In € million

 

Employee benefits

 

Restructuring

 

Environment

 

Litigation

 

Other

 

Total

At December 31, 2016

 

3,118

 

99

 

737

 

167

 

148

 

4,269

Additions

 

91

 

61

 

78

 

28

 

117

 

375

Reversals of unused amounts

 

(40)

 

(33)

 

(24)

 

(39)

 

(24)

 

(159)

Uses

 

(217)

 

(55)

 

(81)

 

(25)

 

(29)

 

(408)

Increase through discounting

 

64

 

 

 

33

 

3

 

 

 

100

Remeasurements

 

(95)

 

 

 

 

 

 

 

 

 

(95)

Currency translation differences

 

(79)

 

(3)

 

(36)

 

(9)

 

(10)

 

(137)

Disposals

 

8

 

 

 

 

 

 

 

 

 

7

Transfer from/to liabilities associated with assets held for sale

 

(70)

 

(1)

 

 

 

 

 

(3)

 

(74)

Other

 

34

 

(5)

 

(5)

 

5

 

(20)

 

9

At December 31, 2017

 

2,816

 

62

 

702

 

129

 

180

 

3,890

Of which current provisions

 

 

 

56

 

112

 

12

 

100

 

281

In total provisions decrease by €379 million.

The main events of 2017 are:

  • a net decrease in provisions of €192 million for additions, reversals and uses. The use of €408 million (cash-out) includes €386 million for continuing operations, of which €208 million for employee benefits, €55 million for restructuring plans, and €81 million for environmental items,
  • an increase from discounting for €100 million,
  • remeasurement of employee benefits obligation for €(95) million,
  • currency translation differences for €(137) million, and
  • the transfer of liabilities from continuing operations to liabilities associated with assets held for sale for €(74) million relating mainly to employee benefits obligations in connection with Polyamides.

Management expects provisions (other than employee benefits) to be used (cash outlays) as follows:

In € million

 

Up to 5 years

 

Between 5 and 10 years

 

Beyond 10 years

 

Total

Total provisions for environment

 

317

 

122

 

264

 

702

Total provisions for litigation

 

126

 

3

 

 

 

129

Total provisions for restructuring and other

 

206

 

14

 

22

 

242

At December 31, 2017

 

648

 

139

 

286

 

1,073

F31.A. Provisions for employee benefits

Accounting policy

General

The Group’s employees are offered various post-employment and other long-term employee benefits as a result of legislation applicable in certain countries, and 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

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 service to the Group during the period.

Defined benefit plans

Defined benefit plans concern all plans other than defined contribution plans and include:

  • post-employment benefits: pension plans, termination benefits, other retirement obligations, and supplemental benefits, 
  • other long-term employee benefits: long-service benefits granted to employees according to their seniority in the Group, and
  • other post-employment benefits: medical care.

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 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 (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), and interest on the effect of the asset ceiling are recognized on a net basis in the net financial charges.

Remeasurements of the net liability or asset consist of:

  • actuarial gains and losses on the benefit obligations arising from experience adjustments and/or changes in actuarial assumptions (including the effect of changes in the discount rate), and
  • the return on plan assets (excluding amounts in net interest) and changes in the limitation of the net asset recognized.

Other long-term benefits such as long service awards 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 post-employment obligations and other long-term benefits are performed by independent actuaries.

Overview

In € million

 

2017

 

2016

Post-employment benefits

 

2,635

 

2,949

Other long-term benefits

 

132

 

120

Termination benefits

 

49

 

48

Total employee benefits

 

2,816

 

3,118

A. Defined contribution plans

For defined contribution plans, Solvay pays contributions to publicly or privately administered pension funds or insurance companies. For 2017, the expense amounted to €55 million as against €56 million for 2016.

B. Defined benefit plans

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 capitalized pensions assets.

In € million

 

2017

 

2016

Provisions

 

2,635

 

2,949

Asset plan surplus

 

(14)

 

(13)

Net liability

 

2,622

 

2,936

Operational expense

 

31

 

55

Finance expense

 

62

 

80

B.1. Management of risks

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:

Asset volatility

Equity instruments, 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.

Changes in bond yields

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.

Inflation risk

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 proportion of the assets is either unaffected by or only loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit.

Life expectancy

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.

Currency risk

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.

Regulatory risk

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, please refer to the "Management of risks" section of the present document.

B.2. Description of obligations

The provisions have been set up primarily 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 2017 are in the United Kingdom, France, the United States, Germany, and Belgium. These five countries represent 94% of the total defined benefit obligations.

