Analysis: Tirouflet's exit heralds new future for Rhodia

LONDON (CNI)--In many respects it is surprising that Rhodia’s Jean-Pierre Tirouflet lasted this long.

The chairman and chief executive who stepped down Friday led the company from its creation and eventual spin-off from former French chemicals, pharmaceuticals and agrochemicals giant, Rhone-Poulenc, in 1998. He pulled together some disparate businesses and tried to create a more efficient and robust player on the European chemicals scene.

Formerly chief financial officer with Rhone-Poulenc, Tirouflet appeared in the early years to be having some success with Rhodia. By the late 1990s the company was in expansionist mood when it stepped up its presence in fine chemicals with the acquisition of Britain’s Albright & Wilson (A&W) for more the Euro1bn and the more than Euro500m acquisition of Chirex, both completed in 2000.

By the time of the Chirex purchase, however, Rhodia’s acquisition plans were coming under close scrutiny. Chirex was expensive and challenged Rhodia to think and act differently. Subsequent events and the pressure on chemicals dealt a series of blows to the company as it struggled to drive debt down and cash flow up.

Over the past three years, there has been an almost frantic search for different or even new ways of doing business to justify the corporate structure and indeed the continued presence of the chairman and chief executive. Tirouflet has fought hard to retain Rhodia’s independence in its current form and, although under severe pressure, he received overwhelming shareholder support at the most annual general meeting in April.

Not surprisingly, however, shareholders have reacted angrily to the collapse in the company’s share price which fell from a high of Euro25 in 2000 to below Euro5 this year. As with many of its peers, the extended chemicals downturn, high and volatile oil prices and overcapacity in fine chemicals business crucial to the company have been difficult to surmount.

Many believe that Rhodia’s portfolio is too diverse and the dogged determination to hang on to businesses sharply exposed to oil price volatility – such as polyamides – has been a mistake.

Yet, the only strategic solution contemplated by senior management appears to have been a limited disposal programme (rather than the extensive pruning expected by some analysts and shareholders) and the adoption of a new business model. Rhodia’s most recent disposal – that of the paper and textile additives business to Kemira was completed in September

Rhodia management is firmly wedded to the new business model which aligns the product and technology base much more closely with individual customers’ needs. But the question is now whether that will be changed. The company has only recently hosted a major event in Paris to publicise the new business model to its largest global customers.

Its announcement today certainly signals a major change in direction. Rhodia has decided to move much faster with its refocusing and concentrate further on the growth businesses and on debt reduction. This decision will lead to the launch of a significant Euro600m ($688m) divestment programme by the end of 2004. Reshaping of the portfolio will generate savings of more than Euro150m in 2006, the company said. The new measures, not yet explained in any great detail, when added to current cost reduction plans are projected to save Euro38m in 2003, Euro123m in 2004 and Euro150m in 2005.

Rhodia has been in a particularly difficult position for much of this year. Second quarter operating profits fell 87% to Euro13m on sales 20% lower at Euro1.4bn. The net loss was Euro87m. Rhodia generated Euro183m of positive cash flow which helped to push down debt but the company admitted that it would not be able to hit the debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) target of 2.5 that Tirouflet was talking about at the annual general meeting in April.

At the time he held up that target as being a good reason for shareholders to give him their continued support. The medium-term debt ratio objective was cut to 2.0 in July and the company indicated that the second half of 2003 was proving to be more difficult than anticipated. Rhodia indicated today that EBITDA for the third quarter will be between Euro70m and Euro80m compared with Euro149m in the third quarter of 2002.