NOTE F1 Segment information - 2017 Annual Integrated Report

Accounting policy

An Operating Segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity’s chief operating decision maker, and for which discrete financial information is available. The Solvay Group’s chief operating decision maker is the Chief Executive Officer.

Net sales comprise the sales of goods and value-added services corresponding to Solvay’s know-how. Net sales and other revenue are measured at the fair value of the consideration received or receivable, net of returns, rebates and trade benefits granted, and sales tax.

Revenue from non-core activities primarily includes commodity and utility trading transactions and other revenue deemed incidental by the Group.

Net sales and other revenue are recognized when all the following conditions have been satisfied:

the Group has transferred to the buyer the significant risks and rewards of ownership of the goods,
the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold,
the amount of revenue can be measured reliably,
it is probable that the future economic benefits associated with the transaction will flow to the Group, and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

General

Solvay is organized into four Operating Segments:

Advanced Materials offers high-performance materials for multiple applications primarily in the automotive, aerospace, electronics, and health markets. In particular, it provides sustainable mobility solutions, reducing weight and improving CO₂ and energy efficiency.
Advanced Formulations serves primarily the consumer goods, agro and food, and energy markets. It offers customized specialty formulations that impact surface chemistry and alter liquid behavior, to optimize efficiency and yield, while minimizing the environmental impact.
Performance Chemicals operates in mature and resilient markets and has leading positions in chemical intermediates. Success is based on economies of scale and state-of-the-art production technology. It serves mainly the consumer goods and food markets. As from 2017, Performance Chemicals also encompasses the remaining business activities previously included in the segment Functional Polymers (which was composed mainly of polyamide activities, which were reclassified to discontinued operations). The comparative information has been adjusted accordingly.
Corporate & Business Services includes corporate and other business services, such as the Research & Innovation Center. It also incorporates the GBU Energy Services, whose mission is to optimize energy consumption and reduce CO₂ emissions.

Information per segment

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2017
In € million
Income statement items

Advanced Formulations

Advanced Materials

Performance Chemicals

Corporate & Business Services

Group Total

(1)	Underlying EBITDA is a key performance indicator followed by management (see Business Review section – 5. Reconciliation of underlying with IFRS figures).

Net sales (including the inter-segment sales)

2,972

4,371

2,797

10,163

Inter-segment sales

(6)

(2)

(31)

(38)

Net sales

2,966

4,370

2,766

10,125

Gross margin

764

1,514

761

3,086

Depreciation and amortization

280

432

263

1,054

Earnings from associates and joint ventures

Underlying EBITDA⁽¹⁾

524

1,202

749

(244)

2,230

EBIT

976

Net financial charges

(298)

Income taxes

197

Profit (loss) for the year from discontinued operations

241

Profit (loss) for the year

1,116

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2017 In € million Statement of financial position and other items	Advanced Formulations	Advanced Materials	Performance Chemicals	Corporate & Business Services	Group Total
Capital expenditures (continuing operations)	130	366	152	68	716
Capital expenditures (discontinued operations)			105		105
Investments (continuing operations)		28		28	56

Working capital
Inventories	403	802	288	10	1,504
Trade receivables	410	546	430	76	1,462
Trade payables	327	411	324	268	1,330

Capital expenditures relate to property, plant, and equipment and to intangible assets.

Information per segment for 2016 as presented below takes into account the new organization of the Operating Segments applicable as from 2017.

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2016
In € million
Income statement items

Advanced Formulations

Advanced Materials

Performance Chemicals

Corporate & Business Services

Group Total

(1)	Underlying EBITDA is a key performance indicator followed by management (see Business Review section – 5. Reconciliation of underlying with IFRS figures).

Net sales (including the inter-segment sales)

2,671

4,313

2,606

9,596

Inter-segment sales

(3)

(25)

(28)

Net sales

2,668

4,313

2,581

9,568

Gross margin

695

1,398

715

2,831

Depreciation and amortization

292

413

260

110

1,074

Earnings from associates and joint ventures

(1)

Underlying EBITDA⁽¹⁾

484

1,110

718

(237)

2,075

EBIT

858

Net financial charges

(334)

Income taxes

Profit (loss) for the year from discontinued operations

Profit (loss) for the year

674

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2016 In € million Statement of financial position and other items	Advanced Formulations	Advanced Materials	Performance Chemicals	Corporate & Business Services	Group Total
Capital expenditures (continuing operations)	134	435	281	79	929
Capital expenditures (discontinued operations)			51		51
Investments (continuing operations)	16	4		44	64
Investments (discontinued operations)			33		33

Working capital
Inventories	388	794	478	11	1,672
Trade receivables	365	571	603	82	1,621
Trade payables	293	429	570	255	1,547

Capital expenditures relate to property, plant, and equipment and to intangible assets.

