French chemicals company Rhodia has decided to shut down a local production site for its Rhodia Organics business, citing competitive pressures in the market for pharmaceutical and agrochemical intermediates.
A plan for the closure of the Mulhouse Dornach site, which would take effect from 31 December 2007, has been presented to Rhodia's Works Council. A framework agreement signed with the company's two main trade unions on 14 March envisages redeploying as much as possible the 135 staff based at the site.
To date, alternative employment has been identified for more than 100 employees at Chalampé, a production site for pharmaceutical intermediates some 20 kilometres away from Mulhouse Dornach.
Rhodia said an economic analysis of the Mulhouse Dornach site, which produces intermediates for the pharmaceutical and agrochemical industries, had "clearly illustrated a difficult competitive situation" faced by the sector.
According to Rita Hillig, press relations representative for Rhodia, the closure decision reflects global competition for intermediates, mainly coming from Asia. Moreover, Mulhouse Dornach's position in the markets it served was "not a leading one," she noted.
Last year a report by Frost & Sullivan warned that only streamlined production, niche marketing and research and development would enable the ailing European fine chemicals sector to bounce back against its Asian rivals.
Rhodia has implemented a number of measures, including cost-cutting and price increases, in an effort to improve cost-effectiveness at the Mulhouse Dornach site. However, these were not enough to stem a declining business performance at the plant. The company has already included the cost of the planned closure in its financial provisions for 2007, it pointed out.
Restructuring of the Rhodia Organics arm continues despite the overall recovery of the Rhodia group, marked by its return to net income in 2006 for the first time since 2000. Rhodia Organics incorporates the remnants of the troubled Rhodia Pharma Solutions business, whose custom synthesis activities were sold off to India's Shasun Chemicals & Drugs early last year.
Rhodia overall reported recurring earnings before interest, tax, depreciation and amortization (EBITDA) of €683m last year, 33.1 per cent higher than in 2005. Group net sales were up by 6.4 per cent to €4.81bn. Recurring EBITDA in the Organics business more than doubled from €34 million to €74 million in 2006 but net sales were down by 4.1 per cent to €875 million and the EBITDA margin, at 10.9 per cent, was below that of Rhodia's other businesses.
As Rhodia noted in its annual results presentation, the total number of sites across the group dropped from 114 in 2003 to 69 in 2006 (after completion of its silicones divestment), while 30 of the 45 sites pruned out were in Europe.