Source : la Libre Entreprise (September 9, 2000)

Solvay is an "SME in the pharmaceutical sector"

Aloïs Michielsen is the first head of the Solvay group not to come from the long line of descendants of Ernest Solvay. Solvay is one of the last major Belgian groups that still has strong family roots.

Aloïs Michielsen is the first head of the Solvay group not to come from the long line of descendants of Ernest Solvay. Since he took over the reins of the Belgian chemical and pharmaceutical company in June 1998, he has made an important number of key strategic decisions. His strategy is bearing fruit, as the group's recent interim figures demonstrate (sales: + 23%; profit: + 40%).

In our interview we asked him about the future prospects of a group which remains strongly Belgian in its roots and which does not need to form an alliance with a major global player in order to continue its growth.

"The public at large may have the impression that Solvay is a company in the image of Tractabel ten or so years ago. Tractabel was referred to as a "sleeping beauty". Is Solvay, which is very much a Belgian company, as dynamic as its market position requires?"

"I am convinced that Solvay now has the necessary dynamism to implement its strategy in concrete terms. What is important for a group such as ours is to have a strategy. Our strategy is to achieve faster growth in the pharmaceutical sector and to be among the world leaders in the sectors where we are active. To achieve those goals, we must become more competitive and demonstrate our capacity to innovate. Over the last few years, we have launched several initiatives to that end. Moreover we are now reaping the benefits.

It is true that I sometimes wonder whether the public at large understands our strategy. We try to ensure the maximum of communication with the financial analysts and I believe that the financial world is starting to understand our strategy. But perhaps we need to make a greater effort with regard to communication with the public at large.

"The pharmaceutical sector has become the top priority in terms of development. But the first half results in that sector have fallen by 63% ..."

"The pharmaceutical sector is a priority but it is not the top priority. It is true that the results of the pharmaceutical sector fell during the first six months. But we must analyse the results for that decline. Last year we launched five new products (Teveten, Luvox in Japan, Aceon, Androgel and Cenestin in the United States), took over the US company Unimed and concluded a partnership with the US company Duramed.

For the time being we are still involved in an important marketing and promotional phase which will lead to an increase in sales, but any such increase in sales always lags behind the marketing investment. In addition, in the pharmaceutical sector, we are investing enormously in research and development. It was precisely because the results of the Solvay group as a whole are excellent that we were able to increase our efforts in this direction at the beginning of the year."

"For the pharmaceutical activity to really take off, do you not need to make a major acquisition or form a partnership with a larger group in the sector?"

"Our pharmaceutical division is not as small as that. It generates sales of 1.349 billion euros. In addition, sales continue to grow every year. If we can keep this up, our pharmaceutical division could double its sales within the next five years. The figures are starting to become more and more important. In any event, for the time being, our pharmaceutical division can continue to develop within the Solvay group as it is."

"What would you say to those who have been constantly asking for several years 'when will Solvay and UCB marry'?"

"For the time being, UCB doe snot need Solvay to develop and Solvay does not need UCB to develop". Therefore, it is not an issue.

"Is there a potential blockbuster - a drug with a commercial potential of more than 1 billion dollars - among the new products that you are launching, as is the case for example with Zyrtec at UCB?"

The five new products that we have launched should generate within three years additional sales of 600 million euros. And we have several extremely interesting molecules in the pipeline. For example, Cilansetron (in gastro-enterology to treat the colon irritation syndrome) could be promising and should be launched on the market in 2003."

"Is there one product which stands out from all the other in terms of commercial potential?"

"For the time being, among the products which have been launched on the market, some are taking longer than expected to make a commercial impact. On the other hand, however, in the case of products such as Androgel in the United States or Luvox in Japan, sales are progressing more quickly than expected. In general, we continue to be satisfied with the growth potential of the five products launched. In the pharmaceutical sector, we are an SME and we will remain so for a long time. But I am convinced that, there is still a place for SMEs on this market. They must, however, focus their efforts more on diseases which are perhaps less widespread but for which there is a medical need. An SME must distinguish itself from the very large players through a particularly focused R&D programme."

"In concrete terms, what types of treatment are you targeting" 

" We continue to focus on our four therapeutic fields: psychiatry, cardiology, hormonal treatment and gastro-enterology.
Our objective is to continue to be a niche player in those four fields.

"Are you thinking about making new acquisitions".

"We have projects at an advanced stage, where an announcement could be made within the coming months."

"In the Plastics sector, PVC prices have recovered strongly recently. Some people are forecasting a turnaround in the economic situation..."

"It is true that the results of the plastics sector have progressed strongly but we are not active in all plastics.

In PVC, our margins are comfortable as there is an equilibrium of supply and demand at world level.

