of office ends: 2020
Diplomas and main Solvay activities: Graduate of the European Business School of Paris (ESCP, Europe). Executive Committee member.
Born in: 1969 Term of office ends: 2020
Born in: 1963
Term of office ends: 2020
Diplomas and main Solvay activities: BS Chemistry (Being University) PhD. Organic Chemistry (University of Illinois, Urbana-Champaign), Comex member.
Diplomas and main Solvay activities:
Master Degree in Economics & Business Administration, Graduate from Management and Business School of Rouen, Group General Manager of Human Resources, Comex member.
36
Term of office ends: 2020
Born in: 1959
Augusto Di Donfrancesco Italian 2018 9/9
During the year 2018, the following changes occurred:
On October 1, 2019, the Board of Directors will renew for a twoyear term the mandate of Karim Hajjar. His mandate will expire in October 2021.
For the year 2019, the following changes have been announced:
Solvay's Board of Directors appointed Ms. Ilham Kadri as Chairman of the Executive Committee, member of the Board of Directors and CEO of the Group, with effect from March 1, 2019. On that date, Ms. Ilham Kadri officially succeeds Mr. Jean-Pierre Clamadieu, who then relinquishes his executive duties and his mandate as director of Solvay. Ms. Ilham Kadri joined Solvay on January 1, 2019 and spent two months transitioning with Mr. Jean-Pierre Clamadieu, before taking the leadership and continuing Solvay's transformation strategy.
Solvay continues to actively reach out to its shareholders to discuss its approach to governance, including compensation matters. This is part of the Company's ongoing shareholder Diplomas and main Solvay activities:
Gratuated from Pisa University with a Master's degree in Chemical Engineering, Senior Executive program from London Business School. Comex Member Solvay, Member of the Plastics Europe steering Board.
engagement program, which Solvay will continue to undertake as part of its commitment to build upon this constructive dialog with its shareholders.
Following engagement with Solvay's shareholders to discuss its approach to governance, including compensation matters, Solvay increased its disclosure practices regarding its short-term and long-term incentives last year. Solvay's executive compensation policy and remuneration report, bolstered by increased disclosure, was supported by approximately 97% of its shareholders at last year's Annual General Meeting.
The increased disclosure in this year's Compensation Report surrounding Solvay's short-term and long-term incentives reflects the input received from Solvay's shareholders. Solvay believes that these changes, together with the existing compensation practices, have resulted in a compensation structure that incentivizes the executive team to deliver sustained long-term performance in a transparent manner, and in line with the Company's strategy, whilst ensuring that Solvay continues to uphold its key principle of rewarding the executives for performance.
In terms of Solvay's overall compensation structure, the Compensation Committee's annual review confirmed that the current pay mix and design remains appropriate, including for the new Chief Executive Officer. Accordingly, no changes to the overall structure of pay offered to Solvay's executives were considered necessary.
The compensation report for the corporate governance has been prepared by the Compensation Committee.
Solvay SA directors are remunerated with fixed emoluments, the common basis of which is set by the Ordinary Shareholders' Meeting, and any complement thereto by the Board of Directors on the basis of Article 26 of the bylaws, which states that:
€4,000 gross for members of the Audit Committee and €6,000 gross for its Chairman for each meeting of the committee attended;
€2,500 gross per member of the Compensation Committee, Nominations Committee and Financial Committee and €4,000 gross for the chairmen of these committees for each meeting attended, on the understanding that a director sitting on both the Compensation Committee and the Nominations Committee does not receive double compensation;
The Chairman of the Board is the sole non-executive director for whom the Group provides administrative support (including the provision of an office, use of the General Secretariat, and a car). The other non-executive directors receive logistical support from the General Secretariat as and when needed. The Company also provides customary insurance policies covering Board of Directors' activities in carrying out their duties.
The Compensation Committee expects no major changes in the structure of the compensation packages for the Board Members for the next two years (2019 and 2020).
| 2018 | 2017 | |||
|---|---|---|---|---|
| In € | Total gross amount including fix fees |
Board of Directors and Committees attendance fees |
Total gross amount including fix fees |
Board of Directors and Committees attendance fees |
| N. Boël | ||||
| Fixed emoluments + attendance fees | 75,000 | 40,000 | 63,000 | 28,000 |
| "Article 26" supplement | 250,000 | 250,000 | ||
| D. Solvay(1) | 33,430 | 21,000 | 56,000 | 21,000 |
| J-P. Clamadieu | 71,000 | 36,000 | 63,000 | 28,000 |
| J-M. Solvay | 92,500 | 57,500 | 59,000 | 24,000 |
| A. Lemarchand(2) | 83,000 | 48,000 | 34,572 | 12,000 |
| B. de Laguiche | 109,000 | 74,000 | 97,000 | 62,000 |
| B. Scheuble(1) | 46,430 | 34,000 | 99,000 | 64,000 |
| C. Casimir-Lambert | 99,000 | 64,000 | 87,000 | 52,000 |
| H. Coppens d'Eeckenbrugge | 101,000 | 66,000 | 97,000 | 62,000 |
| E. du Monceau | 100,000 | 65,000 | 70,500 | 35,500 |
| Y-T. de Silguy | 148,500 | 113,500 | 81,000 | 46,000 |
| A. Moraleda | 130,000 | 95,000 | 66,500 | 31,500 |
| F. de Viron | 93,500 | 58,500 | 70,500 | 35,500 |
| G. Michel | 98,500 | 63,500 | 66,500 | 31,500 |
| R. Thorne | 105,000 | 70,000 | 87,000 | 52,000 |
| M. Oudeman | 99,000 | 64,000 | 87,000 | 52,000 |
| M. Lievonen(3) | 42,700 | 20,000 | 0 | 0 |
| P. Tournay(3) | 46,700 | 24,000 | 0 | 0 |
| 1,824,260 | 1,014,000 | 1,434,572 | 637,000 |
(1) Up to May 8, 2018.
(2) From May 9, 2017.
(3) From May 8, 2018.
Solvay's compensation policy aims to ensure that its Executive Committee is rewarded according to its performance in contributing to Solvay's long-term objectives of becoming a more resilient, more sustainable, and more innovative multi-specialty Group with high added value.
The Solvay Compensation Structure is designed in line with the following principles:
Every year, the Compensation Committee obtains compensation data relating to the international market from Willis Towers Watson, a globally recognized compensation consultant.
Solvay's compensation structure for its Executive Committee is designed in accordance with the "pay-for-performance" approach approved by the Board of Directors, focusing on the Company's short-term and long-term performance. The level and structure of the compensation packages are aligned with market practices for similar functions at comparable companies.
Solvay's frame of reference for assessing relevant competitive practice is a selection of European chemical and industrial manufacturing companies whose international operations, annual revenues, and headcount are reasonably close to its own. The Company periodically reviews the composition of this peer group to ensure that it continues to reflect Solvay's strategic direction.
The peer group is currently composed of 17 European multinational companies incorporated in six different European countries (Belgium, France, Germany, Netherlands, Switzerland, and the UK) and active in the chemical and/or the industrial sectors.
Compensation structure components:
Evonik
Overall, Solvay seeks to position itself at or around the relevant market median for base salary and benefits. Variable compensation, both short-term and long-term, is designed to provide top quartile pay if executives deliver superior performance.
The Compensation Committee expects no major changes in the structure of the compensation packages for the Chairman and the members of the Executive Committee for the next two years (2019 and 2020).
| Fixed Compensation and Benefits |
Variable Compensation | ||||
|---|---|---|---|---|---|
| Annual Base Salary |
Pension & Benefits |
Short Term Incentive |
Performance Share Units |
Stock Options |
|
| Performance Period |
1 year | 3 years | 3 years | ||
| Performance Measures |
• Underlying EBITDA · Sustainable Development · Individual Objective |
• Underlying EBITDA growth • CFROI % • Reduction in GHG emissions |
None |
The base salary reflects the individual's experience, skills, duties, and responsibilities, and the contribution of the individual and role within the Group. It is paid monthly.
Base salary is reviewed annually and may increase considering a number of factors, including: (1) comparable salaries in appropriate comparator groups; (2) changes within the scope of the role; and (3) changes in the Group's size and profile.
The primary purpose of pension and insurance plans is to establish a level of security for Solvay employees and their dependents with respect to age, health, disability, and death. The benefits offered aim to be market-competitive, driving employee engagement and commitment in Solvay's business.
(*) No compensation data provided by Arkema to Solvay's Executive Compensation consultant. As such, Arkema was replaced by Plastic Omnium. (**) Impacted by recent M&A activities but market data still available
Short-term incentive (STI)
Short-term incentives are linked partly to Group performance and partly to individual performance to drive and reward the overall annual performance of executives. Their short-term incentives have maximum award limits and are denoted as a multiple of their respective base salaries.
Performance is assessed on an annual basis using a combination of pre-determined Group and individual performance targets set at the start of the year, as approved by the Compensation Committee. More specifically, the performance measures are:
| Threshold | Target | Maximum | Actual Achievement | Actual Achievement in %(1) |
|
|---|---|---|---|---|---|
| Underlying EBITDA – Target | |||||
| and Actuals (M€) | 2,020 | 2,220 | 2,420 | 2,230 | 105% |
(1) The scores 0% and 200% are defined using a range of -/+200M€ with a target set at 2,220M€. With 2,230 M€ underlying EBITDA achieved in 2018 before polyamide reclassification in discontinued operations, the Economic incentive scores is 105% vs target.
The sustainable development measure has two components, one being the notation by external extra-financial rating agencies, and the second being progress on "Solvay Way" our internal referential to measure progress on Sustainable Development. The overall achievement is 165% of the target.
Long-term incentives consist of a 50/50 mix of stock options (SOP) and performance share units (PSU). Each annual LTI plan is subject to prior Board approval.
The Executive Committee (or the Board of Directors for the Executive Committee members) retains the right to exercise discretion, both upwards and downwards, of 50% of the target, to ensure that the level of award payable is appropriate and fair for special or unique achievements or circumstances, or to acknowledge insufficient performance. Where discretion is exercised, the 50/50 split principle between SOP and PSU grants will be respected and the rationale for the use of such discretion will be disclosed.
The Compensation Structure offers a competitive LTI vehicle mirroring Belgian market practice (a majority of the BEL 20 Index listed companies provide options to their executives). Under Belgian law, unlike other jurisdictions, taxes on stock options need to be paid by the executives at the time of grant. Taxes paid at the time of grant cannot be recouped if the options do not vest, demonstrating executives' commitment and belief in Solvay's long-term strategy and performance. Therefore Solvay, like other Belgian companies, sets no additional performance criteria for determining the vesting of stock options, which nonetheless need to be held for a three-year vesting schedule.
The stock option plan gives each beneficiary the right to buy Solvay shares at a strike price corresponding to the fair market value of the shares upon grant. They will only generate a potential gain for the beneficiaries if the stock price rises. The use of stock options aims to incentivize Solvay's executives to work towards achieving robust sustainable returns for shareholders while offering the Company a robust retention tool.
Every year, the Board of Directors determines the volume of stock options available for distribution, based on an assessment of the economic fair value at grant using the Black Scholes financial formula. The total volume of options available is then allocated to the top executives of the Company based on the importance of their individual contribution/position to the success of the Solvay Group.
The PSU ensure alignment with market best practices, helping Solvay to remain competitive and to attract and retain key executives while offering a performance-contingent vehicle to incentivize executives to help deliver Solvay's long-term strategic objectives.
The PSU are settled in cash. They vest after three years from the date of grant and only if a combination of pre-set performance objectives is met. The minimum payout can vary from zero if the minimum performance required or "threshold" target is not met, to 80% if the minimum performance "threshold" is met, and up to a maximum of 120% for a performance exceeding the pre-set stretch performance target.
Each year, the Board of Directors determines the budget available for distribution based on the closing value of Solvay's share at grant date. The total volume of PSU available is then allocated to the executives based on their expected ability to contribute substantially to the achievement of Solvay's long-term strategic objectives.
The plan is purely cash-based and does not encompass any transfer of shares to beneficiaries. As such, it does not dilute the shareholders' interests;
At its sole discretion, the Executive Committee (or the Board of Directors for the Executive Committee members) assesses the achievement of the targets, and the Executive Committee (or the Board of Directors for the Executive Committee members) may also re-evaluate the targets in cases of material change of perimeter or other unexpected circumstances. With regard to the latter, such discretion will not be used as a matter of routine and, if used, the rationale for the use of such discretion will be disclosed.
The Performance Share Unit (PSU) plan contains a claw-back provision for a period of 3 years after the payout in case of erroneous results.
| Threshold | Target | Maximum | Actual | Actual % | Total actual % | |
|---|---|---|---|---|---|---|
| CFROI bp – 50% | 60 bp | 90 bp | 120 bp | 107 bp | 111.1% | |
| EBITDA Growth – 50% | 21% | 26% | 30% | 25% | 95.6% | 103.35% |
The combination of the performance achievement at 103.3%, the share price differential (grant share price vs. share price at vesting), and the total dividends over three years (€10.35 per unit) has generated a payout of 108% of the target PSU amount.
The remuneration package of the Chairman of the Executive Committee/CEO, Mr. Jean-Pierre Clamadieu, is in full compliance with Article 520 ter of the Companies' Code and is set by the Board of Directors based on recommendations by the Compensation Committee.
Under Article 520 ter of the Companies Code, from 2011 onwards, in the absence of statutory provisions to the contrary or express approval by the General Meeting of Shareholders, at least a quarter of variable compensation must be based on predetermined performance criteria that are objectively measurable over a period of at least two years, and at least another quarter should be based on pre-determined performance criteria that are objectively measurable over a period of at least three years.
The CEO's last salary review was carried out in January 2015 before the acquisition of Cytec, which was fully consolidated within the Solvay Group as from January 2016. Following an indepth review of Solvay's peers, the Board of Directors decided in December 2017 to increase the base salary of the Chairman of the Executive Committee by approximately 9% from €1.1 to €1.2 million. The new base salary, which was approved by the Board of Directors prior to Mr. Jean-Pierre Clamadieu's decision to take on his new role as a non-executive Chairman at Engie, remains positioned around the market median of Solvay's peer group of 17 European companies.
Regarding the CEO's extra-legal pension rights, given his selfemployed status in Belgium, the CEO has his own separate contractual agreement, with pension, death-in-service, and disability rules that reflect the contractual conditions that prevailed in Rhodia prior to the acquisition by Solvay.
The short-term incentive target is set at 100% of base salary, with a maximum of 150%. Payout of short-term incentive is based on the achievement of pre-defined performance targets based on:
The long-term incentives offered to the CEO comprise a 50/50 mix of stock options and PSU, with an annual economic value target set at 150% of the base salary and a maximum guidance set at 200% of such base salary.
In 2018, the face value of his overall LTI award totaled €1.8 million, in line with his LTI target of 150% of base salary. The actual gain on the PSU at the payout date will depend upon on the level of achievement of the performance targets set under the plan as well as of the performance of Solvay shares on the stock market. The resulting numbers of stock options and PSU are calculated using the Black Scholes model.
| Annual Base | x | Target award | = | Grant Value | |
|---|---|---|---|---|---|
| LTI – Perf. Share Units | € 1,200,000 | x | (150% / 2) | = | € 900,000 |
| LTI – Stock Option | € 1,200,000 | x | (150% / 2) | = | € 900,000 |
| LTI – Total | € 1,800,000 |
The design of the Solvay long-term incentive plan offered to the CEO is subject to the final approval of the Board of Directors. Solvay's commitment to offering its CEO a competitive yet challenging compensation package is demonstrated by the pay mix he is offered, with close to 70% of his pay being subject to the delivery of a sustainable value creation performance.
Based on the Board of Directors' assessment of the extent to which he achieved his individual pre-set objectives and whether the Group achieved its collective economic and sustainable development indicators, the actual 2017 compensation package of the Chairman of the Executive Committee was as follows:
| In € | 2019 | 2018 | 2017 |
|---|---|---|---|
| Base compensation | 200,000 | 1,200,000 | 1,100,000 |
| Variable compensation (Short Term Incentive) related to 2018 | 1,602,000 | 1,639,000 | |
| 2015-17 Performance Share Units (Cash)(1) – paid in June 2018 | 864,106 | 888,805 | |
| Pension and death-in-service and disability coverage (costs paid or provided for) | 790,665 | 728,241 | |
| Non Compete | 1,960,000 | 0 | 0 |
| Other compensation components(2) | 3,010 | 18,060 | 16,652 |
(1) Includes share price differential and dividends.
(2) Company vehicle.
The annual incentive target remained set at 100% of the base salary, with a maximum of 150%.
Each performance measure can vary from 0% to 200% achievement but the maximum total payout is capped at 150% of the target.
| Performance Measures | % of the STI | Achievement | Payout factor | |||
|---|---|---|---|---|---|---|
| Underlying EBITDA (under cash constraint) | 50% | 105% | 53% | |||
| Sustainable Development | 165% | 17% | ||||
| Oxygen & City Light | ||||||
| Individual Objectives | Strategy | 40% | 160% | 64.5% | ||
| CEO transition | ||||||
| Total | 100% | 133.5% | ||||
| Threshold | Target | Maximum | Actual Achievement | Actual Achievement in %(1) |
||
| Underlying EBITDA – Target and Actuals (M€) |
2,020 | 2,220 | 2,420 | 2,230 | 105% |
(1) The scores 0% and 200% are defined using a range of -/+200M€ with a target set at 2,220M€. With 2,230 M€ underlying EBITDA achieved in 2018 before polyamide reclassification in discontinued operations, the Economic incentive scores is 105% vs target.
| Base salary | x | Target incentive |
x | Performance factor |
= | Final Award | |
|---|---|---|---|---|---|---|---|
| STI | € 1,200,000 | x | 100% | x | 133.50% | = | € 1,602,000 |
The 2018 STI of the CEO corresponds to 133,5% of his base salary and below the maximum of 150% of base salary, as assessed by the Compensation Committee and approved by the Board. This outcome is the result of:
Sustainable Development with an achievement of 165% (e.g. Solvay is listed on the DJSI).
Individual performance: pre-set annual objectives
| 2015-17 PSU | |||||
|---|---|---|---|---|---|
| target award | x | Payout Factor | = | Cash Payout(1) | |
| Perf. Share Units Payout (Cash) | € 800,000 | x | 108.01% | = | € 864,106 |
(1) Included share price differential and dividends.
The remuneration package of the new Chairman of the Executive Committee/CEO, Ms. Ilham Kadri, is in full compliance with Article 520 ter of the Companies' Code and is set by the Board of Directors based on recommendations by the Compensation Committee.
Under Article 520 ter of the Companies Code, from 2011 onwards, in the absence of statutory provisions to the contrary or express approval by the General Meeting of Shareholders, at least a quarter of variable compensation must be based on predetermined performance criteria that are objectively measurable over a period of at least two years, and at least another quarter should be based on pre-determined performance criteria that are objectively measurable over a period of at least three years.
The compensation package offered to the new CEO broadly resembles that of the ongoing CEO with no increase in the overall package provided and the incentive structure and award limits mirroring what was previously communicated to Solvay's shareholders. The pay mix of the new CEO follows Solvay compensation policy.
The base salary has been set at €1.15 million, subject to an annual review, and is positioned around the market median of Solvay's peer group of 17 European companies.
Regarding Ms. Ilham Kadri extra-legal pension rights, given her self-employed status in Belgium, the CEO has her own separate contractual agreement, with pension, death-in-service, and disability rules.
She is entitled to the following benefits:
No sign-on bonus has been provided. Like the outgoing CEO, the new CEO's short-term incentive target has been set at 100% of base salary, with a maximum of 150%. Payout of short-term incentive will be based on the achievement of pre-defined performance targets based on:
No sign-on bonus or short term incentive guarantee has been provided to Ms. Ilham Kadri upon her joining Solvay as the new CEO.
The long-term incentives offered to the new CEO comprise a 50/ 50 mix of stock options and PSU, with an annual economic value target set at 150% of the base salary and a maximum guidance set at 200% of such base salary. This is the same level as the ongoing CEO, Mr. Jean-Pierre Clamadieu.
The Executive Committee members are entitled to retirement, death-in-service, and disability benefits on the basis of the provisions of the plans applicable in their home countries. Other benefits, such as medical care and company cars or car allowances, are also provided according to the rules applicable in the host country. The nature and magnitude of these other benefits are largely in line with median market practice.
| Target in % of base salary | Performance Measures | % of the STI |
|---|---|---|
| Underlying EBITDA (under cash constraint) | 60% | |
| Sustainable Development | 10% | |
| 70% | Individual Objectives | 30% |
| Total | 100% |
The target short-term incentive for the members of the Executive Committee is 70% of base salary, with a maximum of 140% of base salary. Payout of short-term incentive is based on the
achievement of pre-defined performance targets based on: The actual annual incentive can vary from 0% in cases of poor performance to 200% of the target in cases of outstanding collective and individual performance.
| Performance Shares Units (PSU's) | Stock Options | |
|---|---|---|
| Target Grant | Target Grant | |
| Executive Committee | € 250,000 | € 250,000 |
| In € | 2018(1&2) | 2017(3) |
|---|---|---|
| Base compensation | 3,645,109 | 2,337,909 |
| Variable compensation (Short Term Incentive)(4) | 2,940,408 | 2,288,777 |
| Performance Share Units (Cash)(5) | 1,782,072 | 1,111,189 |
| Pension and death-in-service and disability coverage (costs paid or provided for) | 999,741 | 742,561 |
| Other compensation components(6) | 134,641 | 139,490 |
(1) Base Salary: V. De Cuyper, K. Hajjar, P. Juéry. R. Kearns – up to September, C. Tandeau de Marsac, A. Di Donfrancesco and H. Du from March 1st
(2) Full year STI: V. De Cuyper, K. Hajjar, P. Juéry, C. Tandeau de Marsac, A. Di Donfrancesco and H. Du.
(3) V. De Cuyper, R. Kearns, K. Hajjar, P. Juéry.
(4) Incentives are processed either in cash or in share options based on the Euronext Index SICAV
(5) Includes share price differential and dividends
(6) Representation allowance, luncheon vouchers, company car
Variable compensation consisted of an annual incentive based on the performance achieved relative to pre-set collective Group economic and sustainable development performance objectives, and on the performance of the manager as measured against a set of pre-determined individual objectives.
The remuneration package of the members of the Executive Committee is in full compliance with Article 520 ter of the Companies' Code. Executive Committee members receive stock options and performance share units as explained above.
Executive Committee members' expenses, including those of its Chairman, are governed by the same rules as apply to all Group management staff, i.e. the justification of all business expenses, item by item. Private expenses are not reimbursed.
In the case of mixed business/private expenses (e.g. cars), a proportional rule is applied in the same way as to all management staff in the same position.
In the area of insurance, the Company takes out the same type of cover for Executive Committee members as it does for its senior managers.
Pensions and retirement and death-in-service coverage for Executive Committee members are based in principle on the provisions of the schemes applicable to senior executives in their base countries.
In 2018, at the proposal of the Compensation Committee, the Board of Directors allotted stock options to approximately 70 Group senior executives. The exercise price amounts to €111.27 per option, with a three-year vesting period. Executive Committee members were granted a total of 132,199 options in March 2018 and 72,078 in July 2018.
In combination with the stock option plan, the Board of Directors granted performance share units to approximately 450 Group executives, for a possible payout in three years' time if pre-set performance objectives (underlying EBITDA growth, CFROI, and GHG Intensity reduction) are met. Executive Committee members were granted a total of 22,322 PSU in February 2018 and a further grant of 13,842 PSU's in July 2018.
| Number of | ||||
|---|---|---|---|---|
| Country | Name | Function | Options(1) | Number of PSU's(2) |
| Belgium | Clamadieu, Jean-Pierre(3) | Chairman of the Executive Committee | 47,120 | 7,957 |
| Belgium | De Cuyper, Vincent | Member of the Executive Committee | 25,102 | 4,517 |
| Belgium | Hajjar, Karim | Member of the Executive Committee | 27,720 | 4,959 |
| Belgium | Juéry, Pascal | Member of the Executive Committee | 29,029 | 5,180 |
| Belgium | Tandeau de Marsac, Cécile | Member of the Executive Committee | 25,102 | 4,517 |
| Belgium | Di Donfrancesco, Augusto | Member of the Executive Committee | 25,102 | 4,517 |
| Belgium | Du, Hua | Member of the Executive Committee | 25,102 | 4,517 |
| TOTAL | 204,277 | 36,164 |
(1) Stock options: Black Scholes fair value for February 2018 grant was at €19.10 and €20.81 for July 2018 exceptional grant
(2) PSU's share price for February 2018 grant was at €113.11 and €108.38 for July 2018 grant
(3) Mr Clamadieu was not eligible for the July 2018 exceptional grant
| Stock-options | 31/12/2018 | |||||||
|---|---|---|---|---|---|---|---|---|
| Country | Name | Held at 31/12/2017 |
Granted in 2018 |
Exercised in 2018 |
Expired in 2017 |
Held | Exercisable | Non exercisable |
| Belgium | Clamadieu, Jean‑Pierre |
223,639 | 47,120 | 0 | 0 | 270,759 | 72,532 | 198,227 |
| Belgium | De Cuyper, Vincent |
84,668 | 25,102 | 0 | 0 | 109,770 | 41,534 | 68,236 |
| Belgium | Hajjar, Karim | 66,628 | 27,720 | 0 | 0 | 94,348 | 10,969 | 83,379 |
| Belgium | Juéry, Pascal | 80,419 | 29,029 | 15,960 | 0 | 93,488 | 23,446 | 70,042 |
| Belgium | Tandeau de Marsac, Cécile |
46,527 | 25,102 | 0 | 0 | 71,629 | 8,775 | 62,854 |
| Di Donfrancesco, |
||||||||
| Belgium | Augusto | 74,560 | 25,102 | 3,724 | 0 | 95,938 | 27,702 | 68,236 |
| Belgium | Du, Hua | 51,508 | 25,102 | 0 | 0 | 76,610 | 18,756 | 57,854 |
| TOTAL | 627,949 | 204,277 | 19,684 | 0 | 812,542 | 203,714 | 608,828 |
Executive Committee members, including its Chairman (or CEO), have directorships in Group subsidiaries as a function of their responsibilities. Where such directorships are compensated, they are included in the amounts given above, regardless of whether the position is deemed to be salaried or undertaken on a selfemployed basis under local legislation.
Executive Committee members will not benefit from any contractual departure indemnity linked to the exercise of their office. In case of early termination, only the legal system applies.
In the event of a decision to terminate Ms. Ilham Kadri's contract, she will be eligible for a contractual indemnity of 12 months of her total compensation target. In the event Ms. Ilham Kadri resigns after January 2021, she is subject to a non-competition clause of 12 months with no extra compensation.
Mr. Jean-Pierre Clamadieu's contract does not include a termination indemnity. However, a 24-months non-compete undertaking is provided for in his contract and has been activated by the Company, resulting in the payment to Mr. Jean-Pierre Clamadieu of a non-compete indeminity of €1,960,000. There is no accelerated vesting applied to his existing LTI, which remain subject to performance.
The above is in line with Belgian Corporate governance requirements.
Mr. Roger Kearns resigned from Solvay on March, 31 without any indemnity related to his Executive mandate.
Solvay leaders and managers are accountable for the adequacy of the risk management and internal control framework in their respective entities (businesses, functions).
The Internal Audit & Risk Management Department (IA/RM) advises and ensures that leaders are well supported. The team is in charge of setting up a comprehensive and consistent system of risk management and internal control across the Group.
Solvay has set up an internal control system designed to provide a reasonable assurance that (i) current laws and regulations are respected, (ii) policies and objectives set by general management are implemented, (iii) financial and extra-financial information is accurate, and (iv) internal processes are efficient, particularly those contributing to the protection of its assets.
The five components of the internal control system are described below.
As the foundation of the internal control system, the control environment promotes awareness and compliant behavior among all employees. Its various elements create a clear structure of principles, rules, roles, and responsibilities, while demonstrating general management's commitment to compliance.
The process of risk management takes into account the organization's strategic objectives and is structured into the following phases:
The approach to designing internal controls for major processes includes a risk assessment step defining which key control objectives to tackle. This is the case in particular for processes at subsidiary, shared service, GBU, or corporate level, leading to the production of reliable financial reporting.
More information on Enterprise Risk Management, including a description of the Group's main risks and the actions taken to avoid or reduce them, can be found in the "Risk management" section.
Solvay uses a systematic approach to designing and implementing control activities for the most relevant Solvay processes.
After a risk analysis and a risk assessment phase, the controls are designed and described by the corporate process managers with the support of the Risk Management team. The controls descriptions are used as a reference for the internal control assessment and roll-out across the Group.
At each level of the Group (corporate, Shared Services platforms, and GBUs), the manager operating the process is responsible for the control execution.
Agile internal control governance has been set up under the CFO sponsorship: Corporate Process Owners and GBU representatives (Process Risk Coordinators) are part of a network aiming to promote an Internal Control system tailored to the risks of each GBU.
Solvay implements policies, processes, and red lines applicable to all employees in the following domains: management control, financing and cash flow, financial control, financial communication, tax, and insurance policies. Control activities are defined for all these financial processes and in major cross-Group projects, like acquisitions and divestitures. Furthermore, an online Financial Reporting Guide explains how the IFRS rules should be applied throughout the Group.
Financial elements are consolidated monthly and analyzed at every level of responsibility in the Company (Solvay Business Services, the finance director of the entity, Group Accounting and Reporting, and the Executive Committee). Elements are analyzed using various methods, such as a variance analysis, plausibility and consistency checks, ratio analysis, and comparison with forecasts.
Besides the monthly reporting analysis prepared by Group Controlling teams, the Executive Committee thoroughly reviews GBU performance every quarter in the context of business forecast reviews.
Group-wide information systems are managed by Solvay Business Services. A large majority of Group operations are supported by a small number of integrated ERP systems. Financial consolidation is supported by a dedicated tool.
All financial reporting procedures and internal controls ensure that all material information disclosed by Solvay to its investors, creditors, and regulators is accurate, transparent, and timely, and that it fairly represents the Group's most relevant developments, financial fundamentals, and performance.
The Group Accounting and Reporting department circulates written detailed instructions to all financial actors involved before each quarterly closing.
The publication of the quarterly financial results is subject to various checks and validations carried out in advance:
The Audit Committee is in charge of monitoring the effectiveness of internal control systems. It supervises the work of Internal Audit and Risk Management with regard to financial, operational, and compliance monitoring. It is kept informed of the scope, programs, and results of the internal audit work, and it verifies that audit recommendations are properly implemented. The role and responsibilities of the Audit Committee are further detailed in the Charter.
The content of internal audit assignments is planned and defined on the basis of a risk analysis; due diligence focuses on the areas perceived as having the highest risks. All the consolidated entities within the Group are inspected by Internal Audit at least every three years. Internal Audit recommendations are implemented by management.
Other entities carry out similar activities in very specific areas. For example:
The audit of the Company's financial situation, its financial statements, and the conformity of those statements – and the entries to be recorded in the financial statements in accordance with the Companies Code and the bylaws – are entrusted to one or more auditors appointed by the Shareholders' Meeting from among the members, either natural or legal persons, of the Belgian Institute of Company Auditors.
The responsibilities and powers of the auditor(s) are set by law.
The Board of Directors, upon the recommendation from the Audit Committee, is recommending that Deloitte's mandate be renewed for another term at the General Shareholders' Meeting of 2019. The Committee believes the independence and objectivity of Deloitte and the effectiveness of the audit process are safeguarded and remain strong. Considering the recent audit partner rotation in 2016 as well as evaluating the proposals brought forward to the Audit Committee, the Board of Directors will propose to renew the mandate of Deloitte for a new three years. Deloitte will be represented by Michel Denayer and by Corine Magnin as alternate auditor.
At the Ordinary Shareholders's meeting of Tuesday May 14, 2019, the Board of Directors proposes to renew the mandate of Deloitte for a further three years. Deloitte will be represented by Michel Denayer and by Corine Magnin as alternate auditor.
The yearly 2018 audit fees for Solvay SA were set at €1.2 million. They include the audit of the statutory and consolidated accounts of Solvay SA. Additional audit fees for Solvay affiliates in 2018 amount to €4.8 million. Supplementary non-audit fees of €1.6 million were paid in 2018 by Solvay SA and affiliates of which:
According to Article 34 of the Belgian Royal Decree of November 14, 2007, the Company hereby discloses the following items:
As at December 21, 2015, the capital of the Company amounted to €1,588,146,240 represented by 105,876,416 ordinary shares with no par value, fully paid up.
All Solvay shares are entitled to the same rights. There are no different classes of shares.
Solvay's bylaws do not contain any restriction on the transfer of its shares.
The Company has been informed that certain individual shareholders who hold shares directly in Solvay have decided to consult one another when questions of particular strategic importance are submitted by the Board of Directors to the Shareholders' Meeting. Each of these shareholders, however, remains free to vote as he or she chooses. None of these persons, either individually or in concert with others, reaches the initial 3% transparency notification threshold.
Solvay is not aware of any other voting agreements among its shareholders or of the existence of a concert between its shareholders.
There are no such securities.
Control mechanism of any employee share scheme where the control rights are not exercised directly by the employees 8.4.
There is no employee share scheme with such a mechanism.
Each Solvay share entitles holders thereof to exercise one vote at Shareholders' Meetings.
Article 11 of the Company's bylaws provides that the exercise of voting rights and other rights attached to shares that are jointly owned, or of which the usufruct and bare ownership rights have been separated or are pledged, are suspended pending the appointment of a single representative to exercise the rights attached to the shares.
The voting rights attached to the shares in Solvay held by Solvay Stock Option Management are, as a matter of law, suspended.
The bylaws of the Company provide that the Company is to be managed by a Board of Directors composed of no less than five members, their number being determined by the Shareholders' Meeting (Article 14).
Directors are appointed by the Shareholders' Meeting for four years (and may be reappointed).
The Board of Directors submits directors' appointments, renewals, resignations or dismissals to the Ordinary Shareholders' Meeting for approval. It also invites such Shareholders' Meetings to vote on the independence of the directors fulfilling the related criteria, having first sought the advice of the Nominations Committee, whose mission is to define and assess the profile of any new candidate using its criteria for appointment and for specific competences.
The Ordinary Shareholders' Meeting decides on proposals made by the Board of Directors in this matter by a simple majority.
If a directorship becomes vacant during a term of office, the Board of Directors may appoint a new member, subject to ratification by the next Ordinary Shareholders' Meeting.
Amendments to the Company's bylaws must be submitted as a resolution to the Shareholders' Meeting, at which at least 50% of the share capital or Solvay must be present or represented, and in principle must be passed by a 75% majority of the votes cast.
If the attendance quorum is not met at the first Extraordinary Shareholders' Meeting, a second Shareholders' Meeting may be convened and will decide without any attendance quorum requirement.
For certain other matters (e.g. amendment of the purpose of the Company), higher voting majorities may apply.
Powers of the Board of Directors, in particular to issue and buy back shares 8.8.
The Board of Directors is the highest management body of the Company.
It is entrusted with all the powers that are not reserved, by law or under the bylaws, to the Shareholders' Meeting.
The Board of Directors has kept responsibility for certain key areas for itself and has delegated the remainder of its powers to an Executive Committee (further detailed in the Charter).
In all matters for which it has exclusive responsibility, the Board of Directors works in close cooperation with the Executive Committee, which in particular is responsible for preparing most of the proposals for decisions by the Board of Directors.
The Board of Directors was authorized, until December 31, 2016, to increase the registered capital by contributions in cash up to a maximum of €1.5 billion, of which a maximum amount of €1,270,516,995 will be allocated to the "capital" account and the remainder to the "issuance premium" account in the framework of the acquisition of Cytec Industries Inc. Said acquisition was completed on December 9, 2015, and in order to finance part of it, the Board of Directors proceeded with a share capital increase for an amount of €317,629,245 by issuing 21,175,283 new ordinary Solvay shares, with an issuance premium of €1,182,216,050. This special authorization is therefore no longer relevant.
The Shareholders' Meeting has currently not authorized the Board of Directors to acquire or dispose of Solvay's own shares.
The Ordinary Shareholders' Meeting of May 10, 2016 approved the change of control provisions relating to the December 2015 euro-denominated senior and hybrid bonds and the USDdenominated senior notes issued to finance the acquisition of Cytec and the general corporate purposes of the Solvay Group.
Agreements between the Company and its directors or employees providing for compensation if directors resign or are good leavers, or in the case of a public takeover bid. 8.10.
Not applicable
MANAGEMENT REPORT
| 1. Introduction | 55 |
|---|---|
| 2. Risk management process | 55 |
| 3. Solvay's main risks | 57 |
| Security | 58 |
| Ethics and compliance | 58 |
| Industrial safety | 59 |
| Transport accident | 60 |
| Climate transition | 60 |
| Cyber risk | 61 |
| Chemical product usage | 61 |
| 4. Other risks | 62 |
|---|---|
| Important litigation | 65 |
| Antitrust proceedings | 65 |
| HSE-related proceedings | 65 |
| Pharmaceutical activities (discontinued) | 65 |
In a context of global economic and political uncertainty, evolving power balances, changing growth dynamics, shortening market cycles, rapid technological evolution, and increased sensitivity and expectations related to climate change and energy transition, Solvay believes that effectively monitoring and managing risks is key to achieving its strategic objectives.
The risk assessment process – endorsed by Solvay's Board – helps the Group achieve its business objectives, both financial and extrafinancial, while respecting laws, regulations, and the Solvay Code of Conduct.
Solvay's business is diverse, entrepreneurial, and international. Operations face a number of significant risks. Accordingly, Solvay has designed a dynamic process in which key players assess the risks in their area of responsibility and/or expertise.
All GBUs conduct risk assessment as an integral part of their annual strategic review process
Solvay's systematic risk management approach is integrated within its strategy, business decisions, and operations. It ensures that Group leaders proactively identify, assess, and manage all potentially significant risks. Risk assessment helps create value in the short, medium, and long term, and always takes sustainability into consideration. Two of the four main impact types used to assess risks reflect our growing sensitivity to extra-financial issues, namely impacts on people and on the environment. The other two – economic and reputational impacts – directly affect the Group's operational and financial performance. In line with Solvay's strategic objectives, risks are then categorized as follows: "main risks" (rated as the most critical), "emerging risks", and "other risks".
| Economic | Impact on | Impact on the | Impact on |
|---|---|---|---|
| impact | people | environment | reputation |
Both day-to-day and strategic decision-making take all key risks and opportunities fully into account using financial and extrafinancial criteria.
Risk management is a key success factor for Solvay because it allows us to mitigate risks associated with the solutions we provide. Improvements to Solvay's Enterprise Risk Management methodology are allowing individual GBUs and Functions – and the Group as a whole – to more effectively prioritize risks and focus their risk response. A dedicated dashboard is updated twice a year to reflect both progress on mitigating actions and new developments in the risk environment.
Critical risks for the Group are closely monitored by the Group Risk Committee – members of the Executive Committee are appointed as Risk Sponsors – to ensure that these risks are adequately addressed. Particular attention is paid to cross-checking the analysis with the materiality analysis performed by the Sustainable Development & Energy Function.
GBUs and Function leaders are accountable for the identification, monitoring and management of the key risks in their domain. Risk management is therefore strongly embedded in the day-today running of each entity and operational managers can react rapidly in the event of changing circumstances. The risk management process is a valuable mechanism for GBUs and Functions to guide priorities and to raise the likelihood of achieving their business goals.
| 2 | 3 | 4 | 5 | ||
|---|---|---|---|---|---|
| GLOBAL BUSINESS UNITS |
FUNCTIONS | LEADERSHIP COUNCIL 1 |
GROUP RISK COMM TTEE 2 |
EXECUTIVE COMMITTEE |
BOARD OF DIRECTORS |
| • Reviews and updates its own risk matrix • Defines risk owners to lead mitigation of most critical risks |
Identifies a list of Group risks - the most relevant ones - to be submitted to an assessment phase |
Assesses, decides on and closely monitors these Group risks |
Each of these Group risks is sponsored by an Executive Committee member |
Oversees and endorses |
1 Executive Committee, GBU Presidents, Function General Managers, Zone Presidents, and Solvay Business Services General Manager 2 General Managers for the Industrial, Legal, and Sustainable Development & Energy functions
Group level risks are managed with contributions from the Leadership Council for identification, the Group Risk Committee for assessment, and the Executive Committee members for sponsorship for treatment and risk response. The Audit Committee meets once a year with the Chairman of the Executive Committee and the CEO and other members of the Board to discuss the major risks facing the Group. During the year, the Audit Committee benefits from Risk Owners' presentations on Group risks, for example on industrial safety, security, cyber risk, ethics, and compliance.
An appropriate risk assessment methodology is applied to significant projects, such as acquisitions, major capital investments, or transversal projects.
Internal control is one aspect of risk management. Please refer to the Corporate Governance section of this Annual Report for a detailed description of Solvay's risk management and internal control system.
Crisis preparedness operates a structured network within the Group. Assigned members perform tasks and implement programs to ensure the readiness of their business units and functions. These programs include crisis simulations, media training for potential spokespersons, maintenance of key databases, and analysis of relevant internal and external events. The risks identified through the Enterprise Risk Management approach influence the scenarios used in the simulations
The Group Risk Committee has assessed the level of control of Group's risks impact, using a four-level scale for each criterion.
Four main types of impact were considered: economic impact, impact on people, impact on the environment, and impact on reputation. The level of control was assessed by considering the following questions:
The criticality level is determined by combining the risk's two ratings (impact and level of control) at the time of the assessment.
| Criticality | Risk | Trend | Sustainable development high materiality aspects |
Stakeholders |
|---|---|---|---|---|
| High | Security | Data security and customer privacy Critical incident risk management |
Employees Local communities Customers |
|
| Ethics and Compliance | Management of the legal, ethics & regulatory framework |
Suppliers Employees Planet Investors |
||
| Industrial safety | Critical incident risk management Employee health and safety |
Employees Local communities |
||
| Transport accident | Critical incident risk management Waste and hazardous material |
Suppliers Employees Local communities |
||
| Climate transition risk* | Greenhouse gas emissions Energy management Sustainable business solutions Water and wastewater |
Customers Local communities Employees Planet Investors |
||
| Cyber-risk | Data security and customer privacy | Customers Employees |
||
| Moderate | Chemical product usage | Waste and hazardous materials Sustainable business solutions |
Employees Customers |
* emerging risk – newly developing or changing risk that may have, on the long term, a significant impact which will need to be assessed in the future.
The description of the risks relevant to Solvay and Group risk-reduction actions are listed below. The mitigation efforts described do not guarantee that risks will not materialize or impact the Group, but they show how Solvay proactively manages risk exposures.
A security event such as terrorism, crime, violence, vandalism, or theft which would impact employees, sites, assets, critical information, or intellectual property and could have negative consequences for the business.
Risk arises from a potential failure to comply with:
Solvay's Code of Conduct, policies, and procedures:
Special training courses to mitigate specific risks include:
A major accident such as a fire, explosion, or loss of containment resulting in possible fatalities, life-altering injuries, harm to the environment, or harm to local communities
Any fatality or life-altering injury not related to a major accident
Solvay's approach to occupational safety is evolving. While the group has seen a consistent reduction in the number of people who are injured in our facilities, it has have averaged one fatality per year during the past few years.
In 2018, Solvay focused on fostering an environment at our sites whereby all employees work together to ensure they go home safe at the end of each day.
Solvay's Safety Excellence initiative focuses on employee engagement across the entire company and includes the following measures:
In 2017, Solvay developed a "Safety Climate Assessment" tool based on the Dov Zohar methodology to determine the maturity level of individual sites' safety culture. Several sites have started to use the tool. In 2018, the Group organized safety leadership and risk awareness workshops and different communication/ presentation sessions in the GBUs and in sites.
Solvay introduced the Solvay Life Saving Rules (SLSR) in 2015. The SLSR cover those activities (e.g. Work at Heights, Line Breaking, etc.) that, when not performed safely, have resulted in either a fatality or a life-altering injury. This year, we initiated a collaborative process to further define the risks and which mitigation measures to apply. This collaborative effort produced minimum requirements for the SLSR. These minimum requirements will ensure that we have a shared understanding of the mitigation measures necessary to effectively manage the risks linked to activities in which the SLSR apply. We expect all sites to be compliant with the requirements by the end of 2019.
Safety results are reviewed monthly by GBUs and at the Executive Committee level.
Solvay applies a preventive risk-based approach founded on systematic process safety risk analyses and management of change processes.
An accident in connection with hazardous chemical transportation poses the risk of injury to neighbors or the public.
Continuing Solvay transport safety program to reinforce preventive actions.
The Group strategy to address climate-related transition risks (as defined by TCFD[*]) could be ineffective and damage Solvay's reputation, business losses, undervaluation, and difficulty attracting long-term investors. The Group has decided to include water-related risks in climate-related transition risks, rather than in physical risks
Solvay updated in September 2018 its greenhouse gas emissions approach. Solvay commits to reducing greenhouse gas emissions by 1 million tons by 2025, by improving its energy efficiency and energy mix and by investing in clean technologies. Climate risks and opportunities will be reviewed in 2019.
Cyber risk includes the inability to ensure service continuity or to protect confidential, critical, or sensitive information.
The two Governance bodies leading the security risk management effort also take care of the supervision of the Cyber security program.
A significant cyber-attack could negatively impact the company's operations and results. Therefore the Company will continue to solidify its cyber defenses to manage the evolving cyber threat landscape.
Solvay is insured against the potential financial impact of a cyber event with respect to assets, business interruptions, and cases of fraud.
Solvay continues to enhance its overarching cyber security strategy and governance, develop the corporate information security program, and explore other functions/capabilities to enrich the company's security posture and ability to respond to a
cyber-related threat. The Solvay "Product Safety Management Process" (PSMP) identifies risks relating to products marketed by Solvay. It has been updated to integrate new regulatory requirements and additional potential risk causes (legal, supply chain, etc.). All GBUs are currently implementing this process with a specific focus on prioritizing the required risk assessments in the products portfolio and on regularly deploying risk assessments for the most sensitive product applications.
Market and growth – strategic risk
Pertains to Solvay's exposure to developments in its markets or its competitive environment, and the risk of making erroneous strategic decisions.
Risks related to raw materials, energy, suppliers, production, storage units, and inbound/outbound transportation.
For manufacturing reliability:
Third-party CSR assessment and adherence to the Solvay Supplier Code, ownership of mines and quarries of trona, limestone, and salt, and programs to reduce energy consumption.
Allocation of resources to projects (capital expenditure, mergers and acquisitions) could be misaligned with Solvay's growth strategy ;
Major project facing difficulties with the risk of not reaching its objectives.
The combination of these actions has led to much better control over EBITDA conversion into cash and a conversion level comparable to similar companies in the industry.
A prudent financial profile and conservative financial discipline:
Strong liquidity reserves:
Currency hedging policy:
Solvay monitors the foreign exchange market closely and takes hedging measures, principally for terms shorter than one year and generally not exceeding 18 months.
Interest rate hedging policy:
The Group locks in the majority of its net indebtedness at fixed interest rates. Solvay monitors the interest rate market closely and enters into interest rate swaps whenever they are deemed appropriate.
Energy hedging policy:
Solvay is hedging energy prices, and those transactions go beyond 9 months, they go up to 3 years.
Monitoring of Group counterparties' ratings:
Pension governance and pension plan optimization:
Control processes for tax regulation compliance and transfer pricing policies:
Work-related diseases recognized as resulting from exposure to occupational hazards, with generally repeated exposure.
Managing or remediating historical soil contamination at a number of sites and complying with future changes in environmental legislation
Inability to ensure continuity of services or to provide information services adapted to the needs of the business.
Dedicated data network and regional internet gateways managed by trusted service providers, Annual IT audit program to ensure compliance with the information system security policies.
With its variety of activities and its geographic distribution, the Solvay Group is exposed to legal risks, particularly in the areas of product liability, contractual relations, antitrust laws, patent disputes, tax assessments, and HSE matters. In this context, litigation cannot be avoided and is sometimes necessary so as to defend the rights and interests of the Group.
The outcome of proceedings cannot be predicted with certainty. It is therefore possible that adverse final court decisions or arbitration awards could lead to liabilities (and expenses) that are not covered or not fully covered by provisions or insurance, and that could have a material impact on the revenues and earnings of the Group.
Ongoing legal proceedings involving the Solvay Group that are currently considered to involve significant risks are outlined below. The legal proceedings described below do not constitute an exhaustive list.
The fact that litigation proceedings are reported below is unrelated to the merits of the cases. In all the cases cited below, Solvay is defending itself vigorously and believes in the merits of its defenses.
For certain cases, Solvay has created reserves/provisions in accordance with the accounting rules to cover financial risk and defense costs (see "Provisions for litigation to the consolidated financial statements" of the present document).
In 2006, the European Commission imposed fines against Solvay (including Ausimont SpA, acquired by Solvay in 2002) for alleged breaches of competition rules in the peroxygens market for which Solvay was fined.
Joint civil lawsuits were filed before the Court of Dortmund (Germany) in 2009 against Solvay and other manufacturers based on an alleged antitrust violation, claiming damages from the manufacturers on a joint and several basis. The value of the claims reduced after several settlements is worth €63 million (excluding interest) after settlements were reached between the plaintiff and most of the defendants. Several questions on the jurisdiction of the Court of Dortmund have been submitted to the European Court of Justice, and proceedings before the Court of Dortmund are pending.
In Brazil, CADE (the Brazilian antitrust authority) issued fines against Solvay and others in May 2012 relating to the hydrogen peroxide activity and in February 2016 relating to the perborate activity (Solvay's shares of these fines amount to €29.6 million and €3.99 million respectively). Solvay has filed a claim with the Brazilian Federal Court contesting these administrative fines.
In October 2009, the public prosecutor of the Criminal Court of Alessandria (Italy) charged several individuals (including employees and former employees of Solvay and Ausimont SpA, now Solvay Specialty Polymers Italy - SSPI) in relation to alleged criminal violations of environmental laws and public health legislation. The provisional claims of civil parties admitted to the trial amounted to about €105 million.
In December 2015 the Assize Court of Alessandria sentenced three local Solvay/SSPI managers to imprisonment and awarded civil damages of around €400,000.
An appeal was lodged by all parties with the Assize Court of Appeal of Turin which rendered its decision in June 2018 confirming: 1) acquittal of two of the SSPI managers; 2) sentence of the three Solvay/SSPI managers reduced to a suspended sentence of 20 months imprisonment; 3) damages for civil parties were maintained at €400,000, but other civil claims were rejected; 4) the charge of sanitation failure was dropped; 5) SSPI not liable for damages to Alessandria Municipality. The term for lodging a further appeal before the Court of Cassation is still pending.
As of the end of 2016, seventeen civil proceedings were brought before the Civil Court of Livorno (Italy) by former workers and relatives of deceased workers at the Rosignano site seeking damages (provisionally quantified at €9 million) in relation to diseases allegedly caused by exposure to asbestos. Three of the seventeen proceedings have been dismissed so far.
In the context of the sale of the pharmaceutical activities in February 2010, the contractual arrangements have defined terms and conditions for the allocation and sharing of liability arising out of the activities before the sale.
Subject to limited exceptions, Solvay's exposure for indemnifications to Abbott for liabilities arising out of sold activities is limited to an aggregate amount representing €500 million and is limited in duration.
This includes indemnification against certain potential liabilities under the testosterone replacement therapy (TRT) litigation focusing on the drug ANDROGEL®. These claims are proceeding at varying rates of resolution.
MANAGEMENT REPORT
| 1. Overview of the consolidated results | 67 |
|---|---|
| Key financial figures | 67 |
| Historical key financial data | 68 |
| 2. Preparation background | 70 |
| Comparability of results & reconciliation of underlying Income Statement indicators |
70 |
| Alternative performance metrics (APM) | 70 |
| Description of the operational segments | 71 |
| 3. Notes to the underlying Group figures | 73 |
| NOTE B1 Net sales | 73 |
| NOTE B2 Underlying raw material & energy costs | 74 |
| NOTE B3 Underlying EBITDA | 74 |
| NOTE B4 Underlying depreciation & amortization | 75 |
| NOTE B5 Underlying net financial charges | 75 |
| NOTE B6 Underlying income taxes | 75 |
| NOTE B7 Underlying profit from discontinued operations | 75 |
| NOTE B8 CAPEX | 76 |
| NOTE B9 Free Cash Flow | 76 |
| NOTE B10 Net working capital | 77 |
| NOTE B11 Underlying net debt | 78 |
| NOTE B12 CFROI | 79 |
| NOTE B13 Research & Innovation | 80 |
| 4. Notes to the underlying figures per segment | 81 |
|---|---|
| NOTE B14 Advanced Materials | 82 |
| NOTE B15 Advanced Formulations | 83 |
| NOTE B16 Performance Chemicals | 84 |
| NOTE B17 Corporate & Business Services | 85 |
| 5. Reconciliation of underlying and IFRS figures | 86 |
| NOTE B18 IFRS EBITDA | 87 |
| NOTE B19 IFRS EBIT | 87 |
| NOTE B20 IFRS Net financial charges | 87 |
| NOTE B21 IFRS Income taxes | 87 |
| NOTE B22 IFRS Profit from discontinued operations | 87 |
| NOTE B23 IFRS Profit for period | 88 |
| 6. Notes to the figures per share | 88 |
| NOTE B24 Earnings per share | 89 |
| NOTE B25 Dividend | 89 |
| 7. Outlook 2019 | 90 |
Key financial figures
| IFRS | Underlying | ||||||
|---|---|---|---|---|---|---|---|
| In € million | Notes | FY 2018 | FY 2017 | % yoy | FY 2018 | FY 2017 | % yoy |
| Net sales | B1 | 10,257 | 10,125 | +1.3% | 10,257 | 10,125 | +1.3% |
| Net operating costs, excluding depreciation & | |||||||
| amortization | B2 | (8,327) | (8,095) | (2.9)% | (8,027) | (7,894) | (1.7)% |
| EBITDA | B3 | 1,930 | 2,029 | (4.9)% | 2,230 | 2,230 | – |
| EBITDA margin | 21.7% | 22.0% | (0.3)pp | ||||
| Depreciation, amortization & impairments | B4 | (944) | (1,054) | +10% | (684) | (704) | +2.8% |
| EBIT | 986 | 976 | +1.1% | 1,546 | 1,527 | +1.3% | |
| Net financial charges | B5 | (194) | (298) | +35% | (326) | (394) | +17% |
| Income tax expenses | B6 | (95) | 197 | n.m. | (305) | (299) | (2.0)% |
| Tax rate | B6 | 26.1% | 27.5% | (1.4)pp | |||
| Profit from discontinued operations | B7 | 201 | 241 | (17)% | 216 | 159 | +36% |
| (Profit) loss attributable to non(controlling | |||||||
| interests) | (39) | (56) | (29)% | (40) | (54) | (26)% | |
| Profit attributable to Solvay shareholders | 858 | 1,061 | (19)% | 1,092 | 939 | +16% | |
| Basic earnings per share (in €) | B24 | 8.31 | 10.27 | (19)% | 10.57 | 9.08 | +16% |
| of which from continuing operations | B24 | 6.37 | 7.97 | (20)% | 8.48 | 7.59 | +12% |
| Dividend(1) | B25 | 3.75 | 3.60 | +4.2% | 3.75 | 3.60 | +4.2% |
| Capex | B8 | (833) | (822) | (1.4)% | |||
| of which from continuing operations | B8 | (711) | (716) | +0.8% | |||
| Cash conversion | B8 | 0.7 | 0.7 | +0.3pp | |||
| Free cash flow | B9 | 989 | 871 | +14% | |||
| of which from continuing operations | B9 | 830 | 782 | +6.1% | |||
| Free cash flow to Solvay shareholders | B9 | 725 | 466 | +56% | |||
| of which from continuing operations | B9 | 566 | 377 | +50% | |||
| Net working capital | B10 | 1,550 | 1,414 | +9.6% | 1,550 | 1,414 | +9.6% |
| Net working capital / sales | B10 | 15% | 14% | +1.5pp | |||
| Net financial debt(2) | B11 | (2,605) | (3,146) | +17% | (5,105) | (5,346) | +4.5% |
| Underlying leverage ratio | B11 | 2.01 | 2.17 | (15)pp | |||
| CFROI | B12 | 6.9% | 6.9% | – | |||
| Research & innovation | B13 | (352) | (325) | (8.3)% | |||
| Research & innovation intensity | B13 | 3.4% | 3.2% | +0.2pp |
(1) Recommended dividend for 2018
(2) Underlying net debt includes the perpetual hybrid bonds, accounted for as equity under IFRS
| As published | ||||||
|---|---|---|---|---|---|---|
| In € million | 2014 | 2015(1) | 2016 | 2017 | 2018 | |
| Income statement data | ||||||
| Sales | a | 10,629 | 11,047 | 11,403 | 10,891 | 11,299 |
| Net sales | b | 10,213 | 10,578 | 10,884 | 10,125 | 10,257 |
| Underlying EBITDA | c | 1,783 | 1,955 | 2,284 | 2,230 | 2,230 |
| Underlying EBITDA margin | d | 17.5% | 18.5% | 21.0% | 22.0% | 21.7% |
| IFRS EBIT | e | 652 | 833 | 962 | 976 | 986 |
| Underlying profit for the period | f | 907 | 992 | 1,131 | ||
| IFRS profit for the period | g | 13 | 454 | 674 | 1,116 | 897 |
| Underlying profit attributable to Solvay share |
h | 680 | 846 | 939 | 1,092 | |
| IFRS profit attributable to Solvay share |
i | 80 | 406 | 621 | 1,061 | 858 |
| Cash flow data | ||||||
| Capex | j | (987) | (1,037) | (981) | (822) | (833) |
| of which from continuing operations |
k | (861) | (969) | (929) | (716) | (711) |
| Cash conversion | l = (c+k)/c | 51.7% | 50.4% | 59.3% | 67.9% | 68.1% |
| Free cash flow | m | 656 | 387 | 876 | 871 | 989 |
| Free cash flow to Solvay shareholders |
n | 355 | 132 | 527 | 466 | 725 |
| Balance sheet data | ||||||
| Net working capital | o | 1,101 | 1,557 | 1,396 | 1,414 | 1,550 |
| Net working capital / sales | p = µ(o/a)(2) | 13.5% | 13.4% | 15.3% | 13.8% | 15.3% |
| Underlying net debt(3) | q = r+s | (1,978) | (6,579) | (6,556) | (5,346) | (5,105) |
| Perpetual hybrid bonds | r | (1,200) | (2,200) | (2,200) | (2,200) | (2,500) |
| IFRS net debt | s | (778) | (4,379) | (4,356) | (3,146) | (2,605) |
| IFRS equity | t | 6,778 | 9,668 | 9,956 | 9,752 | 10,624 |
| Equity attributable to non(controlling interests) |
v | 214 | 245 | 250 | 113 | 117 |
| Perpetual hybrid bonds in equity |
u | 1,194 | 2,188 | 2,188 | 2,188 | 2,486 |
| Equity attributable to Solvay share |
w = t-u-v | 5,369 | 7,234 | 7,518 | 7,451 | 8,021 |
| (4) Underlying leverage ratio |
x = -q/c | 1.11 | 2.82 | 2.60 | 2.17 | 2.01 |
| Other key data | ||||||
| CFROI | z | 6.9% | 6.9% | 6.3% | 6.9% | 6.9% |
| Research & innovation | A | (287) | (320) | (350) | (325) | (352) |
| Research & innovation intensity |
B = -A/b | 2.8% | 3.0% | 3.2% | 3.2% | 3.4% |
(1) 2015 data are not presented on pro forma basis, i.e. excude Cytec.
