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Mission of the Solvay Group
To provide quality - and cost-effective - chemicals,pharmaceuticals and related products and services, and inturn, to ensure :
that company shareholders receive a satisfactory andgrowing level of dividend and stock value,
that employees have the opportunity to develop their fullpotential,
and that the quality of life of an increasing number ofhuman beings is improved.
Strategy of the Solvay Group
To be the first choice supplier for customers in a widerange of major industries.
To concentrate on five sectors of activity : Alkalis,Peroxygens, Plastics, Processing and Health, and to be aworld leader in selected areas where we have competitiveadvantage.
To improve the quality and added value of our productsand services through continuous and cost-effectiveinnovation.
To have a higher growth rate in the Americas and the Asia-Pacific region than in the whole of Europe to achievebetter geographical balance.
To recruit top-quality employees and with theirparticipation create an organization that motivates andencourages them to realize their potential while rewardingthem competitively.
To delegate authority and responsibility as far as possible inorder to create a lean, participative, and entrepreneurialorganization that is highly responsive to the market.
To continuously improve our health, safety andenvironmental performance world-wide.
To conduct our business ethically and legally at all timesand to be a responsible neighbour in the communities inwhich we operate.
To earn profits that will ensure regular growth of dividendsand stock value and provide the cash flow needed toimplement our business strategies.
. . . . . . . . . . . . . . . . . . . . . . . . . .
. .
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e a r n i n g t r u s t d a y b y d a y
alkalis
peroxygens
plastics
processing
health
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Earningtrustday by day
In this regard the most important investmentdecisions of 1996 to promote geographicalredeployment were as follows:In the Alkalis Sector, two major decisions were
taken: one to increase capacity at SolvayMinerals, Inc. in Wyoming (US) over thecoming years to 3.5 million short tons per yearof soda ash; the other to conclude anagreement in principle to acquire a majorityholding in the Bulgarian soda ash plant SODI -one of the largest in the world.
In the Peroxygens sector, a new 85000 tons peryear hydrogen peroxide plant is underconstruction at Deer Park, TX, (US).
Three major investments were made in thePlastics Sector: the first involves theconstruction of a third polypropylene line atDeer Park, TX (US); the second, the acquisitionof a majority stake in the Indupa integratedPVC-caustic soda plant in Argentina; and thethird, the start of Vinythai phase II (Thailand) tocomplete an integrated industrial complex(PVC, VCM and caustic soda).
In the Processing Sector, and more specifically inthe Automotive division, two major decisions
n 1996, the market economy continued togain ground throughout the world. Theglobalization of business, heightened
competition and gradual deregulation are all nowexciting realities, requiring companies to striveconstantly towards greater competitiveness,adaptability and innovation.
For the Solvay Group, the year closed with a 3%growth in sales (in Belgian francs) and a 9%increase in consolidated net earnings to BEF13.6 billion. Net earnings before extraordinaryitems fell 8% to BEF 11.5 billion as a result ofdeclining margins in the Plastics Sector. Thatreduction was more than offset by extraordinarygains, principally comprising of profit on the saleof the Animal Health division and charges linkedto the impending closure of the Halleinelectrolysis unit (Austria) and the sale of thePlavinil subsidiary (Brazil).
Solvay's geographical redeployment continuesapace in North America, Mercosur, Asia andCentral Europe. The Solvay Group is becomingever more international.
from
the
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M e s s a g e
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Headquarters of Solvay in Brussels
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were made : first, to construct an high-densitypolyethylene (HDPE) automobile gas tank plantat Adrian, MI (US), and second, to set up ajoint venture in Argentina with IndustriasMontich s.r.l., also to produce gas tanks.
F i nally in the Health Sector, the Group hasacquired the Canadian company Canlac, whichowns a modern lactulose plant, and which ispreparing to market its pharmaceuticals inChina. The Group is currently examininginvestment opportunities for the proceeds fromthe sale of its Animal Health activities.
The reorganization of the Group's activities intoStrategic Business Units and Service Units hastaken effect, introducing a corporate culture withan even greater focus on creativity, adaptability,profitability of individual entities and, above all, adetermination to earn the trust of customers.
Trust must be earned on a daily basis. Our Groupstrives constantly to do just that by means ofconstant efforts, coherent strategies, carefullytargeted capital expenditure, enviably soundfinancial foundations and conduct grounded inethical values.
Our goal is to inspire trust in all our partners, bethey customers, shareholders, staff, suppliers orpublic authorities.That is why we have made trust the theme of thisannual report.
This year, a Special Meeting of Shareholders will beheld to decide on raising share capital to BEF50 billion by incorporating reserves and on splittingour shares 10 for one. The stock exchange price ofthe Solvay share is high in comparison withstandard American and British practice. Theproposed 10 for one split increases accessibility tothe share and reflects the Group's total confidencein its potential for growth in value.
The dividend, which was set at BEF 550 net pershare for the 1995 fiscal year, will be kept at thesame level in 1996 if the General Shareholders'Meeting gives its approval.
Finally, we wish to stress our commitment to theconstant enhancement of the Solvay Group’s
value to all its partners - customers, employeeand shareholders al ike. The strategic andorganizational changes introduced in our Groupsince 1992 and further strengthened in 1996,reflect our determination to improve the qualityof results day by day and to ensure a steadyincrease in the company's value.
We would like to thank Mr André Ganshof vander Meersch, who is leaving the Board ofDirectors on 5 June 1997, for his 23 years ofunfailing reliability and sound advice. A proposalwill be made to the General Shareholders'meeting that he should be replaced by Mr DenisSolvay, who is 40 and worked in the Groupbefore leaving in 1995 to direct a large privateaviation company.
Our thanks also go to our entire staff for theirhard work and loyal dedication.And finally, we thank all of you for the trust youhave placed in the Solvay Group.We will do our utmost to ensure that we earn itmore every day.
Daniel JanssenChairman of the Executive Committee
Yves BoëlChairman of the Board of Directors
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BOARD OF DIRECTORSYves BOËL
Baron Daniel JANSSEN
Aloïs MICHIELSEN
Jean-Jacques VAN de BERG
Pierre CASIMIR-LAMBERT
André GANSHOF van der MEERSCH
Baron Hubert de WANGEN
Viscount Etienne DAVIGNON
Hilmar KOPPER
Baron José del MARMOL
Jean-Marie SOLVAY
Chevalier Guy de SELLIERS de MORANVILLE
Edouard de ROYERE
Kenneth MINTON
Jacques SOLVAY
EXECUTIVE COMMITTEEBaron Daniel JANSSEN (6)
Aloïs MICHIELSEN (4)
Jean-Jacques VAN de BERG (1)
René DEGRÈVE (9)
Jean CHRISTIAENS (2)
Christian JOURQUIN (3)
Henri LEFÈBVRE (5)
Victor DIERINCKX (7) (until 6/30/97)
Jürgen ERNST (8)
ChairmanDirectors
Honorary Chairman
Chairman Vice-Chairman
Members
GENERAL MANAGERSSectors
Jean CHRISTIAENSGeneral Manager of the Alkalis SectorGeneral Manager of the Chemical Sector (from 7/1/97 on)
Christian JOURQUIN (until 6/30/97)
General Manager of the Peroxygens Sector
Henri LEFEBVREGeneral Manager of the Plastics Sector
Victor DIERINCKX (until 6/30/97)
Christian JOURQUIN (from 7/1/97 on)
General Manager of the Processing Sector
Jürgen ERNSTGeneral Manager of the Health Sector
Functions
René DEGRÈVEGeneral Manager for Finance and Corporate Planning
Jacques LÉVY-MORELLECorporate Secretary
Pierre FORTPIEDGeneral Manager for Human Resources
Luigi BELLIGeneral Manager for Technology
Alfred HOFFAITGeneral Manager for Research and Development
Regions
Jacques VAN BOSTGeneral Manager for Benelux
Georges THEYSGeneral Manager for France and Italy
Marc DUHEMGeneral Manager for Spain and Portugal
Jacques THOELENGeneral Manager for Germany, Austria and Switzerland
Jean-Pierre LAPAGEGeneral Manager for Brazil and Argentina
Whitson SADLERGeneral Manager for the United States, Canada and Mexico
Sergio SARDANOGeneral Manager for Asia-Pacific
EXTERNAL AUDITORSAndré HOSTE
Marcel van ACOLEYEN (substitute)
1 2 3 4 5 6 7 8 9
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STRENGTHENING CORPORATESTRATEGY
The Solvay Group further developed itscorporate strategy in 1996. The main objec-tives, l isted in the Group's mission andstrategy (see page 1), include:
• continuous improvement of products andservices for customers through reorganiza-tion into Business Units and innovation tomeet customer requirements
• concentration on selected areas of activityin which the Group has competitiveadvantages on an international scale
• geographical diversification into higher-growth regions.
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Management report
1996 : ea r n ing t rus t , by con t inu ingto re focus on our s t reng ths
THE YEAR IN BRIEF
The Solvay Group finished 1996 with netearnings up 9% and net earnings beforeextraordinary items down 8%. This is a reflec-tion of major strategic decisions for the Groupon the one hand and of a sharp reduction ofmargins in the Plastics Sector on the other.
Consolidated net earnings totaled BEF 13.6billion, up 9% from the 1995 figure of BEF12.5 billion.
The 1996 results can be broken down intonet earnings before extraordinary itemsof BEF 11.5 billion and net extraordinaryincome of BEF 2.1 billion.
The Group's net earnings before extraor-dinary items stood at BEF 11.5 billion in1996: a drop of 8% from the 1995 figure ofBEF 12.5 billion. This was due largely to thesharp fall in profits in the Plastics Sector,down 60% from 1995's particularlyimpressive figures, which weighed down theGroup’s results, especially during the first halfof the year. A slow improvement in resultswas recorded for most activities during thelatter half of the year, with the notableexception of caustic soda.
1996 yielded net extraordinary income ofapproximately BEF 2.1 bil l ion, againstnegligible figures for 1995. This is the resultof a number of extraordinary transactions:primarily the sale of the Animal Health activity,yielding extraordinary income before tax ofBEF 5.9 bil l ion, but also restructuringprograms, for example the closure of theelectrolysis unit at Hallein (Austria) and thesale of Plavinil (Brazil).
-10
-5
0
5
10
15
1992 1993 1994 1995 1996
(in billions of BEF)
Solvay Group : consolidated results
9.9
8.5
1.4
-2.9
-4.0
-6.9
1.0
8.0
7.0
12.5
12.5
0.0
13.6
11.5
2.1
Extraordinaryitems Net earnings
Net earningsbefore extraordi-nary items
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r e p o r t t t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer markets
These customer markets are covered by 20Strateg ic Bus iness Uni ts operat ing atGroup level and supported by a number ofService Units which provide Group experti-se in areas such as technology, finance,computing, law and human resources,...The Business Units' performance objectivesare measured not only in terms of custo-mer satisfaction, innovation and internatio-nal competitiveness, but also by ROI (ReturnOn Investment) and growth in profits.
Market position
The Group's strategy consists of centeringits resources on carefully chosen activities inwhich i t has compet i t ive advantages(technology, geographical market, competi-tiveness, etc.) needed to secure its positionamong the world's top suppliers.In 1996, this strategy led the Group to fur-ther develop its soda ash, hydrogen peroxi-de, polypropylene and gas tank activitiesand focus on Human Health, as demonstra-ted by the sale of its Animal Health activity.
Sale and closure of activities
The Group systematically examines thecapacity of each of its activities for growthand sustainable development.
Continuing the process begun in 1991,the Group decided in 1996 and early 1997to sell or close down the following activi-ties:• Industrial Enzymes• Animal Health• Plasticos Plavinil (Brazil) industrial sheet
and film plant• Hallein (Austria) electrolysis unit
RankProducts Europe World
Soda ash 1 1
Salt 1 3
Caustic soda 1 3
Barium / Strontium carbonates 1 1
Hydrogen Peroxide 1 1
Persalts 1 1
PVC 2 3
High-density polyethylene 5 1
PP 8 7
Plastic fuel tanks 1 1
Decorative adhesives 1 1
Pipes and fittings (Pipelife) 2 -
Gastrointestinal enzymes 1 1
Laxatives 1 3
Hormone Replacement Therapy 2 4
Antidepressants 10 6
Vertigo (Ménière disease) 1 1
Market position - 1996 (1)
% of sales Billion BEF
human health 14 39.6
construction and civil engineering 14 39.6
consumer goods 12 33.8
packaging 12 33.8
automotive industry 10 28.2
glass industry 8 22.6
chemical industry 7 19.7
detergents 4 11.3
animal health 3 8.5
paper industry 2 5.6
human and animal diets 2 5.6
treatment of water and environment 2 5.6
electric and electronics industries 2 5.6
steel and metal industry 1 2.8
other industries 7 19.7
Sales by principal markets - 1996
(1) in % of total capacities
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The biggest divestiture was that of theAnimal Health activity, bought for BEF14.4 b i l l ion by the Amer ican HomeProducts group. Animal Health generatedsales of BEF 7.7 billion in 1996, i.e. 17%of total sales for the Health Sector (HumanHea l th , An imal Hea l th and Indust r ia lEnzymes). The deal yielded a capital gainbefore tax of BEF 5.9 billion. The proceedsfrom the sale will be reinvested in full inbuilding up the Human Health activity.Overall, acquisitions, sales and shutdownsrecorded in 1996 gave rise to a net in-crease in sales of about BEF 2.5 billion(nearly 1%).
Geographical markets
Operat ing in 41 countr ies, the SolvayGroup realized one-third of its 1996 salesoutside Europe, up from one-fourth in1991.The United States has become by far theGroup's main center of activity, with salesworth BEF 54 billion (19% of consolidatedsales), followed by France and Germany(accounting for 16 and 14% of Groupsales respectively). The increase in theGroup's sales in 1996 is mainly due to theincrease of sales in the US (+15% in BEF).
Investing for the future
In 1996, the Group's investments for thefuture (capital expenditure, acquisitionsand R&D) accounted for BEF 40.3 billion,up 24% from 1995 (BEF 32.4 billion). Abudget of BEF 40 b i l l ion has beenearmarked for 1997, including BEF 28 bil-lion (USD 875 million) for capital expendi-tures and acquisitions and BEF 12.1 billionfor R&D. The Group's R&D program is des-cribed on page 34
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1993 1994 1995 1996 %Group ∆ 96/95(% in BEF)
Europe 169 174 184 187 66% + 2%
Americas 57 67 70 77 27% +10%
of which USA 39 44 47 54 19% +15%
Asia - Pacific 12 14 14 13 5% - 7%
Middle East and Africa 6 7 5 5 2% -
GROUP 244 262 273 282 100% +3%
e a r n i n g t r u s t i n o u r d a i l y b u s i n e s s
0
10
20
30
40
50
60
1991
12.9 12.2 12.1 11.5 11.8 12.3 12.1
28.028.0
20.619.919.2
28.5
16.0
33.9
1992 1993 1994 1995 1996 1997(budget)
(in billions of BEF)
Investing for the future
Capital expendi-ture, including acquisitions R&D
Solvay Minerals,Inc.(Wyoming/USA)
AMERICAS 27%
Nafta (incl. USA 19%) 21%
Mercosur 6%
MIDDLE-EAST +AFRICA 2%
ASIA-PACIFIC 5%
EUROPE 66%
France 16%
Germany 14%
Spain andPortugal 8%
NL and Belgium/Lux 7%
Italy 8%
Central Europe and Scandinavia 6%
UK 4%
Austria and Switzerland 3%
total 1996 sales: BEF 282 billion (USD 8.8 billion)
The market in 1996
(in billions of BEF)
Consolidated sales by region
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BULGARIA
ROMANIA
YUGOSLAVIASofiya
TURKEY
GREECE
FYROM
ALBANIA
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Group investments decided upon or com-pleted in 1996 and early 1997 include:
In Europe:
• decis ion to construct a new sodiumbicarbonate product ion l ine a tDombasle, France (+45 kt/year)
• expansion of PP production at Sarralbe,France (+85 kt/year)
• acquisition of Helphos (Germany), sup-plier to the automobile industry, nowrenamed Solvay Automotive GmbH
• expansion of sodium bicarbonate capaci-ty at Rosignano, Italy (+20 kt/year)
• decision to increase soda ash productioncapacity at Rosignano to over 1 milliont/year in 1998
• acquisition of Hoechst's fluorinated pro-duct activities
• debottlenecking of the soda ash unit atTorrelavega, Spain (+50 kt/year)
• debottlenecking of a soda ash unit atPovoa, Portugal (+50 kt/year)
• increase in the Group's shareholding(from 50 to 75%) in Oy Finnish Pero-xides AB (Finland)
• expansion of hydrogen peroxide capacityat Kuusankoski (Finland)
• agreement signed with the Bulgarianauthorities on the purchase of a 60%share in the SODI soda ash plant inVarna, Bulgaria.
In the United States and Canada:
• soda ash: expansion of capacity at SolvayMinerals, WY to 2.3 million short tons/yearand decision on a further increase to3.5 million short tons/year
• hydrogen peroxide: debottlenecking atLongview ,WA and new 85 kt/year unitat Deer Park ,TX
• polypropylene: commissioning of a thirdproduction line at Solvay Polymers, DeerPark, TX
• automotive products: new plastic fueltank production plant at Adrian, MI
• health: acquisition of Canlac (Canada)for lactulose production
Man
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r e p o r t t t
0
500
1,000
1,500
2,000
2,500
1992 1993 1994 1995 1996
1,8502,000 2,000 2,000
2,300
Soda ash production capacity
Solvay Minerals, Inc.
thousand short tons / year
NB. total US capacity : 12 million short tons /year
Acquisition of the Sodi soda ashplant in Varna , Bulgaria
2.9
3.9 4.0
0
2
4
6
8
10
12
14
94 95 96 94 95 96 94 95 96 94 95 96 94 95 96
0.9 0.6
3.1 1.3 3.2 2.3 2.5
7.75.1
2.0 3.1 3.1
0.9
6.6 6.8 7.1
2.42.93.8
0.9 0.8
2.6
10.1
0.6 0.6
6.0
1.1
5.6
1.1
9.2
10.2
1.9
7.4
10.2
12.7
10.4
6.76.9
3.7 3.8
9.7 9.5
Capital expenditure, acquisitions and R&D (in billions of BEF)
Investments for the future by sector
Capital expenditureR&D
Alkalis Peroxygens Plastics Processing Health
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e a r n i n g t r u s t i n o u r d a i l y b u s i n e s s
In South America:
• purchase of a ma jor i t y ho ld ing inIndupa's activities in Argentina (PVC,VCM and caustic soda)
• joint venture with Industrias Montichs.r.l. for automotive products (SolvayAutomotive Argentina)
• expansion of hydrogen peroxide capacityat Curitiba and Santo André (Brazil)
In the Asia-Pacific region:
• start of Vinythai phase II (VCM and elec-trolysis units) in Thailand
• expansion of the hydrogen peroxide unitat Banksmeadow, Australia
• sales representation office in Beij ing,China
• development of a commercial organiza-tion for the distribution of pharmaceuti-cal products via a joint venture in China
• launch of the joint venture ChangzhouWoodstock Corporation (Automobile) inChina
Competitiveness and productivity
Since 1991, the Group has ceaselessly pur-sued its efforts to cut costs on a range offronts, in the conviction that only contin-ual economies can secure growth and astronger competitive position.
Productivity increased by 48% between1991 and 1996 in terms of sa les peremployee, a testimony to the measurestaken by the Group and its collaboratorsto reinforce Solvay's competitive positionin its various markets. Sales by employeereached BEF 8 million in 1996, comparedto BEF 5.4 million in 1991.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workforce by sector at 01-01-1997
Alkalis 10,908
Peroxygens 2,027
Plastics 7,773
Processing 8,289
Health 6,403
GROUP 35,400
+48%
1991 1996
1991-96: 48% increase in productivity
Solvay Group : productivity by employee
Sales by employee
(BEF 5.4 M)
(BEF 8.0 M)
0
20
40
60
80
100
80.5
87.885.0
49.8 49.153.1
43.3 43.9 46.2
81.2
72.9
94 95 96 94 95 96 94 95 96 94 95 96 94 95 96
15.7 16.415.8
76.9
in billions of BEF
Sales by sector
Alkalis Peroxygens Plastics Processing Health
1996 Total sales : BEF 282.0 billion
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CONSOLIDATED FINANCIAL PERFORMANCE
Performance by sector
All sectors, except for Plastics, registeredan increase in sales, with a more notableincrease in Processing (+8%), thanks inpar t i cu la r to acqu i s i t ions in theAutomotive activities. EBIT decreased by12% essentially due to Plastics, which suf-fered a drop of 60%.
