Strategic objectives to drive sustainable value creation

In 2016, we unveiled medium-term value objectives that will accelerate our drive to create sustainable and long-term value as a multi-specialty chemical company. These new goals encompass sustainability as well as financial delivery, creating value that stands the test of time and reinforcing long-lasting market leadership positions.

  • Economic objective
  • Environmental objective
  • Social objective

2016 underlying figures; 2015 pro forma and restated information (except for environmental and social figures).

UNDERLYING EBITDA

Our 2016 performance

  • Underlying EBITDA grew 7.5%, € 2,284 million in 2016
  • The EBITDA margin reached a record level of 21% (from 19% in 2015)
  • Pricing power: sustained for three years based on excellence programs
  • Lower fixed costs benefiting from excellence programs and synergies
  • Stable volumes: specific market headwinds offset by growth elsewhere
EBITDA (bar chart)EBITDA (bar chart)
OBJECTIVE

2018 underlying

EBITDA growth1

Mid-to-high single digit

1At constant forex & scope.

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Key levers to reach our objective

  • Overall demand is anticipated to remain healthy and operational excellence momentum is expected to continue, albeit in an environment of rising raw material prices

Accelerated synergies with Cytec

When we announced plans to acquire Cytec in 2015, our synergy target was € 100 million within 3 years. In 2016, the integration process went more smoothly than we originally anticipated. As a result, we are confident that by the end of 2018 we will have delivered synergies of at least € 150 million, 50% more than first thought. The acquisition was already cash accretive in 2016.

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FREE CASH FLOW

Our 2016 performance

  • Free Cash Flow in 2016 was € 876 million, up € 384 million year on year
  • Continuing operations accounted for € 736 million, up € 342 million
  • Discontinued operations accounted for € 140 million
  • Cash conversion: 59% in 2016 compared to 50% in 2015
Free Cash Flow (bar chart)Free Cash Flow (bar chart)
OBJECTIVE

2018

> € 2.4

billion cumulative

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Key levers to reach our objective

  • Stronger EBITDA
  • Reduced capital expenditure
  • Disciplined working capital management

Worldwide capex management

Expanded production around the world included extra capabilities for composites in Germany, the launch of highly dispersible silica production in South Korea and a new hydrogen peroxide plant in China. Among growth projects still under construction in 2016 were a hydrogen peroxide plant in Saudi Arabia, a PEEK polymers plant in the United States and the second phase of a fluoro-polymers plant in China.

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CFROI2

Our 2016 performance

  • CFROI improved to 6.3% (vs. 6.1% in 2015)
  • This rise reflects our increasingly strong performance, which more than compensated for the negative effect of 0.2 percentage point due to the divestments
  • Higher EBITDA and lower Capex led to higher Free Cash Flow

2 2015 pro forma and non-restated figure.

CFROI (bar chart)CFROI (bar chart)
OBJECTIVE

2018

50 – 100

basis points increase

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Key levers to reach our objective

  • Focusing on growth in profits and cash generation, while reducing in capital intensity will generate higher returns, is an integral part of increasing Solvay’s value creation

Improve cash returns on investments

Solvay’s cash flow return on investment has continued to improve, from 6.1% in 2015 to 6.3% in 2016. Independently calculated by Credit Suisse, HOLT CFROI measures the cash returns a business earns on the investments it makes. Solvay is focused on growing its underlying EBITDA and Free Cash Flow, while reducing its capital expenditure to drive an improvement in CFROI by 50 – 100 basis points over the 2015 to 2018 period as announced at Solvay’s Capital Markets Day in September 2016.

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GREENHOUSE GAS INTENSITY

Our 2016 performance

  • Solvay’s greenhouse gas intensity fell by 19% in 2016 compared with 2015
  • The Group’s global greenhouse gas emissions fell by 5.7% in 2016 compared with 2015 while the EBITDA grew by 7.5%
  • Changes in Solvay’s portfolio are the primary reason for this evolution
  • Our SOLWATT® energy efficiency program and process improvement projects enabled us to save 0.2 Mt CO2 eq. (1.5% of Group emissions) in 2016
Greenhouse gas intensity (bar chart)Greenhouse gas intensity (bar chart)
OBJECTIVE

2018

–20%

compared to 2015

2025

–40%

compared to 2014

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Key levers to reach our objective

  • Continuously improve our energy efficiency through SOLWATT® and Manufacturing Excellence programs
  • Improve the CO2 footprint of our energy mix through initiatives such as:
    • Primary energy switching and conversion to biomass firing
    • Renewable electricity sourcing
  • Reduce greenhouse gas emissions released from our chemical processing operations
  • Optimize the Group portfolio

Transitioning to a low-carbon economy

In 2016, we began to apply an internal price of € 25 per metric ton of CO2 equivalent on greenhouse gas emissions in all our investment decisions. Consequently, climate-related impacts are incorporated into our strategic choices. By implementing a “carbon price signal”, the Group is clearly establishing its commitment to the transition to a low-carbon economy.

