29 January 2014 11:47 [Source: ICIS news]
LONDON (ICIS)--LANXESS’s new CEO has few obvious options to improve profitability through portfolio restructuring, according to analysts JP Morgan Cazenove.
Since its spin-off from Bayer in 2005, the company has pursued an aggressive cost-saving programme, leaving few further options on costs. Portfolio restructuring is also unlikely to boost margins, the analysts said in a note published on Wednesday.
LANXESS announced late on Sunday 26 January that CEO Axel Heitmann is to step down “by mutual agreement”, to be replaced by Matthias Zachert, currently CFO at Germany-based pharmaceuticals and chemicals company Merck, in May.
But after nine successful years of restructuring there are few “low hanging fruit” left as the company has already achieved fixed and variable cost savings of more than €500m, according to JP Morgan Cazenove estimates. LANXESS is currently in the middle of a €100m 2015 cost saving programme and it would be difficult for the company to achieve more than this without impacting operations, they added.
Asset sales would likely be earnings dilutive, although they would strengthen the balance sheet. The most attractive assets would be in the Advanced Intermediates business where return on capital is around 10% higher than the group average.
LANXESS chose to invest heavily in capacity expansions in tandem with competitors in global rubber chemicals, leaving the market potentially oversupplied for several years. The analysts expect that LANXESS’s new capacity additions are likely to cannibalise volumes shipped from existing assets. However, they identify three projects – two in Singapore and one in China – where reducing operations could save around €40m without sacrificing overall volumes. Any other capacity closures would simply cede market share to competitors.
Delaying two plant ramp-ups in 2015 – neodymium polybutadiene in Singapore and ethylene propylene diene monomer (EPDM) in China – could yield annual capital expenditure savings of €277m, the analysts estimate.
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