This is an excerpt from The Comeback Kids: Lessons from Successful Turnarounds.

Lanxess, a specialty petrochemical company based in Germany, produces polymers such as the synthetic rubbers used in car tires and industrial applications, and plastic additives, industrial chemicals, and related products. Lanxess has seen dramatic shifts in the market for oil—the feedstock of petrochemical products—over the past decade. Low oil prices have increased competition, especially for players close to oil sources. For example, cheap shale oil in the US has given chemical companies there an advantage. And some customers in markets like the Middle East and China have built their own chemical production facilities. Rather than buying from Lanxess, they are now competing against it, often with the benefit of government ownership, which eliminates the pressure from shareholders to turn a profit. 

Relative to competitors in other markets, Lanxess has high logistics and transportation costs for its feedstock, along with high labor and energy costs. (Companies in Germany paid 22% more for electricity in 2013 than the average in the European Union.) Increased production capacity—including some investments in capacity from Lanxess itself—led to lower prices for specialty chemicals, particularly in segments like rubber. The combination of higher source costs and lower prices led to a 40% drop in EBITDA from 2012 to 2013.

In the spring of 2014, Lanxess launched a three-stage turnaround, called Let’s Lanxess Again, to make the company more competitive. To fund the journey, the company simplified the organizational structure, reducing the number of business units from 14 to 10 and eliminating overlap in customers and regional markets. Management also consolidated administrative functions and reduced the size of the workforce by about 1,000 employees. Those measures led to annual savings of about $160 million.

To win in the medium term, Lanxess adjusted its production capacity, particularly in the synthetic rubber category. It shuttered plants (temporarily in some cases, permanently in others), sold some facilities, and improved operational processes at the remaining sites. To align capacity with demand, the company improved its sales, distribution, and supply chain functions through automated order processing. That gave management better visibility into demand and a more efficient value chain. Finally, the company restructured the organization for sustained performance through a series of acquisitions and partnerships. It bought Chemtura, a US-based company, for about $2.1 billion, reinforcing Lanxess’s North American footprint and helping it diversify away from synthetic rubber into more-promising product segments: flame retardants and lubricating additives. Lanxess also bought a division of Chemours, another US player, which should ultimately deliver more than $30 million in annual profits by 2020, once synergies are fully realized. 

Most important, Lanxess forged a 50-50 joint venture with Saudi Aramco, the world’s largest oil and petrochemical group, on a synthetic rubber operation. Lanxess contributes manufacturing expertise, and Saudi Aramco ensures access to feedstock at competitive prices. (Along with energy, feedstock accounts for about 75% of the total production costs of synthetic rubber.) In addition, Lanxess received $1.2 billion in cash, part of which it used to pay down debt and fuel new growth initiatives. As of 2016, the joint venture made up about 35% of Lanxess’s revenue. 

Since 2013, revenue has stabilized, and EBITDA margins have increased more than 40%. (See the exhibit.) Both metrics should continue to improve over the next several years, as the company continues to integrate its recent acquisitions.

Despite a turbulent oil market—and greater complexity for specialty chemicals players—the turnaround has left Lanxess with a market-leading position in many of its segments, setting it up for profitable growth regardless of what happens with energy prices.