(2) Average of the quarters.
(3) Underlying net debt includes the perpetual hybrid bonds, accounted for as equity under IFRS.
(4) The 2018 underlying leverage ratio is calculated based on the underlying EBITDA including the discontinued operations Polyamide. The 2017 underlying leverage ratio is calculated based on the underlying EBITDA including the discontinued operations Acetow, Vinythai and Polyamide. The 2016 underlying leverage ratio is calculated based on the underlying EBITDA including the discontinued operations Acetow and Vinythai. The 2015 underlying leverage ratio is calculated based on the underlying pro forma EBITDA, including Cytec.
The table above presents the historical figures of the Group as published at the reference date. These data have not been affected by possible subsequent restatements due to perimeter changes, IFRS/IAS standards evolution, etc.
Over the reference periods, the following main changes have occurred:
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.
Solvay measures its financial performance using alternative performance metrics, which can be found below. Solvay believes that these measurements are useful for analyzing and explaining changes and trends in its historical results of operations, as they allow performance to be compared on a consistent basis.
Free cash flow is calculated as cash flows from operating activities (excluding cash flows linked to acquisitions or disposals of subsidiaries), and cash flows from investing activities (excluding cash flows from or related to acquisitions and disposals of subsidiaries and other investments, and excluding loans to associates and non-consolidated investments, as well as related tax elements and recognition of factored receivables);
Free cash flow to Solvay shareholders is calculated as free cash flow after payment of net interests, coupons of perpetual hybrid bonds and dividends to non-controlling interests. This represents the cash flow available to Solvay shareholders, to pay their dividend and/or to reduce the net financial debt;
Advanced Materials segment offers a unique portfolio of highperformance polymers and composite technologies used primarily in sustainable mobility applications. Our solutions enable weight reduction and enhance performance while improving CO2 and energy efficiency. Major markets served include next-generation mobility in automotive and aerospace, healthcare and electronics.
With over 1,500 products, Specialty Polymers offers the widest range of high performance polymers in the world, allowing tailormade solutions such as pushing the limits of metal replacement in the electronics, automotive, aircraft, and healthcare industries. The GBU has unparalleled expertise in three technologies: aromatic polymers, high barrier polymers, fluoropolymers.
Composite Materials is a top-tier supplier to the aerospace engineered materials market known for its expertise in design materials and process engineering. We deliver optimal material solutions to address our customer's most challenging demand for new high-performance materials that reduce weight, improve aerodynamics, and ultimately lower the total part costs for customers. The business supplies composites technologies to civil and military aircraft manufacturers which comprises the majority of sales, with the balance of sales into various industrial markets.
Special Chem produces fluor and rare-earth formulations for automotive, semi-conductor, and lighting applications. With its industrial know-how, global presence, and R&I proximity, Special Chem has positioned itself as a strategic partner for the automotive sector as a producer of materials used in emission control catalysis and aluminum brazing, and as a producer of cleaning and polishing materials for electronics.
Silica focuses on highly dispersible silica, used primarily in fuelefficient and performance tires. The primary focus of the business is to develop innovative solutions for global tire manufacturers.
Advanced Formulations includes a broad-based portfolio of surface chemistries focused on improving the world's resource efficiency. The segment offers customized formulations that alter liquid behavior to optimize yield while reducing environmental impact. Major markets include resource efficiency in oil & gas, mining and agriculture, as well as consumer goods, and food.
Novecare develops and produces formulations that alter the properties of liquids. It offers solutions to the oil and gas industry using an extensive range of surface chemistries combined with applications expertise. Novecare also provides specialty solutions for certain industrial applications, agricultural, and coatings markets.
Technology Solutions is a global leader in specialty mining reagents, phosphine-based chemistry, and solutions for stabilization of polymers. Its portfolio includes world class, leading-edge technologies and unrivalled technical service and applications expertise that support our customers in developing tailor-made solutions, in particular for mining, where Solvay's products allow customers to extract metal concentrates from increasingly more complex and depleted ores.
Aroma Performance is a world's largest integrated producer of vanillin for the flavors & fragrances industries and also produces synthetic intermediates used in pharmaceuticals, agrochemicals, and electronics.
Performance Chemicals hosts chemical intermediate businesses focused on mature and resilient markets. Solvay is a world leader in soda ash and peroxides and major markets served include building and construction, consumer goods and food. It provides resilient profitability thanks to good pricing and market dynamics, underpinned by high quality assets.
Soda Ash & Derivatives is a world leader for the production of soda ash and sodium bicarbonate, sold primarily to the flat and container glass industries but also used in detergents, agro, and food industries. It provides resilient profitability thanks to good pricing, dynamics growing at GDP rate, underpinned by highquality assets.
Solvay is a market leader in hydrogen peroxide, both in market share and technology. Hydrogen peroxide (H2O2) is used mainly by the paper industry to bleach pulp. Its properties are also of interest to many markets, such as chemicals, food, textiles, and the environment.
Coatis is a provider of glycerine-based sustainable solvents solutions and specialty phenols mainly for the Latin American market. It enjoys an undisputed market leadership position in Brazil for Phenol & Derivatives used in the production of synthetic resins employed in foundries, construction, and abrasives.
Corporate & Business Services includes corporate and other business services, such as Group research & innovation or energy services, whose mission is to optimize energy consumption and reduce CO2 emissions.
NOTE B1 Net sales
Net sales were up +1.3% for the full year. Organic sales growth of +5.7% was driven by both volumes and prices, which more than offset forex conversion and scope effects.
The reduction in scope[1] had a -1.0% effect and comprised the divestments of the polyolefin cross-linkable compounds in Advanced Materials and formulated resins businesses, as well as part of the phosphorous business in Advanced Formulations.
Forex conversion had an adverse effect of -3.2%, mainly related to the depreciation of the U.S. dollar in the first half of the year, as well as that of the Brazilian real.
Volumes were up +3.3% overall. In Advanced Materials strong growth for Solvay's polymers and composites technologies in aeronautics, automotive and healthcare, was tempered by lower demand in smart devices and fluorinated gases used in insulation. Volumes in Advanced Formulations were up across business units, although growth in the shale oil & gas stimulation market in North America declined significantly in the fourth quarter. In Performance Chemicals, higher demand for peroxides and recovery in Coatis' domestic Latin American market supported volume growth, more than compensating for slightly lower soda ash volumes at the start of the year.
Prices rose +2.2% overall, partially reflecting higher raw material costs. In Advanced Formulations, pricing strength was recovered in the first nine months but turned negative in the fourth quarter following the oil and gas decline. In Performance Chemicals increases in peroxides and the Coatis business, offset the anticipated decrease in soda ash.
[1] Scope effects include acquisitions and divestments of smaller businesses not leading to the restatement of previous periods.
The overall raw materials expense of the Group mounted to circa € 2.8 billion in 2018 (vs. €2.5 billion in 2017). The raw materials expense can be split into several categories: crude oil derivatives for 42%, minerals derivatives for 23% (e.g. glass fiber, sodium silica, calcium silicate, phosphorus, sodium hydroxide…), natural gas derivatives for 7%, biochemicals for 12% (e.g. glycerol, guar, fatty alcohol, ethyl alcohol…) and others for 16% (composites...).
Net energy costs represented about €0.65 billion 2018 (vs €0,61 billion in 2017). Energy sources were spread over gas for 55%, coke, petcoke, coal, and anthracite for 30%, electricity for 10% and steam, fuel oil, and others for 5%. More than half of the costs were incurred in Europe (58%) followed by the Americas (24%), and Asia and the rest of the world (18%). The Group has pursued an active energy policy for many years.
NOTE B3 Underlying EBITDA On energy supply, Solvay has consistently implemented programs to reduce its energy consumption for many years. While we have industrial activities with high energy consumption, mainly in Europe (synthetic soda ash plants, peroxides), we also operate a range of industrial activities whose energy content is relatively low as a percentage of sales price, especially in the fluorinated polymers business. To reduce the Group's energy footprint Solvay has stepped up its SOLWATT energy efficiency program, which aims to continuously optimize the industrial processes involved in its energy production and supply.
Underlying EBITDA was flat year on year, but grew organically by +5.3% excluding forex conversion and scope effects. Volume and mix drove the strong volume growth for the year. Growth was stronger in the first half versus the second half due to the slowdown in certain markets, including electronics and oil and gas. The underlying EBITDA margin remained solid at 22%.
Volume growth had a +6.1% positive impact on EBITDA.
Net pricing was essentially flat, demonstrating Solvay's pricing capabilities amid higher raw materials and energy prices, and an adverse transactional forex effect.
Fixed cost increases had a -2.3% effect. These reflected investments to better support continued volume growth. Operational excellence and synergies partly offset inflation.
Other elements included a higher contribution from the PVC and peroxide joint ventures amounting to half of the benefit, and a net positive effect of one-time events compared to 2017.
Amortization and depreciation charges were €(684) million in 2018, compared to €(704) million in 2017.
| In € million | FY 2018 | FY 2017 | |
|---|---|---|---|
| Cost of borrowings | (131) | (162) | |
| Interest on lendings & deposits | 13 | 15 | |
| Other gains & lossess on net indebteness | (1) | (23) | |
| Net cost of borrowings | a | (118) | (170) |
| Coupons on perpetual hybrid bonds | b | (112) | (111) |
| Interests and realized foreign exchange gains (losses) on the RusVinyl joint venture |
c | (21) | (24) |
| Cost of discounting provisions | d | (74) | (89) |
| Net financial charges | f = a+b+c+d | (326) | (394) |
Underlying net financial charges[1] were 17% lower, reflecting the impacts of ongoing deleveraging and optimization of the debt structure. Discounting costs were down from last year both for employee benefits and environmental related provisions.
| In € million | FY 2018 | FY 2017 | |
|---|---|---|---|
| Profit for the period before taxes | a | 1,220 | 1,133 |
| Earnings from associates & joint ventures | b | 74 | 71 |
| Interests and realized foreign exchange gains (losses) on the RusVinyl | |||
| joint venture | c | (21) | (24) |
| Income taxes | d | (305) | (299) |
| Tax rate | e = -d/(a-b-c) | 26.1% | 27.5% |
The 1.4 percentage point reduction of the underlying tax rate limited tax impact of the higher tax base.
The underlying contribution from discontinued operations was €216 million, up 36% thanks to the strong performance of the polyamide activities that are planned to be sold. This more than compensated for the absence of contributions from Acetow, which was sold at the end of May 2017.
| In € million | FY 2018 | FY 2017 | |
|---|---|---|---|
| Acquisition (–) of tangible assets | a | (691) | (707) |
| Acquisition (–) of intangible assets | b | (142) | (115) |
| Capex | c = a+b | (833) | (822) |
| Capex flow from discontinued operations | d | (122) | (105) |
| Capex from continuing operations | e = c-d | (711) | (716) |
| Underlying EBITDA | f | 2,230 | 2,230 |
| Cash conversion | g = (f+e)/f | 68.1% | 67.9% |
Capex from continuing operation was €(711), closed to depreciation and amortization levels as planned.
| In € million | FY 2018 | FY 2017 | |
|---|---|---|---|
| Cash flow from operating activities | a | 1,720 | 1,590 |
| of which cash flow related to acquisition of subsidiaries | b | – | (36) |
| Cash flow from investing activities | c | (784) | 84 |
| of which capital expenditures required by share sale agreement | d | (38) | (12) |
| Acquisition (–) of subsidiaries | e | (12) | (44) |
| Acquisition (–) of investments – Other | f | (4) | (11) |
| Loans to associates and non-consolidated companies | g | (3) | (7) |
| Sale (+) of subsidiaries and investments | h | 26 | 891 |
| Recognition of factored receivables | j | (21) | 21 |
| Free cash flow | k = a-b+c-d-e-f-g-h-i-j | 989 | 871 |
| Free cash flow from discontinued operations | l | 160 | 89 |
| Free cash flow from continuing operations | m = k-l | 830 | 782 |
| Net interests paid | n | (114) | (255) |
| Coupons paid on pertetual hybrid bonds | o | (111) | (111) |
| Dividends paid to non-controlling interests | p | (39) | (39) |
| Free cash flow to Solvay shareholders | q = k+n+o+p | 725 | 466 |
| Free cash flow to Solvay shareholders from discontinued operations | r | 160 | 89 |
| Free cash flow to Solvay shareholders from discontinued operations | s = q-r | 566 | 377 |
Free cash flow from continuing operations reached €830 million versus €782 million in 2017. The increase is largely attributable to working capital phasing, with working capital needs €58 million lower than in 2017. Net working capital over sales rose slightly to 13.7% versus 13.0% at the end of 2017. Total free cash flow was €989 million and included a strong contribution from discontinued operations.
Free cash flow to Solvay shareholders was €725 million, of which €566 million from continuing operations. The increase of +56% follows lower financing payments as a result of continued deleveraging.
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| In € million | December 31 | September 30 | June 30 | March 31 | December 31 | |
| Inventories | a | 1,685 | 1,744 | 1,624 | 1,549 | 1,504 |
| Trade receivables | b | 1,434 | 1,565 | 1,541 | 1,608 | 1,462 |
| Other current receivables | c | 719 | 1,123 | 820 | 730 | 627 |
| Trade payables | d | (1,439) | (1,312) | (1,289) | (1,358) | (1,330) |
| Other current liabilities | e | (850) | (1,140) | (889) | (953) | (848) |
| Net working capital | f = a+b+c+d+e | 1,550 | 1,980 | 1,808 | 1,576 | 1,414 |
| Sales | g | 2,830 | 2,840 | 2,820 | 2,809 | 2,717 |
| Annualized quarterly total sales | h = 4*g | 11,321 | 11,359 | 11,281 | 11,235 | 10,869 |
| Net working capital / sales | i = f / h | 13,7% | 17.4% | 16.0% | 14.0% | 13.0% |
| Year average | j = µ(Q1,Q2,Q3,Q4) | 15.3% | 13.8% |
Net working capital over sales rose slightly to 13.7% versus 13.0% at the end of 2017.
| 2018 | 2017 | ||
|---|---|---|---|
| In € million | December 31 | December 31 | |
| Non-current financial debt | a | (3,180) | (3,182) |
| Current financial debt | b | (630) | (1,044) |
| Gross debt | c = a+b | 3,810 | (4,226) |
| Other financial instrument receivables | d | 101 | 89 |
| Cash & cash equivalents | e | 1,103 | 992 |
| Total cash and cash equivalents | f = d+e | 1,205 | 1,080 |
| IFRS net debt | g = c+f | (2,605) | (3,146) |
| Perpetual hybrid bonds | h | (2,500) | (2,200) |
| Underlying net debt | i = g+h | (5,105) | (5,346) |
| Underlying EBITDA (last 12 months) | j | 2,230 | 2,230 |
| Adjustment for discontinued operations(1) | k | 305 | 236 |
| Adjusted underlying EBITDA for leverage calculation(1) | l = j+k | 2,536 | 2,466 |
| Underlying leverage ratio(1) | m = -i/l | 2.0 | 2.2 |
(1) As net debt at the end of the period does not yet reflect the net proceeds to be received on the divestment of discontinued operations, whereas the underlying EBITDA excludes the contribution of discontinued operations, the underlying EBITDA is adjusted to calculate the leverage ratio. Polyamide's underlying EBITDA was added.
Underlying net financial debt[2] reduced to €(5.1) billion, from €(5.3) billion at the start of the year, thanks to the strong operational deleveraging, bringing the underlying leverage ratio down from 2.2x to 2.0x. The dividend payments to Solvay shareholders of €(372) million were more than covered by free cash flow delivery. Remeasurements were €(90) million, attributable to the appreciation of the U.S. dollar by 4.7% over the year affecting the conversion of U.S. dollar-denominated debt. M&A activities had a net €(28) million impact.
Underlying gross financial debt was €(6.3) billion, including €(2.5) billion perpetual hybrid bonds. In June 2018 Solvay repaid €382 million on a euro-denominated bond that came to maturity. In November 2018 Solvay successfully placed a perpetual hybrid bond for €(300) million, to be used for general corporate purposes, including the possibility to refinance the existing €(700) million hybrid bond with a first call date in May 2019.
[2] Underlying net financial debt includes the perpetual hybrid bonds, accounted for as equity under IFRS.
78
| FY 2018 | FY 2017 | ||||||
|---|---|---|---|---|---|---|---|
| In € million | As publi shed |
Adjust ment |
As calcu lated |
As publi shed |
Adjustment | As calcu lated |
|
| Underlying EBIT | a | 1,546 | 1,546 | 1,527 | 1,527 | ||
| Underlying EBITDA | b | 2,230 | 2,230 | 2,230 | 2,230 | ||
| Underlying earnings from associates & joint ventures |
c | 74 | 74 | 71 | 71 | ||
| Dividends received from associates & joint ventures(1) |
d | 25 | – | 25 | 18 | – | 18 |
| Recurring capex(2) | e = -2%*l | (324) | (326) | ||||
| Recurring income taxes(3) | f = -30%*(a-c) | (442) | (437) | ||||
| Recurring "CFROI" cash flow data |
g = b-c+d+e+f | 1,416 | 1,415 | ||||
| Tangible assets | h | 5,454 | 5,433 | ||||
| Intangible assets | i | 2,861 | 2,940 | ||||
| Goodwill | j | 5,173 | 5,042 | ||||
| Replacement value of goodwill & fixed assets(4) |
k = h+i+j | 13,488 | 4,831 | 18,319 | 13,415 | 5,093 | 18,508 |
| of which fixed assets | l | 16,187 | 16,314 | ||||
| Investments in associates & joint ventures(5) |
m | 441 | 1 | 443 | 466 | 16 | 482 |
| Net working capital(5) | n | 1,550 | 179 | 1,728 | 1,414 | 111 | 1,525 |
| "CFROI" invested capital | o = k+m+n | 20,490 | 20,515 | ||||
| CFROI | p = g/o | 6.9% | 6.9% | ||||
| Advanced Materials | 10.0% | 10.3% | |||||
| Advanced Formulations | 6.9% | 6.7% | |||||
| Performance Chemicals | 8.3% | 8.4% |
(1) Excluding discontinued operations.
(2) Currently estimated at 2% of replacement value of fixed assets.
(3) Currently estimated at 30% of underlying EBIT.
(4) The adjustment reflects the quarterly average over the year.
(5) The adjustment reflects the difference between the estimated replacement value of goodwill and fixed assets, and the accounting value. The changes over time come from foreign exchange variations, new investments and portfolio moves.
CFROI was stable at 6.9%, well in the value creation zone, above WACC of 6.5%.
| In € million | FY 2018 | FY 2017 | |
|---|---|---|---|
| IFRS research & development costs | a | (297) | (290) |
| Grants netted in research & development costs | b | 25 | 26 |
| Depreciation, amortization & impairments included in research & development costs |
c | (59) | (55) |
| Capex in research & innovation | d | (89) | (64) |
| Research & innovation | e = a-b-c+d | (352) | (325) |
| Advanced Materials | (171) | (157) | |
| Advanced Formulations | (97) | (85) | |
| Performance Chemicals | (27) | (29) | |
| Corporate & Business Services | (58) | (55) | |
| Net sales | f | 10,257 | 10,125 |
| Advanced Materials | 4,385 | 4,370 | |
| Advanced Formulations | 3,057 | 2,966 | |
| Performance Chemicals | 2,808 | 2,766 | |
| Corporate & Business Services | 7 | 23 | |
| Research & Innovation intensity | g = -e/f | 3.4% | 3.2% |
| Advanced Materials | 3.9% | 3.6% | |
| Advanced Formulations | 3.2% | 2.9% | |
| Performance Chemicals | 1.0% | 1.0% |
Research an innovation efforts amounted to €352 million in 2018. The global expenditure analysis clearly underlines that innovation projects are generally focused on growth (74% of total R&I efforts).
Some 84% of the Group's Research & Innovation investments are directly managed by the Global Business Units.
The Research & Innovation intensity, i.e. the ratio of Research & Innovation efforts to net sales reached 3.4%.
| in € million | 2018 | 2017 | % yoy |
|---|---|---|---|
| Net sales | 10,257 | 10,125 | +1.3% |
| Advanced Materials | 4,385 | 4,370 | +0.4% |
| Advanced Formulations | 3,057 | 2,966 | +3.1% |
| Performance Chemicals | 2,808 | 2,766 | +1.5% |
| Corporate & Business Services | 7 | 23 | (69)% |
| EBITDA | 2,230 | 2,230 | – |
| Advanced Materials | 1,197 | 1,202 | (0.4)% |
| Advanced Formulations | 521 | 524 | (0.4)% |
| Performance Chemicals | 729 | 749 | (2.7)% |
| Corporate & Business Services | (218) | (244) | +11% |
| EBIT | 1,546 | 1,527 | +1.3% |
| Advanced Materials | 895 | 896 | (0.1)% |
| Advanced Formulations | 381 | 374 | +2.1% |
| Performance Chemicals | 552 | 566 | (2.4)% |
| Corporate & Business Services | (282) | (308) | +8.5% |
| Capex from continuing operations | (711) | (716) | +0.8% |
| Advanced Materials | (355) | (366) | +3.1% |
| Advanced Formulations | (148) | (130) | (14)% |
| Performance Chemicals | (149) | (152) | +1.8% |
| Corporate & Business Services | (58) | (68) | +14% |
| CFROI | 6.9% | 6.9% | – |
| Advanced Materials | 10.0% | 10.3% | (0.2)pp |
| Advanced Formulations | 6.9% | 6.7% | +0.1pp |
| Performance Chemicals | 8.3% | 8.4% | (0.1)pp |
| Research & innovation | (352) | (325) | +8.3% |
| Advanced Materials | (171) | (157) | (8.9)% |
| Advanced Formulations | (97) | (85) | (14)% |
| Performance Chemicals | (27) | (29) | +6.5% |
| Corporate & Business Services | (58) | (55) | (5.3)% |
| in € million | FY 2018 | FY 2017 | % yoy |
|---|---|---|---|
| Net sales | 4,385 | 4,370 | +0.4% |
| Specialty Polymers | 2,009 | 2,025 | (0.8)% |
| Composite Materials | 1,082 | 1,038 | +4.3% |
| Special Chem | 852 | 865 | (1.5)% |
| Silica | 442 | 443 | (0.1)% |
| EBITDA | 1,197 | 1,202 | (0.4)% |
| EBITDA margin | 27.3% | 27.5% | (0.2)pp |
| EBIT | 895 | 896 | (0.1)% |
| EBIT margin | 20.4% | 20.5% | (0.1)% |
| Capex from continuing operations | (355) | (366) | +3.1% |
| Cash conversion | 70.4% | 69.5% | +0.8pp |
| CFROI | 10.0% | 10.3% | (0.2)pp |
| Research & innovation | (171) | (157) | +0.1% |
| Research & innovation intensity | 3.9% | 3.6% | +0.3pp |
Net sales were up +0.4% for the year due to higher volumes and mix. Organically sales rose +3.7%, excluding forex conversion and scope, driven by growth in Composite Materials, Specialty Polymers and Silica.
Specialty Polymers delivered solid volume growth in the first half of the year. Demand from healthcare and from the automotive market, where Solvay sales significantly outpaced global car production growth, was solid throughout the year but signs of weakening were observed at the end of the year. The trend toward fuel-efficiency and electrification supported superior growth across all vehicle platforms. Second half sales were flat, however, as the anticipated lower demand for smart devices offset growth in other end-markets.
Composite Materials volumes grew at a high single-digit rate throughout the full year period. Demand for new single-aisle aircrafts utilizing the LEAP engine technology, as well as for the 787 program, drove growth in commercial aircrafts. In military, the ramp-up of the F-35 Joint Strike Fighter was also a significant contributor of the volume growth.
Volumes were essentially flat in Special Chem, as robust demand from electronics was offset by the tougher than foreseen phase-out of fluorinated insulation blowing agents. In addition, the shift from diesel to gasoline in automotive catalysts continued to pressure the business.
Silica sales into the fuel-efficient tire market grew in the year and prices were supportive, compensating for higher energy costs.
Underlying EBITDA was down -0.4%, but up +3.1% organically, excluding scope effects and forex conversion. Volume growth and higher prices compensated for the transactional forex effects and the increase in raw materials costs, mainly due to the surge of fluorspar prices in Special Chem. Fixed costs rose in Composite Materials reflecting a ramp up in manufacturing to support continued volume growth. The underlying EBITDA margin remained strong for the year at 27%.
| in € million | FY 2018 | FY 2017 | % yoy |
|---|---|---|---|
| Net sales | 3,057 | 2,966 | +3.1% |
| Novecare | 2,000 | 1,937 | +3.2% |
| Technology Solutions | 643 | 662 | (2.9)% |
| Aroma Performance | 414 | 366 | +13% |
| EBITDA | 521 | 524 | (0.4)% |
| EBITDA margin | 17.1% | 17.7% | (0.6)pp |
| EBIT | 381 | 374 | +2.1% |
| EBIT margin | 12.5% | 12.6% | (0.1)% |
| Capex from continuing operations | (148) | (130) | (14)% |
| Cash conversion | 71.6% | 75.2% | (3.6)pp |
| CFROI | 6.9% | 6.7% | +0.1pp |
| Research & innovation | (97) | (85) | (14)% |
| Research & innovation intensity | 3.2% | 2.9% | +0.3pp |
Net sales were up +3.1% year on year driven by strong volumes and increased prices. Sales grew organically by +9.0% in 2018, excluding the impact from forex conversion and scope reduction.
In Novecare, both volumes and prices grew across multiple endmarkets. The strong growth of oil and gas in the first half year of the year reduced significantly in the fourth quarter as activity levels in the shale oil & gas stimulation market in North America declined rapidly, weighing on both volumes and margins. Other end-markets including coatings, agro, and home & personal care, showed robust growth throughout the year.
Technology Solutions delivered solid volume growth in the year, with new mine wins and strong demand in phosphorus specialties and polymer additives driving volume growth.
In Aroma Performance, volumes and prices were up significantly throughout the period, both in polymerization inhibitors and in vanillin ingredients, which benefited from the launch of new natural vanillin products.
Underlying EBITDA declined by -0.4%, but grew +8.1% organically, excluding scope effects and forex conversion, as a result of the volume and price increases across businesses. These increases more than compensated for higher raw material costs and slightly higher fixed costs. As a reminder, 2017 benefited from a one-time €17 million indemnity received for the loss of some assets in China. As a result, the underlying EBITDA margin was slightly reduced by -0.6 percentage point to 17% for the year.
| in € million | FY 2018 | FY 2017 | % yoy |
|---|---|---|---|
| Net sales | 2,808 | 2,766 | +1.5% |
| Soda Ash & Derivatives | 1,562 | 1,629 | (4.1)% |
| Peroxides | 654 | 600 | +8.9% |
| Coatis | 509 | 410 | +24% |
| Functional Polymers | 82 | 126 | (35)% |
| EBITDA | 729 | 749 | (2.7)% |
| EBITDA margin | 26.0% | 27.1% | (1.1)pp |
| EBIT | 552 | 566 | (2.4)% |
| EBIT margin | 19.7% | 20.4% | (0.8)% |
| Capex from continuing operations | (149) | (152) | +1.8% |
| Cash conversion | 79.5% | 79.7% | (0.2)pp |
| CFROI | 8.3% | 8.4% | (0.1)pp |
| Research & innovation | (27) | (29) | +6.5% |
| Research & innovation intensity | 1.0% | 1.0% | (0.1)pp |
Net sales in the segment were +1.5% higher driven by price and volume increases, which more than offset forex conversion. Organically sales grew by +6.0% in the year, with the second half stronger than the first half.
Demand remained solid in Soda Ash & Derivatives throughout the year. Soda ash volumes were slightly down, mainly due to logistic issues at the start of the year. Average soda ash prices were slightly lower year on year as expected, but improved in the second half. Bicarbonate volumes grew, mainly for flue gas treatment in the U.S.
Peroxides delivered strong volume growth globally, complemented by higher prices in Asia. The contribution from the HPPO plants supported the growth.
Record results for the Coatis business, with double-digit sales growth driven by higher volumes and prices. Both domestic demand in Latin America and exports improved, benefiting from Brazilian real depreciation.
Functional Polymers volumes were stable overall.
Underlying EBITDA dropped -2.7% due to forex conversion. Organically it rose +1.6% thanks to volume growth in Peroxides and Coatis and a higher contribution of the PVC joint venture in Russia and the peroxide joint venture in Latin America. Net pricing was stable, as the anticipated margin squeeze in soda ash was offset by the pricing power in Peroxides and Coatis. Overall, the performance of the segment was better than anticipated, resulting in overall EBITDA margin narrowing -1.1 percentage point to 26% for the year.
| in € million | FY 2018 | FY 2017 | % yoy |
|---|---|---|---|
| Net sales | 7 | 23 | (69)% |
| Energy Services | - | - | n.m. |
| Other Corporate & Business Services | 7 | 23 | (71)% |
| EBITDA | (218) | (244) | +11% |
| EBIT | (282) | (308) | +8.5% |
| Capex from continuing operations | (58) | (68) | +14% |
| Research & innovation | (58) | (55) | (5.3)% |
Underlying EBITDA costs at €(218) million were lower than in 2017. Productivity programs and low insurance claims covered by the insurance captive of the company, helped to lower fixed costs, which more than offset inflation. The contribution from Energy Services was overall flat versus the prior year.
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.
| FY 2018 | ||||||
|---|---|---|---|---|---|---|
| Adjust | Under | FY 2017 Adjust |
||||
| In € million | IFRS | ments | lying | IFRS | ments | Underlying |
| Sales(1) | 11,299 | – | 11,299 | 10,984 | – | 10,984 |
| of which revenues from non-core activities(1) | 1,042 | – | 1,042 | 859 | – | 859 |
| of which net sales | 10,257 | – | 10,257 | 10,125 | – | 10,125 |
| Cost of goods sold(1) | (8,264) | 2 | (8,262) | (7,898) | 2 | (7,896) |
| Gross margin | 3,035 | 2 | 3,037 | 3,086 | 2 | 3,088 |
| Commercial costs | (373) | – | (373) | (400) | – | (400) |
| Administrative costs | (1,006) | 35 | (971) | (1,037) | 42 | (996) |
| Research & development costs | (297) | 3 | (294) | (290) | 3 | (288) |
| Other operating gains & losses | (123) | 197 | 74 | (154) | 206 | 51 |
| Earnings from associates & joint ventures | 44 | 30 | 74 | 44 | 27 | 71 |
| Result from portfolio management & reassessments | (208) | 208 | – | (188) | 188 | – |
| Result from legacy remediation & major litigations | (86) | 86 | – | (84) | 84 | – |
| EBITDA | 1,930 | 301 | 2,230 | 2,029 | 201 | 2,230 |
| Depreciation, amortization & impairments | (944) | 260 | (684) | (1,054) | 350 | (704) |
| EBIT | 986 | 560 | 1,546 | 976 | 551 | 1,527 |
| Net cost of borrowings | (118) | – | (118) | (201) | 31 | (170) |
| Coupons on perpetual hybrid bonds | – | (112) | (112) | – | (111) | (111) |
| Interests and realized foreign exchange gains (losses) on the RusVinyl joint venture |
– | (21) | (21) | – | (24) | (24) |
| Cost of discounting provisions | (77) | 3 | (74) | (97) | 8 | (89) |
| Profit for the period before taxes | 791 | 429 | 1,220 | 678 | 455 | 1,133 |
| Income taxes | (95) | (210) | (305) | 197 | (496) | (299) |
| Profit for the period from continuing operations | 697 | 219 | 915 | 875 | (42) | 834 |
| Profit (loss) for the period from discontinued operations | 201 | 15 | 216 | 241 | (82) | 159 |
| Profit for the period | 897 | 234 | 1,131 | 1,116 | (124) | 992 |
| attributable to Solvay shareholders | 858 | 234 | 1,092 | 1,061 | (122) | 939 |
| attributable to non-controlling interests | 39 | – | 40 | 56 | (2) | 54 |
| Basic earnings per share (in €) | 8.31 | 10.57 | 10.27 | 9.08 | ||
| of which from continuing operations | 6.37 | 8.48 | 7.97 | 7.59 | ||
| Diluted earnings per share (in €) | 8.27 | 10.52 | 10.19 | 9.02 | ||
| of which from continuing operations | 6.34 | 8.44 | 7.92 | 7.53 |
(1) The comparative figures of non-core revenues and costs of goods sold have been restated for an amount of €93 million, following a change in presentation of revenues from non-core activities
EBITDA on an IFRS basis totaled €1,930 million, versus €2,230 million on an underlying basis. The difference of €301 million is explained by the following adjustments to IFRS results, which are done to improve the comparability of underlying results:
EBIT on an IFRS basis totaled €986 million, versus €1,546 million on an underlying basis. The difference of €560 million is explained by the above-mentioned €301 million adjustments at the EBITDA level and €260 million of "Depreciation, amortization & impairments". The latter consist of:
Net financial charges on an IFRS basis were €(194) million versus €(326) million on an underlying basis. The €(131) million adjustment made to IFRS net financial charges consists of:
Income taxes on an IFRS basis were €(95) million, versus €(305) million on an underlying basis. The €(210) million adjustment includes mainly:
Discontinued operations generated a profit of €201 million on an IFRS basis and €216 million on an underlying basis. The €15 million adjustment to the IFRS profit is made for M&A costs related to the planned divestment of the polyamide activities.
Profit attributable to Solvay share was €858 million on an IFRS basis and €1,092 million on an underlying basis. The delta of €234 million reflects the above-mentioned adjustments to EBIT, net financial charges, income taxes and discontinued operations. There was no impact from non-controlling interests.
Historical key share data
| 2014 | 2015(1) | 2016 | 2017 | 2018 | ||
|---|---|---|---|---|---|---|
| Number of shares (in 1000 shares) | ||||||
| Issued shares at end of year | a | 84,701 | 105,876 | 105,876 | 105,876 | 105,876 |
| Treasury shares at end of year | b | 1,719 | 2,106 | 2,652 | 2,358 | 2,723 |
| Shares held by Solvac | c | 25,578 | 32,116 | 32,511 | 32,511 | 32,511 |
| Outstanding shares at the end of the year | d = a-b | 82,982 | 103,770 | 103,225 | 103,519 | 103,154 |
| Average outstanding shares (basic calculation) | e | 83,228 | 83,738 | 103,294 | 103,352 | 103,277 |
| Average outstanding shares (diluted calculation) |
f | 83,890 | 84,303 | 103,609 | 104,084 | 103,735 |
| Data per share (in €) | ||||||
| Equity attributable to Solvay share | g = /d(2) | 64.71 | 69.72 | 72.83 | 71.98 | 77.76 |
| Underlying profit for the period (basic) | h = /e(2) | 8.12 | 8.19 | 9.08 | 10.57 | |
| IFRS profit for the period (basic) | i = /e(2) | 0.96 | 4.85 | 6.01 | 10.27 | 8.31 |
| IFRS profit for the period (diluted) | j = /f(2) | 0.96 | 4.81 | 5.99 | 10.19 | 8.27 |
| Gross dividend(3) | k | 3.40 | 3.30 | 3.45 | 3.60 | 3.75 |
| Net dividend(3) | l = k*(1-…%)(4) | 2.55 | 2.41 | 2.42 | 2.52 | 2.62 |
| Share price data (in €) | ||||||
| Highest(5) | m | 129.15 | 141.10 | 112.30 | 132.00 | 120.65 |
| Lowest(5) | n | 100.15 | 88.01 | 70.52 | 106.30 | 85.44 |
| Average(5) | o = v/u | 114.35 | 105.74 | 89.32 | 118.69 | 110.07 |
| At the end of the year | p | 112.40 | 98.43 | 111.35 | 115.90 | 87.32 |
| Underlying price/earnings | q = p/h | 13.59 | 12.76 | 8.26 | ||
| IFRS price/earnings | r = p/i | 116.59 | 20.31 | 18.52 | 11.29 | 10.51 |
| Gross dividend yield | s = k/p | 0.03 | 0.03 | 0.03 | 0.03 | 0.04 |
| Net dividend yield | t = l/p | 0.02 | 0.02 | 0.02 | 0.02 | 0.03 |
| Stock market data(6) | ||||||
| Annual volume (in 1000 shares) | u | 48,600 | 82,718 | 86,280 | 62,642 | 70,715 |
| Annual volume (in € million) | v | 5,557 | 9,218 | 7,707 | 7,435 | 7,784 |
| Market capitalisation, end of year (in € million) | w = p*d | 9,327.2 | 10,214.1 | 11,494.1 | 11,997.8 | 9,007.4 |
| Velocity | x = u/a | 57.4% | 78.1% | 81.5% | 59.2% | 66.8% |
| Velocity adjusted for free float | y = u/(a-b-c) | 84.7% | 115% | 122% | 88.2% | 100% |
(1) 2015 data are not presented on pro forma basis, i.e. exclude Cytec.
(2) The numerator can be found under the same label in the historic key financial data table in section 1 of the Business review.
(3) Recommended 2017 dividend, pending General Shareholders meeting on May 8, 2018.
(4) Belgian withholding tax applicable in year of dividend payment, i.e. the following year: 25% in 2013-2015, 27% in 2016, 30% from 2017 onward.
(5) The 2015 share price data use the share price adjusted by a factor 93.98% for the period until December 3, 2015. The adjustment reflects the distribution of rights during the capital increase completed in December 2015.
(6) The stock market data are based on all trades registered by Euronext.
| FY 2018 | FY 2017 | ||
|---|---|---|---|
| Profit attributable to Solvay share (in € m) | |||
| Underlying profit for the period | a | 1,092 | 939 |
| Underlying profit from continuing operations | b | 876 | 784 |
| IFRS profit for the period | c | 858 | 1,061 |
| IFRS profit from continuing operations | d | 657 | 824 |
| Number of shares (in 1000 shares) | |||
| Issued shares at end of year | e | 105,876 | 105,876 |
| Treasury shares at end of year | f | 2,723 | 2,358 |
| Outstanding shares at the end of the year | g = e-f | 103,154 | 103,519 |
| Average outstanding shares (basic calculation) | h | 103,277 | 103,352 |
| Average outstanding shares (diluted calculation) | i | 103,735 | 104,084 |
| Data per share (in €) | |||
| Underlying profit for the period (basic) | j = a/h | 10.57 | 9.08 |
| Underlying profit from continuing operations (basic) | k = b/h | 8.48 | 7.59 |
| IFRS profit for the period (basic) | l = c/h | 8.31 | 10.27 |
| IFRS profit from continuing operations (basic) | m = d/h | 6.37 | 7.97 |
| IFRS profit for the period (diluted) | p = c/i | 8.27 | 10.19 |
| IFRS profit from continuing operations (diluted) | q = d/i | 6.34 | 7.92 |
Underlying earnings per share[1] grew +16% to €10.57, including a €2.09 contribution from discontinued operations. On a continuing basis, underlying earnings per share grew +12% to €8.48, thanks to lower financial charges and the lower tax rate.
The Board of Directors decided to recommend to the General Shareholders' Meeting of May 14, 2019 the payment of a total gross dividend of €3,75 per share.
The dividend for the fiscal year 2018, 4,2 % higher than the dividend for the fiscal year 2017, is in line with the Group's dividend policy of maintaining a stable to increasing dividend whenever possible and, as far as possible, never reducing it.
Given the interim dividend of €1,44 gross per share, with 30% whithholding tax, paid on January 17, 2019, the balance of the dividend in respect of 2018, equals €2,31 gross per share, which will be paid on May 23, 2019, provided prior agreement by General Shareholders Meeting.
In line with fourth quarter trends, Solvay anticipates supportive market conditions to continue in most key markets, though growth is likely to be moderated by conditions in automotive, electronics and oil & gas. In this context Solvay remains focused on further developing its growth platforms.
Solvay currently expects 2019 EBITDA to grow modestly and to be back-ended compared to €2,330 million pro forma in 2018[1] .
Solvay will continue to focus on cost discipline and on deleveraging the balance sheet with continued solid operational free cash flow delivery :
Solvay is mostly exposed to the U.S. dollar, with the main sensitivities per US\$/€0.10 change:
[1] The 2018 EBITDA figures used as a comparison basis are the pro forma figures, following the implementation of IFRS 16. Growth is expressed as organic growth, i.e. excluding scope and forex conversion effects.
MANAGEMENT REPORT
| 1. Overview of the consolidated results | 92 |
|---|---|
| 1.1. Priority aspects | 92 |
| 1.2. High materiality aspects | 94 |
| 2. Sustainability management | 96 |
| 2.1. The Solvay Way, approach and management | 96 |
| 2.2. Circular economy | 100 |
| 2.6. Sustainable Portfolio Management | 101 |
| 3. Basis of preparation | 102 |
| 3.1. Task Force on Climate-related Financial Disclosure | 102 |
| 3.2. United Nations Sustainable Development Goals | 104 |
| 3.3. Reporting practices | 105 |
| 3.4. Materiality analysis | 106 |
| 3.5. Stakeholder engagement | 108 |
| Notes to Business model and innovation | 109 |
| NOTE S1 Sustainable business solutions | 109 |
| Notes to Environment | 111 |
|---|---|
| NOTE S2 Greenhouse gas emission | 111 |
| NOTE S3 Energy | 115 |
| NOTE S4 Air quality | 118 |
| NOTE S5 Water and wastewater | 120 |
| NOTE S6 Waste and hazardous materials | 123 |
| Notes to Human Capital | 126 |
| NOTE S7 Employee health and safety | 126 |
| NOTE S8 Employee engagement and well-being | 131 |
| NOTE S9 Diversity and inclusion | 135 |
| Notes to Social Capital | 138 |
| NOTE S10 Customer welfare | 138 |
| NOTE S11 Societal actions | 140 |
| Notes to Leadership and Governance | 144 |
| NOTE S12 Management of the legal, ethics, and regulatory | |
| framework | 144 |
| NOTE S13 Critical incident risk management | 147 |
This chapter supplements the information provided in the "Understanding Solvay" chapter, with a focus on high materiality aspects.
| Units | Trends | 2018 | 2017 | 2016 | 2015 | 2014 | |
|---|---|---|---|---|---|---|---|
| Sustainable business solutions | |||||||
| Product portfolio assessed | % | 87 | 88 | 84 | 88 | – | |
| Solutions | % | 50 | 49 | 43 | 33 | – | |
| Neutral | % | 30 | 31 | 33 | 39 | – | |
| Challenges | % | 7 | 8 | 8 | 16 | – | |
| Not evaluated | % | 13 | 12 | 16 | 12 | – | |
| Greenhouse gas emissions | |||||||
| Greenhouse gas intensity | Kg CO2 eq. per € EBITDA |
5.51 | 5.53 | 5.86 | 7.26 | 8.08 | |
| Direct and indirect CO2 emissions (Scope 1 and 2) |
Mt CO2 | 9.8 | 10 | 10.9 | 11.6 | 11.7 | |
| Other greenhouse gas emissions according to Kyoto Protocol (Scope 1) |
Mt CO2 eq. | 2.44 | 2.31 | 2.45 | 2.61 | – | |
| Total greenhouse gas emissions according to Kyoto Protocol (Scopes 1 and 2) |
Mt CO2 eq. | 12.3 | 12.3 | 13.4 | 14.2 | 14.4 | |
| Other greenhouse gas emissions not according to Kyoto Protocol (Scope 1) |
Mt CO2 eq. | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | |
| Carbon dioxide – CO2 (Scope 1) | Mt CO2 eq. | 7.96 | 7.92 | 8.43 | 8.76 | – | |
| Total direct greenhouse gas emissions (Scope 1) |
Mt CO2 eq. | 10.35 | 10.2 | 10.9 | 11.4 | – | |
| Total indirect CO2 emissions – Gross market-based (Scope 2) |
Mt CO2 | 1.9 | 2.1 | 2.5 | 2.8 | – | |
| Total indirect CO2 emissions – Gross location-based (Scope 2) |
Mt CO2 | 2.0 | 2.1 | 2.3 | 3 | – | |
| Indirect greenhouse gas emissions due to fuel and energy related activities (Scope 3) |
Mt CO2 eq. | 0.7 | 0.7 | 0.8 | 0.8 | ||
| Indirect greenhouse gas emissions due to investments (Scope 3) |
Mt CO2 eq. | 1.9 | 1.7 | 0.8 | 2.5 | – | |
| Indirect greenhouse gas emissions due to purchased goods and services (Scope 3). |
Mt CO2 eq. | 5.8 | 6.6 | 7.2 | 7.6 | – |
| Units | Trends | 2018 | 2017 | 2016 | 2015 | 2014 | |
|---|---|---|---|---|---|---|---|
| Employee health and safety | |||||||
| Fatal accidents of Solvay employees and contractors |
Number | 0 | 1 | 1 | 0 | 2 | |
| Medical Treatment Accident Rate for Solvay employees and contractors (MTAR) |
Accident per million hours worked |
0.54 | 0.65 | 0.77 | 0.77 | 0.97 | |
| Medical Treatment Accident Rate for Solvay employees (MTAR) |
Accident per million hours worked |
0.58 | 0.63 | 0.73 | 0.65 | 0.82 | |
| Medical Treatment Accident Rate for Contractors (MTAR) |
Accident per million hours worked |
0.48 | 0.7 | 0.86 | 0.94 | 1.25 | |
| Lost Time Accident Rate for Solvay employees and contractors (LTAR) |
Accident per million hours worked |
0.65 | 0.65 | 0.76 | 0.75 | 0.98 | |
| Lost Time Accident Rate for Solvay employees (LTAR) |
Accident per million hours worked |
0.71 | 0.7 | 0.69 | 0.67 | – | |
| Lost Time Accident Rate for Contractors (LTAR) |
Accident per million hours worked |
0.52 | 0.52 | 0.9 | 0.85 | – | |
| Injuries | Number | 42 | 50 | 68 | 66 | 92 | |
| Occupational illness frequency rate (short/mid-latency) |
cases per one million hours worked |
0.08 | 0.06 | 0.08 | 0.17 | 0.09 | |
| Total Long-latency occupational diseases | Number | 12 | 10 | 20 | 21 | 17 | |
| Total Short/mid-latency occupational diseases |
Number | 4 | 3 | 4 | 9 | 5 | |
| Total occupational diseases | Number | 16 | 13 | 23 | 30 | 22 | |
| Employee engagement and well being |
|||||||
| Solvay engagement index | % | 76 | 75 | 77 | 75 | – | |
| Coverage by collective agreement | % | 100 | 100 | 87.8 | 77 | 82.2 | |
| Societal actions | |||||||
| Solvay Group donations, sponsorship, and own projects |
€ million | 3.92 | 3.92 | 7.38 | 5.25 | – | |
| Employees involved in local societal actions |
% | 33 | 33 | 23 | 20 | – |
| Units | Trends | 2018 | 2017 | 2016 | 2015 | 2014 | |
|---|---|---|---|---|---|---|---|
| Energy | |||||||
| Primary energy consumption | Petajoules low heating value (PJ) |
127 | 130 | 138 | 175 | 179 | |
| Secondary energy purchased | Petajoules low heating value (PJ) |
45 | 49 | 53 | 63 | – | |
| Total energy sold | Petajoules low heating value (PJ) |
23 | 22 | 23 | 26 | – | |
| Fuel consumption from non-renewable sources |
Petajoules low heating value (PJ) |
101 | 100 | 104 | 107 | 100 | |
| Fuel consumption from renewable sources |
Petajoules low heating value (PJ) |
4 | 3 | 4 | 5 | – | |
| Energy efficiency index – Baseline 100% in 2012 |
% | 93 | 94 | 94 | 96 | 99 | |
| Air quality | |||||||
| Nitrogen oxides emissions – NOx | Metric tons | 7,365 | 9,432 | 11,115 | 12,148 | 12,679 | |
| Nitrogen oxides intensity | Kg per € EBITDA | 0.0033 | 0.0042 | 0.0059 | 0.0062 | 0.0071 | |
| Sulfur oxides emissions – SOx | Metric tons | 3,746 | 4,562 | 5,343 | 6,490 | 6,620 | |
| Sulfur oxides intensity | Kg per € EBITDA | 0.0017 | 0.0021 | 0.0028 | 0.0033 | 0.0037 | |
| Non-methane volatile organic compounds emissions – NMVOC |
Metric tons | 5,344 | 5,173 | 4,941 | 6,780 | 7,158 | |
| Non-methane volatile organic compounds intensity |
Kg per € EBITDA | 0.0024 | 0.0023 | 0.0026 | 0.0035 | 0.004 | |
| Water and wastewater | |||||||
| Freshwater withdrawal | Million m3 | 330 | 326 | 494 | 538 | 535 | |
| Freshwater withdrawal intensity | m3 per € EBITDA | 0.148 | 0.147 | 0.260 | 0.275 | 0.300 | |
| Chemical Oxygen Demand (COD) emissions |
Metric tons O2 | 6,231 | 5,586 | 7,282 | 8,177 | 9,652 | |
| Chemical Oxygen Demand intensity | Kg per € EBITDA | 0.0028 | 0.0025 | 0.0038 | 0.0042 | 0.0054 | |
| Waste and hazardous materials | |||||||
| Non-Hazardous Industrial Waste | 1,000 Metric tons | 1,627 | 1,641 | 1,463 | 1,447 | 1,622 | |
| Hazardous Industrial Waste | 1,000 Metric tons | 94.3 | 99.7 | 189 | 200 | 194 | |
| Total Industrial Waste | 1,000 Metric tons | 1,721 | 1,741 | 1,652 | 1,647 | 1,816 | |
| Industrial Hazardous Waste not treated in a sustainable way |
1,000 Metric tons | 32.4 | 40.0 | 49.0 | 45.8 | 48.9 | |
| Industrial Hazardous Waste not treated in a sustainable way intensity |
Kg per € EBITDA | 0.0145 | 0.0180 | 0.0258 | 0.0234 | 0.0279 | |
| Substances of Very High Concern (SVHC) according to REACH criteria present in products sold |
Number | 31 | 35 | 20 | 20 | 25 | |
| Completion of Analysis of Safer Alternatives program for marketed substances |
% | 39 | 49 | 18 | 5 | – | |
| Units | Trends | 2018 | 2017 | 2016 | 2015 | 2014 | |
|---|---|---|---|---|---|---|---|
| Diversity and inclusion | |||||||
| Total Headcount | Headcount | 24,501 | 24,459 | 27,030 | 26,350 | 25.909 | |
| Percentage of women in the Group | % | 23 | 23 | 23 | 22 | 22 | |
| Senior manager | Headcount | 401 | 396 | 428 | 428 | 428 | |
| Middle manager | Headcount | 2,915 | 2,898 | 3,026 | 2,819 | 2,731 | |
| Junior manager | Headcount | 5,213 | 5,090 | 5,348 | 4,491 | 4,186 | |
| Non-manager | Headcount | 15,972 | 16,075 | 18,228 | 18,612 | 18,564 | |
| Solvay's workforce under 30 years old | Headcount | 2,800 | 2,765 | 3,242 | – | – | |
| Solvay's workforce between 30-49 years old |
Headcount | 13,605 | 13,578 | 15,107 | – | – | |
| Solvay's workforce 50 years old and older | Headcount | 8,096 | 8,116 | 8,681 | – | – | |
| Customer welfare | |||||||
| Solvay's Net Promoter Score (NPS) | % | 42 | 36 | 27 | 24 | 14 | |
| Management of the legal, ethics and regulatory framework |
|||||||
| Total claims made | Number | 88 | 83 | 65 | – | – | |
| Total claims closed including cases for which there was insufficient information or cases that were misdirected or referred |
Number | 81 | 71 | 62 | – | – | |
| Unsubstantiated claims among resolved cases |
Number | 37 | 38 | 28 | – | – | |
| Substantiated claims among resolved cases |
Number | 34 | 19 | 29 | – | – | |
| Critical incident risk management | |||||||
| Percentage of product lines having a risk analysis updated in the last five years |
% | 85 | 77 | 65 | 69 | 64 | |
| Process safety incident rate | % | 1.0 | 0.9 | 0.7 | 0.6 | 0.4 | |
| Medium severity incidents with environmental consequences |
Number | 47 | 59 | 40 | 46 | 55 | |
| Medium severity incidents with environmental consequences in which the limits of the operating permit were exceeded |
Number | 12 | 27 | 26 | 26 | – |
Sustainability management encompasses how Solvay integrates social, societal, environmental, and economic factors into its management, strategy, decision-making, and operating practices to create value that stands the test of time.
For Solvay, this means acting responsibly, innovating, generating value for our key stakeholders, and contributing broadly to science and society.
This section covers management's approach to topics in a number of key areas: the Solvay Way approach and management; the circular economy; Health, Safety and Environment management; product stewardship; Life-Cycle-Assessments; and Sustainable Portfolio Management (SPM).
The Group has progressively developed its approach to integrated thinking, which now involves many steps:
The Solvay Way is Solvay's sustainability approach. To drive improvement throughout the company, each production site conducts annual self-assessments guided by this framework. Self-assessment findings – encompassing lessons learned, best practices, strengths, and improvement opportunities – help entities measure their progress on sustainable development goals for each stakeholder group and craft improvement plans.
The Solvay Way is Solvay's sustainable development reference framework. It translates the Group's corporate social responsibility ambition and commitments into concrete actions and clear responsibilities throughout the entire organization. Through the Solvay Way, the stakeholders' expectations are integrated into the day-to-day activities and decision-making processes at every level of the organization.
Based on the materiality analysis, the Solvay Way team has developed a set of 37 practices which promote the interests of the Group's six stakeholders (Customers, Suppliers, Employees, Local Communities, the Planet, and Investors).
The Solvay Way is deployed through the Group by the leadership of all Global Business Units and Functions, and is supported by a network of more than 200 "Champions" and "Correspondents". The Solvay Way Champions ensure proper management at the business level and are supported locally at the sites by a team of Solvay Way Correspondents. Together, they play a key role in deploying the Solvay Way practices and sharing best practices and experiences. Global Business Unit presidents are accountable for managing the Solvay Way effectively across their businesses.
This network is supported by Solvay's Sustainable Development and Energy Function, which promotes experiences sharing and learning across entities.
Key performance results and outcomes are presented each year to the Executive Committee and the Board of Directors.
In 2018, 47% of Solvay employees took part in projects related to Health, Safety and Environment (HSE), social causes, and local communities. This strong involvement demonstrates that employees are committed to Solvay's sustainable development ambitions.
*Progression rate is measured as a gap to mark 4 (the best level in the Solvay Way framework).
