Lanxess accelerates profitable growth
Lanxess intends to increase its operating margin to 14 - 18 % from 2021. This target is to be achieved by further diversification and strict portfolio management. Chemtura synergies and high-yielding organic growth projects are expected to be key drivers for profitability. Furthermore a group-wide digitalization initiative has been launched. The Cologne-based speciality chemicals company announced these and other strategic details at a Media Day on the 5 September 2017.
Lanxess intends to further improve its stability and profitability over the next years. From 2021, the operating margin – measured in terms of EBITDA pre exceptionals – is expected to be between 14 % and 18 %. In fiscal 2016 the margin was at 12.9 %. At the same time, the Group is to become even more stable, with less volatility in the operating result. In terms of volume, Lanxess intends to consistently grow above global gross domestic product.
“Lanxess is back on solid footing and has embarked on a profitable growth path. In the coming years, we intend to reach our full potential and transform Lanxess into an even stronger company with a highly balanced and stable platform, increased profitability and, last but not least, a company team-culture based on dedication and motivation,” says Matthias Zachert, CEO of Lanxess AG.
The Group will only include business operations in its portfolio that can achieve leading market positions and generate attractive margins sustainably. Organic investments – around EUR 400 million between 2016 and 2020 – involve projects that generate an average return on capital employed (ROCE) of 20 percent on average. In comparison, GroupROCE was 6.9 % for fiscal 2016. In addition, Lanxess is pursuing even greater regional and industry-based balancing to further reduce the effects of market volatilities. This includes an increased share of sales in growth markets such as Asia and North America and an expanded presence in attractive customer industries such as electrical/electronics or energy with innovative product applications.
The company expects about EUR 100 million in annual cost savings by 2020 stemming from the acquisition of Chemtura. Cost savings for fiscal 2017 are already expected to amount to approx. EUR 25 million. An estimated EUR 140 million in associated one-time costs will be incurred for this. Approximately half of the expected EUR 100 million in synergies are attributable to production and procurement. The combined purchase volume of both companies for raw materials of about EUR 2.5 billion can be reduced by harmonizing supply contracts and increasing backward integration. Additional savings can be realized in the area of transportation and logistics. Around 30 % of all synergies can be achieved in administration, primarily in North America. A further 20 % of the synergies are expected to come from streamlining global marketing and sales structures.
Lanxess has established a department with an initial 30 experts for a group-wide digitalization initiative. Key areas of the initiative include the digitalization of the value chain, the use of big data, the development of digital business models and embedding digital expertise among employees.