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 (group of) CGU(s) 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 to reducing firstly 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, 2016

 

5,679

Disposals

 

(35)

Currency translation differences

 

(421)

Transfer to assets held for sale

 

(180)

At December 31, 2017

 

5,042

Currency translation differences

 

139

Other

 

(8)

At December 31, 2018

 

5,173

In 2018 the change in goodwill is explained by the currency translation differences relating mainly to goodwill expressed in US dollars.

In 2017, the change in goodwill was explained by:

  • the disposal of a part of the Performance Chemicals segment following the divestment of Acetow (€ (35) million);
  • currency translation differences relating mainly to goodwill expressed in US dollars; and
  • the transfer of goodwill relating mainly to Polyamides (€ (173) million) and Phosphorus Derivatives (€ (7) million) to assets held for sale.

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

 

2017

 

2018

 

At beginning of the period

 

Adjust­ments

 

Transfer to assets held for sale

 

Acqui­sitions and divest­ments

 

Currency trans­lation differ­ences

 

At the end of the period

 

Adjust­ments

 

Currency trans­lation differ­ences

 

At the end of the period

Groups of CGUs (Operating segments)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advanced Formulations

 

192

 

2

 

 

 

 

 

 

 

194

 

 

 

 

 

194

Advanced Materials

 

493

 

 

 

 

 

 

 

 

 

493

 

 

 

 

 

493

Performance Chemicals

 

124

 

 

 

(3)

 

(35)

 

 

 

86

 

 

 

 

 

86

Cash-generating units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Composite Materials

 

1,447

 

 

 

 

 

 

 

(181)

 

1,266

 

(8)

 

61

 

1,319

Novecare

 

1,335

 

 

 

 

 

 

 

(104)

 

1,231

 

 

 

33

 

1,264

Technology Solutions

 

1,037

 

 

 

(7)

 

 

 

(127)

 

903

 

 

 

43

 

947

Special Chem

 

227

 

(2)

 

 

 

 

 

 

 

225

 

 

 

 

 

225

Polyamides

 

170

 

 

 

(170)

 

 

 

 

 

 

 

 

 

 

 

 

Specialty Polymers

 

184

 

 

 

 

 

 

 

(7)

 

178

 

 

 

1

 

179

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

Hydrogen Peroxyde Europe

 

20

 

 

 

 

 

 

 

1

 

21

 

 

 

 

 

21

Hydrogen Peroxyde Mercosul

 

14

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

14

Hydrogen Peroxyde Nafta

 

8

 

 

 

 

 

 

 

(1)

 

7

 

 

 

 

 

7

Hydrogen Peroxyde Asia

 

10

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

11

PVC Mercosur

 

1

 

 

 

 

 

 

 

(1)

 

 

 

 

 

 

 

 

Total goodwill

 

5,679

 

 

 

(180)

 

(35)

 

(421)

 

5,042

 

(8)

 

139

 

5,173

Business combinations

Energain

On February 1, 2017, Solvay announced the acquisition of Energain™ Li-Ion high voltage technology from DuPont for € 13 million. Energain™ technology and formulations enlarge Solvay Special Chem Global Business Unit's existing portfolio of high performance salts and additives for electrolytes and strengthen its capabilities to develop further innovative high-voltage solutions for Li-ion batteries. The identified net assets acquired amounted to € 13 million and related mainly to intangible assets.

European Carbon Fiber GmbH

On November 7, 2017, Solvay completed the acquisition of European Carbon Fiber GmbH (“ECF”), a German producer of high-quality “precursor” for large-tow (50K) polyacrylonitrile (PAN) carbon fibers for € 16 million. The identified assets acquired amounted to € 22 million and related mainly to tangible assets, less deferred tax liabilities of € 6 million.