A practice can be applicable at a site (Research and Innovation, Industrial Campus, and Headquarters), in Global Business Units, or at Group level (Corporate Function), depending on the topic. Some practices are applicable at all levels.
In 2018, the Group announced and implemented the Solvay Way 3.0 project in order to integrate sustainability into the operations and create a sense of purpose. This project comprised two main efforts:
Much of today's economy remains linear. But a linear system is finite: raw materials cannot be depleted indefinitely and the climate is changing dramatically. Transitioning to a circular economy offers solutions and countless opportunities.
Solvay's wants to help transform its customers' value chains. To accelerate this transformation, Solvay signed a three-year partnership agreement with the Ellen MacArthur Foundation in January 2018. Solvay is the first and only chemical company to become a Global Partner of the Foundation.
A circular economy is an emerging new economic system that is resilient and creates value sustainably; it keeps all materials recirculating constantly without wastage and without waste.
It aims to reduce the waste associated with products and services after their period of use. It is driven by the need to reduce waste volumes and by the increasing scarcity of raw materials.
Underpinned by a transition to renewable energy sources, the circular model builds economic, natural, and social capital. It is based on three principles:
To meet growing customer demand, Solvay is developing a circular economy through:
Solvay is taking steps and is working with customers, suppliers, and partners to identify opportunities where the Group can leverage on capabilities, in particular in the following fields:
Sustainable value creation is measured by Solvay's Sustainable Portfolio Management tool. It enables Solvay to make strategic decisions that steer its portfolio, support progress toward its sustainability objectives, and factor sustainability into operating decisions.
Based on the intuition that true business solutions to sustainability challenges will lead to superior growth over time, the Group has developed the Solvay Sustainable Portfolio Management tool. This innovative yet pragmatic tool identifies market signals on sustainability by assessing the business on a two-dimensional matrix:
With the Sustainable Portfolio Management tool, decisionmakers can anticipate sustainability risks and opportunities along the entire value chain (cradle-to-grave), develop action plans, and deliver innovative solutions that balance economic, social, and environmental values.
Sustainable Portfolio Management tool assessments are reviewed completely every year in order to capture the most recent signals from the market and remain relevant. In this respect, the Sustainable Portfolio Management tool strengthens the Group's focus on the circular economy and raw material sourcing issues that are increasingly important to customers and investors, and therefore to the business.
*Scope: consistent with financial reporting.
Since its implementation in 2009, the Sustainable Portfolio Management tool has been widely adopted by Solvay Global Business Units and Functions to integrate sustainability into their key processes:
This section includes the following topics: Task Force on Climaterelated Financial Disclosure, United Nations Sustainable Development Goals, reporting practices, materiality analysis, and stakeholder engagement.
The Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) developed voluntary, consistent, climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.
The task force structured its recommendations around four themes that represent key aspects of how organizations operate: governance, strategy, risk management, and metrics and targets.
This section addresses the disclosures, with links to the relevant sections of the Annual Integrated Report, and provide a selfassessment of Solvay's level of alignment with the TCFD recommendations.
In 2015, the United Nations established a set of goals to end poverty, protect the planet, and ensure prosperity for all. Each of these 17 Sustainable Development Goals (SDGs) includes specific targets to be achieved by 2030. Achieving the SDGs requires efforts by governments, the private sector, civil society, communities, and individuals.
Nine leading chemical companies, including Solvay, and two industry associations formed a dedicated working group, convened by the World Business Council for Sustainable Development (WBCSD). The group took a leadership role in piloting and refining the three-step framework described in WBCSD's SDG Sector Roadmap Guidelines.
In the context of this exercise, Solvay identified seven SDGs where the Group can have a material impact, positive or negative. The Group then integrated these seven SDGs into its materiality analysis as the official agenda of the "Planet" (Governments and NGOs) stakeholder group.
The SDGs relevant to Solvay confirmed the priorities the Group had already identified through its materiality analysis. Each topic is developed in the corresponding section of the Annual Integrated Report.
SDG 3: Employee health and safety Waste and hazardous materials
SDG 7: Energy
The majority of Solvay's greenhouse gas emissions come from energy.
SDG 8: Employee engagement and well-being
SDG 12: Sustainable Business Solutions
Solvay's corporate philanthropy is directed principally to educational, scientific and humanitarian endeavors around the globe. Partnerships are key to accelerating sustainable development and advancing the SDGs.
SDG 13: Greenhouse gas emissions
High materiality aspect Priority aspect
Solvay has decided to apply the "Guidance for Accounting & Reporting Corporate Greenhouse Gas Emissions (GHG) in the Chemical Sector Value Chain" published by the World Business Council for Sustainable Development, which provides best practices for greenhouse gas accounting and reporting. By extension, other emissions are reported according to the same guidelines.
To better reflect its sustainability policy, Solvay decided to apply the market-based method to calculate CO2 emissions associated with purchased electricity. To fully comply with Global Reporting Initiative's requirements, the following criteria (in decreasing order of priority) are applied to select the CO2 emission factor of each electricity supply contract:
Energy consumption components are converted into primary energy, according to the following conventions:
Environmental data are collected yearly at all Solvay industrial sites (production sites and Research and Innovation centers) and for each business separately in the case of multi-business sites. The data collection comprises substance emissions to air and water, waste production, and a series of parameters dealing with water and general environmental management.
After a thorough validation process, these data are consolidated at Group level in a manner consistent with financial reporting. In addition, the consolidated data are verified by an external auditor.
Safety performance is measured in all entities under Solvay operational control, i.e. on sites where Solvay policies and procedures apply. Accidents are reported to a central database and classified according to time lost and severity of injuries.
Frequency rates are calculated monthly at Global Business Unit level and Group level. Performances and accident typologies are analyzed on a quarterly basis. Reports are provided to the Executive Committee and Global Business Units.
Medical Treatment Accident Rate (MTAR), Lost Time Accident Rate (LTAR), and Process Safety Rate are calculated based on million hours worked. The Group reporting guidelines for calculating hours worked (employees, contractors, and temporary workers) are being revised to ensure that the methodological approaches are more consistent across all Group entities as from 2018.
Headcount is provided for two scopes:
Apprentices, trainees, and students are excluded from the numbers. Headcount refers to employees that have a contract with Solvay and are classified as active, as they have a position in the organizational chart. Full Time Equivalent (FTE) corresponds to active employees times capacity utilization.
Solvay bases its sustainability priorities on a materiality analysis. This approach identifies critical economic, environmental, and social aspects with potential to significantly impact Solvay's performance and/or substantially influence stakeholders' decisions. The analysis is performed and updated each year using the Sustainability Accounting Standards Board (SASB) materiality approach.
| 5 | 8 | 15 | ||||
|---|---|---|---|---|---|---|
| Priority aspects | High materiality aspects | Moderate materiality aspects | ||||
| Materiality analysis | ||||||
| Category | Moderate materiality | High materiality | ||||
| Environment | Ecological impacts | Greenhouse gas emissions Air quality Energy management Water and wastewater management Waste and hazardous materials management |
||||
| Social capital | Access and affordability Data security Customer privacy Selling practices and product labeling Product quality and safety |
Customer welfare Societal actions |
||||
| Human capital | Compensation and benefits Recruitment, development and retention |
Employee health and safety Diversity and inclusion Employee engagement and well-being |
||||
| Business model and innovation |
Product packaging | Business model resilience Supply chain management Materials sourcing and efficiency Physical impacts of climate change |
Sustainable business solutions | |||
| Leadership and governance | Systemic risk management Regulatory capture and political influence |
framework | Critical incident risk management Management of the legal, ethics and regulatory |
Priorities
Solvay's Sustainable Development and Energy Function coordinates the analysis with an internal network of the Solvay Way Champions in the Global Business Units and Functions. Experts in each Corporate Function have reviewed the analysis of each aspect, paying particular attention to consistency with the Group's risk analysis.
The main change in vocabulary since last year is that the "Process accident and safety management" section has been renamed "Critical incident risk management", in alignment with the new
wording in the SASB Materiality Map™.
reporting on these issues in this report.
As described in the "Risks Management" chapter of this Annual Integrated Report, the risk analysis of Solvay is a specific process and is used as input for the materiality analysis.
All the main risks of the Group relate to high materiality aspects, except "Security" and "Cyber risks", which relate to moderate materiality aspects because the impact on daily operations is limited and is material only in the event of a malicious act.
2018 confirmed a trend that Solvay had already observed in 2017: an increasing focus on addressing climate change, providing customers with innovative solutions with a low environmental impact, further increasing collaboration and transparency with stakeholders.
In response to stakeholders' priorities, Solvay has focused on three main actions:
The number of customers assessing Solvay's performance using the Ecovadis, Carbon Disclosure Project, or specific questionnaires has been increasing steadily in recent years, confirming a focus on risks and opportunities in the supply chain.
An increasing number of customers have explicitly expressed the need to provide an innovative solution in line with the circular economy principles.
Solvay's annual employee survey confirmed a growing focus on sustainable development principles and interest in the systems in place for professional development.
Employees representatives and Solvay's Board of Directors both emphasized the need to keep Solvay's workforce engaged on sustainability principles, from top management to the shop floor.
The publication of the International Panel on Climate Change 2018 special report confirmed the need to accelerate actions aimed at reducing greenhouse gas emissions and addressing climate change.
The United Nations Sustainable Goals were confirmed as the new reference for reporting on impacts on society.
The Chemical Industry is an important enabler in the move towards a restorative and regenerative circular economy.
The letter from Larry Fink (BlackRock) to CEOs at the beginning of 2018 confirmed that sustainability is now high on investors' agendas, emphasizing the need to focus on long-term value creation and building a better framework for serving all your stakeholders.
Rating agencies' questionnaires and interviews with Solvay shareholder representatives confirmed the importance of innovation, governance, ethics and transparency.
Supplier interviews and engagement confirmed an interest for greater collaboration on planning, goal setting, and strategic thinking.
Interviews with local community representatives confirmed the need to contribute to local material aspects.
The importance of social media, which can transform a local issue into a global topic, was again confirmed in 2018. Some online, broadcast videos and articles inaccurately claimed that the white beach near Solvay's Rosignano, Italy plant and its clear blue water are due to contaminated waste water from the factory.
This section addresses the impact that environmental and social factors have on innovation and business models. It examines the way environmental and social factors are integrated into the Group's value creation processes. Those processes include resource efficiency and other innovations in the production process, product innovation, and finding ways to design, use, and dispose of products efficiently and responsibly.
A sustainable solution is defined by Solvay's Sustainable Portfolio Management tool as a product in a given application which makes a greater social and environmental contribution to the customer performance and at the same time demonstrates a lower environmental impact in its production phase.
Within Solvay, the Global Business Units are accountable for delivering sustainable business performance and contributing to the Group target of generating 50% of revenue from sustainable solutions by 2025.
| Solvay's priority objective: |
|
|---|---|
| 2018 mid-term | 2025 |
| 40% | 50% |
| to the Group sales in sustainable solutions | to the Group sales in sustainable solutions |
| Baseline 2014 | |
| % of turnover | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Solutions | 50 | 49 | 43 | 33 |
| Neutral | 30 | 31 | 33 | 39 |
| Challenges | 7 | 8 | 8 | 16 |
| Not evaluated | 13 | 12 | 16 | 12 |
Solutions: to be considered as part of the "solutions", products must serve in an application that demonstrates a direct, significant, and measurable benefit (social or environmental) to society at large. They must not exhibit sustainability concerns and must have a low monetized environment manufacturing footprint compared to the value they bring to society.
Neutral: no sustainability impact, positive or negative, identified.
Challenges: a sustainability roadblock is identified, or the environmental manufacturing footprint is too high.
By the end of 2018, 50% of sales in the assessed portfolio of Product-Application Combinations qualified as "solutions", a slight improvement compared with the previous year.
Most of the progress made over the last five years has been achieved through changes to Solvay's portfolio and the natural erosion of sustainable solutions into markets standards (neutral), based on market dynamic on sustainable topics. Today, the challenge SPM faces is to maintain 50% in solutions through innovation, organic growth, investment, etc.
Sustainable Portfolio Management's comprehensive, systematic approach reveals an increasing number of new market signals on sustainability that require discussion between the business and its customers to better understand their potential business impact.
The Sustainable Portfolio Management systematic portfolio assessment is aligned with the Group's financial scope. Changes in scope during the year, as outlined in the financial report, are reflected in the Sustainable Portfolio Management scope. In 2018, the portfolio assessment was based for the first time on sales in the same reporting year, i.e. 2018.
Sustainable Portfolio Management is designed to identify business accelerators or obstacles with respect to sustainability in order to help Solvay's business deliver higher growth and superior sustainable value. Over the last three years, Solvay's products have experienced significantly stronger annual revenue growth rates in cases where customers and consumers are looking for products to match their social or environmental needs.
Annual volume growth rate per Sustainable Portfolio Management category:
(based on 2015-2017 sales with the same product, same application, and same Sustainable Portfolio Management ranking over the last three years, representing 43% of Group sales).
This chapter covers the impact of the company's operations on the environment, such as air emissions, water and wastewater, greenhouse gas emissions, and hazardous waste and substances introduced in the value chains.
How Solvay sites control their environmental footprint, in a nutshell
Environmental impacts of operations are managed through the processes and requirements embedded in the Health, Safety and Environment management systems deployed by sites in line with Solvay requirements, while hazardous substances in sold products are managed through the processes and requirements of Global Business Units' product Safety Management Systems.
While every industrial site is different, the Group's commitments remain the same:
of CO2 eq. Total greenhouse gas emissions – Scopes 1 and 2 (Kyoto Protocol)
The greenhouse gas emissions reported by Solvay correspond to the scope of the Kyoto Protocol and comprise the following compounds or compound families: CO2, N2O, CH4, SF6, HFCs, PFCs and NF3. To calculate their impact on climate change, greenhouse gas emissions are converted from metric tons to the CO2 equivalent using the Global Warming Potential of each gas based on a 100-year timeframe, as published by the Intergovernmental Panel on Climate Change in its fifth assessment report.
The indicator takes into account:
Direct emissions for each greenhouse gas released from Solvay's industrial activities (Scope 1 of Kyoto Protocol). For CO2, the reporting of direct emissions includes emissions from the combustion of all fossil fuels as well as process emissions (e.g. thermal decomposition of carbonated products and chemical reduction of metal ores);
Indirect CO2 emissions related to the steam and electricity purchased from third parties and consumed internally (Scope 2 of Kyoto Protocol) For electricity purchased, indirect emissions are calculated by applying market-based methods. In 2017, electricity supply contracts were analyzed in order to determine the most appropriate CO2 emissions factor of each site.
The Group updated its greenhouse gas emissions approach in September 2018. Solvay is committed to reducing greenhouse gas emissions by 1 million tons no later than in 2025, by improving its energy efficiency and energy mix and by investing in clean technologies. In setting a concrete objective, it is among the first chemical groups to decouple its emissions from its growth.
Since January 1, 2016, Solvay has applied to greenhouse gas emissions an internal carbon price of € 25 per metric ton CO2 equivalent, to take into account climate challenges in its investment decisions.
An externally verified and structured greenhouse gas emission reporting system and responses to rating agencies such as the Carbon Disclosure Project help the Group align its efforts with the magnitude of its greenhouse gas challenges.
Solvay's priority objective
2025
of greenhouse gas emissions (Scope 1 and 2) in comparison with 2017
| Mt CO2 eq. | |
|---|---|
| Total greenhouse gases emissions (scopes 1 and 2) in 2018 | 12.3 |
| Total greenhouse gases emissions (scopes 1 and 2) in 2017 | 12.3 |
| Variation due to changes in reporting scope (structural changes) | -0.0 |
| Variation due to changes in calculation methodology or improvements in data accuracy | -0.0 |
| Emissions increase or reduction | -0.0 |
| 2017 | 2016 | 2015 |
|---|---|---|
| 5.53 | 5.86 | 7.26 |
Scope: consistent with financial reporting.
For a given year, greenhouse gas emissions intensity reflects the amount of scope 1 and 2 emissions covered by the Kyoto Protocol included in the financial scope expressed in kg CO2 eq. per euro of EBITDA.
In 2018, greenhouse gas intensity decreased by 0.02 kg CO2 eq. per euro of EBITDA.
| 2018 | 2017 | 2016 | 2015 | ||
|---|---|---|---|---|---|
| Direct and indirect CO2 emissions (scopes 1 and 2) | Mt CO2 | 9.8 | 10.0 | 10.9 | 11.6 |
| Other greenhouse gases emissions according to Kyoto Protocole (scope 1) |
Mt CO2eq | 2.4 | 2.3 | 2.4 | 2.6 |
| Total greenhouse gases emissions according to Kyoto Protocole | Mt CO2eq | 12.3 | 12.3 | 13.4 | 14.2 |
| Other greenhouse gases CO2 emissions not according to Kyoto Protocole (scope 1) |
Mt CO2eq | 0.1 | 0.1 | 0.1 | 0.1 |
Scope: consistent with financial reporting scope, including the manufacturing activities of the companies that are currently consolidated (fully or proportionately). The greenhouse gas emission of the companies in the financial scope represents 81% of the total greenhouse gas emissions of all companies in the operational scope.
| Mt CO2 eq. | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Methane – CH4 | 0.88 | 0.90 | 0.81 | 0.85 |
| Nitrous oxide – N2O | 0.10 | 0.14 | 0.20 | 0.27 |
| Sulfur hexafluoride – SF6 | 0.04 | 0.06 | 0.05 | 0.04 |
| Hydro fluoro carbons – HFCs | 0.06 | 0.14 | 0.05 | 0.05 |
| Perfluorocarbons – PFCs | 1.36 | 1.07 | 1.34 | 1.40 |
| Nitrogen trifluoride – NF3 | 0.0 | 0.0 | 0.0 | 0.0 |
| Total other Greenhouse gas emissions according to Kyoto Protocol | 2.44 | 2.31 | 2.45 | 2.61 |
| Carbon dioxide – CO2 | 7.96 | 7.92 | 8.43 | 8.76 |
| Total direct emissions | 10.35 | 10.2 | 10.9 | 11.4 |
Scope: consistent with financial reporting.
In 2018, direct CO2 emissions were marginally higher than in 2017.
In 2018 direct other greenhouse gas emissions according to the Kyoto Protocol were 0.13 million tons CO2 eq. higher than in 2017. This change is attributable mainly to an increase of 0,29 million tons CO2 eq. of CF4 emissions in Spinetta (Italia) and a decrease of 0.08 million tons CO2 eq. of HFCs.
| Mt CO2 | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Electricity purchased for consumption | 1.0 | 1.2 | 1.4 | 1.7 |
| Steam purchased for consumption | 0.9 | 0.9 | 1.1 | 1.1 |
| Total | 1.9 | 2.1 | 2.5 | 2.8 |
Scope: consistent with financial reporting.
Since the implementation of the market-based method, a detailed review of emissions factors for purchased electricity covering all sites is done every year.
The decrease of 0.2 million tons of CO2 for indirect CO2 emissions linked to purchased electricity is explained by the start-up of the Solvay Jasper County Solar Farm in South Carolina (United States, 0.05 million tons of CO2), improved electricity purchases with lower carbon content (0.10 million tons of CO2), and the shutdown of the electrolysis unit in Torrelavega (Spain, 0.04 million tons of CO2).
Indirect CO2 emissions linked to purchased steam is stable, there were no significant changes in the steam sourcing.
| Mt CO2 | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Electricity purchased for consumption | 1.1 | 1.2 | 1.2 | 1.8 |
| Steam purchased for consumption | 0.9 | 0.9 | 1.1 | 1.1 |
| Total | 2.0 | 2.1 | 2.3 | 3.0 |
Scope: consistent with financial reporting.
| Mt CO2 eq. | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Fuel- and energy-related activities | 0.7 | 0.7 | 0.8 | 0.8 |
| Investments | 1.9 | 1.7 | 0.8 | 2.5 |
| Purchased goods and services | 5.8 | 6.6 | 7.2 | 7.6 |
| Business travel | 0.02 | 0.02 | 0.02 | 0.02 |
| Downstream transportation and distribution | 0.8 | 0.8 | 1.2 | 1.0 |
Scope: consistent with financial reporting.
Due to no significant change in energy sourcing, emissions related to "Fuel and energy-related activities" remain stable. "Investments" encompasses the scope 1 and 2 emissions of the discontinued activities: 1.6 million tons of CO2 eq. for polyamide activities.
Downstream scope 3 emissions related to processing use and end-of-life of products have been identified as significant through the Sustainable Portfolio Management assessment. Values are not disclosed yet, as some calculation assumptions are undergoing verifications.
Solvay's energy consumption is made up of four components:
To comply with Global Reporting Initiative requirements, steam and electricity generated from fuels and sold to a third party are deducted from the total. Energy that is purchased and sold afterwards to a third party without any transformation is not accounted for.
In the field of energy supply, Solvay has consistently implemented programs to reduce its energy consumption for many years. While Solvay has industrial activities such as synthetic Soda Ash plants and Peroxides – mainly in Europe – that consume large amounts of energy, it also operates a range of industrial activities whose energy content is relatively low as a percentage of the sales price, especially in the fluorinated Polymers business. The Group considers secure and competitive energy supplies to be particularly important and has taken the following strategic initiatives:
Fuel consumption from non-renewable sources
Solvay Energy Services optimizes energy purchasing and consumption for the Group and helps Global Business Units manage energy and greenhouse gas emissions.
Energy being a key factor for Solvay's activities, Solvay has committed itself to reducing its energy consumption by 10% (1.3% per year on average) by 2020 compared to 2012 at constant activity scope. To achieve this ambitious target, Solvay has stepped up its SOLWATT® energy efficiency program, which aims to continuously optimize the industrial processes involved in its energy production and supply.
Solvay has taken concrete steps in the form of large investments, such as the start-up of the mega hydrogen peroxide (HP) plant in Saudi Arabia and the recent replacement of two gas turbines with more efficient units, one in the Spinetta cogeneration unit (Italy) and one in the Rosignano cogeneration unit (Italy). In 2018 Solvay increased its biomass heat production by starting up a new biomass-fired boiler in Zhangjiagang (China) and investing in a new biomass boiler in Rheinberg (Germany).
The Group has reduced its overall energy intensity by 6% since 2012. One of the key factors in this progress has been the SOLWATT® energy efficiency program. The improvement plan follows three approaches in parallel:
In 2012, Solvay undertook to reduce its energy consumption by 10% (1.3% per year on average) by 2020 at constant activity scope. Its energy intensity indicator covers both primary energy from fuels (coal, petcoke, coke, anthracite, fuel-oil, natural gas, biomass, etc.) and from purchased steam and electricity.
In 2018, Solvay continued to disseminate technological breakthroughs to improve the overall energy efficiency of its operations.
Solvay's objective:
2020
of energy consumption at constant activity scope Baseline 2012
| In % | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Energy efficiency index | 93 | 94 | 94 | 96 |
Scope: energy index at constant activity scope reflects the change in energy consumption on a comparable basis after adjusting the historical scope to take into account scope changes and making adjustments for changes in production volumes from one year to the next.
In 2018, primary energy consumption was 3 PJ lower than in 2017. This variation is attributable mainly to the shutdown of the electrolysis unit in Torrelavega in Spain (1.2 PJ), a change in steam supply in Bernburg in Germany (1 PJ), and a reduction of steam consumption in Rosignano in Italy (0.7 PJ). The rest of the variation (0.1 PJ) is linked to energy savings projects and production changes.
| In petajoules low heating value (PJ) | 2018 | 2017 | 2016 |
|---|---|---|---|
| Primary energy consumption | 127 | 130 | 138 |
Scope: this indicator shows the primary energy consumption over a given year related to the manufacturing activities of the companies that are currently consolidated (fully or proportionately). The primary energy consumption of the companies in the financial sphere represents 82% of the total primary energy consumption of all companies in the operational sphere.
| In petajoules low heating value (PJ) | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Solid fuels | 46 | 46 | 47 | 49 |
| Liquid fuels | 0.5 | 0.4 | 2 | 1 |
| Gaseous fuels | 55 | 54 | 55 | 57 |
| Total | 101 | 100 | 104 | 107 |
Scope: consistent with financial reporting.
Fuel consumption from non-renewable sources in 2018 was more stable than in 2017, and there were no significant changes in energy sourcing.
| In petajoules low heating value (PJ) | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Renewable fuel consumption | 4 | 3 | 4 | 5 |
Scope: consistent with financial reporting.
Biomass consumption increased in 2018 with the startup of a new biomass-fired boiler in Zhangjiagang (China).
| In petajoules low heating value (PJ) | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Electricity | 28 | 30 | 30 | 40 |
| Heating | 0 | 0 | 0 | 0 |
| Cooling | 0 | 0 | 0 | 0 |
| Steam | 18 | 20 | 22 | 23 |
| Total secondary energy purchased | 45 | 49 | 53 | 63 |
Scope: consistent with financial reporting.
In 2018, secondary energy purchased for consumption was 3 PJ lower than in 2017.
| In petajoules low heating value (PJ) | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Electricity | 11 | 11 | 12 | 11 |
| Heating | 0 | 0 | 0 | 0 |
| Cooling | 0 | 0 | 0 | 0 |
| Steam | 12 | 11 | 12 | 14 |
| Total energy sold | 23 | 22 | 23 | 26 |
Scope: consistent with financial reporting.
In 2018, the sale of self-generated secondary energy to third parties increased by 1 PJ. The evolution is explained by an increase of sales of 0.7 PJ in Brotas (Brazil) and 0.4 PJ in Torrelavega (SP).
Nitrogen oxide and sulfur oxide emissions contribute to atmospheric and freshwater acidification. Non-methane volatile organic compounds (NMVOC) emissions contribute to the formation of tropospheric ozone and summer smog. Thus, these categories of substances are material because they directly impact air quality.
Nitrogen oxide emissions from Solvay's operations result mainly from the combustion of fossil fuels such as natural gas. They are expressed as the sum of nitrogen monoxide and nitrogen dioxide, excluding Nitrous oxide (N2O) that contributes to global warming but does not have any acidification impact.
Sulfur oxide emissions (SOx) arise mainly from the combustion of anthracite or coal.
Non-methane volatile organic compounds are: volatile organic compounds (VOCs) with a standard boiling point below or equal to 250°C (EU Solvent Directive 1999/13/EC). NMVOCs are VOCs other than methane. Methane emissions from Solvay's mining activity at Green River (Wyoming, United States) are not included. Their impact is integrated into the greenhouse gas emission indicator.
Air quality is managed through the Health, Safety and Environment management systems deployed by sites in line with Group requirements.
Solvay is committed to improving air quality at local and regional levels, in close cooperation with local stakeholders. In the framework of its environmental plan, Solvay focuses on the following pollutants: nitrogen oxides (NOX), sulfur oxides (SOX), and non-methane volatile organic compounds (NMVOC).
| Solvay's objective: |
||
|---|---|---|
| 2020 | 2020 | 2020 |
| -50% | -50% | -40% |
| of nitrogen oxides emissions intensity | of sulfur oxide emissions intensity | of non-methane volatile organic compound emissions intensity |
| Baseline 2015 |
| In kg per € EBITDA | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Nitrogen oxides – NOx | 0.0033 | 0.0042 | 0.0059 | 0.0062 |
| Sulfur oxides – SOx | 0.0017 | 0.0021 | 0.0028 | 0.0033 |
| Non-methane volatile organic compounds – NMVOC | 0.0024 | 0.0023 | 0.0026 | 0.0035 |
Scope: consistent with financial reporting.
Since the start of the environmental plan in 2015, the emission intensities for nitrogen oxides, sulfur oxides, and NMVOC have dropped by 47%, 49%, and 31% respectively. So, for sulfur and nitrogen oxides, over 90% of Solvay's 2020 target has already been achieved after three years. For NMVOC the figure is 75%.
| In metric tons | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Nitrogen oxides – NOx | 7,365 | 9,432 | 11,115 | 12,148 |
| Sulfur oxides – SOx | 3,746 | 4,562 | 5,343 | 6,490 |
| Non-methane volatile organic compounds – NMVOC | 5,344 | 5,173 | 4,941 | 6,780 |
Scope: consistent with financial reporting.
Past figures have been restated to reflect the impact of methodology improvements.
Solvay's nitrogen oxide emissions went down significantly since 2017 (-2,066 tons or -22%), further closing the gap with its peers in the sector despite the energy intensive nature of the Soda Ash & Derivative Global Business Unit activity. This progress was achieved mainly on the sites at Devnya (Bulgaria, -1,032 tons or -11 %) and Torrelavega (Spain, -684 tons or -7%). In Devnya, the new Circulating Fluidized Bed (CFB) boiler installed in October 2017 reached its full potential in 2018. In Torrelavega, the improvement was obtained by injecting water into the combustion chamber of the gas-fired cogeneration unit since April 2018.
Since the start of the ongoing environmental plan (2015-2020), nitrogen oxide emissions decreased by 39% or about 13% per year. These changes have been achieved through investments in abatement technologies.
Solvay's sulfur oxide emissions have been cut by a further 816 tons since 2017, representing an additional 18% improvement. This result has been obtained thanks to the installation of a new CFB boiler in Devnya in October 2017 (-474 tons), the implementation of a new desulfurization (DeSOx) unit in Torrelavega since August 2018 (-341 tons), and the increased use of low-sulfur fuels such as natural gas and biomass at the sites at Dombasle (-107 tons) and Tavaux (France, -91 tons). It is worthwhile mentioning that the existing DeSOx installation in Tavaux was also further optimized. An increase of 217 tons of SOx was noticed at the Atequiza site (Mexico), which is attributed to an increased production of one of their products.
Since the start of the ongoing environmental plan (2015-2020), sulfur oxide emissions have decreased by 42% or about 14% per year. These changes have been achieved through investments in new burners, new desulfurization units, and optimization of existing ones.
Compared to 2017, the NMVOC emissions from the Group have slightly increased (172 tons or 3.3%). This global change is explained mainly by an increase of 100 tons (2%) at the Green River site (United States) due to normal year-to-year variations in the amount of vented mine gas and 46 tons (0.9%) at the Zhangjiagang site (China) in Aroma Performance activities. At the Spinetta site (Italy), the implementation of a regular LDAR (Leak Detection And Repair) program allowed a decrease in the R22 emissions by a factor of 4 (from 16 tons to 4.2 tons).
Since the start of the ongoing environmental plan (2015-2020), NMVOC emissions have decreased by 21% or about 7% per year. It should be noted that the majority of this reduction is due to the financial deconsolidation of the Performance Polyamides businesses, since 2017.
Water management encompasses the management of water flows and water quality, from abstraction from the natural environment to water flow restitution to the same or another environmental compartment.
Freshwater withdrawal (in millions of m3 per year) is the amount of incoming water from the public network (drinking water) and freshwater systems (rivers, lakes, etc.) as well as from groundwater sources (aquifers).
Chemical Oxygen Demand (COD) is the amount of oxygen reducing substances (mainly dissolved organic matter) discharged to aqueous receivers. COD is expressed as metric
tons of oxygen per year. In addition to nitrogen and phosphorus species, Chemical Oxygen Demand also contributes to aquatic eutrophication.
The Group has a company-wide water approach that includes a commitment to limit freshwater withdrawal and consumption, and to ensure that the quality status of the water bodies where effluents are discharged remains good, so that the impact on humans and natural biota is minimized. Solvay focuses on reducing two impacts: freshwater withdrawal and Chemical Oxygen Demand emissions.
| 2020 | 2020 |
|---|---|
| -30% | -30% |
| of freshwater withdrawal intensity | of Chemical Oxygen Demand emissions intensity |
| Baseline 2015 |
| 2018 | 2017 | 2016 | 2015 | |
|---|---|---|---|---|
| Intensity (m3 per € EBITDA) | 0.148 | 0.147 | 0.260 | 0.275 |
| Absolute (Mm3 ) |
330 | 326 | 494 | 538 |
Scope: consistent with financial reporting.
Past figures have been restated to reflect the impact of methodology improvements.
The freshwater withdrawal intensity has been reduced by 46% since the start of the environmental plan, meaning that Solvay has already exceeded the 2020 target. Similarly, the Chemical Oxygen Demand emission intensity was cut by 32%, meaning that the Group has already exceeded the 2020 target in 2018.
It should be noted that the majority of these reductions are due to the financial deconsolidation of the Performance Polyamides business since 2017.
Since the start of the ongoing environmental pan (2015-2020), the freshwater withdrawal from the plants has decreased by 39% (or about 13% per year).
The freshwater withdrawal of the Group in 2018 was only 4 million m3 (1.1%) greater than in 2017 . This increase of 4 million m3 is the resultant effect of many small increases and decreases at individual sites, making it difficult to identify any major event. This global augmentation is in line with the total production volume increase of the Group (1.7%).
It is, however, worth mentioning that, thanks to a restoration program of the water distribution network delivering water to the Salindres site (France), water leakages have been reduced significantly. This resulted in a 19% reduction of the freshwater intake at this site, despite a 24% increase in production volumes.
| 2018 | 2017 | 2016 | 2015 | |
|---|---|---|---|---|
| Intensity (kg per € EBITDA) | 0.0028 | 0.0025 | 0.0038 | 0.0042 |
| Absolute (metric tons O2) | 6,231 | 5,586 | 7,282 | 8,177 |
Scope: consistent with financial reporting.
Past figures have been restated to reflect the impact of methodology improvements.
The Chemical Oxygen Demand releases from the Group were 645 tons or 12% greater than in 2017. This global change is due to a significant production increase at the Vernon site (United States), resulting in an additional 379 tons of Chemical Oxygen Demand (7%), and also due to the biological treatment plant at the Baton Rouge site (United States) being upset by a prolonged and unusual freeze, responsible for another 154 tons of COD (3%).
It should be noted that 1,358 tons of the Chemical Oxygen Demand Solvay declared for 2018 (around 22%) is due to third parties (typically plants which formerly belonged to the Group), from which Solvay is treating the effluents in its biological wastewater treatment plants (WWTP).
Since the start of the ongoing environmental plan (2015-2020), the Chemical Oxygen Demand emissions have decreased by 24% (or about 8% per year).
Reported industrial waste includes hazardous waste and nonhazardous waste, both resulting from manufacturing and Research and Innovation activities, including packaging and maintenance waste. Solvay's waste reduction objective focuses on Hazardous Industrial Waste not treated in a sustainable way, meaning that it is landfilled or incinerated without energy recovery.
The value of this indicator is strongly related to the amount of Hazardous Industrial Waste (HIW); i.e. any decrease in the amount of Hazardous Industrial Waste (HIW) will also diminish the waste key performance indicator.
Regarding hazardous materials put on the market, the focus is on Substances of Very High Concern (SVHC) and on the substitution process. The Solvay reference list for Substances of Very High Concern SVHCs (S-SVHC and SRA Reference list) was established in 2015 with three categories (black, red, and yellow lists) to characterize substances' level of risk management and control:
For industrial waste and particularly hazardous waste, the focus is on switching to more sustainable pathways that avoid landfilling or incineration without energy recovery, and promoting material or thermal recovery.
As regards sold products, in the framework of evolving legislations, particular effort goes into improving the knowledge of the conditions under which products are used, so as to assess any associated risks at the use level. The preparation of product Safety Data Sheets (SDS) for all the 18,000 products and the success in the REACH registrations reflect Solvay's management approach to ensuring worldwide product knowledge management. For hazardous substances, Solvay has a strategy to decrease their use in value chains and to maintain consistent and robust safety information on hazardous substances handled in sites. Solvay sites keep their SVHC inventories up to date. Risk studies for all SVHCs put on the market are underway and substances are replaced with safer alternatives where possible.
Solvay's objective:
2020
intensity of Industrial Hazardous Waste not treated in a sustainable way
Baseline 2015
| In kg per € EBITDA | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Industrial Hazardous Waste not treated in a sustainable way | 0.0145 | 0.0180 | 0.0258 | 0.0234 |
Scope: consistent with financial reporting.
Since the start of the ongoing environmental plan (2015-2020), the intensity for HIW not treated in a sustainable way has decreased by 38%, meaning that the 2020 target has already been achieved. It should be noted that the majority of this reduction is due to the financial deconsolidation of the Performance Polyamides business since 2017.
The amount of HIW not treated in a sustainable way was 7.6 kt (19%) lower than in 2017. This significant reduction came from the following plants: Tavaux (-2.7 kt or 6.8%), Saint-Fons (France, -1.3 kt or -3.3%), Rosignano (Italy, -1.1 kt or -2.7%) and Panoli (India, -0.5 kt or -1.3%).
In Tavaux, the reduction is mainly the result of the reconsideration of PVDC latex as Non-Hazardous Industrial Waste (NIHW), and of a production slow-down for one their refrigerants. The decrease in Saint-Fons is due to the fact that the HIW elimination from a previous production unit was finalized at the end of 2017. The apparent diminution in Rosignano can be attributed to the fact that some waste streams had not been expressed as dry matter for the reporting year 2017. Finally, for Panoli, the decrease comes from a lower production rate for one of their polymers.
| In 1,000 metric tons | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Non-Hazardous Industrial Waste | 1,627 | 1,641 | 1,463 | 1,447 |
| Hazardous Industrial Waste | 94.3 | 99.7 | 188.6 | 200.3 |
| Total Industrial Waste | 1,721 | 1,741 | 1,651 | 1,648 |
| Industrial Hazardous Waste not treated in a sustainable way | 32.4 | 40.0 | 49.0 | 45.8 |
Scope: consistent with financial reporting.
Past figures have been restated to reflect the impact of methodology improvements.
Solvay's Hazardous Industrial Waste (HIW) represents only 5.5% of its total industrial waste.
The HIW from the Group was 5.4 kt (-5.4%) lower than in 2017. The biggest reductions were observed on the sites of Tavaux (-3.6 kt), Panoli (-2.3 kt), Rosignano (-1.2 kt), Halifax (-1.2 kt), Torrelavega (- 0.7 kt) and Marietta (-0.5 kt); whereas increases have been identified at Linne-Herten (1.7 kt) and Salindres (1 kt). The inclusion of the new hydrogen peroxide plant in Jubail (Saudi Arabia) also resulted in an additional amount of 1.4 kt HIW.
Excluding eventual scope changes of the Group, the order of magnitude of the observed year-to-year variations (+/-5%) in waste volume is not uncommon and linked to some waste specific issues, often beyond the sphere of influence such as: turn-around operations, regulatory changes in waste classifications, problems with waste treatment companies, changes in market demand for by-products, etc.
The Group has not set any target on the amount of HIW in its environmental plan, although Solvay's ambition remains to decrease the volumes wherever possible through excellence programs (such as the ongoing ones in Ospiate and Zhenjiang Feixiang).
Solvay's Non Hazardous Industrial Waste (NHIW) accounts for 94.5% of its total industrial waste.
Compared to 2017, the NHIW decreased slightly (-13.5 kt, but only representing a decrease of -0.8%). Around 29% of this waste is currently being recycled through material and/or energy recovery.
At Spinetta (Italy) NHIW could be reduced thanks to a project whereby the sludge generated during an effluent treatment step was transformed into a commercial product rather than being landfilled, contributing to the circular economy. This commercialization started in September 2017 and will reach its full potential in 2019 with a total NHIW reduction of about 15 kt.
Since 2015, the NHIW at Group level increased by 180 kt (+12.4%), which is mainly linked to production volume increases from the Soda Ash & Derivatives Global Business Unit, resulting in +110 kt NHIW, and the Special Chem business, resulting in +56 kt NHIW.
Solvay's objective:
2020
risk assessment and analysis of available safer alternatives for marketed products containing S-SVHCs
| 2018 | 2017 | 2016 | |
|---|---|---|---|
| All SVHCs(1) | 31 | 35 | 20 |
| 39% | 49% | 18% | |
| Percentage of completion of Analysis of Safer Alternatives | (50 out of 128 required | (28 out of 57 required | (9 out of 49 required |
| program for marketed products(2) | assessments) | assessments) | assessments) |
| Of which effective replacement | 32% (16/50) | 32% (9/28) |
(1) According to EU REACH Authorization list (annex XIV) and EU REACH Candidate list. SVHCs manufactured by or forming part of the composition of products sold by Solvay worldwide. REACH is a regulation of the European Union, adopted to improve the protection of human health and the environment from the risks that can be posed by chemicals.
(2) Analysis of Safer Alternatives for potential substitution for an SVHC. A substance may be present in more than one marketed product.
Analysis of safer alternatives (ASA) are planned for a total of 128 combinations of products/applications. The change in the number of SVHC and required ASA between 2017 and 2018 is due to changes in legislation and incorporation of Cytec's products in Solvay's substitution program.
Of the 50 analyses of safer alternatives completed as of December 31, 2018:
16 have no available alternatives (no substitute available or not allowed by regulations or not requested due to the application in the final product).
This section addresses the management of Solvay's human resources as a key asset for delivering long-term value. It includes factors that affect employee productivity, such as employee engagement and diversity, as well as the attraction and retention of employees. It also addresses labor relations management, and it covers the way the Group manages the health and safety of its employees.
Employee health and safety
Solvay monitors cases of recordable occupational diseases in order to identify unsatisfactory working conditions, and tracks an Occupational Illness Frequency Rate according to GRI requirements. An indicator measures progress in deploying a robust process for risk-based medical surveillance at sites by checking whether every site:
Regarding exposure to chemicals, in addition to the industrial hygiene assessment, Solvay will use, when applicable, human biomonitoring as an efficient complementary tool for checking exposure to specific chemicals, and one that integrates all routes of exposure of the person concerned.
Systematically assessing and managing workers' potential exposure to hazardous chemical agents and to ergonomic and physical risks are key to Solvay's approach to protecting health. The number of sites that have an active industrial hygiene assessment program reflects progress in risk management. In order to optimize risk data management and the subsequent deployment of corrective measures, Solvay is deploying a dedicated database and monitoring the sites which are using the tool. A key component of Solvay's industrial hygiene program is the availability of exposure limits for all chemicals handled in the Group. The number of Solvay Acceptable Exposure Limits (SAELs) is also monitored.
One of Solvay's five 2025 priority targets is a continuous improvement in Solvay employee safety. A focus is put not only on the number of accidents but also on the severity of their outcomes as measured by the Medical Treatment Accident Rate (MTAR). This indicator is independent of national legislations which may influence the Lost Time Accident Rate (LTAR) indicator.
Solvay monitors the occupational Health of its employees in order to:
Every case of occupational disease is investigated: the occurrence of an occupational disease case may reflect historical, recent, or current inadequate working conditions that need to be improved. A network of occupational physicians at Group level supports the sites and the Global Business Units and guides local medical teams. Advanced risk-based medical surveillance is promoted and monitored throughout the Group. To do so, Solvay adapts each employee's periodic medical surveillance to their individual health risk profile. Risk profiles are created as part of Solvay's industrial hygiene program.
The Industrial Hygiene program encompasses: Within the framework of the management systems in place for Health, Safety and Environment (93% of sites have a management system encompassing safety management, in line with Group requirements), several courses of action are being pursued with the goal of further reducing the MTAR and LTAR and preventing any high-severity accident:
| 2018 | 2017 | |
|---|---|---|
| OIFR (short/mid-latency recognized cases) per million hours worked | 0.08 | 0.06 |
The Occupational Illness Frequency Rate (OIFR) is the number of recognized short/mid-latency Occupational diseases cases per one million hours worked. Scope: all sites under Solvay's operational control for which the Group manages and monitors safety and health performance for its employees. This represents 289 sites including manufacturing, Research and Innovation, administrative and closed sites. The figures were consolidated on December 31, 2018; some of them may have changed compared to data displayed in previous reports because any new information received from Solvay's sites is taken into account systematically, even if they are related to events that had arisen in the previous years.
| 2018 | 2017 | 2016 | |
|---|---|---|---|
| Long-latency occupational diseases | |||
| (Asbestos benign dis., Asbestos cancers, Other cancers) | |||
| In Europe | 12 | 10 | 20 |
| In the rest of the word | 0 | 0 | 0 |
| Total Long-latency occupational diseases | 12 | 10 | 20 |
| Short/mid-latency occupational diseases (Hearing disorders, Musculoskeletal diseases, Other non-carcinogenic dis) |
|||
| In Europe | 4 | 1 | 2 |
| In the rest of the world | 0 | 2 | 2 |
| Total Short/mid-latency occupational diseases | 4 | 3 | 4 |
| Total occupational diseases | 16 | 13 | 23 |
Long-latency Occupational diseases are work-related cancers or other diseases that can arise several decades after exposure. They are usually linked to exposures in the remote past that are no longer prevailing today. Short/mid-latency Occupational diseases are non-carcinogenic diseases which appear a few months or years after the occupational exposure to a causal agent (e.g. noise, ergonomic stressors, chemicals, etc.).
Scope: all sites under Solvay's operational control for which the Group manages and monitors safety and health performance for its employees. This represents 289 sites including manufacturing, Research and Innovation, administrative and closed sites. The figures were consolidated on December 31, 2018; some of them may have changed compared to data displayed in previous reports because any new information received from Solvay's sites is taken into account systematically, even if they are related to events that had arisen in the previous years.
Monitoring occupational diseases is key to improving employee health. But the reported figures do not accurately reflect the measures in place in the field in terms of health protection and occupational disease prevention because most recognized cases are long-latency diseases. The number of recorded occupational diseases varies significantly between regions and countries, depending on the process defined in national systems: some countries have a longer list of reportable diseases, in others the official health bodies recognize illnesses at a higher rate or provide compensation (which encourages claims); in others, employers are less systematically informed of cases. These differences explain why most of the cases reported here are in European countries (e.g. France).
Solvay's objective:
2020
of manufacturing and Research and Innovation sites with advanced risk-based medical surveillance
| In % | 2018 | 2017 |
|---|---|---|
| Manufacturing and Research and Innovation sites with advanced medical surveillance | 37 | 23 |
Scope: all Solvay manufacturing and Research and Innovation sites (excluding joint ventures).
35 sites are currently performing human biomonitoring of exposure. Human biomonitoring of exposure involves measuring the concentration of a substance or its metabolites in human fluids (such as urine or blood). Human biomonitoring of exposure can be used to assess exposure to specific chemicals. Unlike monitoring the atmospheric presence of certain contaminants in work spaces, human biomonitoring of exposure detects what has really been absorbed by the human body via all exposure pathways (inhalation, skin penetration, etc.) and under different working conditions (physical effort, etc.). Human biomonitoring of exposure helps to verify whether protective measures are effective. It is particularly useful for substances that penetrate the skin, have a systemic effect, or accumulate in the body.
| Number of sites | 2018 | 2017 |
|---|---|---|
| Sites performing the human biomonitoring of exposures | 35 | 35 |
| Headcount | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Solvay employees | 0 | 0 | 0 | 0 |
| Contractors | 0 | 1 | 1 | 0 |
Scope: all sites under Solvay's operational control for which the Group manages and monitors safety performance. This represents 289 sites including manufacturing, Research and Innovation, administrative, and a series of closed sites with limited activities, and covers Solvay employees and contractors working on sites.
2025
Halve the number of accidents involving medical treatment to reach an MTAR of 0.5
Baseline 2014
| Accident per million hours worked | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Solvay employees and contractors | 0.54 | 0.65 | 0.77 | 0.77 |
| Solvay employees | 0.58 | 0.63 | 0.73 | 0.65 |
| Contractors | 0.48 | 0.7 | 0.86 | 0.94 |
Scope: all sites under Solvay's operational control for which the Group manages and monitors safety performance. This represents 289 sites including manufacturing, Research and Innovation, administrative, and closed sites, covers Solvay employees and contractors working on sites.
| Accident per million hours worked | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Solvay employees and contractors | 0.65 | 0.65 | 0.76 | 0.75 |
| Solvay employees | 0.71 | 0.7 | 0.69 | 0.67 |
| Contractors | 0.52 | 0.52 | 0.9 | 0.85 |
Scope: all sites under Solvay's operational control for which the Group manages and monitors safety performance. This represents 289 sites including manufacturing, Research and Innovation, administrative, and closed sites, covers Solvay employees and contractors working on sites.
Thanks to the adoption of Group minimum requirements relating to each of the eight Solvay Life Saving Rules, to lessons drawn in the area of contractor management after the fatal accidents in 2017 in Devnya, and to safety leadership training sessions, the number of Medical Treatment Accidents decreased significantly from 50 in 2017 to 42 in 2018, resulting in an MTAR of 0.65 in 2017 and 0.54 in 2018. Moreover, no fatal accident occurred in 2018.
The results with respect to lost time accidents are stable, with 50 accidents resulting in an LTAR of 0.65, on a par with 2017. The main reason that there were more Lost Time Accidents than Medical Treatment Accidents was the number of low severity accidents that required no medical treatment, but which led to lost time.
| 2018 | 2017 | |
|---|---|---|
| Trauma – fracture | 19 | 23 |
| Wound – cut | 10 | 18 |
| Burn – heat | 4 | 3 |
| Burn – chemical | 4 | 3 |
| Wound | 2 | 1 |
| Trauma | 2 | 1 |
| Multiple injuries | 1 | 1 |
| Total | 42 | 50 |
Scope: all sites under Solvay's operational control for which the Group manages and monitors safety performance. This represents 289 sites including manufacturing, Research and Innovation, administrative, and closed sites, covers Solvay employees and contractors working on sites.
40% of the injuries that occurred involved hands or fingers. In 2018, Solvay focused on actions to prevent such injuries by sharing best practices and raising awareness through training. As a result, the number of such injuries was 20% lower in 2018 than in the previous two years.
Solvay has made progress on its journey towards "Creating Safety", an innovative approach introduced in 2017 at top management level. 17 sites have already carried out "Safety Climate" or similar assessments to understand the status of their
safety culture. Sites have been training employees and contractors on risk awareness and safety leadership. Several Global Business Unit and Function leadership teams have held training sessions with consultants Paul Balmert and Andrew Sharman. These types of sessions help create a common vision for what the company wants to achieve in terms of creating 2018 Key achievements safety, as opposed to merely striving to prevent accidents.
Solvay pursues comprehensive initiatives and processes to cultivate and assess the engagement and well-being of its employees, including personal development, rewards and recognition, an inclusive culture, and work-life balance. The Group also considers that engagement is fostered by freedom of association and collective bargaining.
Employee engagement is the level of commitment, passion, and loyalty a worker has toward his/her work and the company. The Group believes that engagement increases performance through higher productivity and employee retention. Five factors have an impact on employee engagement: pride, quality of work environment, overall satisfaction, motivation, and attachment to the company. Solvay also considers that engagement is fostered by fair labor practices and well-being at work.
Employee engagement is measured through a worldwide annual survey measuring the engagement of Solvay's employees and the factors leading to engagement. This enables the Group to identify strengths and areas where the working environment and employee experience can be improved. The survey results are assessed across various scopes – at Group, Global Business Unit, Function, and site level, as well as for each team manager with at least five respondents on his/her team. Across the Group, this represents a clear and intentional commitment by leaders and managers to improve engagement and support the well-being of their employees.
The Group 2025 target is an engagement index of 80%. This index is used as a yardstick to decide which actions are needed in areas such as personal development, rewards and recognition, an inclusive culture, and work-life balance.
| In % | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Solvay engagement index | 76 | 75 | 77 | 75 |
Scope: consistent with financial reporting.
In 2018, Solvay assessed its workforce engagement via the "Global Census Survey", a detailed questionnaire of 48 questions. In addition to engagement questions, the survey had two main areas of focus: the Solvay's transformation journey (topics such as change management and key behaviors) and the employer value proposition (learning, rewards, recognition, well-being, etc.). As in 2017, the roll-out was done entirely digitally.
Engagement remains strong within the Group. Pride in working for Solvay has increased considerably in comparison with 2017. Key dimensions such as Sustainability, Safety, Innovation, and Customer Focus are all present among the top scoring items, showing that they are well embedded within Solvay. The top three show that perception of these topics is stable. However, Solvay faces challenges in areas such as recognition, agility, and digital solutions.
of employees covered by collective agreement*
*Due to the Solvay Care collective Agreement with the global employee representative body, the Solvay Global Forum, which covers all employees.
Solvay believes that a trusting, constructive relationship with employees and their representatives forms the basis for fair labor practices. This relationship is built on the Group's commitment to respecting employees' fundamental human rights and guaranteeing their social rights.
Labor relations are managed at different levels.
In 2015 Solvay created a global employee representative body, the Solvay Global Forum, composed of eight employee representatives from the seven main countries where Solvay operates. This Forum meets with the Executive Committee once a year, in Brussels, during a one-week session. Video conferences are held quarterly, bringing together the Solvay Global Forum and the Group's top management to comment on and discuss the quarterly results of the Group, and to keep everyone informed of the main new projects.
The main topics discussed in 2018 were:
The establishment of an Employees' Share Scheme has been discussed with the Solvay Global Forum. Discussion for future implementation are ongoing.
Solvay and its European Works Council (EWC) have been in permanent dialog for more than 20 years. In 2018, the EWC met on two occasions in a plenary session. The sustainable development EWC commission met on two occasions and the EWC Secretariat met eleven times with senior Group management, allowing these representative bodies to be part of Solvay's evolution. Subject matters receiving particular attention were Mergers and Acquisitions (notably the divestment of the Polyamides activities); restructuring issues, including the simplification plan; developments in Group employment and working conditions; and strategy and sustainable development issues.
The main topics discussed with the Sustainable Development Commission of the European Works Council in 2018 included the five priority targets of the Group, the health and safety plan, the human rights due diligence process in Solvay, the well-being at work policy, and the results of the Group's sustainability performance assessment by extra-financial rating agencies.
On December 17, 2013, Solvay signed a Corporate Social and Environmental Agreement for the whole Group with IndustriALL Global Union. This Agreement is based on International Labor Organization standards and the principles of the United Nations Global Compact. It is a tangible expression of Solvay's determination to ensure that basic labor rights and the Group's social standards in the areas of Health, Safety and Environmental protection are respected at all of its sites.
In February 2017, Solvay took that collaboration one step further by renewing its Global Framework Agreement with IndustriALL Global Union, reinforcing its commitment by adding new social projects, such as societal actions and the protection of mental safety in the workplace.
Every year, IndustriALL Global Union representatives meet Solvay employees to check on compliance in the field, with two assessment missions taking place at two different sites. One mission measures the results of the Group's safety policy. The second examines the application of the agreement, which, in particular, formally covers the following health and safety aspects:
In 2018, the two assessment missions took place in the United Kingdom and Germany. IndustriAll Global Union paid particular attention to Solvay's behavior-based employee safety approach and its potential limits.
To ensure all employees comply with the IndustriALL Global Union Agreement, it has been integrated as an employee practice in the Solvay Way framework.
Some of the collective bargaining agreements specify notice periods for consultation and negotiation. The Global Framework Agreement concluded between Solvay and IndustriALL Global Union includes a provision that employees and unions (where applicable) must be informed in advance of any restructuring plans. In some of the collective bargaining agreements, a notice period and provisions for consultation and negotiation may be required.
Trade unions are present at a majority of Solvay sites around the world. Union membership is estimated at 20% in Europe, 30% in South America, 10% in North America, and 70% in Asia.
Named "Solvay Cares", this initiative, set up through an agreement with employee representative bodies, perpetuates the pioneering social vision of Ernest Solvay, who introduced forms of social security at the Group he founded more than 150 years ago.
Solvay Cares will be fully deployed in the first half of 2019 and aims to provide four major benefits:
For Solvay, well-being at work is a holistic concept which relates to all aspects of the quality of working life that ensure workers are safe, physically and mentally healthy, satisfied, engaged, and efficient. It contributes to a culture of recognition and support, to work-life balance, to employees' growth and development, and to good communication and collaboration. The well-being indicator for Solvay's workforce is measured via the yearly "Solvay Engagement Survey". Four questions in the employee survey relate to perceived well-being at work.
Responsibility for the well-being program is assigned to the Head of Group Industrial Relations and Social Innovation, with the support of a multidisciplinary Corporate Committee on Wellbeing at Work. This Committee was set up in October 2016 and meets monthly. It includes occupational physicians and psychologists, Human Resources, Health, Safety and Environment, and sustainable development experts.
An important step in the current well-being program is to develop competencies in stress prevention and to implement positive behaviors within the Group. The Committee has developed dedicated training material for managers and for local teams that directly support well-being and has created e-learning videos to raise awareness among all employees. Manager training started with the Executive Committee and the leadership council in September 2017. Since March 2018, nine training sessions for managers have taken place in six countries. Feedback from participants, who appreciated the concrete examples of action, has been excellent. Sessions are led by external psychologists. Other sessions are planned for 2019.
Solvay's network of occupational physicians and psychologists will increasingly examine the root causes of professional burnout. Since May 2018, Solvay physicians in Italy, Germany, Spain, Portugal, United Kingdom, Brazil, India, and Mexico have adopted the burnout observatory approach already implemented in France and Belgium, and further deployment is expected in 2019. The aim of the burnout observatory is to take stock of the magnitude of the issue at Solvay, and to identify the main risk factors in order to define preventive actions. So far, the main risk factors identified are workload, time pressure, lack of worklife balance, lack of recognition, lack of hierarchy support, difficult relationships at work, and the impact of organizational changes.
