S07.02-Underlying results

1. From IFRS to Underlying Results

In 2016, the Group has decided to change the presentation of the Income Statement. Compared to 2015, the main change is the presentation of an “Underlying Result” computed based on the IFRS result and considering specific adjustments, the purpose being to ensure comparability over time of the Group’s underlying performance.

In the Press Release and the Annual Report, the Income Statement is now presented as below:

In the presentation:

• The REBITDA, previously one of the main performance metrics to assess the Group’s and the business’ performance, has been replaced with the “Underlying EBITDA”;
• The “non recurring items” are replaced by two items:
  • Result from portfolio management & reassessments
  • Result from legacy, remediation & major litigation

The sum of these two items exactly equals what was previously labeled “non recurring items”. Following this change, the reader can now directly understand the substance of the items presented in the respective lines.

2. Definition of the Adjustments

The adjustments made on the IFRS results to compute the Underlying results are defined as expenses and income that are considered by Management as distorting the comparability over time of the Group underlying performance.

The adjustments for continuing operations primarily include, but are not limited to the following items.

a) For Underlying EBIT

• Result from portfolio management and reassessments:

1. 1. 1. Major restructuring charges
      2. Impairment
         1. Impairment losses resulting from the shutdown of an activity or a plant
         2. Impairment losses resulting from testing CGU for impairment
      3. M&A costs and results on disposals
         1. Gains and losses on the sale of subsidiaries, joint operations, joint ventures and associates that do not qualify as discontinued operations
         2. Acquisition costs of new businesses
         3. Gains and losses on the sale of real estate not directly linked to an operating activity

• Result from legacy remediation and major litigations

1. 1. 1. HSE and other expenses related to non ongoing activities
      2. Major litigations

• Amortization of PPA revaluation of intangible assets
• Retention bonus related to acquisitions
• Recycling in profit or loss of inventory revaluation due to PPA

Underlying EBITDA (formerly REBITDA) is computed by deducting from Underlying EBIT straight-line depreciation and amortization.

b) For Underlying Profit for the year

• Adjustments impacting Underlying EBIT (see above)
• Impact on cost of discounting from changes in discount rates: increase or decrease of the net present value of the environmental liabilities deriving from changes in actualization rates is booked as part of the cost of discounting and is considered as distorting the measurement of underlying performance
• Impacts related to debt management

1. 1. 1. Fees for early repayment of structured loans
      2. Gains and losses arising on net monetary position in hyperinflationary economies
      3. Accelerated accretion of interests due to early repayment for financial instruments measured using the effective interest method
      4. Impact from derecognition of hedging instruments on financial debts

• Costs related to hybrid bonds: considering the increased weight in the Group financing structure of « hybrid bonds » qualified as equity for IFRS, the related coupons are considered as financial interest on debt for Underlying Net results (although reported as dividends for IFRS).
• Income from Available-for-sale financial assets
• Tax related to all adjusted items at EBT level
• Previous years’ taxes 

c) All adjustments above, if material, are also applicable to Earnings from associates and joint ventures and to discontinued operations. 

d) In addition, material financing related expenses included in Earnings from associates and joint ventures are excluded from Underlying EBITDA, but material interest charges and realized FX gains and losses (1) are included in the Underlying profit for the year.

(1) As of June 2016, this is only applicable for RusVinyl.

3. Adjustments done for Underlying Tax

a) Adjustment related to prior years

• True-up
  • Adjustment corresponding to the estimated tax provision calculated in N-1 and the final amount mentioned in the tax return
• Adjustment of taxes related to prior years
  • Adjustment corresponding to the estimated tax provision of previous years (before N-1) and the final amounts 

b) Adjustments related to tax audit/litigation

• Final tax adjustment
  • Notified tax adjustment at the level of the taxes resulting from income tax audit or income tax litigation
• Allowance/write-back of provision for tax risk
  • Anticipated tax adjustment (provision) at the level of the income taxes resulting from income tax audit or income tax litigation 

c) Withholding taxes (only in the tax package for analysis, but part of Underlying Tax in financial communication)

• Withholding tax on dividends received
  • Taxes withheld on the received dividends
• Withholding tax on royalties
  • Taxes withheld on the received royalties 

d) Adjustment at the level of deferred taxes

• Deferred taxes recognition correction
  • Change in the estimate of the recoverability of the deferred taxes
• Deferred taxes rate effect change
  • Impact, on the deferred taxes, of a change in the (nominal) tax rate

e) Tax effect on adjustments excluded from Underlying Profit for the year