Rubber Check

Promising 'Valley of Tears,' New Lanxess CEO Accelerates Job Cuts, Downsizing, Amid Chemicals Slump

Lanxess CEO Matthias Zachert on May 8 at the company's annual shareholders' meeting in Cologne II. Source DPA
Lanxess CEO Matthias Zachert on May 8 at the company's annual shareholders' meeting in Cologne.
  • Why it matters

    Why it matters

    Chemicals firm Lanxess needs to reorganize, possibly closing, selling or merging operations, to cope with overcapacity and falling prices.

  • Facts

    Facts

    • In 2013, Lanxess had a loss of €159 million on sales of €8.3 billion.
    • Lanxess’ synthetic rubber production operates in an industry with extreme overcapacity.
    • The former Lanxess finance chief became chief executive in April after his predecessor suddenly left.
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    Audio

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“A valley of tears” is what Matthias Zachert, the chief executive of bulk chemicals maker Lanxess, promised shortly after taking helm in April. The next two to three years would be “rocky”, he said a month later at Lanxess’ annual shareholders meeting.

Zachert, a 46-year-old who was the company’s finance chief from 2004 to 2011, has been blunt when saying that Lanxess needed to change in order to improve results.

At the meeting, shareholders were disgruntled that an investment program of the previous executive, who suddenly left in February, faltered, and contributed to a net loss of €159 million in 2013 on sales of €8.3 billion.

“We must use the current phase of weakness to renew and realign ourselves,” he told investors, adding that Lanxess would reduce investments and look for partnerships.

A few weeks before the shareholders meeting, his bluntness was already awarded when he was able to raise €430 million in capital to strengthen the Cologne-headquartered firm’s balance sheet and fund the restructuring.

 

“We must use the current phase of weakness to renew and realign ourselves.”

Mathias Zachert , Lanxess Chief Executive

In addition to cutting costs, a measure announced last week, the company plans to close plants, sell operations or seek to form joint ventures, especially for its troubled synthetic rubber production.

The rubber operations, which make up about half of sales, are suffering from a slump in the European car and tire industries, overcapacity, and falling margins.

Zachert, who was finance chief and executive board member at Swiss pharmaceutical firm Merck from 2011 to 2014, has made a few management changes at Lanxess since leading the firm but he said he believed in the company’s managers.

He did not rule out more nasty news. “Here and there red numbers will be reported,” Zachert said during a conference call in May.

Analysts have been speculating about a possible sale of Lanxess synthetic rubber business or parts of it.

Bankhaus Lampe analyst Heiko Feber said he did not expect any big changes at the firm but a step-by-step approach.

“Mr. Zachert is known for saying something only then when he has the numbers to prove his point,” Mr. Feber said.

 

Lanxess CEO Matthias Zachert on May 8 at the company's annual shareholders' meeting in Cologne. Source DPA
Lanxess CEO Matthias Zachert on May 8 at the company’s annual shareholders’ meeting in Cologne. Source: DPA

 

Reducing capacity in synthetic rubber production was the most logical first step, either by cutting output, closing one or more factories, or forming a joint venture, Mr. Feber said.

“In a joint venture one is not only able to cut capacity but also to benefit from synergies in purchasing and complementary regional coverage,” Mr. Feber said.

A joint venture was for instance possible with Asian rivals or tire producers, which partly produced their own synthetic rubber, Mr. Feber said.

When asked about speculation of a tie-up with chemicals firms Evonik or Bayer MaterialScience, Zachert said that it was not part of his decision-making when he chose to take on the job.

“Evonik and BMS was never part of any discussion,” Bloomberg quoted Zachert as saying in May.

Zachert, who did an industrial management apprenticeship at Mercedes-Benz and studied business administration in the United States and France, enjoys a great respect within Lanxess, despite the tasks that lie ahead.

When he returned to the company in April, he had a meet and greet tour, speaking to hundreds of colleagues, from his direct senior managers to workers on the floor.

Investors initially welcomed the return of Zachert, an avid half marathon runner who run his last in 1H.49 minutes, to the firm. Lanxess’ stock opened up 9 percent higher in January, when his announcement as chief executive was made. The stock hit a one-year high of €55.53 in April but has since fallen back to €48.71, slightly above the level after the January announcement of Zachert’s return.

Additional reporting and translation by Gilbert Kreijger

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