Accounting policy

General

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:

  • deferred tax assets or liabilities, and liabilities or assets related to employee benefit arrangements, are recognized and measured in accordance with IAS 12 Income Taxes, and IAS 19 Employee Benefits, respectively;
  • liabilities or equity instruments relating to the replacement by the Group of an acquiree’s share-based payment awards are measured in accordance with IFRS 2 Share-based Payment; and
  • assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.

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

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:

  1. the consideration transferred;
  2. the amount of any non-controlling interests in the acquiree; and
  3. in a business combination achieved in stages, the acquisition date fair value of the previously held equity interest in the acquiree,

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 cash-generating 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 CGU, or a group of CGUs 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 first to reduce 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.

Goodwill – overview

In € million

 

Total

Net carrying amount

At December 31, 2014

 

3,150

Additions

 

2,610

Disposals and closures

 

(4)

Currency translation differences

 

62

Other

 

23

At December 31, 2015

 

5,840

Additions

 

31

Disposals and closures

 

 

Currency translation differences

 

116

Other

 

(23)

Transfer to assets held for sale

 

(286)

At December 31, 2016

 

5,679

In 2016, the change in goodwill is further explained by:

  • additions (€ 31 million) related to the Primester acquisition;
  • adjustments of Cytec provisional goodwill within the measurement period (€ (23) million); and
  • the transfer to assets held for sale of goodwill relating mainly to Acetow (€ (224) million), Emerging Biochemicals (€ (22) million), Formulated Resins (€ (29) million), and Cross Linkable Compound (€ (11) million).

In 2015, the goodwill increased by € 2,690 million due mainly to the Cytec acquisition (€ 2,598 million).

Goodwill by CGU

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.

In € million

 

2015

 

2016

 

At the end of the period

 

Transfer

 

Adjust­ments

 

Acqui­sitions and divest­ments

 

Currency trans­lation differ­ences

 

At the end of the period

 

Transfer

 

Adjust­ments

 

Transfer to assets held for sale

 

Acqui­sitions and divest­ments

 

Currency trans­lation differ­ences

 

At the end of the period

Groups of CGUs (Operating Segments)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advanced Formulations

 

221

 

 

 

8

 

(2)

 

 

 

227

 

(35)

 

 

 

 

 

 

 

 

 

192

Advanced Materials

 

485

 

 

 

8

 

 

 

 

 

493

 

 

 

 

 

 

 

 

 

 

 

493

Performance Chemicals

 

157

 

 

 

7

 

 

 

 

 

164

 

35

 

 

 

(75)

 

 

 

 

 

124

Cytec

 

 

 

 

 

 

 

2,598

 

 

 

2,598

 

(2,575)

 

(23)

 

 

 

 

 

 

 

0

Cash generating units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Composites materials

 

 

 

 

 

 

 

 

 

 

 

0

 

1,399

 

 

 

 

 

 

 

48

 

1,447

Novecare

 

1,085

 

 

 

 

 

11

 

61

 

1,157

 

145

 

 

 

 

 

 

 

33

 

1,335

Technology solutions

 

 

 

 

 

 

 

 

 

 

 

0

 

1,032

 

 

 

(29)

 

 

 

35

 

1,037

Special Chem

 

 

 

231

 

 

 

 

 

(3)

 

228

 

 

 

 

 

 

 

 

 

(1)

 

227

Polyamides

 

170

 

 

 

 

 

 

 

 

 

170

 

 

 

 

 

 

 

 

 

 

 

170

Rare Earth Systems

 

161

 

(161)

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

0

Specialty Polymers

 

188

 

 

 

 

 

2

 

4

 

194

 

 

 

 

 

(11)

 

 

 

1

 

184

Acetow

 

120

 

 

 

 

 

 

 

 

 

120

 

 

 

 

 

(151)

 

31

 

 

 

0

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

Fluorochemicals

 

70

 

(70)

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

0

Hydrogen Peroxides Europe

 

20

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

20

Emerging Biochemicals

 

20

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

(20)

 

 

 

 

 

0

Hydrogen Peroxides Mercosul

 

14

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

14

Hydrogen Peroxides Nafta

 

8

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

8

Hydrogen Peroxides Asia

 

