Lanxess consolidates business units as part of realignment process

German specialty chemicals major Lanxess is going ahead systematically with its realignment. The group has defined a three-phase program “Let’s Lanxess again”, divided into three areas: business & administration structure competitiveness, operations competitiveness and portfolio competitiveness.
 
The group-wide restructuring program initiated by the Board of Management on July 24, 2014 will initially focus on the first area – the business & administration structure competitiveness. Preparations for the following phases have already begun.
 
Effective January 1, 2015, Lanxess will merge certain business units, reducing their number from 14 to 10. In addition, the company is streamlining its global administration by reducing the workforce on a cross-functional basis and consolidating specific areas of activity. The respective employee representatives will be involved in the process. This more efficient organisational structure is designed to enhance Lanxess' market and customer focus and reduce costs. The company is also aiming for savings on all cost types.
 
Matthias Zachert, Chairman of the Board of Management of Lanxess AG, said, “We have been working at full steam over the past few months to create the foundation for our realignment. We, as a team, will significantly improve our competitiveness by systematically implementing our program. We have started talks with the employee representatives on the implementation process, and we expect to quickly reach constructive solutions.”
 
Restructuring underway
Lanxess will combine the butyl rubber (BTR) and performance butadiene rubbers (PBR) business units to form the Tire & Specialty Rubbers (TSR) business unit. This takes account of the overlapping customer and regional structures in the established markets, as well as complementary strengths in the emerging economies. The future head of this business unit is Jorge Nogueira.
 
In addition, Lanxess will recombine the high performance elastomers (HPE) and Keltan elastomers (KEL) business units under the name high performance elastomers (HPE). This, too, is prompted mainly by overlaps in the customer structure. Jan Paul de Vries will head the new business unit.
 
The rubber chemicals (RUC) business unit's specialty chemicals product line, the functional chemicals (FCC) business unit and the Rhein Chemie (RCH) business unit will be combined to form the new Rhein Chemie Additives (ADD) business unit, which will be headed by Anno Borkowsky. Bundling the additives businesses will open up new markets and attract new customers for Lanxess.
 
As announced in September 2013, Lanxess is examining strategic options for the RUC business unit's antioxidants and accelerators business lines. At the same time, the company is considering merging these product lines and placing them into the Advanced Industrial Intermediates business unit (AII). A decision in favour of one of these options will be made by the end of the third quarter of 2014 at the latest.
 
Lanxess will combine the group functions Aliseca (ASC), industrial & environmental affairs (IEA) and innovation & technology (INN) into the new group function Production, Technology, Safety & Environment (PTSE), to be headed by Par Singh. Some maintenance tasks will be delegated to the business units in the future, eliminating a number of interfaces and thus raising efficiency.
 
The group function Internal Auditing (IA) and the Corporate Security unit will be integrated into the group function Law and Intellectual Property (LIP). The new group function Legal & Compliance (LEX) will be headed by Jochen Schroer.
 
The next phase of realignment
The second phase, Operations Competitiveness, will involve an ‘operational excellence initiative’ to examine all production facilities with respect to market requirements and synergy potential. Par Singh will lead this initiative. A ‘marketing and sales excellence initiative’ - led by Torsten Derr - will evaluate the effectiveness and efficiency of Lanxess’ international distribution structures.
 
Sales down by 5.7% in Q2
Business development in the second quarter of 2014 was marked by good demand for agrochemicals and a positive impetus from the construction industry, but also by a persistently difficult competitive situation for synthetic rubbers and negative currency effects. Lanxess registered year-on-year volume gains in all regions except Latin America. Volumes for the Group as a whole increased by 2%, which did not fully offset the 5% decline in selling prices. Overall, sales of the Lanxess Group declined by 5.7% to approximately Euro 2 billion.
 
EBITDA pre exceptionals came in ahead of the prior-year quarter, climbing by 20.7% to Euro 239 million. This development was attributable to higher volumes, increased utilisation of production capacities and savings from the efficiency program ‘Advance’. The operating result was thus at the upper end of the forecasted range of between Euro 220 million and Euro 240 million. The EBITDA margin pre exceptionals rose to 11.8%, compared to 9.2% in the prior-year period.
 
“The continuing low earnings level and increasing competition show the need for further action to improve competitiveness,” said Zachert.
 
Net income improved substantially to Euro 55 million, compared to Euro 9 million for the same period of last year. This was partly due to an improved financial result and lower exceptional charges. In the prior year, Euro 40 million had been incurred for restructuring in the Performance Chemicals segment.