Edited from: Lanxess annual report and “third quarter 2008 announcement press release”
Lanxess says that it is looking to 2009 and addressing the challenges that it believes it could face. On this basis, it will align its product portfolio towards less cyclical customer industries and high-quality products; appropriate regional diversification and focus its businesses on growth markets, particularly the BRIC (Brazil, Russia, India, China) countries; have a much lower cost base than it did four years ago in absolute terms; and use the experience of its global team that it has gained in the past four years while performing the task of realigning the company.
“Now we face new challenges. What is in some cases a decline in demand is forcing us to align our extensive chemical production structures to this new situation. Our top priority here continues to be the application of our price before volume strategy”, says chairman, Axel Heitmann.
“We will not forgo the profitability of our business even in the face of declining demand. We will react to declining demand not with programmes designed to boost volumes, but rather by absorbing it within our own structures through flexible capacity utilisation management. In this we will be helped by our flexible alignment and the elasticity of our cost structures”, continues Heitmann.
Lanxess will further address the challenges by adapting its sites around the world and further improve its technological positions for the long term. In doing so it will focus partly on innovations in technology, processes, catalysts and energy efficiency. In order to be even better equipped in this respect, it is focusing on its research and development activities within the new group function “Innovation”, to be established on 1 January 2009.
Its activities will initially focus on further efficiency improvements, the enhancement of existing processes and the development of new processes. All of its sites are being analysed with respect to its production processes and methods. The company states that the results will then be integrated into a “master plan”.
“This technological boost will not only help to lower our production costs but will also open up further growth potential”, says Heitmann.
Another task for the company is to adjust the production costs of its facilities to capacity utilisation. Where orders are down, it will respond to plant-specific situations, for example by:
(1) bringing forward maintenance shutdowns;
(2) cutting back on overtime;
(3) bringing forward non-working shifts;
(4) shutting down facilities for vacation periods;
(5) introducing flexible shift systems;
(6) temporarily shutting down production lines; and
(7) temporarily shutting down entire plants.
“Should these measures not be sufficient to keep it competitive despite the drop in demand, even personnel adjustments will be unavoidable”, says Heitmann.
In some cases, the company has already taken certain steps to the current crisis, including:
(1) in the US and Canada, it has merged its nationally managed organisations to form a regional structure;
(2) in Orange, Texas, US, a production line of the technical rubber products business unit has been temporarily shut down;
(3) it has transferred production of nitrile butadiene rubber (NBR) from its site in Sarnia, Canada, to the site in La Wantzenau, France. It has also transferred to La Wantzenau the NBR production operation in Brazil that it gained with the Petroflex acquisition. With this global consolidation, La Wantzenau will become its sole NBR site worldwide. It plans to manufacture more than 100,000 tonnes/year of this specialty rubber there in the future, at just one plant, rather than three;
(4) it is bringing forward and speeding up the restructuring measures already planned at its Sarnia, Canada site. The workforce there is being reduced from formerly 760 to below 500. More than 200 employees have already left the company.
(5) The restructuring of its Belgian subsidiary Lanxess Rubber NV at the Zwijndrecht site will see its number of employees reduced from roughly 500 to approximately 370.
Looking ahead, financial strength, product diversification and flexibility are said to be more important than ever. Lanxess says that it cannot fully escape the globally deteriorating economic environment. However, despite the more difficult conditions, it firmly believes that it is well equipped to face the challenges that lie ahead. Its main goal is to maintain its profitability at a high level.
“Our company must be correctly positioned for the future if we are to pursue a sustainable growth strategy”, says Heitmann.
All in all, it says that it is convinced that Lanxess holds a strong position and has promising perspectives that will enable it to master the challenges that lie ahead. Its product portfolio is focused on:
(1) less cyclical customer industries such as tires and agrochemicals;
(2) growth regions such as the BRIC countries; and
(3) technology-driven quality products and processes.
Global chemicals production for the full year 2008 is expected to be below 2007. The prospects for key customer industries, most notably the construction and automotive sectors, continue to worsen. The global tire market displays regional variations, with continuing stable demand for high-performance rubbers in Asia but declining volumes in North America and Europe.
Given its strong market positions and diversified product portfolio, it is confident that it will achieve operational sales growth for the full year 2008 despite the increasingly challenging market environment. Earnings before interest, taxes, depreciation and amortisation (EBITDA) pre exceptionals is expected to come in at between €710m and €730m.
“We are adhering to our targets of achieving an EBITDA margin in line with the industry average, having no business with an EBITDA margin below 5%, and maintaining an investment-grade rating”, says Heitmann.
As part of its targeted investment and growth strategy, Lanxess is planning capital expenditures of between €330m and €350m for 2008.
Please see Interview: LANXESS approaches breakthrough on auto plastics on ICIS.com and Lanxess CEO Heitmann sees speed and trust as key to management in ICIS Chemical Business (ICB).
In September 2009, Lanxess won the ICIS company of the year award. For more on this please see
Lanxess wins the ICIS Company Of The Year Award on ICIS.com.
Download the The ICIS Top 100 Chemical Companies listing here
Financial highlights: Lanxess, year ended 31 December
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Lanxess is a global chemical supplier specialising in polymers, intermediate products and specialty chemicals. The separation of Lanxess from the Bayer Group was accomplished on 28 January 2005.
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