10

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

10

Precipitated Calcium Carbonate

 

4

 

 

 

 

 

(4)

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

0

PVC Mercosur

 

2

 

 

 

 

 

 

 

0

 

1

 

 

 

 

 

 

 

 

 

 

 

1

Total goodwill

 

3,150

 

0

 

23

 

2,606

 

61

 

5,840

 

0

 

(23)

 

(286)

 

31

 

116

 

5,679

In 2015, the CGUs Fluorochemicals and Rare Earth Systems were merged into the new CGU Special Chem. The goodwill resulting from the acquisition of Cytec on December 9, 2015 was allocated to a separate group of CGUs (Cytec) – shown in the table above – as of December 31, 2015.

In 2016, following the acquisition of Cytec, Solvay re-organized its segment set-up to enhance strategic coherence and improve alignment. Cytec’s former Aerospace Materials and Industrial Materials activities are included in Advanced Materials and its In Process Separation and Additive Technologies activities are included in Advanced Formulations. Solvay’s GBU Coatis has been transferred to Performance Chemicals.

Business combinations

Cytec Industries Inc.

1. Purchase consideration and other impacts on cash flows

On July 29, 2015, Solvay SA entered into a definitive merger agreement with U.S.-based Cytec Industries Inc. to acquire 100% of its share capital and of the voting rights, for US$ 75.25 per share in cash, subject to customary closing conditions, including regulatory approvals and Cytec’s shareholders’ approval. Following those approvals, the closing of the acquisition took place on December 9, 2015.

The total consideration for the acquisition amounted to € 5,047 million, and was based on the following:

  1. the outstanding number of Cytec shares (other than those shares held by Cytec as treasury stock) as of December 9, 2015, namely 71,568,528, multiplied by the share price of US$ 75.25 that Solvay agreed to pay in cash pursuant to the Merger Agreement entered into between Solvay SA and Cytec Industries Inc. on July 28, 2015, equaling US$ 5,385 million (€ 4,947 million);
  2. the fair value of Cytec’s outstanding share-based payment transactions, which were cancelled and converted into a right to receive cash on the acquisition date. This was included in the consideration in accordance with IFRS 3 Business Combinations for an amount of US$ 193 million (€ 177 million); and
  3. in addition, on July 29, 2015, Solvay entered into a foreign exchange forward contract to hedge US$ 1,880 million of the expected purchase price, contingent upon the realization of the acquisition. The effect of this hedging contract was a € 77 million decrease of the consideration, which has been deducted from goodwill as a basis adjustment.

The acquisition-related expenses amounting to € 130 million were presented as an M&A cost in 2015.

2. Purchase price allocation

Cytec’s opening balance sheet has been fully consolidated within the Solvay Group as from December 31, 2015.

Accordingly, a provisional valuation of identifiable assets acquired and liabilities assumed was made as at December 31, 2015.

The following table summarizes:

  • the consideration for Cytec of € 5,047 million;
  • identifiable assets acquired less liabilities assumed after remeasurement to fair value at acquisition date of € 2,449 million; and
  • the goodwill of € 2,598 million corresponding to the difference between the consideration and the net assets acquired, measured at fair value.

In € million

 

Total consideration

 

Provisional fair values 31.12.2015

 

Adjustments 2016

 

Final fair values 31.12.2015

Total consideration (A)

 

5,047

 

 

 

 

 

 

Net assets acquired at fair value

 

 

 

2,449

 

23

 

2,472

Non-current assets

 

 

 

4,076

 

(209)

 

3,867

Intangible assets

 

 

 

2,451

 

0

 

2,451

Tangible assets

 

 

 

1,136

 

5

 

1,141

Investments in associates and joint ventures

 

 

 

11

 

 

 

11

Other investments

 

 

 

7

 

(6)

 

1

Deferred tax assets(1)

 

 

 

447

 

(213)

 

234

Loans and other assets

 

 

 

24

 

5

 

29

Current assets

 

 

 

926

 

17

 

943

Inventories

 

 

 

380

 

(3)

 

377

Trade receivables

 

 

 

233

 

0

 

233

Income tax receivables

 

 

 

57

 

0

 

57

Other receivables(2)

 

 

 

