BUSINESS HIGH PRIORITY Solvay's pharmaceutical division conducted an internal R&D study to improve effectiveness. change—13% of operating earnings in the first half, dropping to 6% in the second. That left pharmaceuticals to pick up dramatically, from 6% of operating earnings in the first half to 39% in the second half, and chemicals to rise from 29% of operating profits in first-half 2000 to 43% by the second half. Michielsen points out that Solvay got its start in chemicals in 1864—specifically synthetic soda ash made in a process named after Ernest Solvay The company then progressed to plastics when it moved from soda ash to caustic soda. "Solvay had to do something with the chlorine," the caustic soda coproduct, he says. "That got us into polyvinyl chloride."
SOLVAY: PROUD TO STAND ITS GROUND Hybrid company based in Belgium defies trend toward chemical-pharmaceuticals split PATRICIA L. SHORT, C&EN LONDON É i «
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^^W company, with four sec^m tors," says Alois Michielsen, I the Belgian firm's chief I executive officer. But, he adds, the company—one of the top 20 global chemical companies and one of Belgium's largest companies of any kind—is proud to be one. In fact, besides chemicals and pharmaceuticals —the traditional hybrid sectors— Solvay also has plastics and processing as serious strategic units. And despite the current business fashion for "pure-play," focused companies, Michielsen sees no current need for Solvay to divest or split off any of the sectors. Instead, he says, there are three crucial goals for Solvay: market leadership, increasing emphasis on specialties in the chemical side of the company, and growth in pharmaceuticals. "Ifyou analyze the situation," he argues, "most groups are hybrids—not many companies concentrate on just one sector. Even nonhybrid companies have a number of divisions." And for Solvay, he says, the important thing is that "every sector is making its strategic contribution to the group." HTTP://PUBS.ACS.ORG/CEN
Perhaps one factor that has spared Solvay the pressure from financial analysts, industry commentators, and the like to split pharmaceuticals off from its chemical-oriented businesses is the fact that the drug sector is not that big a piece of the company (see page 25). CHEMICALS AND PLASTICS makeup the largest divisions of the company, contributing 30% and 34%, respectively, of Solva/s 2 0 0 0 sales of $8.16 billion. Pharmaceuticals accounted for 17% of sales, and processing, for the remaining 19%. Sales last year were up 13% over 1999. Although sales rose, 2 0 0 0 "was not an easy year," Michielsen says. Like almost every other company in the chemical industry, Solvay faced a slowdown in the U.S. in the waning months that helped limit net profits to $399 million for the year, up only 2% over 1999. T h e major impact of the downturn came in the second half of the year, Michielsen adds, when operating earnings for the plastics sector tumbled. In the first half of 2000, plastics contributed 52% of operating earnings, but in the second half it kicked in only 12%. Processing, strongly associated with plastics, showed a similar
AND FROM THEREp it was a question of diversifying into olefins, particularly highdensity polyethylene (HDPE) and specialty polymers. Polymers, in turn, led to processing. And finally thanks to the acquisition in the 1950s of the German company Kali Chemie, Solvay got into the pharmaceutical business. Kali had a sodium carbonate unit that Solvay wanted, but it also was doing research on gastrointestinal drugs and hormones, areas that Solvay has continued and expanded. Holding the different sectors together is the challenge for the management team, Michielsen says. "The actual implementation of our strategy within the different business units is quite decentralized," Michielsen explains. "But a strong coordination sets the general strategy of the group and provides important services, which are at the disposal of the business units. We are an industrial holding company, not a financial holding company" The result over the past three years is clearly visible. For example, a five-division structure has been collapsed to four; the chlor-alkali and peroxygen units have been combined to form the chemical sector, following a concerted effort toward divestitures, ranging from animal health to polypropylene. Christian F. Jourquin, general manager for chemicals, points out: "Our strategy to boost specialties is applied at all levels. On one hand, we develop strategic business units that are dedicated to high-valueadded products such as fluorides. On the other hand, we work to make new things out of old," examples of which are highly pure peroxides for the electronics industry C&EN
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BUSINESS However, the company is not willing to and barium and strontium compounds for shed completely its interests in PVC. At high-technology applications. the company's annual financial results press Jourquin adds that Solvay also remains conference, Michielsen said, "We are happy in some nonspecialty areas, particularly in PVC; we are leaders." soda ash and caustic soda, where it can be a market PVC "has a higher added leader. Securities analysts, for value than poly olefins," he example, note that Solvay is said at the time. "It is not the world market leader in t h a t sensitive to ups and soda ash and hydrogen perdowns of the economic oxide, and in Europe it is cycle, but more to supplynumber one in both caustic and-demand balance. Cyclisoda and salt and among the cal businesses are not comtop three or four in almost all pletely bad: In fact, they can its chemical products. p r o d u c