Financial Statements - Solvay

108
Solvay Global Annual Report 2008
The order in which these risk categories are listed is not an indication of their severity or probability. The mitigation efforts
described are no guarantee that risks will not materialize but demonstrate the Group’s efforts to reduce risk exposures
in an entrepreneurial way.
1. Market & Growth – Strategic Risk
Strategic Risk is Solvay’s exposure to adverse developments in our markets or our competitive environment as well as
the risk of making erroneous strategic decisions. Examples of such risks are technological leaps allowing the development
of substitute products or manufacturing processes, drastic changes in energy prices, the lack of success of a
new product, product pipeline failures, scarcity of key raw materials, reduction of demand in our main markets as
a consequence of new legislation, events affecting our most important customers, signifi cant imbalances between supply
and demand in our markets, and major social crises.
Prevention and Mitigation efforts
The potential impact of adverse events is managed at Group level, and involves in particular:
– Managing activities and maintaining a balanced portfolio of products,
– Diversifi cation of the customer base in different market segments,
– Adaptation of operations to the changing macroeconomic and market environment,
– Selective vertical integration to limit potential cumulative effects from raw materials,
– Strict fi nancial policy of controlling the net debt to equity ratio.
The periodic review of the main macroeconomic assumptions, market assumptions and key strategic issues of each
Strategic Business Unit (SBU) for the next fi ve years is managed in the strategy and plan process of the Group.
The strategy phase focuses on market and competitive environment assumptions and on the strategic options of each
SBU. The planning phase focuses on the business plan, scenarios, and on the main projects on which execution of
the strategy relies. The strategy and business plans of each SBU are presented by the management of the SBU to,
discussed with and amended and approved by the Executive Committee. The Corporate Development department acts
as facilitator in the process, cross-checking assumptions between the different business units and with external sources.
Corporate Development continuously updates its strategic analysis of the competitive environment. The major strategic
orientations are submitted to the Board of Directors, which has the ultimate responsibility for the Group’s strategy.
2. Supply Chain and Manufacturing Risk
Supply Chain and Manufacturing Risk attached to production units is Solvay’s exposure to risks associated with
raw material, suppliers, production units and transportation, such as risks of major equipment failure or damage,
transportation accidents, drastic shortages of raw materials or energy, natural disasters or transportation strikes.
Prevention and Mitigation efforts
Key risk areas are addressed with policies and risk control programs such as health and safety, process safety, risk
engineering, integrated resource planning and supply chain optimization systems (ERP), emergency response, central and
local crisis management, business continuity, etc.
Our plants are regularly subject to audits and in this context the risks of damage to production units and consequential
business interruption events are identifi ed and quantifi ed by risk engineers. Solvay evaluates the recommendations and
implements those it fi nds appropriate.
The geographical distribution of production units around the world reduces the overall impact of one production unit
being damaged or interrupted. Some pharmaceutical and specialty products are however, only produced in one single
plant. The inventories of fi nished products and raw material for pharmaceutical and some specialty products are managed
to create buffer stocks.
Solvay buys insurance to reduce the fi nancial impact of potential events causing extensive damage and consequential
interruption of supply.