The 6% increase in Alkalis sales resultedfrom a slight recovery in soda ash prices,as well as the acquisition of Hoechst'sfluorinated products business. In turn, thedrop in caustic soda prices led to a drop of9% in Alkalis profits.Desp i te a s ign i f i cant improvement inPeroxygens results in 1996 because ofcost reductions, the market for hydrogenperoxide has remained difficult, with newproduction capacity and declining prices.The drop in Plastics results was largelydue to a reduction in PVC prices in thefirst half of 1996 (down 30% from the1995 average). The impact of this was notfully compensated for by the increase inPVC margins at the end of the year and byimproved performance in high densitypolyethylene and polypropylene.
Man
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r e p o r t t t
Important:With a view to transparency and moreclearly defined Business-Unit responsibilityfor costs, the presentation of the incomestatement for internal managementreporting purposes has been reorganized. Inparticular, earnings before net debtexpense, taxes and non-allocated items(EBIT) will from now on be subject tocorporate costs, which were not previouslybroken down by activity. Each of the sectorswill from now on take responsibility for itsshare of those costs.
(in billions of BEF)
1994 1995 1996 ∆ 96/95(%)
Alkalis 72.9 76.9 81.2 + 6 %
Peroxygens 15.7 15.8 16.4 + 4 %
Plastics 80.5 87.8 85.0 - 3 %
Processing 49.8 49.1 53.1 + 8 %
Health 43.3 43.9 46.2 + 5 %
GROUP 262.2 273.4 282.0 + 3 %
(1) including BEF 9 billion for Animal Healthand Industrial Enzymes
(in billions of BEF)
1994 1995 1996 ∆ 96/95(%)
Alkalis 5.6 9.7 8.8 -9%
Peroxygens 1.1 1.5 2.2 +47%
Plastics 4.8 8.8 3.5 -60%
Processing 1.8 0.8 2.5 x 3,1
Health 2.8 3.3 4.3 +30%
GROUP 16.1 24.1 21.3 -12%
(1) EBIT: earnings before net debt expense,taxes and non - allocated items
0
2
4
6
8
10
12
8.8
1.1
2.2
4.88,8
1.82.5 2.8
3.3
4.3
8.8
94 95 96 94 95 96 94 95 96 94 95 96 94 95 96
9.7
5.6
3.5
1.5
0.8
(in billions of BEF)
EBIT by sector
Alkalis Peroxygens Plastics Processing Health
(1)
Sales
EBIT
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The strong increase in Processing profitsresulted from reduced plastics prices in1996 as we l l as deve lopment of theAutomotive activities.Health, which in 1996 became the secondgreatest profit contributor for the Group,achieved sustained growth in its results(+30%). This increase was essentially theresult of developments in the HumanHealth sector in the US and in particularthe doubling of sales of LUVOX®, a psy-chiatric medication.
Pages 14 to 33 give details of businessdevelopments in each sector.
Solvay Group performance
Despite a 3% increase in sales, the grossmargin declined by about 1%, due princi-pally to the reduction in Plastics margins.This decline was more pronounced at thelevel of EBIT (-12%) following an increasein Research and Development expenditures(+4%, or BEF 0.5 billion) and in the mar-keting effort of the Health Sector, particu-larly in the United States.
Net debt expenses were BEF 3.7 billion,a 6% drop compared to 1995, resultingprimarily from the reduction in interestrates in Continental Europe. Taxes onearnings before extraordinary items(BEF 6.2 billion) declined by 4% despite aslight increase in the average tax rate,from 34% in 1995 to 35% in 1996.
Consolidated cash flow reached BEF 33billion, up 7% from 1995 with deprecia-tion of BEF 19.4 billion (+6%).
The Group's net indebtedness at the endof 1996 increased by BEF 6 bi l l ion toBEF 37.7 billion compared to the end of1995. This increase in net indebtedness
(in billions of BEF) (in millions of USD)(3)
1995 1996 ∆ 96/95 (%) 1996
Sales 273.35 281.97 + 3 % 8810
Gross margin(1) 76.45 75.70 - 1 % 2365
EBIT(2) 24.09 21.32 - 12 % 666
Net debt expense - 3.91 -3.68 - 6 % -115
Earnings before taxes and
extraordinary items 18.98 17.64 - 7 % 551
Taxes on earnings before
extraordinary items - 6.47 -6.23 - 4 % -195
Net earnings before
extraordinary items 12.54 11.54 - 8 % 361
Net extraordinary items - 0.03 2.09 - 65
Net earnings 12.51 13.63 + 9 % 426
Minority interests 0.22 0.33 + 50 % 10
Depreciation 18.26 19.42 + 6 % 606
Cash Flow 30.77 33.05 + 7 % 1032
(1) Gross margin was restated in 1995. From now on it will be calculated afterdistribution and warehousing expenses and after license fees.
(2) EBIT: earnings before net debt expense, taxes and non-allocated items(3) USD 1 = BEF 32.01 at 12.31.96
0
10
20
30
40
50
%
1992 1993 1994 1995 1996
36
45
38
32 32
Net debt / total equity (in %)
Net debt to Equity ratio
Consolidated results - including third-party share
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resulted partly from a BEF 12.6 bil l ionincrease in working capital, including theBEF 14.4 billion receivable for the sale ofAnimal Health which was finalized on 28February 1997.
The Net Debt to Equity ratio remainedat 32%, the same level as 1995, thanks tothe increase in shareholders' equity.
The Group's Return On Equity stood at11.7% at the end of 1996, compared to12.6% in 1995 and 8.1% in 1994. TheGroup's objective is to attain ROE of 15% onaverage.
Performance per share
The increase in the third party share inthe Group's net income (BEF 328 million in1996, compared to BEF 216 mil l ion in1995) is explained largely by the growth inthe earnings of Solvay Minerals in the US(in which Asahi holds a 20% stake) and toa lesser degree by the 1996 acquisition ofthe listed Argentine company Indupa.
This took net earnings per share up fromBEF 1,471 per share in 1995 toBEF 1,587 per share in 1996 - a rise of 8%.
Net earnings per share before extraor-dinary items declined 9% to BEF 1,338 in1996.
Performance of the parent companySOLVAY S.A.
Solvay S.A. achieved operating revenueof BEF 100.4 bi l l ion, compared to BEF105.5 billion in 1995.Operating expenses remained at their1995 level, i.e. BEF 97.9 billion.Its operating income stood at BEF 2.4billion, compared with BEF 7.6 billion inthe previous year.
Man
agem
ent
r e p o r t t t
0
100
200
300
400
500
600
700
800
1992 1993 1994 1995 1996
500 500 500
550 550
605.84
733.33 733.33
673.4 673.4
(BEF /share)
Gross and net dividend
GrossNet
-10
-5
0
5
10
15
1992 1993 1994 1995 1996
-7,0
8,1
12,6 11,7
9,2
(in %)
Return on Equity (ROE)
-1000
-500
0
500
1000
1500
2000
1,015
-864
-507
923
800
1,471 1,475 1,587
1,3381,177
1992 1993 1994 1995 1996
(BEF /share)
Earnings per share
Net earnings beforeextraordinary itemsNet earnings
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e a r n i n g t r u s t i n o u r d a i l y b u s i n e s s
The ba lance of f inanc ia l income andcharges yielded a financial profit of BEF4.5 billion in 1996, compared to BEF 4.4billion in 1995.
This takes pretax earnings before extraor-dinary items to BEF 7 bi l l ion, f romBEF 12 billion for the previous year.After net extraordinary income of BEF1.6 billion (compared with an exceptionalcharge of BEF 2.2 billion in 1995) and inco-me tax of BEF 1.3 billion (BEF 2.3 billion in1995), SOLVAY S.A. generated net ear-nings of BEF 7.3 billion in 1996, comparedto BEF 7.5 billion last year.
When withdrawals from untaxed reserves ofBEF 139 million are taken into account,income available for distribution standsat BEF 7.4 billion (the same level as in 1995).
Dividend
To earn trust, the Group's policy is toincrease the dividend whenever possibleand, if possible, never reduce it.The Board of Directors has decided to pro-pose to the General Shareholders' Meetingof 5 June 1997 the payment of a net divi-dend of BEF 550 per share for the 1996fiscal year, the same as for 1995.
The distribution of income for Solvay S.A.is therefore as follows:
Detailed information for shareholders andinvestors is given on pages 42 - 43.
Split of Solvay shares and increase of capital by incorporationof reserves
The Board of Directors also voted to pro-pose to a Special Meeting of Shareholders,to be called for 5 June 1997, a 10 for onesplit of Solvay shares and the increase ofSolvay S.A.'s capital to BEF 50 billion byincorporat ion of BEF 17.6 b i l l ion ofreserves.The stock split is intended to facil itateaccess to Solvay stock and to bring itsvalue in line with typical US and UK sharevalues.The increase of Solvay S.A.'s capital willbring it more into line with its equity.The Board of Directors will propose thatthe company take advantage of the reprin-ting of Solvay shares, required for renewalof coupons (the last coupon - number 60 -will be used in January 1998) to effect, atminimum cost, the exchange of certifi-cates. Subject to approval by the SpecialMeeting of Shareholders, this step shouldtake place during September 1997.
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Conflicts of interest (Articles 60 and 60a of the coordinated laws on trading companies (LCSC))
A new law on conflicts of interest between companies and their direc-tors came into force on 1 July 1996. Under the terms of the newArticle 60 of the LCSC, where conflicts of interest arise, the annualreport must include the complete minutes of the relevant meeting ofthe Board of Directors, describing the nature of the decision or opera-tion, its justification and its consequences for the company's asset base.The only such situation to have arisen occurred on 3 October 1996with the issue of a sixth series of notes with warrants for approximately100 Group managers around the world, including the three directorson the Executive Committee, who abstained from taking part in thedeliberations and the vote.
Net earnings for the year available
for distribution 7,429,268
Carried forward 11,018,022
Total available to theGeneral Shareholders’ Meeting 18,447,290
(in thousands of BEF)
Gross dividend 6,144,350
Appropriation to and from reserves 10,480
Carried forward 12,292,460
Total 18,447,290
allocation :
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Alk
alis
s e c t o r
1% Others
8% Salts
9% Barum and Strontium
10% Fluorinated products
chlorine,chlorine derivatives
34% and allyls
Soda ash38% and Derivatives
Total sales in 1996: BEF 81 billion (USD 2.5 billion)
Glass
Water purification
Bleaching and coating of paper
Salting
Snow removal
Manufacture of TV and PC screens...
Dry cleaning
Metal pickling
Detergents
Cosmetics
Refrigerants
Treatment of air emissions
Food and human health care
TiresMarkets
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Honing resources andtargeting growthmarkets - the SolvayGroup is building on itsstrengths as it looks tothe next millennium. Acase in point: at GreenRiver (Wyoming, US),the world’s mostproductive trona plant isconstantly expanding tomeet demand from theAmericas and Asia.
Continued globalization andsavings in soda ash
Decline in caustic soda prices
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Earning trust, through acquisitions, expansions,refocusing and agreements in 1996
• Production capacity expansion complete at Torrelavega(Spain) and Povoa (Portugal), and under way atRosignano (Italy): +170,000 t/year
• Expansion of production capacity under wayat Dombasle (France) and Rosignano (Italy):+65,000 t/year
• Sale of sea salt production activity in Spain to Salins duMidi
• Purchase of CEREBOS® brand name (table salt) foralmost all countries
• Decision to build a diglycerin and polyglycerinproduction unit at Rheinberg (Germany)
• Hoechst's fluorinated product activities acquired, withplants in Frankfurt (Germany) and Tarragona (Spain)
• Decision to expand production capacity at Frankfurt(Germany)
• Expansion of capacity for high-grade products at Massadi Carrara (Italy)
• Agreement in principle signed on the acquisition of acontrolling interest in the SODI soda ash plant inBulgaria (1.2 million t/year)
• Capacity at Green River, WY (US) expanded to2.1 million t/year
• Decision to expand capacity to 3.2 million t/year
• Majority shareholding acquired in Indupa at BahíaBlanca (Argentina)
• Production of inorganic fluorinated products starts atCatoosa, OK (US)
• Vinythai electrolysis unit comes on stream at Map TaPhut (Thailand)
Western EuropeSoda ash
Sodium bicarbonate
Salt
Allyls
Fluorinated products
Barium and Strontium carbonate
Central EuropeSoda ash
AmericasSoda ash
Electrolysis andchlorinated products
Fluorinated products
Asia - PacificElectrolysis andchlorinated products
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Alkaliss
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Soda ash and derivatives
In Western Europe, sales of synthetic sodaash remained at 1995 levels in terms ofvolume and at last enjoyed a slight priceincrease.
There was a similarly posit ive trend innatural soda ash, with prices and salesvolumes up both on the North Americanmarket and for exports to South Americaand Asia.
The acquisition of a controlling interest inthe Bulgarian soda ash plant SODI will carythe globalization of this activity still fur-ther, opening up markets in the Balkans,the Middle East and central Asia.
(millions of BEF) 1994 1995 1996 ∆ 96/95
Sales 72,899 76,870 81,236 + 6%EBIT(1) 5,664 9,752 8,796 - 10%Investment 5,990 5,562 9,143 +64%Depreciation 6,674 6,859 7,072 + 3%
Headcount (numbers)(2) 11,853 11,493 10,908 - 5%
(1) EBIT: earnings before net debt expense, taxes and non-allocated items
(2) at 1 January of the following fiscal year
(in billions of BEF)
Sales
70
75
80
85
1994 1995 1996
72.9
76.9
81.2
0
4
8
12
1994 1995 1996
5.7
9.88.8
(in billions of BEF)
EBIT
Alk
alis
s e c t o r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OverviewWith a rise in sales of nearly 6%, earnings in the Alkalis sector fell by approxi-mately 10%, largely owing to developments in Chlorine and chlorine derivatives.
RankProducts Europe World
Soda Ash 1 1
Salt 1 3
Caustic Soda 1 3
Barium / Strontium Carbonates 1 1
RankMarket position - 1/1/1997
Key figures
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Chlorine and chlorine derivatives
The recovery in European PVC consump-tion that began in September 1996 wasaccompanied by an upsurge in electrolysisproduction, generating intense competi-tion in the caustic soda market and a 20%fall in prices over the last few months of1996.
The closure of the Hallein electrolysis unitin Austria, planned for the end of 1997,will contribute to the cost-reduction pro-gram by ending a structurally loss-makingsituation.
Fluorinated products
HCFC sales were hit by the harsh weatherconditions at the beginning of the year, asthe construction industry is a major outletfor fluorinated products (insulating foam).
On the other hand, the integration ofHoechst's activities, which will enhancethe Group's position in the refrigerationmarket , i s making good progress . Anexpansion is already planned for the 134aunit in Frankfurt (Germany).
Barium and Strontium
This activity remained buoyant despite adownturn in the market for cathode rayscreens for televisions and personal com-puters.
86 87 88 89 90 91 92 93 94 95 96
750
650
450
250
850
150
550
350
e a r n i n g t r u s t i n o u r d a i l y b u s i n e s s . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEM/ metric tonne (liquid market - Europe)
Caustic soda prices
HFCs (hydrofluoro-carbons) are used largelyas refrigerants forrefrigerators, freezers, airconditioning, etc.They are an improvementon the CFCs they replaceas they are kinder on theozone layer whichprotects the earth fromultraviolet rays.
s
Source: TECNON
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Detergents
Pulp bleaching
Textiles
Water purification
Disinfection
Ore treatment
Metal pickling
Electronics
Paints
Adhesives
Footwear ...Markets
Pero
xyge
ns
s e c t o r
2% Others
7% Caprolactone
35% Persalts
56% Hydrogen peroxide
Total sales in 1996: BEF 16 billion (USD 0.5 billion)
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The plant reflected here isat Warrington (UnitedKingdom). It manufacturespersalts, caprolactones andhydrogen peroxide usedfor purifying surface waterin particular.
Marked improvement in resultsLower prices and intense competition
Earning trust, through acquisitions, expansions,refocusing and agreements in 1996
• Electronic Grade Business Unit set up to serve thesemiconductor industry
• Tavaux perborate plant closed down (France)• Rosignano's flexible perborate/percarbonate plant
commissioned (Italy)
• Production capacity expanded at Warrington (UnitedKingdom)
• New 85 kt/year unit built at Deer Park, TX (USA)• Expanded production capacity comes on stream at
Longview, WA (USA)• Production capacity expanded at Curitiba (Brazil)
• Expanded production capacity commissioned atBanksmeadow (Australia)
Western EuropeHydrogen peroxide
Persalts
Caprolactones
AmericasHydrogen peroxide
Asia - PacificHydrogen peroxide
Peroxygenss
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Hydrogen peroxide
In 1996, the hydrogen peroxide market inEurope and the United States was hit bythe crisis in the paper industry, the pro-duct's principal outlet. Ebbing demand,coinciding with increases in productioncapacity, heightened competit ion anddrove down prices, mainly in the secondhalf of the year and in Europe in particular.In view of this troubled climate, whichappears un l ike ly to improve in 1997,Solvay Interox further stepped up its cost-cutting campaign and its policy of refocus-sing on higher value added applications,such as high-grade hydrogen peroxide forthe semiconductor industry.In addition, an increase in its shareholdinginterest in Oy Finnish Peroxides (Finland)f rom 50 to 75% and the dec i s ion toexpand production capacity, taken at thebeginning of 1997 will strengthen SolvayInterox's pos i t ion in Scandinavia. TheNordic paper pulp industry consumes over50% of European hydrogen peroxide pro-duction used in bleaching.
(millions of BEF) 1994 1995 1996 ∆ 96/95
Sales 15,734 15,760 16,366 + 4%EBIT(1) 1,112 1,461 2,194 + 50%Investment 3,103 1,308 3,180 x 2.4 Depreciation 2,019 1,859 2,150 + 16%
Headcount (numbers)(2) 2,219 2,086 2,027 - 3%
(1) EBIT: earnings before net debt expense, taxes and non-allocated items
(2) at 1 January of the following fiscal year
Pero
xyge
ns
s e c t o r
OverviewPeroxygens sector earnings made a strong recovery (+50%) after a still-sluggish 1995
15.0
15.5
16.0
16.5
17.0
17.5
1994 1995 1996
15.715.8
16.4
(in billions of BEF)
Sales
0
0.5
1.0
1.5
2.0
2.5
1994 1995 1996
1.1
1.5
2.2
(in billions of BEF)
EBIT
Key figures
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Persalts
The detergents market, the main outlet forpersalts, is currently the focus of cut-throat competit ion between big brandnames and generic products. This has putdownward pressure on persalt prices atthe same time that demand has slackenedactivity’s in Western Europe. In spite ofintense competition and the disappointingshowing of the percarbonate used inconcentrated laundry detergents, the acti-vity’s results are up from 1995, largely as aresult of cost cutting in 1996. Persaltsmarkets in Eastern Europe and SouthAmerica are growing and promise furtherexpansion.
CaprolactonesThe caprolactones and polycaprolactonesactivity continued to develop well.
e a r n i n g t r u s t i n o u r d a i l y b u s i n e s s
Thanks to Capa® caprolactones, Solvay’s customers are developing higher-performance products: forinstance, paints for the automotive industry.
35
30
25
20
15
40
1993 1994 1995 1996
liquid market 50% (in Cents/pound)
USA : Hydrogen peroxide FOB price
Source: Bleaching Chemicals
RankProducts Europe World
Hydrogen Peroxide 1 1
Persalts 1 1
RankMarket position - 1/1/1997
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Food and non-food packaging
Construction
Automotive industry
Clothing and footwear
Electricity (cables,etc.)
Electronics
Furniture and household goods
Sports and leisure
Leather goods and luggage
Medical and hospital supplyMarkets
Plas
tics
s e c t o r
2% Others
3% Special polymers
20% PP
35% HDPE
40% PVC
Total sales in 1996: BEF 85 billion (USD 2.7 billion)
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Solvay is aiming to increaseits polyolefin output by theyear 2000.The strategy includesdebottlenecking existingproduction lines (opposite:the plant at Sarralbe, France).