e really excellent results. In the first half of On the plastics side, Gen2000, PVC was an excellent eral Manager Henri A. Lebusiness. But you have to be febvre says development of MICHIELSEN very, very, very competitive." specialty polymers is that secNonetheless, specialties are at the top tor's goal. Solvay is working to develop its of the company's targets. For example, specialty polymers businesses in areas such Solvay's processing sector is also focusing as polyvinylidene fluoride, polyvinylidene on specialties. "That's why," Michielsen chloride barrier resins, and polyarylamides. says, "we are developing fuel systems, not "In the more commodity polymers, just fuel tanks, and why we are concencompanies must be very competitive to be successful," Lefebvre says. "Their strategy trating on markets such as roofing materials and other focused markets." Through must integrate the restructuring and globits joint venture, Inergy Automotive Sysalization in the industry: the mergers and resulting concentration." In keeping with this strategy, Solvay has SOLVAYATAGLANCE entered joint ventures in polyvinyl chloride (PVC) with BASF and in H D P E with Headquarters: Brussels, Belgium BP Chemicals. And the company is looking at other possibilities. Sales: $8.16 billion UNDER THE TERMS of the deal with BP, announced last December, the two companies will set up joint ventures in H D P E in Europe and the Americas that will have combined sales of about $1.85 billion per year. In Europe, the H D P E venture will be a 50-50 operation; in the U.S., Solvay will hold a 51% stake and BP, the rest. The deal also included a swap of Solvay's polypropylene operations for the engineering polymers business of BP. The move boosts Solvay's business in engineering polymers, where it will have yearly sales of about $650 million, according to Michielsen. The added polypropylene capacity will in turn bring BP's total to 3.1 million metric tons per year, spread over nine sites in the U.S. and Europe. "In polypropylene, it is difficult to develop a specialty polymer," Lefebvre says. "We were losing out, sizewise; it was better to divest this business. We were not big enough to compete."
Net profits: $399 million R&D spending: $331 million Employees: 32,000 Divisions (% of total sales), major products: • Chemicals (30%)—soda ash, hydrogen peroxide, persalts, fluorine chemicals, barium and strontium carbonates, salt • Pharmaceuticals (17%)—treatments for gastroenterology, psychiatry, hormone replacement therapy, cardiology • Plastics (34% billion)—high-density polyethylene (HDPE), polyvinyl chloride, high-performance engineering polymers • Processing (19%)-HDPE fuel tanks, pipes and fittings, waterproofing foils, medical foils, decorative adhesives Note: Figures are for 2000, converted at International Monetary Fund average for 2000 of U.S. $1.00 = 1.0854 euro.
terns, with French plastics processing company Plastic Omnium, Solvay says it is the market leader in fuel systems worldwide, aiming at sales of around $1 billion this year. Between the chemical side and pharmaceuticals, "you cannot say there are no synergies," Michielsen says. "For example, we developed a peptide business. It is part of our pharma side. But that comes out of our chemical department." He also points to an increasingly important sharing of know-how in areas such as environmental regulations, technology, and safety issues. AT SOME POINT, he predicts, "if current lawmaking processes continue within the European Union and the European Commission, or in the U.S., the industry will be compelled to market a lot of new chemicals almost as if they were pharmaceutical products, in a much more regulated environment. This is new We have seen it coming only in the past year or so." That will put more pressure on R&D, an area of high priority for Solvay That holds for its chemical and plastics operations and even more so in pharmaceuticals. The company's pharmaceutical division, for one, in February embarked on an internal study to improve effectiveness across its R&D centers in Weesp, the Netherlands; Hannover, Germany; Marietta, Ga.; and Tokyo. The objectives, the company said at the time, were to accelerate the drug development process, handle "in the most efficient way the rapidly increasing number of compounds resulting from the biotechnology alliances" that Solvay is involved in, and improve the efficiency of clinical trials and conclude more partnerships with specialized clinical research organizations. ALTHOUGH ITS RESEARCH efforts and alliances stretch around the globe, Europe remains key for the company Europe is still the company's major marketplace; for example, it accounted for nearly 60% of Solvay's total sales in 2000. Sales in the U.S. were a quarter of the company's total, with other operations in the Americas bringing the region to a total of 35%. In marked contrast, Asia-Pacific accounted for only 4% of sales. "We are growing faster in North America than in other areas," and Michielsen finds this marketplace particularly stimu-
