COLOGNE—Lanxess A.G. is pressing ahead systematically with its realignment, unveiling a three-phase program that ultimately will result in the consolidation of 14 business units to 10, effective in 2015.
The firm unveiled its “Let's Lanxess Again” plan along with its second quarter results on Aug. 6. The program will focus on three areas: business and administration structure competitiveness; operations competitiveness; and portfolio competitiveness.
Lanxess' sales dropped about 5.7 percent to about $2.86 billion, but its net income increased from approximately $12 million in 2013 to about $73.4 million. The firm attributed the increase in income to lower exceptional charges. In 2013, about $53.4 million had been incurred for restructuring the Performance Chemicals segment.
In addition to the consolidation, Lanxess will reduce its work force on a cross-functional basis and consolidate specific areas of activity. The firm said the more efficient organizational structure is designed to enhance Lanxess' market and customer focus and reduce costs.
“We have been working full steam over the past few months to create the foundation for our realignment,” CEO Matthias Zachert said in a statement. “We, as a team, will significantly improve our competitiveness by systematically implementing our program. We have started talks with employee representatives on the implementation process, and we expect to quickly reach constructive solutions.”
The realignment program comes on the heels of Lanxess' Advance program, which was completed in line with expectations, according to a Lanxess spokeswoman. About 875 of the firm's employees worldwide left or will leave the company as part of the Advance program.
She said the company does not comment on ongoing negotiations, and the results from its realignment program will not be made public until an agreement with employee representatives has been reached.
However, on May 8 Lanxess said it successfully completed the increase of its share capital, which it said resulted in total proceeds of about $574.5 million.
According to the spokeswoman, Zachert said he expected about one half of the proceeds—about $287.3 million—of the capital increase will go toward restructuring efforts, of which one half will be accounted for in 2014 and the other in 2015. Lanxess will present more details on the restructuring at its Media and Capital Markets Day on Nov. 6.
New business structure
Lanxess will combine the Butyl Rubber and Performance Butadiene Rubbers business units to form the Tire & Specialty Rubbers business unit. Jorge Nogueira will lead the new unit, Lanxess said.
The spokeswoman said that Butyl Rubber and Performance Butadiene Rubbers have high customer overlap in Europe and North America with complementary regional strength in emerging markets. Performance Butadiene Rubbers is strong in Latin America, while Butyl Rubber is not. The opposite is true in Asia.
The firm will combine its High Performance Elastomers and Keltan Elastomers business units into High Performance Elastomers. Jan Paul de Vries will run the unit.
Lanxess has an 80 percent customer overlap in the business model for the technical rubbers used in the automotive and construction industries, the spokeswoman said. Cost structures should be lighter after the integration.
Its Rubber Chemicals business unit's specialty chemicals product line, the Functional Chemicals business unit, and its Rhein Chemie business unit will be combined to form the Rhein Chemie Additives business unit. Lanxess said Anno Borokowsky—current CEO and president of Rhein Chemie Rheinau GmbH—will run the new unit.
Bundling the additives businesses will open new markets and attract new customers , the spokeswoman said.
Lanxess said it is still examining strategic options of its Rubber Chemicals business unit's antioxidants and accelerators business lines, but if it does not receive an attractive offer, it will merge these product lines and place them into its Advanced Industrial Intermediates business unit, the spokeswoman said. A decision will be made by the end of the third quarter at the latest.
She said Lanxess has decided not to peruse a divestment of its nitrile-butadiene rubber business line for various reasons and that it will remain with its High Performance Elastomers business unit.
In March, the firm divested its wholly owned subsidiary Perlon-Monofil GmbH—which produced polyamide and polyester monofilament products—to the Serafin Group based in Munich. Perlon-Monofil reported sales of about $40.1 million in 2013 and consisted of about 100 employees. Financial details were not disclosed.
The spokeswoman said none of the business units would shift among the firm's three business segments—Performance Polymers, Advanced Intermediates and Performance Chemicals—unless the firm opts not to divest its antioxidants and accelerators business lines. Those product lines would shift from Performance Chemicals to Advanced Intermediates.
Lanxess' remaining business units are High Performance Materials; Advanced Industrial Intermediates; Saltigo; Inorganic Pigments; Ion Exchange Resins; Leather; and Material Protection Products.
Other realignment actions
Lanxess said it has already taken the first steps in the third area of realignment, portfolio competitiveness, by holding talks with various partners about possible cooperation in the rubber business, the spokeswoman said. The focus is reliable access to raw materials with competitive prices. Raw materials cost is a reason Lanxess cites repeatedly when it increases prices on its products.
In realigning its administrative structure, Laxness will combine the group functions Aliseca, Industrial and Environmental Affairs, and Innovation and Technology into the new group function Production, Technology, Safety and Environment. Par Singh will lead this group function.
The group function Internal Auditing and the Corporate Security unit will be integrated into the group function Law and Intellectual Property to form Legal and Compliance, led by Jochen Schroer.
Claus Zemke, head of corporate communications at the machine tool manufacturer Trumpf GmbH and Co. K.G. in Ditzingen, Germany, will become head of Lanxess' group function corporate communications by Jan. 1, 2015.
Singh will lead the second phase of the realignment initiative, operations competitiveness. The firm will examine all production facilities with respect to market requirements and synergy potential.
Torsten Derr will lead a marketing and sales excellence initiative, which will evaluate the effectiveness and efficiency of Lanxess' international distribution structures.
Mixed segment results
Lanxess' Performance Polymers segment experienced a decrease in sales by about 12.1 percent to about $1.34 billion. The firm cited a persistently difficult market environment, primarily because of continuing low level of selling prices in all rubber businesses.
However, Lanxess saw improvement in two of its business segments—Performance Chemicals and Advanced Intermediates. Its Performance Chemicals segment increased sales 1.4 percent to about $759.8 million, mainly because of higher volumes.
Advanced Intermediates improved sales by 2.5 percent thanks to continuing strong demand for agrochemicals and products from the aromatics network, Lanxess said. Its second quarter sales came in at about $538 million.
Breuers to leave firm
Werner Breuers, responsible for the Performance Polymers and Advanced Intermediates segments through Aug. 6, will leave Lanxess at his own request after his contract ends on May 31, 2015. Lanxess said Breuers will leave the board of management immediately but remain an adviser to Lanxess for a transition period.
“We thank Mr. Breuers for his work and wish him all the best for his future,” said Rolf Stomberg, chairman of Lanxess' supervisory board, in a statement.
Zachert will assume responsibility temporarily for Performance Polymers and Advanced Intermediates. Lanxess intends to fill the vacated position on the board of management in the next 12 months.