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Chief: Lanxess Has 'Long Way to Go'

Posted on: Friday, 2 September 2005, 12:00 CDT

Sep. 1--The chief executive of Lanxess AG touted the new chemical company's initial success -- an 11 percent increase in second-quarter sales, a 40 percent jump in pre-tax profits and a higher stock price -- during a visit yesterday to its North American headquarters in suburban Findlay.

But Axel Claus Heitmann said he would not ease up on his drive to improve the results of the Germany-based global enterprise that was spun out of Germany's Bayer in January and formed mainly around inherited low-growth and low-margin businesses.

Lanxess took on its new name in July 2004, eight months after Bayer made the decision to spin off large portions of its chemical and polymer operations. At first a subsidiary of Bayer, it has been listed on the Frankfurt Stock Exchange as a standalone company since Jan. 31 this year.

Heitmann called the spinoff a "fresh start" for a business that competes with larger rivals such as Dow Chemical Co., BASF AG and its former parent, Bayer.

"All in all, it has been a great success getting out of Bayer, building a new brand and a new identity, a new culture," Heitmann said in an interview before addressing the local staff. "I'm very pleased to say we are doing well. We are already making significant progress," but," Lanxess still has a long way to go."

Lanxess uses petrochemicals in its production processes, so rising oil prices are taking a negative toll. But Heitmann said the company had been relatively successful in passing on cost increases to its customers and would continue to try to do that.

"There is no way we can absorb this," he said of record oil prices.

Two-thirds of the businesses Lanxess inherited from Bayer were unprofitable, resulting in a loss last year of 12 million euros -- approximately $14.6 million.

Such losses have prompted a critical review of operations and costs around the world, and in a second round of restructuring since last year, Lanxess last week announced it was closing facilities in New Martinsville, W.Va., Wellford, S.C., and Trenton, N.J. About 150 employees, some of whom were still attached to Bayer, will lose their jobs.

The local operations have been spare cuts so far. Lanxess employs about 2,000 in the United States, its largest market, including about 400 in Findlay.

"We generate about a third of our revenue in the U.S., the biggest chemical market and growing," Heitmann said. "We are growing double-digit figures, so I see more potential being active in this market."

The latest cutbacks by Lanxess, which makes intermediate chemicals used in other products, synthetic rubber and plastics, are part of a cost-cutting effort begun last year in Europe.

"We definitely need to work on our competitiveness," Heitmann said. "It's not the market position of our products. We have top positions in the market. We have the technical expertise to develop and market our products.

"It's our structure that needs to be amended -- our plants," he said. "We are doing this around the globe."

One prominent example of the strategy that Heitmann did not want to discuss in detail involved closing an unprofitable chemical plant in Baytown, Texas, and moving the facility in pieces by cargo ship to China. Moving the plant, which produced 12,000 tons a year of hydrazine hydrate for use in products such as shoes, wallpaper and drugs, will allow the company to participate in China's red-hot market with less expense in time and money than building a completely new facility.

The plant, which will be operated with a Chinese partner, was dismantled in January into about 3,200 pieces that were wrapped and transported to the Chinese port of Qingdao. The pieces should be reassembled at Weifang, 500 miles south of Beijing, by year's end. Savings are expected in personnel costs, raw materials and energy once the plant reopens.

"This is just one project, we have so many," Heitmann said when questioned about the plant move. "There are a series of courageous decisions we have taken that is changing the face of Lanxess and will make Lanxess a profitable company."

Lanxess has made other investments in China, which Heitmann said could one day supplant the U.S. market as the company's largest, perhaps in 10 to 15 years. "We should go after the business, and we should benefit from this development that we cannot stop."

Heitmann said Lanxess is developing a new culture apart from Bayer that encourages people to take creative risks, to anticipate and to quickly react to changes in the marketplace.

The company, he said, is now prepared to confront and adapt to situations where it no longer makes sense to manufacture and instead will focus on those products and customers that make money.

"We do not like to sugarcoat things. Let's be open. Let's make bold decisions," he said. "At the end of the day, a profitable business provides jobs; a business which is unprofitable for years and years cannot provide and save jobs."

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Source: Pittsburgh Post-Gazette

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