Training for the burnout observatory has already been attended by physicians covering:
Burnout cases were reported in 2018 to the Comex, including a description of the circumstances that can lead to burnout and ways to prevent it. The Corporate Committee on well-being at work is developing tools to assess excessive workload and to include well-being in change management.
A full section of the Solvay Way framework, which Solvay entities use to perform annual self-assessments and define improvement plans, is dedicated to well-being, while the yearly Solvay Engagement survey explores employee perceptions of well-being at work. This encourages sites to develop local well-being programs and assess stress risks. Well-being is one of the management aspects examined during the annual visits organized with IndustriAll Global Union.
The well-being program is being strengthened in Asia and Latin America. In Brazil, several initiatives were taken in 2018, including the training of employees on well-being at work by the occupational health physician, and training by an external expert to raise site managers' awareness of burnout. In China, a collaboration between the Chinese human resources teams and the country medical officer was organized in order to ensure the deployment of a common strategy for well-being at work, including managerial training, training of local support staff on well-being at work, and employee awareness.
The Chalampé site in France has employed an exemplary approach to addressing well-being in the context of the change management that accompanied a major reorganization of shift work arrangements at the site.
Solvay defines diversity as all of the ways in which individuals are different, whether visible or not. Diversity includes more than gender, nationality, age, disability, ethnic origin, and sexual orientation. It includes thought and belief, culture, education, and background. In a business environment, it also includes corporate culture.
Solvay commits itself to equal opportunities and encourages diversity and inclusion at every level of employment in the company. This commitment is grounded in Solvay's principles of ethical behavior, respect for people, customer focus, empowerment, and teamwork.
Diversity and inclusion are championed at the highest level in the organization by the Board of Directors, the Executive Committee and the Leadership Council. Each Global Business Unit and Function entity management team is responsible for putting this commitment into practice. To reflect business objectives and cultural context, business, regional, and local leaders set specific and relevant objectives within the Group diversity and inclusion framework. Strategies and action plans have to be locally owned and driven by entity, region, and country to take into consideration local laws, customs, and priorities.
At Group level, four areas of focus in terms of diversity receive specific attention and monitoring to ensure consistent improvement across the organization:
Inclusion means valuing and respecting difference, recognizing the unique contributions that many different types of individuals can make, and creating a working environment that maximizes every employee's potential. The Group sees this approach as a way to enhance its performance in its role as employer. It is convinced that its approach will ultimately improve the overall performance of its workforce, and has therefore made diversity and inclusion a performance lever and a growth enabler.
Diversity of the Board of Directors
The composition of the Board of Directors fulfills the duties imposed on it by Article 518 of the Companies Code.
Actions in 2018 actions continued and built upon the efforts begun in 2017 with the aim of further
As in 2017, awareness was fostered through diversity and inclusion workshops in various regions and business entities, through Solvay Way assessments, and country-specific actions crafted in response to the local context.
A review of human resources processes focused on talent acquisition by offering guidance on candidate sourcing and selection.
Training and development programs have been focusing on initiatives such as raising awareness about inclusive behaviors and targeted development programs for female managers and for Asian talents, among others.
of senior executive positions held by women
| Percentage of headcount | 2018 | 2017 |
|---|---|---|
| Women in senior management | 15% | 16% |
| Women in middle management | 25% | 24% |
| Women in junior management | 33% | 32% |
| Women in non-managerial positions | 20% | 21% |
| Total | 23% | 23% |
Scope: consistent with financial reporting.
| Percentage of headcount | 2018 | 2017 |
|---|---|---|
| Senior management | 401 | 396 |
| Percentage under 30 years old | 0% | 0% |
| Percentage between 30-49 years old | 28% | 29% |
| Percentage 50 years old and older | 72% | 71% |
| Middle management | 2,915 | 2,898 |
| Percentage under 30 years old | 0% | 0% |
| Percentage between 30-49 years old | 49% | 48% |
| Percentage 50 years old and older | 51% | 52% |
| Junior management | 5,213 | 5,090 |
| Percentage under 30 years old | 10% | 11% |
| Percentage between 30-49 years old | 64% | 63% |
| Percentage 50 years old and older | 26% | 26% |
| Non-managerial | 15,972 | 16,075 |
| Percentage under 30 years old | 14% | 14% |
| Percentage between 30-49 years old | 55% | 55% |
| Percentage 50 years old and older | 31% | 31% |
Scope: consistent with financial reporting.
| 2018 | 2017 | |
|---|---|---|
| Under 30 years old | 2,800 | 2,765 |
| Between 30-49 years old | 13,605 | 13,578 |
| 50 years old and older | 8,096 | 8,116 |
| Total headcount | 24,501 | 24,459 |
Scope: consistent with financial reporting.
According to the above table, the age structure is currently:
This chapter on social capital discusses Solvay's perceived role in society, i.e. expectations of what Solvay will contribute to society in return for its social license to operate. It addresses the management of relationships with key outside stakeholders, such as customers, local communities, the public, and the government.
42% Net Promoter Score®
The Net Promoter Score® is the indicator used to measure customer loyalty, for each Global Business Unit. The metric was developed by (and is a registered trademark of) Fred Reichheld, Bain & Company, and Satmetrix. Scores are consolidated at the Group level through a revenue-based weighted average.
The Net Promoter Score® is calculated based on responses to a single question: How likely is it that you would recommend our company, product, service to a friend or colleague? The scoring for this answer is based on a 0 to 10 scale. Those who respond with a score of 9 to 10 are called Promoters and are considered likely to exhibit value-creating behaviors, such as buying more, remaining customers for longer, and making more positive referrals to other potential customers. Those who respond with a score of 0 to 6 are labeled Detractors, and they are believed to be less likely to exhibit the value-creating behaviors. Responses of 7 and 8 are labeled Passives, and their behavior falls between Promoters and Detractors. The Net Promoter Score® is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters.
The Net Promoter System® is the methodology used to systematically assess customer satisfaction by promoting a culture of customer feedback and developing active listening skills at every point customers come into contact with Solvay, from account managers to customer service employees, and including technical support as well as business development managers. The objective is to go far beyond "just a score" towards a deep transformation of the Group by fostering a much more customer-centric culture.
The Net Promoter System® is structured around two pillars to gather insights from customers at both the strategic and operational levels. The objective of the first and more strategic pillar is to identify and further reinforce the areas where the Group truly stands out against the competition in order to raise customer loyalty and accelerate growth.
The second and more operational pillar captures how the customers perceive the offer from a day-to-day perspective. Those key insights trigger tangible action plans – both accountspecific and at business unit level – to bring Solvay closer to the customers and better serve them by delivering more suitable and efficient services.
Since 2014, each Global Business Unit has run a customer satisfaction survey at least once every two years to check their strategic alignment with the trends in their business environment. The aim is to identify and select the right areas for the Global Business Unit to focus on, so as to foster differentiation and accelerate growth. The Net Promoter System® has been selected as a key indicator of customer loyalty; it is measured at Global Business Unit and Group level and published annually. The Group's Net Promoter Score® increased steadily from 14% in 2014 to 40% in 2018 because Solvay came to understand customer needs and priorities better and implemented action plans at the business unit level. In 2018, Solvay decided to bring the "Voice of the Customer" approach to the next level by launching a new initiative (the Net Promoter System®) to change the work habits of the Group's entire frontline population across all business units and geographies.
The insights gathered from the customers will systematically trigger action plans to adapt the value proposition so Solvay can better serve them and accelerate its growth.
A pilot program of the Net Promoter System® was conducted in the Global Business Unit Specialty Polymers.
In 2018, Solvay made substantial progress, with a Net Promoter Score® of 42%, exceeding the original 2020 objective set a few years ago by implementing action plans and follow-up programs across the entire Group.
| In % | 2018 | 2017 | 2016 |
|---|---|---|---|
| Solvay's Net Promoter Score (NPS) | 42 | 36 | 27 |
"The pilot program of the Net Promoter System", by Michael Finelli, President of Global Business Unit Specialty Polymers
By listening to our customers, we create value for our customers and thereby create value for Solvay. This is why we moved to the Net Promoter System® , which is different from the regular Net Promoter Score® .
How does it work? We compile a market Net Promoter Score® , but we collect much more qualitative information from the customer about why they scored us as they did. The overall idea is to turn that information into "episodes", creating a continuous process of feedback with the customer to investigate and solve the issues.
We engage all parts of the organization: customer service, supply chain, technical support, and Research and Development (R&D) if necessary. Depending on what the "episode" is, we engage that part of the organization directly with the customer in a continuous way.
This is the best way to put "customer centricity" into practice.
Today, value creation is a collaborative effort both within the company and between the company and its stakeholders. The Group aims to strengthen its commitment by facilitating employee involvement in projects that serve society and by offering Solvay's expertise to regions where the Group operates. Disclosure of Solvay's indirect economic impact is provided in this section.
Solvay Group donations, sponsorships and own projects
70% of the industrial sites have a working group – composed of the site manager, human resource manager, and employee representatives – that defines the major issues facing the region and what relevant societal actions the site will take.
A local societal action is a volunteer activity developed by a site in collaboration with associations, governmental initiatives, or NGOs, with the aim of improving the human condition and contributing to local communities. It should address one of the four domains identified by Solvay:
Each site is invited to design its own local societal action plan in accordance with the principles of the Solvay Way framework and the needs of surrounding communities. Guidelines are provided to the sites, inviting them to start by designating a working group to update the site's plans annually in pursuit of continuous improvement.
Societal Actions are not subject to assurance procedures, as the reporting process is being recalibrated to strengthen data quality.
| Solvay's priority objective: |
|||
|---|---|---|---|
| 2025 | |||
| 40% | |||
| of employees involved in societal actions | |||
| In % of headcount | 2018 | 2017 | 2016 |
| Employees involved in local societal actions | 33 | 33 | 23 |
Number of employees that participated at least in one societal action in 2018 (even if they are no long present at the company on December 31, 2018) divided by the headcount on December 31, 2018.
Solvay aims to connect its philanthropic effort with the Group's areas of expertise and support causes where its products or activities can deliver added value.
In 1923, Solvay created the Ernest Solvay Fund to honor the founder of the Company, who died the year before. Today, the majority of Solvay's corporate philanthropy goes through the Ernest Solvay Fund, managed by the independent King Baudouin Foundation.
Solvay concentrates its philanthropic and funding efforts at corporate level on science promotion, education, and youth employability, and in some circumstances it supports humanitarian initiatives in response to certain disasters and/or situations where the products or services are of particular value.
The Solvay Institutes were founded by Ernest Solvay in 1912 to support and develop curiosity-driven research in physics, chemistry, and associated fields with the purpose of "enlarging and deepening the understanding of natural phenomena".
The central activity of the Institutes is the periodic organization of the celebrated Solvay Conferences on Physics and Chemistry ("Conseils de Physique Solvay" and "Conseils de Chimie Solvay"). To complement this support for fundamental science, the Group organizes open workshops on specific selected topics, international chairs, colloquia, and an international doctoral school.
In addition to these activities, the Solvay Institutes promote the popularization of science by organizing the annual Solvay public lectures devoted to today's biggest scientific challenges.
In 2018, Solvay supported a new initiative from the Institutes: "The New Horizons Solvay Lectures", given by young scientists who have already made a name for themselves and attained some stature in their field. They deliver one general interest lecture at the Solvay Institutes on their current research and the challenges they see for their discipline, and then a second
complementary lecture at another Belgian university. Lectures are encouraged whenever possible, as are scientific discussions with a range of Belgian research groups working in similar fields.
In January 2018, Solvay and the Ellen MacArthur Foundation signed a three-year Global Partner agreement that gives the Group an opportunity to make a difference in accelerating the transition to a circular economy in the chemicals sector.
Solvay joined the World Alliance for Efficient Solutions, created by Solar Impulse founder Bertrand Piccard, to promote efficient technologies, processes, and systems that help improve the quality of life on earth. Alliance members include start-ups, companies, institutions, and organizations.
By combining the forces of governments, corporations, and international institutions, the Alliance will amplify their ability to share experiences and create synergies in order to develop and implement concrete solutions to reach environmental and health targets.
Solvay is the world's leading producer of guar derivatives. Since 2015, Solvay has been spearheading a large-scale development initiative to make guar cultivation more sustainable while boosting the incomes of the farmers who produce it. Guar is a drought-resistant legume grown in semi-arid areas, predominantly in India. Rajasthan accounts for approximately 70% of the country's production.
In collaboration with L'Oreal and Henkel, two strategic customers active in Personal Care, and with the support of the NGO TechnoServe, more than 7,000 farmers in Bikaner were trained over four years, and more than 860 kitchen gardens were developed in 36 villages.
The initiative's primary objective is to encourage sustainable and climate-smart agriculture, thereby increasing farmers' revenues through good guar cultivation practices for seed selection, seed treatment, sowing, and pest management.
The initiative also empowers women through specific training on hygiene, health, and nutrition:
Lastly, the initiative focuses on agroforestry, with more than 59,000 trees planted to fight sand movement and soil erosion in the fields. The outcome means guar farmers can earn a better living, global buyers can obtain higher quality guar, and the market can benefit from improved supply security.
This chapter covers regulatory compliance, risk management, safety management, conflicts of interest, anticompetitive behavior, corruption, bribery, and business complicity with human rights violations.
Management of the legal, ethics, and regulatory framework
Management of the legal, ethics, and regulatory framework encompasses business ethics – human rights, anti-corruption, and nondiscrimination – and anti-competitive behavior.
Solvay's Code of Conduct and the policies and procedures adopted to enhance good governance apply to all employees wherever they are located. In addition:
Solvay's Code of Conduct expressly states that the Group prohibits bribery in any form. Solvay and its employees do not use gifts or entertainment to gain competitive advantage. Facilitation payments are not permitted by Solvay. Disguising gifts or entertainment as charitable donations is equally a violation of the Code of Conduct. The Code is supported by a more detailed policy on gifts, entertainment and anti-bribery. Solvay is a member of Transparency International Belgium.
The Group employs an internal tracking system to record gifts and entertainment that exceed the acceptable reasonable value applicable in each region and requires manager approval for accepting or giving them. The use of the Gift and Entertainment Tracking System ("GETS") is part of Solvay's Internal Audit review process.
Solvay's Human Rights in Business Policy, published on Solvay's website, sets forth Solvay's commitment to respecting human rights and acting with due diligence to avoid any infringement of human rights or any adverse impact on or abuses of such rights. The policy emphasizes Solvay's commitments to its stakeholders (its employees, its business partners, the communities and environment in which it operates, and children).
Solvay has a Global Human Rights Committee (GHRC) to oversee implementation of the policy, ensure compliance, and monitor the Group's performance in meeting its commitments. Members of the Global Human Rights Committee include the heads of the following Solvay business service activities and / or their delegates: Legal and Compliance, Human Resources, Purchasing and Supply Chain Excellence, Industrial, Internal Audit and Risk Management, and Sustainable Development. The GHRC is chaired by the Group General Counsel, who is the head of Legal and Compliance. Members of Solvay's Global Business Units and other business service activities contribute to the work of the GHRC on an ad hoc basis, as necessary.
The GHRC provides an annual written summary of its activities (including key performance indicator results) to the Executive Committee before the Group's annual report is issued, and it also validates the human rights reporting made in conjunction with the issuance of that report. Upon request, the Chair of the GHRC may be called upon to provide an Annual Integrated Report to the Audit Committee.
Solvay is also a pilot participant in the Belgium Commission for Children's Rights and Business Principles.
Solvay's goal is to conduct business ethically and not to enter into any business arrangements that eliminate or distort competition. Solvay is committed to developing and maintaining a culture of compliance to keep Solvay and its people on the right side of the law. Solvay has a formal Competition Law policy that stresses the importance of strict adherence to all competition laws. This formal Competition Law policy was approved by Solvay's Executive Committee and is published on the intranet, to which all Solvay's employees have access. Any violation of this policy may result in disciplinary action, subject to and in conformity with applicable laws.
A Compliance organization under the leadership of the Group General Counsel enhances a Group-wide culture based on ethics and compliance.
Regional Compliance Officers serve in all four zones where the Group operates. Every Solvay Global Business Unit and Function appoints Compliance Liaisons to enhance adherence to compliance objectives and to instill a commitment to compliance throughout Solvay.
As for competition law, Solvay has dedicated resources within the Legal Function responsible for the implementation of the Competition Law Compliance Program. They are in charge of providing competition law advice and guidance, as well as deploying effective and regular communication and training on competition law-related subjects.
Solvay has put in place a Competition Compliance Program that propagates a zero tolerance approach towards competition law infringements. As part of its Competition Compliance Program, Solvay provides a competition law tool kit on its intranet that includes up-to-date guidelines on specific areas of competition law, including guidance on dealing with competitors, information exchange in Mergers and Acquisitions transactions, swaps, price announcements, vertical relationships, and so on.
To minimize cartel risks, Solvay has put in place a computerbased system that tracks all contacts that relevant employees have with competitors through a managerial approval procedure.
Employees are encouraged to report suspected violations or concerns through various internal avenues, including management, Human Resources, Legal & Compliance, and Internal Audit.
A Group-wide Speak Up program is in place and overseen by the Audit Committee of the Board of Directors. An external thirdparty helpline active 24 hours a day, 365 days a year allows employees to ask questions, raise concerns, or file reports.
The following chart shows the types of claims from January, 2018 until February, 2019 through Solvay's Speak Up program:
| Number of claims | 2018 | 2017 |
|---|---|---|
| Misconduct or Inappropriate Behavior | 30 | 26 |
| Discrimination including harassment and retaliation | 20 | 15 |
| Conflict of Interest | 10 | 7 |
| Computer, Email, Internet | 3 | 1 |
| Environmental, Health or Safety Law | 2 | 6 |
| Accounting or Auditing | 1 | 2 |
| Anti-Bribery | 0 | 2 |
| Confidentiality/Misappropriation | 1 | 2 |
| International Trade Compliance | 0 | 0 |
| Substance Abuse | 1 | 1 |
| Theft | 4 | 3 |
| Violence or Threat | 5 | 2 |
| Other | 11 | 16 |
| Total | 88 | 83 |
Through the Speak Up program, any concern regarding a breach is investigated by the Ethics and Compliance Function. In keeping with its commitment to transparency, the Speak Up tool is used to report progress on the investigations and is used to communicate the results of investigations directly to the reporters upon conclusion. Posters and an online brochure are available to employees and advertise the web address and toll-free numbers to access this tool in their regions. The Board's Audit Committee oversees the running of Speak Up.
| 88 | 81 | 34 | 37 |
|---|---|---|---|
| Total claims made | Total claims closed* | Substantiated claims among resolved cases |
Unsubstantiated claims among resolved cases |
* Includes cases for which there was insufficient information or cases that were misdirected or referred.
| Resolved Cases | No Action | Policy Review | Training | Discipline | Termination | Resignation |
|---|---|---|---|---|---|---|
| Substantiated | 0% | 21% | 0% | 44% | 26% | 9% |
| Unsubstantiated | 92% | 0% | 5% | 3% | 0% | 0% |
Code of Conduct training (live training and web-based training) is organized to ensure understanding and to address behavioral risks such as anti-trust, anti-bribery and corruption, and human rights abuses. Specific anti-corruption training is tailored to management and other personnel in sensitive positions (sales, procurement, industrial development, etc.). Special campaigns to maintain and/or enhance the level of awareness within the Group are identified and adopted annually.
Solvay has a concrete Action Plan designed to mitigate the specific risks the Group has identified. It has been in force since 2003 and is updated yearly. In 2018, this action plan includes a new onboarding antitrust training session successfully completed by 369 recruits in relevant areas, as well as Contacts with Competitors Tracking System (CCTS) training for 822 individuals and additional tailored face-to-face training sessions for 134 high-risk individuals.
Annual Internal Audits check to make sure the Action Plan is being implemented effectively.
A new web-based anti-bribery and anti-corruption training course was introduced in 2018 to supplement the live training program. With the help of this program, Anti-Bribery and anticorruption training increased significantly in 2018: approximately 2,400 employees in sensitive business positions received the training, roughly double the number of employees previously trained on this topic. Additionally, anti-bribery and anticorruption topics are still offered as part of the Code of Conduct training that is mandatory for all employees.
In 2018, the Group continued to develop its Human Rights in Business Policy plan. As part of this initiative, a new Human Rights video was introduced to the Leadership Council to provide an overview of Solvay's actions and human rights strategy going forward. The video was also used to spur discussion on the topic at the 2018 Annual Sustainable Development Convention among approximately 75 leaders engaged in various aspects of sustainability within the Group. Throughout the year, the Group conducted human rights training for plant managers globally by connecting with them at their annual regional meetings, and Solvay will continue to increase its outreach and training in 2019.
Indicators monitored for Process Safety Management System are aligned with OSHA (United States Occupational Safety and Health Administration) definitions. Indicators used to monitor Process Incidents (PSI) are aligned with International Council of Chemical Associations (ICCA) standards. Reported process incidents with environmental consequences are monitored and classified according to defined criteria: quantity of spilled material, consequences on site or off site, damage to the immediate vicinity, fish kills, and severity (medium, high, and catastrophic). The overall management of historical soil contamination can be monitored via the many environmental provisions.
Solvay's approach to preventing process incidents is based on the 14 OSHA items of Process Safety Management System, with special attention paid to Process Hazard Analysis. Risk analysis forms the backbone of risk control. This risk analysis covers
Solvay's objective:
of product lines having a risk analysis updated in the past five years
existing, new, or modified installations. Quantified risk analysis is a best practice among industrial companies: standardized risk analysis makes it possible to quantify the risk level of every possible accident scenario, combining severity and probability factors.
The incident rate (PSI rate) is monitored and benchmarked with peers. Each incident is analyzed according to ICCA standards (International Council of Chemical Associations) and corrective actions are taken, with a focus on incidents with operating permit exceedance.
The corporate "Environmental Rehabilitation" department is dedicated to overseeing the management of closed sites and addressing environmental liabilities resulting from historical soil contamination at all concerned sites. An Enterprise Risk Management approach is followed, backed by clear governance that combines a local approach (team management) with a global team (through initiatives). The aim is to significantly reduce Solvay's environmental liabilities and obligations and to effectively address and remediate environmental liabilities on operating sites.
| In % | 2018 | 2017 |
|---|---|---|
| Product lines having a risk analysis updated in the past five years | 85 | 77 |
Scope: the consolidated data for process safety risk analysis covers 131 sites out of a total about 152 operational sites including Research and Innovation centers with significant chemical process risks – excluding mines, careers, and laboratories with lower risks.
The risk analysis program makes it possible to identify major accident scenarios and take the necessary preventive measures to control the level of risk and keep it acceptable. Solvay uses tiered risk analysis methods and adapts them to the level of potential hazard of every process at every Global Business Unit. The increase reflects the deployment of the assessment program started in 2015 and to be achieved by 2020. In 2016 and 2017, most of the progress was due to the deployment of the simplified method – called PRAMAPOR – for material and processes with low potential hazards.
| 2018 | 2017 | |
|---|---|---|
| High-severity process incidents with environmental consequence (*) | 0 | 0 |
| Medium-severity process incidents with environmental consequences (*) | 47 | 59 |
| … with operating permit exceedance | 12 | 27 |
| … without permit exceedance | 35 | 32 |
| Process safety incident rate (**) | 1 | 0.9 |
(*) Process incidents with environmental consequences are being monitored and classified according to several criteria: quantity of material spilled, consequences on site or off site, damage to the immediate vicinity, fish kills, and severity (medium, high, and catastrophic).
(**) Number of process Incidents per 100 full time employee (employees and contractors, assuming 2,000 hours of work/worker/year): Solvay's process incident rate (PSI rate) is consistent with the method proposed by the International Council of Chemical Associations (ICCA).
Scope: the consolidated data for process safety incidents covers 107 sites out of a total about 153 operational sites including Research and Innovation centers with significant chemical process risks – excluding mines, careers, and laboratories with lower risks.
No high incidents with environmental consequences, or catastrophic-severity incidents were reported for 2018, meaning there was no accidental event with long-term damage off site for the environment. Solvay's target is to avoid any high severity incident and to reduce the incident rate for medium severity incidents. In 2018, 47 incidents with environmental consequences were reported and, among those, 12 processes were associated with releases above operating limits. The Group has followed up on each incident to ensure adequate actions are taken to avoid recurrence.
The indicators Process Safety Management System (PSM) relative to the implementation of management system consistent with the Solvay Cares Management System (SCMS) is not consolidated at Group level anymore. Sites may now implement safety management system using other references than SCMS and in particular OSHA 18001, ISO 14001, etc. The internal control procedures based on the Solvay Cares Mangement System are no more effective as of 2018.
MANAGEMENT REPORT
| 1. Consolidated financial statements | 150 |
|---|---|
| Consolidated income statement | 152 |
| Consolidated statement of comprehensive income | 153 |
| Consolidated statement of cash flows | 154 |
| Consolidated cash flows from discontinued operations | 155 |
| Consolidated statement of financial position | 155 |
| Consolidated statement of changes in equity | 156 |
| 2. Notes to the consolidated financial statements | 158 |
| IFRS general accounting policies | 158 |
| 1. Basis of preparation | 158 |
| 2. Basis of measurement and presentation | 161 |
| 3. Principles of consolidation | 161 |
| 4. Foreign currencies | 162 |
| 5. Government grants | 163 |
| Critical accounting judgments and key sources of | |
| estimation uncertainty | 164 |
| 1. Critical accounting judgments | 164 |
| 2. Key sources of estimation uncertainty | 164 |
| Non-IFRS (Underlying) metrics | 165 |
| Notes to the consolidated income statement | 166 |
| NOTE F1 Revenue and segment information | 166 |
| NOTE F2 Consolidated income statement by nature | 172 |
| NOTE F3 Revenue from non-core activities | 172 |
| NOTE F4 Other operating gains and losses | 172 |
| NOTE F5 Results from portfolio management and reassessments, legacy remediation and major litigations |
173 |
| NOTE F6 Net financial charges | 174 |
| NOTE F7 Income taxes | 174 |
| NOTE F8 Discontinued operations | 180 |
| NOTE F9 Profit for the year | 180 |
| NOTE F10 Earnings per share | 181 |
| Notes to the consolidated statement of comprehensive income |
182 |
| NOTE F11 Consolidated statement of comprehensive income |
182 |
| Notes to the consolidated statement of cash flows (continuing and discontinued operations) |
184 |
| NOTE F12 Depreciation, amortization and impairments | 184 |
| NOTE F13 Other non operating and non cash items | 184 |
| NOTE F14 Income taxes | 184 |
| NOTE F15 Changes in working capital | 185 |
|---|---|
| NOTE F16 Additions, reversals and use of provisions | 185 |
| NOTE F17 Cash flows from investing activities – acquisition/disposal of assets and investments |
185 |
| NOTE F18 Other cash flows from financing activities | 186 |
| NOTE F19 Cash flow from discontinued operations | 186 |
| Notes to the consolidated statement of financial position | 187 |
| NOTE F20 Intangible assets | 187 |
| NOTE F21 Goodwill and business combinations | 189 |
| NOTE F22 Property, plant and equipment | 192 |
| NOTE F23 Leases | 195 |
| NOTE F24 Joint operations | 196 |
| NOTE F25 Investments in associates and joint ventures | 197 |
| NOTE F26 Other investments | 200 |
| NOTE F27 Impairment of property, plant and equipment, intangible assets, and equity method investees |
200 |
| NOTE F28 Inventories | 202 |
| NOTE F29 Other receivables (current) | 203 |
| NOTE F30 Assets held for sale | 203 |
| NOTE F31 Equity | 205 |
| NOTE F32 Non-controlling interests (continuing operations) |
206 |
| NOTE F33 Share-based payments | 207 |
| NOTE F34 Provisions | 210 |
| NOTE F35 Financial instruments and financial risk management |
221 |
| NOTE F36 Net indebtedness | 242 |
| NOTE F37 Other liabilities (current) | 244 |
| Miscellaneous Notes | 245 |
| NOTE F38 Commitments to acquire property, plant and | |
| equipment and intangible assets | 245 |
| NOTE F39 Contingent liabilities and financial guarantees | 245 |
| NOTE F40 Related parties | 246 |
| NOTE F41 Dividends proposed for distribution | 247 |
| NOTE F42 Events after the reporting period | 247 |
| NOTE F43 List of companies included in the consolidation scope |
248 |
| 3. Summary of financial statements of Solvay SA | 254 |
| Balance sheet of Solvay SA (summary) | 255 |
| Income statement of Solvay SA (summary) | 256 |
| Profit available for distribution | 256 |
Solvay (the "Company") is a public limited liability company governed by Belgian law and quoted on Euronext Brussels and Euronext Paris. The principal activities of the Company, its subsidiaries, joint operations, joint ventures, and associates (jointly the "Group") are described in note F1 Revenue and segment information.
On February 26, 2019, the Board of Directors authorized the consolidated financial statements for issuance. They have been prepared in accordance with IFRS accounting policies as endorsed by the European Union, as disclosed hereinafter.
On November 15, 2017, Solvay agreed to sell its US facility in Charleston, South Carolina, and the phosphorus derivativesbased products made at the plant to German specialty chemicals company Lanxess. The products at the site are used primarily as intermediates in plastic additives, flame retardants, and agricultural applications. The business represents sales of approximately € 65 million. Transaction was completed on February 8, 2018 for US\$ 68 million, leading to a net capital gain before tax of € 22 million. Employees at the site were transferred.
On March 15, 2018, Solvay announced it had agreed to sell its Porto Marghera plant, which produces hydrofluoric acid, to Alkeemia, part of the Italian Fluorsid Group. The hydrofluoric acid is utilized by Solvay as a base chemical for the production of selected specialty polymers. This divestment is in line with Solvay Specialty Polymers' strategy to focus on specialties, where technology and innovation make the difference, to improve the sustainability of its productions. Fluorsid Group is one of the key players in the hydrofluoric acid and derivatives market at an international level. Alkeemia acquired Solvay Specialty Polymers' Porto Marghera branch of activities, and the employees at the site have been transferred. The sale was closed on June 1, 2018. In connection with the disposal, an impairment loss of € (23) million has been recognized in the first quarter of 2018.
On March 29, 2018, Solvay announced it is taking a new step in its transformation, putting its customers at the core of its organization to enhance its long-term growth as an advanced materials and specialty chemicals company. Solvay announced plans to simplify its organization, which needs to be adapted to its portfolio – now strongly focused on high-performance materials and tailored solutions – as well as to its changing customer base. The Group launched the relevant information/consultation procedures with employee representatives. These procedures were completed at the end of June. The Group is committed to supporting employees throughout this transformation while limiting job losses as much as possible. The simplification of the organization should lead to around 600 net redundancies, mainly in functional activities. The concentration of the R&I and support activities would involve the transfer to Lyon and Brussels, over four years, of about 500 employees who can rely on comprehensive support from the Group to help them relocate. In connection with the announced transformation, a restructuring provision has been recognized, with a net profit or loss impact of € (177) million. On top of this provision, other costs were already incurred in 2018 for an amount of € (8) million.
On October 16, 2018, Solvay announced that the divestment of its polyamide business to BASF is moving forward, as BASF has offered remedies involving part of the assets originally included in the scope of the acquisition, to address the competition concerns the European Commission has raised following an in-depth Phase II investigation. The European Commission examined these remedies and submitted them to market testing before completing its review procedure. The assets concerned by the remedies include innovation capabilities and manufacturing assets of Solvay's polyamide intermediate and engineering plastics business in Europe. The activities included in the proposed remedy scope are able to compete as successful stand-alone businesses under third party ownership. For BASF and Solvay this was a further step towards obtaining European Commission clearance for their agreement; this was obtained in January 2019. Both companies will continue to run their businesses separately until completion of the transaction, which is expected in the second part of 2019 after all remaining closing conditions will have been fulfilled.
On November 27, 2018, Solvay successfully issued a perpetual hybrid bond for an aggregate nominal amount of € 300 million, to be used for general corporate purposes, including the possibility to refinance the existing € 700 million hybrid bond with a first call date in May 2019. The € 300 million hybrid bond has a first call date on March 4, 2024 and a coupon of 4.25% until this date, with a reset every five years thereafter. The hybrid bond ranks junior to all senior debt and is classified as equity (and accordingly, coupons will be deducted from equity in accordance with IFRS).
On January 4, 2017, Solvay agreed to sell its formulated resins business to Altana AG's Elantas PDG Inc. Under the agreement, Solvay's Global Business Unit Technology Solutions divested the business line, which generated sales of € 17 million in 2016. The divestment included the formulated resins product portfolio, the manufacturing and R&D facility based in Olean, New York, USA, and all associated technical, commercial, and administrative staff. Completion of the transaction was subject to customary closing conditions, including antitrust approvals, and occurred on June 1, 2017. The assets of the business were presented as assets held for sale until completion of the transaction, which had no material impact on the result in the period.
On February 1, 2017, Solvay announced the acquisition of Energain™ Li-ion high voltage technology from DuPont for € 13 million. Energain™ technology and formulations enlarge Solvay Special Chem Global Business Unit's existing portfolio of high performance salts and additives for electrolytes and strengthen its capabilities to develop further innovative highvoltage solutions for Li-ion batteries.
On February 23, 2017, Solvay completed the divestment of its 58.77% stake in its Thai subsidiary, Vinythai PCL (Emerging Biochemicals), to Japanese company AGC Asahi Glass. The assets and liabilities of the business were presented as assets held for sale and associated liabilities as from December 2016, following the announcement of the intended divestment. The transaction was based on a total enterprise value of 16.5 billion Thai baht (€ 435 million), and triggered a capital gain of € 24 million, recognized in discontinued operations.
On March 24, 2017, Solvay signed a definitive agreement to sell its 25.1% shares in National Peroxide Limited (BOM:500298) to the Wadia Group, a conglomerate of corporate India and promoter shareholder of National Peroxide Limited. The transaction was closed in March with a capital gain of € 13 million.
On March 30, 2017, Solvay signed a definitive agreement to sell its polyolefin cross-linkable compounds business in Italy to familyowned group Finproject SpA. Based in Roccabianca, Parma, the business makes compounds that are used in applications in the wire and cable industry and the pipe industry, generating sales of € 82 million in 2016. Finproject is a leading manufacturer of injection molded foam, polyolefin-based compounds and PVC compounds. The transaction was subject to customary closing conditions and closed on June 8, 2017. The assets of the business were presented as assets held for sale until completion of the transaction, which triggered a capital gain of € 43 million.
On May 31, 2017, Solvay completed the divestment of its cellulose acetate tow business, Acetow, to private equity funds managed by Blackstone. The assets and liabilities of the business were presented as assets held for sale and associated liabilities as from December 2016, following the announcement of the intended divestment. The transaction was based on an enterprise value of around € 1 billion, resulting in a net financial debt reduction of € 734 million and a capital gain of € 180 million recognized in discontinued operations, subject to post-closing adjustments.
Solvay deconsolidated its investment in Venezuela triggered by the political situation in the country, and recognized a loss of € 72 million, related mainly to the € (60) million recycling of currency translation differences, in the second quarter of 2017.
On July 5, 2017, Solvay agreed to sell its 50% stake in Dacarto Benvic to its joint venture partner who will become the sole owner of the Brazilian PVC compounder. The transaction led to an impairment of € (5) million in the second quarter and € (8) million of currency translation differences recycling and was completed on September 14, 2017.
On September 19, 2017, Solvay announced that it had entered into a binding agreement with German chemical company BASF for the sale of its Polyamides business. The business planned for divestment has been reclassified to assets and liabilities held for sale and discontinued operations at the end of the third quarter of 2017. As a result of the discontinuation, the retained Latin American polyamide business incurred an impairment of € (91) million recognized at the end of September 2017. This impairment is expected to be more than compensated by the capital gain on the transaction at the closing.
On September 21, 2017, Solvay launched a cash tender offer to repurchase bonds on the following issuances:
On September 28, 2017, Solvay published the final results of the repurchase operation related to the aforementioned issuances. It committed to repurchasing 51% of the outstanding aggregate principal amount of the US\$ 400 million senior bonds due in 2023 for a total amount of US\$ 204 million, 34.6% of the outstanding aggregate principal amount of the US\$ 250 million senior bonds due in 2025 for a total amount of US\$ 87 million, and 23.6% of the outstanding aggregate principal amount of the € 500 million senior bonds due in 2018 for a total amount of € 118 million. The repurchase was closed on October 2, 2017 and resulted in an expense of € (25) million of which an accretion (acceleration) amounting to € (10) million and premiums amounting to € (15) million.
On November 7, 2017, Solvay completed the acquisition of European Carbon Fiber GmbH ("ECF"), a German producer of high-quality "precursor" for large-tow (50K) polyacrylonitrile (PAN) carbon fibers.
| In € million | Notes | 2018 | 2017 |
|---|---|---|---|
| Sales | (F1) | 11,299 | 10,984 |
| of which revenue from non-core activities | (F3) | 1,042 | 859 |
| of which net sales | 10,257 | 10,125 | |
| Cost of goods sold | (8,264) | (7,898) | |
| Gross margin | 3,035 | 3,086 | |
| Commercial costs | (373) | (400) | |
| Administrative costs | (1,006) | (1,037) | |
| Research and development costs | (297) | (290) | |
| Other operating gains and losses | (F4) | (123) | (154) |
| Earnings from associates and joint ventures | (F25) | 44 | 44 |
| Results from portfolio management and reassessments | (F5) | (208) | (188) |
| Results from legacy remediation and major litigations | (F5) | (86) | (84) |
| EBIT | 986 | 976 | |
| Cost of borrowings | (F6) | (131) | (172) |
| Interest on loans and short term deposits | (F6) | 13 | 15 |
| Other gains and losses on net indebtedness | (F6) | (1) | (44) |
| Cost of discounting provisions | (F6) | (77) | (97) |
| Profit for the year before taxes | 791 | 678 | |
| Income taxes | (F7) | (95) | 197 |
| Profit for the year from continuing operations | 697 | 875 | |
| Profit for the year from discontinued operations | (F8) | 201 | 241 |
| Profit for the year | (F9) | 897 | 1,116 |
| attributable to: | |||
| Solvay share | 858 | 1,061 | |
| non-controlling interests | 39 | 56 | |
| Basic earnings per share from continuing operations (€) | 6.37 | 7.97 | |
| Basic earnings per share from discontinued operations (€) | 1.94 | 2.29 | |
| Basic earnings per share (€) | (F10) | 8.31 | 10.27 |
| Diluted earnings per share from continuing operations (€) | 6.34 | 7.92 | |
| Diluted earnings per share from discontinued operations (€) | 1.93 | 2.28 | |
| Diluted earnings per share (€) | (F10) | 8.27 | 10.19 |
The comparative figures of revenue from non-core activities and costs of goods sold have been restated for an amount of € 93 million, following a change in the presentation of revenues from non-core activities.
Moreover, in the 2017 Annual Report, commercial and administrative costs were presented in aggregate.
| In € million | Notes | 2018 | 2017 |
|---|---|---|---|
| Profit for the year | 897 | 1,116 | |
| Other comprehensive income | |||
| Recyclable components | |||
| Gains and losses on available-for-sale financial assets | (F11) | (1) | |
| Gains and losses on hedging instruments in a cash flow hedge | (F11) | (47) | 15 |
| Currency translation differences – Subsidiaries and joint operations | (F11) | 255 | (790) |
| Currency translation differences – Associates and joint ventures | (F11) | (34) | (40) |
| Non recyclable components | |||
| Gains and losses on equity instruments measured at fair value through other comprehensive income |
(F11) | 3 | |
| Remeasurements of the net defined benefit liability | (F11) | 26 | 95 |
| Income tax relating to recyclable and non recyclable components | (F11) | 1 | 37 |
| Other comprehensive income, net of related tax effects | (F11) | 204 | (684) |
| Comprehensive income for the year | 1,101 | 433 | |
| attributable to: | |||
| Solvay share | 1,058 | 412 | |
| non-controlling interests | 43 | 20 |
The amounts below include both continued and discontinued operations.
| In € million | Notes | 2018 | 2017 |
|---|---|---|---|
| Profit for the year | 897 | 1,116 | |
| Adjustments to profit for the year | |||
| Depreciation, amortization and impairments | (F12) | 944 | 1,152 |
| Earnings from associates and joint ventures | (F25) | (44) | (44) |
| Other non operating and non cash items | (F13) | (12) | (179) |
| Additions and reversals of provisions | (F16) | 315 | 216 |
| Net financial charges | 198 | 302 | |
| Income tax expense/income | (F14) | 175 | (131) |
| Changes in working capital | (F15) | (148) | (216) |
| Use of provisions | (F16) | (395) | (408) |
| Dividends received from associates and joint ventures | (F25) | 25 | 18 |
| Income taxes paid (including income taxes paid on sale of investments) | (F14) | (235) | (237) |
| Cash flow from operating activities | 1,720 | 1,590 | |
| of which cash flow related to acquisition or sale of subsidiaries and excluded from Free Cash Flow |
(36) | ||
| Acquisition (–) of subsidiaries | (F17) | (12) | (44) |
| Acquisition (–) of investments – Other | (F17) | (4) | (11) |
| Loans to associates and non-consolidated companies | (3) | (7) | |
| Sale (+) of subsidiaries and investments | (F17) | 26 | 891 |
| Acquisition (–) of property, plant and equipment | (F17) | (691) | (707) |
| of which capital expenditures required by share sale agreement and excluded from Free Cash Flow |
(38) | (12) | |
| Acquisition (–) of intangible assets | (F17) | (142) | (115) |
| Sale (+) of property, plant and equipment and intangible assets | (F17) | 42 | 75 |
| of which cash flow related to the sale of real estate in the context of restructuring/dismantling/remediation |
9 | 12 | |
| Dividends from equity instruments measured at fair value through other comprehensive income |
2 | ||
| Changes in non-current financial assets | (1) | ||
| Cash flow from investing activities | (784) | 84 | |
| Proceeds from perpetual hybrid bond issuance | (F31) | 298 | |
| Acquisition (–)/sale (+) of treasury shares | (F33) | (22) | (14) |
| Increase in borrowings | (F36) | 2,444 | 1,692 |
| Repayment of borrowings | (F36) | (2,993) | (2,584) |
| Changes in other current financial assets | (F36) | (25) | (27) |
| Interests paid | (114) | (255) | |
| Coupons paid on perpetual hybrid bonds | (F31) | (111) | (111) |
| Dividends paid | (411) | (396) | |
| Other | (F18) | 123 | 13 |
| Cash flow from financing activities | (811) | (1,684) | |
| Net change in cash and cash equivalents | 126 | (10) | |
| Currency translation differences | (14) | (52) | |
| Opening cash balance | 992 | 1,054 | |
| Closing cash balance | (F36) | 1,103 | 992 |
| In € million | Notes | 2018 | 2017 |
|---|---|---|---|
| Cash flow from operating activities | 244 | 183 | |
| Cash flow from investing activities | (122) | (105) | |
| Cash flow from financing activities | (1) | (1) | |
| Net change in cash and cash equivalents | (F19) | 120 | 77 |
The cash flow from investing activities of discontinued operations excludes the proceeds linked to the divestments of Acetow and Emerging Biochemicals in 2017.
| In € million | Notes | 2018 | 2017 |
|---|---|---|---|
| ASSETS | |||
| Intangible assets | (F20) | 2,861 | 2,940 |
| Goodwill | (F21) | 5,173 | 5,042 |
| Property, plant and equipment | (F22) | 5,454 | 5,433 |
| Equity instruments measured at fair value through other comprehensive income(1) |
(F35) | 51 | 44 |
| Investments in associates and joint ventures | (F25) | 441 | 466 |
| Other investments | (F26) | 41 | 47 |
| Deferred tax assets | (F7) | 1,123 | 1,076 |
| Loans and other assets | (F35) | 282 | 346 |
| Non-current assets | 15,427 | 15,394 | |
| Inventories | (F28) | 1,685 | 1,504 |
| Trade receivables | (F35) | 1,434 | 1,462 |
| Income tax receivables | 97 | 100 | |
| Other financial instruments | (F35) | 101 | 89 |
| Other receivables | (F29) | 719 | 627 |
| Cash and cash equivalents | (F36) | 1,103 | 992 |
| Assets held for sale | (F30) | 1,434 | 1,284 |
| Current assets | 6,574 | 6,057 | |
| Total assets | 22,000 | 21,451 | |
| EQUITY & LIABILITIES | |||
| Share capital | (F31) | 1,588 | 1,588 |
| Reserves | 8,920 | 8,051 | |
| Non-controlling interests | (F32) | 117 | 113 |
| Total equity | 10,624 | 9,752 | |
| Provisions for employee benefits | (F34) | 2,672 | 2,816 |
| Other provisions | (F34) | 883 | 793 |
| Deferred tax liabilities | (F7) | 618 | 600 |
| Financial debt | (F36) | 3,180 | 3,182 |
| Other liabilities | 121 | 180 | |
| Non-current liabilities | 7,474 | 7,571 | |
| Other provisions | (F34) | 281 | 281 |
| Financial debt | (F36) | 630 | 1,044 |
| Trade payables | (F35) | 1,439 | 1,330 |
| Income tax payables | 114 | 129 | |
| Dividends payables | 154 | 147 | |
| Other liabilities | (F37) | 850 | 848 |
| Liabilities associated with assets held for sale | (F30) | 435 | 349 |
| Current liabilities | 3,902 | 4,128 | |
| Total equity & liabilities | 22,000 | 21,451 |
(1) Label has been changed from "Available-for-sale financial assets" to "Equity instruments measured at fair value through other comprehensive income" following IFRS 9 application. Comparative figures are identical to those published in the 2017 Annual Report.
| Equity attributable to equity holders of the parent | |||||
|---|---|---|---|---|---|
| Notes | Share capital | Share premiums | Treasury shares | Perpetual hybrid bonds |
Retained earnings |
| 1,588 | 1,170 | (274) | 2,188 | 5,899 | |
| 1,061 | |||||
| (F11) | 0 | ||||
| 1,061 | |||||
| 10 | |||||
| (363) | |||||
| (111) | |||||
| (7) | (7) | ||||
| (34) | |||||
| 1,588 | 1,170 | (281) | 2,188 | 6,454 | |
| (5) | |||||
| 1,588 | 1,170 | (281) | 2,188 | 6,449 | |
| 858 | |||||
| (F11) | 0 | ||||
| 858 | |||||
| (F31) | 298 | ||||
| 9 | |||||
| (378) | |||||
| (111) | |||||
| (18) | (4) | ||||
| 11 | |||||
| 1,588 | 1,170 | (299) | 2,486 | 6,834 | |
(1) Label has been changed from "Available-for-sale financial assets" to "Equity instruments measured at fair value through other comprehensive income" following IFRS 9 application. Comparative figures are similar to those published in the 2017 Annual Report.
In 2017 the € (117) million reduction in equity related mainly to non-controlling interest following the completion of the Emerging Biochemicals divestment.
| Revaluation reserve (fair value) |
||||||
|---|---|---|---|---|---|---|
| Currency trans lation differences |
Equity instru ments measured at FVOCI(1) |
Cash flow hedges | Defined benefit pension plan |
Total reserves | Non-controlling interests |
Total equity |
| (39) | 8 | (5) | (828) | 8,117 | 250 | 9,956 |
| 1,061 | 56 | 1,116 | ||||
| (795) | (3) | 22 | 128 | (648) | (35) | (684) |
| (795) | (3) | 22 | 128 | 412 | 20 | 433 |
| 10 | 10 | |||||
| (363) | (41) | (404) | ||||
| (111) | (111) | |||||
| (14) | (14) | |||||
| 0 | 34 | 1 | (117) | (116) | ||
| (834) | 5 | 16 | (665) | 8,051 | 113 | 9,752 |
| (5) | (5) | |||||
| (834) | 5 | 16 | (665) | 8,046 | 113 | 9,747 |
| 858 | 39 | 897 | ||||
| 217 | 4 | (42) | 22 | 200 | 4 | 204 |
| 217 | 4 | (42) | 22 | 1,058 | 43 | 1,101 |
| 298 | 298 | |||||
| 9 | 9 | |||||
| (378) | (40) | (418) | ||||
| (111) | (111) | |||||
| (22) | (22) | |||||
| 0 | 8 | 19 | 1 | 19 | ||
| (618) | 9 | (26) | (635) | 8,920 | 117 | 10,624 |
IFRS general accounting policies
This information was prepared in accordance with European Regulation (EC) 1606/2002 on the application of international accounting standards dated July 19, 2002. The Group's consolidated financial statements for the year ended December 31, 2018 were prepared in accordance with IFRS (International Financial Reporting Standards) as published by the International Accounting Standards Board (IASB), and endorsed by the European Union.
The accounting standards applied in the consolidated financial statements for the year ended December 31, 2018 are consistent with those used to prepare the consolidated financial statements for the year ended December 31, 2017, except for the adoption of new Standards effective as of January 1, 2018, which are discussed hereinafter. The Group has not early adopted any other Standard, interpretation or amendment that has been issued but is not yet effective.
As of January 1, 2018, the Group applied, for the first time, IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers.
As from January 1, 2018, the Group no longer applies IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 is applicable for annual periods beginning on or after January 1, 2018, and brings together all three aspects of the accounting for financial instruments: classification and measurement, impairment, and hedge accounting. Except for hedge accounting, retrospective application is required, but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.
The Group adopted IFRS 9 on January 1, 2018, and did not restate comparative information.
Overall, there is no significant impact on the Group's statement of financial position and equity. The Group observed an increase in the loss allowance resulting in a negative impact on equity as discussed below. In addition, the Group has implemented changes in classification of certain financial instruments.
IFRS 9 requires the Group to recognize expected credit losses on all of its trade receivables: the Group applies the simplified approach and recognizes lifetime expected losses on all trade receivables, using the provision matrix in order to calculate the lifetime expected credit losses for trade receivables as required by IFRS 9, using historical information on defaults adjusted for the forward looking information. Impacts related to debt securities, loans, financial guarantees, and loan commitments provided to third parties, as well as cash and cash equivalents, are immaterial. The impact on the trade receivable allowances is as follows, while the impact on the Group's equity (net of deferred taxes of € 1 million) amounts to € (5) million:
| Allowances on | |
|---|---|
| trade receivable |
|
| Carrying amount as of December 31, 2017 – IAS 39 | (49) |
| Remeasurement – From incurred to expected loss model | (6) |
| Carrying amount as of January 1, 2018 – IFRS 9 | (55) |
The application of the classification and measurement requirements of IFRS 9 does not have a significant impact on the Group's consolidated statement of financial position or equity. It will continue measuring at fair value all financial assets previously held at fair value. The equity shares in non-listed companies, previously presented as available-for-sale financial assets, are intended to be held for the foreseeable future. The Group applies the option to present fair value changes in OCI, and therefore the application of IFRS 9 does not have a significant impact. The fair value gains or losses accumulated in OCI will no longer be subsequently reclassified to profit or loss, which is different from the previous treatment. Loans as well as trade receivables are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. Thus, the Group will continue to measure those financial assets at amortized cost under IFRS 9. The effect of applying IFRS 9's classification and measurement requirements on financial assets is as follows:
| IAS 39 December 31, 2017 |
Transition to IFRS 9 | IFRS 9 January 1, 2018 |
At date of transition |
||
|---|---|---|---|---|---|
| Carrying amount |
Reclassifications | Remeasure ments |
Carrying amount |
Impact on retained earnings(1) |
|
| Loans and receivables (including cash and cash equivalents, trade receivables, loans and other current and non-current assets except pension fund surpluses) |
2,870 | (2,870) | |||
| Financial assets measured at amortized cost | 2,870 | (6) | 2,864 | (5) | |
| Available-for-sale financial assets | 44 | (44) | |||
| Equity instruments measured at fair value through other comprehensive income |
44 | 44 |
(1) Net of deferred tax assets
Regarding financial liabilities, the Group did not make any reclassifications or remeasurements.
In accordance with IFRS 9's transition provisions for hedge accounting, the Group applies the IFRS 9 hedge accounting requirements prospectively from the date of initial application on January 1, 2018. The Group's qualifying hedging relationships in accordance with IAS 39 in place as at January 1, 2018 also qualify for hedge accounting in accordance with IFRS 9 and were therefore regarded as continuing hedging relationships. No rebalancing of any of the hedging relationships was necessary on January 1, 2018.
Further details are provided in note F35 Financial instruments and financial risk management.
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other Standards. The new Standard establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which the Group expects to be entitled in exchange for transferring goods or services to a customer.
The Group adopted IFRS 15 on January 1, 2018, using the modified retrospective approach.
As the Group is in the business of selling chemicals, contracts with customers generally concern the sale of goods. As a result, revenue recognition generally occurs at a point in time when control of the chemicals is transferred to the customer, generally on delivery of the goods.
The revenue of the Group consists mainly of sales of chemicals, which qualify as separate performance obligations. Value-added services – mainly customer assistance services – corresponding to Solvay's know-how are rendered predominantly over the period that the corresponding goods are sold to the customer. At transition date, the Group did not have a more than insignificant adjustment compared to its previous practice.
Some contracts with customers provide trade discounts or volume rebates. In accordance with IAS 18, the Group recognized revenue from the sale of goods measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts, and volume rebates. Trade discounts and volume rebates give rise to variable consideration under IFRS 15, and are required to be estimated at contract inception. IFRS 15 requires the estimated variable consideration to be constrained to prevent overstatement of revenue. The Group assessed individual contracts to determine the estimated variable consideration and related constraints. At transition date, the Group did not have a more than insignificant adjustment compared to its previous practice on its retained earnings.
The Group sells its chemicals to its customers, (a) directly, (b) through distributors, and (c) with the assistance of agents. The Group analyzed whether the moment control of the goods passes, as described in IFRS 15, would result in a different moment to recognize the revenue. At transition date, the Group did not have a more than insignificant adjustment compared to its previous practice.
IFRS 15 provides presentation and disclosure requirements, which are more detailed than under previous IFRSs. The presentation requirements represent a change from previous practice and increase the volume of disclosures required in the Group's financial statements. The Group has analyzed those disclosure requirements, including the need for policies, procedures, and internal controls necessary to collect and disclose the required information.
Further details are provided in note F1 Revenue and segment information.
IFRS 16 sets out the principles for the recognition, measurement, presentation, and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model, similar to the accounting for finance leases under IAS 17. At the commencement date of a lease, lessees will recognize a lease liability (i.e. a liability to make lease payments), and a right-of-use asset (i.e. an asset representing the right to use the underlying asset over the lease term). The right-of-use asset will be depreciated over the term of the lease, unless the lease transfers ownership of the underlying asset to Solvay at the end of the lease. In latter case, it will be depreciated over the useful life of the underlying asset. Interest expense will be recognized on the lease liability. The lease liability will be remeasured upon the occurrence of certain events (e.g. a change in the lease term or a change in future lease payments resulting from a change in index). Such remeasurements of the lease liability will generally be recognized as an adjustment to the right-of-use asset. Lessor accounting under IFRS 16 Leases is substantially unchanged from previous accounting under IAS 17 Leases. Finally, disclosure requirements under IFRS 16 Leases are more extensive when compared with IAS 17 Leases.
In 2018, as part of its preparation of IFRS 16 Leases, the Group continued its implementation efforts and undertook an extensive review of its operating lease contracts, challenging the noncancellable period of the leases, especially with respect to buildings. It developed processes, IT tools, and internal controls so to ensure IFRS 16 compliance.
The Group will apply IFRS 16, using the modified retrospective approach and will exclude services from its lease liabilities. On January 1, 2019, the right-of-use assets was measured at an amount equal to the respective lease liabilities, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the consolidated statement of financial position immediately before January 1, 2019.
The Group used the practical expedient available on transition to IFRS 16 related to onerous contracts, adjusting the right-ofuse assets at January 1, 2019 by the amount of any provision for onerous leases recognized in the consolidated statement of financial position immediately before January 1, 2019. Such positively impacted the retained earnings as of January 1, 2019 by € 8 million.
It also used the practical expedient not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to apply to those leases entered into or modified before January 1, 2019. However, the new definition in IFRS 16 will not significantly change the scope of contracts that meet the definition of a lease for the Group.
As of January 1, 2019, lease liabilities recognized in accordance with IFRS 16 Leases amount to € 433 million (excluding those that are part of liabilities associated with non-current assets held for sale, in this case Polyamides). Leased assets relate mainly to buildings, transportation equipment, and industrial equipment. The expected repayments of operating lease liabilities during 2019, which will no longer be recognized as an operating lease expense as was the case in accordance with IAS 17 Leases but rather as a repayment of lease liabilities, amount to € 95 million. Depreciation and finance expense in 2019 are expected to increase by € 94 million and € 16 million respectively. See note F23 Leases for more information on existing operating leases.
No significant impacts are expected where the Group is currently a lessee under a finance lease, or where the Group is currently a lessor.
The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes and does not apply to taxes or levies outside the scope of IAS 12 Income Taxes, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The interpretation specifically addresses the following:
An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after January 1, 2019, but certain transition reliefs are available. The Group applies the interpretation since its effective date, but did not identify a more than immaterial impact on its consolidated financial statements, including presentation.
