The Importance of creativity and Innovation for medium

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

2 Topics n n 1. Introduction 2. Position of our Industry today(2005 results): è EU situation (from DTI) è World position (from own graphs) n 3. Medium & long term Growth versus creativity & innovation: è Relation with innovation è Relation with R&D expenses è Addition: a few ex. of SOLVAY ‘s innovations n 4. Conclusion Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

3 1. Introduction n Innovation and creativity= key challenges for EU for all industries. n 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 Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

4 Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

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 Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

6 2. Position of our Industry today (2005 results): n Before to go to Innovation/Growth, n WHAT IS THE BUSINESS SITUATION today OF THE CHEMICAL INDUSTRY ? è From DTI(UK)…for EU è From own graphs…. for World Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

7 DTI n Two majors parameters: è P 1= « Value added per employee » (Productivity) è P 2= « Wealth creation efficiency » % (Output/versus major inputs) n Performance of a group/compagnies linked to: è Growth of VA è Maintain highest P 2 (the highest value) n (for definitions: go to: è http: //www. innovation. gov. uk/value_added/default. asp? page=60 Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

8 Chemicals Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait Pharmaceuticals

9 DSM BASF Solvay BAYER Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

Pharma 2005 10

11 Own graphs/ C. G. Bienfait (from published data) n All relations related to % operating margin è (for chemicals: % operating margin (brut) è (for pharma: % operating margin(net) Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

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

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

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

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

16 3. Medium & long term Growth versus creativity & innovation: n Growth in relation with Innovation: è Innovation/creativity = essential to avoid loss of growth and profit ( « experience curve » = fatality going to lower profit) è Growth in relation to innovation in the two axes (technology-Products/markets) è See next graph Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

Acquisitions: Present « HT Engineering Polymers/BPAMOCO » « Fluoro « FOURNIER » Products / Core Competences Ausimont € $ Present Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait Innovative projects TECHNOLOGIES New Innovation processes 17 Extended MARKETS New

• For Innovation + R&D : to not forget : Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait 18

19 n Growth & return in relation with R&D expenses ? è A lot of confusion : even in some « consulting group » è More R&D = more innovation ? More growth/return? è Need to take care of « time frame » in addition to other parameters : effectiveness/efficiency , …. . è Easy to see the relation in Pharma…more difficult in Chemicals see graphs Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

Pharma/drugs /Industries : Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait 20

MEASURING UP: RESEARCH & DEVELOPMENT COUNTS IN THE CHEMICAL INDUSTRY 2001 • Chemical Industries Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait 21

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… SOLVAY Ref: http: //www. ccrhq. org/CCRNET/index. html

23 R&D return (all industries) (from U. S. Bureau of Economic Analysis ) n September 28, 2006 : PRELIMINARY STUDY SHOWS RESEARCH AND DEVELOPMENT CONTRIBUTION TO ECONOMIC GROWTH: è Between 1959 and 2002, R&D investment accounted for 4 1/2 percent of growth in real GDP. è Between 1995 and 2002, its contribution to real growth rose to 6 1/2 percent. è 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. n 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. Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait http: //www. bea. gov/bea/newsrelarchive/2006/rdreport 06. pdf

24 a few ex. of SOLVAY ‘s recent innovations n Epichlorohydrin with new process EPICEROL TM n New High productivity/High capacity of H 202 process n NEUTREC ® process for flue gas cleaning Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

Epicerol™: Sustainable development 25 22 Patents requests Chlorydric Acid Glycerin from Renewable source (e. g. from biodiesel ‘byproduct ) Water consumption divided by 10 Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait Epichlorohydrin Chlorinated byproducts divided by 8 Utilization of chloridric acid vs chlorine. Consumption of Cl divided by 2

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 Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait Chlorinated byproduction divided by 8 Water consumption divided by 10 Cl consumption divided by 2 Using HCl in spite of chlorine

Contribution R&D= High Productivity H 2 O 2 Process Productivity = g H 2 O 2 kg Working Solution n High Productivity èRéduction of investment by unit installed capacity èHigher installed capacity by line : § 1958 : 5 000 t/year § 1992 : 60 000 t/year § 2006 : > 200 000 t/year ? . . 230. 000 in Antwerpen (POBASF-DOW) èReduction of variable costs Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait 27

28 STRATEGY - WORK ON GROWTH 2008 HYDROGEN PEROXYDE Solvay k. T/y • CAGR 1995 -2005: > 6% * ZANDVLIET, Belgium World largest peroxyde plant of 230 k. T/y under construction. Two times the size of today largest plant Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait * forecast Based on Solvay highyield production process Partnership BASF/DOW for a new plant of Propylene Oxide (HPPO)

29 Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

30 4. CONCLUSION: n Importance of creativity and innovation for growth n Do not forget R&D …one of the main source of innovation for growth! Jacob Fleming- Conf. Amsterdam –May 7 -8 , 2007 © SOLVAY SA – C. G. Bienfait

31 THANK YOU SOLVAY © 2005, SOLVAY SA