Sharp downturn in earnings,particularly for PVC
Improved margins in the second halfof the year
Earning trust, through acquisitions, expansions,refocusing and agreements in 1996
• Launch of Solvay Polyolefins Europe Business Unitand subsidiaries
• Expanded polyethylene and polypropylene capacitycomes on stream at Sarralbe (France)
• Debottlenecking of HDPE capacity at Rosignano (Italy)
• A third polymerization production line built at Tavaux(France)
•Majority holding acquired in the Indupa plant at BahíaBlanca (Argentina)
• Acetylene VC monomer plant closed down at SantoAndré (Brazil)
• Third polypropylene production line comes on streamat Deer Park, TX (USA)
• Phase II of the Vinythai unit commissioned at Map TaPhut (Thailand)
Western EuropePolyolefins
SOLEF®- PVDF
AmericasVC-PVC
Polyolefins
Asia - PacificVC-PVC
Plasticss
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PVC
In Europe, demand was slack until the summ-er but gathered momentum from Septemberonwards. That paved the way for a gradualincrease in the average selling price fromDEM 1.0/kg at the end of the summer toDEM 1.2 /kg. Demand appeared to be remain-ing steady at the beginning of 1997.The purchase of Indupa (Argentina) has had apositive impact on the Group's SouthAmerican PVC business. Plants in Brazil hadbeen hard hit by a prolonged suspension ofethylene supplies.In Thailand, results remained negative buthave improved significantly since the start ofphase II at Vinythai (upstream integration intoVCM, chlorinated products and caustic soda).
PVC compounds
Despite a decline in the European market in1996 (largely due to the use of alternativesfor bottling mineral water and direct PVCresin purchases by a number of major userswishing to manufacture their own com-pounds), results for PVC compounds impro-ved significantly from previous years. Creditfor this must go to restructuring and effortsto reduce fixed costs. Action on this front willcontinue in 1997, as the European market islikely to shrink still further and competitionwill be increasingly fierce.
(millions of BEF) 1994 1995 1996 ∆ 96/95
Sales 80,504 87,773 85,000 - 3%EBIT(1) 4,768 8,816 3,505 - 60%Investments 5,054 7,743 10,140 + 31%Depreciation 5,300 5,279 5,725 + 8%
Headcount (numbers)(2) 8,312 7,969 7,773 - 2%
(1) EBIT: earnings before net debt expense, taxes and non-allocated items
(2) at 1 January of the following fiscal year
Plas
tics
s e c t o r
Overview1996 ended with a very sharp decline in earnings for the Plastics sector (-60%)compared with the high levels of 1995. The fall applied across the board, with theexception of special polymers and PVC compounds. Price increases in the last twoquarters were not sufficient to compensate for the poor profit margins of the firsthalf of the year. Profit margins were also affected by the high prices for naphthaand olefins (ethylene and propylene).Prospects for 1997 are brighter, particularly for PVC and HDPE.
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60
70
80
90
100
1994 1995 1996
80.5
87.885.0
(in billions of BEF)
Sales
0
2
4
6
8
10
1994 1995 1996
4.8
8.8
3.5
(in billions of BEF)
EBIT
Key figures
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High-density polyethylene (HDPE)
Sales volumes grew steadily in Europe, theUS and Brazil, enabling prices to pick upsignificantly after the summer. An increase inthe cost of ethylene partly offset this, howev-er. As with PVC, the prolonged closure of thecracker that supplied ethylene to theBrazilian plants exacerbated the situation.Demand remained high in ear ly 1997,prompting hopes that new price increaseswill be possible to compensate for the highcost of ethylene and perhaps improve profitmargins.
Polypropylene (PP)
Sales volumes have been excellent in bothEurope and the US. Expansions commissio-ned at Sarralbe (France) and Deer Park, TX,(US) paved the way for record productionlevels. Prices rose in Europe and stabilized atthe end of the year, whereas in the US theydeclined as new units started up.In spite of strong demand, the combinedeffect of substantial price increases for propyl-ene and capacity expansion among competi-tors should maintain the downward pressureon polypropylene profit margins in 1997.
Special polymers
In Europe and North America, SOLEF® PVDFperformed much better than in 1995 as aresult of strong market activity. Growth islikely to continue to remain steady in 1997.
On the other handthe market forIXAN® PVDC, with,which is used inparticular in the food industry for wrappingmeat, shrank in Europe in 1996; theAmerican market remained static and theonly growth was recorded in Asia. Overall,reductions in fixed costs and the cost of rawmaterials helped maintain profits.Hope of a slight economic upturn in Europeand the end of the beef crisis should yieldmore satisfactory sales results in 1997.
. . . . . . . . . . . . . . . . . . . . . . . . .
Though well into its50s, PVC is still full ofsurprises. In 1995, onthe island of Antigua(Caribbean), 50 housesmade from PVC pro-files filled with concre-te were the only onesto survive hurricaneLuis, the region’s mostviolent this century.
1995 1996 1997
700
500
600
300
400
200
800
900
(USD/metric tonne)
Polypropylene price marginsover 1.03 x propylene
Source: TECNON (UK) Ltd
WE US
July 95 July 96
1995 1996 1997
650
550
450
350
250
150
50
(USD/metric tonne)
HDPE injection molding price margins over1.05 x ethylene
Source: TECNON (UK) Ltd
WE US
July 95 July 96
1,8
1,7
1,6
1,5
1,4
1,3
1,2
1,1
1
0,91995 1996 1997
Suspension grade (DM/Kg)
PVC price Western Europe
Source: Platt’s Polymer Scan
July 95 July 96
RankProducts Europe World
PVC 2 3
HDPE 5 1
PP 8 7
RankMarket position - 1/1/1997
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Construction
Automotive industry
Water collection and distribution
Gas distribution
Decoration
Electrical insulation
Household goods
Leather goods and luggage
Stationery
Medical supplyMarkets
Proc
essi
ng
s e c t o r
12% Pipes & fitting
Consumer15% goods
Industrial sheet15% and film
32% Automotive
Total sales in 1996: BEF 53 billion (USD 1.7 billion)
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Modern cars rely more andmore on plastic as beingsafer and lighter thanconventional materials. InItaly, Safiplast, a 50%Solvay-owned subsidiary,supplies the Fiat Groupwith gas tanks made fromhigh density polyethylene.
Improved earnings,Pipes excepted
Earning trust, through acquisitions, expansions,refocusing and agreements in 1996
• Reorganization into Regional Business Units
• Purchase of the company Helphos - now SolvayAutomotive GmbH - at Bad Harzburg (Germany)
• Commercial subsidiary set up in Budapest (Hungary)
•Via J/V Pipelife, plant purchased at Radom (Poland)and sales offices opened in Warsaw (Poland), Cluj(Romania) and Ljubljana (Slovenia)
•Adrian, MI (US) plant comes on stream for themanufacture of fuel tanks and intake manifolds
•Strategic alliance concluded with O’Sullivan Corp.(US) for sheets and films to be used for interior trim
•Formation of a joint venture Solvay Automotive, inArgentina (60% Solvay, 40% Montich)
•WOOD-STOCK® unit commissioned at the jointventure Changzhou Woodstock Corp. (China)
Western EuropeIndustrial sheet andfilm
Automotive products
Central Europe Interior decorationproducts
Pipes and fittings
AmericasAutomotive products
Asia - PacificAutomotive products
Processings
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Automotive products
The boost to sales in the Processing sectorcame chiefly from the Automotive activi-ties, which were buoyant in the US (+31%in USD) . Fo l lowing the acquis i t ion ofHelphos at the start of the year and theacquisition of a shareholding in Safiplast(Italy) in late 1995, sales were broyant inEurope too. For the business as a wholesales were up by 35% and results impro-ved considerably.
(millions of BEF) 1994 1995 1996 ∆ 96/95
Sales 49,823 49,090 53,138 + 8%EBIT(1) 1,810 814 2,474 x 3Investments 1,990 3,088 3,138 + 2%Depreciation 2,111 1,973 2,146 + 9%
Headcounts (numbers)(2) 8,751 8,842 8,289 - 6%
(1) EBIT: earnings before net debt expense, taxes and non-allocated items
(2) at 1 January of the following fiscal year
(3) including 2,400 from wood protection activities (sold on 6.30.94)
Proc
essi
ng
s e c t o r
OverviewAfter a very poor 1995, both sales and profits in the Processing sector made aremarkable recovery in 1996, with profits for the year reaching an all-time high.This was due in part to lower prices for raw materials, plastic resins in particular.
40
45
50
55
1994 1995 1996
49.849.1
53.1
(in billions of BEF)
Sales
0
1
2
3
4
2.5
1.8
0.8
1994 1995 1996
(in billions of BEF)
EBITRank
Products Europe World
Plastic fuel tanks 1 1
Decorative adhesives 1 1
Pipes and Fittings (Pipelife) 2 -
(3)
Key figures
RankMarket position - 1/1/1997
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Interior decoration products
Vigorous efforts to bring down costs andoverheads helped boost profits in the divi-s ion, despite the stagnant - indeed insome European countries declining - pri-vate consumer market.
Industrial sheet and film
This sphere of activity, mid-way betweenindustrial production and the consumer,did not achieve an increase in sales in1996, but favorable raw material prices,economies from restructuring, and betterproduct mix nonetheless secured a clearimprovement in profits.
Pipes and fittings
A harsh winter and generalized cuts inpublic-sector infrastructure works reducedsales in this division.However, profits, while down from therecord year of 1995, remained healthy.
Solvay helped to build the collapsible swimming pool used for water polo events during the 1996Olympic games in Atlanta; the Group’s plastic membranes are a colorful way of keeping pools watertight.
0
1
2
3
4
5
1989 1996
0.6
1.3 2.4
2.2
4.6
1.9
(in millions of gas tanks)
Solvay gas tanks (HDPE)
Europe
USA/Mexico
Europe
USA/Mexico
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Human health products
Animal health products (**)
Enzymes (*)
Pharmaceutical intermediatesMarkets
Heal
th
s e c t o r
3% Enzymes (*)
17% Animal Health (**)
80% Human health
(*) consolidé jusqu’au 30/06/1996(**) consolidé jusqu’au 31/12/1996
Total sales in 1996: BEF 46 billion (USD 1.4 billion)
(*) consolidated through to 6/30/96(**) consolidated through to 12/31/96
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The new medicinepackaging line at Weesp(Netherlands): skills andresources working forworld health
Focus on Human Health
LUVOX® medication sales doublein the US
Earning trust, through acquisitions, expansions,refocusing and agreements in 1996
• Strong growth in sales and market share in the USand in exports
• Position maintained in Europe despite tighter govern-ment restrictions
•New research laboratory inaugurated in Hannover(Germany)
• New antibiotics unit comes on stream at Châtillon-sur-Chalaronne (France)
• Decision to close the production unit at Grugliasco(Italy)
• Agreements signed on local production in Poland• Sales double in Poland, Slovakia and the Czech
Republic
• Purchase of the company Canlac, with its lactuloseproduction unit in Canada
• Agreement reached with Byk Gulden on joint promo-tion of the PANTOPRAZOLE® product (gastroentero-logy) in Canada
• PV-TUSSIN® (cough remedies), multivitamin and HIS-TALET® (antihistamines) product ranges in the USsold to Numark Laboratories
• Agreement reached with Smith-Kline Beecham onjoint promotion of FAMVIR® (herpes) in the US
• Market launch of the new product formula ZENATE®(vitamins)
• First all-electronic application for FDA authorization(osteoporosis indication for the product ESTRATAB®)in the US
• Commercial organization developed in China, via ajoint venture
• Restructuring in Japan
• Animal Health division sold to American HomeProducts
• Sale of the Industrial Enzymes activity to Genencorfinalized
Wordwide
Western EuropeHuman Health
Central EuropeHuman Health
AmericasHuman Health
Asia - PacificHuman Health
OtherAnimal Health
Enzymes
Healths
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Human Health
Sales for 1996 in the Human Health divi-sion reached BEF 37 billion, an increase of12% from 1995.
European sales and exports (BEF 28 billion)grew as a whole by 7%. Pharmaceuticalsales in North America (BEF 9 billion) roseby 44% as a result of the success of seve-ral products, including the gynecologicalrange (hormone treatments) and most ofall fluvoxamine. Sales of this psychiatricmedication, sold under the brand nameLUVOX® in the US, more than doubled in1996 to USD 81 million from USD 38 mil-lion in 1995.Tota l sa les of f luvoxamine , now theGroup's No. 1 pharmaceutical product,were on the order of USD 163 million (BEF5.2 billion).
The Human Health business is concentra-ted on four therapeutic fields (as shownon page 33).
Proceeds from the sale of Animal Health(BEF 14.4 bil l ion) wil l be reinvested inbuilding up the Group's Human Health
(millions of BEF) 1994 1995 1996 ∆ 96/95
Sales 43,267 43,860 46,232 + 5%EBIT(1) 2,774 3,266 4,352 + 33%Investments 3,763 2,907 2,358 - 19%Depreciation 2,863 2,289 2,323 + 1%
Headcount (numbers)(2) 8,739 8,226 6,.403 - 22%
(1) EBIT: Earnings Before net debt expense, taxes and non-allocated items
(2) at 1 January of the following fiscal year
Heal
th
s e c t o r
OverviewIn a context of regulatory measures putting downward pressure on prices, theHealth sector (which in 1996 still included Animal Health and, during the first twoquarters, Industrial Enzymes) achieved quite remarkable results, with profits up by33%. Growth in the Human Health division's business in the US, buoyed up by salesof the psychiatric medication LUVOX®, largely contributed to securing a markedimprovement in profitability across the sector.The sale of the far less profitable Enzymes and Animal Health divisions shouldfurther reinforce that trend in 1997.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
40
50
1994 1995 1996
43.343.9
46.2
(in billions of BEF)
Sales
0
2
4
6
1994 1995 1996
2.8
3.3
4.3
(in billions of BEF)
EBIT
Key figures
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activities, in North America in particular,which are to be the focus of future deve-lopment.
Animal Health
Th i s d i v i s ion , the sa le of wh ich toAmerican Home Products Corporation wasagreed at the end of October, 1996, had1996 sales of BEF 7.7 billion, generatedchiefly by biological products (includingvaccines for pigs and chickens).It was the activity's low level of profitabili-ty in contrast to Human Health that justi-fied the sale, which yielded gross extraor-dinary income for 1996 of BEF 5.9 billion.
Enzymes
The sale of this activity to the Genencorgroup, which was announced in 1995, wasfinalized on June 30, 1996.
The medication Prepar® stops premature prenatalcontractions.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .e a r n i n g t r u s t i n o u r d a i l y b u s i n e s s
0
5
10
15
20
25
30
35
40
45
50
84 85 86 87 88 89 90 91 92 93 94 95 96
19.0
23.5 24.027.0
31.7 31.0
33.936.3
39.142.3
43.3 43.946.2
(in billions of BEF)
Growth in sales
0
20
40
60
80
100
120
140
160
180
1993 1994 1995 1996
60
80
120
163
(in millions of USD)
Fluvoxamine sales (world)
Sales breakdown by therapeutic area (in %)
Human Health
Gastroenterology 37%
Other 4%
Gynecology 24%
Cardiology 7%
Psychiatry 28%
Total sales in 1996 : USD 1.1 billion
Geographic breakdown of sales in1996 (in %)
Human health
Europe 65%France 20%Germany 18%Benelux 6%Spain 6%Great-Britain 5%Italy 3%Others 7%
Export 11%
USA/Canada 24%
RankProducts Europe World
Gastrointestinal enzymes 1 1
Laxatives 1 3
Hormone replacement therapy 2 4
Antidepressants 10 6
Vertigo (Ménière disease) 1 1
RankMarket position - 1/1/1997
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deve
lopm
ent
R e s e a r c h a n d
Earning trust,through the successof our research acti-vities and the caliberof our researchers
• New HFCs, such as HFC 152a, developed to replace CFCs, with valuable R&D acquired from Hoechst
• Ultra high purity H2O2 developed for the electronics industry
• Industrial development of a new, especially stable and environmentally-sound type of per-carbonate
• New catalysts developed and processes adjusted, boosting HDPE and PP production capa-city without the need for major investment
• Six-layer coextrusion process developed for the manufacture of bottles for fruit juice
• New resins with improved mechanical and chemical properties developed for applicationsin the oil and automotive industries
• New grades developed for the casing and coating of PP films, chiefly for the Asian markets
• Development of an air intake manifold which considerably improves the performance ofinjection engines
• Recycling process for fuel tanks• Dehydrochloration process for the recovery of PVC residue
• Biotechnology: strategic alliances with Cadus and ArQule strengthened and given practi-cal application (automatic screening introduced in the laboratories at Weesp,Netherlands, and Hannover, Germany)
• Authorization secured to market fluvoxamine in China (as a treatment for depression),Australia (for depression) and Germany (for obsessive-compulsive disorder)
• New production method devised for the INFLUVAC® vaccine• Variety of product applications filed in numerous countries, in Asia and Eastern Europe in
particular
Fluorinated products
Hydrogen peroxide
Persalts
Polyolefins
SOLEF® PVDF
IXAN® PVDC
Automotiveproducts
Plastics recycling
Human Health
In Solvay’s pharmacologylaboratories (Weesp, Netherlandsand Hannover, Germany), newscreening robots examine millionsof molecules and pick out thosewith the potential to be developedinto innovative medicines.
s
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Solvay Research around the world
Research serves the Group's strategicgoals.
Its twin functions are to give Solvay thetechnological advantage it needs to beamong the world leaders in sales of itsproducts and processes, and to secure cus-tomer confidence by offering the best pos-sible service.
R&D expenditure in 1996 (BEF 12.3 billion)was substantially higher than the previousyear (BEF 11.8 billion). The increase wasalmost exclusively in the Health sector,which now accounts for nearly 60% of theresearch budget. That percentage is set torise further in 1997, when the total bud-get will fall slightly to BEF 12.1 billion as aresult of the sale of the Animal Healthbusiness and related research activities.
Research is based in several countries: Bel-gium (27%), Germany (24%), Netherlands(21%), USA (13%), France (8%), Italy (3%),Japan (2%) and United Kingdom (2%).
Research and the market
The goal is to bring the Group's researchactivities ever closer to its markets, with aview to supplying the best products andservices and gearing them ever more tocustomer requirements.
The gradual reorganization begun in 1996is part of that strategy: those researchteams working chiefly or exclusively withspec i f i c p roduct fami l i e s have beenbrought into the relevant Business Units,where they can be even more closely invol-ved in projects, commercial concerns andin attention to market demand. It is alsobecoming common for such teams to havea technical marketing manager responsiblefor monitor ing technological develop-ments in a given market, who is also invol-ved in the presentation and promotion ofproducts among customers.
Other researchers within Service Units pro-vide vital support for the Business Units, orwork to develop the technological exper-tise that is the Group's strength.
A share of theresearch budget isused to deve lopthis fundamentalexpertise in various fields (catalysis, plas-tics processing, environmental techniques,specific computing programs, etc.) andprepare innovative projects for the longerterm, beyond the boundaries of the exis-ting Business Units.
Research in the Health Sector is concentra-ted within two strands designed to ensurean ever better response to patients' needs:new products on the one hand and impro-vements to existing therapies on the other.
In 1997, research will center on the prin-c ip le of g rowth through innovat ion .Innovation and creativity are among thekey capacities of a researcher. Those capa-cities are not in short supply among theGroup's research staff.
Solvay Research is equal to the challenge.
R&D budget breakdown (in %)
Human Health
Psychiatry 43%
Gastroenterology 16%
Gynecology 8%
Others 13%
Cardiology 20%
R&D in 1996: 200 million USD (17% of turnover)
2.9
3.9 4.0
0
2
4
6
8
10
12
14
94 95 96 94 95 96 94 95 96 94 95 96 94 95 96
0.9 0.6
3.1 1.3 3.2 2.3 2.5
7.75.1
2.0 3.1 3.1
0.9
6.6 6.8 7.1
2.42.93.8
0.9 0.8
2.6
10.1
0.6 0.6
6.0
1.1
5.6
1.1
9.2
10.2
1.9
7.4
10.2
12.7
10.4
6.76.9
3.7 3.8
9.7 9.5
Capital expenditure, acquisitions and R&D (in billions of BEF )
Investments for the future by sector
Capital expenditureR&D
Alkalis Peroxygens Plastics Processing Health
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envi
ronm
ent
S a f e t y a n d
Earning trust,through the Group'sresponsible attitudeto health and envi-ronmental protection
• Frequency rate of accidents entailing work stoppages down from 6.3to 6.0 accidents per million hours worked
• Three tragic deaths at our plants in 1996, two in falls (contractor per-sonnel) and one, a Group employee, in an automobile accident
• Reduction in water and air emissions
• The Borth plant (Germany) was awarded EMAS (EnvironmentalManagement and Audit System) certification and the European envi-ronmental quality label
• Steam/power cogeneration unit brought on stream at Rheinberg(Germany)
• Cogeneration units built at Rosignano (Italy) and Torrelavega (Spain);construction project approved at Dombasle (France)
• New environment reports were published in 1996 in Belgium,Germany, Spain and the United Kingdom.