Other standards, interpretations and amendments applicable for the first time in 2019 are not expected to have a material impact on the Group's consolidated financial statements.
Other Standards, interpretations, and amendments applicable for the first time after 2019 are not expected to have a more than insignificant impact on the Group's consolidated financial statements.
The consolidated financial statements are presented in millions of euros, which is also the functional currency of the parent company.
The preparation of the financial statements requires the use of estimates and assumptions that have an impact on the application of accounting policies and the measurement of amounts recognized in the financial statements. The areas for which the estimates and assumptions are material with respect to the consolidated financial statements are presented in the section Critical accounting judgments and key sources of estimation uncertainty.
The consolidated financial statements incorporate the financial statements of the Company, and:
Where necessary, adjustments are made to the financial statements of the investees so as to align their accounting policies with those of the Group.
In accordance with the principle of materiality, certain companies which are not of a significant size have not been included in the consolidation scope. Companies are deemed not to be significant when, during two consecutive years, they do not exceed any of the three following thresholds in terms of their contribution to the Group's accounts:
Companies that do not meet these criteria are, nevertheless, consolidated where the Group believes that they have a potential for rapid development, or where they hold shares in other companies that are consolidated based on the above criteria.
In the aggregate, the non-consolidated companies have an immaterial impact on the consolidated financial statements of the Group.
The full list of companies can be obtained at the Company's head office.
A subsidiary is an entity over which the Group has control. Control is achieved when the Group has (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor's returns. To assess whether the Group has control, potential voting rights are taken into account. Subsidiaries are fully consolidated. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition and up to the effective date of disposal.
Intra-group transactions, balances, income, and expenses are eliminated on consolidation.
Non-controlling interests in subsidiaries are presented separately from the Group's equity. Non-controlling interests are initially measured, either at fair value (full goodwill method), or at the non-controlling interests' proportionate share in the recognized amounts of the acquiree's identifiable net assets (proportionate goodwill method). The choice of measurement is made on an acquisition-by-acquisition basis. Subsequent to the acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.
Changes in the Group's equity interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity.
When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest, and (ii) the previous carrying amount of the assets (including goodwill) and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognized in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is considered to be the fair value on initial recognition for subsequent accounting in accordance with IFRS 9 Financial Instruments or, when applicable, the cost on initial recognition of an investment in an associate or joint venture in accordance with IAS 28 Investments in Associates and Joint Ventures.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about relevant activities require the unanimous consent of the parties sharing control. In its consolidated financial statements, the Group recognizes its share of the joint operations' assets, liabilities, revenue, and expenses, based on its ownership interest in the joint operations.
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint arrangement. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about relevant activities require the unanimous consent of the parties sharing control.
The results, assets, and liabilities of associates and joint ventures are incorporated in the consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, on initial recognition, investments in associates and joint ventures are recognized in the consolidated statement of financial position at cost, and the carrying amount is adjusted for post-acquisition changes in the Group's share of the net assets of the associate or joint venture, less any impairment of the value of individual investments. Losses of an associate or joint venture in excess of the Group's interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate or joint venture) are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.
Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets and (contingent) liabilities of the associate or joint venture recognized at the date of acquisition is goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment.
Where a Group entity transacts with an associate or joint venture of the Group, gains and losses are eliminated to the extent of the Group's interest in the relevant associate or joint venture.
The individual financial statements of each Group entity are prepared in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group entity are expressed in euros (EUR), which is the presentation currency of the Group's consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entities' functional currency are recognized at the exchange rates prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the closing rate. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rate when the fair value was measured. Non-monetary items that are measured in terms of historical cost in a foreign currency are not translated at the closing rate.
Exchange differences are recognized in profit or loss in the period in which they arise except for:
| Year-end rate | Average rate | ||||
|---|---|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 | ||
| 1 Euro = | |||||
| Brazilian Real | BRL | 4.4399 | 3.9789 | 4.3073 | 3.6050 |
| Yuan Renminbi | CNY | 7.8650 | 7.8112 | 7.8064 | 7.6278 |
| Pound Sterling | GBP | 0.8949 | 0.8875 | 0.8847 | 0.8766 |
| Indian Rupee | INR | 79.9766 | 76.5611 | 80.7322 | 73.5188 |
| Japanese Yen | JPY | 125.8730 | 135.0098 | 130.3953 | 126.6917 |
| Korean Won | KRW | 1,278.2047 | 1,284.1248 | 1,298.8877 | 1,276.6749 |
| Mexican Peso | MXN | 22.5201 | 23.6551 | 22.7042 | 21.3273 |
| Russian Ruble | RUB | 79.7633 | 69.4061 | 74.0579 | 65.9317 |
| US Dollar | USD | 1.1456 | 1.1995 | 1.1809 | 1.1294 |
The main exchange rates used are:
Government grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.
Government grants relating to the purchase of property, plant, and equipment are deducted from the cost of those assets. They are recognized in the consolidated statement of financial position at their expected value at the moment of initial recognition. The grant is recognized in profit or loss over the depreciation period of the underlying assets as a reduction of depreciation expense.
Other government grants are recognized as income on a systematic basis over the periods in which the related costs, which they are intended to compensate, are recognized. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future-related costs are recognized in profit or loss in the period in which they become receivable.
Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Amongst other conditions, management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. However, in some cases, an asset may remain classified as held for sale for a period exceeding one year if it remains unsold due to events or circumstances beyond the Group's control.
On September 19, 2017, Solvay announced that it had entered into a binding agreement with German chemical company BASF for the sale of its Polyamides business. In this context, management concluded that the conditions to classify the business as held for sale and as a discontinued operation were met as of that date. In particular, management considers the Polyamides business as a separate major line of business and expects the transaction to be completed during the second half of 2019.
Under the proposed terms of the agreement, the transaction is based on an enterprise value of € 1.6 billion. The expected net cash proceeds are estimated to be around € 1.1 billion. As a result of the discontinuation, the retained Latin American polyamide business incurred an impairment of € (91) million recognized at the end of September 2017. This impairment is expected to be more than compensated by the capital gain on the transaction at the closing.
Further details are provided in note F30 Assets held for sale.
The Group performs annual impairment tests on (groups of) CGUs to which goodwill has been allocated, and each time there are indicators that their carrying amount might be higher than their recoverable amount. This analysis requires management to estimate the future cash flows expected to be generated by the CGUs and a suitable discount rate in order to calculate present value.
Further details are provided in note F27 Impairment of property, plant and equipment, intangible assets, and equity method investees.
The carrying amount of the deferred tax assets is reviewed at each reporting date. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that the Group will earn sufficient taxable profits against which the deductions can be utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.
Deferred tax assets other than tax loss carryforwards are analyzed on a case-by-case basis, taking into account all relevant facts and circumstances. For example, a zero taxable profit, after deducting the amounts paid to retirees under a defined benefit plan and for which a deductible temporary difference existed, can justify the recognition of the underlying deferred tax assets.
Recognition of deferred tax assets for tax loss carryforwards requires a positive taxable profit during the year that enables the utilization of tax losses that originated in the past. Because of uncertainties inherent to predicting such positive taxable profit, recognition of deferred tax assets from tax loss carryforwards is based on a case-by-case analysis, which is usually based on five-year profit forecasts, except with respect to any financial company for which ten-year financial profit forecasts are considered highly predictable and are consequently used.
The corporate tax reporting team, which has the overview of the Group deferred tax positions, is involved in assessing deferred tax assets.
Further details are provided in note F7.B. Deferred taxes in the consolidation statement of financial position.
The enactment of the tax reform in the United States at the end of 2017 necessitated key estimates in the 2017 financial reporting. These estimates were reviewed when needed with no material impact except for the partial reversal of the onetime transitional tax on unremitted earnings accrued in 2017 (€ 31 million), resulting from the move from a global to a territorial taxation system.
New guidance issued by the Internal Revenue Service ("IRS") relating to the US tax reform could be issued in 2019 and trigger a review, if applicable to the Group, of some estimates at yearend 2018.
Further details are provided in note F7.B. Deferred taxes in the consolidation statement of financial position.
On March 29, 2018, Solvay announced it is taking a new step in its transformation, putting its customers at the core of its organization to enhance its long-term growth as an advanced materials and specialty chemicals company. In connection with the announced transformation, a restructuring provision has been recognized, with a net profit or loss impact of € (177) million. The estimate of the provision is based on the number and the cost of redundancy and relocation packages that the Group expects to pay. It is inherently subject to uncertainty and is monitored by the Human Resources department, in close cooperation with the Finance department.
The actuarial assumptions used in determining the defined benefit obligations at December 31, as well as the annual cost, can be found in note F34 Provisions. All main employee benefits plans are assessed annually by independent actuaries. Discount rates and inflation rates are defined centrally by management. The other assumptions (such as future salary increases and expected rates of medical care cost increases) are defined at a local level. All plans are supervised by the Group's central Human Resources department with the help of a central actuary to check the reasonableness of the results and ensure consistency in reporting.
Further details are provided in note F34.A. Provisions for employee benefits.
On October 26, 2018, the High Court in the United Kingdom issued its long-awaited judgment as to whether GMP benefits had to be equalized between men and women and, if so, how this could be achieved. The High Court judged that the equalization applied only for the period 1990-1997, consistent with the European Court ruling in 1990 that occupational pension plans were required to treat men and women equally. In 1997 GMP was abandoned. As there is no unique method on how to equalize GMPs for men and women following this judgment, together with their actuaries, entities in the United Kingdom are currently assessing how to apply this decision.
Based on preliminary estimates, in line with advice from its external actuaries, the best estimate of the impact on Solvay's defined benefit obligations amounts to € (16) million, and has been recognized in IFRS operating expenses. Any future changes to the calculations will be considered actuarial gains and losses.
Environmental provisions are managed and coordinated jointly by the Environmental Rehabilitation department and the Finance department. In the case of environmental impacts stemming from historical production activities, generally no provision is recognized for remediation works beyond 20 years due to the inherent high level of uncertainty as to whether there will be any obligation after the lapse of this period.
The forecasts of expenses are discounted to their present value. The discount rates fixed by geographical area correspond to the average risk-free rate on 10-year government bonds. These rates are set annually by the Finance department and can be revised based on the evolution of economic parameters of the country involved. To reflect the passage of time, the provisions are increased each year at the discount rates described above.
Further details are provided in note F34.B. Provisions other than for employee benefits.
Any significant litigation (tax and other, including threat of litigation) is reviewed by Solvay's in-house lawyers with the support, when appropriate, of external counsels at least every quarter. This review includes an assessment of the need to recognize provisions and/or remeasure existing provisions together with the Finance department and the Insurance department.
Further details are provided in note F34.B. Provisions other than for employee benefits.
Besides IFRS accounts, the Group also presents underlying income statement performance indicators. The objective is to generate a measure that avoids distortion and facilitates the appreciation of performance and comparability of results over time.
See Glossary for definitions of adjustments (IFRS vs Underlying metrics) and Business Review for more information and reconciliation with IFRS figures.
Preliminary comment: consistent with the presentation in the consolidated income statement, the notes to the consolidated income statement as presented hereinafter do not include the consolidated income statement impacts from discontinued operations that are presented on a separate line. Those are disclosed in note F8 Discontinued operations.
As explained in the basis of preparation, the Group adopted IFRS 15 on January 1, 2018 using the modified retrospective approach. Hereinafter are disclosed the accounting policies applied in 2018 (IFRS 15 Revenue from Contracts with Customers). For accounting policies applied in 2017 (IAS 18 Revenue), reference is made to the 2017 Annual Report. Transition impacts have been discussed in the Basis of preparation.
IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers:
Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which the Group expects to be entitled in exchange for transferring goods or services to a customer.
Sale of goods: Contracts can be short-term (including those based only on a purchase order) or long-term, some have minimum off-take requirements. As the Group is in the business of selling chemicals, contracts with customers generally concern the sale of goods. As a result, revenue recognition generally occurs at a point in time when control of the chemicals is transferred to the customer, generally on delivery of the goods.
Distinct elements: a good or service that is promised to a customer is distinct if both of the following criteria are met: (a) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e. the good or service is capable of being distinct); and (b) the Group's promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e. the promise to transfer the good or service is distinct within the context of the contract).
The revenue of the Group consists mainly of sales of chemicals, which qualify as separate performance obligations. Value-added services – mainly customer assistance services – corresponding to Solvay's know-how are rendered predominantly over the period that the corresponding goods are sold to the customer.
Variable consideration: some contracts with customers provide trade discounts or volume rebates. Trade discounts and volume rebates give rise to variable consideration under IFRS 15, and are required to be estimated at contract inception and subsequently at each reporting date. IFRS 15 requires the estimated variable consideration to be constrained to prevent overstatement of revenue.
Moment of recognition of revenue: revenue is recognized when (or as) the Group satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset. Substantially all revenue stems from performance obligations satisfied at a point in time, i.e. the sale of goods. Revenue recognition for those takes into account the following:
The Group sells its chemicals to its customers, (a) directly, (b) through distributors, and (c) with the assistance of agents. When the Group delivers a product to distributors for sale to end customers, the Group evaluates whether that distributor has obtained control of the product at that point in time. No revenue is recognized upon delivery of a product to a customer or distributor if the delivered product is held on consignment. Indicators of consignment inventory include:
Agents facilitate sales and do not purchase and resell the goods to the end customer.
Products sold to customers generally cannot be returned, other than for performance deficiencies. Customer acceptance clauses are in many cases a formality that would not affect the Group's determination of when the customer has obtained control of the goods.
Revenue from services is recognized in the period in which those services were rendered.
Warranties: warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Substantially all warranties do not provide the customer with a service in addition to the assurance that the product complies with agreed-upon specifications, and are hence accounted for in accordance with IAS 37 Provisions, Contingent Liabilities, and Contingent Assets.
An Operating Segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker, and for which discrete financial information is available. The Solvay Group's chief operating decision maker is the Chief Executive Officer.
Solvay is organized into four Operating Segments:
See the Business Review for more information on Operating Segments and GBUs figures.
| In € million | 2018 | 2017 |
|---|---|---|
| Advanced Materials | 4,385 | 4,370 |
| Specialty Polymers | 2,009 | 2,025 |
| Composite Materials | 1,082 | 1,038 |
| Silica | 442 | 443 |
| Special Chem | 852 | 865 |
| Advanced Formulations | 3,057 | 2,966 |
| Novecare | 2,000 | 1,937 |
| Technology Solutions | 643 | 662 |
| Aroma Performance | 414 | 366 |
| Performance Chemicals | 2,808 | 2,766 |
| Soda Ash & Derivatives | 1,562 | 1,629 |
| Peroxides | 654 | 600 |
| Coatis | 509 | 410 |
| Functional Polymers | 82 | 126 |
| Corporate & Business Services | 7 | 23 |
| CBS and NBD | 7 | 23 |
| Total | 10,257 | 10,125 |
Sales by market are presented in the Business Review, see note B1.
The sales disclosed below are allocated based on the customers' location.
| In € million | 2018 | % | 2017 | % |
|---|---|---|---|---|
| Belgium | 153 | 1% | 156 | 2% |
| Germany | 727 | 7% | 716 | 7% |
| Italy | 444 | 4% | 444 | 4% |
| France | 402 | 4% | 383 | 4% |
| Netherlands | 105 | 1% | 112 | 1% |
| United Kingdom | 279 | 3% | 303 | 3% |
| Spain | 191 | 2% | 210 | 2% |
| European Union – other | 501 | 5% | 478 | 5% |
| European Union | 2,802 | 27% | 2,803 | 28% |
| Europe – Other | 103 | 1% | 98 | 1% |
| United States | 3,001 | 29% | 2,921 | 29% |
| Canada | 160 | 2% | 159 | 2% |
| North America | 3,161 | 31% | 3,079 | 30% |
| Brazil | 681 | 7% | 709 | 7% |
| Mexico | 193 | 2% | 176 | 2% |
| Latin America – other | 234 | 2% | 200 | 2% |
| Latin America | 1,108 | 11% | 1,084 | 11% |
| Australia | 100 | 1% | 104 | 1% |
| China | 942 | 9% | 912 | 9% |
| Hong Kong | 77 | 1% | 108 | 1% |
| India | 191 | 2% | 170 | 2% |
| Indonesia | 105 | 1% | 104 | 1% |
| Japan | 357 | 3% | 365 | 4% |
| Russia | 62 | 1% | 79 | 1% |
| Saudi Arabia | 110 | 1% | 88 | 1% |
| South Korea | 279 | 3% | 264 | 3% |
| Thailand | 177 | 2% | 181 | 2% |
| Turkey | 73 | 1% | 65 | 1% |
| Other | 610 | 6% | 621 | 6% |
| Asia and rest of the world | 3,083 | 30% | 3,060 | 30% |
| Total | 10,257 | 100% | 10,125 | 100% |
| 2018 In € million Income statement items |
Advanced Formulations |
Advanced Materials |
Performance Chemicals |
Corporate & Business Services |
Group Total |
|---|---|---|---|---|---|
| Net sales (including the inter-segment sales) | 3,060 | 4,386 | 2,831 | 7 | 10,283 |
| Inter-segment sales | (3) | (23) | (26) | ||
| Net sales | 3,057 | 4,385 | 2,808 | 7 | 10,257 |
| Revenue from non-core activities | 19 | 33 | 312 | 678 | 1,042 |
| Gross margin | 787 | 1,474 | 737 | 37 | 3,035 |
| Depreciation and amortization | 264 | 435 | 198 | 47 | 944 |
| Earnings from associates and joint ventures | 5 | 10 | 27 | 1 | 44 |
| (1) Underlying EBITDA |
521 | 1,197 | 729 | (218) | 2,230 |
| EBIT | 986 | ||||
| Net financial charges | (195) | ||||
| Income taxes | (95) | ||||
| Profit for the year from discontinued operations | 201 | ||||
| Profit for the year | 897 |
(1) Underlying EBITDA is a key performance indicator followed by management and includes other elements than those presented above (see Business Review section – 5. Reconciliation of underlying with IFRS figures).
| 2018 In € million Statement of financial position and other items |
Advanced Formulations |
Advanced Materials |
Performance Chemicals |
Corporate & Business Services |
Group Total |
|---|---|---|---|---|---|
| Capital expenditures (continuing operations) | 148 | 355 | 149 | 58 | 711 |
| Capital expenditures (discontinued operations) | 122 | 122 | |||
| Investments (continuing operations) | 12 | 4 | 16 | ||
| Working capital | |||||
| Inventories | 446 | 900 | 326 | 13 | 1,685 |
| Trade receivables | 396 | 535 | 482 | 21 | 1,434 |
| Trade payables | 345 | 437 | 381 | 275 | 1,439 |
Capital expenditures relate to property, plant, and equipment and to intangible assets.
Investments include acquisitions of subsidiaries and other investments (joint operations, joint ventures, and associates).
| 2017 | Corporate & | ||||
|---|---|---|---|---|---|
| In € million | Advanced | Advanced | Performance | Business | |
| Income statement items | Formulations | Materials | Chemicals | Services | Group Total |
| Net sales (including the inter-segment sales) | 2,972 | 4,371 | 2,797 | 23 | 10,163 |
| Inter-segment sales | (6) | (2) | (31) | (38) | |
| Net sales | 2,966 | 4,370 | 2,766 | 23 | 10,125 |
| Revenue from non-core activities | 26 | 47 | 159 | 627 | 859 |
| Gross margin | 764 | 1,514 | 761 | 46 | 3,086 |
| Depreciation and amortization | 280 | 432 | 263 | 79 | 1,054 |
| Earnings from associates and joint ventures | 8 | 10 | 27 | 44 | |
| (1) Underlying EBITDA |
524 | 1,202 | 749 | (244) | 2,230 |
| EBIT | 976 | ||||
| Net financial charges | (298) | ||||
| Income taxes | 197 | ||||
| Profit for the year from discontinued operations | 241 | ||||
| Profit for the year | 1,116 |
(1) Underlying EBITDA is a key performance indicator followed by management and includes other elements than those presented above (see Business Review section – 5. Reconciliation of underlying with IFRS figures).
| 2017 In € million Statement of financial position and other items |
Advanced Formulations |
Advanced Materials |
Performance Chemicals |
Corporate & Business Services |
Group Total |
|---|---|---|---|---|---|
| Capital expenditures (continuing operations) | 130 | 366 | 152 | 68 | 716 |
| Capital expenditures (discontinued operations) | 105 | 105 | |||
| Investments (continuing operations) | 28 | 28 | 56 | ||
| Working capital | |||||
| Inventories | 403 | 802 | 288 | 10 | 1,504 |
| Trade receivables | 410 | 546 | 430 | 76 | 1,462 |
| Trade payables | 327 | 411 | 324 | 268 | 1,330 |
Capital expenditures relate to property, plant, and equipment and to intangible assets.
Investments include acquisitions of subsidiaries and other investments (joint operations, joint ventures, and associates).
| Non-current assets | Capital expenditures and investments | |||||||
|---|---|---|---|---|---|---|---|---|
| In € million | 2018 | % | 2017 | % | 2018 | % | 2017 | % |
| Belgium | 304 | 2% | 376 | 3% | (51) | 7% | (24) | 3% |
| Germany | 402 | 3% | 413 | 3% | (33) | 5% | (41) | 5% |
| Italy | 581 | 4% | 592 | 4% | (74) | 10% | (87) | 11% |
| France | 2,906 | 21% | 2,875 | 21% | (111) | 15% | (124) | 16% |
| United Kingdom | 207 | 1% | 211 | 2% | (28) | 4% | (51) | 7% |
| Spain | 140 | 1% | 138 | 1% | (15) | 2% | (23) | 3% |
| European Union – other |
304 | 2% | 318 | 2% | (20) | 3% | (24) | 3% |
| European | ||||||||
| Union | 4,844 | 35% | 4,923 | 35% | (332) | 46% | (374) | 49% |
| Europe – other | 0% | 3 | 0% | 1 | 0% | 0% | ||
| United States | 7,239 | 52% | 7,057 | 51% | (249) | 34% | (265) | 34% |
| Canada | 176 | 1% | 180 | 1% | (11) | 2% | (8) | 1% |
| North America | 7,415 | 53% | 7,237 | 52% | (261) | 36% | (273) | 35% |
| Brazil | 256 | 2% | 257 | 2% | (30) | 4% | (27) | 3% |
| Latin America – other |
36 | 0% | 27 | 0% | (8) | 1% | (2) | 0% |
| Latin America | 292 | 2% | 284 | 2% | (38) | 5% | (29) | 4% |
| Russia | 168 | 1% | 187 | 1% | 0% | 0% | ||
| Thailand | 123 | 1% | 124 | 1% | (6) | 1% | (5) | 1% |
| China | 579 | 4% | 604 | 4% | (41) | 6% | (54) | 7% |
| South Korea | 123 | 1% | 135 | 1% | (8) | 1% | (12) | 2% |
| India | 234 | 2% | 214 | 2% | (35) | 5% | (18) | 2% |
| Singapore | 42 | 0% | 44 | 0% | (1) | 0% | (1) | 0% |
| Japan | 18 | 0% | 17 | 0% | (2) | 0% | (1) | 0% |
| Egypt | 0% | 4 | 0% | 0% | 0% | |||
| Other | 184 | 1% | 196 | 1% | (3) | 0% | (5) | 1% |
| Asia and rest of the world |
1,470 | 10% | 1,525 | 11% | (96) | 13% | (96) | 12% |
| Total | 14,022 | 100% | 13,971 | 100% | (727) | 100% | (772) | 100% |
Non-current assets are those other than deferred tax assets, loans, and other assets. Capital expenditures and investments include acquisitions of property, plant, and equipment, intangible assets, investments in subsidiaries and other investments (joint operations, joint ventures, and associates). Both exclude discontinued operations.
| In € million | Notes | 2018 | 2017 |
|---|---|---|---|
| Net sales | (F1) | 10,257 | 10,125 |
| Revenue from non-core activities | (F3) | 1,042 | 859 |
| Raw materials, utilities and consumables used | (5,344) | (4,984) | |
| Changes in inventories | 165 | 132 | |
| Personnel expenses | (2,229) | (2,275) | |
| Wages and direct social benefits | (1,634) | (1,621) | |
| Employer's contribution for social insurance | (307) | (313) | |
| Pensions and insurance benefits | (105) | (161) | |
| Other personnel expenses | (182) | (179) | |
| Amortization, depreciation and impairment | (F12) | (944) | (1,054) |
| Other variable logistics expenses | (716) | (658) | |
| Other fixed expenses | (923) | (980) | |
| Addition and reversal of provisions (excluding employee benefit | |||
| provisions) | (F31) | (263) | (93) |
| Operating lease expenses | (F24) | (101) | (94) |
| M&A costs and gains and losses on disposals | (F5) | (3) | (45) |
| Earnings from associates and joint ventures | (F25) | 44 | 44 |
| EBIT | 986 | 976 | |
| Cost of borrowings | (F6) | (131) | (172) |
| Interest on loans and short term deposits | (F6) | 13 | 15 |
| Other gains and losses on net indebtedness | (F6) | (1) | (44) |
| Cost of discounting provisions | (F6) | (77) | (97) |
| Profit for the year before taxes | 791 | 678 | |
| Income taxes | (F7) | (95) | 197 |
| Profit for the year from continuing operations | 697 | 875 | |
| Profit for the year from discontinued operations | (F8) | 201 | 241 |
| Profit for the year | (F9) | 897 | 1,116 |
| attributable to: | |||
| Solvay share | 858 | 1,061 | |
| non-controlling interests | 39 | 56 |
This revenue primarily comprises commodity and utility trading transactions and other revenue, considered not to correspond to Solvay's know-how and core business. The increase in 2018 is related mainly to increased sales of excess electricity to the grid following purchases from a new cogeneration unit in Italy.
| In € million | 2018 | 2017 |
|---|---|---|
| Start-up and preliminary study costs | (11) | (12) |
| Capital gains/losses on sales of property, plant and equipment and intangible assets | 22 | 19 |
| Net foreign exchange gains and losses | (4) | (9) |
| Amortization of intangible assets resulting from PPA | (197) | (206) |
| Cytec post-retirement medical obligations reduction | 24 | 37 |
| Other | 43 | 16 |
| Other operating gains and losses | (123) | (154) |
Results from portfolio management and reassessments include:
Results from legacy remediation and major litigations include:
| In € million | 2018 | 2017 |
|---|---|---|
| Restructuring costs and impairment | (205) | (143) |
| M&A costs and gains and losses on disposals | (3) | (45) |
| Results from portfolio management and reassessments | (208) | (188) |
| In € million | 2018 | 2017 |
|---|---|---|
| Major litigations | (25) | (16) |
| Remediation costs and other costs related to non-ongoing activities | (60) | (69) |
| Results from legacy remediation and major litigations | (86) | (84) |
In 2018: In 2017:
Interest on borrowings is recognized in costs of borrowings as incurred, with the exception of borrowing costs directly attributable to the acquisition, construction, and production of qualifying assets (see note F22 Property, Plant and Equipment).
Net foreign exchange gains or losses on financial items and changes in fair value of derivative financial instruments related to net indebtedness are presented in "Other gains and losses on net indebtedness", with the exception of changes in fair value of derivative financial instruments that are hedging instruments in a cash flow hedge relationship, and which are recognized on the same line as the hedged item, when the latter affects profit or loss.
| In € million | 2018 | 2017 |
|---|---|---|
| Cost of borrowings | (131) | (172) |
| Interest on loans and short term deposits | 13 | 15 |
| Other gains and losses on net indebtedness | (1) | (44) |
| Net cost of borrowings | (118) | (201) |
| Cost of discounting provisions | (74) | (89) |
| Impact of change of discount rate on provisions | (3) | (8) |
| Net financial charges | (194) | (298) |
Details are included in note F36 Net indebtedness.
The decrease of the net cost of borrowings is explained mainly by:
The decrease of cost of discounting provisions relates to postemployment benefits (€ 8 million) and to environmental provisions (€ 12 million) and is explained mainly by the evolution of the applicable discount rates (see also note F34 Provisions).
The current tax payable is based on taxable profit of the year. Taxable profit differs from profit as reported in the consolidated income statement because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is recognized for temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their corresponding tax bases used in the computation of taxable profit.
Deferred tax assets are generally recognized for all deductible temporary differences, to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.
Deferred tax liabilities are generally recognized for all taxable temporary differences.
No deferred tax liabilities are recognized following the initial recognition of goodwill. In addition, no deferred tax assets or liabilities are recognized with respect to the initial recognition of an asset or liability in a transaction which is not a business combination and affects neither accounting profit nor taxable profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, joint operations, joint ventures, and associates, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of the deferred tax assets is reviewed at each reporting date. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that the Group will earn sufficient taxable profits against which the deductions can be utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.
Deferred tax assets other than tax loss carryforwards are analyzed on a case-by-case basis, taking into account all relevant facts and circumstances. For example, a zero taxable profit, after deducting the amounts paid to retirees under a defined benefit plan and for which a deductible temporary difference existed, can justify the recognition of the underlying deferred tax assets. Recognition of deferred tax assets for tax loss carryforwards requires a positive taxable profit during the year that enables the utilization of tax losses that originated in the past. Because of uncertainties inherent to predicting such positive taxable profit, recognition of deferred tax assets from tax loss carryforwards is based on a case by case analysis, which is usually based on five-year profit forecasts, except with respect to any financial company for which ten-year financial profit forecasts are considered highly predictable and are consequently used.
The corporate tax reporting team, which has the overview of the Group deferred tax positions, is involved in assessing deferred tax assets.
Further details are provided in note F7.B.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Current tax assets and liabilities are offset when there is a legally enforceable right to set off the recognized amounts and when the Group intends to settle its current tax assets and liabilities on a net basis.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Current and deferred taxes for the period are recognized as an expense or income in profit or loss, except when they relate to items that are recognized outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognized outside profit or loss, or when they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in the accounting for the business combination.
The tax income 2017 (€ 197 million) resulted mainly from the change in tax rates in the United States, from the statutory reorganization in France and from other one-offs.
| In € million | 2018 | 2017 | |
|---|---|---|---|
| Current taxes related to current year(1) | (158) | (170) | a) |
| Provisions for tax litigations | 4 | 16 | b) |
| Other current taxes related to prior years | 30 | (37) | c) |
| Current taxes | (124) | (191) | |
| Changes in unrecognized deferred tax assets | 88 | 126 | d) |
| Deferred tax income on amortization of PPA step-ups | 50 | 63 | e) |
| Deferred tax impact of changes in the nominal tax rates | (2) | 155 | f) |
| Deferred taxes related to prior years | 2 | 57 | g) |
| Other deferred taxes(1) | (109) | (12) | h) |
| Deferred taxes | 30 | 389 | |
| Income taxes recognized in the consolidated income statement | (95) | 197 | |
| Income taxes on items recognized in other comprehensive income | 1 | 37 |
(1) The Underlying tax expense includes mainly part of the Current taxes related to current year and part of the Other deferred income taxes, as well as the tax impact on the perpetual hybrids bonds classified as equity under IFRS. See Business Review for reconciliation.
The current taxes relating to current year (item a) in the previous table) decreased slightly (€ 12 million).
The other current taxes relating to prior years (item c) in the previous table) are impacted mainly by the 2017 accrual for the one-time tax on unremitted earnings resulting from the US tax reform enacted at year-end 2017 (€ (33) million). This accrual was reversed in 2018 (€ 31 million) following the application of new IRS guidance in 2018.
(see column "Recognized in income statement" in the table in section F7.C. – Deferred taxes in the consolidated statement of financial position for changes in deferred taxes by nature)
The deferred taxes related to prior years (item g) in the previous table):
In 2017, the deferred tax income due to the reversal of valuation allowances in Italy after the positive outcome of a tax litigation (€ 17 million) and from various true-ups on deferred taxes in different countries (€ 40 million).
New guidance relating to the US tax reform could be issued in 2019 and trigger a review, if applicable to Solvay, of some estimates at year-end 2018.
The effective income tax expense has been reconciled with the theoretical tax expense obtained by applying to the pre-tax profit of each Group entity the nominal tax rate prevailing in the country in which it operates.
| In € million | 2018 | 2017 | |
|---|---|---|---|
| Profit for the year before taxes | 791 | 678 | |
| Earnings from associates and joint ventures | 43 | 44 | |
| Profit for the year before taxes excluding earnings from associates and joint ventures | 748 | 634 | |
| Reconciliation of the tax charge | |||
| Total tax charge of the Group entitites computed on the basis of the respective local nominal rates | (201) | (169) | |
| Weighted average nominal rate | 27% | 27% | |
| Tax effect of changes in nominal tax rates | (2) | 155 | a) |
| Changes in unrecognized deferred tax assets | 88 | 126 | b) |
| Tax effect of permanent differences | 9 | 61 | c) |
| Gains and losses with no tax expense and income | 7 | (1) | |
| US taxes disconnected from profit for the year before taxes | (21) | d) | |
| Provisions for tax litigations | 4 | 16 | |
| Other tax effect of current and deferred tax adjustments related to prior years | 32 | 21 | e) |
| Tax effect on distribution of dividends | (11) | (11) | |
| Effective tax income (charge) | (95) | 197 | |
| Effective tax rate | 12% | (29%) |
The weighted average nominal rate was stable at 27% in 2018 and in 2017. A decrease of (4)% results from the US tax rate reduction to 21%. This decrease has been offset by:
The significant change in effective tax rate from (29)% in 2017 to 12% in 2018 results mainly from:
| Recognized | ||||||||
|---|---|---|---|---|---|---|---|---|
| Recognized | in other compre |
Exchange | Transfer to |
|||||
| 2018 | Opening | in income | hensive | rate | asset held | Closing | ||
| In € million | balance | statement | income | effect | IFRS 9 | for sale | Other | balance |
| Temporary differences | ||||||||
| Tax losses (gross amount) | 2,083 | 2 | 1 | 2 | 2,088 | |||
| Of which unrecognized tax losses | (1,737) | 8 | (1,729) | |||||
| Employee benefits obligations | 599 | (41) | (1) | 1 | (7) | (1) | 549 | |
| Provisions other than employee benefits | 188 | 63 | 1 | 252 | ||||
| Property, plant and equipment and intangible assets |
(810) | 14 | (29) | 24 | (801) | |||
| Goodwill | 15 | 15 | ||||||
| Tax credits(1) | 159 | (126) | 32 | |||||
| Assets held for sale | 13 | (13) | ||||||
| Other(2) | (20) | 96 | 2 | 2 | 4 | 16 | 101 | |
| Total (net amount) | 476 | 30 | 1 | (26) | 2 | 20 | 4 | 505 |
| Deferred tax assets in the consolidated statement of financial position |
1,076 | 1,123 | ||||||
| Deferred tax liabilities in the consolidated statement of financial |
||||||||
| position | (600) | (618) | ||||||
| (1) Of which reversal of US foreign tax credits due to reversal of one-time tax |
123 | (123) | ||||||
| (2) Of which reversal of US one-time tax | (123) | 123 |
The net deferred tax assets at year-end 2018 amount to € 505 million.
At year-end 2018, the total deferred tax assets on losses amounts to € 2,088 million of which € 1,729 million are not recognized. The recognized amount is € 359 million.
The deferred tax assets/liabilities on other temporary differences at year-end 2018 relate mainly to:
€ 133 million for other temporary differences (inventories, 2018 disallowed interest in the United States due to the latest guidance for the tax reform, etc.).
With the enactment of the US tax reform at the end of 2017, a one-time tax on unremitted earnings was recognized together with foreign tax credits in the income statement for € 123 million. Based on the 2017 tax return filed in 2018, these foreign tax credits have been utilized.
Recognized deferred tax assets, for which utilization depends on future taxable profits in excess of the profit arising from the reversal of existing taxable temporary differences within entities that have suffered a tax loss in either current or preceding year in the related tax jurisdiction, amount to € 745 million. This recognition is justified by favorable expectations as to future taxable profits.
| Recognized in other |
||||||||
|---|---|---|---|---|---|---|---|---|
| Recognized | compre | Transfer to | ||||||
| 2017 | Opening | in income | hensive | Exchange | Acquisition/ | asset held | Closing | |
| In € million | balance | statement | income | rate effect | disposal | for sale | Other | balance |
| Temporary differences | ||||||||
| Tax losses (gross amount) | 2,679 | (579) | (15) | (10) | (1) | 10 | 2,083 | |
| Of which unrecognized tax | ||||||||
| losses | (2,235) | 498 | (1,737) | |||||
| Employee benefits obligations |
435 | 160 | 33 | (20) | 2 | (9) | (2) | 599 |
| Provisions other than employee benefits |
244 | (36) | (19) | 188 | ||||
| Property, plant and equipment and intangible |
||||||||
| assets | (1,246) | 325 | 129 | (38) | 18 | 1 | (810) | |
| Goodwill | 15 | 15 | ||||||
| Tax credits | 35 | 131 | (7) | 159 | ||||
| Assets held for sale | 14 | (14) | ||||||
| Other | 55 | (125) | 4 | (2) | 34 | 13 | 2 | (20) |
| Total (net amount) | (19) | 389 | 37 | 66 | (12) | 21 | (4) | 476 |
| Deferred tax assets in the consolidated statement of |
||||||||
| financial position | 890 | 1,076 | ||||||
| Deferred tax liabilities in the consolidated statement of |
||||||||
| financial position | (909) | (600) |
For the majority of the Group's tax loss carryforwards, no deferred tax assets have been recognized. The unrecognized tax losses are located mainly in countries where they can be carried forward indefinitely.
The tax loss carryforwards generating deferred tax assets are given below by expiration date.
| In € million | 2018 | 2017 | |
|---|---|---|---|
| Within 1 year | 19 | 16 | |
| Within 2 years | 18 | 15 | |
| Within 3 years | 6 | 22 | |
| Within 4 years | 18 | 20 | |
| Within 5 or more years | 202 | 331 | |
| No time limit | 1,037 | 930 | |
| Total of tax losses carried forward which have generated recognized deferred tax assets | 1,302 | 1,334 | |
| Tax losses carried forward for which no deferred tax assets were recognized | 6,916 | 7,044 | |
| Total of tax losses carried forward 8,217 |
The tax losses carryforwards (€ 1,302 million) have generated deferred tax assets for € 359 million. In 2017, the tax loss carryforwards (€ 1,334 million) had generated deferred tax assets for € 346 million.
A discontinued operation is a component of the Group which the Group has disposed of or which is classified as held for sale (see note F30 Assets held for sale), and which:
A component of the Group consists of operations and cash flows, which can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Group.
In the consolidated statement of comprehensive income, the consolidated statement of cash flows, and disclosures discontinued operations are re-presented for prior periods.
| 2018 | |||
|---|---|---|---|
| In € million | Polyamides | Other | Total |
| Net sales | 1,563 | 1,563 | |
| EBIT | 288 | (4) | 284 |
| Financial result | (3) | (3) | |
| Tax | (80) | (80) | |
| Profit (loss) from discontinued operations | 205 | (5) | 201 |
| attributable to Solvay share | 205 | (5) | 201 |
The € (5) million in the column Other refer to post-closing adjustments related to the disposal of Acetow.
| 2017 | Emerging | ||||
|---|---|---|---|---|---|
| In € million | Polyamides | Acetow | Biochemicals | Other | Total |
| Net sales | 1,558 | 204 | 41 | 1,803 | |
| EBIT | 121 | 220 | 25 | (54) | 311 |
| Financial result | (3) | (1) | (4) | ||
| Tax | (60) | (6) | (67) | ||
| Profit (loss) from discontinued | |||||
| operations | 58 | 213 | 25 | (54) | 241 |
| attributable to: | |||||
| Solvay share | 58 | 213 | 20 | (54) | 237 |
| non-controlling interests | 4 | 4 |
The € (54) million in the column Other resulted mainly from post-closing warranties relating to the disposal of the Pharma business and the adjustment for the Indupa purchase price.
The EBIT for Polyamides includes M&A costs and impairment on intangible assets for € (45) million. The EBIT for Acetow included the capital gain for € 180 million. The EBIT for Emerging Biochemicals included the capital gain for € 24 million.
Profit for the year amounts to € 897 million as against € 1,116 million in the previous year. See previous notes for explanations on the main variations.
The basic earnings per share are obtained by dividing profit for the year by the weighted average number of ordinary shares outstanding during the reporting period. The weighted average number of ordinary shares excludes the treasury shares held by the Group over the reporting period.
The diluted earnings per share are obtained by dividing profit for the year, adjusted for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares, also adjusted by the number of dilutive potential ordinary shares attached to the issuance of share options.
The number of dilutive potential ordinary shares is calculated for the weighted average number of share options outstanding during the reporting period as the difference between the average market price of ordinary shares during the reporting period and the exercise price of the share option. Share options have a dilutive effect only when the average market price is above the exercise price (share options are "in the money").
For the purpose of calculating diluted earnings per share, there were no adjusting elements to the profit for the year (Solvay share).
Basic and diluted amounts per share for discontinued operations are presented in the consolidated income statement.
| Number of shares (in thousands) | 2018 | 2017 |
|---|---|---|
| Weighted average number of ordinary shares (basic) | 103,277 | 103,352 |
| Dilution effect of subscription rights | 459 | 733 |
| Weighted average number of ordinary shares (diluted) | 103,735 | 104,084 |
| 2018 | 2017 | |||
|---|---|---|---|---|
| Basic | Diluted | Basic | Diluted | |
| Profit for the year (Solvay share) including discontinued operations (in € thousands) |
858,032 | 858,032 | 1,060,922 | 1,060,922 |
| Profit for the year (Solvay share) excluding discontinued operations (in € thousands) |
657,378 | 657,378 | 823,962 | 823,962 |
| Earnings per share (including discontinued operations) (in €) |
8.31 | 8.27 | 10.27 | 10.19 |
| Earnings per share (excluding discontinued operations) (in €) |
6.37 | 6.34 | 7.97 | 7.92 |
Full data per share, including dividend per share, can be found in the Business Review section.
The average market price during 2018 was € 110.21 per share (2017: € 118.56 per share). The following share options were out of the money, and therefore antidilutive for the period presented, but could potentially dilute basic earnings per share in the future (see note F33 Share-based payments):
| Antidilutive share options | Date granted | Exercise price (in €) | Number of share options granted |
Number of share options outstanding |
|---|---|---|---|---|
| Share option plan 2015 | 25/2/2015 | 114.51 | 346,617 | 346,617 |
| Share option plan 2017 | 23/2/2017 | 111.27 | 316,935 | 316,935 |
| Share option plan 2018–1 | 27/2/2018 | 113.11 | 400,704 | 400,704 |
| Total | 1,064,256 | 1,064,256 |
In accordance with IAS 1 Presentation of Financial Statements, the Group elected to present two statements, i.e. a consolidated income statement immediately followed by a consolidated statement of comprehensive income. The components of other comprehensive income (OCI) are presented before related tax effects with one amount shown for the aggregate amount of income tax relating to those components. Tax impacts are further disclosed in this note.
Note: the below table presents the total other comprehensive income items for the aggregate of the shares of Solvay and the noncontrolling interests.
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| In € million | Before-tax amount |
Tax expense(–)/ income (+) |
Net-of-tax amount |
Before- tax amount |
Tax expense(–)/ income (+) |
Net-of-tax amount |
| Recyclable components | ||||||
| Gains and losses on available-for-sale financial assets |
(1) | (2) | (3) | |||
| Effective portion of gains and losses on hedging instruments in a cash flow hedge |
(61) | 5 | (57) | 49 | 6 | 55 |
| Recycling to the income statement | 14 | 14 | (33) | (33) | ||
| Gains and losses on hedging instruments in a cash flow hedge (see note F35) |
(47) | 5 | (42) | 15 | 6 | 22 |
| Currency translation differences arising during the year |
241 | 241 | (893) | (893) | ||
| Recycling of currency translations differences relating to foreign operations disposed of in the year |
13 | 13 | 118 | 118 | ||
| Other movement of currency translation differences (NCI) relating to foreign operations disposed of in the year |
(24) | (24) | ||||
| Currency translation differences - Subsidiaries and joint operations |
255 | 255 | (799) | (799) | ||
| Currency translation differences arising during the year |
(34) | (34) | (40) | (40) | ||
| Recycling of currency translations differences relating to foreign operations disposed of in the year |
9 | 9 | ||||
| Currency translation differences - Associates and joint ventures |
(34) | (34) | (31) | (31) | ||
| Currency translation differences | 220 | 220 | (830) | (830) | ||
| Non recyclable components | ||||||
| Gains and losses on equity instruments measured at fair value through other comprehensive income |
3 | 4 | ||||
| Remeasurements of the net defined benefit liability (see note F34) |
26 | (4) | 22 | 95 | 32 | 127 |
| Other comprehensive income | 203 | 1 | 204 | (721) | 37 | (684) |
In 2017 taxes in other comprehensive income included adjustments resulting from tax reforms and the statutory reorganization in France that impacted the balance of deferred taxes relating to actuarial gains and losses on defined benefit pension plans.
For the purpose of presenting consolidated financial statements at the end of each reporting period, the assets and liabilities of the Group's foreign operations are expressed in euros using closing rates. Income and expense items are translated at the average exchange rates for the period, except when the impact of applying the average rate is materially different from applying the spot rate at the date of the respective transactions, in which case the latter is applied. Exchange differences arising, if any, are recognized in other comprehensive income as "currency translation differences".
Currency translation differences are reclassified from equity to profit or loss, on:
In the case of a partial disposal of a subsidiary (i.e. no loss of control) that includes a foreign operation, the proportionate share of accumulated exchange differences is reattributed to non-controlling interests and is not recognized in profit or loss.
In the case of (a) a capital decrease of a subsidiary without loss of control, or (b) a capital decrease of an equity method investee or a joint operation without modification of the share of equity interest held in that investee, no accumulated exchange differences are reclassified from equity to profit or loss.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated into the Group's presentation currency at the closing rate.
The total currency translation gains amount to € 220 million in 2018, and include:
The € 207 million currency translation gains are linked to the revaluation of the US dollar (€ 289 million) and to the devaluation of the Brazilian real (€ (30) million), the Chinese renminbi (€ (24) million), and the Russian ruble (€ (25) million), against the euro.
The total currency translation losses amounted to € (830) million in 2017, and included:
The € (932) million currency translation losses are linked to the devaluation of the US dollar (€ (811) million), the Brazilian real (€ (45) million), the Saudi Arabia riyal (€ (30) million), and the Russian ruble (€ (17) million), against the euro.
In 2018 total depreciation, amortization and impairment losses amount to € 944 million, of which:
In 2017 total depreciation, amortization, and impairment losses amounted to € 1,152 million, of which:
The other non-operating and non-cash items for 2018 (€ (12) million) mainly include the results related to the disposal of the phosphorus-derivatives business (€ (22) million) and of the Soda Ash business in Egypt (€ 7 million).
The other main non-operating and non-cash items for 2017 (€ (179) million) include the result relating to the disposal of Acetow (€ (180) million), Cross-Linkable Compound (€ (43) million), and Emerging Biochemicals (€ (23) million), and the loss relating to the deconsolidation of the Venezuelan subsidiary (€ 72 million).
Income tax expense amounts to € 175 million, of which € 95 million for continuing operations.
Income tax paid amounts to € 235 million, of which € 211 million for continuing operations.
Income tax expense amounted to € 131 million, of which € 197 million for continuing operations.
Income tax paid amounted to € 237 million, of which € 199 million for continuing operations.
Taxes are discussed in note F7 Income taxes.
| In € million | 2018 | 2017 |
|---|---|---|
| Inventories | (239) | (141) |
| Trade receivables | 60 | (137) |
| Trade payables | 98 | 60 |
| Other receivables/payables | (68) | 2 |
| Changes in working capital | (148) | (216) |
| Of which discontinued operations | (39) | (50) |
See comments in the Business Review section.
In 2018: See note F34 Provisions for more information.
In 2017:
| 2018 | |||
|---|---|---|---|
| In € million | Acquisitions | Disposals | Total |
| Subsidiaries | (12) | 26 | 14 |
| Other | (4) | (4) | |
| Total investments | (16) | 26 | 10 |
| Property, plant and equipment/Intangible assets | (833) | 42 | (791) |
| Total | (849) | 69 | (781) |
| 2017 | |||
|---|---|---|---|
| In € million | Acquisitions | Disposals | Total |
| Subsidiaries | (44) | 891 | 846 |
| Other | (11) | (11) | |
| Total investments | (55) | 891 | 836 |
| Property, plant and equipment/Intangible assets | (822) | 75 | (746) |
| Total | (877) | 966 | 89 |
The acquisition of subsidiaries (€ (12) million) relates to postacquisition payments of Cytec.
The disposal of subsidiaries (€ 26 million) relates mainly to the phosphorus derivative business for € 54 million, the Soda Ash business in Egypt for € 10 million, M&A costs for Polyamides divestment for € (20) million. The balance is composed of amounts paid or received for prior years' disposals without impact on the 2018 income statement (deferred payment for purchase of BASF shares in Solvin for € (22) million and Cross-Linkable Compound for € 4 million).
The acquisition of property, plant and equipment and intangible assets (€ (833) million) relates to various projects:
In 2018, the cash in from disposal of property, plant, and equipment relates to the sale of real estate (€ 27 million), mainly following restructuring initiatives or changes in portfolio and cash in from disposal of intangible assets related to the sale of customer lists (€ 15 million). In 2017 the cash in from disposal of property, plant, and equipment related mainly to the sale of real estate, following relocalization of our plants in Korea, restructuring initiatives, or changes in portfolio.
The acquisition of subsidiaries (€ (44) million) related mainly to the acquisition of European Carbon Fiber GmbH (€ (16) million), Energain (€ (13) million), and post-acquisition payments relating to Cytec (€ (17) million).
The disposal of subsidiaries (€ 891 million) related mainly to the disposal of Acetow (€ 734 million), Emerging Biochemicals (€ 180 million), Cross-Linkable Compound (€ 62 million), and Formulated Resin (€ 38 million). The balance was composed mainly of amounts paid for prior years' disposals without impact on the 2017 income statement (Inovyn (€ (79) million), BASF (€ (22) million), and Indupa (€ (19) million).
The acquisition of property, plant and equipment and intangible assets (€ (822) million) related to various projects:
The other cash flows from financing activities (€ 123 million in 2018 and € 13 million in 2017) relate mainly to the receipt of margin calls on hedging instruments as part of Energy Services' activities (€ 137 million in 2018 and € 17 million in 2017). The strong increase in 2018 is due to the increase of the CO2 emission rights price throughout the year (from € 8 per ton at the end of 2017 to € 25 per ton at the end of 2018).
For trading in futures of different commodities (CO2, power, gas, and coal), Energy Services uses brokers. These deals are subject to margin calls. To cover the credit risk of the counterparty, brokers pay a margin call to Solvay in case the instrument is in the money for Solvay. Vice versa if the instrument is out of the money for Solvay, Solvay pays a margin call to the brokers. The margin calls are presented as part of financial debt (see note F36 Net indebtedness). Cash flows from margin calls are recognized as financing cash flows that fluctuate with the fair value of the instrument. The actual settlement of these commodity derivatives is net of margin calls and the gross amount (including margin calls that are reclassified from financing cash flows) is recognized in operating cash flows.
The 2018 cash flow from discontinued operations (€ 120 million) relates to Polyamides.
The 2017 cash flow from discontinued operations (€ 77 million) resulted mainly from the total cash flow of Polyamides (€ 67 million) and Acetow (€ 15 million).
Accounting policy
An intangible asset is an identifiable non-monetary asset without physical substance. It is identifiable when it is separable, i.e. is capable of being separated or divided from the Group, or when it arises from contractual or other legal rights. An intangible asset shall be recognized if, and only if:
Intangible assets acquired or developed internally are initially measured at cost. The cost of an acquired intangible asset comprises its purchase price, import duties, and non-refundable purchase taxes, after deducting trade discounts and rebates, and any directly attributable cost of preparing the asset for its intended use. Subsequent expenditure on intangible assets is capitalized only if it is probable that it will increase the future economic benefits associated with the specific asset. Other expenditure is recognized in profit or loss as incurred.
After initial recognition, intangible assets are measured at cost less accumulated amortization and impairment losses, if any.
Intangible assets are amortized on a straight-line basis over their estimated useful lives, which do not exceed the contractual period, if any. The estimated useful lives, residual values, and amortization methods are reviewed at each year end, and any changes in estimates are accounted for prospectively.
| Patents and trademarks | 2-20 years |
|---|---|
| Software | 3-5 years |
| Development expenditures | 2-5 years |
| Customer relationships | 5-29 years |
| Other intangible assets – Technologies | 5-20 years |
Amortization expense is included in the consolidated income statement within cost of goods sold, administrative costs, research and development costs, and other operating gains and losses.
The asset is tested for impairment if (a) there is a trigger for impairment, and (b) annually for projects under development (see note F27 Impairment of property, plant, and equipment, intangible assets, and equity method investees).
Intangible assets are derecognized from the consolidated statement of financial position on disposal or when no future economic benefits are expected from their use or disposal. The gain or loss arising from the derecognition of an intangible asset is recognized in profit or loss at the moment of derecognition.
Research costs are recognized in profit or loss in the period in which they are incurred.
Development costs are capitalized if, and only if, all the following conditions are fulfilled:
Development costs comprise employee expenses, the cost of materials and services directly attributable to the projects, and an appropriate share of directly attributable fixed costs including, and where applicable, borrowing costs. The intangible assets are amortized as from the moment they are available for use, i.e. when they are in the location and condition necessary for them to be capable of operating in the manner intended by management. Development costs which do not satisfy the above conditions are recognized in profit or loss as incurred.
Those intangible assets have been acquired mainly through business combinations. Customer relationships consist of customer lists.
Other intangible assets include mainly technology acquired separately or in a business combination.
| Development | Patents and | Customer | Other intangible | ||
|---|---|---|---|---|---|
| In € million | costs | trademarks | relationships | assets | Total |
| Gross carrying amount | |||||
| At December 31, 2016 | 292 | 1,742 | 2,172 | 789 | 4,995 |
| Additions | 69 | 11 | 35 | 115 | |
| Disposals and closures | (30) | (15) | (7) | (51) | |
| Increase through business combinations Currency translation differences |
(8) | 11 (132) |
(199) | (70) | 11 (410) |
| Other | 9 | 31 | (18) | 22 | |
| Transfer to assets held for sale | (47) | (60) | (85) | (11) | (204) |
| At December 31, 2017 | 285 | 1,588 | 1,888 | 717 | 4,479 |
| Additions | 88 | 19 | 35 | 142 | |
| Disposals and closures | (6) | (5) | (5) | (16) | |
| Increase through business combinations | 5 | 5 | |||
| Currency translation differences | 2 | 34 | 68 | 18 | 122 |
| Other | 2 | 25 | (28) | (1) | |
| Transfer to assets held for sale | 1 | 1 | 2 | ||
| At December 31, 2018 | 372 | 1,661 | 1,956 | 743 | 4,731 |
| Accumulated amortization | |||||
| At December 31, 2016 | (84) | (629) | (423) | (260) | (1,395) |
| Amortization | (37) | (121) | (160) | (54) | (372) |
| Impairment | (18) | (12) | (31) | ||
| Disposals and closures | 30 | 15 | 6 | 50 | |
| Currency translation differences | 1 | 30 | 16 | 26 | 74 |
| Other | (5) | 6 | (2) | (1) | |
| Transfer to assets held for sale | 20 | 37 | 75 | 3 | 135 |
| At December 31, 2017 | (74) | (680) | (492) | (293) | (1,539) |
| Amortization | (36) | (110) | (135) | (49) | (330) |
| Impairment | (2) | (3) | |||
| Disposals and closures | 6 | 5 | 5 | 16 | |
| Currency translation differences | (5) | (10) | (8) | (23) | |
| Other | 2 | (4) | 14 | 12 | |
| Transfer to assets held for sale | (1) | (3) | (4) | ||
| At December 31, 2018 | (105) | (790) | (640) | (335) | (1,871) |
| Net carrying amount | |||||
| At December 31, 2016 | 208 | 1,113 | 1,750 | 529 | 3,600 |
| At December 31, 2017 | 211 | 908 | 1,396 | 424 | 2,940 |
| At December 31, 2018 | 266 | 872 | 1,315 | 408 | 2,861 |
Intangibles relate mainly to the intangibles acquired through the acquisitions of Rhodia and Cytec. The average remaining useful life of Rhodia's assets is four years, and that of Cytec's assets is 14 years.
Impairments recognized in 2017 related to discontinued operations.
Acquisitions of subsidiaries are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of acquisition) of assets transferred and liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognized in profit or loss as incurred.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs, generally through profit or loss.
Where a business combination is achieved in stages, the Group's previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group obtains control) and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.
The acquiree's identifiable assets, liabilities, and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognized and measured at their fair value at the acquisition date, except that:
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see paragraph below), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date.
The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date, and does not exceed twelve months.