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lating and rewarding. The U.S. "has been among the most competitive on the global market in terms of efficiency, productivity and infrastructure," he points out. "It is a very competitive market, especially compared with Europe." On the other hand, Asia has not been "an especially competitive market for chemicals. For example, the region's energy and feedstocks must be imported from the Middle East," he explains. " % u don't necessarily invest in a region because you have a market there." Acompany can always serve that market from production elsewhere. Energy costs have been a concern for the chemical industry, and Solvay is not exempt. In fact, as Michielsen reported at the results press conference, Solvay's energy costs in 2 0 0 0 for chemical and plastics operations were up 4% in Europe to $287 million. In the U.S., the company saw an increase in energy costs for the two sectors of 28%, to $70 million. "It is too early to tell if that's a continuing position or not," Michielsen says. "It's really interesting to see what is happening. For the time being, the European plastics and chemical industry is more competitive" than its US. counterparts. ONE GEOGRAPHIC REGION that Solvay is particularly enthusiastic about developing is Eastern Europe, Lefebvre notes. "We see many opportunities opening there, and you will see developments there."The region has mineral resources, a large population ofpotential consumers, and energy in the form of natural gas, he points out. Solvay was one of the first European chemical producers to reenter the region after it began the transition to market capitalism. One of the company's first moves was to reclaim operations in Bernburg, in former East Germany, that had been appropriated by the government there after World War II. But it also has made major investments in the Soda Devni operations in Bulgaria. Earlier this month, Solvay signed an agreement with a private Russian company, Vladimir Chemical Plant (VCP), to establish a joint venture in Russia to produce PVC compounds (C&EN, April 16, page 14). The new company, Solmir, will be 51% held by Solvay and will make Solvay the first Western PVC producer to set up in Russia. The agreem e n t will establish on VCP's site in Vladimir, about 150 miles east of Moscow, a new 15,000-metric-ton-peryear plant to produce rigid PVC comHTTP://PUBS.ACS.ORG/CEN
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PVC-Rat Helps Surgical Students n a development increasingly pertinent to industry's current concerns, Belgian chemical and pharmaceutical giant Solvay for several years has sponsored production of the PVC-Rat: a life-size model of a rat in soft-touch polyvinyl chloride with latex blood vessels and organs that look and feel real. The goal of the project is to offer medical students and researchers a lifelike model on which to practice microsurgery operation techniques, sparing the lives of real laboratory animals. The PVC used to make the reusable models is a soft plastic created to mimic the feel of an anesthetized real rat, Solvay officials say. The idea of a reusable artificial rat as a teaching tool was developed by Solvay Pharmaceuticals' laboratory animal welfare officer, Rene Remie, who is also chairman of the Netherlands-based Microsurgical Development Foundation. A team whose members came from the foundation, Groningen University in the Netherlands, Unilever, and Groningen's Technical Works Museum began working on the project in 1996. The final product— officially, the Microsurgical Developments PVC-Rat—was introduced in early 1999. "Training in microsurgical techniques is by tradition often animal-based," Remie says. "Within the initial training phase,
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pounds that can be used for window frames and wall coverings. The company made the Russian investment on the strength of other good experiences in the region. "We are happy we have the ex-East German operations and those in Bulgaria. These are competitive plants," Lefebvre says, although he concedes that getting them to the point of being able to compete "has taken a lot of time and effort." C&EN's conversation with the trio— Michielsen, Jourquin, and Lefebvre—is taking place in Solvay's gracious Art Deco headquarters in Brussels, in a conference room watched over by paintings of the Solvay founders. What, the question is raised, would Ernest Solvay think of the company today? "I think he would be very proud that we are still independent after 140 years," Michielsen replies. "He would also be very proud that we have kept in our culture a lot
students encounter many difficulties such as unfamiliar eye-to-hand coordination under the microscope, handling of microsurgical instruments, anesthesia, and so on." Remie is also a professor of microsurgery and experimental techniques on laboratory animals at Groningen. "It is often very hard for them to split their attention between mastering a new technique and the proper care to be taken of the animal," Remie adds. And given the subsequent animal mortality, "the use of live animals is not desirable." The development of the PVC-Rat fits in with Solvay's objective of replacing, refining, or reducing the use of laboratory animals, one staffer says. He adds that Solvay's pharmaceutical division has reduced its total animal use by 60% since the mid-1980s.
of things to which he contributed: leaning to human resources, competence, and so on. "We sell all these different products," Michielsen points out, "and yet the product he founded still accounts for 10% of sales." On the other hand, the executives suggest that Ernest Solvay "would be worried by a lot of other things, primarily those affecting the chemical industry as a whole," Michielsen says. "Chemistry then was considered to be very high-tech," a dramatic difference from its current status. As for Michielsen, he says he's "proud that in many areas we are leaders. It is an achievement over many years. To be number one in a field, you have to deserve i t it takes competence and innovation. "Now we are applying that characteristic of Solvay into growth in specialties. If we can bring that philosophy into specialties," he predicts, "in five years' time, you will see another success phenomenon." • C&EN
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