Solvay
2019 Annual Integrated Report

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,
  • Regular performance review of strategy deployment,
  • 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,
  • Strong focus on cash conversion and generation,
  • Disposal of businesses that fall below the cyclicality threshold.

Supply chain and manufacturing reliability risk

Prevention and mitigation actions

For manufacturing reliability:

  • Geographic distribution of production units around the world,
  • Maintenance,
  • 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, and programs to reduce energy consumption.

Project selection and management

Prevention and mitigation actions

  • The Investment Committee provides the Executive Committee with an analytical view of capex allocation efficiency and capex plans. Capex Excellence methodology is used for the project portfolio on smaller projects.
  • Investment decisions (capital expenditure above €10 million and acquisitions) made by the Executive Committee or the Board of Directors include a sustainability challenge that encompasses an exhaustive Sustainable Portfolio Management analysis of the potential investment.
  • A performance analysis is conducted 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

  • The Group’s balanced global presence reduces the impact of adverse regulatory and political developments.
  • A Government and Public Affairs department works continuously with public officials at the national level, including but not limited to European authorities, as well as through the local Belgian embassy.
  • Financial provisions are made based on Solvay’s awareness of legal risk.
  • A Brexit task force has been established with the participation of impacted GBUs and relevant functions. The GBUs have identified the main risks and are working on mitigation actions under the assumption of a worst case scenario (“no-deal”), aiming to minimize any disruption to our customers.
  • Coordination between Corporate Trade, SBS and GBUs has increased to better identify risks and their mitigations.

Financial risk

Prevention and mitigation actions

A prudent financial profile and conservative financial discipline:

  • Investment Grade status: the Group is rated Baa2/P2 (stable outlook) by Moody’s and BBB/A2 (stable outlook) by Standard & Poor’s as of the 2019 closing,
  • Solvay promotes transparent and regular discussions with leading rating agencies.

Strong liquidity reserves:

  • As of the end of 2019, the Group has  €0.8 billion in cash and cash equivalents (namely, other current financial instruments), as well as €3.5 billion of committed credit facilities (a multilateral revolving credit facility of €2.0 billion and an additional €1.5 billion from bilateral revolving credit facilities with key international banking partners). All of them were undrawn as of December 31, 2019.
  • The Group has access to a Belgian Treasury Bill program for €1.5 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.

Energy hedging policy:

  • Solvay is hedging energy prices. These transactions go beyond 9 months and up to 3 years.

Monitoring of Group counterparties’ ratings:

  • For its treasury activities, Solvay works with banking institutions of the highest creditworthiness (selected based on major rating systems) and minimizes the concentration of risk by limiting its exposure to each of these banks to a predefined threshold.
  • For its commercial activities, Solvay’s external customer risk and cash collection are monitored by a professional 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.

2019 main actions

  • Repayment of a €700 million perpetual hybrid bond (first call date in May 2019), partially refinanced by a €300 million perpetual hybrid bond (first call date in March 2024) issued in December 2018.
  • Issuance of a €600 million 10 year senior bond at 0.5% coupon maturing in September 2029 and early redemption of a $800 million December 2020 debt.
  • Maturity extension till December 2020 of two bilateral revolving credit facilities for a total amount of €1 billion,
  • One-year extension of Revolving Credit Facility exercised until 2024;
  • Guarantees management: a new dedicated online tool has been developed in order to handle the workflow between the issue and the release, throughout the contract terms. This new tool generates a comprehensive inventory of financial commitments across the whole Group and facilitates efficient and timely management.
  • A Voluntary exceptional cash contribution has been made into the Rhodia Pension Trust Ltd (UK): £100 million as an advanced payment of the yearly contributions agreed in 2018. This voluntary contribution will allow Rhodia Pension Trust Ltd (UK) to reduce risks by further hedging liabilities using an appropriate investment strategy.
  • Deployment of a Group-wide bank account management tool allowing for a comprehensive inventory of banking structure across entities, enhancing visibility and control as well as facilitating appropriate and more efficient management of cash.

Environmental risk

Prevention and mitigation actions

  • Careful monitoring and management of sites with a history of soil contamination,
  • Rolling out a risk characterization approach at every affected site when relevant,
  • Local regulatory monitoring,
  • Strong governance through a dedicated Environmental Board composed of two Executive Committee members, Industrial Function, and Legal and Finance, to lead the environmental risk management effort.

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 information system security policies.