Goodwill arising in a business combination is recognized as an asset at the date that control is obtained (the acquisition date). Goodwill is measured as the excess of the sum of:
over the share acquired by the Group in the fair value of the entity's identifiable net assets at the acquisition date.
Goodwill is not amortized but is tested for impairment on an annual basis, and more frequently if any impairment triggers are identified.
For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units (or groups of cashgenerating units) in accordance with IAS 36 Impairment of Assets.
A cash-generating unit (CGU) is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other group(s) of assets.
These tests consist of comparing the carrying amount of the assets or (groups of) CGUs with their recoverable amount. The recoverable amount of an asset, a (group of) CGU(s) is the higher of its fair value less costs to sell and its value in use. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated to reducing firstly the carrying amount of any goodwill allocated to the unit and then the other assets of the unit pro rata. on the basis of the carrying amount of each asset in the unit. An impairment loss recognized on goodwill shall not be reversed in a subsequent period.
Assets held for sale include their related goodwill.
On disposal of an operation within a CGU to which goodwill has been allocated, the goodwill associated with the operation disposed of is included in the determination of the profit or loss on disposal. It is measured on the basis of the relative values of the operation disposed of and the portion of the CGU retained, unless another method better reflects the goodwill associated with the operation disposed of.
| In € million | Total |
|---|---|
| Net carrying amount | |
| At December 31, 2016 | 5,679 |
| Disposals | (35) |
| Currency translation differences | (421) |
| Transfer to assets held for sale | (180) |
| At December 31, 2017 | 5,042 |
| Currency translation differences | 139 |
| Other | (8) |
| At December 31, 2018 | 5,173 |
In 2018 the change in goodwill is explained by the currency translation differences relating mainly to goodwill expressed in US dollars.
In 2017, the change in goodwill was explained by:
the disposal of a part of the Performance Chemicals segment following the divestment of Acetow (€ (35) million);
currency translation differences relating mainly to goodwill expressed in US dollars; and
the transfer of goodwill relating mainly to Polyamides (€ (173) million) and Phosphorus Derivatives (€ (7) million) to assets held for sale.
Goodwill acquired in a business combination is allocated to the CGU or groups of CGUs (Operating Segments) that are expected to benefit from that business combination.
| 2017 | 2018 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| In € million | At beginning of the period |
Adjust ments |
Transfer to assets held for sale |
Acqui sitions and divest ments |
Currency trans lation differ ences |
At the end of the period |
Adjust ments |
Currency trans lation differ ences |
At the end of the period |
| Groups of CGUs (Operating segments) |
|||||||||
| Advanced Formulations | 192 | 2 | 194 | 194 | |||||
| Advanced Materials | 493 | 493 | 493 | ||||||
| Performance Chemicals | 124 | (3) | (35) | 86 | 86 | ||||
| Cash-generating units | |||||||||
| Composite Materials | 1,447 | (181) | 1,266 | (8) | 61 | 1,319 | |||
| Novecare | 1,335 | (104) | 1,231 | 33 | 1,264 | ||||
| Technology Solutions | 1,037 | (7) | (127) | 903 | 43 | 947 | |||
| Special Chem | 227 | (2) | 225 | 225 | |||||
| Polyamides | 170 | (170) | |||||||
| Specialty Polymers | 184 | (7) | 178 | 1 | 179 | ||||
| Soda Ash and Derivatives |
162 | 162 | 162 | ||||||
| Coatis | 82 | 82 | 82 | ||||||
| Silica | 72 | 72 | 72 | ||||||
| Aroma Performance | 49 | 49 | 49 | ||||||
| Energy Services | 50 | 50 | 50 | ||||||
| Hydrogen Peroxyde Europe |
20 | 1 | 21 | 21 | |||||
| Hydrogen Peroxyde Mercosul |
14 | 14 | 14 | ||||||
| Hydrogen Peroxyde Nafta |
8 | (1) | 7 | 7 | |||||
| Hydrogen Peroxyde Asia |
10 | 11 | 11 | ||||||
| PVC Mercosur | 1 | (1) | |||||||
| Total goodwill | 5,679 | (180) | (35) | (421) | 5,042 | (8) | 139 | 5,173 |
On February 1, 2017, Solvay announced the acquisition of Energain™ Li-Ion high voltage technology from DuPont for € 13 million. Energain™ technology and formulations enlarge Solvay Special Chem Global Business Unit's existing portfolio of high performance salts and additives for electrolytes and strengthen its capabilities to develop further innovative highvoltage solutions for Li-ion batteries. The identified net assets acquired amounted to € 13 million and related mainly to intangible assets.
On November 7, 2017, Solvay completed the acquisition of European Carbon Fiber GmbH ("ECF"), a German producer of high-quality "precursor" for large-tow (50K) polyacrylonitrile (PAN) carbon fibers for € 16 million. The identified assets acquired amounted to € 22 million and related mainly to tangible assets, less deferred tax liabilities of € 6 million.
Accounting policy
Property, plant, and equipment are tangible items that:
The items of property, plant, and equipment owned by the Group are recognized as property, plant, and equipment when the following conditions are satisfied:
Items of property, plant, and equipment are initially measured at cost. The cost of an item of property, plant, and equipment comprises its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. If applicable, the cost comprises borrowing costs during the construction period.
After initial recognition, items of property, plant, and equipment are measured at cost less accumulated depreciation and impairment losses, if any.
Items of property, plant, and equipment are depreciated on a straight-line basis over their estimated useful lives. The components of an item of property, plant, and equipment with different useful lives are depreciated separately. Land is not depreciated. The estimated useful lives, residual values, and depreciation methods are reviewed at each year end, and any changes in estimates are accounted for prospectively.
| Buildings | 30-40 years |
|---|---|
| IT equipment | 3-5 years |
| Machinery and equipment | 10-20 years |
| Transportation equipment | 5-20 years |
Depreciation expense is included in the consolidated income statement within cost of goods sold, administrative costs, and R&D costs.
The asset is tested for impairment if there is a trigger for impairment (see note F27 Impairment of property, plant, and equipment, intangible assets, and equity method investees).
Items of property, plant, and equipment are derecognized from the consolidated statement of financial position on disposal or when no future economic benefits are expected from their use or disposal. The gain or loss arising from the derecognition of an item of property, plant, and equipment is recognized in profit or loss at the moment of derecognition.
Subsequent expenditure related to items of property, plant, and equipment is capitalized only if it is probable that it will increase the future economic benefits associated with the specific asset. Other expenditure is recognized in profit or loss as incurred. Subsequent expenditure incurred for the replacement of a component of an item of property, plant, and equipment is recognized as an asset only if it satisfies the recognition criteria mentioned above. The carrying amount of replaced items is derecognized.
Repair and maintenance costs are recognized in the consolidated income statement as incurred.
Regarding its industrial activity, Solvay incurs expenditure for major repairs over several years for most of its sites. The purpose of this expenditure is to maintain certain installations in proper working order without altering their useful life. This expenditure is considered a specific component of the item of property, plant, and equipment and is depreciated over the period during which the economic benefits are expected to be obtained, i.e. the interval between major repairs.
Dismantling and restoration costs are included in the cost of an item of property, plant, and equipment if the Group has a legal or constructive obligation to dismantle or restore. They are depreciated over the useful life of the items to which they pertain.
Generally, Solvay's obligation to dismantle and/or restore its operating sites is likely to arise only upon the discontinuation of a site's activities. A provision for dismantling discontinued sites or installations is recognized if there is a legal obligation (due to a request or injunction from the relevant authorities), or if there is no technical alternative to dismantling, so to ensure the safety compliance of the discontinued sites or installations.
Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
| Property, plant | |||||
|---|---|---|---|---|---|
| Land and | Fixtures and | Other tangible | and equipment under |
||
| In € million | buildings | equipment | assets | construction | Total |
| Gross carrying amount | |||||
| At December 31, 2016 | 3,237 | 10,929 | 409 | 916 | 15,492 |
| Additions | 80 | 241 | 16 | 352 | 689 |
| Disposals and closures | (34) | (266) | (22) | (1) | (322) |
| Increase through business combinations | 22 | (1) | 21 | ||
| Currency translation differences | (149) | (594) | (21) | (46) | (808) |
| Other | 64 | 451 | 17 | (551) | (19) |
| Transfer to assets held for sale | (354) | (1,422) | (20) | (86) | (1,882) |
| At December 31, 2017 | 2,844 | 9,362 | 380 | 585 | 13,171 |
| Additions | 15 | 123 | 12 | 547 | 697 |
| Disposals and closures | (29) | (216) | (14) | (259) | |
| Increase through business combinations | 1 | 1 | |||
| Currency translation differences | 19 | 78 | 1 | 4 | 102 |
| Other | 43 | 255 | 26 | (429) | (106) |
| Transfer to assets held for sale | (2) | (31) | 1 | (53) | (86) |
| At December 31, 2018 | 2,889 | 9,571 | 405 | 654 | 13,519 |
| Accumulated depreciation | |||||
| At December 31, 2016 | (1,543) | (7,181) | (297) | (9,020) | |
| Depreciation | (99) | (517) | (36) | (652) | |
| Impairment | (43) | (56) | (99) | ||
| Reversal of impairment | 2 | 2 | |||
| Disposals and closures | 31 | 265 | 22 | 318 | |
| Currency translation differences | 56 | 341 | 14 | 411 | |
| Other | 19 | (30) | 2 | (10) | |
| Transfer to assets held for sale | 220 | 1,076 | 16 | 1,312 | |
| At December 31, 2017 | (1,359) | (6,101) | (278) | (7,737) | |
| Depreciation | (96) | (462) | (35) | (592) | |
| Impairment | (10) | (31) | (1) | (41) | |
| Reversal of impairment | 22 | 22 | |||
| Disposals and closures | 26 | 211 | 14 | 250 | |
| Currency translation differences | (6) | (34) | (41) | ||
| Other | 33 | 67 | 101 | ||
| Transfer to assets held for sale | 8 | (34) | (1) | (27) | |
| At December 31, 2018 | (1,404) | (6,361) | (301) | (8,065) | |
| Net carrying amount | |||||
| At December 31, 2016 | 1,695 | 3,748 | 112 | 916 | 6,472 |
| At December 31, 2017 | 1,485 | 3,261 | 102 | 585 | 5,433 |
| At December 31, 2018 | 1,486 | 3,210 | 104 | 654 | 5,454 |
The line "Other" mainly includes changes following portfolio transactions and reclassification of property, plant, and equipment under construction to the appropriate categories when they are ready for intended use.
Cash flows relating to major investments are disclosed in note F17 Cash flows from investing activities - acquisition/disposal of assets and investments.
Accounting policy
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership. All other leases are classified as operating leases.
Agreements not in the legal form of a lease contract are analyzed in accordance with IFRIC 4 Determining whether an Arrangement contains a Lease to determine whether or not they contain a leasing contract to be accounted for in accordance with IAS 17 Leases.
On commencement of the lease, assets held under finance leases are initially recognized as assets of the Group at their fair value, or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the lease.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to produce a constant periodic rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group's general policy on borrowing costs (see above). Contingent rentals arising under finance leases are recognized as expenses in the periods in which they are incurred.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
| In € million | 2018 | 2017 |
|---|---|---|
| Net carrying amount of finance leases | ||
| Land and buildings | 2 | 2 |
| Fixtures and equipment | 32 | 33 |
| Total | 34 | 35 |
Assets leased under a finance lease are items of property, plant, and equipment.
| Minimum lease payments | ||||
|---|---|---|---|---|
| In € million | 2018 | 2017 | ||
| Amounts payable under finance leases: | ||||
| Within one year | 6 | 9 | ||
| In years two to five inclusive | 23 | 28 | ||
| Beyond five years | 61 | 72 | ||
| Less future finance charges | (54) | (64) | ||
| Present value of minimum lease payments of finance leases | 36 | 46 | ||
| Amount due for settlement within 12 months | 6 | 9 | ||
| Amount due for settlement after 12 months | 84 | 101 |
The future finance charges are related to a 20-year contract on a cogeneration asset with high interest rate.
| In € million | 2018 | 2017 |
|---|---|---|
| Total minimum lease payments under operating leases recognized in the consolidated income statement | 101 | 94 |
| In € million | 2018 | 2017 |
|---|---|---|
| Within one year | 95 | 84 |
| In years two to five inclusive | 226 | 226 |
| Beyond five years | 171 | 141 |
| Total of future minimum lease payments under non-cancellable operating leases (undiscounted) | 491 | 450 |
Operating leases are related primarily to buildings and transportation equipment (mainly railcars). The lease commitments reported at the end of each year exclude those from discontinued operations.
In preparation for IFRS 16 implementation, the future minimum lease payments have been reviewed and:
The list of joint operations is available in the note F43 List of companies included in the consolidation scope.
The list of associates and joint ventures is available in note F43 List of companies included in the consolidation scope.
The associates and joint ventures not classified as held for sale/discontinued operations are accounted for under the equity method of accounting.
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| In € million | Associates | Joint ventures |
Total | Associates | Joint ventures | Total |
| Investments in associates and joint ventures |
15 | 426 | 441 | 23 | 443 | 466 |
| Earnings from associates and joint ventures |
3 | 41 | 44 | 3 | 41 | 44 |
| In € million | 2018 | 2017 |
|---|---|---|
| Carrying amount at January 1 | 23 | 24 |
| Profit for the year | 3 | 3 |
| Dividends received | (1) | (2) |
| Impairment | (9) | |
| Currency translation differences | (1) | |
| Transfer to assets held for sale | (1) | |
| Carrying amount at December 31 | 15 | 23 |
The tables below present the summary of the statement of financial position and income statement of the associates as if they were proportionately consolidated.
| In € million | 2018 | 2017 |
|---|---|---|
| Statement of financial position | ||
| Non-current assets | 16 | 22 |
| Current assets | 18 | 17 |
| Cash and cash equivalents | 6 | 5 |
| Non-current liabilities | 3 | 3 |
| Non-current financial debt | 2 | 2 |
| Current liabilities | 16 | 14 |
| Current financial debt | 4 | 4 |
| Investments in associates | 15 | 23 |
| Income statement | ||
| Sales | 36 | 34 |
| Depreciation and amortization | (1) | (1) |
| Interest on loans and short term deposits | 1 | 1 |
| Profit for the year from continuing operations | 2 | 2 |
| Profit for the year | 2 | 2 |
| Total comprehensive income | 2 | 1 |
| Dividends received | 1 | 1 |
| In € million | 2018 | 2017 |
|---|---|---|
| Carrying amount at January 1 | 443 | 473 |
| Disposal | (19) | |
| Capital increase | 3 | |
| Profit for the year | 41 | 41 |
| Dividends received | (24) | (16) |
| Currency translation differences | (34) | (39) |
| Carrying amount at December 31 | 426 | 443 |
In 2018, the currency translation differences relate mainly to the devaluation of the Russian ruble, of the Brazilian real, and of the Indian rupee, against the euro.
In 2017, the disposal related to the sale of Dacarto Benvic. The currency translation differences related mainly to the devaluation of the Russian ruble and the Brazilian real against the euro.
The tables below present the summary of the statement of financial position and income statement of the material joint ventures as if they were proportionately consolidated.
| Shandong | |||||||
|---|---|---|---|---|---|---|---|
| Solvay & CPC | Huatai Interox |
Hindustan Gum & |
EECO | ||||
| 2018 | Rusvinyl | Peroxidos do | Barium | Chemical Co. | Chemicals | Holding and | Cogeneration |
| In € million | OOO | Brasil Ltda | Strontium | Ltd | Ltd | subsidiaries | Rosignano |
| Ownership interest | 50.0% | 69.4% | 75.0% | 50.0% | 50.0% | 33.3% | 25.4% |
| Corporate & | Corporate & | ||||||
| Performance | Performance | Advanced | Performance | Advanced | Business | Business | |
| Operating Segment | Chemicals | Chemicals | Materials | Chemicals | Formulations | Services | Services |
| Statement of financial position |
|||||||
| Non-current assets | 352 | 47 | 11 | 7 | 6 | 17 | 9 |
| Current assets | 53 | 43 | 45 | 5 | 152 | 28 | 4 |
| Cash and cash equivalents | 23 | 19 | 9 | 3 | 125 | 2 | 1 |
| Non-current liabilities | 189 | 4 | 12 | 4 | 8 | ||
| Non-current financial debt | 160 | 2 | 8 | ||||
| Current liabilities | 50 | 18 | 15 | 3 | 9 | 33 | 9 |
| Current financial debt | 36 | 4 | 33 | 8 | |||
| Investments in joint ventures | 167 | 67 | 30 | 9 | 145 | 4 | 4 |
| Income statement | |||||||
| Sales | 183 | 73 | 80 | 20 | 40 | 6 | 3 |
| Depreciation and amortization | (22) | (4) | (1) | (1) | (1) | (2) | (1) |
| Cost of borrowings | (17) | (2) | |||||
| Interest on loans and short-term deposits |
1 | 7 | 1 | ||||
| Income taxes | (1) | (6) | (3) | (1) | (2) | ||
| Profit for the year from | |||||||
| continuing operations | 5 | 19 | 9 | 3 | 5 | 1 | |
| Profit for the year | 5 | 19 | 9 | 3 | 5 | 1 | |
| Other comprehensive income | (25) | (4) | 1 | (7) | |||
| Total comprehensive income | (19) | 14 | 10 | 3 | (2) | ||
| Dividends received | 13 | 8 | 2 | 2 |
Other comprehensive income comprises mainly the currency translation differences.
| Shandong | ||||||||
|---|---|---|---|---|---|---|---|---|
| Solvay & | Huatai | Hindustan | EECO | |||||
| Peroxidos | CPC | Interox | Gum & | Holding | ||||
| 2017 In € million |
Rusvinyl OOO |
do Brasil Ltda |
Barium Strontium |
Chemical Co. Ltd |
Chemicals Ltd |
and subsidiaries |
Cogeneration Rosignano |
Other |
| Ownership interest | 50.0% | 69.4% | 75.0% | 50.0% | 50.0% | 33.3% | 25.4% | |
| Corporate | Corporate & | |||||||
| Performance | Performance | Advanced | Performance | Advanced | & Business | Business | ||
| Operating Segment | Chemicals | Chemicals | Materials | Chemicals | Formulations | Services | Services | |
| Statement of financial position |
||||||||
| Non-current assets | 423 | 43 | 11 | 8 | 7 | 15 | 9 | |
| Current assets | 45 | 48 | 42 | 4 | 154 | 16 | 3 | |
| Cash and cash | ||||||||
| equivalents | 13 | 27 | 8 | 2 | 137 | 4 | ||
| Non-current liabilities | 226 | 6 | 12 | 4 | 10 | |||
| Non-current financial debt |
197 | 4 | 10 | |||||
| Current liabilities | 55 | 20 | 13 | 4 | 9 | 18 | 7 | |
| Current financial debt | 38 | 4 | 17 | 7 | ||||
| Investments in joint | ||||||||
| ventures | 186 | 65 | 28 | 8 | 148 | 3 | 4 | |
| Income statement | ||||||||
| Sales | 171 | 75 | 75 | 11 | 42 | 5 | ||
| Depreciation and amortization |
(25) | (3) | (1) | (1) | (1) | (1) | ||
| Cost of borrowings | (21) | (1) | ||||||
| Interest on loans and short-term deposits |
2 | 10 | ||||||
| Income taxes | (1) | (8) | (3) | (3) | ||||
| Profit for the year from | ||||||||
| continuing operations | 4 | 19 | 9 | 1 | 7 | 2 | ||
| Profit for the year | 4 | 19 | 9 | 1 | 7 | 2 | ||
| Other comprehensive | ||||||||
| income | (15) | (11) | (1) | (1) | (9) | |||
| Total comprehensive | ||||||||
| income | (10) | 8 | 8 | (2) | 2 | |||
| Dividends received | 9 | 6 | 1 | 1 |
Other comprehensive income comprises mainly the currency translation differences.
In accordance with the concept of materiality, certain companies which are insignificant have not been included in the consolidation scope. They are measured at cost and tested for impairment on an annual basis, which is considered a good proxy of their fair value. For more information, refer to Principles of consolidation.
| 2018 | 2017 |
|---|---|
| 47 | 54 |
| (2) | (1) |
| 1 | |
| (2) | |
| (3) | (6) |
| (1) | |
| 41 | 47 |
The line "Changes in consolidation method" includes entities that are no longer below materiality thresholds and that start being accounted for as subsidiaries, joint operations, joint ventures, or associates.
At the end of each reporting period, the Group reviews whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the CGU to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are allocated to individual CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.
The recoverable amount is the higher of the fair value less costs to sell and the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate. Future cash flows are adjusted for risks not incorporated into the discount rate.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset (or CGU) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
In accordance with IAS 36 Impairment of Assets, the recoverable amount of property, plant, and equipment, intangible assets, CGUs or groups of CGUs, including goodwill, and equity method investees corresponds to the higher of their fair value less costs of disposal and their value in use. The latter equals the present value of the future cash flows expected to be derived from each asset, CGU or group of CGUs, and equity method investees and is determined using the following inputs:
The discount rate is estimated based on an extensive benchmarking with peers, so as to reflect the return investors would require if they were to choose an investment in the underlying assets. The weighted average cost of capital used to discount future cash flows was set at 6.2% in 2018 (6.7% in 2017). The discount rate decrease in 2018 is related to the change in the country-risk premium component, which is for 2018 the weighted average country premium (based on invested capital weight) instead of taking into account only the Belgian risk premium as in 2017.
In 2018 and 2017, the long-term growth rate was set at 2%, except for Aroma Performance, for which a 1% rate was set. The growth rates are consistent with the long-term average market growth rates for the respective CGUs and the countries in which they operate.
Other key assumptions are specific to each CGU (energy price, volumes, margin, etc.).
The impairment tests performed at CGU level at December 31, 2018 and 2017 did not lead to any impairment of assets, as the recoverable amounts of the (groups of) CGUs were higher than their carrying amounts. More specifically, the difference between the (groups of) CGUs' value in use and their carrying amount (headroom) represents in all cases more than 10% of their carrying amount. As such, for those CGUs or groups of CGUs, a reasonable change in a key assumption on which the recoverable amount of the CGUs or groups of CGUs is based would not result in an impairment loss for the related CGUs or groups of CGUs.
Composite Materials is a CGU that formed part of the Cytec acquisition at year-end 2015 (Operating Segment: Advanced Materials). This CGU has a carrying amount of € 3.3 billion, including goodwill of € 1.3 billion (see note F21 Goodwill and business combinations). The headroom for Composite Materials (being the difference between the value in use based on discounted cash flows and the carrying amount) is close to € 0.7 billion, or close to 20% of the carrying amount.
The expected cash flows for Composite Materials reflect the strong demand drivers and a portion only of Management's expectations and plans related to Excellence programs that aim to improve industrial effectiveness and maximize the conversion of sales growth into EBITDA and cash flow progression. In compliance with IFRS, expected cash flows for Composite Materials take into account only the impact of Excellence programs that have been approved by Management and that are being carried out.
The headroom of this CGU is sensitive to change in assumptions related to discount rate and long-term growth. Under the sensitivities below, this headroom remains positive, although below 10% of the carrying amount.
| in € billion | ||
|---|---|---|
| Assumptions: Discount rate = 6.2% Long term growth rate = 2% |
Impact on recoverable amount |
Revised headroom |
| Sensitivity to discount rate –0,5% | 0.6 | 1.3 |
| Sensitivity to discount rate +0,5% | (0.4) | 0.3 |
| Sensitivity to long term growth rate –1% | (0.6) | 0.1 |
| Sensitivity to long term growth rate +1% | 1.0 | 1.8 |
The table below shows the break-even analysis for the headroom of Composite Materials:
| Discount rate | Long term growth rate | ||
|---|---|---|---|
| Base rate | Break-even rate | Base rate | Break-even rate |
| 6.2% | 7.1% | 2.0% | 0.8% |
In 2018 following improved market conditions, the impairment loss related to the Brazilian electricity cogeneration asset that was recognized in 2016 has been reversed (€ 22 million – Operating Segment: Corporate and Business Services) – also see note F5 Results from portfolio management and reassessments, legacy remediation and major litigations.
RusVinyl is a Russian joint venture in chlorovinyls (Operating Segment: Performance Chemicals) in which Solvay holds a 50% equity interest and Sibur holds the other 50% equity interest.
The recoverable amount of the investment has been estimated based on a dividend discount model taking into account the latest business plan. It is highly sensitive to the RUB/€ exchange rate. This rate impacts the carrying amount of the investment, the foreign currency losses on the euro denominated debt, and consequently the distributable earnings potential. The impairment test confirms that the value-in-use (based on dividend discount model) is in line with the carrying amount.
Impairment losses have been recognized in 2017 with respect to the retained Latin American assets in the Polyamides business (€ 91 million).
Cost of inventories includes the purchase, conversion, and other costs incurred in bringing the inventories to their present location and condition. The cost of inventories is determined by using the weighted average cost or first-in, first-out (FIFO) method. Inventories having a similar nature and use are measured using the same cost formula.
Inventories are measured at the lower of the purchasing cost (raw materials and merchandise), production cost (work in progress and finished goods), and net realizable value. Net realizable value represents the estimated selling price, less all estimated costs of completion and the estimated costs necessary to make the sale.
With respect to the mechanism set up by the European Union to encourage manufacturers to reduce their greenhouse gas emissions, carbon dioxide (CO2) emission rights were granted free of charge to the Group. The Group is also involved in the Clean Development Mechanism (CDM) under the Kyoto protocol. Under these projects, the Group has deployed facilities in order to reduce greenhouse gas emissions at the relevant sites in return for Certified Emission Reductions (CER).
In the absence of any IFRS regulating the accounting treatment of CO2 emission rights, the Group applies the Trade/Production model, according to which CO2 emission rights are presented as inventories if they will be consumed in the production process or as derivatives if they are held for trading. Energy Services is involved in CO2 instrument trading, arbitrage, and hedging activities. The net income or expense from these activities is recognized in "other operating gains and losses" (a) for the industrial component, where Energy Services sells the excess CO2 emission rights generated by Solvay or where a Group deficit is recognized, as well as (b) for the trading component, where Energy Services acts as a trader/broker with respect to those CO2 emission rights.
In light of its centralized CO2 emission rights' portfolio management, for emission rights that are substitutable between subsidiaries, the Group's financial statements reflect the Group's net position. If this net position is negative, a provision is recognized, measured based on the market price of the CO2 emission rights at reporting date.
| In € million | 2018 | 2017 |
|---|---|---|
| Finished goods | 1,083 | 975 |
| Raw materials and supplies | 654 | 568 |
| Work in progress | 22 | 24 |
| Total | 1,759 | 1,567 |
| Write-downs | (74) | (63) |
| Net total | 1,685 | 1,504 |
| In € million | 2018 | 2017 |
|---|---|---|
| VAT and other taxes | 351 | 266 |
| Advances to suppliers | 81 | 69 |
| Financial instruments – operational | 162 | 153 |
| Insurance premiums | 30 | 24 |
| Loan receivables | 14 | 13 |
| Receivables on assets disposal | 3 | 3 |
| Other | 77 | 99 |
| Other current receivables | 719 | 627 |
Financial instruments – operational include held for trading and cash flow hedge derivatives (see note F35.A. Overview of financial instruments).
A disposal group is a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. The group includes goodwill acquired in a business combination if the group is a cashgenerating unit to which goodwill has been allocated, or if it is an operation within such a cash-generating unit.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. For a sale to be highly probable, management should be committed to a plan to sell the asset (or disposal group), an active program to locate a buyer and complete the plan should be initiated, the asset (or disposal group) should be actively marketed at a price which is reasonable in relation to its current fair value, the sale should be expected to be completed within one year from the date of classification, and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and their fair value less costs to sell. Any excess of the carrying amount over the fair value less costs to sell is recognized as an impairment loss. Depreciation of such assets is discontinued as from their classification as held for sale. Prior period consolidated statements of financial position are not restated to reflect the new classification of a non-current asset (or a disposal group) as held for sale.
| 2018 | |
|---|---|
| In € million | Polyamides |
| Operating Segment | Performance Chemicals |
| Property, plant and equipment | 670 |
| Goodwill | 173 |
| Intangible assets | 71 |
| Investments | 1 |
| Deferred tax assets | 32 |
| Inventories | 249 |
| Trade receivables | 200 |
| Other assets | 39 |
| Assets held for sale | 1,434 |
| Provisions | 75 |
| Deferred tax liabilities | 72 |
| Other non-current liabilities | 10 |
| Trade payables | 217 |
| Income tax payables | 12 |
| Other liabilities | 48 |
| Liabilities associated with assets held for sale | 435 |
| Net carrying amount of the disposal group | 999 |
| Included in other comprehensive income | |
| Currency translation differences | 21 |
| Defined benefit plans | (3) |
| Other comprehensive income | 17 |
| 2017 | |||||
|---|---|---|---|---|---|
| In € million | Polyamides | Phosphorus Derivatives |
Acetow | Total | |
| Operating Segment | Performance Chemicals |
Adanced Formulations |
Performance Chemicals |
||
| Property, plant and equipment | 557 | 13 | 569 | ||
| Goodwill | 173 | 7 | 180 | ||
| Intangible assets | 68 | 68 | |||
| Investments | 1 | 1 | |||
| Deferred tax assets | 17 | 17 | |||
| Inventories | 178 | 8 | 186 | ||
| Trade receivables | 219 | 17 | 236 | ||
| Other assets | 26 | 26 | |||
| Assets held for sale | 1,239 | 28 | 17 | 1,284 | |
| Provisions | 74 | 74 | |||
| Deferred tax liabilities | 38 | 38 | |||
| Other non-current liabilities | 2 | 2 | |||
| Trade payables | 186 | 186 | |||
| Income tax payables | 4 | 4 | |||
| Other liabilities | 45 | 45 | |||
| Liabilities associated with assets held for sale | 349 | 349 | |||
| Net carrying amount of the disposal group | 890 | 28 | 17 | 935 | |
| Included in other comprehensive income | |||||
| Currency translation differences | 21 | 21 | |||
| Defined benefit plans | (3) | (3) | |||
| Other comprehensive income | 19 | 19 |
Accounting policy
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issuance of new share capital are directly recognized in equity as a deduction, net of tax, from the equity issuance proceeds.
The reserves include:
Those represent the share of non-controlling interests in the net assets and comprehensive income of subsidiaries of the Group, and corresponds to the interests in subsidiaries that are not held by the Company or its subsidiaries.
To strengthen its capital structure, Solvay issued undated deeply subordinated perpetual bonds ("perpetual hybrid bonds") of respectively € 1.2 billion (€ 1,194 million net of issuance costs) in 2013 following the acquisition of Chemlogics, € 1.0 billion (€ 994 million net of issuance costs) in 2015 for the financing of the acquisition of Cytec, and € 300 million (€ 298 million net of issuance costs) in November 2018.
All perpetual hybrid bonds are classified as equity in the absence of any unavoidable contractual obligation to repay the principal and interest of the perpetual hybrid bonds, specifically:
The coupons related to the perpetual hybrid bonds are recognized as equity transactions and are deducted from equity upon declaration (see consolidated statement of changes in equity):
Should Solvay have elected not to pay any interests to the perpetual hybrid bond holders, then any payment of dividends to the ordinary shareholders or repayment of ordinary shares would trigger a contractual obligation to pay previously unpaid interests to the perpetual hybrid bond holders.
Tax impacts relating to the perpetual hybrid bonds are recognized directly in equity.
| 2018 | 2017 | |
|---|---|---|
| Shares issued and fully paid at January 1 | 105,876 | 105,876 |
| Shares issued and fully paid at December 31 | 105,876 | 105,876 |
| Treasury shares held at December 31 | 2,723 | 2,558 |
The amounts disclosed below are fully consolidated amounts and do not reflect the impacts from elimination of intragroup transactions.
At the end of 2018 the following three subsidiaries have non-controlling interests totaling € 89 million (out of a total of € 117 million).
| 2018 | Solvay Special Chem | ||
|---|---|---|---|
| In € million | Zhejiang Lansol | Japan | Solvay Soda Ash |
| Non-controlling ownership interest | 45% | 33% | 20% |
| Statement of financial position | |||
| Non-current assets | 23 | 18 | 304 |
| Current assets | 42 | 21 | 28 |
| Non-current liabilities | 3 | 1 | 13 |
| Current liabilities | 23 | 2 | 23 |
| Income statement | |||
| Sales | 62 | 67 | 321 |
| Profit for the year | 11 | 5 | 142 |
| Other comprehensive income | (1) | 2 | 1 |
| Total comprehensive income | 10 | 7 | 143 |
| Dividends paid to non-controlling interests | 2 | 32 | |
| Share of non-controlling interest in the profit for the year | 5 | 2 | 28 |
| Accumulated non-controlling interests | 17 | 12 | 60 |
At the end of 2017 the following three subsidiaries have non-controlling interests totaling € 84 million (out of a total of € 113 million).
| 2017 | Solvay Special Chem | ||
|---|---|---|---|
| In € million | Zhejiang Lansol | Japan | Solvay Soda Ash |
| Non-controlling ownership interest | 45% | 33% | 20% |
| Statement of financial position | |||
| Non-current assets | 20 | 17 | 305 |
| Current assets | 31 | 24 | 25 |
| Non-current liabilities | 3 | 1 | 12 |
| Current liabilities | 19 | 5 | 25 |
| Income statement | |||
| Sales | 44 | 64 | 361 |
| Profit for the year | 5 | 8 | 166 |
| Other comprehensive income | (1) | (3) | 22 |
| Total comprehensive income | 4 | 6 | 188 |
| Dividends paid to non-controlling interests | 2 | 34 | |
| Share of non-controlling interest in the profit for the year | 2 | 3 | 33 |
| Accumulated non-controlling interests | 13 | 12 | 59 |
Solvay has set up compensation plans, including equity-settled and cash-settled share-based compensation plans.
In its equity-settled plans, the Group receives services as consideration for its own equity instruments (namely through the issuance of share options). The fair value of services rendered by employees in consideration of the granting of equity instruments represents an expense. This expense is recognized on a straightline basis in the consolidated income statement over the vesting periods relating to these equity instruments with the recognition of a corresponding adjustment in equity. The fair value of services rendered is measured based on the fair value of the equity instruments on the grant date. It is not subsequently remeasured. At each reporting date, the Group re-estimates the number of share options likely to vest. The impact of the revised estimates is recognized in profit or loss against a corresponding adjustment in equity.
In its cash-settled plans, the Group acquires services by incurring a liability to transfer to its employees rendering those services amounts that are based on the price (or value) of equity instruments (including shares or share options) of the Group (namely through the issuance of performance share units). The fair value of services rendered by employees in consideration of the granting of share-based payments represents an expense. This expense is recognized on a straight-line basis in the consolidated income statement over the vesting periods relating to these share-based payments with the recognition of a corresponding adjustment in liabilities. At each reporting date, the Group re-estimates the number of options likely to vest, with the impact of the revised estimates recognized in profit or loss. The Group measures the services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Group remeasures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period.
As every year since 1999, in 2018 the Board of Directors renewed the share option plan offered to executive staff (52 beneficiaries) with a view to involving them more closely in the long-term development of the Group. The plan is an equity-settled sharebased plan. The majority of the managers involved subscribed to the options offered to them in 2018 with an exercise price of € 113.11 for the first plan and € 108.38 for the second plan, representing the average stock market price of the share for the 30 days prior to the offer.
At the end of December 2018, the Group held 2,722,761 treasury shares, which have been deducted from consolidated shareholders' equity.
| 2018–2 | 2018–1 | 2017 | 2016 | 2015 | 2014 |
|---|---|---|---|---|---|
| 316,935 | 759,023 | 346,617 | 378,506 | ||
| 72,078 | 400,704 | ||||
| (18,152) | |||||
| 72,078 | 400,704 | 316,935 | 759,023 | 346,617 | 360,354 |
| 346,617 | 360,354 | ||||
| 108.38 | 113.11 | 111.27 | 75.98 | 114.51 | 101.14 |
| 20.81 | 19.10 | 23.57 | 17.07 | 24.52 | 22.79 |
| Share options | 2013 | 2012 | 2011 | 2010 | 2007 | 2006 | 2005 |
|---|---|---|---|---|---|---|---|
| Number of share options granted and still outstanding at December 31, 2017 |
371,161 | 456,349 | 91,164 | 83,490 | 69,122 | 67,423 | 47,061 |
| Granted share options | |||||||
| Forfeitures of rights and expiries | (2,130) | (32,238) | |||||
| Share options exercised | (3,990) | (51,390) | (28,683) | (81,360) | (1,064) | (2,702) | (14,823) |
| Number of share options at December 31, 2018 |
367,171 | 404,959 | 62,481 | 0 | 68,058 | 64,721 | 0 |
| Share options exercisable at December 31, 2018 |
367,171 | 404,959 | 62,481 | 0 | 68,058 | 64,721 | 0 |
| Exercise price (in €) | 104.33 | 83.37 | 61.76 | 71.89 | 90.97 | 102.53 | 91.45 |
| Fair value of options at measurement date (in €) |
20.04 | 21.17 | 12.73 | 14.64 | 17.56 | 19.92 | 10.77 |
| 2018 | 2017 | |||
|---|---|---|---|---|
| Number of share options |
Weighted average exercise price |
Number of share options |
Weighted average exercise price |
|
| At January 1 | 2,986,850 | 97.90 | 3,312,784 | 93.30 |
| Granted during the year | 472,782 | 112.39 | 316,935 | 111.27 |
| Forfeitures of rights and expiries during the | ||||
| year | (34,368) | 90.24 | (7,292) | 67.99 |
| Exercised during the year | (202,164) | 78.58 | (635,577) | 80.97 |
| At December 31 | 3,223,101 | 101.32 | 2,986,850 | 97.90 |
| Exercisable at December 31 | 1,674,361 | 1,563,211 |
In 2018, the share options resulted in an expense of € 9 million, which was calculated by third parties according to the Black-Scholes model, and recognized in the consolidated income statement as part of administrative costs.
The valuation of the first stock option plan of 2018 is based on:
a dividend yield of 2.85%.
The valuation of the second stock option plan of 2018 is based on:
Weighted average remaining contractual life:
| In years | 2018 | 2017 |
|---|---|---|
| Share option plan 2005 | 0.0 | 1.0 |
| Share option plan 2006 | 1.0 | 2.0 |
| Share option plan 2007 | 2.0 | 3.0 |
| Share option plan 2010 | 0.0 | 1.0 |
| Share option plan 2011 | 1.0 | 1.9 |
| Share option plan 2012 | 1.1 | 2.1 |
| Share option plan 2013 | 2.2 | 3.2 |
| Share option plan 2014 | 3.2 | 4.2 |
| Share option plan 2015 | 4.2 | 5.2 |
| Share option plan 2016 | 5.2 | 6.2 |
| Share option plan 2017 | 6.2 | 7.2 |
| Share option plan 2018 – 1 | 7.2 | – |
| Share option plan 2018 – 2 | 7.6 | – |
Since 2013, the Board of Directors renewed a yearly Performance Share Unit Plan, offered to executive staff with the objective of involving them more closely in the development of the Group, making this part of the long-term incentive policy. All the managers involved subscribed the PSU offered to them in 2018 at a grant price of € 113.11. The Performance Share Units is a cash-settled share-based plan through which beneficiaries will obtain a cash benefit based on the Solvay share price, as well as performance conditions and accrued dividends.
Each plan has a three-year vesting period, after which a cash settlement will take place, if vesting conditions have been met.
| Performance share units | Plan 2018 | Plan 2017 |
|---|---|---|
| Number of PSU | 215,567 | 222,746 |
| Grant date | 27/02/2018 | 23/02/2017 |
| Acquisition date | 01/01/2021 | 01/01/2020 |
| Vesting period | 31/03/2018 to 31/12/2020 | 31/03/2017 to 31/12/2019 |
| 40% of the initial granted PSUs are subject to the Underlying EBITDA YoY growth % over 3 years (2018, 2019, 2020) |
40% of the initial granted PSUs are subject to the Underlying EBITDA YoY growth % over 3 years (2017, 2018, 2019) |
|
| Performance conditions | 40% of the initial granted PSUs are subject to the CFROI YoY % variation over 3 years (2018, 2019, 2020) |
40% of the initial granted PSUs are subject to the CFROI YoY % variation over 3 years (2017, 2018, 2019) |
| 20% of the initial granted PSUs are subject to the GHG Intensity reduction target at the end of the accounting period ending December 31, 2020 |
20% of the initial granted PSUs are subject to the GHG Intensity reduction target at the end of the accounting period ending December 31, 2019 |
|
| Validation of performance conditions | By the Board of Directors | By the Board of Directors |
In 2018 the impact on the consolidated income statement regarding PSU (net of hedging) amounts to € 15 million, as against € 21 million in 2017. The carrying amount of the PSU liability at the end of 2018 amounts to € 44 million, as against € 58 million at the end of 2017.
| Employee | ||||||
|---|---|---|---|---|---|---|
| In € million | benefits | Restructuring | Environment | Litigation | Other | Total |
| At December 31, 2017 | 2,816 | 62 | 702 | 129 | 180 | 3,890 |
| Additions | 77 | 198 | 60 | 21 | 35 | 390 |
| Reversals of unused amounts | (26) | (10) | (14) | (12) | (14) | (76) |
| Uses | (218) | (64) | (76) | (16) | (21) | (395) |
| Increase through discounting | 54 | 22 | 1 | 78 | ||
| Remeasurements | (33) | (33) | ||||
| Currency translation differences | 7 | (3) | (3) | 2 | 3 | |
| Disposals | (1) | (2) | ||||
| Transfer to liabilities associated with assets held for sale |
(2) | (1) | ||||
| Other | (6) | (1) | 1 | (12) | (18) | |
| At December 31, 2018 | 2,671 | 185 | 691 | 121 | 168 | 3,836 |
| Of which current provisions | 95 | 97 | 8 | 81 | 281 |
The use (cash-out) of € 395 million includes € 390 million for continuing operations, of which € 213 million for employee benefits, € 64 million for restructuring plans, and € 76 million for environmental items. The line "increase through discounting" includes € 74 million for increase at constant discount rate and an amount of € 4 million relating to change of discount rate.
The deleveraging corresponds to the net difference between:
The deleveraging of Solvay provisions amounts to € 6 million. This amount is lower than in previous years due to the impact of the Group's simplification plan launched in 2018, for which a provision of € 177 million has been recognized.
The deleveraging of employee benefits obligations amounts to € 113 million, a trend which is explained by the fact that most plans have been closed to new entrants.
Management expects provisions (other than employee benefits) to be used (cash outlays) as follows:
| Between | ||||
|---|---|---|---|---|
| In € million | Up to 5 years | 5 and 10 years | Beyond 10 years | Total |
| Provisions for environment | 317 | 117 | 258 | 691 |
| Provisions for litigation | 112 | 9 | 121 | |
| Provisions for restructuring and other | 312 | 26 | 15 | 353 |
| At December 31, 2018 | 741 | 151 | 272 | 1,165 |
Accounting policy
The Group's employees are offered various post-employment benefits, other long-term employee benefits, and termination benefits as a result of legislation applicable in certain countries, contractual agreements entered into by the Group with its employees or constructive obligations.
The post-employment benefits are classified as defined contribution or defined benefit plans.
Defined contribution plans involve the payment of fixed contributions to a separate entity and release the employer from any subsequent obligation, as this separate entity is solely responsible for paying the amounts due to the employee. The expense is recognized when an employee has rendered services to the Group during the period.
Defined benefit plans concern all plans other than defined contribution plans and include:
Taking projected final salaries into account on an individual basis, post-employment benefits are measured by applying a method (projected unit credit method) using assumptions involving discount rate, life expectancy, turnover, wages, annuity revaluation, and medical cost inflation. The assumptions specific to each plan take into account the local economic and demographic contexts.
The discount rates are interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension obligation.
The amount recognized under post-employment obligations corresponds to the difference between the present value of future obligations and the fair value of the plan assets funding the plan, if any. If this calculation gives rise to a deficit, an obligation is recognized in liabilities. Otherwise, a net asset limited to the lower of the surplus in the defined benefit plan and the present value of any future plan refunds or any reduction in future contributions to the plan is recognized.
The defined benefit cost consists of service cost and net interest expense (based on discount rate) on the net liability or asset, both recognized in profit or loss, and remeasurements of the net liability or asset, recognized in other comprehensive income.
Service cost consists of current service cost, past service cost resulting from plan amendments or curtailments, and settlement gains or losses.
The interest expenses arising from the reverse discounting of the benefit obligations, the financial income on plan assets (determined by multiplying the fair value of the plan assets by the discount rate), as well as interest on the effect of the asset ceiling are recognized on a net basis in the net financial charges (cost of discounting of provisions).
Remeasurements of the net liability or asset consist of:
Other long-term and termination benefits are accounted for in the same way as post-employment benefits but remeasurements are fully recognized in the net financial charges during the period in which they occur.
The actuarial calculations of the main post-employment obligations and other long-term benefits are performed by independent actuaries.
| In € million | 2018 | 2017 |
|---|---|---|
| Post-employment benefits | 2,490 | 2,635 |
| Other long-term benefits | 132 | 132 |
| Termination benefits | 50 | 49 |
| Total employee benefits | 2,671 | 2,816 |
For defined contribution plans, Solvay pays contributions to publicly or privately administered pension funds or insurance companies. For 2018, the expense amounts to € 58 million as against € 55 million for 2017.
Defined benefit plans can either be funded via outside pension funds or insurance companies ("funded plans") or financed within the Group ("unfunded plans").
The net liability results from the net of the provisions and the asset plan surplus.
| In € million | 2018 | 2017 |
|---|---|---|
| Provisions | 2,490 | 2,635 |
| Asset plan surplus | (5) | (14) |
| Net liability | 2,485 | 2,622 |
| Operational expense | 31 | 31 |
| Finance expense | 51 | 62 |
The operating expense includes current service cost for € 47 million.
Over recent years, the Group has reduced its exposure to defined benefit plan obligations stemming from future services by converting existing plans into pension plans with a lower risk profile (hybrid plans, cash balance plans, and defined contribution plans) or by closing them to new entrants.
Solvay continuously monitors its risk exposure, focusing on the following risks:
Equity instruments, even though expected to outperform corporate bonds in the long-term, create volatility and risk in the short-term. To mitigate this risk, the allocation to equity instruments is monitored using Assets and Liabilities Management techniques, to ensure it remains appropriate given the long-term objectives of the Group and of the respective schemes.
A decrease in corporate bond yields will increase the carrying amount of the plan's liabilities. For funded schemes this impact will be offset partially by an increase in the fair value of the plan assets.
The defined benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most cases, caps on the level of inflationary increases are in place to protect against extreme inflation). A limited part of the assets are either unaffected by or only loosely correlated with inflation, meaning that an increase in inflation will also increase the plans' liabilities.
The majority of the schemes' obligations are to provide benefits for the life of the member. Increases in life expectancy will therefore increase the plans' liabilities.
This risk is limited, as major plans in foreign currency are funded and most of their assets are denominated in the currency in which benefit payments will take place.
For partly or fully unfunded plans, the Group is exposed to the risk of external funding following regulatory constraints. This should not impact the defined benefit obligation but could expose the Group to a potential significant cash outlay.
For more information about Solvay Group risk management, refer to the "Management of risks" section of the present document.
The provisions have been set up to cover post-employment benefits granted by most Group companies, in line either with local rules and customs or with established practices which generate constructive obligations.
The largest post-employment plans in 2018 are in the United Kingdom, France, the United States, Germany, and Belgium. These five countries represent 94% of the total defined benefit obligations.
| Defined | Ratio plan assets on defined |
|||||
|---|---|---|---|---|---|---|
| 2018 In € million |
benefit obligations |
In % | Recognized plan assets |
Net liability | In % | benefit obligations |
| United Kingdom | 1,530 | 31% | 1,124 | 406 | 16% | 73% |
| United States | 1,271 | 25% | 981 | 290 | 12% | 77% |
| France | 1,021 | 20% | 1 | 1,020 | 41% | 0% |
| Germany | 520 | 10% | 0 | 520 | 21% | 0% |
| Belgium | 385 | 8% | 242 | 143 | 6% | 63% |
| Other countries | 294 | 6% | 188 | 106 | 4% | 64% |
| Total | 5,022 | 100% | 2,536 | 2,485 | 100% | 51% |
| 2017 In € million |
Defined benefit obligations |
In % | Recognized plan assets |
Net liability | In % | Ratio plan assets on defined benefit obligations |
|---|---|---|---|---|---|---|
| United Kingdom | 1,645 | 31% | 1,220 | 425 | 16% | 74% |
| United States | 1,371 | 25% | 1,056 | 315 | 12% | 77% |
| France | 1,085 | 20% | 6 | 1,079 | 41% | 1% |
| Germany | 552 | 10% | 0 | 552 | 21% | 0% |
| Belgium | 393 | 8% | 247 | 147 | 6% | 63% |
| Other countries | 303 | 6% | 198 | 105 | 4% | 65% |
| Total | 5,349 | 100% | 2,727 | 2,622 | 100% | 51% |
It is worth highlighting that unfunded plans – mainly in Germany and France – account for 62% of the 2018 net liability. See comments by countries below.
Solvay sponsors a few defined benefit plans in the United Kingdom; the largest one is the Rhodia Pension Fund. This is a final salary funded pension plan, with entitlement to accrue a percentage of salary per year of service. It was closed to new entrants in 2003 and replaced by a defined contribution plan.
Broadly, about 8% of the liabilities are attributable to current employees, 27% to former employees, and 65% to current pensioners.
The Fund functions and complies with UK legislation under a large regulatory framework. The Pensions Regulator has a riskbased approach to regulation and a code of practice which provides practical guidance to trustees and employers of defined benefit schemes on how to comply with the scheme funding requirements. In accordance with UK legislation, the Fund is subject to Scheme Specific Funding which requires that pension plans are funded prudently.
The UK Rhodia Pension Fund is governed by a Board of Trustees. They manage the Fund with prudent and fair judgment. The Trustees determine the liabilities used for Statutory Funding Objectives based on prudent actuarial and economic assumptions. Any shortfall or deficit once these liabilities have been deducted from the Fund's assets must be reduced by additional contributions and in a time frame determined in accordance with the employer's ability to pay and the strength of covenant or contingent security being offered by the employer.
The Rhodia Pension Fund is subject to a triennial valuation cycle for funding purposes. This valuation is performed by the scheme actuary in line with UK regulations and is discussed between the Trustees and the sponsoring employer to agree the valuation assumptions and a funding plan. The last completed valuation was as at January 1, 2018 which established a fixed contribution rate of pensionable pay for active members plus a deficit recovery plan which aims to fund the scheme's technical provisions over a period of time. Recovery contributions have been increased so that the plan is expected to be fully funded by the end of 2027 in accordance with local regulations. Under IFRS the plan is expected to be fully funded around 2024.
The guarantee provided by Solvay (£ 550 million) is based on local regulations and exceeds the recognized liability (€ 406 million) – See note F39 Contingent liabilities and financial guarantees.
Solvay sponsors various defined benefit plans in France. The largest plans are the French compulsory retirement indemnity plan and two closed and one open top hat plans.
The main plan is for all former Rhodia current and retired employees who contributed to the plan prior to its closure in the 1970s. It offers a full benefit guarantee based on the end-ofcareer salary. This plan is unfunded and approximately 98% of the liabilities are attributable to current pensioners.
In accordance with French legislation, adequate guarantees have been provided.
As of year-end 2018 Solvay sponsored five different defined benefit pension plans in the United States (two qualified plans and three non-qualified plans). A qualified plan is an employersponsored retirement plan that qualifies for special tax treatment under Section 401(a) of the Internal Revenue Code. At this moment all defined benefit plans are closed to new entrants; newly hired employees are eligible to participate in a defined contribution plan. Note that the two qualified defined benefit pension plans are funded while the three non-qualified defined benefit pension plans are unfunded. The qualified plans make up the vast majority of the pension liabilities as of December 31, 2018.
Solvay's plans are in compliance with local laws regarding audited financial statements, governmental filings, and Pension Benefit Guaranty Corporation insurance premiums where applicable. The plans are reviewed and monitored locally by fiduciary committees for purposes of plan investments and administrative matters.
For the US qualified plans, Solvay's contributions take into account minimum (tax-deductible) funding requirements and maximum tax deductible contributions, both regulated by the tax authorities.
Certain eligible participants may elect to receive their pension in a single lump sum payment instead of a monthly payment.
Broadly, about 27% of the liabilities are attributable to current employees, 9% to former employees for whom benefit payments have not yet commenced, and 64% to current pensioners.
In 2018, in the United States Solvay contributed to two multiemployer pension plans under collective bargaining agreements that cover certain of its union-represented employees. Each of the multiemployer plans is a defined benefit pension plan. None of the multiemployer plans provides an allocation of its assets, liabilities, or costs among contributing employers. None of the multiemployer plans provides sufficient information to permit Solvay, or other contributing employers, to account for the multiemployer plan as a defined benefit plan. Accordingly, the company accounts for its participation in each of the multiemployer plans as if they were a defined contribution plan. For multiemployer plans, during 2018 and 2017, the annual contributions paid are less than € 1 million.
Solvay sponsors various defined benefit plans in Germany. The largest plans are a closed final-pay plan and an open cash balance plan. As is common in Germany, all plans are unfunded. Broadly, about 62% of the liabilities are attributable to current pensioners.
Solvay sponsors two defined benefit plans in Belgium. These are funded pension plans. The plan for executives has been closed since the end of 2006, and the plan for the white and blue collars has been closed since 2004. The past service benefits provided under these plans continues to be adapted each year considering annual salary increase and inflation ("Dynamic management"). In accordance with market practice in Belgium, because of favorable retirement lump sum taxation most benefits are paid as lump sum.
Furthermore, Solvay sponsors two open defined contribution plans, classified as defined benefit plans for accounting purposes due to the minimum guarantees explained below. These are funded pension plans: the plan for executives opened at the beginning of 2007 and the plan for white and blue collars opened at the beginning of 2005. There are four different investment funds – ranging from "Prudent" to "Dynamic" – in which participants may choose to invest their contributions However, regardless of their choices, Belgian law stipulates that the employer must guarantee a return on employer contribution and on personal contribution, thereby creating a potential liability for the Group. Since 2016 the return has been fixed at 1.75% for both types of contributions, at the minimum of the range provided by law since January 1, 2016 (1.75% to 3.75%). For these plans Solvay has € 127 million of plan assets at December 31, 2018, and paid € 8 million of contributions during 2018. At the end of 2018 net liability recognized in the consolidated statement of financial position concerning these plans is not material.
Solvay's plans are administered through the Solvay Pension Fund, which operates in compliance with local laws regarding minimum funding, investments principles, audited financial statements, governmental filings, and governance principles. The Pension Fund is managed through a General Assembly and a Board of Directors delegating day-to-day activities to an operational Committee.
Solvay sponsors a few other smaller pension plans. All these plans are insured.
The majority of the obligations relate to pension plans. In some countries (mainly the United States), there are also postemployment medical plans, which represent 5% of the total defined benefit obligation.
| In € million | 2018 | 2017 |
|---|---|---|
| Net amount recognized at beginning of period | 2,622 | 2,936 |
| Net expense recognized in P&L – Defined benefit plans | 82 | 93 |
| Actual employer contributions/direct actual benefits paid | (196) | (203) |
| Acquisitions and disposals | (8) | 7 |
| Remeasurements before impact of asset ceiling | (25) | (93) |
| Change in the effect of the asset ceiling limit on remeasurements | (1) | (2) |
| Reclassifications | 4 | (2) |
| Currency translation differences | 7 | (72) |
| Transfer to (liabilities associated with) assets held for sale | (43) | |
| Net amount recognized at end of period | 2,485 | 2,622 |
Remeasurements before impact of asset ceiling in the amount of € (25) million comprise:
| In € million | 2018 | 2017 |
|---|---|---|
| Current service costs | 47 | 51 |
| Past service costs (including curtailments) | (26) | (31) |
| Service costs | 20 | 20 |
| Interest cost | 135 | 154 |
| Interest income | (84) | (93) |
| Net interest | 51 | 62 |
| Administrative expenses paid | 11 | 12 |
| Net expense recognized in P&L – Defined benefit plans | 82 | 93 |
| Remeasurements recognized in other comprehensive income | (26) | (95) |
The service costs and administrative expenses of these benefit plans are recognized within cost of sales, commercial and administrative costs, research & development costs or operating gains and losses and results from legacy remediation, and the net interest is recognized as a finance expense.
In 2018 the Group's current service costs amount to € 47 million, of which € 31 million relate to funded plans and € 16 million relate to unfunded plans. Past service costs include mainly favorable impacts reflecting the amendment of post-retirement healthcare and death benefit plan in the United States (€ 24 million), a curtailment effect (€ 15 million) mainly in France and in Belgium, compensated by an unfavorable impact of the UK guarantee minimum pension for € 16 million (see Key sources of estimation uncertainty).
