Market and growth – strategic risk

Prevention and mitigation actions

  • Systematic and formal analysis of markets and marketing challenges with respect to investments and innovation project ramp-ups,
  • Development of GDP+ growth markets: Automotive & Aerospace, Resources & Environment, Electrical & Electronics, and Agro, Feed & Food,
  • Development of customized, mission-critical solutions with Solvay key accounts. Adaptation of operations to new energy and CO2 markets,
  • Stronger focus on cash conversion and generation,
  • Initiate cessions of Vinythaï, Acetow and Polyamide businesses which were under sustainability and cyclicality radar screen.

Supply chain and manufacturing reliability risk

Prevention and mitigation actions

For manufacturing reliability:

  • Insurance,
  • Geographic distribution of production units around the world,
  • Group property loss prevention program focusing on the prevention and mitigation of damage to assets and loss of profit due to fire, explosion, accidental chemical release, and other adverse events.

For supply chain:

  • Third-party CSR assessment and adherence to the Solvay Supplier Code,
  • Ownership of mines and quarries of trona, limestone, and salt,
  • Programs to reduce energy consumption.

Project selection and management

Prevention and mitigation actions

  • Governance for medium-sized projects (extension of the methodology used for major capital projects to GBUs),
  • Investment Committee providing the Executive Committee with an analytical view of capex allocation efficiency and capex plan,
  • Capex Excellence methodology for project portfolio on smaller projects,
  • Performance analysis after implementation

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.

Regulatory, political and legal risk

Prevention and mitigation actions

  • Balanced global presence to reduce the impact of adverse regulatory and political developments,
  • A Government and Public Affairs department working continuously with public national and European authorities, as well as through the local Belgian embassy,
  • Financial provisions are made based on Solvay’s awareness of legal risk.

Financial risk

Prevention and mitigation actions

A prudent financial profile and conservative financial discipline:

  • Group’s Investment Grade status: Baa2/P2 rating (stable outlook) by Moody’s and BBB/A2 rating (stable outlook) by Standard & Poor’s in 2017,
  • Solvay promotes transparent and regular discussions with leading rating agencies.

Strong liquidity reserves:

  • As of the end of 2017, the Group has €1.1 billion in cash and equivalents (namely, other current financial instruments), as well as €3.0 billion of committed credit facilities (a multilateral revolving credit facility of €2.0 billion, and an additional €1.0 billion from bilateral revolving credit facilities with key international banking partners).
  • The Group has access to a Belgian Treasury Bill program for €1 billion, and alternatively, to a US commercial paper program for US$500 million.

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.

Monitoring of Group counterparties’ ratings:

  • For its treasury activities, Solvay works with banking institutions of the highest creditworthiness (selection based on major rating systems) and minimizes the concentration of risk by limiting its exposure to each of these banks to a certain threshold.
  • For its commercial activities, Solvay’s external customer risk and cash collection are monitored by a strong network of credit managers and cash collectors located in the Group’s various operating regions and countries. Their controls are supported by a set of detailed procedures and managed through Corporate and GBU Credit Committees. These loss mitigation measures have led, over the past few years, to a record low rate of customer defaults.

Pension governance and pension plan optimization:

  • Pension governance: Solvay has set guidelines for maximizing its influence over local pension fund decisions within the limits provided by domestic laws,
  • Pension plan optimization: reducing the Group’s exposure to defined-benefit plans by either converting existing plans into pension plans with a lower risk profile for future services or closing them to new entrants,
  • A global ALM (Asset Liability Management) analysis of the Group’s pension plans, representing about 90% of the Group’s gross or net pension obligations, is performed every three years to identify and manage corresponding risks on a global basis.

Control processes for tax regulation compliance and transfer pricing policies:

  • Control processes for tax regulation compliance include monitoring procedures and systems, thorough internal reviews, and audits performed by reputable external consultants,
  • Transfer pricing policies, procedures and controls are aimed at meeting the requirements of the authorities,
  • Solvay’s Tax department pays close attention to the correct interpretation and application of new tax rules to avoid future litigation.

2017 main actions:

  • Early repayment of ~€360 m of expensive bonds maturing in the next years and of €1.1 billion bonds maturing in 2017,
  • Refinancing of the multilateral credit facility of €2 bn,
  • Refinancing of the shareholders loans of the 50/50 Saudi joint venture with Sadara for €265 m (100%),
  • Issuance of a new global statement of investment principles addressed to our Pension Trustees worldwide and applicable to the Group's Pension related assets,
  • Deployment of a Guarantee management tool group-wide allowing for a comprehensive inventory of outstanding guarantees across entities, enhancing visibility and control as well as facilitating appropriate management.

Occupational diseases and pandemic risk

Prevention and mitigation actions

  • A strong worldwide program monitors occupational disease and performs a comprehensive assessment of compliance with occupational hygiene standards,
  • Definition of conservative exposure limits, with a specific focus on nano-materials, and SVHCs and health-related applications of Solvay products,
  • Advanced risk-based medical surveillance,
  • Global pandemic preparedness plan covering all plants and businesses.

Environmental risk

Prevention and mitigation actions

  • ISO 14001 or equivalent integrated HSE management systems implemented at all manufacturing sites,
  • Policies and risk control programs applied in all production units,
  • Sites with a history of soil contamination carefully monitored and managed,
  • Risk characterization approach rolled out at every affected site,
  • Local regulatory monitoring.

IT risk

Prevention and mitigation actions

  • 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.