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The Importance of creativity and Innovation for medium and long term

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1 The Importance of creativity and Innovation for medium and long term
Growth Conference/ May 7- 8, 2007 / AMSTERDAM 2nd Annual « MANAGING R&D for BUSINESS GROWTH » (in the Chemical Industry)  Dr. Charles G. Bienfait-SOLVAY SA Direction Centrale Recherche & Technology Bruxelles

2 2 Topics 1. Introduction 2. Position of our Industry today(2005 results): EU situation (from DTI) World position (from own graphs) 3. Medium & long term Growth versus creativity & innovation: Relation with innovation Relation with R&D expenses Addition: a few ex. of SOLVAY ‘s innovations 4. Conclusion

3 3 1. Introduction Innovation and creativity= key challenges for EU for all industries. Innovation is not only the task of R&D but of the all organization…..but R&D is a major partner (time to time forgotten See next

4 4

5 Response Strategies (added by Porter and others)
5 Response Strategies (added by Porter and others) GROWTH Increasing market share, acquiring more customers or selling more products IMPROVE INTERNAL EFFICIENCY To improve employee and customer satisfaction ALLIANCES Working with business partners to create synergy & provide opportunities for growth CRM Customer-oriented approaches, e.g. the customer is king (queen) INNOVATION Developing new products & services

6 2. Position of our Industry today (2005 results):
6 2. Position of our Industry today (2005 results): Before to go to Innovation/Growth, WHAT IS THE BUSINESS SITUATION today OF THE CHEMICAL INDUSTRY ? From DTI(UK)…for EU From own graphs….for World

7 DTI Two majors parameters:
7 DTI Two majors parameters: P1= « Value added per employee » (Productivity) P2= « Wealth creation efficiency » % (Output/versus major inputs) Performance of a group/compagnies linked to: Growth of VA Maintain highest P2 (the highest value) (for definitions: go to:

8 8 Chemicals Pharmaceuticals

9 9 DSM BASF Solvay BAYER

10 Pharma 2005 10

11 Own graphs/ C.G.Bienfait (from published data)
11 Own graphs/ C.G.Bienfait (from published data) All relations related to % operating margin (for chemicals: % operating margin (brut) (for pharma: % operating margin(net)

12 Total Chem Sales versus Operating margin (Brut)(*)
12 Total Chem Sales versus Operating margin (Brut)(*) (*)= sales - administ.expenses & cost of sales) Chem.Sales (M $) Chemical Industry 2005 results/first 50th Dow BASF Shell Exxon M. China Petr Total Dupont Sabic BP Bayer Formosa Plast Shin Etsu Praxair Solvay Chem Plast. % Operating margin (brut) SOLVAY

13 Chemical Industry :2005 results for companies from Nr 21 till 50
13 Total Chem.Sales versus Operating margin(Brut)(*) (* = Sales- administr.expenses & cost of sales/sales) Chem.Sales M$ Toray Chevron Phillips ICI Basell Shin-Etsu DSM Lanxess DIC Solvay Chem Plas BOC Asahi ENI PPG Praxair Air Prod. Clariant Yara GE Reliance Rhodia Syngenta Eastman Ciba Sasol Celanese Nova LG Teijin % Operating Margin (Brut) Borealis SOLVAY

14 Chemical Industry :2005 results for companies from Nr 21 till 50
14 Total Chem.Sales versus Operating margin(Brut)(*) (* = Sales- administr.expenses & cost of sales/sales) Chem.Sales M$ Toray Chevron Phillips ICI Basell Shin-Etsu DSM Lanxess DIC Solvay Chem Plas BOC Asahi ENI PPG Praxair Air Prod. Clariant Yara GE Reliance Rhodia Syngenta Eastman Ciba Sasol Celanese Nova LG Teijin % Operating Margin (Brut) Borealis SOLVAY

15 CA en Million U$ versus Profit Margin(Net)
USA 15 PHARMA –Résultats 2005 CA en Million U$ versus Profit Margin(Net) EU JP Isr. Pfizer Sanofi-Aventis GSK Novartis J&J Astra Zeneca Merck BMS Eli Lilly Wyeth Roche Amgen Abbott Teva Boehringer Takeda Schering Gilead Genentech Novo Akzo Serono Allergan Merck KG Forest Bayer Astellas UCB Solvay Shering-Plough SOLVAY Eisai

16 3. Medium & long term Growth versus creativity & innovation:
16 3. Medium & long term Growth versus creativity & innovation: Growth in relation with Innovation: Innovation/creativity = essential to avoid loss of growth and profit (  « experience curve » = fatality going to lower profit) Growth in relation to innovation in the two axes (technology-Products/markets) See next graph