 

 

2017

 

2016

United Kingdom

 

31%

 

30%

France

 

20%

 

20%

United States

 

26%

 

27%

Germany

 

10%

 

10%

Belgium

 

7%

 

7%

Other countries

 

6%

 

6%

United Kingdom

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, 28% to former employees, and 64% to current pensioners.

The Fund functions and complies with UK legislation under a large regulatory framework. The Pensions Regulator has a risk-based 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 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 that fits with the employer’s ability to pay and the strength of covenant or contingent security being offered.

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, 2015 which established a fixed contribution rate of pensionable pay for active members plus a deficit recovery plan which aims to fund the scheme through technical provisions over a period of time. Future contributions were kept at the same level as those agreed at the previous valuation, which required the recovery plan to be extended for another year.

France

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-of-career salary. This plan is unfunded and approximately 96% of the liabilities are attributable to current pensioners.

In accordance with French legislation, adequate guarantees have been provided.

United States

As of year end 2017 Solvay sponsors six different defined benefit pension plans in the United States (three qualified plans and three non-qualified plans).  A qualified plan is an employer-sponsored 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 all three of the 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, 2017.

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 2017, 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 2017 and 2016, the annual contributions paid are less than €1 million.

Germany

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 61% of the liabilities are attributable to current pensioners.

Belgium

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 Company. Since January 1, 2016 the return is set on an annual basis with a minimum of 1.75% and a maximum of 3.75%. Since 2016 the return has been fixed at 1.75% for both types of contributions. For these plans Solvay has €123 million of plan assets at December 31, 2017, and paid €9 million of contributions during 2017. At the end of 2017 net liability recognized in the consolidated statement of financial position concerning these plans is not material.

Solvay’s plans are administered through two Solvay Pension Funds that operate in compliance with local laws regarding minimum funding, investments principles, audited financial statements, governmental filings, and governance principles. Pension Funds are 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.

Other plans

The majority of the obligations relate to pension plans. In some countries (mainly the United States), there are also post-retirement medical plans, which represent 5% of the total defined benefit obligation.

B.3. Financial impacts

Changes in net liability

In € million

 

2017

 

2016

Net amount recognized at beginning of period

 

2,936

 

2,955

Net expense recognized in P&L – Defined benefit plans

 

93

 

135

Actual employer contributions/direct actual benefits paid

 

(203)

 

(181)

Acquisitions/disposals

 

7

 

 

Remeasurements before impact of asset ceiling

 

(93)

 

290

Change in the effect of the asset ceiling limit on remeasurements

 

(2)

 

(16)

Reclassifications

 

(2)

 

1

Currency translation differences

 

(72)

 

(54)

Transfer from/to (liabilities associated with) assets held for sale

 

(43)

 

(195)

Net amount recognized at end of period

 

2,622

 

2,936

The decrease of the net liability of €314 million between 2016 and 2017 is mainly explained by the net effect of:

  • a cash-out of €(203) million,
  • a net expense in the consolidated income statement for €93 million,
  • Remeasurements of €(93) million due to:
    • the return on plan assets (excluding interests recognized in the consolidated income statement) for €(206) million,
    • reduction in discount rates (€169 million) in the United States, the United Kingdom, and Brazil,
    • decrease in inflation rate (€(51) million) for the United Kingdom,
  • the transfer of Polyamides to assets held for sale for €(43) million, and
  • the currency translation differences for €(72) million.
Net expense

In € million

 

2017

 

2016

Service costs

 

20

 

39

Current service costs

 

51

 

49

Past service costs (including curtailments)

 

(31)

 

(10)

Net interest

 

62

 

80

Interest cost

 

154

 

194

Interest income

 

(93)

 

(114)

Administrative expenses paid

 

12

 

16

Net expense recognized in P&L – Defined benefit plans

 

93

 

135

Remeasurements recognized in other comprehensive income

 

(95)

 

275

The service costs and administrative expenses of these benefit plans are recognized within cost of sales, commercial and administrative costs, research & development costs, operating gains and losses and results from legacy remediation. The net interest is recognized as a finance expense.

In 2017 the Group’s current service costs amounted to €51 million, of which €34 million relate to funded plans and €17 million relate 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 2016 the Group’s current service costs amounted to €49 million, of which €32 million related to funded plans and €17 million related to unfunded plans. Past service costs included favorable impacts reflecting the amendment of medical plan in Brazil (€9 million).

