Insight - "2008 was a year of contrasts," said Rhodia Chairman and CEO Jean-Pierre Clamadieu. He is head of the french company, which is structured around six enterprises and operates as a partner of major players in the automotive, electronics, flavors and fragrances, health, personal and home care markets, consumer goods and industrial markets. The group employs around 14,500 people worldwide and generated sales of €4.8 billion in 2008. CHEManager Europe asked Jean-Pierre Clamadieu about Rhodia's business strategy for 2009 and the outlook for this year's results.

CHEManager Europe: How resilient was Rhodia to the economic instability in 2008?

J.-P. Clamadieu: Rhodia demonstrated its remarkable resilience in 2008, a year which saw many ups and downs in the prevailing economic conditions. Despite an unprecedented increase in the cost of raw materials and energy during the first three quarters, we were able to maintain our margins.
But the situation suddenly changed in mid-November 2008 with a drop in demand combined with customer's deferred purchasing. Going forward, the first quarter of 2009 was marked by a fall in demand in almost all markets and regions where we operate. This, together with the need to absorb costly raw material inventories, had a major impact on profitability. We were still able to generate positive free cash flow of €73 million over the period.

What do you expect from 2009?

J.-P. Clamadieu: For 2009, I am confident in Rhodia's ability to weather the storm. We have a high-quality portfolio of activities, unique positions in buoyant markets, a solid financial situation and talented teams who are highly committed and resilient from the process of transformation the Group has undertaken in recent years. The Group has also actively positioned itself as a champion of sustainable development to all of its stakeholders across all geographic zones. Furthermore, fundamental changes in consumer demand are opening up major growth opportunities to us. With these strengths, we remain focused in our pursuit of profitable growth in close collaboration with our customers. We continue to innovate, taking advantage of prospects for growth in emerging countries where we have a strong presence. Today, Rhodia is on solid footing, well-situated with a healthy financial foundation.

What key measures is Rhodia going to take to achieve good results in 2009?

J.-P. Clamadieu: Even if we start to perceive the first signs of demand recovery in emerging markets, we are currently facing in Europe and North America a significant slowdown in a number of sectors, such as the automotive and construction industries. Our objective is to get through this difficult period as best we can.
Cash will be our key priority in 2009. We have increased our focus on managing the supply chain and making the processes involved more visible. Moreover, we established 25 cash-focused operational units structured around our businesses and geographic segments in order to optimize their cash generation potential.
In addition, we are extremely selective in terms of managing our investments, so we can concentrate our resources on projects with the strongest potential for improving Group performance.
On top of these measures, we want to improve the productivity of our enterprises and functions. We aim to strengthen our competitive position throughout our businesses and we expect structural initiatives to reduce costs by around €150 million per annum from 2011.

How can these savings be achieved? Does Rhodia plan to cut jobs?

J.-P. Clamadieu: We have put in place short-term and mid-term action plans to achieve these savings.
In the short term, the Group focuses sharply on reducing spending and on adapting its cost structure to production levels. The key measures which have been, and will continue to be, implemented include flexible working arrangements and scheduling, an end to contracts for temporary workers, temporary in-sourcing of subcontracted work, hiring and salary freezes. The Group also concentrates on the optimization of its manufacturing levels with a day-to-day adjustment of sourcing to effective production as well as the tightest management of inventories.
Beyond the above immediate measures, the Group will continue to carry out structural productivity enhancement plans across its enterprises and support functions, including a reinforcement of the Polyamide plan already under execution. By 2011, these actions should allow structural savings of €150 million compared to 2008. Even if restructuring operations could affect some positions, job cuts are not the first driver to achieve this objective. Our main goal is to enhance the Group's competitiveness in order to emerge stronger from the crisis.

In March, Rhodia completed its acquisition of the McIntyre Group. What kind of advantages does this offer to Rhodia?

J.-P. Clamadieu: This acquisition illustrates our ambition to continue to expand in our priority markets through targeted external growth initiatives. We grasped this opportunity so the Group can strengthen its position in the cosmetics and detergent markets, which are less affected by fluctuations in the economic climate. McIntyre is an excellent complement to Novecare, one of our main platforms for growth. The resulting synergies will have an almost immediate effect, with the profitability of the acquired activities expected to double over the long term.

Do you plan further acquisitions in 2009?

J.-P. Clamadieu: We will continue to look for further mid-sized bolt-on acquisitions but will take a prudent approach over the next few months until it sees signs of a pick up. There might be opportunities as other companies look to adjust and optimize their portfolios.