INSIGHT: Degussa review heralds major changes

14 December 2005 17:32  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Watch this space. The Degussa story will run and run.

The world’s largest specialty company has to perform better and acknowledges now that it has to change. The Boston Consulting-led strategic review, much touted in the press, has focused on what will prove to be a radical shift for the group.

Degussa will slim down; solutions will have to be found for unprofitable businesses. At the same time, far-reaching organisational change will give senior management more say in the way businesses are run. Degussa is not talking about further redundancies – yet. But it is now looking at a possible divestment of a major part of the portfolio - construction chemicals.

Degussa has some under performing assets that have to be fixed or sold. The strategic review broadens and gives more responsibility for day-to-day operations to the management board. The management realignment seems to effectively eliminate a layer of middle management. The management board says it needs a few months yet to come up with specifics but the broad thrust of this underperformance-driven review is clear.

Management board chairman Utz-Hellmuth Felcht and his team have to drive the company harder. Majority shareholder RAG particularly wants stronger performance or the cash – from an asset sale – to buy out its compatriot Eon.

Degussa is up against it in more ways than one. But at least this latest announcement should give employees and smaller investors more confidence in the future.

Management said on Tuesday that Degussa is “stepping up its pursuit of profitable growth”. Alongside most specialty chemical players, the company is finding it hard to achieve growth in once attractive businesses. Higher input (raw material) costs particularly recently have dented returns. De-centralising the corporate structure will mean that savings can be made at the centre (in Dusseldorf, Germany), in the regional organisations and in services. Effectively, management will be able to eliminate another layer of costs.

Importantly, the company says it has identified high return businesses with growth potentials that have not been fully exploited. Growth areas include inorganic specialties, special applications for coatings and adhesives, solutions for the cosmetics industry and high-performance plastics. There are a group of ‘cash cows’ at which strong profits growth has to be secured, management says.

“Over the medium term, other solutions will have to be found for those businesses that cannot achieve their profitability targets despite extensive restructuring,” it adds. Essentially, Degussa is moving away from a divisional to a business unit structure. In doing so it will eliminate separate organsiational structures (for each division).

There will be four new reporting segments: Technology Specialties; Construction Chemicals; Consumer Solutions; and Specialty Materials. The first comprises Degussa businesses developed over decades; the second a range of regional construction chemical operations. Consumer Solutions includes the superbsorber, care & surface specialties and feed additives businesses.

Degussa claims its own ‘Verbund’ – or integrated production network – in specialty materials where it can tap into applications markets in areas as diverse as pharmaceutical polymers and optical electronics. The extent of the proposed changes should not be underestimated. Felcht has admitted that this reorganisation and goals set under the Degussa 2008 banner call for “major structural and personnel changes”.

The impact of those changes currently is by no means clear. 2006 will be a year of change for the group.

By: Nigel Davis
+44 20 8652 3214

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly