Solvay - ANNUAL REPORT 1996 - Morningstar, Inc.

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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.

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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.

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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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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

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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)


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


Consolidated sales by region

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Varna

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

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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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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.

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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


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.

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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.


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


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


EBIT by sector


(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.

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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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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.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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


Asia - PacificElectrolysis andchlorinated products

. . . . . . . . . . . . . . . . .

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


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


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.


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.


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


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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


• 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%




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


Sales

0

0.5

1.0

1.5

2.0

2.5

1994 1995 1996

1.1

1.5

2.2


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.


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


Hydrogen Peroxide 1 1

Persalts 1 1


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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


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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


• 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%




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.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60

70

80

90

100

1994 1995 1996

80.5

87.885.0


Sales

0

2

4

6

8

10

1994 1995 1996

4.8

8.8

3.5


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


PVC 2 3

HDPE 5 1

PP 8 7



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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


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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


• 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%



(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


Sales

0

1

2

3

4

2.5

1.8

0.8

1994 1995 1996


EBITRank

Products Europe World

Plastic fuel tanks 1 1

Decorative adhesives 1 1

Pipes and Fittings (Pipelife) 2 -

(3)

Key figures


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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


(*) 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


• 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


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


Sales

0

2

4

6

1994 1995 1996

2.8

3.3

4.3


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


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%


Gastrointestinal enzymes 1 1

Laxatives 1 3

Hormone replacement therapy 2 4

Antidepressants 10 6

Vertigo (Ménière disease) 1 1


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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


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


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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

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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


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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

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


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

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


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



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"


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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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


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





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



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

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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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.

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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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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

s t a t u t o r y a n n e x

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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)


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.

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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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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Solvay - ANNUAL REPORT 1996 - Morningstar, Inc.

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