Issue Date: April 7, 2008
IN 2003, when Jean-Pierre Clamadieu assumed the chief executive officer's mantle at specialty chemical producer Rhodia, the firm was flirting with bankruptcy. Four-and-a-half years later, Clamadieu says Rhodia has completed the last phase of asset sales. Now, he says, it is time to strengthen the firm's remaining businesses and start acquiring again.
Since 2003, Clamadieu has arranged the sale of a number of large operations including pharmaceutical chemicals, latex polymers, industrial phosphates, and silicones. In doing so, the firm has reduced its debt from about $4 billion at the end of 2003 to about $2 billion at the end of 2007.
In the process, sales dipped as well, from $7.5 billion in 2003 to less than $7 billion last year, both translated from euros at the 2007 average exchange rate. More significant for Clamadieu is that the firm, which was losing gobs of money—nearly $2 billion in 2003—has turned around and earned $176 million in 2007.
Just last month, Rhodia and LyondellBasell, partners in the isocyanates business, started negotiations to sell their operations in the U.S. and France to polyols specialist Perstorp (C&EN, March 31, page 20). The joint business employs 680 people and produces intermediates to make paint and polyurethane foam. In 2007, the business had sales of $408 million.
Also last month, Rhodia disbanded its organics business unit, which included isocyanates, and moved its highly profitable operation in diphenols and the flavor chemical vanillin into its Silicea unit. It also moved its fine organics operation, which makes analgesic ingredients and other fine chemicals and which lost money last year, into the "corporate and other" category. There the unit will undergo strategic review and will be restructured or closed.
With isocyanates partly out the door, "we are at the end of the portfolio-refocusing process," said Clamadieu, 49, who spoke last month in New York City at a meeting of the American Section of the Société de Chimie Industrial. He also sat down to talk with C&EN afterward. Rhodia, he said, is now moving forward and is positioned for future growth.
Thomas Gilbert, a Zurich, Switzerland-based stock analyst at the investment bank UBS, says he is happy to see the reorganization coming to an end. "I would say that the problem at Rhodia now is not the firm's portfolio. It needs to use its assets to improve cash flow," Gilbert says. "A company can only bear so much restructuring. It depresses employee morale and is a constant cash burden."
With the revamp ending, Gilbert expects Rhodia will finally reward shareholders with more substantial profits. "The piano is built," he says. "Let's hear them play it."
Clamadieu, an industrial engineer who graduated from the Ecole Nationale Supérieure des Mines de Paris, is ideally positioned now to play the business for what it is worth. A day before Rhodia announced that it would sell the isocyanates business, the company's board gave Clamadieu the additional responsibility of chairman. Although it is unusual for a European executive to simultaneously hold the titles of chairman and CEO, the board said it made the appointment to "streamline decision-making and accountability."
Clamadieu is wasting no time in his dual role. Expect Rhodia to beef up its remaining operations, he said in New York City, and expect Rhodia to actively seek expansion opportunities.
IN FACT, the acquisition process is already under way. A little less than a year ago, Rhodia "started in a small way," Clamadieu said, when it spent about $20 million to acquire W.R. Grace's business in alumina wash coats for auto catalytic converters. The business complements Rhodia's own rare-earth products for emission control catalysts. "It is a good example of what we want to do," he told C&EN.
Clamadieu said he is not thinking of large, transformational acquisitions but rather smaller "bolt-on" deals. As a supplier of surfactants and guar-based thickeners to the household and personal care products industries, he said, Rhodia's Novecare business could add to its heft by acquiring small companies with complementary technology.
But while he keeps his eye on the long-term opportunities, Clamadieu knows that Rhodia has a number of short-term challenges ahead. As for most other chemical firms, raw material and energy costs are on the rise. "Oil and natural gas are becoming expensive in Europe," he said. The company hopes to manage those costs by "increasing the speed at which we pass along price increases to customers." At the end of the day, "it is in the best interest of our customers that we are profitable and continue to invest in our businesses," he added.
On the positive side, Clamadieu said, most of Rhodia's plants "are running well." Sales are robust in Asia, Latin America, and Europe. The firm, he added, has only limited exposure to a U.S. slowdown, although he did point out that the weak U.S. dollar has affected sales of products Rhodia imports into the U.S.
Clamadieu is also counting on the firm's R&D operations to help save money. Rhodia invested about $175 million in R&D last year, or about 2.5% of sales. Paul-Joël Derian, Rhodia's vice president of R&D, "tells me that is not enough," Clamadieu said. But in 2008, he does not plan to give Derian any more than 2.5% of sales.
Clamadieu explained that he thinks R&D and technical service have to be managed for the greatest potential payback. "Process R&D improvements are a primary focus for our R&D operations," he said. Coming in second is developing new products. And although new products will help Rhodia appeal to customers, especially in the Novecare business, he is not counting on blockbuster product developments.
"I'm not convinced there is another nylon out there to be discovered," Clamadieu said. "I see incremental improvements coming out of R&D but no real big breakthroughs."
Like many industry titans, Rhodia's CEO is bullish on prospects for growth in China. The firm has more than 2,300 employees and over $450 million in sales in the country, Clamadieu said. But he said he has tempered his enthusiasm for China's growth because of a recent export policy change.
Rhodia had considered China as a possible location for a new plant to supply the nylon precursor adiponitrile to its polymer facilities in China and the rest of Asia. But last July, the Chinese government reduced the tax rebate it once gave exporters of many products, including chemicals, from 13% to 5%.
The reduction of what was effectively an export subsidy "makes it harder for us to use China as a global production base," Clamadieu said. "Because the Chinese government now penalizes exports, it is now penalizing us." Instead, Rhodia is considering other locations for the plant, including the Middle East, where a venture with a local partner might also bring access to attractively priced raw materials.
Investment in Asia is a key priority for Rhodia, but more important, Clamadieu emphasized, is that the entire firm is ready to move ahead. The flirtation with bankruptcy is now just an unpleasant memory, and Clamadieu is poised to play a tune on Rhodia's rebuilt piano that Gilbert and other stock analysts should be pleased to hear.
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