Lanxess Begins 3-Year Revamp to Regain Lost Clients, Profit
Lanxess AG (LXS) Chief Executive Officer Matthias Zachert, five weeks into the role, said it will take as many as three years to regain lost customers and turn around the maker of synthetic rubber and agricultural chemicals.
Zachert is starting with a capital increase of 10 percent that raised about 430 million euros ($598 million). That will help pay for a “painful” restructuring, which may include temporary and permanent plant closures, divesting units and partnerships in production and raw-material supply, he said on a call yesterday.
The 46-year-old executive said it won’t be a “quick fix” and the Cologne, Germany-based maker of synthetic rubber has to reestablish trust and then long-term contracts with lost clients. Lanxess last year posted its first annual loss since its 2005 stock-market debut and halved its dividend after focusing too heavily on the auto and tire industries.
“It’s going to be a very long and winding road,” Zachert said on the call, commenting on his decision to take the post. “I knew upfront about very tough decisions like fixing the balance sheet structure, closing plants, terminating contracts and reducing workforce. This is not easy stuff to do.”
Lanxess sold 8.32 million new shares at 52 euros apiece. That compares with yesterday’s closing price of 53.46 euros. Deutsche Bank and Bank of America Merrill Lynch were joint bookrunners. The stock traded 0.5 percent lower at 53.21 euros as of 9:13 a.m. in Frankfurt.
The CEO has scheduled meetings with customers in June, July and onwards, he said yesterday. Some potential clients have already signed with competitors for the entire year of 2014 and Lanxess will probably get the first accounts back gradually from 2015.
Zachert also said options for making the rubber activities more competitive and for bringing balance to Lanxess’s business portfolio will be explored. That could include alliances in raw materials as well as asset swaps.
Zachert would be “well served” by pursuing a joint venture for most of the synthetic rubber business, valued at 3.3 billion euros, given overcapacity in the market, according to Jaideep Pandya, an analyst at Berenberg. A disposal of 51 percent of the unit, excluding top-end technology based on emulsion styrene-butadiene rubber and solution styrene-butadiene rubber, may generate cash of 1.68 billion euros that could be used for expanding agrochemical and water treatment businesses, Pandya said earlier this year.
When asked about speculation on a tie-up with 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,” the CEO said.
Earnings before interest, tax, depreciation, amortization and one-time items will probably be 220 million euros to 240 million euros in the second quarter, Lanxess said. Ebitda before one-time items rose 18 percent to 205 million euros in the first quarter, in line with its own prediction of about 200 million euros. The full year will probably yield 770 million euros to 830 million euros, the company said yesterday.
Sales fell 2.5 percent to 2.04 billion euros in the first three months, in line with estimates. Net income was unchanged at 25 million euros with earnings per share at 30 euro cents.
The shares have gained 19 percent since the January announcement that Zachert would take over as chief executive. That’s boosted the market value of the maker of agricultural chemicals and synthetic rubber to 4.4 billion euros.
In the five weeks since Zachert started his new job, the company announced a new head for its Performance Butadiene Rubbers unit, PBR, which is used in tires. Jorge Nogueira was previously head of the smaller Functional Chemicals division, which makes plastics additives and colorants.
Zachert, who was chief financial officer of Lanxess for seven years until 2011, also oversaw the end of a nine-week strike at a butyl rubber plant in Belgium.
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