External net sales by cluster

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In € million	2017	2016
Advanced Materials	4,370	4,313
Specialty Polymers	2,025	1,922
Composite Materials	1,038	1,073
Silica	443	455
Special Chem	865	862
Advanced Formulations	2,966	2,668
Novecare	1,937	1,663
Technology Solutions	662	656
Aroma Performance	366	350
Performance Chemicals	2,766	2,581
Soda Ash & Derivatives	1,629	1,561
Peroxides	600	542
Coatis	410	346
Functional Polymers	126	131
Corporate & Business Services	23	7
Energy Services		4
CBS and NBD	23	3
Total	10,125	9,568

Sales by country and region

The sales disclosed below are allocated based on the customers’ location.

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In € million	2017	%	2016	%
Belgium	156	2%	137	1%
Germany	716	7%	721	8%
Italy	444	4%	453	5%
France	383	4%	383	4%
United Kingdom	303	3%	298	3%
Spain	210	2%	227	2%
European Union – other	592	6%	583	6%
European Union	2,803	28%	2,802	29%
Europe – other	97	1%	102	1%
United States	2,921	29%	2,814	29%
Canada	159	2%	139	1%
North America	3,079	30%	2,953	31%
Brazil	709	7%	627	7%
Mexico	176	2%	166	2%
Latin America – other	200	2%	202	2%
Latin America	1,084	11%	996	10%
Australia	104	1%	90	1%
China	912	9%	782	8%
Egypt	48	0%	54	1%
Hong Kong	108	1%	79	1%
India	170	2%	161	2%
Indonesia	104	1%	103	1%
Japan	365	4%	365	4%
Russia	79	1%	61	1%
South Korea	264	3%	237	2%
Thailand	181	2%	159	2%
Turkey	65	1%	67	1%
Other	661	7%	557	6%
Asia and rest of the world	3,061	30%	2,715	28%
Total	10,125	100%	9,568	100%

Invested capital, capital expenditures, and investments by country and region

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	Invested capital				Capital expenditures and investments
In € million	2017	%	2016	%	2017	%	2016	%
Belgium	2,075	13%	2,155	12%	(24)	3%	(28)	3%
Germany	516	3%	765	4%	(41)	5%	(46)	5%
Italy	775	5%	743	4%	(87)	11%	(83)	8%
France	1,080	7%	1,922	10%	(124)	16%	(188)	19%
United Kingdom	255	2%	235	1%	(51)	7%	(40)	4%
Spain	166	1%	142	1%	(23)	3%	(18)	2%
European Union – other	727	5%	408	2%	(24)	3%	(51)	6%
European Union	5,592	35%	6,370	35%	(374)	49%	(454)	46%
Europe – other	72	0%	81	0%		0%		0%
United States	7,755	49%	9,008	49%	(265)	34%	(309)	31%
Canada	190	1%	212	1%	(8)	1%	(8)	1%
North America	7,946	50%	9,220	50%	(273)	35%	(317)	32%
Brazil	389	2%	570	3%	(27)	3%	(37)	4%
Argentina		0%		0%		0%	(2)	0%
Latin America – other	54	0%	63	0%	(2)	0%	(3)	0%
Latin America	443	3%	633	3%	(29)	4%	(41)	4%
Russia	191	1%	228	1%		0%		0%
Thailand	141	1%	127	1%	(5)	1%	(4)	0%
China	755	5%	798	4%	(54)	7%	(66)	7%
South Korea	260	2%	269	1%	(12)	2%	(69)	7%
India	238	1%	237	1%	(18)	2%	(8)	1%
Singapore	47	0%	81	0%	(1)	0%	(3)	0%
Japan	42	0%	84	0%	(1)	0%	(1)	0%
Egypt	10	0%	10	0%		0%		0%
Other	216	1%	266	1%	(5)	1%	(29)	3%
Asia and rest of the world	1,900	12%	2,099	11%	(96)	12%	(181)	18%
Total	15,953	100%	18,404	100%	(772)	100%	(993)	100%

Invested capital includes the non-current assets (excluding the deferred taxes), inventories, and trade receivables and payables. Capital expenditures and investments include acquisitions of property, plant, and equipment, and intangible assets and investments in subsidiaries and other investments. Both exclude discontinued operations.