• The third consolidated Group environment report is due out in 1997.
Safety
Emissions
Environmentalcertification
Energy savings
Environment reports
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An ethic of concern for the environment
The chemical industry's Responsible Care®
program, which Solvay was one of the firstin Europe to sign up to, remains the drivingforce behind the Group's initiatives on safetyand the environment.
These concerns were clearly set out in theGroup's ethical code, which governs theactions of all its employees:"The Company is committed to continuousimprovement, throughout the world, of itsperformance in the areas of health, safetyand the environment. In this spirit, it is com-mitted to reduce its production of waste anduse of resources (both raw materials andenergy)."The Company will monitor regularly theeffects of its activities on the surroundingenvironment and will evaluate in advancethe environmental effect of new processesand products. I t wi l l , as appropriate,communicate the results of these evalua-tions objectively and clearly."All reasonable measures will be taken toprevent accidental discharges or emissions aswell as other incidents that could create riskto the environment or to the safety of indivi-duals or their property.""The Company will accurately inform thepublic, in clear and understandable langua-ge, of the nature of its activities and pro-ducts, as well as their potential impact oneveryday life. It will encourage visits to itssites by neighbors, schools, the press, etc."
As part of its policy of informing the widerpublic, the Group takes an active part in thework of various international bodies (CEFIC,Euro Chlor, EMSG, etc.).
Environmental performance - at the mainsites, at national level and for the Group as awhole - is described in ever greater detail invarious published environment reports.The latest figures show a constant improve-ment over the last seven years or more.
In December 1996, the Borth plant(Germany) was the first Group entity toreceive EMAS (Environmental Managementand Audit System) certification. Others arepreparing to follow suit.
As regards environmental management,Solvay set itself 16 specific targets to achieveover the period 1995-1999 (see the Group's1995 Environment Report).
Several had been met by the end of 1996 orare due to be met in 1997:- 500 Solvay engineers were trained in andapplied the HAZOP (Hazard and OperabilityStudy) method for identifying and managinghazards.- 21 audits of staff health management sys-tems have been carried out in nine countriessince 1992.- Over 80% of sites conducted environmen-tal evaluations in line with the A. D. Littlemethod developed for the Group.- 19 ecoprofiles were calculated.- Data on 830 Solvay products and 900 sup-plier products is now accessible on the SAFIR(Safety Information Retrieval) database.
In addition, the NEUTREC® process patentedby Solvay, which uses bicarbonate of soda toscrub industrial and incinerator emissions,has now been successfully introduced in 30non-Group units.
PVC rehabilitated
It should also be noted that PVC, which hasbeen attacked in some quarters, is graduallyamassing a collection of environmental qua-l i ty labels from off ic ia l bodies.Examples include:- Netherlands: PVC is included in the list ofpreferred materials for all applications in theconstruction sector (Environment Ministry,1996).- Netherlands: PVC meets environmental andeconomic criteria at least as well as alterna-tive materials (Ministry of Health , 1996).- Germany: there is no correlation betweendioxin levels in incinerator fumes and thequantities of PVC present in the waste burn-ed (Karlsruhe Research Center, 1996).- Sweden: PVC is entirely suitable for recy-cl ing and incineration; it is a waste ofresources to dump used PVC in landfill sites(Kemikalieinspektionen and Naturvards-verket, 1996).- Canada: PVC piping is best for publicdrinking water supplies (Municipality ofToronto, 1996).- Australia: the environmental impact of PVCin its main applications is no higher than foralternative materials (CSIRO, 1996).
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man
agem
ent
T o t a l q u a l i t y
Earningtrust, througha far-reaching moveacross the Group toput the customer first
• Application of the European Model for Total Quality Management,which gives a precise measure of each entity's performance in ninekey areas
• 85 ISO 9001 and/or 9002 certifications obtained by Group entities asof 12.31.96
• 2,200 improvement projects under way or completed
• 740 people trained in internal ISO auditing
• 37% of all personnel directly involved
EFQM model
Certification
Quality ImprovementProjects
Training
Personnel
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Quality express
It was in 1991 that the Group launched itsall-out Total Quality Management drive, withthe aim of developing a genuine corporateculture of customer satisfaction.It gave itself 10 years to make that principlea natural reflex in the day-to-day running ofall its entities.At the half-way point, in 1996, a video wasshot in Group entities in six European coun-tries and America on progress so far andwhat remains to be done. The film, basedlargely on unscripted interviews with Solvaystaff at all levels, uses the analogy of theevolution of the railway to illustrate progresson TQM: the action moves steadily from theordered compartments of a stately steamtrain chugging down the track to an "open-plan" high-speed train, racing into the futu-re, on which the Solvay teams and their cus-tomers and suppliers draw close together inpermanent dialogue. A powerful symbol,and one that is becoming a reality in theday-to-day business of the whole Group.
Quality assurance
The logical and rigorous process of qualityassurance, which involves setting out pre-cisely who is responsible for what and howeach job should be done, is widely usedthroughout the Group as a means of earningcustomer trust.Increasingly, customers are invited to takepart in quality improvement groups on mat-ters that concern them and their input hasproved invaluable.But the results go beyond simply meetingcustomer requirements: they give the custo-mer an added reason and desire to go onworking with Solvay in the long term.The net effect is enduring loyalty based onmutual trust - a win-win situation.
The European quality model
This model, developed by the EFQM(European Foundation for Qual i tyManagement), is now moving beyondEuropean borders and being recognized andapplied on the other continents as well.It was first adopted by the Group in 1994and has since been used increasingly by enti-
ties across the board for self-assessment andthe identification of performance indicators.In 1996, numerous departments, both ope-rational and functional, decided to apply themodel and incorporate it into their manage-ment systems.In many cases it has become a frame of refe-rence, sometimes to the point of being theframework for Total Quality reporting.
In 1995, the model was also used for thefirst time as the basis on which candidateswere assessed for the Solvay Quality Award.Solvay Polymers Inc. was chosen to receivethe Award for Excel lence and SolvayAutomotive France S.A. the Jury's SpecialMention.In 1996, it was the turn of Solvay PharmaSpain to carry off the Solvay Award forProgress, for the entity achieving the grea-test year-to-year improvement in its score.The jury also awarded a special prize to thecentral personnel department at SolvayDeutschland (Germany).
The EFQM model assesses performance on a scale of 1,000: 500 for the quality of the tools andmethods used and 500 on the results obtained in relation to each category of partner.
LEA
DER
SHIP
100
PEOPLE MANAGEMENT
90
PEOPLE SATISFACTION
90
POLICY & STRATEGY
80
CUSTOMER SATISFACTION
200
RESOURCES90
IMPACT ON SOCIETY60
PRO
CES
SES
140
BU
SIN
NES
RES
ULT
S
150
Enablers500 points
Results500 points
The European model for total quality management
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reso
urce
s
H u m a n
Earning trust,through thecommitment,skills and ethicalprinciples of themen and womenwho are theGroup's foremostasset
During the Olympic games in Atlanta(Georgia, US), a number of staff membersfrom Solvay Pharmaceuticals opened theirhomes to the Belgian athletes and theirfamilies. Their dynamism clearly rubbedoff on Fred Deburghgraeve - goldmedalist and new world record holder inthe 100m breast-stroke!
s
• Restructuring into Business Units and Service Units has moved beyondthe decision stage: it has now secured broad support and recognitionat all levels of responsibility.
• An ethical code has been formally adopted, setting out the standardsand conduct expected of all employees, both in their work and in thecommunities in which they live.
• The Group has taken on nearly 5,000 new employees in four years
• Targeted training was stepped up in computing, knowledge of theGroup, individual evaluation methods, quality management andleadership.
Organization
Conduct
Recruitment
Training
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A dilemma to be resolved
Personnel, in modern management theory,are both a valuable resource and partnerswith their own needs.But meeting those needs creates a dilemmain a context of global competition, wherethe imperative of long-term survival calls forproductivity improvements and restructu-ring.New employees do join the Group, some-times en masse, when new activities areacquired or launched, and sometimes moregradually, to offset departures or meet newrequirements. Over recent years, acquisitionsaside, the Group has taken on an average of1,250 new full-time employees per year. But overall, sales of non-strategic activities,shutdowns of undersized units and constanttechnological progress have prompted asteady reduction in staff numbers over thelast five years (from 46,858 at 1/1/92 to35,400 at 1/1/97 - a drop of 24%).These figures should, however, be seen inthe context of significant changes in theGroup's portfolio of activities in the interve-ning period.
Corporate ethics
Solvay's ethical code highlights a number ofvalues which the Group, in accordance withthe principles of its founders, undertakes touphold in all dealings with its employees:- equity, honesty and the honoring of com-mitments- courtesy- non-discrimination and respect for all reli-gious and philosophical beliefs- objectivity in recruitment and the periodicperformance assessments of each employee- assistance with developing each individ-ual's personal potential and skills by meansof appropriate training
Where necessary, the Group endeavors totransfer or find new jobs for employeeswhose existing services are no longer requi-red, or failing that to provide an adequateredundancy package. It is also prompt tomeet the costs of supplementary training oroutplacement to assist such employees.
Solvay and the1996 OlympicGames inAtlanta
As a corporate citizen, Solvay encourages itssubsidiaries and employees to take an activepart in the communities in which they liveand work.A real-life example:Solvay Pharmaceuticals at Marietta, Georgia,(US) seized the opportunity of the 1996Olympic Games to get its employees invol-ved - and received an enthusiastic response.Solvay Pharmaceuticals became host to theBelgian Olympic team, and 10 families ofstaff members welcomed Belgian athletesand their families into their homes and alsoprovided transportation for them.A large number of Solvay Pharmaceuticalsstaff volunteered to help in a variety ofways: with publicity for the team, for in-stance, or as guides for Belgian personalitiesand journalists.
Solvay Pharmaceuticals also took part in a
round-the-clock hotline information service
to deal with any medication problems faced
by either the athletes themselves or the hun-
dreds of thousands of visitors to the games.And there could be no better reward for thetypically American warmth of the welcomethe Belgian athletes received than the hostof medals carried off by their team.
France 7 181
Germany 6 863
US 3 618
Belgium 3 987
Brazil 1 979
1 265 Others(*)
647 Asia-Pacific
649 Portugal
805 Austria-Switzerland
854 United Kingdom
2 553 Italy
2 430 Netherlands
2 569 SpainAt 01/01/1997: 35 400 people
(*) incl.: Canada: 412, Mexico: 120, Argentina: 575
Geographic breakdown of the workforce
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Solvay Group value growsever stronger
The price of the Solvay share rose by morethan 21% on average during 1996, fromBEF 16,000 at 1/1/96 to BEF 19,425 at12/31/96. Solvay shares outperformed theBrussels Bourse index throughout 1996. Thisperformance was most notable at the end of1996 and beginning of 1997, when theshare price reached a peak of 23,400 BEF
The Group intends to further strengthen itsshareholders' and investors' confidence bycontinuously improving the quality of itsresults and thus ensuring the constantincrease in value of the Solvay Group, nowand for years to come.
This determination to promote the growthand quality of results is reflected in theGroup's strategic goals, which are appliedto all levels of decision-making and revolvearound six major principles:1) Concentration on spheres of activity in
which the Group has an internationalcompetitive advantage, with more rapidgrowth in the Human Health sector
2) Geographical diversification into higher-growth regions such as the Americasand the Asia-Pacific region
3) A constant drive to cut costs with a viewto reinforcing the Group's competitiveposition in its various markets
4) Concentration of efforts and resourceson core businesses, selecting invest-ments with great care and systematicallyreviewing each activity's potential forgrowth and sustained development
5) Reorganization into Business Units andService Units which are designed to de-fine managers' responsibility for theiractivity's growth and thus for the growthof the Group as a whole. Business Unitperformance is measured in terms ofROI, growth in profits, customer satis-faction, innovation and competitiveness.This reorganization is accompanied by aflexible remuneration system to link indi-vidual performance to the achievementof Business Unit object ives and theGroup's return on equity.
6) Finally transparent and reliable financialand corporate communication on a regu-lar basis, even in times of difficulty, topermit a clear understanding and properevaluation of the state of the Group
The staff of the Investor Relations depart-ment at the Solvay Group headquarters isavailable to answer questions and provideinformation on the Group.
Solvay share listings
Solvay shares are listed on the Brussels,Antwerp, Amsterdam, Paris, Berlin (OTC),Düsseldorf, Frankfurt-am-Main, Basel ,Geneva and Zurich stock exchanges.They are also traded in London via SEAQInternational (Reuters code SOLtq.LT).Solvay was among the first European com-panies to meet the EUROLIST criteria deve-loped in October 1995 by the Federationof European Stock Exchanges for Europe'stop listed companies.Solvay shares have been available in the USsince 27 October 1994 in the form ofAmer ican Depos i tary Rece ipts (ADRs)managed by the Morgan Guaranty Trust inNew York (No. 834437-10-5). 10 ADRsrepresent one ordinary Solvay share. TheADRs are traded over the counter andsponsored.
Breakdown of shareholding
8,381,068 common shares in SOLVAY S.A.are eligible for the balance of the 1996dividend.
Around 29% of shares are held by private
shareholders related to the Group's foun-
ding family. The family holding company
SOLVAC S.A., which is listed on the Brussels
stock exchange, holds 25% of the shares.
Information for shareholders and investors
Shareholding structure at 12/31/96
Employees 1%
Public 12%
SOLVAC 25%
Family 29%
Belgian institutions 20%
US institutions 5%
Other institutions 2%
UK institutions 2%
Swiss institutions 4%
Market capitalization: 163 billion of BEF (USD: 5,1 billion)
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e a r n i n g t r u s t t h r o u g h o u r p e r f o r m a n c e
The share dividend is payable at the
following institutions:
• Générale de Banque S.A.Montagne du Parc 3 - 1000 Brussels
• Banque Bruxelles Lambert S.A.Cours Saint Michel 60 - 1040 Brussels
• Kredietbank S.A.Havenlaan 2 - 1080 Brussels
• Banque Générale du Luxembourg S.A.Boîte Postale 1906 - L-2951 Luxembourg
• J. Henry Schroder Wagg & Co. Ltd120 Cheapside London EC2V 6DS, UK
• Crédit SuisseParadeplatz 8 8021 Zurich, Switzerland
• Deutsche Bank AGTaunusanlage 1260262 Frankfurt-am-Main, Germany
• Lazard Frères & CieBoulevard Haussmann 12175008 Paris Cedex, France
• ABN AMRO N.V.Foppingsdreef 22/AA 33301102 BS Amsterdam, Netherlands
The dividend for ADRs is payable at thefollowing institution:
• Morgan ADR Service CenterP.O. Box 8205Boston MA 02266-8205, USA
Group personnel hold 1%. The remainder -
45% - is held by a number of private and
institutional investors of which the latter
hold around 33%. According to a recent
survey, they are located in Belgium (20%
of shareholders), the United States (5%),
Switzerland (4%), the United Kingdom
(2%) and elsewhere in the world (2%).
These figures include American holders of
ADRs. By the end of 1996, 287,300 ADRs
(the equivalent of 28,730 common shares)
had been i s sued in the US, up f rom
121,590 at the start of the year.
Dividend
To enhance confidence, the Group's policy is
to increase the dividend whenever possible
and, if possible, never reduce it. For 1995,
the net dividend was BEF 550 per share.
The Board of Directors has decided to pro-
pose to the General Shareholders' Meeting
of 5 June 1997 the payment of a net divi-
dend of BEF 550 per share for the 1996 fis-
cal year, the same as for 1995.
An interim dividend for 1996 of BEF 100
net per share was paid on 23 January
1997. The balance of the 1996 dividend
will be paid on 11 June 1997, upon pre-
sentation of coupon No. 59. The balance
proposed by the Board of Directors to the
General Shareholders' Meeting of 5 June
1997 is BEF 450 net per share.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1992 1993 1994 1995 1996 1996BEF BEF BEF BEF BEF USD
Consolidated data per share:
Capital and reserves after distribution 12,461 11,371 11,374 11,567 12,961 405
Cash Flow 3,501 1,438 3,199 3,636 3,904 122
Net earnings 1,177 -864 923 1,471 1,587 50
Net earnings before extraordinary items 1,015 -507 800 1,475 1,338 42
Gross dividend 605.84 673.40 673.40 733.33 733.33 23
Net dividend 500 500 500 550 550 17
Number of fully paid-up shares (in 000) 8,286 8,292 8,333 8,353 8,381 8,381
Price on the Brussels stock exchange:
highest 13,500 14,700 16,900 16,725 19,700 615
lowest 10,875 10,800 13,800 13,200 15,975 499
at December 31 11,375 14,650 15,150 15,900 19,425 607
Price/Earning at 12/31 11.2 n.s. 18.9 10.9 14.6
Net dividend yield at 12/31 4.4 3.4 3.3 3.5 2.8
Gross dividend yield at 12/31 5.3 4.3 4.4 4.6 3.8
Annual volume (in 000 of shares) 907 1,535 1,829 1,962 1,872
Annual volume (BEF billions) 11.1 19.6 27.6 30.0 34.2
(in thousands)
Solvay ADR holding
0
50
100
150
200
250
300
01-96 02-96 03-96 04-96 05-96 06-96 07-96 08-96 09-96 10-96 11-96 12-96
(in BEF per share)
Financial information per share
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Split of Solvay shares and increase ofcapital by incorporation of reserves
The Board of Directors also voted to pro-
pose to a Special Meeting of Shareholders,
to be called for June 5, 1997, a 10 for one
split of Solvay shares and the increase of
Solvay S.A.'s capital to BEF 50 billion by
incorporation of BEF 17.6 billion of reserves.
The stock split is intended to facil itate
access to Solvay stock and to bring its value
in line with typical US and UK share values.
As a result, after the split, the ordinary
share will represent one ADR (1-1 ratio).
The increase of Solvay S.A.'s capital will
bring capital more in line with its equity.
The Board of Directors will propose that the
company take advantage of the reprinting
of Solvay shares, required for renewal of
coupons (the last coupon - number 60 - will
be used in January 1998) to effect, at mini-
mum cost, the exchange of certificates.
Subject to approval by the Special Meeting
of Shareholders, these steps should take
place during September 1997.
Shareholder's diary:publication dates
6/5/97: General Shareholders' Meeting,
commencing at 10 am at the head office of
Solvay S.A. in Brussels
6/11/97:Payment of the balance of the divi-
dend for the 1996 fiscal year
7/31/97:Publication of results for the first six
months of 1997
12/15/97:Publication of the amount of the
interim dividend payable in January 1998
Early February 1998: Publication of estima-
ted results for 1997
Investor Relations
Shareholders and investors wishing to obtain
a copy of the Group's Annual Report, the
detailed accounts of Solvay S.A. or other
information published by the Group may
contact the Investor Relations Department at
head office by telephone, fax, E-mail or post.