In 2017 the Group's current service costs amounted to € 51 million, of which € 34 million related to funded plans and € 17 million related to unfunded plans. Past service costs include favorable impacts reflecting the amendment of post-retirement healthcare and death benefit plan in the United States (€ 37 million).
| In € million | 2018 | 2017 |
|---|---|---|
| Defined benefit obligations – Funded plans | 3,200 | 3,402 |
| Fair value of plan assets at end of period | (2,542) | (2,733) |
| Deficit for funded plans | 658 | 669 |
| Defined benefit obligations – Unfunded plans | 1,822 | 1,947 |
| Deficit/Surplus (–) | 2,481 | 2,616 |
| Amounts not recognized as asset due to asset ceiling (recognized in other comprehensive income) | 5 | 6 |
| Net liability (asset) | 2,485 | 2,622 |
| Provision recognized | 2,490 | 2,635 |
| Asset recognized | (5) | (14) |
| In € million | 2018 | 2017 |
|---|---|---|
| Defined benefit obligation at beginning of period | 5,349 | 5,739 |
| Current service costs | 47 | 51 |
| Past service costs (including curtailments) | (26) | (31) |
| Interest cost | 135 | 154 |
| Employee contributions | 4 | 4 |
| Settlements | (8) | (14) |
| Acquisitions and disposals (–) | (8) | 7 |
| Remeasurements in other comprehensive income | (209) | 113 |
| Actuarial gains and losses due to changes in demographic assumptions | (45) | (23) |
| Actuarial gains and losses due to changes in financial assumptions | (139) | 106 |
| Actuarial gains and losses due to experience | (26) | 30 |
| Actual benefits paid | (296) | (300) |
| Currency translation differences | 29 | (310) |
| Reclassification and other movements | 4 | |
| Transfer from/to (liabilities associated with) assets held for sale | 2 | (64) |
| Defined benefit obligation at end of period | 5,022 | 5,349 |
| Defined benefit obligations – Funded plans | 3,200 | 3,402 |
| Defined benefit obligations – Unfunded plans | 1,822 | 1,947 |
| In € million | 2018 | 2017 |
|---|---|---|
| Fair value of plan assets at beginning of period | 2,733 | 2,811 |
| Interest income | 84 | 93 |
| Remeasurements in other comprehensive income | (185) | 206 |
| Employer contributions | 196 | 203 |
| Employee contributions | 4 | 4 |
| Administrative expenses paid | (11) | (12) |
| Settlements | (8) | (14) |
| Actual benefits paid | (296) | (300) |
| Currency translation differences | 23 | (238) |
| Reclassification and other movements | 2 | |
| Transfer from/to (liabilities associated with) assets held for sale | 1 | (21) |
| Fair value of plan assets at end of period | 2,542 | 2,733 |
| Actual return on plan assets | (101) | 299 |
In 2018 the total return on plan assets, i.e. including interest income, amounts to € (101) million against € 299 million in 2017.
In 2018, the Group's cash contributions (including direct benefits payments) amount to € 196 million, of which € 95 million of contributions to funds and € 101 million of direct benefits payments.
The Group's cash contributions (including direct benefit payments) for 2017 amounted to € 203 million, of which € 108 million of contributions to funds and € 95 million of direct benefits payments.
Except for any significant change in the regulatory environment (see "regulatory risk" above), the Group's cash contributions in 2019 are expected to approximate € 190 million.
| 2018 | 2017 | |||
|---|---|---|---|---|
| Quoted | Non quoted | Quoted | Non quoted | |
| Equity | 36% | 0% | 40% | 0% |
| Bonds | ||||
| Investment Grade | 55% | 0% | 50% | 0% |
| Non Investment Grade | 2% | 0% | 6% | 0% |
| Properties | 1% | 0% | 1% | 0% |
| Cash and cash equivalents | 2% | 0% | 2% | 0% |
| Derivatives | ||||
| Structured debt (LDI) | 0% | 0% | 1% | 0% |
| Other derivatives | 0% | 0% | 1% | 0% |
| Others | 3% | 0% | 0% | 0% |
| Total | 100% | 0% | 100% | 0% |
With respect to the invested assets, it should be noted that these assets do not contain any direct investment in Solvay Group shares or in property or other assets occupied or used by Solvay. This does not prevent Solvay shares from being included in mutual investment fund type investments.
| In € million | 2018 | 2017 |
|---|---|---|
| Effect of the asset ceiling limit at beginning of period | 6 | 8 |
| Change in the effect of the asset ceiling limit on remeasurements | (1) | (2) |
| Effect of the asset ceiling limit at end of period | 5 | 6 |
Some of the retirement plans that Solvay has in place provide annuity payments that are adjusted on a regular basis to mitigate the effects for cost of living increases.
The salary growth assumption is used to determine what will be the salary at the end of the career of the individuals, as the defined benefit plans take into account the last salary of the individuals. This assumption includes impacts of both inflation and merit increases.
The pension growth assumption defines the expected future adjustments for these annuity payments. The plan defines how these annuity payments will be adjusted and might be linked to inflation. Pension growth assumptions mainly apply for the defined benefit retirement plans in the United Kingdom, France, and Germany.
Inflation assumption is presented separately as salary growth and pension growth assumptions encompass more variables than inflation.
| Eurozone | United Kingdom | United States | ||||
|---|---|---|---|---|---|---|
| In % | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Discount rates | 1.75 | 1.50 | 2.75 | 2.50 | 4.00 | 3.50 |
| Expected rates of future salary increases | 1.75 – 4.00 | 1.75 – 4.00 | 2.15 – 3.25 | 2.15 – 3.25 | 3.00 – 3.75 | 3.00 – 3.75 |
| Inflation | 1.75 – 2.00 | 1.50 – 1.75 | 3.25 | 3.25 | 2.25 | 2.25 |
| Expected rates of pension growth | 0.00 – 2.00 | 0.00 – 1.75 | 3.10 | 3.05 | NA | NA |
| Eurozone | United Kingdom | United States | ||||
|---|---|---|---|---|---|---|
| In % | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Discount rates | 1.50 | 1.50 | 2.50 | 2.75 | 3.50 | 4.00 |
| Expected rates of future salary increases | 1.75 – 4.00 | 1.75 – 4.00 | 2.15 – 3.25 | 2.40 – 3.50 | 3.00 – 3.75 | 3.00 – 3.75 |
| Inflation | 1.50 – 1.75 | 1.50 – 2.00 | 3.25 | 3.50 | 2.25 | 2.25 |
| Expected rates of pension growth | 0.00 – 1.75 | 0.00 – 1.75 | 3.10 | 3.30 | NA | NA |
Actuarial assumptions regarding future mortality are based on recent country-specific mortality tables. These assumptions translate at January 1, 2018 into an average remaining life expectancy in years for a pensioner retiring at age 65:
| In years | United Kingdom | United States | Belgium | France | Germany |
|---|---|---|---|---|---|
| Retiring at the end of the reporting period | |||||
| Male | 21 | 20 | 18 | 24 | 20 |
| Female | 23 | 22 | 21 | 28 | 24 |
| Retiring 20 years after the end of the reporting period | |||||
| Male | 22 | 21 | 18 | 27 | 22 |
| Female | 24 | 23 | 21 | 31 | 26 |
In some countries such as United Kingdom and United States, the mortality assumptions reflect actual scheme experience and/or Solvay's expectations in terms of future mortality improvements.
The actuarial assumptions used in determining the employee benefits obligation at December 31 are based on the following employee benefits liabilities durations:
| Eurozone | United Kingdom | United States | |
|---|---|---|---|
| Duration in years | 12.0 | 15.9 | 10.7 |
Each sensitivity amount is calculated assuming that all other assumptions are held constant. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously.
Sensitivity to a change of percentage in the discount rates:
| In € million | 0.25% increase | 0.25% decrease |
|---|---|---|
| Eurozone | (58) | 60 |
| United Kingdom | (57) | 60 |
| United States | (32) | 33 |
| Others | (6) | 6 |
| Total | (153) | 159 |
Sensitivity to a change of percentage in the inflation rates:
| In € million | 0.25% increase | 0.25% decrease |
|---|---|---|
| Eurozone | 54 | (52) |
| United Kingdom | 40 | (39) |
| United States | ||
| Others | 5 | (4) |
| Total | 99 | (95) |
Sensitivity to a change of percentage in salary growth rates:
| In € million | 0.25% increase | 0.25% decrease |
|---|---|---|
| Eurozone | 15 | (14) |
| United Kingdom | 3 | (3) |
| United States | 2 | (1) |
| Others | 1 | (1) |
| Total | 21 | (19) |
Sensitivity to a change of one year on mortality tables - The table shows impacts when the age of all beneficiaries increases or decreases by one year:
| Age correction +1 | Age correction –1 | |
|---|---|---|
| In € million | year | year |
| Eurozone | (78) | 80 |
| United Kingdom | (57) | 58 |
| United States | (29) | 30 |
| Others | (7) | 8 |
| Total | (171) | 176 |
Provisions are recognized when (a) the Group has a present obligation (legal or constructive) as a result of a past event, (b) it is probable that the Group will be required to settle the obligation, and (c) a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where the effect of the time value of money is material, the amount is the present value of expenditures required to settle the obligation. Impacts of changes in discount rates are generally recognized in the financial result.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received if the Group settles the obligation.
An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Present obligations arising from onerous contracts are recognized and measured as provisions.
A restructuring provision is recognized when the Group has developed a detailed formal plan for the restructuring and has, by starting to implement the plan or announcing its main features to those affected by it, raised a valid expectation in those affected that it will carry out the restructuring. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.
Twice a year Solvay analyzes all its environmental risks and the corresponding provisions. Solvay measures these provisions to the best of its knowledge of applicable regulations, the nature and extent of the pollution, clean-up techniques, and other available information.
These provisions amount to € 185 million, as against € 62 million at the end of 2017.
The main provisions at the end of 2018 relate to the Group's simplification program announced in March 2018 (€ 160 million).
These provisions amount to € 691 million at the end of 2018, as against € 702 million at the end of 2017, and pertain to:
The estimated amounts are discounted based on the probable date of settlement, and are adjusted periodically to reflect the passage of time.
Provisions for litigation refer to tax and legal exposures. They amount to € 121 million at the end of 2018 as against € 129 million at the end of 2017. The balance at the end of 2018 relates to tax risks (€ 52 million) and legal claims (€ 69 million).
Other provisions relate to the shutdown or disposal of activities and amount to € 168 million, as against € 180 million at the end of 2017.
As explained in the basis of preparation, the Group adopted IFRS 9 Financial Instruments on January 1, 2018 using the modified retrospective approach. Hereinafter are disclosed the accounting policies applied in 2018 (IFRS 9 Financial Instruments). For accounting policies applied in 2017 (IAS 39 Financial Instruments: Recognition and Measurement), refer to the 2017 Annual Report. Transition impacts have been discussed in the basis of preparation.
Financial assets and liabilities are first recognized when Solvay becomes a party to the contractual provisions of the instrument.
Amortized cost is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortization, using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortized cost of a financial liability. When calculating the effective interest rate, the Group estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call, and similar options) but does not consider the expected credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.
Trade receivables are initially measured at their transaction price if they do not contain a significant financing component, which is the case for substantially all trade receivables. Other financial assets are initially measured at fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset.
A financial asset is classified as current when the cash flows expected to flow from the instrument mature within one year.
All recognized financial assets will subsequently be measured at either amortized cost or fair value under IFRS 9 Financial Instruments. Specifically:
For instruments quoted in an active market, the fair value corresponds to a market price (level 1). For instruments that are not quoted in an active market, the fair value is determined using valuation techniques including reference to recent arm's length market transactions or transactions involving instruments which are substantially the same (level 2), or discounted cash flow analysis including, to the greatest possible extent, assumptions consistent with observable market data (level 3). However, in limited circumstances, cost of equity instruments may be an appropriate estimate of their fair value. That may be the case if insufficient more recent information is available to measure fair value, or if there is a wide range of possible fair value measurements and cost represents the best estimate of fair value within that range.
The impairment loss of a financial asset measured at amortized cost is calculated based on the expected loss model, representing the weighted average of credit losses with the respective risks of a default occurring as the weight. Expected credit losses are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate.
For trade receivables that do not contain a significant financing component (i.e. substantially all trade receivables), the loss allowance is measured at an amount equal to lifetime expected credit losses. Those are the expected credit losses that result from all possible default events over the expected life of those trade receivables, using a provision matrix that takes into account historical information on defaults adjusted for the forwardlooking information per customer. The Group considers a financial asset in default when contractual payments are 60 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
Impairment losses are recognized in the consolidated income statement, except for debt instruments measured at fair value through other comprehensive income. In this case, the allowance is recognized in other comprehensive income.
Financial liabilities are initially measured at fair value minus, in the case of a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the issue of the financial liability. Subsequently, they are measured at amortized cost, except for:
A derivative financial instrument is a financial instrument or other contract within the scope of IFRS 9 Financial Instruments with all three of the following characteristics:
its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating, credit index, or other variable, provided in the case of a nonfinancial variable that the variable is not specific to a party to the contract (sometimes called the "underlying");
The Group enters into a variety of derivative financial instruments (forward, future, option, collars, and swap contracts) to manage its exposure to interest rate risk, foreign exchange rate risk, and commodity risk (mainly energy and CO2 emission rights price risks).
As explained above, derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in income or expense, unless the derivative is designated and effective as a hedging instrument. The Group designates certain derivatives as hedging instruments of the exposure to variability in cash flows with respect to a recognized asset or liability or a highly probable forecast transaction that could affect profit or loss (cash flow hedges).
A derivative with a positive fair value is recognized as a financial asset whereas a derivative with a negative fair value is recognized as a financial liability. Derivative instruments (or portions of them) are presented as non-current assets or non-current liabilities if the remaining maturity of the underlying settlements is more than twelve months after the reporting period. Other derivative instruments (or portions of them) are presented as current assets or current liabilities.
The Group designates certain derivatives and embedded derivatives, in respect of interest rate risk, foreign exchange rate risk, Solvay share price risk, and commodity risk (mainly energy and CO2 emission rights price risks), as hedging instruments in a cash flow hedge relationship.
At the inception of the hedge relationship, there is a formal designation and documentation of the hedging relationship and the Group's risk management objective and strategy for undertaking the hedge. So to apply hedge accounting: (a) there is an economic relationship between the hedged item and the hedging instrument, (b) the effect of credit risk does not dominate the value changes that result from that economic relationship, and (c) the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The requirement under (a) above that an economic relationship exists means that there is an expectation that the value of the hedging instrument and the value of the hedged item will systematically change in opposite direction in response to movements in either the same underlying (or underlyings that are economically related in such a way that they respond in a similar way to the risk that is being hedged).
The effective portion of changes in the fair value of hedging instruments that are designated in a cash flow hedge is recognized in other comprehensive income.
The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.
As long as cash flow hedge qualifies, the hedging relationship is accounted for as follows:
d. The amount that has been accumulated in the cash flow hedge reserve in accordance with (a) is accounted for as follows:
i) if a hedged forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the Group removes that amount from the cash flow hedge reserve and includes it directly in the initial cost or other carrying amount of the asset or the liability. This is not a reclassification adjustment and hence it does not affect other comprehensive income;
ii) for cash flow hedges other than those covered by (i), that amount is reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment in the same period or periods during which the hedged expected future cash flows affect profit or loss (for example, in the periods that interest income or interest expense is recognized or when a forecast sale occurs);
iii) however, if that amount is a loss and the Group expects that all or a portion of that loss will not be recovered in one or more future periods, it immediately reclassifies the amount that is not expected to be recovered into profit or loss as a reclassification adjustment.
Most hedged items are transaction-related. The time value of options, forward elements of forward contracts, and foreign currency basis spreads of financial instruments that are hedging the items affect profit or loss at the same time as those hedged items.
Hedge accounting is discontinued prospectively when the hedging relationship (or a part of a hedging relationship) ceases to meet the qualifying criteria (after taking into account any rebalancing of the hedging relationship, if applicable). This includes instances when the hedging instrument expires or is sold, terminated, or exercised.
When the Group discontinues hedge accounting for a cash flow hedge it accounts for the amount that has been accumulated in the cash flow hedge reserve as follows:
In € million 2018 2017 Carrying amount Classification Carrying amount Classification Non-current assets – Financial instruments 328 376 Available-for-sale financial assets 44 Available-for-sale Equity instruments measured at fair value through other comprehensive income 51 Financial assets measured at fair value through other comprehensive income Loans and other non-current assets (excluding pension fund surpluses) 277 Financial assets measured at amortized cost 332 Loans and receivables Current assets – Financial instruments 2,801 2,695 Trade receivables 1,434 Financial assets measured at amortized cost 1,462 Loans and receivables Other financial instruments 101 89 Other marketable securities >3 months 68 Financial assets measured at amortized cost 56 Loans and receivables Currency swaps 1 Held for trading 4 Held for trading Other current financial assets 32 Financial assets measured at amortized cost 28 Loans and receivables Financial instruments – Operational 162 153 Held for trading 151 Held for trading 130 Held for trading Derivative financial instruments designated in a cash flow hedge relationship 12 Cash-flow hedge 23 Cash-flow hedge Cash and cash equivalents 1,103 Financial assets measured at amortized cost 992 Loans and receivables Total assets – Financial instruments 3,128 3,071 Non-current liabilities – Financial instruments 3,301 3,362 Financial debt 3,180 3,182 Bonds 2,937 Financial liabilities measured at amortized cost 2,856 Financial liabilities measured at amortized cost Other non-current debts 208 Financial liabilities measured at amortized cost 282 Financial liabilities measured at amortized cost Long-term finance lease obligations 35 Finance lease liabilities measured at amortized cost 44 Finance lease liabilities measured at amortized cost Other liabilities 121 Financial liabilities measured at amortized cost 180 Financial liabilities measured at amortized cost Current liabilities – Financial instruments 2,416 2,652 Financial debt 630 1,044 Short-term financial debt (excluding finance lease obligations) 616 Financial liabilities measured at amortized cost 1,015 Financial liabilities measured at amortized cost Currency swaps 12 Held for trading 27 Held for trading Short-term finance lease obligations 1 Finance lease liabilities measured at amortized cost 2 Finance lease liabilities measured at amortized cost Trade payables 1,439 Financial liabilities measured at amortized cost 1,330 Financial liabilities measured at amortized cost Financial instruments – Operational 194 130 Held for trading 151 Held for trading 123 Held for trading Derivative financial instruments designated in a cash flow hedge relationship 43 Cash-flow hedge 7 Cash-flow hedge Dividends payables 154 Financial liabilities measured at amortized cost 147 Financial liabilities measured at amortized cost Total liabilities – Financial instruments 5,717 6,014
The following table presents the financial instruments by category, split into current and non-current assets and liabilities.
The following table gives an overview of the carrying amount of all financial instruments by category as defined by IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement.
| 2018 | 2017 | |
|---|---|---|
| Carrying | ||
| In € million | amount | Carrying amount |
| Fair value through profit or loss | ||
| Held for trading (financial instruments – operational – see note F29) | 151 | 130 |
| Held for trading (other financial instruments – see note F36, table Changes in financial debt) | 1 | 4 |
| Derivative financial instruments designated in a cash flow hedge relationship (see note F29) | 12 | 23 |
| Financial assets measured at amortized cost | ||
| Financial assets measured at amortized cost (including cash and cash equivalents, trade receivables, loans and other current/non-current assets except pension fund surpluses) |
2,914 | 2,870 |
| Available-for-sale financial assets (IAS 39) | 44 | |
| Financial assets measured at fair value through other comprehensive income | ||
| Equity instruments measured at fair value through other comprehensive income (IFRS 9) | 51 | |
| Total financial assets | 3,128 | 3,071 |
| Fair value through profit or loss | ||
| Held for trading (financial instruments – operational – see note F37) | (151) | (123) |
| Held for trading (financial debt – see note F36, table Changes in financial debt) | (12) | (27) |
| Derivative financial instruments designated in a cash flow hedge relationship (see note F37) | (43) | (7) |
| Financial liabilities measured at amortized cost | ||
| Financial liabilities measured at amortized cost (including long-term financial debt, other non-current | ||
| liabilities, short-term financial debt and trade liabilities, excluding finance lease liabilities) | (5,321) | (5,663) |
| Dividends payable | (154) | (147) |
| Finance lease obligations (see note F36, section Changes in financial debt) | (36) | (46) |
| Total financial liabilities | (5,717) | (6,014) |
The category "Held for trading" only contains derivative financial instruments that are used for management of foreign currency risk, interest rate risk, energy and CO2 emission rights price risks, index and Solvay share price, but which have not been documented as hedging instruments (hedge accounting under IFRS 9 Financial Instruments). Equity instruments measured at fair value through OCI pertain to Solvay's New Business Development (NBD) activity: the Group has built a Corporate Venturing portfolio which is made up of direct investments in start-up companies and of investments in venture capital funds. If the Group does not have significant influence or joint control, the investments are measured at fair value according to the valuation guidelines published by the European Private Equity and Venture Capital Association, and impacts are recognized through OCI.
Quoted market prices are available for financial assets and financial liabilities with standard terms and conditions that are traded on active markets. The fair values of derivative financial instruments are equal to their quoted prices, if available. If such quoted prices are not available, the fair value of the financial instruments is determined based on a discounted cash flow analysis using the applicable yield curve derived from quoted interest rates matching maturities of the contracts for nonoptional derivatives. Optional derivatives are measured at fair value based on option pricing models, taking into account the present value of probability-weighted expected future payoffs, using market reference formulas.
The fair values of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.
| Fair value of financial instruments measured at amortized cost | |
|---|---|
| ---------------------------------------------------------------- | -- |
| 2018 | 2017 | ||||
|---|---|---|---|---|---|
| In € million | Carrying amount | Fair value | Carrying amount | Fair value | Fair value level |
| Non-current assets – Financial instruments |
277 | 277 | 332 | 332 | |
| Loans and other non current assets (except pension fund surpluses) |
277 | 277 | 332 | 332 | 2 |
| Non-current liabilities – Financial instruments |
(3,301) | (3,396) | (3,362) | (3,550) | |
| Bonds | (2,937) | (3,032) | (2,856) | (3,044) | 1 |
| Other non-current debts | (208) | (208) | (282) | (282) | 2 |
| Other liabilities | (121) | (121) | (180) | (180) | 2 |
| Long-term finance lease obligations |
(35) | (35) | (44) | (44) | 2 |
The carrying amounts of current financial assets and liabilities are estimated to reasonably approximate their fair values, such in light of short terms to maturity.
The table "Financial instruments measured at fair value in the consolidated statement of financial position" provides an analysis of financial instruments that, subsequent to their initial recognition, are measured at fair value, grouped in Levels 1 to 3 based on the degree to which the fair value is observable. Financial instruments classified as held for trading and as hedging instruments in cash flow hedges are mainly grouped in Levels 1 and 2. They are measured at fair value based on forward pricing and swap models using present value calculations. The models incorporate various inputs including foreign exchange spot and interests rates of the respective currencies, currency basis spreads between the respective currencies, interest rate curves, and forward rate curves of the underlying commodity. The equity instruments measured at fair value through OCI fall within Level 3 and are measured based on a discounted cash flow approach.
In accordance with the Group internal rules, the responsibility for measuring the fair value level resides with (a) the Treasury department for the non-energy derivative financial instruments and the non-derivative financial liabilities, (b) the Sustainable Development and Energy department for the energy derivative financial instruments, and (c) the Finance department for nonderivative financial assets.
| 2018 | ||||
|---|---|---|---|---|
| In € million | Level 1 | Level 2 | Level 3 | Total |
| Held for trading | 63 | 89 | 152 | |
| Foreign currency risk | 3 | 3 | ||
| Energy risk | 39 | 82 | 121 | |
| CO2 risk | 24 | 24 | ||
| Solvay share price | 1 | 1 | ||
| Index | 3 | 3 | ||
| Cash flow hedges | 12 | 12 | ||
| Foreign currency risk | 5 | 5 | ||
| Energy risk | 6 | 6 | ||
| CO2 risk | 1 | 1 | ||
| Equity instruments measured at fair value through other comprehensive income |
51 | 51 | ||
| New Business Development | 51 | 51 | ||
| Total (assets) | 63 | 100 | 51 | 215 |
| Held for trading | (70) | (93) | (163) | |
| Foreign currency risk | (11) | (11) | ||
| Interest rate risk | (4) | (4) | ||
| Energy risk | (47) | (67) | (114) | |
| CO2 risk | (23) | (3) | (26) | |
| Solvay share price | (6) | (6) | ||
| Index | (3) | (3) | ||
| Cash flow hedges | (43) | (43) | ||
| Foreign currency risk | (15) | (15) | ||
| Energy risk | (18) | (18) | ||
| CO2 risk | (2) | (2) | ||
| Solvay share price | (7) | (7) | ||
| Total (liabilities) | (70) | (136) | (206) |
| 2017 | |||||
|---|---|---|---|---|---|
| In € million | Level 1 | Level 2 | Level 3 | Total | |
| Held for trading | 39 | 95 | 134 | ||
| Foreign currency risk | 5 | 5 | |||
| Energy risk | 31 | 81 | 112 | ||
| CO2 risk | 8 | 1 | 9 | ||
| Solvay share price | 8 | 8 | |||
| Cash flow hedges | 1 | 22 | 23 | ||
| Foreign currency risk | 17 | 17 | |||
| Energy risk | 3 | 3 | |||
| CO2 risk | 1 | 1 | |||
| Solvay share price | 3 | 3 | |||
| Available-for-sale financial assets | 44 | 44 | |||
| New Business Development | 44 | 44 | |||
| Total (assets) | 40 | 118 | 44 | 201 | |
| Held for trading | (22) | (128) | (151) | ||
| Foreign currency risk | (24) | (24) | |||
| Interest rate risk | (5) | (5) | |||
| Energy risk | (21) | (96) | (117) | ||
| CO2 risk | (2) | (1) | (3) | ||
| Solvay share price | (1) | (1) | |||
| Cash flow hedges | 0 | (6) | (7) | ||
| Foreign currency risk | (2) | (2) | |||
| Interest rate risk | (1) | (1) | |||
| Energy risk | (4) | (4) | |||
| Total (liabilities) | (23) | (135) | (158) |
Reconciliation of level 3 fair value measurements of financial assets and liabilities
| 2018 | |||
|---|---|---|---|
| At fair value through profit or loss |
At fair value through other comprehensive income |
||
| In € million | Derivatives | Equity instruments | Total |
| Opening balance at January 1 | 44 | 44 | |
| Total gains or losses | |||
| Recognized in other comprehensive income | 3 | 3 | |
| Acquisitions | 9 | 9 | |
| Capital decreases | (5) | (5) | |
| Closing balance at December 31 | 51 | 51 |
| 2017 | |||||
|---|---|---|---|---|---|
| At fair value through profit or loss |
Available-for-sale | ||||
| In € million | Derivatives | Shares | Total | ||
| Opening balance at January 1 | 1 | 44 | 45 | ||
| Total gains or losses | |||||
| Recognized in the income statement | (1) | (3) | (4) | ||
| Recognized in other comprehensive income | (2) | (2) | |||
| Acquisitions | 9 | 9 | |||
| Disposals | (4) | (4) | |||
| Closing balance at December 31 | 0 | 44 | 44 |
| In € million | 2018 | 2017 |
|---|---|---|
| Recognized in the consolidated income statement | ||
| Recycling from OCI of derivative financial instruments designated in a cash flow hedge relationship | ||
| Foreign currency risk | (12) | 19 |
| Energy risk | (3) | 7 |
| CO2 risk | 1 | (1) |
| Changes in the fair value of financial instruments held for trading | ||
| Energy risk | 20 | 6 |
| CO2 risk | 5 | 1 |
| Recognized in the gross margin | 11 | 32 |
| Recycling from OCI of derivative financial instruments designated in a cash flow hedge relationship | ||
| Solvay share price | 2 | |
| Changes in the fair value of financial instruments held for trading | ||
| Solvay share price | (13) | 4 |
| Gains and losses (time value) on derivative financial instruments designated in a cash flow hedge relationship | ||
| Foreign currency risk | 3 | 4 |
| Foreign operating exchange gains and losses | (4) | (9) |
| Recognized in other operating gains and losses | (14) | 0 |
| Recycling from OCI of derivative financial instruments designated in a cash flow hedge relationship | ||
| Foreign currency risk | 2 | |
| Recognized in results from portfolio management and reassessments | 2 | |
| Net interest expense | (117) | (157) |
| Other gains and losses on net indebtedness (excluding gains and losses on items not related to financial instruments) |
||
| Foreign currency risk | (2) | (6) |
| Interest element of swaps | 5 | (20) |
| Others | 1 | (13) |
| Recognized in charges on net indebtedness | (114) | (196) |
| Total recognized in the consolidated income statement | (117) | (162) |
The foreign currency loss of € (12) million recognized in gross margin is the result of the recycling of gains and losses of derivative financial instruments designated in a cash flow hedge relationship on highly probable sales.
The change in fair value of financial instruments held for trading resulting in a gain of € 20 million and recognized in gross margin is due mainly to the price increase of gas and electricity in 2018. The loss of € (13) million recognized in other operating gains and losses is the result of the change in fair value of equity swaps for long-term incentives.
| Foreign currency risk | Interest rate risk Commodity risk |
Risk on Solvay share price Total |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| In € million | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Balance at January 1 | 15 | (7) | (1) | (1) | (2) | 2 | 3 | 5 | 15 | 0 |
| Recycling from other comprehensive income of derivative financial instruments designated in a cash flow hedge relationship |
12 | (26) | 2 | (6) | (2) | 14 | (34) | |||
| Effective portion of changes in fair value of cash flow hedge |
(38) | 47 | 1 | (14) | 2 | (9) | (1) | (61) | 49 | |
| Balance at December 31 | (12) | 15 | 0 | (1) | (13) | (2) | (7) | 3 | (32) | 15 |
Income and expenses on financial instruments recognized in other comprehensive income include the following:
The recycling from OCI (foreign currency risk) of € 12 million is explained by the result of the recycling of gains of derivative financial instruments designated in cash flow hedge relationship on highly probable sales.
See 2 Capital, shares and shareholders in respect of capital in the Corporate Governance Statement chapter of this report.
The Group manages its funding structure with the objective of safeguarding its ability to continue as a going concern, optimizing the return for shareholders, maintaining an investment-grade rating, and minimizing the cost of debt.
The capital structure of the Group consists of equity (including perpetual hybrid bonds (see note F31 Equity)) and of net debt (see note F36 Net indebtedness). Perpetual hybrid bonds are nevertheless considered as debt in the Group's underlying metrics.
Besides the statutory minimum equity funding requirements that apply to the Company's subsidiaries in the different countries, Solvay is not subject to any additional legal capital requirements.
The Treasury department reviews the capital structure on a ongoing basis under the authority and the supervision of the Chief Financial Officer. As appropriate, the Legal department is involved to ensure compliance with legal and contractual requirements.
The Group is exposed to market risks from movements in foreign exchange rates, interest rates, and other market prices (energy prices, CO2 emission rights prices, and equity prices). The Group's senior management oversees the management of these risks and is supported by the Treasury department (non-commodity risks) and Solvay Sustainable Development and Energy department, which advise on financial risks and the appropriate financial risk governance framework for the Group. Both departments provide assurance to the Group's senior management that the Group's financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured, and managed in accordance with the Group's policies and risk objectives. The Solvay Group uses derivative financial instruments to hedge clearly identified foreign exchange, interest rate, index, energy price, and CO2 emission rights price risks (hedging instruments). All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience, and supervision. However, the required criteria to apply hedge accounting are not met in all cases.
Furthermore, the Group is exposed to liquidity risks and credit risks.
The majority of derivative hedging instruments held by the Group mature in less than one year.
The Group is a multi-specialty chemical company with operations worldwide and hence undertakes transactions denominated in foreign currencies. As a consequence, the Group is exposed to exchange rate fluctuations. In 2018, the Group was exposed mainly to US dollar, Chinese yuan, Brazilian real, Mexican peso, and Japanese yen.
To mitigate its foreign currency risk, the Group has defined a hedging policy that is based essentially on the principles of financing its activities in local currency and hedges the transactional exchange risk at the time of invoicing (risk which is certain). The Group constantly monitors its activities in foreign currencies and hedges, where appropriate, the exchange rate exposures on expected cash flows.
Exchange rate exposures are managed within approved policy parameters utilizing forward foreign exchange contracts or other derivatives like currency options.
In the course of 2018 the EUR/USD exchange rate moved from 1.1995 at the start of January to 1.1455 at the end of December. In the course of 2017 the EUR/USD exchange rate moved from 1.0538 at the start of January to 1.1995 at the end of December.
EBITDA sensitivity to the US dollar is about € 120 million per (0.10) US\$/€ fluctuation, of which 2/3 on conversion and 1/3 on transaction, the latter being mostly hedged.
At the end of 2018, a strengthening of the US dollar vs EUR would increase the net debt by approximately € 129 million per 0.10 US\$/€ fluctuation. Conversely, a weakening of the US dollar vs EUR would decrease the net debt by approximately € 108 million per 0.10 US\$/€ fluctuation.
At the end of 2017, a strengthening of the US dollar vs EUR would increase the net debt by approximately € 146 million per 0.10 US\$/€ fluctuation. Conversely, a weakening of the US dollar vs EUR would decrease the net debt by approximately € 123 million per 0.10 US\$/€ fluctuation.
The Group's currency risk can be split into two categories: translation and transactional risk.
The translation exchange risk is the risk affecting the Group's consolidated financial statements relating to investees operating in a currency other than the EUR (the Group's presentation currency).
During 2018 and 2017, the Group did not hedge the currency risk of foreign operations.
The transactional risk is the exchange risk linked to a specific transaction, such as a Group company buying or selling in a currency other than its functional currency.
To the largest extent possible, the Group manages the transactional risk on receivables and borrowings centrally; it is managed locally when centralization is not possible.
The choice of borrowing currency depends mainly on the opportunities offered by the various markets. This means that the selected currency is not necessarily that of the country in which the funds will be invested. Nonetheless, operating entities are financed essentially in their functional currencies.
In emerging countries it is not always possible to borrow in local currency, either because funds are not available in local financial markets, or because the financial conditions are too onerous. In such a situation the Group has to borrow in a different currency. Nevertheless, the Group considers opportunities to refinance its borrowings in emerging countries with local currency debt.
Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are classified into the two categories described below:
The transactional risk is managed either by spot or forward contracts. Unless documented as hedging instruments (see above), those contracts are classified as held for trading.
At the end of 2018, the notional amounts held for trading fluctuated by € 267 million. This evolution is explained mainly by continuous cash centralization efforts (in foreign currencies to be swapped) and internal restructuring activity.
| Notional amount(1) | Fair value assets | Fair value liabilites | |||||
|---|---|---|---|---|---|---|---|
| In € million | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |
| Held for trading | 138 | (129) | 3 | 5 | (11) | (24) | |
| Total | 138 (129) |
3 | 5 | (24) |
The following table details the notional amounts of the Group's derivatives contracts outstanding at the end of the period:
(1) Long/(short) positions (if the foreign exchange transaction does not involve EUR currency, both notionals are presented net)
The Group uses derivatives to hedge identified foreign exchange rate risks. It documents those as hedging instruments unless it hedges a recognized financial asset or liability when generally no cash flow hedge relationship is documented. Most hedges are transaction-related.
At the end of 2018 for future exposure, the Group had mainly hedged forecast sales (short position) in a nominal amount of US\$ 852 million (€ 744 million) and JP¥ 12,713 million (€ 101 million). Almost all cash flow hedges that exist at the end of December 2018 will be settled within the next 12 months and will impact profit or loss during that period.
The following table details the notional amounts of Solvay's derivatives contracts outstanding at the end of the period:
| 2018 | Notional amount of the instrument(1) |
Notional amount of the hedged item(1) |
Percentage of exposure hedged |
Average hedge exchange rate per risk category |
Cash flow hedge reserve |
Fair value of the hedging instrument |
|
|---|---|---|---|---|---|---|---|
| Cash flow hedges – Forecasted | Equity | Assets | Liabilities | ||||
| sales and purchases(3) | In € million | In € million | |||||
| JPY/EUR | (71) | (104) | 68% | 129.52 | (2) | 0 | (2) |
| JPY/USD | (30) | (53) | 57%(2) | 109.32 | 0 | 0 | 0 |
| USD/BRL | (142) | (244) | 58%(2) | 3.94 | (1) | 3 | (2) |
| USD/CNY | (128) | (283) | 45%(2) | 6.71 | (3) | 0 | (3) |
| USD/EUR | (408) | (501) | 81% | 1.18 | (8) | 0 | (8) |
| USD/MXN | (47) | (86) | 55%(2) | 20.78 | 1 | 1 | 0 |
| USD/THB | (19) | (35) | 54%(2) | 32.54 | 0 | 0 | 0 |
| Total | (845) | (1,305) | (12) | 5 | (15) |
(1) Long/(short) positions
(2) In compliance with Group Treasury Policy the percentage of hedged exposure will reach the progressive minimum compliance level of 60% in Q1 2019
(3) The hedging instruments are located in the line item: "Other Receivables" and "Other Liabilities" in the consolidated statement of financial position.
| 2017 | Notional amount of the instrument(1) |
Notional amount of the hedged item(1) |
Percentage of exposure hedged |
Average hedge exchange rate per risk category |
Cash flow hedge reserve |
Fair value of the hedging instrument |
|
|---|---|---|---|---|---|---|---|
| Cash flow hedges – Forecasted | Equity | Assets | Liabilities | ||||
| sales and purchases(3) | In € million | In € million | |||||
| JPY/EUR | (67) | (89) | 76% | 128.35 | 3 | 3 | |
| JPY/USD | (37) | (59) | 63% | 110.63 | 0 | 0 | |
| USD/BRL | (83) | (188) | 44%(2) | 3.35 | (2) | 0 | (1) |
| USD/CNY | (103) | (176) | 59%(2) | 6.71 | 2 | 2 | |
| USD/EUR | (288) | (505) | 57%(2) | 1.17 | 10 | 11 | (1) |
| Total | (579) | (1,016) | 15 | 17 | (2) |
(1) Long/(short) positions
(2) In compliance with Group Treasury Policy the percentage of hedged exposure has reached the progressive minimum compliance level of 60% in Q1 2018
(3) The hedging instruments are located in the line item: "Other Receivables" and "Other Liabilities" in the consolidated statement of financial position.
See the Financial risk in the Management of risks section of this report for additional information on the interest rate risk management.
Interest rate risk is managed at Group level.
The Group is exposed to interest rate risk because entities in the Group borrow funds at both fixed and floating interest rates. Interest rate risk is managed at Group level by maintaining an appropriate mix between fixed and floating rate borrowings.
Interest rate exposure by currency is summarized below (note that financial debts for which floating interest rates are hedged by interest rate swaps and cross-currency interest rate swaps are presented under fixed rate financial debt):
| In € million | At December 31, 2018 | At December 31, 2017 | ||||
|---|---|---|---|---|---|---|
| Currency | Fixed rate | Floating rate | Total | Fixed rate | Floating rate | Total |
| Financial debt | ||||||
| EUR | (1,709) | (60) | (1,769) | (2,122) | (106) | (2,228) |
| USD | (1,731) | (12) | (1,744) | (1,649) | (24) | (1,673) |
| SAR | (112) | 0 | (112) | (116) | (17) | (133) |
| THB | (13) | (13) | (27) | (16) | (18) | (34) |
| BRL | (16) | (1) | (17) | (20) | (1) | (21) |
| CNY | (81) | 0 | (82) | (98) | 0 | (98) |
| Other | (27) | (32) | (59) | (2) | (37) | (39) |
| Total | (3,690) | (120) | (3,810) | (4,024) | (202) | (4,226) |
| Cash and cash equivalents | ||||||
| EUR | 391 | 391 | 237 | 237 | ||
| USD | 382 | 382 | 352 | 352 | ||
| CAD | 7 | 7 | 100 | 100 | ||
| THB | 17 | 17 | 34 | 34 | ||
| SAR | 4 | 4 | 16 | 16 | ||
| BRL | 67 | 67 | 67 | 67 | ||
| CNY | 77 | 77 | 54 | 54 | ||
| KRW | 32 | 32 | 23 | 23 | ||
| JPY | 38 | 38 | 33 | 33 | ||
| Other | 89 | 89 | 77 | 77 | ||
| Total | 1,103 | 1,103 | 992 | 992 | ||
| Other financial instruments | ||||||
| CNY | 67 | 67 | 57 | 57 | ||
| EUR | 17 | 17 | 26 | 26 | ||
| SAR | 15 | 15 | 0 | 0 | ||
| Other | 3 | 3 | 6 | 6 | ||
| Total | 101 | 101 | 89 | 89 | ||
| Total | (3,690) | 1,085 | (2,605) | (4,024) | 878 | (3,146) |
At the end of 2018, around € 3.7 billion of the Group's gross debt was at fixed-rate, including mainly:
The impact of interest rate volatility at the end of 2018 in comparison with 2017 is as follows:
| Sensitivity to a +100 bp movement in EUR market interest rates |
Sensitivity to a (100) bp movement in EUR market interest rates |
|||||
|---|---|---|---|---|---|---|
| In € million | 2018 | 2017 | 2018 | 2017 | ||
| Profit or loss | (1) | (1) | 1 | 1 |
The sensitivity to interest rates' volatility remains stable at the end of 2018 compared to 2017. The floating rate debt is very limited and part of it is hedged by interest rate swaps and cross-currency interest rate swaps reducing even more its volatility.
| Notional amount | Fair value assets | Fair value liabilites | |||||
|---|---|---|---|---|---|---|---|
| In € million | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |
| Held for trading | 109 | 122 | (4) | (6) | |||
| Total | 109 | 122 | (4) | (6) |
The fair value of € (4) million reported under "held for trading" is explained mainly by a cross currency swap contracted in May 2017 to mitigate the volatility (forex and interest rate) of the external financing set up for our HPPO joint operation (Saudi Hydrogen Peroxide Company) 50/50 with Sadara in Saudi Arabia (notional amount € 104 million at 50%).
| 2018 In € million (except where |
Notional amount of the instrument(1) |
Notional amount of the hedged item(1) |
Percentage of exposure hedged |
Hedge interest rate per risk category |
Cash flow hedge reserve |
Fair value of the hedging instrument |
||
|---|---|---|---|---|---|---|---|---|
| indicated) | Equity | Assets | Liabilities | |||||
| Cash flow hedges – Floating rate debt |
(13) | (26) | 50% | Pay Fix 3.125% Receive THBFIX6M |
||||
| Total | (13) | (26) |
(1) The hedging instruments are located in the line item: "Other Receivables" and "Other Liabilities" in the consolidated statement of financial position.
(2) The hedged item is located in the line items: "Non-current and current financial debt" in the consolidated statement of financial position.
| 2017 In € million (except where |
Notional amount of the instrument(1) |
Notional amount of the hedged item(1) |
Percentage of exposure hedged |
Hedge interest rate per risk category |
Cash flow hedge reserve |
Fair value of the hedging instrument |
|
|---|---|---|---|---|---|---|---|
| indicated) | Equity | Assets | Liabilities | ||||
| Cash flow hedges – Floating rate | Pay Fix 3.125% | ||||||
| debt | (16) | (32) | 50% | Receive THBFIX6M | (1) | (1) | |
| Total | (16) | (32) | (1) | (1) |
(1) The hedging instruments are located in the line item: "Other Receivables" and "Other Liabilities" in the consolidated statement of financial position.
(2) The hedged item is located in the line items: "Non-current and current financial debt" in the consolidated statement of financial position.
The Group purchases a large portion of its coal, gas, and electricity needs in Europe and the United States, based on fluctuating liquid market indices. In order to reduce the cost volatility, the Group has developed a policy for exchanging variable price for fixed price through derivative financial instruments. Most of these hedging instruments can be documented as hedging instruments of the underlying purchase contracts. Purchases of physical energy at fixed price contracts that qualify as "own use" contracts (not derivatives) constitute a natural hedge, and are not included in this note. Similarly, the Group's exposure to CO2 price is hedged partly by forward purchases of European Union Allowance (EUA), which either can be documented as hedging instruments, or qualify as own use contracts.
Finally some exposure to gas-electricity or coal-electricity spreads may arise from the production of electricity on Solvay sites (mostly from cogeneration units in Europe), which can be hedged by forward purchases and forward sales or optional schemes. In this case, cash flow hedge accounting is applied.
Financial hedging of energy and CO2 emission rights price risks is managed centrally by Energy Services on behalf of the Group entities.
Energy Services also carries out trading transactions with respect to energy and CO2, for which the residual price exposure is maintained close to zero.
The following tables detail the notional principal amounts and fair values of energy and CO2 derivative financial instruments outstanding at the end of the reporting period:
| In € million (except where indicated) |
Notional amount of the instrument(1) |
Notional amount of the instrument (in units) |
Fair value of the instrument – Asset |
Fair value of the instrument – Liability |
|||||
|---|---|---|---|---|---|---|---|---|---|
| Held for trading | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |
| Coal | 15 | 14 | 120,000 | 258,000 | Tons | 2 | 4 | (2) | (4) |
| Power | 613 | 421 | 15,850,229 | 11,827,898 | MWh | 87 | 63 | (85) | (63) |
| Standard Quality Gas | 416 | 453 | 18,962,646 | 14,659,141 | MWh | 32 | 46 | (27) | (43) |
| CO2 | 45 | 32 | 5,594,159 | 5,266,000 | Tons | 24 | 8 | (26) | (10) |
| Total | 1,089 | 920 | 145 | 121 | (140) | (120) |
(1) The hedging instruments are located in the line item "Other Receivables" and "Other Liabilities" in the consolidated statement of financial position.
| 2018 In € million (except where indicated) |
Notional amount of the instrument(1) |
Notional amount of the instrument (in units) |
Notional amount of the hedged item |
Notional amount of the hedged item (in units) |
Percentage of exposure hedged |
Average hedge price per risk category |
Cash flow hedge reserve |
Fair value of the instrument – Asset |
Fair value of the instrument – Liability |
|||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash flow hedge |
||||||||||||
| Benzene | 7 | 9,088 | Tons | 43 | 50,000 | Tons | 18% | 796 | EUR/ ton |
|||
| Coal | 17 | 252,000 | Tons | 54 | 624,800 | Tons | 40% | 77 | USD/ ton |
2 | 2 | |
| Power | 104 | 1,765,121 | MWh | 104 | 1,765,000 | MWh | 100% | 59 | EUR/ MWh |
(8) | 2 | (10) |
| Standard Quality |
EUR/ | |||||||||||
| Gas Total |
129 257 |
6,904,347 | MWh | 210 411 |
13,938,999 | MWh | 50% | 19 | MWh | (7) (13) |
3 7 |
(10) (20) |
The amounts presented in the tables hereafter include hedging needs of GBUs of the Group that sourced through Energy Services, and not the full Group energy hedging needs.
(1) The hedging instruments are located in the line item "Other Receivables" and "Other Liabilities" in the consolidated statement of financial position.
| 2017 In € million (except where indicated) |
Notional amount of the instrument(1) |
Notional amount of the instrument (in units) |
Notional amount of the hedged item |
Notional amount of the hedged item (in units) |
Percentage of exposure hedged |
Average hedge price per risk category |
Cash flow hedge reserve |
Fair value of the instrument – Asset |
Fair value of the instrument – Liability |
|||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash flow hedge |
||||||||||||
| Coal | 16 | 195,000 | Tons | 116 | 1,315,201 | Tons | 15% | 84 | USD/ ton |
2 | 1 | |
| Power | 13 | 235,900 | MWh | 22 | 400,960 | MWh | 59% | 47 | EUR/ MWh |
(8) | ||
| Standard Quality |
EUR/ | |||||||||||
| Gas | 48 | 3,522,016 | MWh | 103 | 3,663,973 | MWh | 96% | 12 | MWh EUR/ |
(7) | 3 | (5) |
| CO2 Total |
27 104 |
7,208,000 | Tons | 67 308 |
8,383,346 | Tons | 86% | 8 | ton | (13) | 4 | (5) |
(1) The hedging instruments are located in the line item "Other Receivables" and "Other Liabilities" in the consolidated statement of financial position.
In order to neutralize the volatility of the Solvay share price which will impact the debt valuation relating to the PSUs (with related employer charges), the Group entered into equity swaps.
| Notional | Notional amount of the |
Notional amount |
Notional amount of the hedged |
Percentage | Hedged strike price per |
||||
|---|---|---|---|---|---|---|---|---|---|
| 2018 In € million (except where |
amount of the instrument(1) |
instrument (number of PSUs) |
of the hedged item(2) |
item (number of PSUs)(2) |
of exposure hedged |
risk category (in €) |
Cash flow hedge reserve |
Fair value of the hedging instrument |
|
| indicated) | Equity | Assets | Liabilities | ||||||
| Cash flow hedges – PSU Solvay share price |
|||||||||
| PSU Plan 2017 – Solvay share price (forecast) |
(8) | 260,470 | (9) | 288,863 | 90% | 111.95 | (2) | (2) | |
| PSU Plan 2018 – Solvay share price (forecast) |
(16) | 246,255 | (18) | 279,853 | 88% | 113.10 | (5) | (5) | |
| Total | (24) | 506,725 | (27) | 568,716 | (7) | (7) |
(1) The hedging instruments (equity swaps) are located in the line item: "Other receivables" and "Other liabilities" in the consolidated statement of financial position.
(2) Including social charges
| 2017 In € million (except where |
Notional amount of the instrument(1) |
Notional amount of the instrument (number of PSUs) |
Notional amount of the hedged item(2) |
Notional amount of the hedged item (number of PSUs)(2) |
Percentage of exposure hedged |
Hedged strike price per risk category (in €) |
Cash flow hedge reserve |
Fair value of the hedging instrument |
|
|---|---|---|---|---|---|---|---|---|---|
| indicated) | Equity | Assets | Liabilities | ||||||
| Cash flow hedges – PSU Solvay share price |
|||||||||
| PSU Plan 2016 – Solvay share price (forecast) |
(7) | 166,235 | (9) | 209,394 | 79% | 82.30 | 2 | 2 | |
| PSU Plan 2017 – Solvay share price (forecast) |
(22) | 260,470 | (25) | 298,982 | 87% | 111.95 | 1 | 1 | |
| Total | (29) | 426,705 | (34) | 508,376 | 3 | 3 |
(1) The hedging instruments (equity swaps) are located in the line item: "Other receivables" and "Other liabilities" in the consolidated statement of financial position.
(2) Including social charges
See the Financial risk in the Management of risks section of this report for additional information on the credit risk management.
The Group continuously monitors the credit risk of important business partners.
The Group engages in transactions only with financial institutions with a good credit rating. The Group monitors and manages exposures to financial institutions within approved counterparty credit limits and credit risk parameters in order to mitigate the risk of default.
The Group recognizes expected credit losses on all of its trade receivables: it applies the simplified approach and recognizes lifetime expected losses on all trade receivables, using a provision matrix in order to calculate the lifetime expected credit losses for trade receivables, using historical information on defaults adjusted for the forward-looking information.
The Group classifies the customers and their related receivables in various rating classes, based on the risks' grading attributed to the customers and on the ageing balance of receivables. As such, for all receivables overdue fewer than six months, the Group considers percentages within a range between 0.01% and 4.56%, depending on the rating class. For all receivables overdue in excess of six months, the Group considers a rate of 50% or of 100%, depending on the rating class. The customer's grading is reviewed annually for customers assessed as low risk profile, and every six months for customers assessed as higher risk profile.
There is no significant concentration of credit risk at Group level because the receivables' credit risk is spread over a large number of customers and markets.
The ageing of trade receivables, financial instruments – operational, loans, and other non-current assets is as follows:
| Total | Credit impaired |
With expected loss allowance, not credit-impaired | |||||
|---|---|---|---|---|---|---|---|
| 2018 In € million |
not past due |
less than 30 days past due |
between 30 and 60 days past due |
between 60 and 90 days past due |
more than 90 days past due |
||
| Trade receivables | 1,486 | 52 | 1,297 | 112 | 9 | 3 | 12 |
| Trade receivables – allowance | (52) | (49) | (2) | (1) | |||
| Trade receivables – net | 1,434 | 3 | 1,296 | 112 | 9 | 3 | 11 |
| Financial instruments – operational | 162 | 162 | |||||
| Loans and other non-current assets | 344 | 152 | 192 | ||||
| Loans and other non-current assets – allowance |
(62) | (62) | |||||
| Loans and other non-current assets – net |
282 | 89 | 192 | ||||
| Total | 1,878 | 92 | 1,650 | 112 | 9 | 3 | 11 |
| Credit | |||||||
|---|---|---|---|---|---|---|---|
| Total | impaired | Not credit-impaired | |||||
| less than | between | between | more than | ||||
| 2017 | not | 30 days | 30 and 60 days | 60 and 90 days | 90 days | ||
| In € million | past due | past due | past due | past due | past due | ||
| Trade receivables | 1,510 | 51 | 1,246 | 135 | 16 | 3 | 10 |
| Trade receivables – allowance | (49) | (49) | |||||
| Trade receivables – net | 1,462 | 3 | 1,246 | 135 | 16 | 3 | 10 |
| Financial instruments – operational | 153 | 153 | |||||
| Loans and other non-current assets | 405 | 147 | 197 | 3 | |||
| Loans and other non-current assets – allowance |
(59) | (59) | |||||
| Loans and other non-current assets – | |||||||
| net | 346 | 87 | 197 | 3 | |||
| Total | 1,961 | 90 | 1,596 | 138 | 16 | 3 | 10 |
The table below presents the allowances on trade receivables:
| In € million | 2018 | 2017 |
|---|---|---|
| Carrying amount at January 1, before IFRS 9 adoption | (49) | (53) |
| IFRS 9 adoption | (6) | |
| Carrying amount at January 1, after IFRS 9 adoption | (55) | (53) |
| Additions | (12) | (13) |
| Uses | 3 | 5 |
| Reversal of impairments | 10 | 10 |
| Currency translation differences | 2 | 3 |
| Transfer to assets held for sale | (1) | (2) |
| Other | 1 | 1 |
| Carrying amount at December 31 | (52) | (49) |
See the Financial risk in the Management of risks section of this report for additional information on the liquidity risk management.
Liquidity risk relates to Solvay's ability to service and refinance its debt (including notes issued) and to fund its operations.
This depends on its ability to generate cash from operations and not to over-pay for acquisitions.
The Finance Committee gives its opinion on the appropriate liquidity risk management for the Group's short, medium and long-term funding and liquidity management requirements.
The Group manages liquidity risk by maintaining adequate reserves, banking facilities, and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The Group staggers the maturities of its financing sources over time in order to limit the amounts to be refinanced each year.
The following tables detail the Group's remaining contractual maturity for its financial liabilities with contractual repayment periods.
The tables have been prepared using the discounted cash flows of financial liabilities, based on the earliest date on which the Group can be required to pay.
The following tables present discounted amounts (carrying amounts):
| 2018 | |||||
|---|---|---|---|---|---|
| In € million | Total | Within one year | In year two | In years three to five | Beyond five years |
| Outflows of cash: | |||||
| Trade liabilities | 1,439 | 1,439 | |||
| Dividends payables | 154 | 154 | |||
| Financial instruments – operational |
194 | 194 | |||
| Other non-current liabilities |
121 | 37 | 85 | ||
| Current financial debt | 630 | 630 | |||
| Non-current financial debt |
3,180 | 799 | 1,011 | 1,369 | |
| Total | 5,717 | 2,416 | 836 | 1,096 | 1,369 |
| 2017 | |||||
| In € million | Total | Within one year | In year two | In years three to five | Beyond five years |
| Outflows of cash: | |||||
| Trade liabilities | 1,330 | 1,330 | |||
| Dividends payables | 147 | 147 | |||
| Financial instruments – operational |
130 | 130 | |||
| Other non-current liabilities |
180 | 124 | 39 | 17 | |
| Current financial debt | 1,044 | 1,044 | |||
| Non-current financial debt |
3,182 | 94 | 1,592 | 1,497 | |
| Total | 6,014 | 2,652 | 218 | 1,631 | 1,514 |
| 2018 | |||||
|---|---|---|---|---|---|
| In € million | Total | Within one year | In year two | In years three to five | Beyond five years |
| Outflows of cash: | |||||
| Trade liabilities | 1,439 | 1,439 | |||
| Dividends payables | 154 | 154 | |||
| Financial instruments – operational |
194 | 194 | |||
| Other non-current liabilities |
121 | 37 | 85 | ||
| Current financial debt | 630 | 630 | |||
| Non-current financial debt |
3,205 | 802 | 1,024 | 1,381 | |
| Total | 5,743 | 2,416 | 838 | 1,108 | 1,381 |
| Interests on non-current financial debt(1) |
577 | 108 | 103 | 209 | 157 |
| Total outflows of cash | 6,320 | 2,524 | 942 | 1,317 | 1,538 |
(1) and on short term portion of the non-current financial debt
| 2017 | |||||
|---|---|---|---|---|---|
| In € million | Total | Within one year | In year two | In years three to five | Beyond five years |
| Outflows of cash: | |||||
| Trade liabilities | 1,330 | 1,330 | |||
| Dividends payables | 147 | 147 | |||
| Financial instruments – operational |
130 | 130 | |||
| Other non-current liabilities |
180 | 124 | 39 | 17 | |
| Current financial debt | 1,044 | 1,044 | |||
| Non-current financial debt |
3,213 | 94 | 1,602 | 1,517 | |
| Total | 6,045 | 2,652 | 218 | 1,641 | 1,534 |
| Interests on non-current financial debt(1) |
691 | 121 | 104 | 250 | 216 |
| Total outflows of cash | 6,736 | 2,773 | 323 | 1,890 | 1,750 |
(1) and on short term portion of the non-current financial debt
The Group has access to the following instruments:
The Group's net indebtedness is the balance between its financial debts and other financial instruments, and cash and cash equivalents.
| In € million | 2018 | 2017 |
|---|---|---|
| Financial debt | 3,810 | 4,226 |
| Other financial instruments | (101) | (89) |
| Cash and cash equivalents | (1,103) | (992) |
| Net indebtedness | 2,605 | 3,146 |
The decrease in the net indebtedness is due to strong cash generation and the cash proceeds from the issuance of a € 300 million hybrid bond.