Net liability

In € million

 

2017

 

2016

Defined benefit obligations – Funded plans

 

3,402

 

3,650

Fair value of plan assets at end of period

 

(2,733)

 

(2,811)

Deficit for funded plans

 

669

 

839

Defined benefit obligations – Unfunded plans

 

1,947

 

2,089

Deficit/Surplus (-)

 

2,616

 

2,928

Amounts not recognized as asset due to asset ceiling (recognized in other comprehensive income)

 

6

 

8

Net liability (asset)

 

2,622

 

2,936

Provision recognized

 

2,635

 

2,949

Asset recognized

 

(14)

 

(13)

Changes in defined benefit obligations

In € million

 

2017

 

2016

Defined benefit obligation at beginning of period

 

5,739

 

5,871

Current service costs

 

51

 

49

Interest cost

 

154

 

194

Employee contributions

 

4

 

4

Past service costs (including curtailments)

 

(31)

 

(9)

Settlements

 

(14)

 

(139)

Acquisitions/disposals (-)

 

7

 

 

Remeasurements in other comprehensive income

 

113

 

456

Actuarial gains and losses due to changes in demographic assumptions

 

(23)

 

(22)

Actuarial gains and losses due to changes in financial assumptions

 

106

 

460

Actuarial gains and losses due to experience

 

30

 

18

Actual benefits paid

 

(300)

 

(318)

Currency translation differences

 

(310)

 

(175)

Transfer from/to (liabilities associated with) assets held for sale

 

(64)

 

(195)

Defined benefit obligation at end of period

 

5,349

 

5,739

Defined benefit obligations – Funded plans

 

3,402

 

3,650

Defined benefit obligations – Unfunded plans

 

1,947

 

2,089

In 2017, the classification of Polyamides as held for sale resulted in a decrease of the defined benefit obligation by €64 million. 

In 2016 the classification as held for sale of Acetow activities led to a decrease of defined benefit obligations of €190 million.

Changes in the fair value of plan assets

In € million

 

2017

 

2016

Fair value of plan assets at beginning of period

 

2,811

 

2,940

Interest income

 

93

 

114

Remeasurements in other comprehensive income

 

206

 

166

Return on plan assets (excluding amounts in net interests)

 

206

 

166

Employer contributions

 

203

 

181

Employee contributions

 

4

 

4

Administrative expenses paid

 

(12)

 

(16)

Settlements

 

(14)

 

(138)

Actual benefits paid

 

(300)

 

(318)

Currency translation differences

 

(238)

 

(121)

Reclassification and other movements

 

2

 

(1)

Transfer from/to (liabilities associated with) assets held for sale

 

(21)

 

 

Fair value of plan assets at end of period

 

2,733

 

2,811

Actual return on plan assets

 

299

 

280

In 2017 the total return on plan assets amounts to €299 million, against €280 million in 2016.

The Group’s cash contributions (including direct benefit payments) amounted to €203 million, of which €108 million of contributions to funds, and €95 million of direct benefits payments.

The Group’s cash contributions (including direct benefit payments) for 2016 amounted to €181 million, of which €79 million of contributions to funds and €102 million of direct benefits payments.

Except for significant changes in the regulatory environment (see “regulatory risk” above), the Group’s cash contributions in 2018 are expected to approximate €214 million. This increase is due to additional contributions in the United States and the United Kingdom.

Categories of plan assets

 

 

2017

 

2016

 

Quoted

 

Non quoted

 

Quoted

 

Non quoted

Equity

 

40%

 

0%

 

38%

 

0%

Bonds

 

 

 

 

 

 

 

 

Investment Grade

 

50%

 

0%

 

57%

 

0%

Non Investment Grade

 

6%

 

0%

 

1%

 

0%

Properties

 

1%

 

0%

 

1%

 

0%

Cash and cash equivalents

 

2%

 

0%

 

3%

 

0%

Derivatives

 

 

 

 

 

 

 

 

Structured debt (LDI)

 

1%

 

0%

 

0%

 

0%

Other derivatives

 

1%

 

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 exclude Solvay shares being included in mutual investment fund type investments.

Changes in assets ceiling

In € million

 

2017

 

2016

Effect of the asset ceiling limit at beginning of year

 

8

 

24

Change in the effect of the asset ceiling limit on remeasurements

 

(2)

 

(16)

Effect of the asset ceiling limit at end of year

 

6

 

8

The changes in asset ceiling recognized through OCI amount to €(2) million as against €(16) million in 2016. These impacts concern the plans of Brazil.

Actuarial assumptions used in determining the liability

These assumptions are not related to a specific segment.

In %

 

Eurozone

 

United Kingdom

 

United States

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

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

 

3.05

 

3.50

 

N/A

 

N/A

Expected rates of medical care cost increases

 

1.75

 

1.75

 

5.40

 

5.40

 

4,50 – 7,00

 

4,50 – 7,00

Actuarial assumptions used in determining the annual cost

These assumptions are not related to a specific segment.

