Lanxess CEO outlines strategy, financial improvement

COLOGNE, Germany—Lanxess A.G. CEO Matthias Zachert outlined a new strategic focus following the firm's realignment initiative during a Nov. 5 presentation of he firm's third quarter financial results.

The firm revealed it plans to invest up to $464 million in growth projects by 2020, which Lanxess said came from the $1.3 billion generated from its recent joint venture agreement with Saudi Arabian Oil Co.

Zachert said the firm's realignment plans are progressing faster than expected. As a result, the company raised its expectations for full year 2015 and now expects earnings before interest, tax, depreciation and amortization pre exceptionals to come in between about $934 million and $977 million. Its previous forecast was between about $912 million and $956 million.

Lanxess said the effects of the improved administrative and business structures are already evident. The company is set to achieve annual savings of about $163 million with its first phase of realignment by the end of 2015, which is one year earlier than expected.

The first phase of its “Let's Lanxess Again” realignment program resulted in the reduction of 1,000 jobs worldwide and the consolidation to 10 business units, from 14.

Lanxess also said it is accelerating the second phase of its realignment program, the optimization of its global plant network. Zachert said the group anticipates additional savings of about $163 million progressively over the coming years until fully realized by 2019.

The firm said about $10.9 million of this figure already has been achieved in 2015.

Lanxess expects additional savings as a result from a global analysis of its plants and process, which will extend into 2016.

About $108.7 million of the projected $163 million in savings is expected to be generated through a comprehensive package of process improvements at production sites resulting in lower consumption of energy, lower consumption of raw materials and optimized maintenance processes.

The previously announced capacity adjustments and efficiency measures at its rubber production facilities in Latin America and France will contribute about $32.6 million in savings. Its reorganization of its EPDM and neodymium-based performance butadiene rubber production network, announced previously, will result in further savings of about $21.7 million.

The restructuring of its EPDM and Nd-BR rubber production will affect about 140 employees worldwide. The firm will halt EPDM rubber production at its facility in Marl, Germany, and will realign its EPDM and Nd-PBR production to four strategic regional facilities in Europe, North America, Latin America and Asia-Pacific.

Zachert said through its rapid realignment and its recent agreement with Aramco to create a joint venture for synthetic rubber, Lanxess has established the basis for a new strategic focus.

“Now that we've solved the main structural problems, we can once again concentrate on growth,” the executive said in a statement. “Lanxess will be a more profitable and less cyclical specialty chemicals company with a balanced portfolio of quality products and with growth potential.”

Under the agreement, Aramco paid Lanxess about $1.3 billion to secure a 50 percent stake in the joint venture. This consisted of Lanxess carving out its Tire & Specialty Rubbers and High Performance Elastomers business units—which consist of 20 production facilities in nine countries across Europe, Asia and the Americas, about 3,700 employees and additional support staff—and placing them in a holding company headquartered in the Netherlands to manage the joint venture.

Lanxess will appoint the CEO, and Aramco will name the chief financial officer. Each company will have equal representation on the venture's board of directors, and Lanxess will consolidate the joint venture's financials.

The move requires approval of the relevant antitrust authorities and is expected to be completed in the first half of 2016.

Zachert said with these moves the firm has defined its new strategic cornerstones for future growth, focusing mainly on mid-sized markets. Lanxess' new growth platform includes the business with chemical intermediates and additives, agrochemicals, color pigments and high-tech plastics, and specialty chemicals for water treatment, material protection and the leather industry.

It recently announced a $65.2 million investment to add two production lines for agrochemicals at its Saltigo business unit's site in Leverkusen, Germany. Production is projected to begin by the end of 2017.

“In these businesses, we have leading positions in diversified, less cyclical markets, which we plan to expand,” Zachert said. “We will thus be able to increase our profitability and simultaneously become more resistant to cyclical fluctuations.”

Lanxess identified China, North America and Southeast Asia as major growth regions.

Lanxess said sales in the third quarter fell 4.3 percent to about $2.12 billion, largely attributable to selling price adjustments caused by lower raw material costs. Net income, however, increased 17.1 percent to about $45.6 million compared to about $38 million in 2014.

Its Performance Polymers segment declined 6.6 percent to about $1.06 billion. Advanced Intermediates also decreased, by 7.6 percent to about $478.1 million. Performance Chemicals, however, increased 2.9 percent to about $569.4 million.

“Our business performance in the first nine months of 2015 was satisfactory,” Zachert said. “However, we also recognize that global economic growth is subdued, and many emerging markets are market by uncertainty.”

Lanxess operates 52 production sites in 29 countries with about 16,300 employees. It reported 2014 sales of about $8.69 billion.