Hüls restructuring reaches a peak

21 June 1994 00:00  [Source: ICIS news]

The much needed restructuring of Veba's chemicals subsidiary, Hüls, has been gathering momentum for some time and looks as if it will peak this year following the deals to transfer the ethylene-propylene rubber and polybutadiene product lines to Bayer. These transactions have yet to be approved by the authorities, primarily Germany's Federal Cartel Office. If they do proceed, however, they will mark another step in the complex competitive relationship between Bayer, Hüls and Veba.

Hüls has been particularly active this past year in the face of considerable losses from its petrochemical activities. The industrial gases business was sold in the middle of 1993 and the company withdrew from PVC compounding and glass laminate manufacture. The fibres subsidiary, Faserwerk Bottrop, and the pipe producer Kunstoffwerk Höhn, have been shed.

Polyolefins and PVC to be transferred

Of considerable significance will be the sale of the US plastics division and the spinning off of the PVC business which is scheduled for the beginning of 1995. The polyolefin activities were transferred to Veba Oel earlier this year because it is felt that they will be better served by uniform corporate management and a common capital expenditure policy. The PVC business has faced particular problems but will benefit from a much better monomer position now that acetylene technology has been replaced.

The restructuring has not stopped there as the company has swapped assets with Rütgerswerke giving the latter company control of the plastics processing firm, Hüls Troisdorf. In return Hüls has gained Rütgerswerke's 25% stake in Phenolchemie to add to the 50% it already holds and the 24.5% stake it expects to acquire from Harpener AG during 1994.

PVC has better chance to stand alone

The need for action at Hüls has been apparent for some time but the company has been slower than most to bring its plans to fruition. It had been seeking joint venture partners in both thermoplastics and rubber. The agreement with Bayer provides one part of the equation while the consolidation of the 350,000 tonnes a year PVC activities at Marl into the 100% owned subsidiary, Vestolit, is designed to cut overheads and give greater scope for survival as a stand alone concern or as part of a separate joint venture.

Thermoplastics and rubber remain depressed ...

The past two years have been extremely difficult and while there has been a noticeable improvement in the first months of this year the situation is far from healthy. This is particularly the case in the troublesome thermoplastics and rubber areas where sales continue to be depressed and where operations are still running at a loss.

Sales to outside parties fell slightly in 1993 to DM10,070 million ($5800 million) with the decline on domestic markets of some 7%, being offset by better sales abroad. Speciality chemicals, performance products and silicon wafers performed relatively well but volumes in thermoplastics and rubber could only be maintained by compromising on price. As a result, the loss widened to $115 million from $90 million in 1992.

...but sales overall are improving

Sales are improving and in the first quarter were 12% ahead at $1516 million. The improvements were made in all the divisions apart from thermoplastics and rubber where the reduction of 5% only exacerbated the loss-making position. The streamlining being undertaken here will lead to a loss in sales of some $150 million in total in the Bayer transfer and in closure of the unprofitable SBR tyre rubber operation but income will be boosted from the various asset sales that are being pursued.

The restructuring operation extends to the centralised commercial and technical divisions at a cost of $140 million but the overall potential savings are in the order of $180 million. Cutting costs in these areas are expected to have a beneficial effect this year and next but will be more noticeable from 1996 onwards, Hüls suggests. Job cuts are part of the exercise and will total 3000 this year to set against the reduction in numbers of 5000 since 1991.

Productivity goals

Chairman of the board, Dr Ehard Meyer-Galow, stresses that restructuring of the central functions and optimisation of the strategic operating units, which now number 131, are focal points of the new strategy. He adds, however, that further cost reductions of about $180 million may indeed be required to bring about the desired improvement in profitability.

The considerable burdens from the reshaping exercise will be felt largely this year, and Dr Meyer-Galow holds out little hope that these costs can be contained in the 1994 group financial result which is expected to be negative yet again. He does, however, hold out the prospect of a much better result at the operating level of between $120-$180 million.

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