The Group's Annual Report, along with
detailed information on each sector of activi-
ty and a description of the 15 principal mar-
kets, is also available on the Internet or on
request from the following address:
Telephone : 32-2-509.60.16Telefax : 32-2-509.72.40E-Mail : [email protected]
Address: SOLVAY S.A.Investor RelationsCorporate CommunicationsRue du Prince Albert 33B - 1050 Brussels (Belgium)
Internet : http://www.solvay.com
An information hotline specifically on theADRs is available at1-800-997/89/70 (from Canada and the US)and1-617-575/43/28 (from other countries)
(in BEF/share)
Gross and net dividend
0
100
200
300
400
500
600
700
800
1992 1993 1994 1995 1996
500 500 500550 550
605.84
733.33 733.33673.4 673.4
Net Gross
Relative to Belgian Market (in BEF)
Solvay share price performance
17500
17000
16500
16000
15500
19000
19500
20000
18500
18000
Sources: Datastream
January 96 July 96 December 96
Solvay Share Price Brussels Price Index
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Notes to the consolidated accounts
46 Income statement summary
47 Balance sheet summary
48 Cash flow statement
49 Changes in shareholders’ equity
50 Notes to financial statements
56 Changes to the scope of consolidation
in 1996
57 List of Group companies
59 Valuation rules
61 Criteria and methods of consolidation
62 Ten-year summary of selected financial data
Statutory annex
66 Consolidated Balance sheet
68 Consolidated income statement
70 Notes to consolidated statements
73 The External Auditor’s report on the consolidated
financial statements of the Solvay Group
74 Financial statements of Solvay S.A. (summary)
Solvay Group
Notes to the consolidated accounts
page
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial statements of the annual report
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Notes 1995 1996
in BEF million reclassified (*)
Sales 273 353 281 967
Cost of sales -196 907 -206 263
Gross margin 1 76 446 75 704
General and sales overheads 2 -39 777 -42 038Research expenditures 3 -11 811 -12 303Other operating expenses and income 4 -1 149 -1 779Other financial expenses and income 5 380 1 737
EBIT 6 24 089 21 321
Unallocated expenses and income -1 200 _
Net debt expenses 7 -3 914 -3 680Current taxes 8 -6 472 -6 233Share in earnings of companies valued according to the equity method 36 134
Net earnings before extraordinary items 12 539 11 542
Extraordinary items, net after tax 9 -32 2 087
Consolidated net income 12 507 13 629
Minority interests 216 328
Solvay’s share of earnings 12 291 13 301
(*) Changes in the definitions of gross margin and EBIT
With a view to visibility and more clearly defined business unit responsibility for costs, the
presentation of the income statement for internal management reporting purposes has been
reorganized. In particular, earnings before net debt expense, taxes and non allocated items (EBIT)
will from now on be subject to corporate charges, which were not previously broken down by
activity. Each of the sectors will from now on take responsibility for its share of those costs.
To be consistent, the consolidated accounts have been modified in the same way. In addition,
certain reclassifications have been made in the consolidated accounts to ensure uniformity among
the concepts used in the Group’s reporting system as a whole.
The main changes concern gross margin, which from now on will be calculated after distribution
and warehousing costs (and depreciation of related facilities), warehouse adjustments and license
fees; these elements together represented a balance of BEF 19.2 billion in 1995.
The 1995 results have been reclassified to enable comparison with the 1996 fiscal year.
Consolidated income statement summary
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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At december 31 Notes 1995 1996
in BEF million
Assets
Fixed assets 149 026 162 289
Start-up expenditures and intangible assets J 7 851 7 783Consolidation differences (goodwill) K 2 414 2 415Tangible assets L 125 612 138 466Financial assets M 13 149 13 625
Current assets 113 004 120 835
Inventories N 38 909 38 428Trade receivables N 42 782 46 577Other receivables N 13 796 28 928Short-term investments and cash or cash equivalents O 17 517 6 902
Total assets 262 030 283 124
Liabilities and shareholders’ equity
Total equity P 99 614 116 066
Shareholders’ equity 96 618 108 625Minority equity 2 996 7 441
Provisions and deferred taxes Q 53 089 56 505
Liabilities 109 327 110 553
Financial liabilities O 49 244 44 589due in more than one year 37 285 37 622due within one year 11 959 6 967
Trade liabilities N 30 602 33 528Other liabilities N 29 481 32 436
Total liabilities and shareholders’ equity 262 030 283 124
Consolidated balance sheet summary
n o t e s t o t h e c o n s o l i d a t e d a c c o u n t s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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This graph reflects changes in income and investments as well as balance-sheet variations, to the
extent that they are included in the consolidated accounts.
in BEF million 1995 1996
Cash flow from operations
Net earnings 12 507 13 629
Depreciation and amortization 18 259 19 416
Cash flow 30 766 33 045
Non Cash items -2 009 -8 254
Changes in provisions 1 517 3 416
Changes in working capital -693 -12 565
Net cash provided by operations 29 581 15 642
Cash flow from investing activities
Acquisition of assets and investments -20 604 -27 959
Sale of assets and investment 2 954 18 503
Changes in notes receivable 144 -132
Net cash used by investing activities -17 506 -9 588
Cash flow from financing activities
Increase of capital 144 406
Changes in borrowings -4 667 -4 655
Dividends -5 954 -6 599
Net cash used by financing activities -10 477 -10 848
Net changes in cash and cash equivalents 1 598 -4 794
Effect of exchange rates and changes in scope -526 -5 821
Cash, cash equivalents and cash investments at the beginning of the year 16 445 17 517Cash, cash equivalents and cash investments at the end of the year 17 517 6 902
(1) Including the BEF 14.4 billion receivable from American Home Products for the sale of Animal Health, closed on 28 February 1997.
0
5
10
15
20
25
Net cash for investing activities
Other cash for financing activities
Dividends
Net changes in cash and cash equivalents
Net cash flow from operations
(1)
Cash flow statement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in billions of BEF )
Cash flow statement (1996)
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NegativeIssue Revaluation consolidation Exchange Capital Shareholders’ Minority
Capital premiums surplus Reserves and equity differences subsidies equity interests TOTALmethod
differences
Book valueat the endof theprevious year 32 161 926 4 337 58 111 1 658 -2 499 1 924 96 618 2 996 99 614
Changes during the year :
Income for the year 13 301 13 301 13 301
Proposed dividend -6 144 -6 144 -6 144
Changes during the year 105 300 155 -90 -485 -15 -15
Changes in exchange rates 4 722 16 4 738 4 738
Changes in scope 127 127 127
Changes inminority interests 4 445 4 445
Book valueat the endof the year 32 266 1 226 4 492 65 268 1 568 2 350 1 455 108 625 7 441 116 066
Changes in shareholders’ equity
in BEF million
n o t e s t o t h e c o n s o l i d a t e d a c c o u n t s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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The notes refer to the numbers indicated in the summa-
ries of the consolidated statements. The statutory annex
provides details on the headings discussed below.
Consolidated income statement1 SALES AND GROSS MARGINThe 3% increase in sales included acquisitionsand sales and closures of activit iesrepresenting a net increase of 2.5 billion (i.e.almost 1%). At the Group level, gross margindeclined by 1% owing largely to the fall inPlastics sector margins from 28% of sales in1995 to 26.8% in 1996.From now on, gross margin will be calculatedafter distribution and warehousing costs (anddepreciation of related facilities), i.e. 17.7billion in 1995 and 18.7 billion in 1996,warehouse adjustments and license fees.Those elements were previously included ingeneral and sales overheads, and also dividedamong other operating expenses and income. The 1995 results have been restated by thesum of 19.2 billion to enable comparison withthe 1996 fiscal year.(1) The Group’s sales include a full year’s sales of the
Animal Health business as well as one-half year’s sales of
the industrial enzymes activities; together these total BEF
9 billion .
2 GENERAL SALES AND OVERHEADSThis item, which includes corporate expenses,grew by BEF 2.3 billion overall (i.e. +6%). Theincrease is principally the result of anincreased sales drive in the Health sector inthe United States (up approximately BEF1.5 bil l ion). Elsewhere, writedowns onreceivables and finished goods stood at BEF0.5 billion, the same level as in 1995.
3 RESEARCH EXPENDITURESThese represent 4.4% of sales. They areabove 1995 levels because of the significantresearch effort in Human Health, whichrepresents about 60% of total researchexpenditures, or 17% of that sector’s sales.
Notes to financial statements4 OTHER OPERATING EXPENSES AND
INCOMEThis item records writedowns and adjust-ments to non-financial assets, start-up costsand income on miscellaneous loans, andrecordings and reversals of provisions for risksand charges and depreciations of intangibleassets, where they are not charged to cost ofsales.The balance for this item shrank by BEF630 million.
The breakdown is as follows:
The increase for the first heading is connectedto new production units coming on-stream,particularly in France (polypropylene extensionin Sarralbe, among others), and the cost ofproject studies not yet related to investmentdecisions (notably in Germany and theNetherlands).The second heading represents charges fromoperating sites linked to installations thathave been temporarily or permanently takenout of service.On balance, the income from various opera-tions represented a loss of only BEF 127million in 1996.
5 OTHER FINANCIAL EXPENSES ANDINCOME
This item, which showed an improvement ofBEF 1.4 billion, records chiefly income fromminority interests, foreign exchange resultsand reversals of capital subsidies. It alsoincludes miscellaneous financial expenses(banking costs, costs linked to the creation ofcorporations and increase of capital, costs ofcapital contribution, etc.) as well as income ofthe same nature (commissions, guaranteesreceived, income from trade receivables, etc.).
BEF million 1995 1996Start-up costs and
preliminary studies -356 -691
Cost of closures,
retirements and demolitions -348 -615
Costs of trials
and tests -168 -158
Amortization of
unallocated goodwill -165 -188
Results of
miscellaneous operations -112 -127
Other operating expensesand income -1 149 -1 779
0
50
100
150
200
250
300
1994 1995 1996
operating results
research expenditures
other operating expenses and income
sales
cost of sales
selling and administrative expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in billions of BEF)
Consolidated results
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7 NET DEBT EXPENSESThe expenses related to net indebtednesswere as follows:
Despite the increase in the Group's netindebtedness (over BEF 31.7 billion at the endof 1995 to 37.7 billion at the end of 1996),net debt expenses fel l by 234 mil l ion,following the lowering of interest rates.
• There was a marked reduction in interestrates on continental Europe, where theGroup’s indebtedness principally carriesvariable interest rates. For example, the ratein DEM (the 3-month Libor rate), whichserves as a reference for the region, lostabout 120 basis points. The reduction waseven more dramatic for other currencies(ESP, FRF).
• In the US, the reduction in rates was moremodest than in Europe (50 basis points forthe three-month Libor). The Solvay Group,however, hardly benefited since itsindebtedness almost exclusively carries fixedrates. As to our cash and equivalents in USdollars, we benefited from a moreadvantageous interest rate (5% for three-month Libor) than that in effect in theDeutschmark zone (3.3%).
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N.B.:
• The balance of foreign exchange gains andlosses improved by 1.6 billion, owing in largepart to the strengthening of the US dollar.
• Inflation having been brought under control, in1996 Brazil abandoned its regulatoryrequirement for revaluation of balance sheets.The amount covered under this heading in1995 relates to the exchange profits and lossesrecorded by our Brazilian subsidiaries (withdebts in dollars) owing to the indexation oftheir balance sheets at a level higher than thedevaluation of the local currency against thedollar over the same period.
6 EBITEBIT is the level of results recorded by theongoing activities of the Group before takinginto account net debt expenses, taxes andelements not allocated by sector. Since 1996,in order to make for greater visibility andaccountability of costs, corporate expensesnot previously broken down by sector ofactivities, have been deducted from theresults published by sector.The EBIT figures for 1994 and 1995 have there-fore been reclassified to permit comparisonand can be broken down in the following way:
BEF million 1995 1996
Income from minority interests +959 +942
Exchange profits and losses -518 +1 132
Revaluation of Brazilian
balance sheet +111 0
Miscellaneous -172 -337
Other financial expensesand income +380 +1 737
BEF billion 1994 1994 1995 1995 1996
published reclassified published reclassified
Alkalis 5.7 5.6 10.2 9.7 8.8
Peroxygens 1.3 1.1 1.5 1.5 2.2
Plastics 5.4 4.8 9.3 8.8 3.5
Processing 2.1 1.8 1.0 0.8 2.5
Health 3.2 2.8 3.9 3.3 4.3
Total EBIT 17.7 16.1 25.8 24.1 21.3
n o t e s t o t h e c o n s o l i d a t e d a c c o u n t s
0
1
2
3
4
5
6
7
incomefrominvestments
borrowingcosts
0
1
2
3
4
5
6
7
8
9
BEF million 1995 1996Borrowing costs -5 818 -5 219
Income from investments +1 904 +1 539
Net debt expenses -3 914 -3 680
1994 1995 19961994
6,2
8,8
7,6
1995 1996
(in %)
EBIT/sales(in billions of BEF)
Net debt expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Consolidated balance sheet
J START-UP EXPENDITURES ANDINTANGIBLE ASSETS
These are composed principally of start-upexpenses (those incurred before the operationof new facilities), mining concessions fortrona in the United States and registrationand development costs related to theintroduction of fluvoxamine to the US andJapanese markets.Start-up expenses are amortized over fiveyears and other intangibles over their usefuleconomic life.
K POSITIVE CONSOLIDATION DIFFERENCESThis is an excess in the price paid over thevalue, adjusted if necessary, of shareholders’equity in consolidated companies and thoseaccounted for by the equity method; primarilythis item records goodwill generated in theacquisition of companies in the fields ofhealth, automotive products, pipes andnatural soda ash, as well as shares purchasedfrom minority shareholders in Kali-Chemie AG.Goodwill is amortized over 15 years, with theexception of goodwill relating to natural sodaash mining activities (40 years) and humanhealth (between 15 and 40 years, dependingon the activity acquired).The figures for this item are as follows:
Goodwill made in 1996 and not charged toacquisit ions of companies (CanlacCorporation, Solvay Automotive GmbH) is toa large extent offset by the cancellation ofgoodwill owing to the divestiture of activities(Industrial Enzymes and Animal Health).
L TANGIBLE ASSETSThis item contains the acquisition cost,adjusted if necessary, of the fixed assets ofGroup companies. Cumulative depreciation isdeducted from these costs.The net value of tangible assets increasedfrom BEF 125.6 billion at the end of 1995 to138.5 billion at the end of 1996.
8 TAXES ON EARNINGS BEFORE EXTRA-
ORDINARY ITEMSTaxes on earnings before extraordinary itemsdecreased by about 4% compared to 1995while the average rate in effect for the Groupincreased slightly from 34% in 1995 to 35%in 1996.
9 EXTRAORDINARY ITEMSThis year extraordinary items showed apositive balance of BEF 2.1 billion ; they werenegligible in 1995. The main elements of thisentry are as follows :
BEF billion
Extraordinary income 8.4
This essentially is the result of salesof activities.The most important of these wasthe sale of the Animal Healthbusiness, which generated profits ofBEF 5.9 billion. Other items alsoproducing extraordinary incomeincluded the sale of our marine-saltactivity in Spain and the mineralwater producing activity (linked to aformer natural carbon dioxideconcern in Germany). Finally, thesale of real-estate assets produced aprofit of about BEF 0.7 billion.
Extraordinary expenses -5.8
These are principally expenses andreserves for site closures andreorganization (e.g. Hallein inAustria), divestiture of activities(Plavinil in Brazil), and the remainderof expenses related to the sale ofthe industrial Enzymes business.
Tax effect of extraordinary items -0.5
Net extraordinary items +2.1
BEF million
Net value at the end of 1995 2 414Acquisitions of activities 284
Depreciation for the fiscal year -188
Divestiture of activities -183
Exchange differences 88
Net value at the end of 1996 2 415
0
50
100
150
200
250
working capital
net indebtedness
assets
shareholders’ equity
provisions
1994 1995 1996
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in billions of BEF)
Capital structure
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The principal factors in this increase can besummarized as follows:
At the end of 1996, construction in progressamounted to 12 264 million and were mainlylocated in the United States (Solvay Interox,Solvay Polymers Inc. and Solvay AutomotiveInc.), in Germany (Solvay Alkali GmbH, SolvayBarium Strontium GmbH), in Italy (Solvay Italy)and in Brazil (Solvay do Brasil S.A.).
The lives generally used for various clas-sifications of investment are as follows:
M FINANCIAL ASSETSFinancial assets include:- interests in companies accounted for using the
equity method- interests in companies that, not being
significant for the Group, are neitherconsolidated nor accounted for using theequity method
- interests in other companies intended to createa long-term relationship : Sofina S.A. (12.6%)and Générale de Banque S.A. (3%), as well asArQule and Cadus in the United States in thefield of biotechnological research relating toHuman Health
- long-term loans to and receivables from thesecompanies
- the interest in Plasticos Plavinil S.A., divestiturein progress
The rise in this entry in 1996 is the result of theparticipation in Générale de Banque’s increase incapital (0.5 billion) and the capitalization of theinterest in Plavinil at its equity value.
N CURRENT ASSETS AND LIABILITIESThe requirement in working capital amountsto al l inventories and trade and other
receivables, with the deduction of trade andother liabilities. It increased by BEF 12.6 billionfollowing the BEF 14.4 billion receivable fromAmerican Home Products for the sale of theAnimal Health activity. This was paid from 28February 1997. Excluding this receivable and areimbursable deposit with a third partyrepresenting our intention to acquire theBulgarian soda ash plant Sodi, the workingcapital requirement has decreased by 8%, i.e.2.8 billion compared with 1995.
The change can be shown as follows:
Inventories of salable products declinedslightly. They represented on average 24 days’sales, compared to 26 in 1995.In the interests of greater consistency,production depreciation will from now on besystematically incorporated into the cost ofgood sold. This has no significant impact onthe value of inventories or the income levels.Trade receivables increased 8% on last yearand represented 60 days’ sales, compared to57 in 1995.Trade and miscellaneous payables increasedby BEF 5.9 billion, including BEF 1.2 billionremaining to be paid for the acquisition ofIndupa and BEF 2.8 billion in trade payablesrescheduled as part of that company'srecovery program.
O NET FINANCIAL INDEBTEDNESSNet financial indebtedness for the Group isthe balance between financial payables andcash investments and cash and cashequivalents (including term and demanddeposits).The Group’s cash has been used in part tofund the significant investment program andacquisitions made during 1996 and to a lesserextent to repay certain borrowings.The Group’s net indebtedness increased byBEF 6 billion, excluding the proceeds from thesale of the Animal Health activities, collectedon 28 February 1997.
BEF million
Net value at the end of 1995 125 612Expenditure on fixed assets 22 893
Depreciation -17 948
Divestitures and closures -1 708
Exchange differences 5 553
Changes to the scope of consolidation 4 064
Net value at the end of 1996 138 466
Land not depreciated
Industrial buildings 20 to 30 years
Administrative buildings 30 to 40 years
Industrial plants 10 to 17 years
Equipment and fittings about 10 years
Computer equipment 4 to 5 years
Rolling stock 5 to 25 years
n o t e s t o t h e c o n s o l i d a t e d a c c o u n t s
BEF million 1995 1996
Inventories 38 909 38 428
Trade and miscellaneous
receivables 56 578 61 105
Receivable on
the Animal Health sale - 14 400
Trade and miscellaneous payables -60 083 -65 964
Working capital requirements 35 404 47 969
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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The net debt to equity ratio, however,remained at the 1995 level - i.e. 32% - owingto the increase in shareholders’ equityresulting from the distribution of profits, theimpact of the rise in the dollar and theincrease in minority interests (in particular inIndupa S.A.).
Financing currenciesThe Group’s borrowings are generallyeffected through special financing vehicleswhich made the proceeds of their borrowingsavailable to the Group’s operating entities.The choice of currency for a borrowingfundamentally depends on the opportunitiesoffered by various markets; the currencyselected is not necessarily the currency of thecountry in which the funds will be invested.Nevertheless, the proceeds of borrowings aremade available to industrial companies inlocal currencies, the currency being arranged,if necessary, by use of a "currency swap"
BEF million 1995 1996
Short-term cash investments,cash and cash equivalents 17 517 6 902
Long term financial
liabilities 37 285 37 622
Subordinated debt 577 626Debenture debt 16 401 17 411Financing leases 281 537Credit institutions 19 722 18 566Other borrowings 304 482
Short-term financial
liabilities 11 959 6 967
Current portion of
long-term debt 4 231 1 127Credit institutions 6 676 5 196Other borrowings 1 052 644
Net financial indebtedness 31 727 37 687
-13-4
1922
36
45
38
32 32
-20
-10
0
10
20
30
40
50
88 89 90 91 92 93 94 95 96
from the currency available to the financingvehicle. The cost of currency swaps isincluded in charges on borrowings.This al lows the Group to l imit foreignexchange risks, both for the financing vehicleand for the final user of the funds.
Maturity of indebtedness
For the purposes of analysis, the sum total ofrevolving lines of credit has been includedunder permanent indebtedness.
Securitization of customer receivablesThe Group has a multi-country program forthe securitization of receivables, whichprovides a cash reserve.
DerivativesThese are used to cover clearly identifiedfinancial risks only.
Interest rate managementInterest rate management operates at theGroup level and is applied to the balance ofnet indebtedness per currency. The Group iscurrently on a fixed rate for the USD and theGBP and a floating rate for the maincurrencies of continental Europe. This enablesit to take advantage of the significantdifferential between the short and long termrates for the latter currencies.