17 Innovation processes € $ Core Competences Acquisitions:
17 Acquisitions: « HT Engineering Polymers/BP-AMOCO » New « Fluoro Products / Ausimont « FOURNIER » Core Competences TECHNOLOGIES Innovative projects € $ Present Present Extended New MARKETS

18 For Innovation + R&D : to not forget :
18 For Innovation + R&D : to not forget :

19 Growth & return in relation with R&D expenses ?
19 Growth & return in relation with R&D expenses ? A lot of confusion : even in some « consulting group » More R&D = more innovation ? More growth/return? Need to take care of « time frame » in addition to other parameters :effectiveness/efficiency ,….. Easy to see the relation in Pharma…more difficult in Chemicals see graphs

20 Pharma/drugs /Industries :
20

21 MEASURING UP: RESEARCH & DEVELOPMENT COUNTS IN THE CHEMICAL INDUSTRY 2001
21 Chemical Industries

22 22 In Measuring Up : Research & Development Counts in the Chemical Industry, the critical role of R&D to the chemical industry is quantified for the first time. With economic, bibliometric, and historical analysis, this study demonstrates that R&D has helped the chemical industry become a major building block of the U.S. economy, growing steadily and becoming a world leader in scientific advances even in the face of increasing global competition. Key findings of this new study include: On average, every dollar invested in chemical R&D today produces $2 in corporate operating income over six years – an average annual return of 17% after taxes. Business performs better when public policy, including government funding of R&D, is consistent. Publicly funded science makes significant contributions to new technologies in the chemical industry. ….etc… Ref: SOLVAY

23 R&D return (all industries) (from U.S. Bureau of Economic Analysis )
23 R&D return (all industries) (from U.S. Bureau of Economic Analysis ) September 28, 2006 :PRELIMINARY STUDY SHOWS RESEARCH AND DEVELOPMENT CONTRIBUTION TO ECONOMIC GROWTH: Between 1959 and 2002, R&D investment accounted for /2 percent of growth in real GDP. Between 1995 and 2002, its contribution to real growth rose to 6 1/2 percent. In comparison, businesses’ investment in commercial and all other types of buildings accounted for just over 2 percent of real GDP growth between 1959 and 2002. If R&D were included in the GDP as investment instead of as an expense, business investment would be 11 percent, or $178 billion, higher; and the 2002 national savings rate would be 16 percent instead of 14 percent.

24 a few ex. of SOLVAY ‘s recent innovations
24 a few ex. of SOLVAY ‘s recent innovations Epichlorohydrin with new process EPICEROL TM New High productivity/High capacity of H202 process NEUTREC ® process for flue gas cleaning

25 Epicerol™: Sustainable development
25 22 Patents requests Chlorydric Acid Glycerin from Renewable source (e.g. from biodiesel ‘byproduct ) Epichlorohydrin Water consumption divided by 10 Chlorinated byproducts divided by 8 Utilization of chloridric acid vs chlorine. Consumption of Cl divided by 2

26 STRATEGY - WORK ON GROWTH
26 STRATEGY - WORK ON GROWTH 2007 EPICEROL® PROCESS TAVAUX, France Winner of “Pierre Potier Prize” for Innovation in Favor of the Environment Pull out of oil chain Chlorinated byproduct production divided by 8 Water consumption divided by 10 Cl consumption divided by 2 Using HCl in spite of chlorine

27 Contribution R&D= High Productivity H2O2 Process
27 Contribution R&D= High Productivity H2O2 Process g H2O2 kg Working Solution Productivity = High Productivity  Réduction of investment by unit installed capacity Higher installed capacity by line : 1958 : t/year 1992 : t/year 2006 : > t/year ? in Antwerpen (PO-BASF-DOW) Reduction of variable costs

28 STRATEGY - WORK ON GROWTH
28 STRATEGY - WORK ON GROWTH 2008 HYDROGEN PEROXYDE CAGR : > 6% Solvay kT/y * ZANDVLIET, Belgium * forecast World largest peroxyde plant of 230 kT/y under construction. Two times the size of today largest plant Based on Solvay high-yield production process Partnership BASF/DOW for a new plant of Propylene Oxide (HPPO)

29 29

30 Importance of creativity and innovation for growth
30 4. CONCLUSION: Importance of creativity and innovation for growth Do not forget R&D …one of the main source of innovation for growth!

31 31 THANK YOU


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