+1 - Solvay

Mitigation efforts
The geographical diversification of production and sales provides a natural currency hedge because of the resulting
combination of an income stream and an expense base in local currency. Furthermore, Solvay closely monitors
the foreign-exchange market and enters into hedging measures for terms of between 6 and 24 months whenever
deemed appropriate. In practice, Solvay enters into forward and option contracts securing the EUR value of cash
flows in foreign currency during the following months.
• Interest-rate Risk is Solvay’s exposure to fluctuating interest rates. In its present structure, the Group has locked
in the largest part of its net indebtedness with fixed interest rates.
Mitigation efforts
Solvay closely monitors the interest-rate market and enters into interest-rate swaps whenever deemed appropriate.
• Solvay is exposed to Counterparty Risk in cash management and foreign-exchange and interest-rate risk management
as well as in its commercial relations with customers. A default by one of Solvay’s banking counterparties
could cause a loss in value of one of its bank deposits or the loss of an interest-rate or foreign-exchange hedge.
The failure to pay by one of Solvay’s customers could lead to a write-down on the trade receivables.
Mitigation efforts
Solvay manages its financial counterparty risk by working with banking institutions of the highest caliber (with
selection based on major rating systems) and minimizes the concentration of risk by limiting its exposure to each of
these banks to a certain threshold, set in relation to the institution’s credit rating. Furthermore, customer credit risk
is managed by a risk committee and by an in-house network of credit managers who fix credit limits for customers
and follow-up on cash collections. Additionally Solvay may also use credit insurance policies to manage customer
credit risk.
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• Concerning the Risk of Funding Pension Obligations, Solvay is exposed whenever it operates defined-benefit
plans. Fluctuations in discount rates, salaries and social security, longevity and asset/liability matching can have
an important impact on the liabilities of such pension plans.
Mitigation efforts
The Group has reduced its exposure to defined-benefit plans by converting existing plans into pension plans
with a lower risk profile for future services or by closing them to new entrants. Examples of plans with a lower
risk profile are hybrid plans, cash balance plans and defined-contribution plans. Solvay developed guidelines
and processes to better manage the pension funding risk. Over the past years the major defined benefit-pension
plans (Germany, Netherlands, UK, USA, Spain and Belgium) representing more than 80 % of the Group’s pension
obligations (under IFRS) have been reviewed in line with the above principles. The previously announced global
asset/liability management study was completed in 2007. This shows the level of risk to be within the pre-defined
threshold. Even so, we shall in 2008 be examining the possibility of further reducing the risk of our main pension
plans (Germany, Belgium, France, Netherlands, USA and UK).
6. Product Risk
• Product Liability Risk is Solvay’s exposure stemming from injury or damage to third parties or their property
arising from the use of a Solvay product, as well as the resulting litigation. Product liability may arise from out-ofspecification
products, inappropriate use or previously unidentified effects. Risks in Chemicals and Plastics also
include the possibility of manufacturing errors resulting in defective products, product contamination or altered
product quality and potential recalls.
Mitigation efforts
Product liability exposure is reduced by quality assurance and control, adequate information and technical
assistance to customers and health and safety programs. The Group supplies information relating to the safe
use and handling of its products. For products with significant hazards, which in general are only sold directly
to industrial users, the SBUs involved have product stewardship programs including material safety data sheets.
In Pharmaceuticals, stringent processes govern product labeling. Implementation of the REACh directive is
expected to result in a reduction of Product Liability Risk exposure in Europe.
Solvay Global Annual Report 2007