Revolution from within
Lanxess sets challenging targets with a tough program to increase efficiency

Following a radical restructuring, Lanxess is now set for expansion. The company plans to meet ambitious and ongoing goals through a series of tough programs designed to boost efficiency. Debottlenecking and energy-saving processes will also play an important role.

From being just a sideshow, it’s now a serious player among international chemicals manufacturers: Lanxess is well on the way to leading-edge business status within the sector since its spin-off from the Bayer Group just under two years ago. To achieve this, the company and all the staff who have been with it since its establishment have undergone a radical restructuring program. Alongside staff cutbacks, plant closures and consolidation of production plant and infrastructure, the leadership team around Group Chairman, Axel C. Heitmann, has reinforced its commitment to the optimization of processes and procedures within both production and administration.

This measurable success is based, according to Heitmann, on a four-stage company strategy, which has already contributed cost savings of s260 million since January 2005. With ambitious targets and tough programs aimed at increasing efficiency and profit-based allocation of resources, they aim to increase profitability further in the coming years and at the same time embark on a program of expansion. Targeted acquisitions will further secure their own position and continue to add value, according to Heitmann. In pursuing these, the Group Chairman foresees the acquisition of chemicals businesses of the order of small to medium-sized.
Heitmann defines the driving forces behind these ambitious targets as increasing competition, the transformation of global markets and above all the fragmentation and consolidation of the industry. ”It’s here that the locally-based competition in Asia plays a prominent role, which has real existential implications here in Europe,” explains Heitmann. Among the 50 biggest chemical companies in the world are Asian players that have developed at breath-taking speed, who up until now have played no role whatsoever. Equally alarming, in Heitmann’s view, are the gigantic ethylene capacities which are currently building in the Middle East. By the year 2010, experts predict an increase in growth to 27.5 million tons—about ten times more than twenty years ago. Commodification in the chemicals industry is putting pressure on margins, points up Heitmann with regard to the development of polystyrene production—since 1990 the average capacity of productions plants is said to have increased from 85,000 to 145,000 tons per year. In one or two years, this will have doubled again, whilst the price per ton will have almost halved in the same period, according to Heitmann. In order to survive in this competitive arena, productivity in the chemical intermediates segment also needs to increase. Furthermore, they plan for systematic utilization of the trend for outsourcing as well as looking for profitable quality segments in growth markets, hence the expansion of the China business. The background to this is that whilst the commodities business is expected to more than double between 2003 and 2015, the growth in specialties business in the same period is
expected to more than triple. So Heitmann sees a quick adjustment of production capacities as an important factor for success as well.
Debottlenecking as a recipe for success
The significance of factors such as innovation and expertise in process engineering in this context is highlighted by Dr. Ulrich Koemm, the responsible Board Member. In just under two years since the spin-off from Bayer, the Technical Process Management Team has been busy with over 70 projects aimed at increasing process efficiency. This is seen as synonymous with a more efficient use of raw materials and will deliver tangible economic benefits. According to Koemm, “This also includes the possibility of extending capacity either at low investment cost or without any at all.” Koemm pledges that strategic debottlenecking of plant will bring decisive advantages. Various projects for expansion in capacity are currently being run right across the company—as early as the end of the current year, an investment of more than s15 million in the production plant for chloroprene rubber in Dormagen/Germany will start to deliver increased output. Running almost concurrently are measures to increase the production capacity of the basic chemical, m-cresol, at a plant in Leverkusen/Germany. It should be producing around 15 percent more by the end of the first quarter 2007. And that’s just the beginning, according to the Business Unit, as there are plans to extend the capacities of other basic chemicals in the same way in the near future.
Furthermore, Board Member Koemm recently announced other modifications. These aim to increase output capacity by 50,000 tons per year in the butyl rubber sector. Koemm adds, “The success of these process engineering measures has enabled us to utilize our resources sparingly. We only input the amount of energy that’s actually needed for our processes. This is also decisive to retain our competitive edge.”
For Dr. Hans-Georg Schmitt, Head of the Basic Chemicals Division, automation and the upgrading of plant capacity to world-scale format are right up there on the list of priorities. Schmitt explains why: “Only world-scale plant is competitive from the point of view of investment, fixed and variable costs. A high level of automation is not only the key to low staffing costs but also to improved process and product quality as well as plant security.” Apart from two world-scale companies in Germany and the USA, most of Lanxess’s competitors today are located in Asia, according to Schmitt. Lanxess itself currently operates 14 production plants in the basic chemicals segment at four locations in Germany and at a plant in the USA. Schmitt is confident—in view of the measures introduced—that “we will be able to compete successfully with Asian manufacturers both in the medium and long-term on the basis of our modern production plant in Germany.”
The “Aromatenverbund”—the structural integration concept named after the aromatics produced—at the Lanxess sites offers a whole host of advantages, resulting from its integrated production structure and an efficient logistics network. These and other success factors have in Schmitt’s opinion led to an increase in overall productivity in tons per employee of almost 60 percent since the year 2000 as a result of higher sales volumes and
savings on staffing.
Across the company, these figures resonate just as positively. According to information from Group Chairman Heitmann, the productivity of the total company has increased by around 41 percent, and the synthetic rubber division has posted a phenomenal increase of around 76 percent. In total, around 70 projects were implemented as part of the program. By concentrating on the further development of products, applications and production processes, Lanxess are clearly managing to achieve maximum added value at minimal investment cost. And the chances of them achieving their targets are good. The Leverkusen company currently has 114 projects in the pipeline which will be good for a turnover of s700 million in 2011. In all events, Lanxess chief, Heitmann, appears confident and regards the future with a great deal of optimism. He describes the restructuring already undertaken as a revolution from within. In just a short time, a totally new corporate culture and brand identity has been created. Hence, with his wealth of experience, he views the prospect of possible acquisitions calmly: “The restructuring of chemicals businesses is our main strength. We've demonstrated our credentials in securing added value from badly-managed chemicals assets.”