Simplified Cash Flow (SCF) and Free Cash Flow (FCF)

Introduction of cash flow

Cash flow is a complex and multi-dimension indicator implying both

• operating parameters under direct business control
  • Underlying EBITDA
  • Industrial Working Capital
  • CAPEX
  • ...
• non-operating parameters not fully under business control
  • non-operating Working Capital
  • Tax
  • ...

Solvay has defined 2 levels of cash flow

• Simplified Cash Flow (SCF) under direct business control and responsibility
• Free Cash Flow (FCF) at Group level

Computation of the Simplified and Free Cash Flow

1. = Year-1 Working Capital (WC), restructured and translated using the month rate (actual), less actual WC at month end.

2. Examples:

• prepaid expenses,
• neutralization of OOIE (Other Operating Income and Expenses), excluding gain/loss on disposal, and recognition of OOIE cash for the period,
• payment delay for employee benefits and tax liabilities

Managing Cash Flow: On top of Underlying EBIDTA, managing cash flow adds few more levers:

• Working Capital: management of
  • receivables
    • minimize overdues (pre-collection and pre-litigation monitoring)
    • payment terms extension at contract negociation
• inventories
  • "just needed" inventories tool from industrial function to set targets
  • supply chain optimization (e.g.: "make to order" approach vs "make to inventory", constant adjustment of production to demand)
• payables
  • optimum purchase timing / schedule
  • payment terms optimization at purchase negociation
  • CAPEX
    • identify right timing to invest
    • investigate alternatives and non-capital solutions
    • Arbitration between Underlying EBITDA and Cash Flow