In addition, over the last few years, we have concluded partnerships with BASF and Atochem notably. It is possible that margins may decline in the coming months, but we remain confident."

"Therefore, you do not feel that we are coming to the end of a kind of "golden" economic cycle?"

During the early part of the year, economic activity was very buoyant. It is true that the period after the summer break will be marked by higher oil prices which are currently destabilising the economy. I expect a slow-n in world growth and inflationary pressures to build up, at least in Europe. Nevertheless, I do not think that we are heading for a recession, but business growth will be affected by these factors."

"Presumably, a group such as Solvay, which is a major consumer of energy and uses oil by-products as raw materials, must be particularly affected by the surge in oil prices?"

For several reasons, we have become less dependant over the last few years on energy prices. For example, the numerous installations in the area of co-generation and the re-negotiation of electricity purchasing contracts."

"How sensitive are you to a drop in the value of the euro?"

"Which European industry has not benefited from the euro's weakness vis-à-vis the dollar?
Solvay, like all the others, has benefited from the euro's weakness to increase its exports, especially with regard to a certain upturn in the Asian economy. But it is also true that with a weak euro, oil - which we pay for in dollars - costs us more than our American friends. What was an advantage is becoming less so today."

"You have concluded multiple alliances and partnerships in recent years. Do you have other such deals in the pipeline?"

"Whenever we feel that such partnerships or alliances are beneficial in terms of market positioning, we shall not hesitate. But establishing joint ventures is not an aim in itself."

"By concluding targeted strategic partnerships so as to avoid being taken over one day by a larger operator, are you not in the process of succeeding where other Belgian groups have failed?"

"What is important for us, in this strategy and these alliances, is to choose our partners carefully. We have to avoid entering into agreements with partners which have a culture very different from our own or which do not consider that activity as fundamental. If you look at the companies with which we have concluded such agreements, you will observe that they are all top-notch companies."

"Do you rule out at the current time a major partnership or alliance with one of the world's major players?"

"The Solvay group is a good size. It has its strategy and the necessary resources to implement that strategy, as well as shareholders that have confidence in the group and its management. In addition, the group has its strong Belgian base. I can see no reason why the Solvay group should seek another major group to form an alliance."

"What are the strengths of being a family group, which is somewhat atypical in this sector?"

"Every group has its core shareholders. Solvay's core shareholders are the Solvay family, which is composed of some 4,000 family members, since we are now talking about the seventh or even eighth generation. Our roots and our stability are strong pluses for our development. But we must merit the confidence of our shareholders. The co-operation between the shareholders and the executive team at Solvay is excellent."

"What has changed for the group by virtue of no longer being managed by a member of the Solvay family?"

"There has been no revolution within the group. There has been an adaptation to the evolution of the global economy. We have a Board of Directors in which both the core shareholders and the independent directors are represented."

"Are you satisfied with the current share price?"

"Who would not like to see his share price higher? Last year our share price rose by 30%. This year it is lagging slightly behind, but in any event we cannot expect it to rise every year as strongly as it did last year."

"Has the (future) Euronet had any impact as yet on your share price?"

"No, not as yet. But Euronext is a very good initiative. In this global world, it is very difficult for a BEL 20 stock to position itself. It is certainly a good thing to be listed on a market which is larger than the Belgian market strictly speaking. Obviously, we will have to adapt as necessary once the new rules of the Euronext market have been clearly defined."

"How important does Belgium continue to be in your business activities,"

"In terms of total sales, it is true that Belgium represents only 4% but it is still very important since our main research and development centre is in the Brussels region, in Neder-over-Hembeek. Our decision-making centre is also in Belgium, just like our core shareholders."

"Do you, like others, have recruitment problems?"

"It has become more difficult in Belgium, as indeed is the case almost everywhere. For the time being we recruit in the countries where there is a greater recruitment potential. In our laboratory, we have Belgian, Brazilian and Bulgarian researchers who are all well trained.
We need to adapt to the situation.
It is obvious that pressure on the job market favours a more international recruitment policy, which is, however, easier to implement now than it was a few years ago."

"Two weeks ago, Greenpeace drew attention to an accident in one of your plants in Argentina..." 

"I very much regret that accident, especially since we make a tremendous effort in all our plants to avoid risks of accidents. We must recognise that in the specific case of Argentina, the accident was hugely exaggerated by Greenpeace and the different pressure groups. The press took up the story. There was certainly a chlorine leak, but there was not one case of poisoning. We live in a world of communication where there is often a tendency to exaggerate events and not keep things in perspective. But it is true that the slightest accident is one too many. And we implement a great number of measures to avoid accidents."

Interviewed by Sandrine Vandendooren and Nicolas Ghislain