58

 

20

 

78

Cash and cash equivalents

 

 

 

198

 

 

 

198

Total assets (B)

 

 

 

5,002

 

(192)

 

4,810

Non-current liabilities

 

 

 

2,189

 

(222)

 

1,967

Provisions for employee benefits(3)

 

 

 

215

 

9

 

224

Other provisions

 

 

 

81

 

 

 

81

Deferred tax liabilities(1)

 

 

 

1,182

 

(230)

 

952

Financial debt

 

 

 

664

 

 

 

664

Other liabilities

 

 

 

47

 

(2)

 

45

Current liabilities

 

 

 

364

 

7

 

371

Other provisions(3)

 

 

 

37

 

3

 

40

Financial debt

 

 

 

65

 

 

 

65

Trade payables

 

 

 

156

 

(2)

 

154

Income tax payables

 

 

 

8

 

(2)

 

6

Other liabilities

 

 

 

98

 

8

 

106

Total liabilities (C)

 

 

 

2,553

 

(215)

 

2,338

Goodwill (A-B+C)

 

 

 

2,598

 

(23)

 

2,575

Provisional goodwill at the end of 2015

The net assets provisional fair value disclosed at the end of 2015 amounted to € 2,449 million and took into account:

  • intangible assets of € 2,451 million, of which € 1,721 million for acquired customer relationships and € 730 million for acquired technologies;
  • tangible assets of € 1,136 million;
  • net deferred tax liabilities of € (735) million;
  • inventories of € 380 million;
  • trade receivables and trade liabilities of € 77 million;
  • provisions of € (333) million;
  • financial net debt of € (531) million; and
  • other of € 4 million.

Consequently, the resulting provisional goodwill amounted to € 2,598 million (difference between total consideration of € 5,047 million and net assets provisional fair value of € 2,449 million).

During the 12-month measurement period, the fair values of identifiable assets acquired and liabilities assumed were further refined (see column "Adjustments 2016" in the table above and the related notes below).

These adjustments reduced the goodwill by € 23 million and are explained below.

  1. The reduction in net deferred tax liabilities amounting to € 16 million results from (a) the reversal of net deferred tax liabilities related to non-US unremitted earnings that will no longer be repatriated to Cytec US (€ 25 million), and (b) deferred tax liabilities related to temporary differences resulting from other adjustments (€ (9) million). The other movements of deferred taxes correspond to reclassifications between deferred tax assets and deferred tax liabilities.
  2. The revaluation of a receivable based on conditions existing at acquisition date (€ 20 million).
  3. The revision of IAS 19 benefits mainly in United Kingdom and United States (€ 9 million).

The goodwill is not expected to be deductible for income tax purposes.

Had Cytec’s business been consolidated from January 1, 2015, the consolidated income statement of comprehensive income would have included revenue of € 1,800 million and net income of € 23 million. Detailed pro forma information for the full year 2015 can be found in the Business Review section.

The final goodwill of € 2,575 million arises mainly from business opportunities in advanced lightweighting materials for the aerospace and automotive industries and in specialty chemicals for mining, synergies (estimated at a minimum of € 100 million in annual synergies within three years after the acquisition), and skilled work force. These benefits have not been recognized separately from goodwill because they do not meet the definition of identifiable intangible assets. See above for the allocation of this goodwill.

Other business combinations

On April 15, 2015 Solvay completed the acquisition of Erca Emery Surfactant B.V. alkoxylation asset, a facility jointly owned by Emery Oleochemicals and ERCA Group in the Moerdijk integrated industrial park in the Netherlands, strengthening its strategy of securing sustainable, large-scale surfactant assets worldwide, for a cash amount of € 23 million in 2015. The transaction generated a total amount of goodwill of € 1 million. The identifiable net assets acquired amount to € 42 million and consist mainly of tangible assets.

On November 5, 2015 Solvay acquired EPIC Polymers’ long-fiber thermoplastics (LFT) technology, to complement its offering of high performance lightweighting materials and gain access to metal replacement of larger automotive semi-structural parts, for a total cash amount of € 7 million. The transaction generated a total amount of goodwill of € 2 million. The identifiable net assets acquired amount to € 5 million and consist mainly of intangible assets.