UpdateLANXESS shares rally after management reshuffle announced

27 January 2014 11:31  [Source: ICIS news]

(updates throughout)

LANXESSLONDON (ICIS)--Shares in Germany-headquartered specialty chemicals company LANXESS rallied on Monday, despite a bearish market, following news that chief executive Axel Heitmann is to step down.

Shares in the company had risen by over 8% at 10:05 GMT, to €48.74 per share, following a company announcement late on Sunday that Heitmann is to step down “by mutual agreement”, to be replaced by Matthias Zachert, currently CFO at German pharmaceuticals company Merck.

Heitmann, who has headed the company since its spin-off from chemicals producer Bayer in 2004, is to step down as CEO and managing board member as of February 28.

Zachert, who has been seen as instrumental in Merck’s turnaround and served at LANXESS from 2004 until early 2011, will take up his new role no later than May 15, LANXESS added.

Merck share values plummeted in morning trading on Monday, falling almost 10% as of 10:13 GMT to €119.40 per share.

LANXESS attributed the management reshuffle to a need to address challenging market conditions.

“LANXESS is facing significant challenges, for example in terms of market capacities and business portfolio. Therefore, the Supervisory Board believes it is the right time to hand over responsibility to a new leadership in order to overcome these challenges,” the supervisory board said in a note.

Analysts at UK-headquartered investment bank JP Morgan Cazenove predicted that Zachert’s arrival may signal an attempt to re-align market perception of the company and re-focus its portfolio, as well as potential additional streamlining measures.

“Investors who remember Zachert from his time at LANXESS in the early days of the post spin-off period may begin to anticipate a period of re-basing market expectations, refocusing the portfolio, and possibly a new cost cutting programme to meet the challenges ahead from new capacity,” analysts said in an investor note on Monday.

Zachert’s tenure at Merck saw company share prices rise from around €60 per share in early January 2011 to over €130 apiece in January this year.

A specialist in synthetic rubber, LANXESS has suffered in the downturn due to its reliance on the automotive sector, described by Heitmann in mid-2013 as “our problem child”. The company derives 25% of its annual sales from rubber and tyre products, and 15% from lightweight automotive components.

LANXESS has been described by Moody’s as one of the most exposed companies to the European auto sector, which experienced its worst year in almost two decades in 2013, according to European Automobile Manufacturers’ Association data.

Moves to cut costs and expand focus on emerging markets and agriculture and fine chemicals division Saltigo as a less cyclic counterweight to the company’s core rubber and plastics business have been announced, with Asia-Pacific region sales now accounting for 25% of the company’s total, but have failed to prevent an 88% year-on-year drop in net income for the third quarter of 2013, to €11m, on the back of lower product prices, inventory reduction and negative currency effects.

LANXESS shares had been trading at over €52 apiece in early November 2013, but prices fell following the release of third-quarter results and revised guidance that pre-exceptional earnings before interest tax, depreciation and amortisation (EBITDA) would be at the lower end of its €700-800m forecast, around €710-760m.

The full-year guidance indicates a slump in EBITDA of up to 42% compared to 2012’s €1.23bn, potentially below the €722m posted in 2008 at the onset of the financial crisis.

Additional reporting by Nurluqman Suratman

By: Tom Brown
+44 208 652 3214

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