UpdateLANXESS cuts output and wages, has bleak outlook for chems

18 March 2009 13:26  [Source: ICIS news]

(Releads and updates throughout)

By Mark Watts

LANXESS Chairman Axel HeitmannDUSSELDORF (ICIS news)--LANXESS will save €250m ($325m) through wage and production cuts as it battles the downturn, the company said on Tuesday.

The Germany-based specialty chemicals group was adhering to a "price before volume" strategy, CEO Axel Heitmann said, and would temporarily shut down production capacities in the face of the crisis. But the outlook was bleak.

“There is no sign yet of a turnaround or recovery in demand. One thing is clear: 2009 will be a highly unsatisfactory year for the entire chemical industry,” he added at the group’s annual press conference.

The company reported a loss in earnings before interest and tax (EBIT) of €46m in the fourth quarter of 2008 and Heitmann said there was no clear way the first quarter would see an improvement in the company’s operations.

LANXESS made a fourth-quarter 2008 net loss of €41m ($53m), compared to a €5m profit for the same period the previous year, due to falling customer demand amid the global economic downturn, it said on Wednesday.

The company also suffered a 53% fall in its pre-exceptionals operating profit to €24m from €51m in the fourth quarter of 2007.

LANXESS said the global recession was having a negative impact on many of its customers. It said there had been sharp falls in demand from the automotive, construction and leather industries.

Heitmann said the company was responding to the “demanding situation”, with a group-wide package of measures called ‘Challenge09’.

"With the initiatives contained in this package we aim to achieve savings of €250m over the next two years and in this way mitigate the effects of the expected drop in demand,” he said.

The measures would include wage cuts and reduced operating rates at unprofitable plants.

The company has agreed to global pay reductions of about 10%, which it said would account for €65m in savings in 2009 alone.

The working week for over 5,000 non-managerial employees at LANXESS’ German sites has been lowered to 35 hours from 37.5 hours starting in March, initially for one year. Workers would also lose out on bonus payments.

Salary reviews for managers and board members scheduled for 2009 would be suspended for at least six months, the company added.

LANXESS said short-time working had also been agreed for sites outside Germany – in some cases for two years.

 “We are achieving further reductions in costs by way of numerous individual technical measures and process improvements in all areas of production,” Heitmann said.

“We can very largely adhere to our price-before volume strategy, even during the crisis. So rather than generating unprofitable production volumes, we prefer to temporarily shut down the affected plant – as we are doing in Canada and Belgium, he added.

LANXESS said it would propose a dividend of €0.50 per share for 2008. Its 2007 dividend was €1.00 per share.

($1 = €0.77)

For more on LANXESS visit ICIS company intelligence
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By: Mark Watts
+44 20 8652 3214

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