Form 20-F 2005

Research and Development
By the end of 2005, our R&D department consisted of 1,300 researchers located in five multi-disciplinary and multi-enterprise centers
across the world plus 35 technical development centers providing links between the research centers and enterprises, customers
and local markets. Gross expenditure on R&D rose to €146 million, €11 million of which came from grants and tax credits, for a
number amounting to 2.7% of our net sales.
In 2005, the R&D department played an important role in our reorganization by adopting a simplified and more streamlined
organizational structure, while still maintaining momentum in the launch of new products and above all by productivity gains of 6%
compared with 2004. Furthermore, almost 17% of our sales came from new products (defined as commercial products launched in
the last five years) and there were savings from improvements made to processes. We are a key innovator in five areas: nanometric
reinforcement of materials, polyamide-based thermoplastics for automobiles, catalysis to control automobile emissions, solutions
for performance fluids, and the modification of surface properties by polymers.
The R&D department, together with the enterprises, is focused on short term projects, such as development, transfers of technology
and process amelioration. In 2006, the R&D department will work to rebalance its efforts between Europe and high growth regions,
namely Asia. Since 2005, we have reinforced our technological resources in Asia, with the creation of a new laboratory for synthesis
and processes and the acquisition of new analytical equipment. Management is now based out of Shanghai, China.
Raw Materials
We purchase raw materials and chemical intermediates from a large number of third parties, with a centralized purchasing department
procuring the entirety of the raw materials needs of each of our enterprises. The cost of raw materials was approximately €2.5 billion
in 2005. We estimate that in a typical year approximately one quarter of our annual raw material costs relate to benzene, one quarter
to natural gas, one eighth to naphta and one tenth to electricity.
The table below sets forth our principal raw. materials.
Cyclohexane Phosphorus Acetic acid
Cumene Ethylene oxide Sulfur
Butadiene Ammonia Glass Fiber
Gas (as raw material)
Wood pulp
Phenol
Nitric acid
Form 20 - F 2005 - Rhodia
31