Inside Business

August 1, 2013 4:04 pm

Inside Business: Handicaps of sector and name fail to check Lanxess

The once-spurned chemicals group has been transformed

The ugly duckling of Leverkusen turned this week into the swan of Cologne.

Lanxess, a German speciality chemicals company spun off in 2004 from Bayer, had few admirers at its birth. Conventional opinion derided it as a ragtag collection of low-margin chemicals and polymers businesses. It existed, so it was said, for no better reason than that Bayer, like some cold-blooded, profit-hungry giant, had decided to dump old-fashioned chemicals and place its bets on healthcare, nutrition and high-tech materials.

Yet the last laugh is with Axel Heitmann, chief executive of Lanxess from day one. He swiftly reorganised the newborn company, selling off a quarter of its portfolio and making astute acquisitions such as the 2008 purchase of Petroflex of Brazil, Latin America’s largest synthetic rubber producer. After years of steady growth and improved margins, Lanxess was promoted last September to Germany’s blue-chip Dax-30 index.

Moreover, anyone who bought Lanxess shares at their opening price of €15.75 in January 2005, and who still holds the stock, can feel pleased with the investment. The shares, though below an all-time high of almost €70 touched in February, trade today at more than €46. The company’s first dividend, paid in 2006, was €0.25; last year’s was €1.

On Thursday, Lanxess completed the move of its headquarters from Leverkusen, an unglamorous Rhineland town dominated by Bayer, to Cologne, one of Germany’s most exuberant cities. The idea is to lift up and sharpen the company’s profile. The group boasts an annual turnover of more than €9bn, and its fame knows no limits in the esoteric realms of rubber additives and dichlorobenzene. Yet Lanxess is scarcely a household name in Germany, let alone farther afield.

One problem is, I dare say, the name itself. Lanxess combines elements of the French verb lancer (to launch) and the English word success. The unfortunate result is a name that is gobbledegook in German and, in English, is one spelling mistake away from laxness. This is not a trivial point. The company conducts most of its international business in English. It surely does not want to be identified with a word that means negligence.

With its name plastered all over the new Cologne headquarters, as well as a nearby concert and sports arena, now does not look like the right moment for a change. But there is a lesson here: beware external consultants or in-house brainboxes who dream up fancy names for your company. EADS, the European aerospace and defence group, is showing much common sense by choosing as its new name Airbus – simple, direct, an unmistakable brand.

Lanxess boasts an impressive record since 2004 in spite of having to adjust, over the past few years, to a dizzying plunge in Europe’s car market. About 40 per cent of the company’s revenues derive from products used in the automotive and tyre industries. Just as important, replacement tyres account for about 70 per cent of its tyre business. If Europeans are buying fewer new cars, and are clocking fewer miles on their old cars, demand for tyres goes down and Lanxess takes a hit.

But with the judicious Mr Heitmann at the helm, Lanxess has reacted quickly to such downturns and, in that familiar German way, continued to plan with care for the long term.

On one hand, Lanxess is closing a rubber chemicals plant in South Africa’s KwaZulu-Natal province and cutting jobs at a similar facility in Kallo, Belgium. On the other, the company is positioning itself to take advantage, in coming decades, of an expansion of road infrastructure, car ownership and use of trucks – and, therefore, demand for tyres – in China and India. It has just opened a butyl rubber plant in Singapore at a cost of €400m, its biggest ever investment.

The progress of Lanxess owes much to the corporate structures Mr Heitmann put in place after the spin-off from Bayer. He eliminated several layers of executives and rejected the idea of management by geographical region. Instead he divided the company into three business “segments” – performance polymers, advanced intermediates and performance chemicals. Within these segments are 14 business units, each of which is free to conduct its operations without interference from headquarters to a degree uncommon at large German companies.

The headwinds against Lanxess are strong, and that is showing up in reduced sales, lower profits and a falling share price. It is not, however, a company investors should accuse of making unforced errors. Patience is the watchword. The essential ingredients for long-term success at Lanxess are all there.

Tony Barber is the Financial Times’ Europe editor

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