SUSTAINABLE SOLUTIONS (SPM)

Our 2016 performance

  • At the end of 2016, 43% of our net sales were classified as “Sustainable Solutions”, against 33% in 2015
  • Revenue in “Sustainable Solutions” enjoys annual growth of 9%, roughly three times growth in GDP
  • Transformation of the Group portfolio (integration of Cytec and divestments) accounts for the main part
  • Innovation programs aimed at developing more sustainable solutions also contributed to this improvement
Sustainable solutions (bar chart)Sustainable solutions (bar chart)
OBJECTIVE

2018

40%

of Group sales

2025

50%

at least
of Group sales

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Key levers to reach our objective

  • The Sustainable Portfolio Management (SPM) analysis is part of the Group’s and the GBUs’ key business processes. It helps analyze the portfolio and allocate resource to elevate it. To be considered a “Solution”, a product must serve in an application that demonstrates direct, significant and measurable social and/or environmental benefits to society at large
  • All innovation and acquisition projects and Capex investments above € 10 million are evaluated using the SPM tool to enhance their contribution to more sustainable and higher growth

Leverage data generated for SPM to bring additional value for customers

At the request of leading surgical device manufacturer Medacta, Solvay provided data generated for its Sustainable Portfolio Management (SPM) initiative to enable documentation of the safety and environmental benefits of Medacta’s novel GMK® Efficiency single-use instrumentation system. Injection-molded from Solvay’s high performance medical grade polymers, GMK® Efficiency instruments reduce the risk of hospital-acquired infections, save significant quantities of water by eliminating the need for repeated washing and sterilization, and were judged as “CO2-neutral” using an ISO recognized methodology when compared to conventional metal reusable instrument sets.

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OCCUPATIONAL ACCIDENTS AT GROUP SITES3

Our 2016 performance

  • Our Medical Treatment Accident Rate (MTAR), an indicator that takes account of the severity of accidents, was stable this year at 0.77 compared to 2015, after four years of progress
  • All Solvay’s GBUs have defined their own specific Health, Safety, and Environment roadmaps which take the Group’s requirements into account
  • 146 sites had behavioral safety programs in place at year end
  • As part of the commitment by all managers to promote safety, 1,580 leadership safety visits took place, leading to greater implementation of safety measures
  • Despite our continuous efforts to improve occupational safety, we have experienced several severe accidents and a fatality at a production facility in India

3 Rate of accidents with medical treatment, with or without work stoppage. Non-restated figures.

Occupational accidents at group sites (bar chart)Occupational accidents at group sites (bar chart)
OBJECTIVE

2025

–50%

of occupational accidents with MTAR < 0.50

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Key levers to reach our objective

  • Develop a safety mindset through our Solvay Safety Excellence Plan to drive continuous improvement and sustainability in our performance
  • Promote best practices sharing
  • Promote the reporting of “near misses” and analyze those with high potential for severity
  • Reinforce Solvay Life-Saving Rules, whose objective is to prevent high-severity accidents
  • Develop Safety Leadership with specific training for all our site managers
  • Launch of a campaign to prevent hand injuries, which currently account for 50% of Medical Treatment Accidents

Safety Days in all the Group’s sites

To establish a safety culture in all our sites, local teams organize safety-focused events at least once a year involving their employees (and sometimes their subcontractors). In 2016, all of our sites held Safety Days. Programs vary from site to site – often involving trainings and also awards, quizzes, competitions and demonstrations – with the objective of making sure that everyone knows and applies our Life-Saving Rules and abides by our Health, Safety, and Environment policy, “Think Twice, Act Once”. Attention to safety very often goes beyond the workplace: for instance, our Bulgarian Devnya plant has launched a campaign to encourage children to sit in the rear of the car and wear safety belts!

EMPLOYEE ENGAGEMENT INDEX

Our 2016 performance

  • This index measures employee engagement according to the initiatives set by the Group to improve their well-being, including personal development, reward and recognition, inclusive culture, and work-life balance
  • A “pulse survey” was carried out in 2016, in which all Solvay employees were asked about their satisfaction with their well-being at work. The rate of engagement stood at 77% (vs. 75% in 2015). The overall rate of favorable answers to questions on well-being rose to 67% (vs. 64% in 2015)
  • A work-life balance charter was distributed throughout the Group in 2016
Employee engagement index (bar chart)Employee engagement index (bar chart)
OBJECTIVE

2025

80%

Employee engagement index

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Key levers to reach our objective

  • Solvay employee surveys are organized every three years: the next one is programmed for 2018
  • Another “pulse survey” will be carried out in 2017
  • Building on the results of the survey, site managers have shared them with their teams and improvement actions are now being defined and put in place

PDCR4 for All: a key value that everyone deserves to have

Solvay’s engagement survey revealed that many employees wished for more regular discussions with their managers on their performance and career paths. As a result, the Human Resources department has launched an initiative called “PDCR for All”, in order to extend the implementation of the existing PDCR to more employees. This will give them the opportunity to discuss their development and career evolution, their expectations and what is expected of them, at least once a year. Launched in early 2016, the initiative is now gradually being implemented worldwide.

4 Performance, Development & Career Review.

EMPLOYEES INVOLVED IN SOCIETAL ACTIONS

Our 2016 performance

  • 23% of Group employees were engaged in local societal actions in 2016, compared to 20% in 2015
  • Employees are involved in diverse projects worldwide that provide direct and indirect added value for local communities
  • New guidelines to help local teams build their societal action plans at local level were implemented for the first time in 2016. They follow the corporate priorities: science, youth employability and education, environment and solidarity

Employees involved in societal actions (bar chart)Employees involved in societal actions (bar chart)
OBJECTIVE

2025

40%

of employees involved in societal actions

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Key levers to reach our objective

  • Each site is invited to design its own societal action plan in a collaborative way, respecting the principles of Solvay Way
  • Dedicated workshops and a toolbox support the teams
  • Significant initiatives receive global recognition through internal communication

The value of societal actions

There have always been spontaneous actions by our local teams intended to help communities. We want to foster collaborative ways of working across the sites. Each site decides autonomously on its own societal projects, and invites its employees to volunteer. Serving society is not a “tick box” exercise. Service means upholding a long-term commitment to shared value projects that reinforce the identity and values of the Group. We are convinced that community involvement helps to reinforce our colleagues’ pride and commitment at working at Solvay.