In %

 

Eurozone

 

United Kingdom

 

United States

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

Discount rates

 

1.50

 

2.25

 

2.75

 

3.75

 

4.00

 

4.25

Expected rates of future salary increases

 

1,75 – 4,00

 

1,75 – 4,00

 

2,40 – 3,50

 

2,15 – 3,25

 

3,00 – 3,75

 

3,00 – 3,75

Inflation

 

1,50 – 2,00

 

1.75

 

3.50

 

3.25

 

2.25

 

2.25

Expected rates of pension growth

 

0,00 – 1,75

 

0,00 – 1,75

 

3.30

 

3.25

 

N/A

 

N/A

Expected rates of medical care cost increases

 

1.75

 

1.75

 

5.40

 

5.40

 

4,50 – 7,00

 

4,50 – 7,00

Actuarial assumptions regarding future mortality are based on recent country-specific mortality tables. These assumptions translate at December 31, 2017 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

 

25

 

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 benefit obligation at December 31 are based on the following employee benefit liability durations:

 

 

Eurozone

 

United Kingdom

 

United States

Duration in years

 

12.4

 

16.9

 

10.5

Sensitivities

Sensitivity to a change of percentage in the discount rates on the defined benefits obligation is as follows:

In € million

 

0.25% increase

 

0.25% decrease

Eurozone

 

(63)

 

66

United Kingdom

 

(65)

 

68

United States

 

(34)

 

35

Others

 

(6)

 

6

Total

 

(168)

 

175

Sensitivity to a change of percentage in the inflation rates on the defined benefits obligation is as follows:

In € million

 

0.25% increase

 

0.25% decrease

Eurozone

 

60

 

(58)

United Kingdom

 

45

 

(44)

United States

 

 

 

 

Others

 

5

 

(5)

Total

 

110

 

(107)

Sensitivity to a change of percentage in salary growth rate on the defined benefits obligation is as follows:

In € million

 

0.25% increase

 

0.25% decrease

Eurozone

 

19

 

(18)

United Kingdom

 

3

 

(3)

United States

 

1

 

(1)

Others

 

1

 

(1)

Total

 

24

 

(23)

Sensitivity to a change of one year on mortality tables on the defined benefits obligation is as follows:

In € million

 

Age correction +1 year

 

Age correction –1 year

Eurozone

 

(84)

 

86

United Kingdom

 

(62)

 

62

United States

 

(29)

 

30

Others

 

(7)

 

7

Total

 

(182)

 

185

F31.B. Provisions other than for employee benefits

Accounting policy

General

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.

Onerous contracts

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.

Restructurings

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.

Environmental liabilities

Solvay analyzes twice a year 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.

Restructuring provisions

These provisions amount to €62 million, as against €99 million at the end of 2016.

The main provisions at the end of 2017 relate to:

  • The shutdown of business activities (€28 million) and the reorganization of Corporate Functions (€26 million), both following the Group portfolio review, and
  • Cytec integration (€8 million).

Environmental provisions

These provisions amount to €702 million at the end of 2017, as against €737 million at the end of 2016, and pertain to:

  • mines and drilling operations to the extent that legislation and/or operating permits in relation to quarries, mines, and drilling operations contain requirements to pay compensation to third parties. Most of these provisions, based on local expert advice, can be expected to be used over a 1-20 year horizon and amount to €139 million,
  • the dismantling of the last mercury electrolysis activities, which should be completed by the end of 2019. The remaining provisions related to those activities will be used for contamination of soil and for groundwater management, mostly over the next 20 years,
  • lime dikes (settling ponds related mainly to soda ash plant) , dump at sites and third party dump sites (linked to several industrial activities). These provisions have a horizon of 1 to 20 years, and
  • various types of pollution (organic, inorganic) coming from miscellaneous chemical productions; these provisions mainly cover discontinued activities or closed plants. Most of these provisions have a horizon of 1 to 20 years.

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

Provisions for litigation refer to tax and legal exposures. They amount to €129 million at the end of 2017 as against €167 million at the end of 2016. The balance at the end of 2017 relates to tax risks (€58 million) and legal claims (€72 million).

Other provisions

Other provisions relate to the shutdown or disposal of activities and amount to €180 million, as against €148 million at the end of 2016. The increase is mainly related to provision for post-closing warranties related to the disposal of the Pharma business. Other movements (€(20) million) relate to M&A post-closing adjustments.