P SHAREHOLDERS’ EQUITYCapitalAt 31 Dec. 1996, the issued capital of Solvay S.A.had increased to BEF 32 266 million, repre-sented by 8 368 028 shares without par value.During 1996, 27 180 warrants issued to seniorexecutives of the Group throughout the worldwere exercised, giving rise to the issue of thesame number of new shares in addition to the54 670 shares issued earlier pursuant to theexercise of warrants.An exercise period occurred between 1-20 Feb.1997 giving rise to the exercise of 13 040warrants, which were converted into newshares.
BEF million at the end of
1996
Indebtedness maturing :
- through the end of 1997 1 127
- in 1998 17 217
- in 1999 2 625
- in 2000 5 064
- in 2001 1 928
- in 2002 2 415
- after 2002 14 213
44 589
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in %)
Net debt to equity
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n o t e s t o t h e c o n s o l i d a t e d a c c o u n t s
These shares were entitled to the balance ofthe dividend payable on 11 June 1997 andbrought the total number of shares eligible toreceive the balance of the dividend to 8 381 068.The Board of Directors makes a proposal, forapproval by the General Shareholders’Meeting on 5 June 1997, that the shares besplit into ten and the company’s (Solvay S.A.)capital be increased by capitalizing reserves ofBEF 17.6 billion, bringing capital up to BEF50 billion.
Issue premiumsThis records the issue premiums for Solvay S.A.The entry was increased by BEF 300 million asa result of the exercise of warrants in 1996.
ReservesThe change in reserves corresponds to netundistributed income since the balance sheetis presented after distribution.The dividend proposed to the GeneralShareholders’ Meeting of Solvay S.A. isrecorded under the "other l iabil it ies"heading.
Negative consolidation differencesThis heading shows negative consolidationdifferences recorded when companies arefirst included in the scope of consolidation orfirst valued under the equity method.The reduction in this item results from thefact that a portion of the elements havealready been realized (sale of the IndustrialEnzymes activity).
Conversion differencesThis heading records the sum of conversiondifferences that arise when the conversion ofshareholders’ equity at the end of the year iscompared to the value in Belgian francs ofthe same shareholders’ equity recorded as itwas built up over time.Also included are differences resulting fromthe use of average rates in expressing theresults.The increase of BEF 4.8 billion resulted fromthe appreciation of certain currencies(particularly the US dollar) against the Belgianfranc.
Capital subsidiesThis heading covers investment subsidiesgranted by public authorities. It declined
because of taking subsidies into the results asa function of the depreciation of theequipment that was the subject of thesesubsidies.
Minority interestsThis item groups together interests of thirdparties in fully consolidated subsidiaries.They essentially represent the interests ofAsahi Glass (20%) in the soda ash facility inthe US (which has increased in value with thestrengthening of the US dollar) and theminority interest (49%) in Indupa, a subsidiaryacquired in 1996.
Q PROVISIONS AND DEFERRED TAXESIn total, provisions increased from BEF53.1 billion to 56.5 billion.These concern primarily pension funds andsimilar commitments made by the parentcompany and its subsidiaries to personnel, byway of ordinary pensions and provisions forearly retirement. This represents a total of BEF21.1 billion.This also includes deferred taxes totaling5.8 billion an increase of 2 billion from 1995.Including the cost of major repairs andmaintenance, the balance of BEF 29.6 billioncovers a series of risks and changesconnected with:
- mining extraction, which is necessary for
some Group products;- the increasing constraints governing the
disposal and treatment of residues whichremain technically unavoidable in certainactivities, and an ever-growing concern withother aspects of environmental protection;
- production and marketing activit ies("product" and "country" risks, civil liabilityfor "products"); and, lastly, those connectedwith the Group’s relations with othersinvolved in or affected by Group activities(customers, suppliers, personnel, authorities,local communities, partners in subsidiariesand participating interests, etc.).
Some of these risks cannot be insured by athird party, or can be only partially covered(franchises guarantee ceilings, etc.). TheGroup has therefore gradually built up aprovision to cover these risks and expenses asfar as they can be assessed at generalmanagement level. For inventory, thisprovision is adjusted to an appropriate level.
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Group consists of Solvay S.A. and itssubsidiaries and affiliated companies, numbering303 and located in 41 countries.Of these, 137 are fully consolidated, 25 areproportionally consolidated and six are accountedfor using the equity method; the other 135 aretoo small to be consolidated.
In comparison with 1995, the changes in thescope of consolidation were as follows:
A. Fully consolidated companies
Additions
1. Acquisitions and creation of new subsidiaries- Safiplast S.p.A. (Italy)- Electrolisis de Torrelavega A.E.I. (Spain)- Solvay Fluor Iberica S.A. (Spain)- Solvay Automotive GmbH (Germany)- Solvay Kali-Chemie Holding GmbH (Germany)- Solvay Fluor und Derivate Holding GmbH (Germany)- Solvay Performance Chemicals Inc. (US)- Canlac Corporation (Canada)- Solvay Pharma Canada Inc. (Canada)- Indupa S.A.I.C. (Argentina)- Derivados Petroquimicos Sociedad de Inversion S.A. (Argentina)
2. Growth of company that previously did notmeet the size criteria- Solvay Quimica SA (Argentina)
Deletions
1. Interests sold to third parties- Solvay Enzymes GmbH & Co KG (Germany)- Solvay Enzymes Inc. (US)- Solvay Enzimas S.A. (Argentina)- Union Salinera de Espana (USE) S.A. (Spain)- Torresal S.A. (Spain)- Solvay Duphar Animal Health Benelux BV
(Netherlands)- Solvay Santé Animale S.A. (France)- Solvay Veterinaria SpA (Italy)- Solvay Veterinär GmbH (Germany)- Duphar Ltd (United Kingdom)- Solvay Veterinary Ltd (United Kingdom)- Solvay Animal Health, Inc. (US)- Solvay Saude Animal Ltda (Brazil)
2. Mergers, absorptions, restructurings- Solvay Alkali Bernburg GmbH merged
with Solvay Alkali GmbH (Germany)- Solvay Industries Ltd, Solvay
Reconstruction Ltd, Solvay Peroxygen Chemicals Ltd absorbed by Solvay UK Holding Company Ltd (United Kingdom)
- Alkor Plastics UK Ltd absorbed by Draka Polva UK Ltd (United Kingdom)
- Solvay Laminas Industriales S.A. merged withManufacturas de Hules S.A. (MANHUSA)(Spain)
- Solvay Marketing Services (Asia Pacific) Pte Ltd(Singapore)
3. Companies no longer meeting the criteria- Solvay, Bap & Cie SNC (Belgium)
4. Company to be subject to the equity method- Clément - R.P.C. S.A. (France) sale of 51 % of
our interest
B. Companies consolidated by proportionalconsolidation
Additions
Company previously treated by the equity method- Nippon Peroxide Co Ltd
Deletions
1. Interests sold to third parties- Artus Mineralquellen GmbH & Co KG (Germany)- Kyowa Solzyme KK (Japan)
2. Fusions- Tureplastic S.A. merged with Pipelife
Hispana S.A. (Spain)
3. Company no longer meeting the criteria- S.M. Catalyst Co Ltd (Japan)
4. Company to be accounted for by the equitymethod- Soprolit S.A. (Belgium)
C. Companies accounted for by the equitymethod
Additions
- Soprolit S.A. (Belgium)- Clément R.P.C. S.A. (France)
Deletions
- Nippon Peroxide Co Ltd
Changes to the scope of consolidation in 1996
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COMPANIES TO BE FULLY CONSOLIDATED
PAYS Dénomination et siège social % de
contrôle
BELGIUM Mutuelle Solvay S.C.S., Brussels 99,9
Ondex & Cie SNC, Brussels 100
Plavina & Cie S.N.C. Oudenaarde 100
Solvay Coordination Internationale des Crédits
Commerciaux (CICC) S.A., Brussels 100
Solvay Interox S.A., Brussels 100
Solvay Pharma & Cie S.N.C., Brussels 100
Solvic & Cie S.N.C., Brussels 100
Vénilia & Cie S.N.C., Zaventem 100
GRAND-DUCHY OF LUXEMBOURG
Solvay Finance (Luxembourg) S.A., Luxembourg 100
NETHERLANDS Solvay Chemie B.V., Linne-Herten 100
Boekelo Foliën B.V., Enschede 100
Physica B.V., Weesp 100
Plavina Benelux B.V., Weesp 100
Sodufa B.V., Weesp 100
Solvay Draka B.V., Enkhuizen 100
Solvay Duphar B.V., Weesp 100
Solvay Finance B.V., Weesp 100
Solvay Interox B.V., Linne-Herten 100
Solvay Interox Holding B.V., Weesp 100
Solvay Pharma B.V., Weesp 100
FRANCE Abelia Décors S.A., Paris 100
Alkor-Draka S.A., Courbevoie 100
Barytine de Chaillac S.A., Chaillac 100
Buflon S.A., Paris 100
Griffine Industries SA, Courbevoie 100
Griffine S.A., Courbevoie 100
Ondex S.A., Chevigny-St-Sauveur 100
Société Industrielle et Salines de Bayonne
(SISB) S.A., Paris 100
Solvay Automotive France S.A., Laval 100
Solvay Finance France S.A., Paris 100
Solvay Interox S.A., Paris 100
Solvay Pharma S.A., Suresnes 99,9
Soplachim S.A., Paris 100
Vénilia S.A., Courbevoie 100
ITALY Adriaplast S.p.A., Monfalcone 100
Caleppiovinil S.p.A., Fucine di Ossana 100
Società Elettrochimica Solfuri e
Cloroderivati (ELESO) S.p.A., Milano 100
GOR Applicazioni Speciali S.p.A.,Buriasco 100
Società Bario e Derivati (SABED) S.p.A.,Massa 100
Società Generale per l’Industria della
Magnesia (SGIM) S.p.A., Angera 100
Solvay Interox S.p.A., Milano 100
Solvay Pharma S.p.A., Grugliasco 100
GERMANY Solvay Deutschland GmbH, Hannover 100
Alkor GmbH Kunststoffe, München 100
Alkor Deco Vertriebs GmbH,Gräfelfing 100
Alkor Draka Handel GmbH,Wuppertal 100
Berka Speditions- und Schiffahrt GmbH, Hannover 100
DMS Verwaltungs GmbH, Solingen 100
Duphar Pharma GmbH & C° KG, Hannover 100
Hoelzle & Chelius GmbH, Neu-Isenburg 100
Kali-Chemie AG, Hannover 98,1
Lyssia GmbH, Hannover 100
Salzgewinnungsgesellschaft
Westfalen mbH, Ahaus-Graes 65
Solvay Alkali GmbH, Hannover 100
Solvay Arzneimittel GmbH, Hannover 100
Solvay Automotive GmbH, Bad Harzburg 100
Solvay Barium Strontium GmbH, Hannover 100
Solvay Fluor und Derivate GmbH, Hannover 100
Solvay Fluor und Derivate Holding GmbH, Hannover 100
Solvay Interox GmbH, Hannover 100
Solvay Kali-Chemie Holding, Hannover 100
Solvay Kunststoffe GmbH, Hannover 100
Solvay Pharmaceuticals GmbH, Hannover 100
Solvay Salz GmbH, Hannover 100
Solvay Verarbeitung Holding GmbH, Hannover 100
Solvay Verwaltungs- und Vermittlungs GmbH, Hannover 100
SPAIN Duphar S.A., Barcelona 100
Electrolisis de Torrelavega A.E.I., Torrelavega 100
Gorvi S.A., Pamplona 100
Hispavic Industrial S.A., Barcelona 100
Kali-Chemie Iberia S.A., Barcelona 100
Manufacturas de Hules S.A.(MANHUSA), Barcelona 100
Nezel S.A., Barcelona 100
Solvay Automotive Ibérica S.A., Gava 100
Solvay Fluor Ibérica S.A., Tarragona 100
Solvay Interox S.A., Barcelona 100
Solvay Pharma S.A., Barcelona 100
Vénilia S.A., Gava 100
SWITZERLAND Solvay (Schweiz) AG, Zurzach 100
Dutraco S.A., Délémont 100
Ingetra AG, Basel 100
Solvay Pharma AG, Bern 100
Soltraco AG, Basel 100
Sporic AG, Chur 100
PORTUGAL Solvay Farma Lda, Lisboa 100
Solvay Portugal - Participaçoes (SGPS) Lda, Lisboa 100
Solvay Portugal - Produtos Quimicos S.A., Lisboa 100
Solvay Interox - Produtos Peroxidados Lda, Lisboa 100
AUSTRIA Solvay Österreich AG, Wien 100
Solvay Pharma GmbH, Klosterneuburg 100
UNITED KINGDOM
Alkor Draka Ltd, Altrincham Ltd 100
Solvay Automotive Ltd, Pontypridd 100
Solvay Chemicals Ltd, Hemel Hempstead 100
Solvay Healthcare Ltd, Southampton 100
Solvay Interox Ltd, Warrington 100
Solvay UK Holding Company Ltd, Southampton 100
DENMARK Alkor Draka Nordic K/S, Albertslund 100
UNITED STATES Solvay America, Inc., Houston, TX 100
Hedwin Corporation, Baltimore, MD 100
L.A. (Holdings), Inc., Houston, TX 100
L.P., Inc, Houston, TX 100
Solkatronic Chemicals, Inc. Fairfield, NJ 100
Solvay Alkalis, Inc., Houston, TX 100
COUNTRY Name and registered office % control
COUNTRY Name and registered office % control
List of Group companies
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Solvay America Funding Company, Houston, TX 100
Solvay Automotive, Inc., Troy, MI 100
Solvay Compounding, Inc., Houston, TX 100
Solvay Finance (America) Inc., Houston, TX 100
Solvay Industrial Films, Inc., Baltimore, MD 100
Solvay Interox, Houston, TX 100
Solvay Management Services, Inc., Houston, TX 100
Solvay Minerals, Inc., Houston, TX 100
Solvay Olefins L.P., Houston, TX 100
Solvay Performance Chemicals, Inc., Houston, TX 100
Solvay Peroxygen, Inc., Houston, TX 100
Solvay Petrochemicals, Inc., Houston, TX 100
Solvay Pharmaceuticals, Inc., Marietta, GA 100
Solvay Polymers, Inc., Houston, TX 100
Solvay Soda Ash Joint Venture, Houston, TX 80
CANADA Canlac Corporation, Victoriaville (Québec) 100
Solvay Automotive Canada, Inc., Blenheim 100
Solvay Kingswood, Inc., Scarborough 100
Solvay Pharma Canada, Inc., Scarborough 100
MEXICO Solvay Quimica Y Minera S.A. de C.V., Monterrey 90
DUTCH WEST INDIES
Solvay Finance International N.V.,Curaçao 100
Solvay Finance (Nederlandse Antillen) N.V., Curaçao 100
BRAZIL Solvay do Brasil S/A, Sâo Paulo 100
CBCC - Companhia BrasileiraCarbureto de Calcio,
Rio de Janeiro 99,9
Malharia Industrial do Nordeste S/A, Paulista 50
Plasticos Plavinil S/A, Sâo Paulo (*) 100
ARGENTINA Derivados Petroquimicos Sociedad de Inversion S.A.,
Buenos Aires 100
INDUPA S.A.I.C., Bahia Blanca 51,2
Solvay Quimica S.A., Buenos Aires 100
AUSTRALIA Solvay Interox Pty Ltd, Banksmeadow 100
JAPAN Nippon Solvay KK, Tokyo 100
Solvay Seiyaku KK, Tokyo 99,9
THAILAND Peroxythai Ltd, Bangkok 63,1
SINGAPORE Solvay Asia Pacific Pte Ltd, Singapore 100
COUNTRY Name and registered office % control
COUNTRY Name and registered office % control
COUNTRY Name and registered office % control
COUNTRY Name and registered office % control
BELGIUM Polva Pipelife S.A., Kalmthout 50
NETHERLANDS Polva Pipelife B.V., Enkhuizen 50
FRANCE Société Méditerranéenne de Plastiques Agricoles
(M.P.A.) S.A., Saint-Gilles 50
Pipelife France S.A., Déols-Châteauroux 50
France Tube S.A., Gaillon 50
ITALY SAFIPLAST S.p.A., Pisticci (Matera) 50
GERMANY Deutsche Baryt-Industrie Dr Rudolf Alberti GmbH & C° KG,
Bad Lauterberg 50
Kali-Chemie Akzo GmbH, Hannover 50
Pipelife Rohrsysteme GmbH, Bad Zwischenahn -Ekern 50
Pipelife Rohrsyteme Gölzau GmbH, Gölzau 50
Witco Solvay Duromer GmbH, Bergkamen 50
SPAIN Pipelife Hispania S.A., Granollers 50
Viniclor S.A., Madrid 55
AUSTRIA Pipelife Rohrsysteme GmbH & Co Nfg KG,
Wiener Neudorf 50
FINLAND Oy Finnish Peroxides AB, Voikkaa 50
HUNGARY Pannonpipe Müanyagipari KFT, Budapest 25
GREECE Pipelife Hellas S.A., Athènes 50
UNITED STATES D & S Plastics International, Grand Prairie, TX 50
Research Polymers International, Inc., Grand Prairie, TX 50
BRAZIL Peroxidos do Brasil Ltda, Sâo Paulo 69,4
JAPAN Nippon Peroxide C° Ltd, Tokyo 25
THAILAND Vinythai Public Company Ltd, Bangkok 44,9
SOUTH KOREADaehan Specialty Chemicals C° Ltd, Seoul 50
Hanwha Advanced Materials C° Ltd, Seoul 50
CAYMAN Blair International Insurance (Cayman) Ltd, Georgetown 50
COUNTRY Name and registered office % control
COUNTRY Name and registered office % control
BELGIUM Soprolit S.A., Nivelles 25
FRANCE Clément - R.P.C. S.A., Gennevilliers 49
SLOVENIA Belinka Perkemija D.D., Ljubljana 20
BRAZIL Empresa Salineira e de NavegaçãoIgoronhon S/A (ESNISA), Sâo Paulo 100
INDIA Duphar Interfran Ltd, Bombay 38,9National Peroxide Ltd, Bombay 25,1
(*) recorded at December 31 with financial assets at its equity value.
COMPANIES TO BE CONSOLIDATED PROPORTIONALLY
COMPANIES TO BE EVALUATED UNDER THE EQUITY METHOD
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The following are the valuation rules adopted
for these statements:
1. Start-up expenditures
Start-up expenditures are amortized over a
maximum period of five years; in all cases,
fees and reimbursement premiums for
borrowings are amortized over the period of
the corresponding borrowings.
2. Intangible assets
Intangible assets are valued at acquisition
cost.
To the extent that their utilization is limited in
time, intangible assets acquired from third
parties are amortized on a straight-line basis
over their expected period of utilization.
Research costs are expensed in the year in
which they are incurred.
Costs related to applications for or the
issuance or uti l ization of a patent or
trademark are recorded as assets at cost, to
the extent that this does not exceed a
reasonable estimate of the future value of
utilization of or return on the patent or
trademark.
3. Consolidation differences
At the time of consolidation of a new
subsidiary or at the time of proportional
consolidation of an interest in a new affiliate,
or on acquisition of the remainder of an
interest in an entity, the book value of the
shares or interests in such company is
compared to the portion they represent of
the net assets of the company, taking into
account, if necessary, any revaluation of the
assets and l iabil it ies. A consolidation
difference is established in this way; it is
recorded under the heading “ Consolidation
differences, ” under liabilities if it is negative
and under assets if it is positive. A positive
difference is amortized over its anticipated
economic life in accordance with a method
adopted by the Board of Directors.
Amortization charges are accelerated if
changes in circumstances indicate that the
asset may be overvalued.
4. Tangible assetsTangible assets are recorded at acquisitioncost, which is revalued as required by law.Tangible assets with a limited useful life aredepreciated on a straight-line basis over theirestimated lives; however, they may be subjectto anticipated, accelerated or retardeddepreciation.
5. Financial assets and receivables matu-ring in more than one year
Interests which are neither consolidated norrecorded under the equity method, as well asreceivables maturing in more than one year,are recorded at acquisition cost.Financial assets and receivables maturing inmore than one year are written down when itappears that they are less valuable than theiracquisition cost or the value recorded underthe equity method.
6. InventoriesInventory values are generally determined byusing weighted-average-cost or LIFOmethods.Cost of goods sold includes, in addition tocosts of production directly attributable toproducts, those which are indirectlyattributable, as well as depreciation andamortization.When products from inventory are transferredwithin the group, their inventory value iscarried at the original cost.
7. Orders in processOrders in process are valued at cost, withoutany finance charges.
8. Receivables and liabilitiesThese are recorded on the balance sheet atface value. Receivables are written down if their paymentat maturity is, in whole or in part, uncertain.
9. Provisions for risks and charges1) Provision for pensions and similarobligationsProvisions for pensions and similar obligationsare estimated according to actuarialprocedures, using standard mortality tablesand interest rates in each country.
Valuation rules
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2) Provisions for taxesThese provisions are intended to cover taxeswhich may result from adjustments to thetaxable base or to the calculation of the tax.
3) Provisions for major repairs andmaintenanceThese lump-sum provisions are intended tocover expenses of this type.
4) Provisions for other risks and chargesAt the close of the fiscal year, there is areview of risks which could justify the creationof new provisions or the use of existingprovisions.
10. Conversion into Belgian francs offinancial statements of foreigncompanies and assets and liabilitiesexpressed in foreign currencies
In the statements of branches andsubsidiaries, monetary assets and liabilitiesrecorded in foreign currencies are convertedat the exchange rate in effect at the end ofthe year; the exchange differences realized intransactions in foreign currencies are
recorded in the income statement, as areunrealized exchange losses, while unrealizedexchange profits are recorded in transitoryaccounts on the balance sheet.At the time of consolidation, the statementsof companies located in high-inflationcountries are subject to preliminaryadjustments required or permitted by localauthorities. The recorded assets and liabilities(other than shareholders’ equity), rights andcommitments of such companies are thenconverted into Belgian francs at year-endrates.Shareholders’ equity of affiliated companies ismaintained at historical value and conversiondifferences on such values are recorded in aseparate entry.Income and expenses of branches and foreignaffiliates are converted into Belgian francs atthe average exchange rate for the year.
End of year Average1995 1996 1995 1996
ECU XEU 37.7275 39.7525 38.0308 38.9623
Dutch guilder NLG 18.3525 18.3555 18.3604 18.3640
French franc FRF 6.0090 6.1115 5.9116 6.0656
Italian lira ITL 0.0186 0.0210 0.0180 0.0203
German mark DEM 20.5405 20.6020 20.5666 20.5822
Spanish peseta ESP 0.2426 0.2443 0.2363 0.2444
Pound sterling GBP 45.6750 54.3925 46.2825 49.0255
American dollar USD 29.445 32.0050 29.2429 31.0542
Brazilian real BRC 30.3123 30.6792 30.3123 30.8279
Thai baht THB 1.1703 1.2436 1.1768 1.2276
The principal exchange rates used for conversions in the accounts are as follows:
Number of Belgian francs per unit of currency
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1. CriteriaTo appear in the consolidated statements acompany must be significant with respect tothe Group; that is, it must satisfy at least oneof the following conditions:
• Sales of BEF 400 million;• Total assets of BEF 200 million;• Employment of 150 persons;
Nevertheless, companies that do not meetthese criteria are consolidated if the Groupbelieves that they have the potential for rapiddevelopment, or if they hold shares of othercompanies consolidated under the abovecriteria.
2. Methodsa) Full consolidation
Companies over which the Group hasexclusive control, either legally or in fact,are fully consolidated.
b) Proportional consolidationCompanies over which the Group has jointcontrol with a limited number of associatesare consolidated proportionally.
c) Equity methodCompanies in which the Group holds 20%to 50% of the capital and over which it hasa significant influence are recorded by theequity method.
Criteria and methods of consolidation
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Ten-year summary of selected financial data
BALANCE SHEET 1988 1989 1990 1991 1992 1993 1994 1995 1996
Assets
Fixed assets 83 137 97 740 113 077 131 967 155 670 160 060 152 438 149 026 162 289
Start-up expenditures
and intangible assets 1 197 1 617 2 755 3 841 8 412 9 402 8 562 7 851 7 783
Consolidation differences (goodwill) 769 1 176 2 525 2 503 3 182 3 105 2 587 2 414 2 415
Tangible assets 66 236 75 828 84 949 106 410 131 250 135 339 128 226 125 612 138 466
Intangible assets 14 935 19 119 22 848 19 213 12 826 12 214 13 063 13 149 13 625
Current assets 148 210 145 836 162 847 145 099 106 944 108 300 111 814 113 004 120 835
Inventories 33 494 36 108 38 688 41 682 42 130 40 528 37 584 38 909 38 428
Trade receivables 50 091 50 242 51 228 45 528 37 106 35 945 42 776 42 782 46 577
Other receivables 12 063 15 256 21 166 22 752 16 743 15 127 15 009 13 796 28 928
Short-term investments and
cash and cash equivalents 52 562 44 230 51 765 35 137 10 965 16 700 16 445 17 517 6 902
Total assets 231 347 243 576 275 924 277 066 262 614 268 360 264 252 262 030 283 124
Shareholders’ equity and liabilities
Total equity 80 795 91 677 93 038 102 161 106 851 98 235 98 111 99 614 116 066
Shareholders’ equity 74 608 86 359 89 165 99 025 103 263 94 273 94 778 96 618 108 625
Minority interests 6 187 5 318 3 873 3 136 3 588 3 962 3 333 2 996 7 441
Provisions, deferred taxes 50 447 54 350 55 006 54 623 49 984 53 165 51 572 53 089 56 505
Liabilities 100 105 97 549 127 880 120 282 105 779 116 960 114 569 109 327 110 553
Financial liabilities 42 211 40 310 69 525 59 237 50 010 60 469 53 911 49 244 44 589
due in more than one year 22 764 22 777 46 233 39 656 32 155 48 402 40 063 37 285 37 622
due within one year 19 447 17 533 23 292 19 581 17 855 12 067 13 848 11 959 6 967
Trade payables 25 368 26 093 27 299 31 626 28 284 28 607 32 725 30 602 33 528
Other liabilities 32 526 31 146 31 056 29 419 27 485 27 884 27 933 29 481 32 436
Total shareholders’ equity
and liabilities 231 347 243 576 275 924 277 066 262 614 268 360 264 252 262 030 283 124
RATIOSReturn on equity 18,7 18,2 17,1 12,2 9,2 -7 8,1 12,6 11,7
Net Debt to equity ratio -13 -4 19 22 36 45 38 32 32
in million BEF
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INCOME 1988 1989 1990 1991 1992 1993 1994 1995 1995 1996 retraité
Sales 253 469 256 798 255 241 254 801 254 470 244 146 262 227 273 353 273 353 281 967
Cost of sales -155 996 -166 261 -167 101 -171 851 -171 188 -169 101 -175 619 -177 662 -196 907 -206 263
Gross margin 97 473 90 537 88 140 82 950 83 282 75 045 86 608 95 691 76 446 75 704
General andsales overheads -44 333 -46 710 -49 167 -53 795 -57 732 -58 697 -57 683 -58 604 -39 777 -42 038Research expenditures -10 794 -11 965 -12 846 -12 866 -12 185 -12 052 -11 489 -11 811 -11 811 -12 303Other operatingexpenses and income -9 160 -2 632 -88 501 1 202 -3 054 -3 371 -2 767 -2 349 -1 779
Operating results 33 186 29 230 26 039 16 790 14 567 1 242 14 065 22 509 22 509 19 584
Financial expenses and income 771 722 -1 870 -4 456 -4 181 -4 412 -3 769 -3 534 -3 534 -1 943Current taxes -14 586 -9 746 -7 201 -2 293 -1 859 -783 -3 382 -6 472 -6 472 -6 233Share in earnings ofcompanies reported bythe equity method 767 386 833 570 5 -9 23 36 36 134
Net earnings beforeextraordinary items 20 138 20 592 17 801 10 611 8 532 -3 962 6 937 12 539 12 539 11 542
Extraordinary items (net) -5 023 -3 880 -1 891 1 829 1 347 -2 950 1 023 -32 -32 2 087
Consolidated net income 15 115 16 712 15 910 12 440 9 879 -6 912 7 960 12 507 12 507 13 629
Minority interests 1 566 1 239 937 754 124 253 269 216 216 328Solvay’s share of earnings 13 549 15 473 14 973 11 686 9 755 -7 165 7 691 12 291 12 291 13 301
Depreciation andamortization 18 267 14 910 15 461 17 518 19 407 19 085 18 967 18 259 18 259 19 416Cash flow 33 382 31 622 31 371 29 958 29 286 12 173 26 927 30 766 30 766 33 045
RATIOS
Gross margin asa percentage of sales 38,5 35,3 34,5 32,6 32,7 30,7 33 35 28 26,7Times charges earned (1) - - 27,2 5,3 3,4 0,5 3 5,9 5,9 5,8Current taxes/Current earnings 42 32 29 18 18 n.s 33 34 34 35before tax -- as a percentage
DéfinitionsROE :Résultat net consolidé / Fonds propres totaux
Times charges earned :Résultat courant avant impôts et charges financières nettes des produits de placement /Charges financières nettes des produits de placement
Net Debt to equity ratio :Endettement net / fonds propres
(1) Earnings before extraordinary items, taxes and financial charges net of income from financial investments/Financial charges net of income from financial investments
in million BEF
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At December 31 1995 1996in BEF million
ASSETSFIXED ASSETS 149 026 162 289I Start-up expenditures 1 548 1 207II Intangible assets 6 303 6 576III Consolidation differences (goodwill) 2 414 2 415IV Tangible assets 125 612 138 466
A Land and buildings 32 249 33 365B-C Plant, machinery and equipment,
rolling stock and personal property 80 722 91 514D Leased assets and similar rights 397 785E Other tangible fixed assets 630 538F Construction in progress 11 614 12 264
V Financial assets 13 149 13 625A Companies valued under
the equity method 1 102 7881 Investments 791 4432 Receivables 311 345
B Other companies 12 047 12 8371 Investments, shares and equity certificates 9 556 10 2142 Receivables 2 491 2 623
CURRENT ASSETS 113 004 120 835VI Receivables maturing in more than one year 982 1 246
A Trade receivables 55 77B Other receivables 927 1 169
VII Inventories and orders in progress 38 909 38 428A Inventories 38 126 37 458
1 Supplies 14 376 14 4342 Work in process 4 068 3 6753-4 Finished goods and merchandise 19 364 18 9985 Real property to be sold -6 Down payments 318 351
B Orders in progress 783 970
VIII Receivables maturing within one year 51 461 70 931A Treasury shares 42 727 46 500B Other investments 8 734 24 431
IX Short-term cash investments 14 164 5 741A Treasury shares -B Other investments 14 164 5 741
X Cash and cash equivalents 3 353 1 161XI Transitory accounts 4 135 3 328
TOTAL ASSETS 262 030 283 124
Consolidated balance sheet
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At December 31 1995 1996in BEF million
SHAREHOLDERS' EQUITY AND LIABILITIESTOTAL EQUITY 99 614 116 066SHAREHOLDERS’ EQUITY 96 618 108 625I Capital 32 161 32 266
A Issued capital 32 161 32 266B Unpaid issued capital (-) - -
II Issue premium 926 1 226III Revaluation surplus 4 337 4 492IV Reserves 58 111 65 268V Consolidation differences (goodwill) 1 658 1 568VI Conversion differences -2 499 2 350VII Capital subsidies 1 924 1 455
THIRD-PARTY INTERESTSVIII Minority interests 2 996 7 441
PROVISIONS AND DEFERRED TAXES 53 089 56 505IX A Provisions for risks and charges 49 248 50 696
1 Pensions and similar obligations 19 402 21 0652 Taxes 1 990 1 9613 Major repairs and maintenance 875 1 0084 Other 26 981 26 662
B Deferred taxes 3 841 5 809
LIABILITIES 109 327 110 553X Liabilities due in more than one year 37 845 41 872
A Financial liabilities 37 285 37 6221 Subordinated loans 577 6262 Non-subordinated debenture loans 16 401 17 4113 Financing leases and similar debts 281 5374 Credit institutions 19 722 18 5665 Other loans 304 482
B Trade payables 3 761 Accounts payable 3 542 Bills payable - 22
C Down payments 195 993D Other liabilities 362 3 181
XI Liabilities due within one year 67 728 65 207A Current portion of long-term debt 4 293 1 166B Financial liabilities 7 728 5 840
1 Credit institutions 6 676 5 1962 Other loans 1 052 644
C Trade payables 29 281 31 5731 Accounts payable 26 626 29 5522 Bills payable 2 655 2 021
D Down payments 1 062 848E Taxes, wages, salaries and benefits payable 14 792 10 971
1 Taxes 5 877 2 9542 Wages, salaries and benefits 8 915 8 017
F Other liabilities 10 572 14 809
XII Transitory accounts 3 754 3 474
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 262 030 283 124
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Consolidated income statement
From 01/01 through 31/12 1995 1996in BEF million reclassified
I Sales 273 353 281 967
II Cost of sales -196 907 -206 263
III Gross margin 76 446 75 704
IV/V General and sales overheads -39 777 -42 038
VI Research expenditures -11 811 -12 303
VII Other operating income 3 787 2 308
VIII Other operating expenses -6 136 -4 087
IX Operating results 22 509 19 584
X Financial income 4 911 5 634
A Income from financial fixed assets 959 942
B Income from current assets 1 928 1 538
C Other financial income 2 024 3 154
XI Financial expenses -8 445 -7 576
A Indebtedness expenses -5 594 -5 219
B Write-downs of current assets other
than inventories, orders in progress and
trade receivables (contributions -, reversals +) -24 -34
D Other financial expenses -2 827 -2 323
XII Profit (loss), before taxes and extraordinary items,of consolidated companies (1) 18 975 17 642
1995 1996reclassified
EBIT 24.1 21.3
Borrowing costs - 5.8 -5.2
Income from financial assets + 1.9 +1.5
Unallocated expenses and income - 1.2 ----
Profit before taxes 19.- 17.6
(1) reconciliation of EBIT (see page 51) with profit before taxes and extraordinary items:
in BEF billion
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1995 1996reclassified
XIII Extraordinary income 1 062 8 391
A Reversals of depreciation, amortization and
write-downs of intangible and
tangible assets 90
B Reversal of write-downs of
financial assets 27 17
C Reversal of provisions for extraordinary
risks and charges 182
D Gains from sale of assets 1 035 7 233
E Other extraordinary income 869
XIV Extraordinary charges -1 101 -5 763
A Extraordinary depreciation, amortization
and write-downs of consolidation
differences, start-up expenditures,
intangible and tangible assets -33 -395
B Write-downs of financial assets 427 -301
C Provisions for extraordinary risks and charges -558 -3 386
D Loss on sale of assets -83 -1 079
E Other extraordinary charges -602
XV Profit , before taxes, of
consolidated companies 18 936 20 270
XVI Transfers to, withdrawals from deferred taxes -927 -1 605
A Transfers to deferred taxes -1 052 -1 714
B Withdrawals from deferred taxes 125 109
XVII Income tax -5 538 -5 170
A Transfers to deferred taxes -5 461 -5 478
B Tax adjustment and reversal
of tax provisions -77 308
XVIII Net income of consolidated companies 12 471 13 495
XIX Share in earnings of companies valued according to the equity method 36 134
A Earnings 36 134
B Losses - -
XX Consolidated net income (loss) 12 507 13 629
XXI Minority interests 216 328
XXII Solvay’s share of earnings 12 291 13 301
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Notes to consolidated statements (All amounts in BEF million)
I. Criteria and methods of consolidation The criteria and methods of consolidation are found on page 61
II. List of group companies to be fully consolidated
III. List of group companies to be consolidated proportionally
IV. List of group companies to be valued under the equity methodLists of the consolidated companies and those accounted for using the equity method are provided on page 57
V. Main companies in which the group holds between 10 and 20%Data from financial statements as of 12/31/1995
Name and VAT number % control Equity Net incomeregistered office
Sofina S.A. BE 403 219 397 12,6% 19 526 1 526
The complete statement of shareholdings of the Solvay Group has been filed with the Belgian National Bankwhere it may be consulted.. A free copy of this statement can be obtained simply by sending a request to the Company’s registered office.The Group’s subsidiaries and affiliates number 303 companies.Those excluded from Notes II through V are excluded because they are not significant to the Group.
VI. Valuation criteria for the consolidated statementsThe valuation rules are found on page 59
VII. Statement of start-up expenditures (Item I under Assets)Net book value at the end of the previous year : 1 548Changes during the year :
- New expenses incurred 451- Amortization -638- Conversion differences 25- Other -179
Net book value at the end of this year, consisting of : 1 207- Formation and capital-increase expenses, expenses of debt issues,reimbursement premiums and other start-up expenditures 1 207
- Reorganization expenses
VIII. Statement of intangible assets (Item II under Assets)Concessions,
R&D patents, Downexpenditures licenses, etc. Goodwill payments Others
a) CostAt the end of the previous year - 9 051 952 9 175Changes during the year :
- acquisitions, including capitalized expenditures 680 2 92 12- transfers and disposals -153 -1 -1- transfers from one heading to another -409 -6 5- conversion differences 319 53 4- other -467 -170 -41
At the end of this year - 9 021 837 94 154c) Depreciation and write-downsAt the end of the previous year -3368 -469 -47Changes during the year :
- recorded -521 -21 -1 -98- acquired from third parties- canceled 117 90- transfers from one heading to another 118 -3- conversion differences -45 -26 -2- other 557 165 24
At the end of this year - -3 142 -351 -1 -36d) Net book value atthe end of the year (a) - (c) - 5 879 486 93 118
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IX. Statement of tangible assets (Item IV under Assets)Land Plant, machinery, Financing Other Constructionand tools, rolling leases tangible in
buildings stock and and similar assets progresspersonal property rights
a) CostAt the end of the previous year 62 601 267 236 632 1 477 11 632Changes during the year:- acquisitions, including 921 4 839 372 53 16 708capitalized expenditures
- transfers and disposals -1 696 -8 981 -9 -119 -292- transferred from one heading to another 2 430 14 218 -25 -16 077- conversion differences 1 831 9 413 84 34 549- changes in the scope of
consolidation and other 475 10 177 -3 -133 -240
At the end of this year 66 562 296 902 1 076 1 287 12 280
b) Write-upsAt the end of the previous year 629 282 4Changes during the year :- recorded surplus 1- acquired from third parties- canceled- transferred from one heading to another- conversion differences -8 2
At the end of this year 622 284 4
c) Depreciation and write-downsAt the end of the previous year -30 981 -186 796 -235 -851 -18Changes during the year :- recorded -2 782 -16 139 -36 -78- reversed 1 086 1- acquired from third parties 2 -4 -4- canceled 1 198 8 097 7 87- transferred from one heading to another 11 -143 24 2- conversion differences -793 -5 510 -26 -23- changes in the scope of consolidation and other -474 -6 263 3 87
At the end of this year -33 819 -205 672 -291 -753 -16
d) Net book value at the endof this year (a) + (b) - (c) 33 365 91 514 785 538 12 264
Breakdown of financing leases andsimilar rights between:- land and buildings 692- other 93
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X. Statement of financial assets(Item V under Assets)
Companies1. Investments, shares andequity certificates equity method other
a) CostAt the end of the previous year 1 002 10 088Changes during the year :- acquisitions 1 501- transfers and disposals -41 -1 236- transfers from one heading to another 209- conversion differences 2 62- other -184 -56At the end of this year 779 10 568
b) Write-upsAt the end of the previous year 1Changes during the year :- transfers from one heading to another- conversion differences -2At the end of this year -1
c) Write-downsAt the end of the previous year -204 -508Changes during the year- recorded -76- reversed 17- acquired from third parties- canceled 259- transferred from one heading to another- conversion differences -1 -10- other -30 -24At the end of this year -235 -342
d) Increases and reductions resulting from application of the equity method -101
e) Amounts subscribed, not paidAt the end of the previous year -25Changes during the year 14At the end of this year -11
f) Net book value at the end of this year (a)+(b)-(c)+/-(d)-(e) 443 10 214
2. Receivables Net book value at the end of the previous year 311 2 491Changes during the year- additions 83 3 796- reimbursement -7 008- reversed write-downs -82 -3- conversion differences 33 397- other 2 950
Net book value at the end of this year 345 2 623Cumulative write-downs at the end of this year 82 55
XI. Statement of reserves (Item IV under Assets)
Book value at the end of the previous year 58 111Consolidated net income 13 301Dividend payable -6 144
Book value at the end of this year 65 268
XII. Statement of consolidation and equity methoddifferences (Items III under Assets and V under Liabilities)
Positive Negative Positive Negativeconsolidation consolidation equity equity
differences differences method method(goodwill) (negative differences differences
goodwill)
a) Net book value atthe end ofthe previous year 2 414 1 455 203
b) Changes during the year :
- changes due to an increase in percentage held 284
- amortization -188- changes due to 88conversion differences
- other differences -183 -90
c) Net book value at the end of this year 2 415 1 365 203
XIII. Statement of liabilitiesA. Breakdown of liabilities
originally due in morematuring within maturing in maturing inthan one year, listed the year between more than
according to due dates (Item XIA) 1 and 5 years 1 and 5 years
Financial liabilities 1 127 26 835 10 7871. Subordinated loans 255 3712. Non-subordinated
debenture loans 230 16 941 4703. Financing leases-
and similar debt 284 128 4094. Credit institutions 550 9 284 9 2825. Other loans 63 227 255
Trade liabilities 39 761. Accounts payable 39 542. Bills payable - 22
DOWN PAYMENTS - 808 185RECEIVED
OTHER LIABILITIES - 266 2 915
TOTAL 1 166 27 985 13 887
B. Secured liabilities Liabilities guaranteed by pledges, given or irrevocably commited, on assets of companies included in the consolidation
Financial liabilities 11712. Debenture loans, not subordinated 2284. Credit institutions 7905. Other loans 153
Trade liabilities 4441. Accounts payable 444
Down payments received 64
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XIV. Analysis of income1995 1996
A. NET SALES1. Geographic distribution of
sales by customer location % %
EUROPE 67,5 66,4BELGIUM AND LUXEMBOURG 5,4 4,4NETHERLANDS 2,8 3,0FRANCE 16,6 16,2ITALY 8,0 7,8GERMANY 14,3 14,2SPAIN 6,9 6,5GREAT BRITAIN 4,4 4,3AUSTRIA 1,7 1,5SWITZERLAND 1,5 1,3PORTUGAL 1,4 1,5OTHER EUROPEAN COUNTRIES 4,5 5,7(Central Europe + Scandinavia)
AMERICAS 25,7 27,4UNITED STATES 17,2 19,0BRAZIL 5,6 5,0OTHER AMERICAN COUNTRIES 2,9 3,4
ASIA-PACIFIC 4,9 4,6AFRICA + MIDDLE EAST 1,9 1,6
TOTAL 100,0 100,0
2. Breakdown by product sectorALKALIS 28,1 28,8PEROXYGENS 5,8 5,8PLASTICS 32,1 30,1PROCESSING 18,0 18,9HEALTH 16,0 16,4
TOTAL 100,0 100,0
Average Personnel headcount expenditures
1996 1996B. COMPANIES CONSOLIDATED
1. By full consolidation 69 890Workers 16 268Clerical 14 642Management personnel 5 721Other -
2. By proportional consolidation 2 847Workers 658Clerical 913Management personnel 190Other -
C. EXTRAORDINARY ITEMS
1. Breakdown of other extraordinary income (Item XIII E) : Reversals of tax-related items and recoveryof past extraordinary losses 575Miscellaneous 294
2. Breakdown of other extraordinary charges (Item XIV E) : Miscellaneous headings linked to the restructuring of less important sites 602
D. INCOME TAX (ITEM XV)
1. Difference between the tax to be charged to the sta-tement of consolidated income for the year and previousyears and the tax already paid or to be paid for theseyears: None
2. Effect of extraordinary income on the amount ofincome tax for the year: Charge of BEF 541million
XV. Rights and commitments not reflected on thebalance sheet
1996A.1 Liabilities and commitments of third parties guaranteed
by the company :- outstanding negotiable instruments endorsedby the company 905
2 Pledges given or irrevocably committed byGroup companies of their own assetsas security for liabilities and commitments,of their own or of third parties 1 069
3 Forward contracts:Currencies bought (to be received) 59 739Currencies sold (to be delivered) 59 882
B. Litigation and other important commitments 922
C. Group company benefits in the area of pension and survivor benefitsin favor of personnel or executives 3 161
D. In relation to the divestiture of activities, the Group hasmade certain commitments to provide duly for possiblerisks. Under these conditions and given the care taken inthis regard, the company considers these commitmentsshould be recorded pro mem.
XVI. Relations with affiliated companies and related companies not included in the consolidationInsignificant.
XVII. Financial relations with directors of the consolidating company
A.Compensation for the year for their service in theconsolidating company, its subsidiaries and affiliatedcompanies, including pensions for former directors: BEF349 million.
B. Advances and credits granted by the consolidatingcompany, by a subsidiary or by an affiliated company: Nil.
THE EXTERNAL AUDITOR’S REPORTOn the consolidated financial statements of the SolvayGroup as of December 31, 1996
Ladies and Gentlemen,In compliance with the legal and statutory requirements, we hereby submit our report onthe accounts we have been asked to audit.We examined the application of the consolidation criteria and procedures by numeroustests and cross-checks of the both statements and the accounting records.The basic information reported by the fully consolidated companies is the subject ofregular review by the audit departments of the Head Office, by the internal auditors of thevarious National Organizations of the Group, as well as by the people in charge of theconsolidation.This expanded scope of the internal audit to include checks of the consolidatedstatements, as well as the existence of a consistent and appropriate set of proceduresapplied in the consolidation, in our opinion, are well in keeping with the nature andvolume of data being handled.We follow closely the auditing work of this expanded team, which enables us to certifythat the timely information forwarded to the parent company reflects accurately and inthe required form the assets and earnings of the companies to be consolidated.Many of the subsidiaries also have external auditors, whose reports we have received.The consolidated statements are drawn up in compliance with the applicable regulationsand legal provisions.The consolidated management report comprises the information legally required andcomplies with the consolidated statements.Considering the above, we confirm without reservation that the consolidated statements,which show total assets of : BEF 283 124 millionand a net profit of : BEF 13 629 millionpresent fairly the assets, financial position and earnings of the Group, taking into accountthe applicable regulations and legal requirements.The explanations given in the notes to the financial statements are appropriate.
Brussels, April 24 1997
André Hoste,External Auditor
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XVIII Financial statements of Solvay S.A. (summary)
At December 31 1995 1996in BEF million
ASSETSFixed assets 162 748 161 560
Start-up expenditures and intangible assets 3 119 2 665Tangible assets 30 187 29 160Financial assets 129 442 129 735
Current assets 32 036 37 183
Inventories 10 277 10 860Trade receivables 15 695 15 577Other receivables 3 891 10 610Short-term investments and cash and cash equivalents 2 173 136
TOTAL ASSETS 194 784 198 743
SHAREHOLDERS’ EQUITY AND LIABILITIESShareholders’ equity 125 256 126 689
Capital 32 161 32 266Other equity 82 033 82 070Net earnings carried forward 11 018 12 292Capital subsidies 44 61
Provisions and deferred taxes 12 670 13 285
Financial liabilities 23 738 27 566
due in more than one year 20 675 22 322due within one year 3 063 5 244
Trade liabilities 16 946 16 397Other liabilities 16 174 14 806
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 194 784 198 743
The annual financial statements of Solvay S.A. are presented in an abridged form below. Inaccordance with the law governing commercial corporations, the management report and annualfinancial statements of Solvay S.A. as well as the report of the External Auditor have been depositedwith the National Bank of Belgium.
These documents are available on request from:Solvay S.A.rue du Prince Albert 33B - 1050 Bruxelles
The External Auditor has given an unqualified report on the annual financial statements of Solvay S.A.
SUMMARY BALANCE SHEET
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Statement of capital
Amounts Number(in millions of BEF) of shares
A. CAPITAL1. Issued capital (heading 100 under liabilities)
- At the end of the previous year 32 161- Changes during the year 105
(1) 32 266
2. Capital representation2.1 Type of shares
Without par value 8 368 0282.2 Registered or bearer shares
- Registered 3 188 417- Bearer 5 179 611
(1) 13 040 warrants issued to senior executives of the Group throughout the worldwere exercised between February 1 and February 28, 1997. The stated capital ofSolvay S.A. was thus increased to BEF 32 371 million and the number of shares to 8 381 068, effective March 5, 1997.The 13 040 new shares are in all aspects the same as existing shares. They thereforeare entitled to the balance of the dividend payable pursuant to the decision of theAnnual Stockholders’ Meeting of June 5, 1997.The calculation of dividends takes into account this right to dividends.
Amount of Number of(in millions of BEF) capital held shares
D. COMMITMENTS TO ISSUESHARES2. Pursuant to SUBSCRIPTION right
- Amount of subscription rightsoutstanding 2 463 150
- Amount of capital to subscribe 9 798- Maximum number of correspondingshares to be issued 2 463 150
E. AUTHORIZED, UNISSUED CAPITAL 1 275
G. DECLARATIONS RECEIVED IN COMPLIANCEWITH THE LAW OF MARCH 2, 1989
The Company received on July 3, 1989 a statement from Solvac S.A. ,Brussels, according to which it holds: 2, 072, 458 Solvay S.A. shares,giving it 25.01% of voting rights; together with Deutsche Bank AG,Crédit Suisse S.A. and Sofina S.A., 2,400,000 subscription rightsmentioned under item VIII.D.2 above.The 2,400,000 subscription rights may only be exercised at therequest of the Board of Directors of Solvay S.A.Their exercise price would be based on the average market price forthe last 6 months, minus a discount of 15% justified by the limitedtransferability of the new shares. These would be paid-up at 25%(plus 100% of the share premium).The entire stock issued would represent 22.45% of the increasedcapital which would be distributed in equal parts among the currentwarrant-holders.Taking dilution into account, Solvac S.A.’s interest in Solvay would bekept at 25.01%.
SUMMARY OF COMPANY POLICIES USED IN ASSET VALUATION, PURSUANT TO ARTICLE 7 OF THE LAW OF JULY 17, 1975
1. Start-up expenditures
Start-up expenses are amortized over a period of five years; however,fees and reimbursement premiums on loans are written off over theduration of the loan.
2. Intangible assets
Research and development expenditures are capitalized only ifcapitalization is a necessary condition for obtaining tax or otheradvantages. They are amortized at the fastest allowable rate.Expenses related to registration, filing or utilization of a patent ortrademark are recorded under assets at cost, to the extent this doesnot exceed a prudent estimate of the value of utilization or futureprofitability of the trademark. When their use is limited in time, theintangible assets acquired from third parties are amortized on astraight-line basis over their estimated life.
3. Tangible assets
Tangible fixed assets the use of which is limited in time aredepreciated on a straight-line basis over their estimated life; however,anticipated, accelerated or retarded depreciation may be used.Tangible fixed assets may be revalued under applicable law. Forassets located abroad, if on the closing date, as a result of the declineof a foreign currency against the Belgian franc, the residual value tobe depreciated in Belgian francs exceeds the residual value in thecurrency converted into Belgian francs at the exchange rate prevailingon the closing date, the excess is amortized over the remainingperiod.
4. Financial assets and receivables maturing in more thanone year
Write-downs are recorded on financial fixed assets and on receivablesmaturing in more than one year when evaluation shows that they arepermanently worth less than their carrying value.
5. Inventories
The value of raw materials, work in progress, finished products,merchandise and packaging material inventories is determined by theLIFO method or by the weighted - average - cost method.The cost of finished goods includes cost of production directlyattributable to the products and the indirect costs of production, aswell as depreciation.
6. Orders in progress
Orders in progress are valued at cost, excluding all financial expenses.
7. Provisions for risks and expenses
At the close of the year, existing risks are examined to determinewhether to set up new reserves or update existing reserves.
8. Conversion into Belgian francs of assets and liabilities inforeign currencies
- The following are converted into Belgian francs at the historicalexchange rate:* tangible assets and reserves recorded in foreign branches;* shares with variable dividends expressed in foreign currency,representing financial fixed assets.
- The other assets and liabilities, abroad as well as in Belgium, areconverted into Belgian francs at the year-end exchange rate.
- Income and expenses of foreign branches are converted at theaverage exchange rate for the year.
When conversion differences resulting from the application of thisrule, derived currency by currency, or by group of currencies linkedeconomically, correspond to deferred losses, they are recorded in theincome statement. Those relating to deferred gains are recorded inthe income statement in transitory accounts.Exchange-rate differences realized on foreign currency transactionsare recorded in the income statement.
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ALKALIS SECTORNA2CO3 Sodium carbonate. The name “ soda ash ”
is often used in common language.NaOH Sodium hydroxide or caustic soda.
NaHCO3 Sodium bicarbonate.Cl2 Chlorine (gaseous or liquified).
NaOCl Sodium hypochlorite or, after dilution,household bleach.
CFC Family of chlorofluorocarbons, composed ofcarbon (C), chlorine (Cl) and fluorine (F).
HCFC Family of hydrochlorofluorocarbons, composed ofcarbon (C), chlorine (Cl) and fluorine (F), with atleast one atom of hydrogen (H).
HFC Hydrofluorocarbons composed of carbon (C) and fluorine (F), with at least one atom of hydrogen (H).
Allylic products A family of products derived from compoundscontaining at least one allyl radical (CH2=CH- CH2)They are used e.g. for the production of epoxy resins.
PEROXYGENS SECTORH2O2 Hydrogen peroxide.
Persalts Salts resulting from the action of hydrogen peroxide (H2O2) on a mineral salt and capable of releasing active oxygen.
Caprolactones Liquid esters obtained by reaction of peracetic acidwith cyclohexanone. Caprolactone monomer and polycaprolactones are used in a very large numberof end uses.
PLASTICS SECTORVCM Vinyl chloride monomer the polymerisation of
which leads to the production of PVC.PVC Plolyvinyl chloride, a plastic resin composed of
atoms of carbon, hydrogen and chlorine; itsformula is -(CH2-CHCl)n-
HDPE High density polyethylene, a plastic resincomposed of atoms of carbon and hydrogen - itsformula is -(CH2- CH2)n-
PP Polypropylene, a plastic resin composed of atoms of carbon and hydrogen - its formula is
HI
-( CH2-C-)n-ICH3
Compounds Mixtures of plastic resins (the primary ingredients) with various additives (stabilizers, reinforcingsubstances, fillers, pigments and the like); suppliedin the form of pellets.
PVDC Copolymers based on vinylidene chloride-(CH2=C-Cl2)-, plastic resins with very good barrier properties.
PVDF Polyvinylidene fluoride, with a formula of -(CH2-CF2)n- a fluorinated plastic resin that is veryinert chemically and has good resistance to fire.
PROCESSING SECTORCalendering Method for producing film and sheet by heating
and laminating plastic resins on equipment usingrollers.
Extrusion Method for molding plastic resins on equipmentusing a screw to produce pellets or semi-finished items (pipe, shaped parts, film and sheet,etc.).
WOOD-STOCK® Thermoformable sheets made by extruding a mixtureof sawdust and polypropylene.
HEALTH SECTORScreening Evaluation of potentially active chemical or biological
substances, by means of pharmacological, toxicolo-gical or other tests, in order to select those sub-stances with the best properties.
ADR(American Depositary Receipt) certif icaterepresenting Solvay shares and negotiable in theUnited States.
CASH FLOWConsolidated net income plus all depreciation andamortization of start-up expenditures andintangible and tangible assets.
CONSOLIDATED SALESTotal amount invoiced to customers afterelimination of intra-Group transactions.
CURRENCY SWAPSTransaction whereby two parties undertake toexchange interest rate conditions on equivalentsums expressed at their initial value in twodifferent currencies, to a predetermined timetable.
CURRENT RESULTEarnings before extraordinary items.
EBITEarnings Before Interest and Taxes-Earnings before extraordinary items and beforenet financial charges, taxes, entries for andreversals of reserves, and other elements notallocated by sector.
EQUITY METHOD OF ACCOUNTINGReplacement of the value of an investment by itsproportional share of the shareholder’s equity andearnings of the company.
GOODWILLExcess of the purchase cost of an enterprise afterreestimation of its assets and l iabil it ies inaccordance with the evaluation criteria of theacquiring group.
LIBOR (London Interbank Offered Rate)Interest rate applied between London banks fortheir lending and borrowing transactions.
LIFOLast In First Out - Method of valuing productswithdrawn from inventory, in which theseproducts are valued at the cost of the last itemsput into inventory. In this way, the unusedinventory is valued at the oldest cost.
NET DEBT TO EQUITYRatio of net debt (debt less cash position) toshareholders’ equity.
NON CASH ITEMSExpenses and income included in the results butwhich do not result in transfers of funds.
ROE(Return on equity) = net income for the fiscalyear/shareholders’ equity. Ratio expressing theprofit on the book value of the shareholders’equity of a given enterprise.
SECURITIZATIONTransaction whereby an enterprise improves itscash position by transferring receivables to aspecialized body which finances itself by issuingshort-term commercial papers.
VALUE ADDEDThe total of wages, salaries and benefits,depreciation and amortization, interest charges ondebt and consolidated net income before taxes.
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AUSTRIASOLVAY ÖSTERREICH AGParkring 12A - 1010 WienTel : 43 1 51 58 80 Fax : 43 1 51 58 860
BENELUXSOLVAY S.A.Rue Prince Albert 44B - 1050 BrusselsTel : 32 2 509 61 11 Fax : 32 2 509 66 24
BRAZIL (+ ARGENTINA)SOLVAY DO BRASIL S.A.Alameda Santos 2101Cerqueira CesarBR - 01419-010 São Paulo-SPCaixa Postal 7216BR- 01064-970 São Paulo SPTel : 55 11 30 67 50 00 Fax : 55 11 30 67 53 80
FRANCESOLVAY S.A.12 Cours Albert 1erF - 75008 ParisTel : 33 1 40 75 80 00 Fax : 33 1 45 63 57 28
GERMANYSOLVAY DEUTSCHLAND GmbHHans-Böckler-Allee 20D - 30173 HannoverTel : 49 511 85 70 Fax : 49 511 28 21 26
ITALYSOLVAY S.A.Via Turati 12I - 20121 Milano MITel : 39 2 29 09 21 Fax : 39 2 657 05 81
PORTUGALSOLVAY PORTUGALProdutos Químicos S.A.Avenida Marechal Gomes Da Costa 33P - 1800 LisboaTel : 351 1 859 30 01 Fax : 351 1 859 06 73
SINGAPORE (+ SOUTH EST ASIA AND AUSTRALIA)SOLVAY ASIA PACIFIC Pte Ltd.80 Anson Road, #37-00IBM TowersSGP - Singapore 079907Tel : 65 222 69 91 Fax : 65 221 27 68
SPAINSOLVAY S.A.Calle Mallorca 269E - 08008 BarcelonaTel : 34 3 484 74 00 Fax : 34 3 484 76 56
SWITZERLANDSOLVAY (SCHWEIZ) AGZürcherstrasse 42CH - 5330 Zurzach (Argovie)Tel : 41 56 269 61 61 Fax : 41 56 269 63 63
UNITED KINGDOMSOLVAY UK HOLDING Co Ltd.Grovelands Business CentreBoundary WayGB - Hemel Hempstead, Herts HP2 7TETel : 44 1 442 236 555 Fax : 44 1 442 238 770
UNITED STATES (+ CANADA AND MEXICO)SOLVAY AMERICA Inc.Richmond Avenue 3333USA - Houston, TX (77098-3009)Tel : 1 713 525 60 00 Fax : 1 713 525 78 87
Ce rapport est aussi disponible en Français.Het jaarverslag is ook beschikbaar in het Nederlands.
Dieser Bericht ist auch in Deutsch verfügbar.
Solvay S.A. - Société Anonyme.Registred office : Ixelles (Bruxelles)
rue du Prince Albert 33Tel : 32 2 509 61 11 Fax : 32 2 509 66 17
Commercial register : Brussels N°5554VAT : BE 403.091.220
Thanks to Renaud, Agathe, Stéphanie, Camille, Juliette, Roxane,
Marie-Caroline, Annaïk, Audrey, Astrid, Delphine, Ellen, Hannah, Isaline, Natacha, Camille, Olivia,
Vasco, Adrian, Sandrine, Raïane, Alice, and also Lucie Malou for their collaboration to the
children’s drawings and photographs
Concept and production : Communication & Finance S.A.Digital prepress : MicroScript S.A.
Printing : Weissenbruch S.A.Photographs : SOLVAY, G.Vanrijk, H. Diard, P. Mathieu, ROVER.
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