Neville Prior

Zachert returns to Lanxess

Neville Prior  14 February 2014 09:03:51 AM
The Supervisory Board of Lanxess has announced that former CFO Matthias Zachert is to return from Merck KGaA to take over as chairman of the board of management by no later than 15 May. This came after the appointment of Axel Heitmann was ended with effect from 28 February. Current CFO Bernhard Düttmann will cover any gap.

The departure of Heitmann, who has led Lanxess since it was spun off from Bayer in 2004, was said to be “by mutual agreement”. However, it appears that he has paid the price for some of the more difficult times the company has endured recently and possibly for abandoning some of the successful strategies associated with Zachert’s time there. In the past year, the share price, which had quadrupled since 2004, fell by one third. Rolf Stomberg, chairman of the supervisory board, said that Heitmann “has played a key role in shaping the company since its creation”, turning it into “a leading global speciality chemicals company, achieving many noticeable successes”. However, he noted, the firm is now “facing significant challenges, for example in terms of market capacities and business portfolio” and the board felt the time was right to “hand over responsibility to a new leadership in order to overcome these challenges”. Stomberg added that Zachert had done an excellent job as CFO, has “an outstanding reputation among employees as well as in the capital market” and is popular with investors and analysts. Some interpret this as a veiled comment on Heitmann, who many saw as an aloof figure who was out of touch with employees, but recent figures are likely to have been a more immediate concern.

In Lanxess’s early years, according to some analysts, Zachert was behind much of Lanxess’s success by imposing a strict focus on working capital and margins and implementing a ‘price before volume’ strategy in rubber. After he left, Heitmann quietly dropped this and went for growth based on capital expenditure, which quickly led to overcapacity problems when automotive demand failed to take off. This will remain a problem, given the very slow pace of recovery in the tyre market.

Merck has yet to announce a replacement for Zachert, who had been seen as a potential successor to CEO Karl-Ludwig Kley. Kley described him as “a proven expert who during his three years at Merck has realigned the global finance organisation and played a significant role in our transformation programme 'Fit for 2018’”. Added Kley: “He has significantly contributed to further developing Merck in a positive way. His transparent capital market communication has clearly helped boost investor trust in our company.”

In its Q3 2013 report, Lanxess narrowed its full-year guidance range for EBITDA before exceptional items in what it called “a challenging market environment” from €800 million to €710-760 million. Although it enjoyed 9% volume growth that was shared across all segments, sales were 5% down year-on-year to €2.1 billion, due mainly to 11% average price falls and the weak US dollar. Heitmann said at the time that volume trends were indicative of inventory replenishment by customers but added that it was “still too early to speak of a general recovery of the business”. EBITDA was 26% lower at €187 million and net income fell by 88% to €11 million, thanks in part to exceptional charges of roughly €20 million for the ‘Advance’ efficiency programme, which was announced in September 2013 and envisages both portfolio changes and some 1,000 job cuts, at a cost of €150 million in the 2013 and 2014 financial years.

The Performance Polymers segment, which makes synthetic rubber for tyres, has particularly suffered from the difficult market environment and lower raw material prices, notably for butadiene. Saltigo and the rest of the Advanced Intermediates division were relatively flat, with 5% volume rises largely cancelled out by falling prices and currency effects.

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