21 November 2002 18:07 [Source: ICIS news]
Rhodia is convinced that its new business model – which aligns the product and technology base much more closely with individual customers’ needs - is going to reap dividends. It is also trying to persuade the investment community that what it is doing is unique. It faces an uphill struggle on both fronts.
Current financial performance hardly inspires and it is difficult to see any meaningful near term improvement - and unfortunately the 'closer to the customer' story has been heard in chemicals so many times before.
In the third quarter the company reported seasonally lower profits (EBITDA – earnings before interest, tax, depreciation and amortisation) compared with the second quarter of the year but a slight increase on Q2 2002. There was a reported net loss of Euro27m for the third quarter and a loss of Euro22m for the nine months which compared with a Euro56m net loss in the first nine months of 2001.
Rhodia began publicising the new model at the start of this year pointing to the fact that it was beginning to link its technical capabilities and products more closely with customers and potential customers. The new approach has been used to drive the disposal programme and is being rolled out now across the group in line with its new organisational structure which takes affect next year.
It says that product and technology logic based on a 'silo organisation' is not appropriate for today’s complex customer environment, so it is looking at a much more broad-based approach. Customers increasingly want to solve particular product application problems which might involve a combination of technologies – not a simple technological fix - it believes.
Rhodia’s approach has been to get closer to customers and develop with them new product profiles based on specific needs. Projects are closely controlled and the French specialty chemicals producer says that it remains very much in the driving seat when it sets out to develop cross-border technology fixes or new products/materials.
The technology base was hardly focused when Rhodia was created in the late 1990s but the company has looked to its strengths and how it might be able to cross fertilise expertise and develop specific functionalities which can be sold – or rather used to develop new products for customers. Rhodia isn't that keen on developing new products for new markets.
The company is targeting, industrial and surface care, food, consumer care, electronics, agrochemicals and pharmaceuticals industries as strategic markets in its new structure. It has identified six key functionalities, which include its surface property modification and adhesion capabilities, control of dispersed media, delivery mechanisms, material reinforcement and the ability to design original properties into molecules by controlled synthesis.
Executive vice-president, Jean-Julien Baronnet, said at the sixth European Chemical Industry Finance & Investment conference in London on 20 November that Rhodia has already seen tangible results from its new approach. The idea has been piloted on 20% of group activities, he said, and today 30% of R&D (research and development) programmes are developed in partnerships. Rhodia has decided to implement the business model across all its activities, focusing as a priority in 2003 on the higher added value segments. The aim is to derive at least 25% of turnover from new products, double the current amount.
To a great extent the new model has been driving the divestment programme, Baronnet said, which to date has included the Latexia paper latex business, the Teris (industrial waste) business, polyvinyl acetate, Kermel technical fibres, the Rhodia-ster polyester and PET (polyethylene terephthalate) business in Brazil and the European basic chemicals businesses. The divestment programme will be expanded, he said.
More than Euro500m ($503m) from the divestments this year has been used drive down debt from Euro2.6bn at the 2001 year end to an expected Euro2bn for 2002. The company employed 6% fewer people at the end of September 2002 compared with the end of 2001 and capital spending in the first half of this year was 30% lower.
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