Solvay Investment Grade rating is Baa2/P2 (stable outlook) with Moody's and BBB/A2 (stable outlook) with Standard & Poor's.
| 2018 | 2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| In € million (except where indicated) |
Nominal amount |
Coupon | Maturity | Secured | Amount at amortized cost |
Fair value | Amount at amortized cost |
Fair value |
| EMTN € bond (issuance € 500 million) |
382 | 4.625% | 2018 | No | 0 | 0 | 381 | 391 |
| Senior US\$ notes (144A;US\$ 800 million) |
698 | 3.40% | 2020 | No | 697 | 697 | 665 | 681 |
| Senior € notes | 750 | 1.625% | 2022 | No | 745 | 781 | 743 | 788 |
| Senior US\$ note Cytec Industries Inc (issuance US\$ 400 million) |
171 | 3.5% | 2023 | No | 165 | 167 | 156 | 167 |
| Senior US\$ note Cytec Industries Inc (issuance US\$ 250 million) |
143 | 3.95% | 2025 | No | 140 | 138 | 134 | 140 |
| Senior US\$ notes (144A;US\$ 800 million) |
698 | 4.45% | 2025 | No | 695 | 706 | 663 | 708 |
| Senior € notes | 500 | 2.75% | 2027 | No | 496 | 542 | 495 | 560 |
| Total | 2,937 | 3,032 | 3,237 | 3,435 |
The Senior US\$ notes of Cytec Industries Inc. were partially repaid in 2017. The outstanding amount of the EMTN € 500 million bond was fully repaid in June 2018 (€ 382 million), after an early repayment of € 188 million already executed in 2017.
There are no instances of default on the above-mentioned financial debts. There are no financial covenants, either on Solvay SA, or on any of the Group's holding companies.
| In € million | 2018 | 2017 |
|---|---|---|
| Currency swaps | 1 | 4 |
| Other marketable securities > 3 months | 68 | 56 |
| Other current financial assets | 32 | 28 |
| Other financial instruments | 101 | 89 |
The "Other financial instruments" amount to € 101 million at the end of 2018 as against € 89 million at the end of 2017. They include currency swaps, other marketable securities > three months (bank drafts), and other current financial assets (mainly margin calls of Energy Services for instruments with a negative fair value).
| In € million | 2018 | 2017 |
|---|---|---|
| Cash | 907 | 835 |
| Term deposits | 197 | 157 |
| Cash and cash equivalents | 1,103 | 992 |
By their nature, the carrying amount of cash and cash equivalents is equal to, or a very good proxy of, its fair value.
| Changes in financial debt and in other financial instruments arising from financing activities | ||||
|---|---|---|---|---|
| 2017 | 2018 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| In € million | Total | Cash flows from increase of borrowings |
Cash flows from repayment of borrowings |
Changes in foreign exchange rates |
Changes in other current financial assets |
Other in financing cash flows |
Transfer from non current to current |
Other | Total |
| Bonds | 2,856 | 76 | 4 | 2,936 | |||||
| Other non-current debts | 282 | 16 | (13) | (1) | (79) | 4 | 208 | ||
| Long-term finance lease obligations |
44 | 2 | (3) | (8) | 35 | ||||
| Non-current financial debt | 3,182 | 16 | (13) | 77 | (82) | 0 | 3,180 | ||
| Short-term financial debt (excluding finance lease obligations) |
1,015 | 2,428 | (2,980) | (1) | 126 | 79 | (51) | 616 | |
| Currency swaps | 27 | (16) | 12 | ||||||
| Short-term finance lease obligations |
2 | 3 | (3) | 1 | |||||
| Current financial debt | 1,044 | 2,428 | (2,980) | 0 | 126 | 82 | (70) | 630 | |
| Total financial debt | 4,226 | 2,444 | (2,994) | 77 | 126 | (70) | 3,810 | ||
| Currency swaps | (4) | 3 | (1) | ||||||
| Other marketable securities > 3 months |
(56) | (11) | (67) | ||||||
| Other current financial assets |
(28) | (14) | 11 | (32) | |||||
| Other financial instruments | (89) | (25) | 11 | 2 | (101) | ||||
| Total cash flow | 2,444 | (2,994) | (25) | 137 |
The financial debt decreased from € 4,226 million at the end of 2017 to € 3,810 million at the end of 2018.
The non-current financial debt remains rather stable:
The net decrease in current financial debt (from € 1,044 million in 2017 to € 630 million in 2018) is explained mainly by:
the decrease in commercial papers issued at the end of the year (€ 246 million in 2018 versus € 400 million in 2017).
The amounts presented in the cash flow statement under "increase in borrowings" and "repayment of borrowings" include the issuance of € 2,396 million and the repayment of € 2,550 million of commercial papers.
The € 137 million in "Other in financing cash flows" relates to the receipt of margin calls related to Energy Services activities (see note F18 Other cash flows from financing activities). The cash out for the Rhodia liquidity convention (€ (9) million) and other finance expenses (€ (4) million) are not presented as other financial liabilities and explain the difference with the € 123 million in the line "Other" in the cash flow from financing activities in the consolidated statement of cash flows.
| In € million | 2018 | 2017 |
|---|---|---|
| Wages and benefits debts | 329 | 361 |
| VAT and other taxes | 131 | 130 |
| Social security | 68 | 61 |
| Financial instruments – operational | 194 | 130 |
| M&A related liabilities | 21 | |
| Insurance premiums | 15 | 13 |
| Advances from customers | 31 | 34 |
| Other | 81 | 98 |
| Other current liabilities | 850 | 848 |
Financial instruments – operational include held for trading and cash flow hedge derivatives (see note F35.A. Overview of financial instruments).
| In € million | 2018 | 2017 |
|---|---|---|
| Commitments to acquire property, plant and equipment and intangible assets | 132 | 90 |
The amount mainly relates to commitments for the acquisition of property, plant, and equipment.
Accounting policy
A contingent liability is:
(i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or (ii) the amount of the obligation cannot be measured with sufficient reliability.
Contingent liabilities are not recognized in the consolidated financial statements, except if they arise from a business combination. They are disclosed unless the possibility of an outflow of economic benefits is remote.
Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.
| In € million | 2018 | 2017 |
|---|---|---|
| Liabilities and commitments of third parties guaranteed by the Group | 812 | 706 |
| Environmental contingent liabilities | 313 | 317 |
| Litigation and other major commitments | 1 | 1 |
| Total | 1,126 | 1,024 |
The liabilities and commitments of third parties guaranteed by the Group mainly concern guarantees relating to:
Within the framework of the annual review of contingent liabilities, environmental contingent liabilities for a total amount of € 313 million have been identified at December 31, 2018 (€ 317 million at December 31, 2017).
Balances and transactions between Solvay SA and its subsidiaries, which are related parties of Solvay SA, have been eliminated in consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.
| Sale of goods | Purchase of goods | |||
|---|---|---|---|---|
| In € million | 2018 | 2017 | 2018 | 2017 |
| Associates | 12 | 16 | 5 | 8 |
| Joint ventures | 55 | 33 | 23 | 19 |
| Other related parties | 27 | 10 | 49 | 57 |
| Total | 95 | 59 | 77 | 85 |
| Amounts owed by related parties | Amounts owed to related parties | |||
|---|---|---|---|---|
| In € million | 2018 | 2017 | 2018 | 2017 |
| Associates | 1 | 1 | ||
| Joint ventures | 2 | 1 | 2 | 3 |
| Other related parties | 10 | 15 | 10 | 15 |
| Total | 13 | 18 | 12 | 18 |
| In € million | 2018 | 2017 |
|---|---|---|
| Loans to joint ventures | 25 | 23 |
| Loans to other related parties | 13 | 8 |
| Total | 38 | 30 |
Key management personnel comprise all members of the Board of Directors and members of the Executive Committee.
Amounts due in respect of the year (compensation) and obligations existing at the end of the year in the consolidated statement of financial position:
| In € million | 2018 | 2017 |
|---|---|---|
| Wages, charges and short-term benefits | 3 | 3 |
| Non-compete fee | 2 | |
| Long-term benefits | 13 | 11 |
| Cash-settled share-based payments liability | 5 | 5 |
| Total | 23 | 19 |
| In € million | 2018 | 2017 |
|---|---|---|
| Wages, charges and short-term benefits | 9 | 8 |
| Non-compete fee | 2 | |
| Long-term benefits | 2 | 2 |
| Share-based payments expenses | 3 | 4 |
| Total | 15 | 14 |
Excluding employer social charges and taxes
The Board of Directors will propose to the General Shareholders' Meeting a gross dividend of € 3.75 per share.
Taking into account the dividend advance payment distributed in January 2019 of € 1.44 per share, the dividends proposed for distribution, but not yet recognized as a distribution to equity holders amount to € 245 million.
Events after the reporting period which provide evidence of conditions that existed at the end of the reporting period (adjusting events) are recognized in the consolidated financial statements. Events indicative of conditions that arose after the reporting period are non-adjusting events and are disclosed in the notes if material.
On January 18, 2019, the European Commission cleared the divestment of Solvay's Polyamides activities to BASF, a key milestone in the completion of Solvay's transformation into an advanced materials and specialty chemicals company. The closing of the transaction is expected in the second part of 2019 after all remaining closing conditions have been fulfilled.
These conditions include the divestment of a remedy package to a third-party buyer to address the European Commission's competition concerns. BASF has offered remedies involving part of the assets originally in the scope of the acquisition. These entail among others the manufacturing assets of Solvay's polyamide intermediates, technical fibers, and engineering plastics business as well as its innovation capabilities in Europe.
The Group consists of Solvay SA and a total of 341 investees.
Of these 341 investees, 187 are fully consolidated, 8 are proportionately consolidated, and 17 are accounted for under the equity method, whilst the other 129 do not meet the criteria of significance.
| Country | Company | Comments |
|---|---|---|
| BRAZIL | Techpolymers Industria E Comercio Ltda, Sao Paulo | New company |
| GERMANY | Performance Polyamides Gmbh, Hannover | New company |
| ITALY | Performance Polyamide Italy Srl, Bollate | New company |
| TURKEY | Solvay Istanbul Kimya Limited Sirketi | Meets the consolidation criteria |
| SOUTH KOREA | Solvay Chemical Services Korea Co. Ltd | New company |
| Country | Company | Comments |
|---|---|---|
| BELGIUM | Solvay Energy S.A., Bruxelles | Liquidated |
| Cytec Belgium bvba, Diegem | Liquidated | |
| CHINA | Baotou Solvay Rare Earths Company Ltd, Baotou | Sold to Inner Mongolia New Tech Holding Co |
| EGYPT | Solvay Alexandria Sodium Carbonate S.A.E., Alexandria | Sold to Ethydco |
| FRANCE | Solvay Participations France S.A., Paris | Merged into Solvay Finance France |
| Cogénération Chalampe S.A.S., Puteaux | Merged into Solvay Finance France | |
| Solvay Finance France S.A., Paris | Merged into Solvay France | |
| INDIA | Rhodia Specialty Chemicals India Private Limited, Mumbai | Merged into Solvay Specialities India Private Limited |
| Cytec India Specialty Chemicals & Materials Private Ltd, Nagpur | No longer meets the consolidation criteria | |
| MEXICO | Solvay & CPC Barium Strontium Reynosa S. de R.L. de C.V., Reynosa | Merged into Solvay & CPC Barium Strontium Monterrey |
| NETHERLANDS | Cytec Industries Europe C.V., Vlaardingen | Liquidated |
| Onecarbon International B.V., Utrecht | Merged into Solvay Chemicals and Plastics Holding B.V. |
|
| UNITED KINGDOM | Advanced Composites Group Holdings Ltd, Heanor | No longer meets the consolidation criteria |
| Cytec Industries UK Ltd, Wrexham | No longer meets the consolidation criteria | |
| Med-Lab International Ltd, Heanor | No longer meets the consolidation criteria | |
| UNITED STATES | Solvay Energy Holding LLC | Merged into Solvay Holding Inc |
| Solvay Biomass Energy LLC | Merged into Solvay Holding Inc | |
| Netherlands Cytec GP Inc., New Jersey | Merged into Cytec Global Holdings Inc |
Indicating the percentage holding
The percentage of voting rights is very close to the percentage holding.
| ARGENTINA | |
|---|---|
| Solvay Argentina SA, Buenos Aires | 100 |
| Solvay Quimica SA, Buenos Aires | 100 |
| AUSTRALIA | |
| Cytec Asia Pacific Holdings Pty Ltd, Baulkham Hills | 100 |
| Cytec Australia Holdings Pty Ltd, Baulkham Hills | 100 |
| Solvay Interox Pty Ltd, Banksmeadow | 100 |
| AUSTRIA | |
| Solvay Österreich GmbH, Wien | 100 |
| BELGIUM | |
| Carrières les Petons S.P.R.L., Walcourt | 100 |
| Solvay Chemicals International S.A., Brussels | 100 |
| Solvay Chimie S.A., Brussels | 100 |
| Solvay Participations Belgique S.A., Brussels | 100 |
| Solvay Pharmaceuticals S.A. - Management Services, Brussels | 100 |
| Solvay Specialty Polymers Belgium SA / NV | 100 |
| Solvay Stock Option Management S.P.R.L., Brussels | 100 |
| BRAZIL | |
| Cogeracao de Energia Electricica Paraiso SA, Brotas | 100 |
| Techpolymers Industria E Comercio Ltda, Sao Paulo | 100 |
| Rhodia Brazil Ltda, Sao Paolo | 100 |
| Rhodia Poliamida Brasil Ltda , Sao Paolo | 100 |
| Rhodia Poliamida e Especialidades Ltda, Sao Paolo | 100 |
| Rhopart-Participacoes Servidos e Comercio Ltda, Sao Paolo | 100 |
| BULGARIA | |
| Solvay Bulgaria EAD, Devnya | 100 |
| CANADA | |
| Cytec Canada Inc, Niagara Falls Welland | 100 |
| Solvay Canada Inc, Toronto | 100 |
| CHINA | |
| Beijing Rhodia Eastern Chemical Co., Ltd , Beijing | 60 |
| Cytec Industries Co. Ltd, Shanghai | 100 |
| Cytec Engineered Materials Co. Ltd, Shanghai | 100 |
| Liyang Solvay Rare Earth New Material Co., Ltd, Liyang City | 96.3 |
| Rhodia Hong Kong Ltd , Hong Kong | 100 |
| Solvay (Beijing) Energy Technology Co., Ltd , Beijing | 100 |
| Solvay (Shanghai) Engineering Plastics Co., Ltd | 100 |
| Solvay (Shanghai) International Trading Co., Ltd, Shanghai | 100 |
| Solvay (Shanghai) Ltd, Shanghai | 100 |
| Solvay (Zhangjiagang) Specialty Chemicals Co. Ltd, Suzhou | 100 |
| Solvay (Zhenjiang) Chemicals Co., Ltd, Zhenjiang New area | 100 |
| Solvay Chemicals (Shanghai) Co. Ltd, Shanghai | 100 |
| Solvay China Co., Ltd , Shanghai | 100 |
| Solvay Fine Chemical Additives (Qingdao) Co., Ltd, Qingdao | 100 |
| Solvay Hengchang (Zhangjiagang) Specialty Chemical Co., Ltd, Zhangjiagang City | 70 |
| Solvay Lantian (Quzhou) Chemicals Co., Ltd, Zhejiang | 55 |
| Solvay Silica Qingdao Co., Ltd , Qingdao | 100 |
| Solvay Speciality Polymers (Changshu) Co. Ltd, Changshu | 100 |
| Suzhou Interox Sem Co. Ltd, Suzhou | 100 |
| Zhuhai Solvay Specialty Chemicals Co Ltd, Zhuhai City | 100 |
| CHILE |
| Solvay Alexandria Trading LLC., Alexandria 100 FINLAND Solvay Chemicals Finland Oy, Voikkaa 100 FRANCE Cogénération Tavaux SAS, Paris 33.3 Cytec Process Materials Sarl, Toulouse 100 RHOD V S.N.C. , Courbevoie 100 RHOD W S.N.C. , Courbevoie 100 Rhodia Chimie S.A.S. , Aubervilliers 100 Rhodia Energy GHG S.A.S. , Puteaux 100 Rhodia Laboratoire du Futur S.A.S. , Pessac 100 Rhodia Operations S.A.S. , Aubervilliers 100 Rhodia Participations S.N.C. , Courbevoie 100 Rhodianyl S.A.S. , Saint-Fons 100 Solvay - Opérations - France S.A.S., Paris 100 Solvay - Fluorés - France S.A.S., Paris 100 Solvay Energie France S.A.S., Paris 100 Solvay Energy Services S.A.S. , Puteaux 100 Solvay Finance S.A., Paris 100 Solvay France S.A. , Courbevoie 100 Solvay Speciality Polymers France S.A.S., Paris 100 Solvin France S.A., Paris 100 GERMANY Cavity GmbH, Hannover 100 Cytec Engineered Materials GmbH, Oestringen 100 European Carbon Fiber GmbH , Kelheim 100 Horizon Immobilien AG, Hannover 100 Performance Polyamides Gmbh, Hannover 100 Salzgewinnungsgesellschaft Westfalen GmbH & Co KG, Hannover 65 German limited partnership, which makes use of the exemptions offered by Section 264(b) of the German Commercial Code, not to publish their annual financial statements. Solvay Chemicals GmbH, Hannover 100 Solvay Fluor GmbH, Hannover 100 Solvay Flux GmbH, Hannover 100 Solvay GmbH, Hannover 100 Solvay Infra Bad Hoenningen GmbH, Hannover 100 Solvay P&S GmbH, Freiburg 100 Solvay Specialty Polymers Germany GmbH, Hannover 100 Solvin GmbH & Co. KG - PVDC, Rheinberg 100 Solvin Holding GmbH, Hannover 100 INDIA Rhodia Polymers & Specialties India Private Limited, Mumbai 100 Solvay Specialities India Private Limited, Mumbai 100 Sunshield Chemicals Limited, Mumbai 62.4 INDONESIA PT. Cytec Indonesia, Jakarta 100 IRELAND Solvay Finance Ireland Unlimited , Dublin 100 ITALY Cytec Process Materials S.r.l., Mondovi 100 Performance Polyamide Italy Srl, Bollate 100 Solvay Chimica Italia S.p.A., Milano 100 Solvay Energy Services Italia S.r.l., Bollate 100 Solvay Solutions Italia S.p.A. , Milano 100 |
EGYPT | |
|---|---|---|
| Solvay Specialty Polymers Italy S.p.A., Milano | 100 |
| JAPAN | |
|---|---|
| Nippon Solvay KK, Tokyo | 100 |
| Solvay Japan K.K., Tokyo | 100 |
| Solvay Nicca Ltd, Tokyo | 60 |
| Solvay Special Chem Japan Ltd, Anan City | 67 |
| Solvay Specialty Polymers Japan KK, Minato Ku-Tokyo | 100 |
| LATVIA | |
| Solvay Business Services Latvia SIA, Riga | 100 |
| LUXEMBOURG | |
| Cytec Luxembourg International Holdings Sarl, Strassen | 100 |
| Solvay Chlorovinyls Holding S.a.r.l., Luxembourg | 100 |
| Solvay Finance (Luxembourg) SA, Luxembourg | 100 |
| Solvay Hortensia S.A., Luxembourg | 100 |
| Solvay Luxembourg S.a.r.l., Luxembourg | 100 |
| MEXICO | |
| Cytec de Mexico S.A. de C.V., Jalisco | 100 |
| Solvay Industrial S.de R.L. de C.V., Mexico | 100 |
| Solvay Fluor Mexico S.A. de C.V., Ciudad Juarez | 100 |
| Solvay Mexicana S. de R.L. de C.V., Monterrey | 100 |
| NETHERLANDS | |
| Cytec Industries B.V., Vlaardingen | 100 |
| Rhodia International Holdings B.V., Den Haag | 100 |
| Solvay Chemicals and Plastics Holding B.V., Linne-Herten | 100 |
| Solvay Chemie B.V., Linne-Herten | 100 |
| Solvay Solutions Nederland B.V., Klundert | 100 |
| Solvin Holding Nederland B.V., Linne-Herten | 100 |
| NEW ZEALAND | |
| Solvay New Zealand Ltd, Auckland | 100 |
| PERU | |
| Cytec Peru S.A.C., Lima | 100 |
| POLAND | |
| Solvay Engineering Plastics Poland Sp z.o.o. , Gorzow Wielkopolski | 100 |
| Solvay Advanced Silicas Poland Sp. z o.o. | 100 |
| PORTUGAL | |
| Solvay Business Services Portugal Unipessoal Lda, Carnaxide | 100 |
| Solvay Portugal - Produtos Quimicos S.A., Povoa | 100 |
| RUSSIA | |
| Solvay Vostok OOO, Moscow | 100 |
| SINGAPORE | |
| Rhodia Amines Chemicals Pte Ltd , Singapore | 100 |
| Solvay Fluor Holding (Asia-Pacific) Pte. Ltd., Singapore | 100 |
| Solvay Specialty Chemicals Asia Pacific Pte. Ltd., Singapore | 100 |
| SOUTH KOREA | |
| Cytec Korea Inc, Seoul | 100 |
| Daehan Solvay Special Chemicals Co., Ltd, Seoul | 100 |
| Solvay Chemicals Korea Co. Ltd , Seoul | 100 |
| Solvay Chemical Services Korea Co. Ltd, Seoul | 100 |
| Solvay Energy Services Korea Co. Ltd , Seoul | 100 |
| Solvay Korea Co. Ltd, Seoul | 100 |
| Solvay Silica Korea Co. Ltd , Incheon | 100 |
| Solvay Specialty Polymers Korea Company Ltd, Seoul | 100 |
| SPAIN | |
| Solvay Quimica S.L., Barcelona | 100 |
| Solvay Solutions Espana S.L., Madrid | 100 |
|---|---|
| SWITZERLAND | |
| Solvay (Schweiz) AG, Bad Zurzach | 100 |
| Solvay Vinyls Holding AG, Bad Zurzach | 100 |
| THAILAND | |
| Solvay Asia Pacific Company Ltd, Bangkok | 100 |
| Solvay (Bangpoo) Specialty Chemicals Ltd, Bangkok | 100 |
| Solvay (Thailand) Ltd, Bangkok | 100 |
| Solvay Peroxythai Ltd, Bangkok | 100 |
| TURKEY | |
| Solvay Istanbul Kimya Limited Sirketi | 100 |
| UNITED KINGDOM | |
| Advanced Composites Group Investments Ltd, Heanor | 100 |
| Cytec Engineered Materials Ltd, Wrexham | 100 |
| Cytec Industrial Materials (Derby) Ltd, Heanor | 100 |
| Cytec Industrial Materials (Manchester) Ltd, Heanor | 100 |
| Cytec Industries UK Holdings Ltd, Wrexham | 100 |
| Cytec Med-Lab Ltd, Heanor | 100 |
| Cytec Process Materials (Keighley) Ltd, Keighley | 100 |
| McIntyre Group Ltd , Watford | 100 |
| Rhodia Holdings Ltd , Watford | 100 |
| Rhodia International Holdings Ltd , Oldbury | 100 |
| Rhodia Limited , Watford | 100 |
| Rhodia Organique Fine Ltd , Watford | 100 |
| Rhodia Overseas Ltd , Watford | 100 |
| Rhodia Pharma Solutions Holdings Ltd, Cramlington | 100 |
| Rhodia Pharma Solutions Ltd, Cramlington | 100 |
| Rhodia Reorganisation, Watford | 100 |
| Solvay Interox Ltd, Warrington | 100 |
| Solvay Solutions UK Ltd, Watford | 100 |
| Solvay UK Holding Company Ltd, Warrington | 100 |
| Umeco Composites Ltd, Heanor | 100 |
| Umeco Ltd, Heanor | 100 |
| UNITED STATES | |
| Ausimont Industries, Inc., Wilmington, Delaware | 100 |
| CEM Defense Materials LLC, Tempe Arizona | 100 |
| Cytec Aerospace Materials (ca) Inc., New Jersey | 100 |
| Cytec Carbon Fibers LLC, New Jersey | 100 |
| Cytec Engineered Materials Inc., Arizona Cytec Global Holdings Inc., New Jersey |
100 100 |
| Cytec Industrial Materials (ok) Inc., New Jersey | 100 |
| Cytec Industries Inc, New Jersey | 100 |
| Cytec Korea Inc., New Jersey | 100 |
| Cytec Overseas Corp., New Jersey | 100 |
| Cytec Process Materials (ca) Inc., New Jersey | 100 |
| Cytec Technology Corp., New Jersey | 100 |
| Garret Mountain Insurance Co., New Jersey | 100 |
| IMC Mining Chemicals LLC, New Jersey | 100 |
| Rocky Mountain Coal Company, LLC, Houston, Texas | 100 |
| Solvay America Holdings, Inc., Houston, Texas | 100 |
| Solvay America Inc., Houston, Texas | 100 |
| Solvay Chemicals, Inc., Houston, Texas | 100 |
| Solvay Finance (America) LLC, Houston, Texas | 100 |
| Solvay Financial Services INC., Wilmington, Delaware | 100 |
| Solvay Fluorides, LLC., Greenwich, Connecticut | 100 |
| Solvay Holding INC., Princeton, New Jersey | 100 |
| Solvay India Holding Inc., Princeton, New Jersey | 100 |
| Solvay Soda Ash Expansion JV, Houston, Texas | 80 |
| Solvay Soda Ash Joint Venture, Houston, Texas | 80 |
| Solvay Specialty Polymers USA, LLC, Alpharetta, Georgia | 100 |
| Solvay USA INC., Princeton, New Jersey | 100 |
| URUGUAY | |
|---|---|
| Alaver SA, Montevideo | 100 |
| Zamin Company S/A, Montevideo | 100 |
Indicating the percentage holding
| AUSTRIA | |
|---|---|
| Solvay Sisecam Holding AG, Wien | 75 |
| BELGIUM | |
| BASF Interox H2O2 Production N.V., Brussels | 50 |
| BULGARIA | |
| Solvay Sodi AD, Devnya | 73.5 |
| FRANCE | |
| Butachimie S.N.C. , Courbevoie | 50 |
| NETHERLANDS | |
| MTP HP JV C.V., Weesp | 50 |
| MTP HP JV Management bv, Weesp | 50 |
| SAUDI ARABIA | |
| Saudi Hydrogen Peroxide Co, Jubail | 50 |
| THAILAND | |
| MTP HP JV (Thailand) Ltd, Bangkok | 50 |
Indicating the percentage holding
| BELGIUM | |
|---|---|
| EECO Holding SA, Bruxelles | 33.3 |
| BRAZIL | |
| Peroxidos do Brasil Ltda, Sao Paulo | 69.4 |
| CHINA | |
| Shandong Huatai Interox Chemical Co. Ltd, Dongying | 50 |
| FRANCE | |
| Cogénération Belle Etoile SAS, Paris | 33.3 |
| GERMANY | |
| Solvay & CPC Barium Strontium GmbH & Co KG, Hannover | 75 |
| Solvay & CPC Barium Strontium International GmbH, Hannover | 75 |
| INDIA | |
| Hindustan Gum & Chemicals Ltd, New Delhi | 50 |
| ITALY | |
| Cogeneration Rosignano S.r.l., Rosignano | 25.4 |
| Cogeneration Spinetta S.p.a. , Bollate | 33.3 |
| MEXICO | |
| Solvay & CPC Barium Strontium Monterrey S. de R.L. de C.V., Monterrey | 75 |
| RUSSIA | |
| Rusvinyl OOO, Moscow | 50 |
| CHINA | |
|---|---|
| Qingdao Hiwin Solvay Chemicals Co. Ltd, Qingdao | 30 |
| FRANCE | |
| GIE Chime Salindres, Salindres | 50 |
| INDONESIA | |
| Solvay Manyar P.T., Gresik | 50 |
| MEXICO | |
| Silicatos y Derivados S.A. DE C.V. | 20 |
| POLAND | |
| Zaklad Energoeloctryczny Energo-Stil Sp. z o.o., Gorzow Wielkopolski | 25 |
| UNITED KINGDOM | |
| Penso Holdings Ltd, Coventry | 20 |
The annual financial statements of Solvay SA are presented in summary format below. In accordance with the Belgian Companies Code, the annual financial statements of Solvay SA, the management report, and the statutory auditor's report will be filed with the National Bank of Belgium.
These documents are also available free of charge on the internet, or upon request sent to:
Solvay SA rue de Ransbeek 310 B – 1120 Brussels
The balance sheet of Solvay SA at the end of the year 2018 presented below is based on a dividend distribution of € 3.75 per share.
At the end of 2018, Solvay SA has still one Branch, Solvay S.A. Sede Secondaria per l'Italia (Via Piave 6, 57013 Rosignano, Italy).
The accounts of Solvay SA are prepared in accordance with Belgian generally accepted accounting principles.
The main activities of Solvay SA consist of holding and managing a number of investments in Group companies and of financing the Group's activities from the bank and bond markets. As from 2017, Solvay SA has carried out a Group internal factoring activity without recourse. As a result, Solvay SA owns and manages Group's trade receivables from customers based in Europe and in Asia. It manages the research center at Neder-Over-Heembeek (Brussels, Belgium) and a very limited number of commercial activities not undertaken through subsidiaries.
| In € million | 2018 | 2017 |
|---|---|---|
| ASSETS | ||
| Fixed assets | 13,883 | 12,996 |
| Start-up expenses and intangible assets | 172 | 176 |
| Tangible assets | 55 | 50 |
| Financial assets | 13,656 | 12,770 |
| Current assets | 5,457 | 7,177 |
| Inventories | 0 | 1 |
| Trade receivables | 886 | 1,033 |
| Other receivables | 4,061 | 5,875 |
| Short-term investments and cash equivalents | 492 | 230 |
| Accrued income and deferred charges | 18 | 38 |
| Total assets | 19,340 | 20,173 |
| SHAREHOLDERS' EQUITY AND LIABILITIES | ||
| Shareholders' equity | 11,207 | 11,077 |
| Capital | 1,588 | 1,588 |
| Issue premiums | 1,200 | 1,200 |
| Reserves | 1,982 | 1,982 |
| Net income carried forward | 6,436 | 6,307 |
| Provisions and deferred taxes | 323 | 254 |
| Financial debt | 3,015 | 3,248 |
| due in more than one year | 2,050 | 2,450 |
| due within one year | 965 | 798 |
| Trade liabilities | 80 | 144 |
| Other liabilities | 4,670 | 5,410 |
| Accrued charges and deferred income | 45 | 40 |
| Total shareholders' equity and liabilities | 19,340 | 20,173 |
The decrease of the total assets (€ 833 million) is the combination of an increase of financial assets (€ 886 million) and a decrease of current assets (€ 1,720 million):
The currents assets decrease results mainly from significant reimbursements of loans and of trade receivables by the affiliates.
In the liabilities, the financial debt totals € 3,015 million (versus € 3,248 million at the end of 2017). The decrease of € (233) million is due to:
Other liabilities include current accounts towards affiliates, as well as the dividends to be paid in 2019 (€ 397 million).
| In € million | 2018 | 2017 |
|---|---|---|
| Operating income | 1,024 | 967 |
| Sales | 11 | 9 |
| Other operating income | 1,013 | 959 |
| Operating expenses | (982) | (829) |
| Operating profit | 42 | 138 |
| Financial income and expenses | 495 | 617 |
| Profit for the year before taxes | 537 | 755 |
| Income taxes | (11) | (23) |
| Profit for the year | 526 | 733 |
| Profit for the year available for distribution | 526 | 733 |
In 2018, the profit for the year of Solvay SA amounted in 2018 to € 526 million, compared with € 733 million in 2017.
An amount of € 6,833 million including the profit for the year is available for distribution.
| In € million | 2018 | 2017 |
|---|---|---|
| Profit for the year available for distribution | 526 | 733 |
| Carried forward | 6,307 | 5,955 |
| Total available to the General Shareholders' Meeting | 6,833 | 6,688 |
| Appropriation | ||
| Gross dividend | 397 | 381 |
| Carried forward | 6,436 | 6,307 |
| Total | 6,833 | 6,688 |
MANAGEMENT REPORT
| Assurance report of the statutory auditor on a selection of social, environmental and other sustainable development information for the year ended 31 December 2018 |
258 |
|---|---|
| Statutory auditor's report to the shareholders' meeting of Solvay SA for the year ended |
|
| 31 December 2018 | 263 |
| Declaration by the persons responsible | 268 |
Pursuant to your request and in our capacity of statutory auditor of Solvay SA / NV ("the Company"), we hereby present you our assurance report on a selection of social, environmental and other sustainable development information disclosed in the Solvay Group Annual Integrated Report for the year ended 31 December 2018 (the "2018 Annual Integrated Report"), identified by the symbol and .
This selection of information (the "Information") extracted from the 2018 Annual Integrated Report has been prepared under the responsibility of Solvay Group management, in accordance with internal measurement and reporting principles used by Solvay Group (the "Reporting Framework"). The Reporting Framework consists of specific definitions and assumptions that are summarized in section "Extra-financial statements" of the 2018 Annual Integrated Report.
It is our responsibility, based on the procedures performed by us, to express:
The complete list of Information in scope of our assurance engagement together with the type of assurance has been included in appendix A of this report.
We conducted our procedures in accordance with the international standard as defined in ISAE (International Standard on Assurance Engagements) 3000. With respect to independence rules, these are defined by the respective legal and regulatory texts as well as by the professional Code of Ethics, issued by the International Federation of Accountants ("IFAC").
We have carried out the following procedures
All the audited sites and perimeters are listed in appendix B of this document.
"Limited assurance" for the Information identified by the symbol as included in the 2018 Annual Integrated Report
For the indicators in scope of "limited assurance" (identified by the symbol )
On the basis of the procedures performed by us, nothing came to our attention that causes us to believe that the Information identified by the symbol as included in the 2018 Annual Integrated Report, is not prepared, in all material respects, in accordance with the Reporting Framework.
For the indicators in scope of "reasonable assurance" (identified by the symbol )
In our opinion, based on the procedures performed, the Information identified by the symbol as included in the 2018 Annual Integrated Report, has been prepared in all material respects in accordance with the Reporting Framework.
Without qualifying our conclusion above, we draw your attention to the following points:
Zaventem, 29 March 2019 The statutory auditor
Deloitte Bedrijfsrevisoren/Réviseurs d'Entreprises CVBA/SCRL Represented by Michel Denayer
Indicators in bold are selected for reasonable assurance.
| Reporting scope | Information | Audit Procedure | Audit scope |
|---|---|---|---|
| Sustainable | Product portfolio assessed | Reasonable Assurance | Group level |
| business solutions |
Sustainable business solutions | Reasonable Assurance | Group level |
| Greenhouse gas emissions intensity | Reasonable Assurance | Group level | |
| Direct and indirect CO2 emissions (Scope 1 & 2) | Reasonable Assurance | Site level | |
| Greenhouse gas | Other greenhouse gas emissions according to Kyoto Protocol (Scope 1) |
Reasonable Assurance | Site level |
| emissions | Total greenhouse gas emissions according to Kyoto Protocol (Scopes 1 & 2) |
Reasonable Assurance | Site level |
| Other greenhouse gas emissions not according to Kyoto Protocol (Scope 1) |
Limited Assurance | Site level | |
| Primary energy consumption | Limited Assurance | Site level | |
| Energy | Energy efficiency index – Baseline 100 % in 2012 | Limited Assurance | Site level |
| Nitrogen oxides emissions – NOx | Limited Assurance | Site level | |
| Nitrogen oxides intensity | Limited Assurance | Site level | |
| Sulphur oxides emissions – SOx | Limited Assurance | Site level | |
| Air quality | Sulphur oxides intensity | Limited Assurance | Site level |
| Non-methane volatile organic compounds emissions – NMVOC |
Limited Assurance | Site level | |
| Non-methane volatile organic compounds intensity | Limited Assurance | Site level | |
| Freshwater withdrawal | Limited Assurance | Site level | |
| Freshwater withdrawal intensity | Limited Assurance | Site level | |
| Water and wastewater |
Chemical oxygen demand (COD) | Limited Assurance | Site level |
| Chemical oxygen demand intensity | Limited Assurance | Site level | |
| Non-hazardous industrial waste | Limited Assurance | Site level | |
| Hazardous industrial waste | Limited Assurance | Site level | |
| Total industrial waste | Limited Assurance | Site level | |
| Waste and hazardous materials |
Industrial hazardous waste not treated in a sustainable way in absolute volume |
Limited Assurance | Site level |
| Industrial hazardous waste not treated in a sustainable way intensity |
Limited Assurance | Site level | |
| Substance of very high concern (SVHC) according to REACH criteria present in products sold |
Limited Assurance | Group level | |
| Percentage of completion of Analysis of Safer Alternatives program for marketed substances |
Limited Assurance | Group level | |
| Medical Treatment Accident Rate – for Solvay Employees, and contractors (MTAR) |
Reasonable Assurance | Site level | |
| Employee health and safety |
Lost Time Accident Rate – for Solvay Employees and contractors (LTAR) |
Reasonable Assurance | Site level |
| Fatal accidents of Solvay employees and contractors | Reasonable Assurance | Site level | |
| Employee | Solvay engagement index | Reasonable Assurance | Group level |
| engagement and | Coverage by collective agreement | Limited Assurance | Group level |
| wellbeing | |||
| Number of "risk sheets level 1" at the end of the year | Limited Assurance | Site level | |
| Percentage of level 1 risk situations resolved within one year |
Limited Assurance | Site level | |
| Critical incident | Risk level 1 situation resolved | Limited Assurance | Site level |
| risk management | Process safety incident rate | Limited Assurance | Group level |
| (Process accident and safety |
Medium severity incidents with environmental consequences |
Limited Assurance | Site level |
| management) | Percentage of product lines having a risk analysis updated in the last five years |
Limited Assurance | Site level |
| Medium severity incidents with environmental consequences in which the limits of the operating permit were exceeded |
Limited Assurance | Site level | |
| Solvay Way | Solvay Way Group profile | Limited Assurance | Site and Group level |
| Customer welfare | Solvay's Net Promoter Score (NPS) | Limited Assurance | Group level |
| Societal actions | Employees involved in local societal actions | Limited Assurance | Site level |
| Total headcount | Limited Assurance | Group level | |
| Diversity and | Percentage of women in the Group | Limited Assurance | Group level |
| inclusion | Headcount by employee category (senior manager, middle manager, junior manager, non-manager) |
Limited Assurance | Group level |
| Audited reporting scope | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Greenhouse gas |
Air | Water and | Waste and hazardous |
Employee health and |
Process accident and |
Solvay | Societal | |||
| Audited sites Paulinia |
Country Brazil |
emissions | Energy | quality | wastewater | materials | safety | safety | Way | actions |
| Santo Andre EST |
Brazil | |||||||||
| Dombasle | France | |||||||||
| Collonges | France | |||||||||
| Rosignano | Italy | |||||||||
| Spinetta | Italy | |||||||||
| Bernburg | Germany | |||||||||
| Augusta, GA | USA | |||||||||
| Devnya | Bulgary | |||||||||
| Rheinberg | Germany | |||||||||
| Torrelavega | Spain | |||||||||
| Green River, WY |
USA | |||||||||
| Alpharetta | USA | |||||||||
| Anaheim, CA | USA | |||||||||
| Baltimore | USA | |||||||||
| Greenville, TX | USA | |||||||||
| Long Beach, CA | USA | |||||||||
| Marietta, OH | USA | |||||||||
| Mt Pleasant | USA | |||||||||
| West Deptford | USA | |||||||||
| Wrexham | UK | |||||||||
| Oldburry | UK | |||||||||
| Brussels NOH | Belgium | |||||||||
| Oudenaarde | Belgium | |||||||||
| Welland | Canada | |||||||||
| Changshu | China | |||||||||
| Zhenjiang Songl |
China | |||||||||
| Shanghai Xin Zh |
China | |||||||||
| Zhangjiagang YA |
China | |||||||||
| Zhangijagang FE |
China | |||||||||
| St-Fons SP | France | |||||||||
| St-Fons RC | France |
| Audited reporting scope | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Audited sites | Country | Greenhouse gas emissions |
Energy | Air quality |
Water and wastewater |
Waste and hazardous materials |
Employee health and safety |
Process accident and safety |
Solvay Way |
Societal actions |
| Freiburg Engess |
Germany | |||||||||
| Hannover | Germany | |||||||||
| Panoli | India | |||||||||
| Rasal | India | |||||||||
| Bollate | Italy | |||||||||
| Onsan Gongdan-R |
Korea | |||||||||
| Gorzow | Poland | |||||||||
| Carnaxide | Portugal | |||||||||
| A selection of indicators audited All relevant indicators audited |
||||||||||
| Audited GBUs and functions | Solvay Way | Customer Welfare | ||||||||
| GBU Soda Ash & Derivatives | ||||||||||
| GBU Technology Solutions | ||||||||||
| GBU Composite Materials | ||||||||||
| GBU Silica | ||||||||||
| GBU Specialty Polymers | ||||||||||
| Corporate function – Risk management | ||||||||||
| Corporate function – Strategy | ||||||||||
| A selection of indicators audited |
All relevant indicators audited
In the context of the statutory audit of the consolidated financial statements of Solvay SA ("the company") and its subsidiaries (jointly "the group"), we hereby submit our statutory audit report. This report includes our report on the consolidated financial statements and the other legal and regulatory requirements. These parts should be considered as integral to the report.
We were appointed in our capacity as statutory auditor by the shareholders' meeting of 10 May 2016, in accordance with the proposal of the board of directors issued upon recommendation of the audit committee and presentation of the works council. Our mandate will expire on the date of the shareholders' meeting deliberating on the financial statements for the year ending 31 December 2018. We have performed the statutory audit of the consolidated financial statements of Solvay SA for 18 consecutive periods.
We have audited the consolidated financial statements of the group, which comprise the consolidated statement of financial position as at 31 December 2018, 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 year then ended, as well as the summary of significant accounting policies and other explanatory notes. The consolidated statement of financial position shows total assets of 22 000 million EUR and the consolidated income statement shows a profit for the year then ended of 897 million EUR.
In our opinion, the consolidated financial statements give a true and fair view of the group's net equity and financial position as of 31 December 2018 and of its consolidated results and its consolidated cash flow for the year then ended, in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with the legal and regulatory requirements applicable in Belgium.
We conducted our audit in accordance with International Standards on Auditing (ISA), as applicable in Belgium. In addition, we have applied the International Standards on Auditing approved by the IAASB applicable to the current financial year, but not yet approved at national level. Our responsibilities under those standards are further described in the "Responsibilities of the statutory auditor for the audit of the consolidated financial statements" section of our report. We have complied with all ethical requirements relevant to the statutory audit of consolidated financial statements in Belgium, including those regarding independence.
We have obtained from the board of directors and the company's officials the explanations and information necessary for performing our audit.
We believe that the audit evidence obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and in forming our opinion thereon; we do not provide a separate opinion on these matters.
The board of directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with the legal and regulatory requirements applicable in Belgium and for such internal control as the board of directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the board of directors is responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters to be considered for going concern and using the going concern basis of accounting unless the board of directors either intends to liquidate the group or to cease operations, or has no other realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a statutory auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
During the performance of our audit, we comply with the legal, regulatory and normative framework as applicable to the audit of consolidated financial statements in Belgium.
As part of an audit in accordance with ISA, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
We communicate with the audit committee regarding, amongst other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the audit committee with a statement that we have complied with relevant ethical requirements regarding independence, and we communicate with them about all relationships and other matters that may reasonably be thought to bear our independence, and where applicable, related safeguards.
From the matters communicated to the audit committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our report unless law or regulation precludes any public disclosure about the matter.
The board of directors is responsible for the preparation and the content of the directors' report on the consolidated financial statements, the statement of non-financial information attached to the directors' report on the consolidated financial statements and other matters disclosed in the annual report on the consolidated financial statements.
As part of our mandate and in accordance with the Belgian standard complementary (revised in 2018) to the International Standards on Auditing (ISA) as applicable in Belgium, our responsibility is to verify, in all material respects, the director's report on the consolidated financial statements, the statement of non-financial information attached to the directors' report on the consolidated financial statements and other matters disclosed in the annual report on the consolidated financial statements, as well as to report on these matters.
In our opinion, after performing the specific procedures on the directors' report on the consolidated financial statements, this report is consistent with the consolidated financial statements for that same year and has been established in accordance with the requirements of article 119 of the Companies Code.
In the context of our statutory audit of the consolidated financial statements we are also responsible to consider, in particular based on information that we became aware of during the audit, if the directors' report on the consolidated financial statements is free of material misstatement, either by information that is incorrectly stated or otherwise misleading. In the context of the procedures performed, we are not aware of such material misstatement.
The non-financial information as required by article 119, § 2 of the Companies Code, has been disclosed in the directors' report on the consolidated financial statements. This non-financial information has been established by the company in accordance with the Global Reporting Initiative (GRI) framework. As requested by Solvay management, we have issued a separate limited and reasonable assurance report on a selection of social, environmental and other sustainable development information in accordance with the International Standard on Assurance Engagements ISAE 3000. In accordance with article 144, § 1, 6° of the Companies Code we do not express any opinion on the question whether this non-financial information has been established in accordance with the GRI framework. For information not included in our specific assurance report on non-financial information, we do not express any assurance on individual elements that have been disclosed in this non-financial information.
This report is consistent with our additional report to the audit committee referred to in article 11 of Regulation (EU) No 537/2014.
Zaventem, 29 March 2019 The statutory auditor
The Board of Directors hereby declares that, to the best of its knowledge:
For the Board of Directors,
Nicolas Boël Chairman of the Board of Directors
Jean-Pierre Clamadieu Chairman of the Executive Committee and CEO Director
Adjustments made to IFRS results for elements distorting comparability of the Group underlying performance over time. These adjustments consist of:
Net income (Solvay's share) divided by the weighted average number of shares, after deducting own shares purchased to cover stock options program.
Cash paid for the acquisition of property, plant and equipment, and intangible assets
Carechem 24 is a multilingual telephone advice service providing access to a team of trained responders 24 hours a day, 365 days a year. Carechem 24 provides companies all over the world with emergency product support during a hazardous materials incident.
(Underlying EBITDA + Capex from continuing operations) / Underlying EBITDA
Cash Flow Return On Investment, calculated as the ratio between recurring cash flow and invested capital, where:
Cash-generating unit.
Solvay is committed to responsible behavior and integrity, taking into account the sustainable growth of its business and its good reputation in the communities in which it operates.
Corporate Social Responsibility.
Currency Translation Adjustment
Net income (Solvay's share) divided by the weighted average number of shares adjusted for effects of dilution.
Component of the Group which the Group has disposed of or which is classified as held for sale, and:
Net dividend divided by the closing share price on December 31.
Gross dividend divided by the closing share price on December 31.
Dow Jones Stoxx is a European stock index composed of the 665 most important European shares.
Dow Jones Euro Stoxx is a pan-European stock index which includes the 326 most important shares of the general Dow Jones index, belonging to eleven countries of the Eurozone.
Earnings before interest and taxes.
Earnings before interest and taxes, depreciation and amortization.
The U.S. Environmental Protection Agency (EPA or USEPA) is an agency of the United States federal government which was created for the purpose of protecting human health and the environment by writing and enforcing regulations based on laws passed by Congress.
Equity (Solvay share) divided by the number of outstanding shares at year end (issued shares – treasury shares).
Global operator of financial markets and provider of trading technologies.
Cash flow from operating activities (excluding cash flows linked to acquisitions or disposals of subsidiaries) and cash flow from investing activities (excluding cash flow from or related to acquisitions and disposals of subsidiaries and other investments, and excluding loans to associates and non-consolidated investments, as well as related tax elements and recognition of factored receivables).
Free cash flow after payment of net interests, coupons of perpetual hybrid bonds, and dividends to non-controlling interests. This represents the cash flow available to Solvay shareholders, to pay their dividend and/or the reduce the net financial debt.
Financial Stability Board
The FTSEurofirst 300 Index tracks the equity performance across the region of the 300 largest companies ranked by market capitalization in the FTSE Developed Europe Index.
Underlying net debt / total equity.
The Global Reporting Initiative (GRI) is a leading organization in the sustainability field. GRI promotes the use of sustainability reporting as a way for organizations to become more sustainable and contribute to sustainable development.
Hydrogen peroxide propylene oxide, a new technology to produce propylene oxide using hydrogen peroxide.
International Council of Chemistry Associations
International Financial Reporting Standards.
International Integrated Reporting Council
This is a process founded on integrated thinking, which results in a periodic integrated report by an organization about value creation over time and related communications regarding aspects of value creation.
The ISO 9001 standard defines a set of requirements for the establishment of a system of quality management in an organization, whatever its size and activity.
The ISO 14001 family addresses various aspects of environmental management. It provides practical tools for companies and organizations looking to identify and control their environmental impact and constantly improve their environmental performance.
The ISO 14040 standard covers life cycle assessment (LCA) studies and life cycle inventory (LCI) studies.
The ISO 26000 is a global standard which provides guidelines for organizations that wish to operate in a socially responsible manner. The standard was published in 2010 after five years of negotiations among a large number of stakeholders worldwide. Representatives of governments, NGOs, industry, consumer groups, and the world of work were involved in its development. It therefore represents an international consensus.
Life Cycle Assessment
Net debt / underlying EBITDA of the last 12 months. Underlying leverage ratio = underlying net debt / underlying EBITDA of the last 12 months.
Loss prevention aims at maintaining production flow and profitability of the plants by providing risk mitigation. It also contributes to increasing the protection of people and the environment.
Lost Time Accident Rate.
Organizations are faced with a wide range of topics on which they could report. The relevant topics are those that may reasonably be considered important for reflecting the organization's economic, environmental, and social impacts, or influencing the decisions of stakeholders, and therefore potentially merit inclusion in an annual report. Materiality is the threshold at which aspects become sufficiently important that they should be reported.
Medical Treatment Accident Rate.
A natural currency hedge is an investment that reduces the undesired risk by matching cash in and outflows.
accident or collision narrowly avoided
Cost of borrowings netted with interest on loans and short-term deposits, as well as other gains (losses) on net indebtedness
Non-current financial debt + current financial debt – cash & cash equivalents – other financial instrument receivables.
Net cost of borrowings, and costs of discounting provisions (namely, related to post-employment benefits and HSE liabilities).
The difference between the change in sales prices and the change in variable costs.
Sales of goods and value added services corresponding to Solvay's know-how and core business. Net sales exclude Revenue from non-core activities.
Includes inventories, trade receivables, and other current receivables, netted with trade payables and other current liabilities.
Organisation for Economic Co-operation and Development.
OHSAS 18001 is an international occupational health and safety management system specification.
Innovation that is enriched with outside expertise, through partnerships with the academic world and by shareholdings in start-ups, either directly or via investment funds.
Growth of net sales or underlying EBITDA excluding scope changes and forex conversion effects. The calculation is made by rebasing the prior period at the business scope and foreign exchange conversion rate of the current period.
Reduction of liabilities (net debt or provisions) through operational performance only, i.e. excluding impacts from M&A and scope, as well as remeasurements impacts (changes of foreign exchange, inflation, mortality and discount rates).
United States Occupational Safety and Health Administration
Unit of percentage points or 1.0%, used to express the evolution of ratios.
Purchase Price Allocation (PPA) accounting impacts related to acquisitions.
The ability to create positive net pricing.
PSM
Process safety management
Performance Share Unit.
A responsible approach in managing risks throughout the entire life cycle of a product, from the design stage to the end of life.
Research and development costs recognized in the income statement and as capital expenditure before deduction of related subsidies, royalties and depreciation and amortization expense.
Research & Innovation / net sales
REACH is the European Community Regulation on chemicals and their safe use (EC 1907/2006). It deals with the registration, evaluation, authorization, and restriction of chemical substances. The law entered into force on June 1, 2007.
Responsible Care® is the global chemical industry's unique initiative to improve health, environmental performance, enhance security, and to communicate with stakeholders about products and processes.
It includes:
It includes:
It excludes non-cash accounting impact from amortization and depreciation resulting from the purchase price allocation (PPA) from acquisitions.
Revenues primarily comprising commodity and utility trading transactions and other revenue, considered to not correspond to Solvay's know-how and core business.
Return on equity.
Safety Data Sheets are the main tool for ensuring that manufacturers and importers communicate enough information along the supply chain to allow safe use of their substances and mixtures.
Solvay Acceptable Exposure Limits
Sustainability Accounting Standards Board. SASB's mission is to develop and disseminate sustainability accounting standards that help public corporations disclose material, decision-useful information to investors. That mission is accomplished through a rigorous process that includes evidence-based research and broad, balanced stakeholder participation.
Solvay Care Management System
United Nations Sustainable Development Goals
The Control of Major Accident Hazards Involving Dangerous Substances Regulations. These regulations (often referred to as "COMAH Regulations" or "Seveso Regulations") give effect to European Directive 96/82/EC. They apply only to locations where significant quantities of dangerous substances are stored.
Global tool for industrial hygiene management
Launched in 2013 and aligned with ISO 26000, Solvay Way is the sustainability approach of the Group. It integrates social, societal, environmental, and economic aspects into the Company's management and strategy, with the objective of creating value shared by all of its stakeholders. Solvay Way is based on an ambitious and pragmatic framework serving as a tool of both measurement and progress. Solvay Way lists 49 practices – practices that reflect the Solvay Way's 22 commitments and are structured on a four-level scale (launch, deployment, maturity, performance).
The Sustainable Portfolio Management tool is integrated into the Solvay Way framework (linked to five practices). It serves as a strategic tool for developing information on our portfolio and analyzing the impacts of sustainability megatrends on our businesses.
Substance of Very High Concern (SVHC) is a chemical substance, the utilization of which within the European Union has been proposed to become subject to legal authorization under the REACH regulation.
Task Force on Climate-related Financial Disclosure
voluntary corporate sustainability initiative to support companies to align strategies and operations with universal principles on human rights, labor, environment, and anti-corruption, and take actions that advance broader societal goals.
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 reclassifies as debt 100% of the perpetual hybrid bonds, considered as equity under IFRS.
Income taxes / (Result before taxes – Earnings from associates & joint ventures – interests and realized foreign exchange results on RusVinyl joint venture) - All determined on an Underlying basis. The adjustment of the denominator regarding associates and joint ventures is made as these contributions are already net of income taxes.
Total number of shares traded during the year divided by the total number of listed shares, using the Euronext definition.
Velocity adjusted as a function of the percentage of the listed shares held by the public, using the Euronext definition.
World Business Council for Sustainable Development.
Year on year comparison.
First quarter 2019 results Annual general meeting Final dividend ex-coupon date MAY 7, 2019 MAY 14, 2019 MAY 21, 2019 MAY 22, 2019
Final dividend record date
Final dividend payment date First half 2019 results Nine months 2019 results MAY 23, 2018 JULY 31, 2019 NOVEMBER 7, 2019 FEBRUARY 26, 2020
Full year 2019
Ce rapport est aussi disponible en français. Dit jaaversalg is ook beschikbaar in het Nederlands.
Layout, concept and production (print & online) nexxar, Austria www.nexxar.com
Content and computer graphic consulting, writing CAPITALCOM, France www.capitalcom.fr
Consulting, translation, printing nexxar, Austria www.nexxar.com
Publication management Solvay Communication
Photos Solvay / Jean-Michel Byl / Cyril Fussien
Printed on FSC paper.
Solvay employees portrayed on the cover: Bruno, Carole, Hakim, Laetitia, Nathalie, Olivia, Philippe.
WeChat Solvay Solvay SA Rue de Ransbeek, 310 1120 Brussels Belgium T: +32 2 264 2111
https://annualreports.solvay.com/2018/en For more information visit This document has been generated from the online version, which provides additional, interactive features https://annualreports.solvay.com/2018/en
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