Think tank: Solvay integrates Rhodia at the right time

27 February 2012 00:00  [Source: ICB]

Analysts believe the merger between Belgium's Solvay and France-based Rhodia can deliver both growth and cost benefits ahead of management targets. The Rhodia businesses helped ease the pain for Solvay in a fourth quarter hit by plunging demand in plastics and a more difficult operating environment for industrial chemicals. The weak spots for the new group were largely upstream and in polyvinyl chloride (PVC) and polyamide. It remains to be seen, therefore, whether economic troubles in Europe - and to a lesser extent, lackluster growth in the US - have a serious negative impact.

Solvay produces and sells some very basic inorganic and organic chemicals, but is driving towards greater sophistication and, indeed, sustainability. It sees potential in aligning its businesses with global megatrends and in a product portfolio that is diversified by product type and by geography.

Solvay's management wanted to use the funds generated from the sale of its pharmaceutical operations to diversify and reduce cyclical exposure - and the fact that the Solvay and Rhodia portfolios are complementary in these respects has been proven in the latest results. Sales grew by 5% in the fourth quarter - Rhodia was consolidated from September - on 3% lower volumes but 7% higher prices, and it was the Rhodia businesses that provided most of the growth.

Solvay is pushing hard on all fronts. It has raised prices significantly in rare earths, for instance - a Rhodia business - and is trying to secure supplies through a joint venture with a raw materials ­producer in China and through recycling.

"The first contribution by Rhodia to the Group's quarterly results is substantial," Solvay CEO Christian Jourquin said on February 16. Fourth-quarter recurring earnings before interest, tax, depreciation and amortization (REBITDA) were down by 52% year on year in plastics and by 15% in Solvay's largely inorganic chemicals businesses - but were only 3% lower in Rhodia. Group REBITDA was 23% lower at €355m ($467m).

Weathering a particularly difficult ­quarter is one thing, but the diversity brought to the group by Rhodia had clearly proved to be a positive step. The diversification and consolidation benefits will be expected to play out over a longer period.

"With two-thirds of its sales in resilient market segments and 40% in fast growing regions, Solvay is well positioned to capture growth opportunities in promising business segments responding to the industry's undergoing megatrends," Jourquin said.

Rex Features

Good timing: The merger with Rhodia came at the right moment for Solvay


By: Nigel Davis
+44 20 8652 3214



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