Accounting policy

In accordance with IAS 1 Presentation of Financial Statements, the Group elected to present two statements – 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.

Presentation of the tax effect relating to each item of other comprehensive income

Note: the below table presents the total other comprehensive income items for the aggregate of the shares of Solvay and the non-controlling interests.

In € million

 

2016

 

2015

 

Before-tax amount

 

Tax expense(-)/benefit (+)

 

Net-of-tax amount

 

Before- tax amount

 

Tax expense(-)/benefit (+)

 

Net-of-tax amount

Gains and losses related to hyperinflation

 

0

 

0

 

0

 

42

 

(7)

 

35

Hyperinflation

 

0

 

0

 

0

 

42

 

(7)

 

35

Gains and losses on remeasuring available-for-sale financial assets

 

9

 

0

 

10

 

3

 

0

 

3

Available-for-sale financial assets (see note F32)

 

9

 

0

 

10

 

3

 

0

 

3

Effective portion of gains and losses on hedging instruments in a cash flow hedge

 

3

 

(13)

 

(10)

 

(42)

 

0

 

(42)

Recycling to the income statement

 

33

 

 

 

33

 

134

 

 

 

134

Basis adjustments

 

0

 

 

 

0

 

(77)

 

 

 

(77)

Cash flow hedges (see note F32)

 

36

 

(13)

 

23

 

15

 

0

 

15

Currency translation differences - Subsidiaries and joint operations

 

272

 

 

 

272

 

208

 

0

 

208

Currency translation differences arising during the year

 

199

 

 

 

199

 

207

 

 

 

207

Recycling of currency translations differences relating to foreign operations disposed of in the year

 

63

 

 

 

63

 

1

 

 

 

1

Other movement of currency translation differences (NCI) relating to foreign operations disposed of in the year

 

10

 

 

 

10

 

 

 

 

 

 

Currency translation differences - Associates and joint ventures

 

57

 

 

 

57

 

(22)

 

0

 

(22)

Currency translation differences arising during the year

 

51

 

 

 

51

 

(22)

 

 

 

(22)

Recycling of currency translations differences relating to foreign operations disposed of in the year

 

6

 

 

 

6

 

 

 

 

 

 

Currency translation differences

 

329

 

0

 

329

 

186

 

0

 

186

Actuarial gains and losses on defined benefit pension plans (see note F31.A)

 

(275)

 

68

 

(207)

 

279

 

(13)

 

266

Other comprehensive income

 

100

 

56

 

155

 

525

 

(20)

 

505

Hyperinflation

Accounting policy

The Venezuelan economy being considered as a hyperinflationary economy, since 2013 the Group applies the hyperinflationary accounting requirements of IAS 29 Financial Reporting in Hyperinflationary Economies to its Venezuelan operations. The financial statements are based on the historical cost basis and have been restated to take into account the effects of inflation.

During the first quarter of 2016, following evolutions in the local legislation and the business environment, the Group decided to no longer use the Dipro rate (previously known as Cencoex rate) to translate the entity into Euros, and switched to the DICOM exchange rate, resulting in a devaluation above 10,000%. Consequently, contributions of the Venezuelan legal entity to the Group’s financial statements are no longer material even after applying the accounting policy for hyperinflation. The conditions of hyperinflation do not, in themselves, constitute an event of loss of control over the operations in Venezuela.

Currency translation differences

Accounting policy

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:

  • a disposal of the Group’s entire interest in a foreign operation, or a partial disposal involving loss of control over a subsidiary that includes a foreign operation. In this case, all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss. Any exchange differences that have previously been attributed to non-controlling interests are derecognized, but they are not reclassified to profit or loss;
  • a partial disposal of an interest in a joint arrangement or an associate that includes a foreign operation, when the retained interest is a financial asset.

In the case of a partial disposal of a subsidiary (i.e. no loss of control) that includes a foreign operation, a proportionate share of accumulated exchange differences is reattributed to non-controlling interests and is not recognized in profit or loss. In the event of a capital decrease of a subsidiary without loss of control, 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 € 329 million in 2016, and include:

  • € 251 million currency translation gains in 2016, of which € 245 million for the Group’s share;
  • the recycling of € 69 million currency translation loss related mainly to the sale of Solvay Indupa (€ 55 million); and
  • the derecognition of € 10 million currency translation loss for non-controlling interests for Solvay Indupa.

The € 251 million currency translation gains are linked to:

  • the devaluation of the British pound (€ 68 million) and the Chinese renminbi (€ (40) million) against the Euro;
  • the appreciation of the US dollar (€ 189 million), the Russian ruble (€ 48 million), the Brazilian real (€ 38 million) against the Euro; and
  • the impact of the switch to the DICOM exchange rate for the Venezuelan legal entity (€ (60) million).