EU, Germany weighed down by red tape, LANXESS not planning new German capacities – CEO

LONDON (ICIS)–LANXESS has no current plans to invest in new chemical production capacity in Germany, the CEO of the producer said on Wednesday, citing “red tape” in Europe and high energy pricing.

The company posted firmer profits year on year in the third quarter, but divisions such as advanced intermediates, where operations are largely centred around Germany, performed less strongly than more geographically-diversified divisions.

This has prompted a shift in LANXESS’ strategy away from investments in its home country beyond maintenance and green spending, according to its CEO, Matthias Zachert.

“We will keep investing worldwide, but in Germany we will just concentrate on maintenance and on sustainability investments. No enhancement of capacity will be made in Germany,” he said, speaking at a press conference on Wednesday.

An 8% year-on-year increase in third-quarter net profit indicates that the company is still successfully passing on some of the cost inflation is experiencing but, with European chemicals industry volumes no longer increasing and demand expected to slow further, this may shift.

“Despite our efforts to pass on prices, we feel that there is an earnings erosion,” Zachert added.

Lanxess third quarter earnings

€/million	Q3 2022	Q3 2021	Change	Jan-Sept 2022	Jan-Sept 2021	Change
Sales	2,185	1,581	38.2%	6,115	4,422	38.3%
EBIT*	66	69	-4.3%	276	215	28.4%
Net profit	80	74	8.1%	271	238	13.9%

*Earnings before interest and taxes, or operating profit 

REGULATION PLUS ENERGY COSTS
Energy costs have served to highlight the regulatory burden chemical producers are facing in the EU, Zachert said, claiming that the combined forces are serving to further reduce the competitiveness of production units in the region, compared to elsewhere in the world.

“We do feel the pinch… because there is too much red tape in the EU, interfering with the industry, then [there is] also the burden that we feel on account of the rise in energy prices,” he said.

Zachert singled out the ongoing updates to the Reach chemicals regulatory system, the European Commission’s Fit for 55 emissions-reduction legislation, and the phase-out of the carbon emissions trading system (ETS) in favour of the planned carbon border adjustment mechanism (CBAM).

The ETS system drove a 40% reduction in European chemicals sector carbon dioxide emissions since the 1990s alongside a 60% increase in production capacity, Zachert said.

The CBAM legislation has been developed in a bid to improve EU competitiveness by applying a levy to imported goods from elsewhere to consider the carbon cost of their production, but chemicals players have expressed concern at the potential impact on global value chains.

“The ETS system then, consequently, despite its success, [will] be abandoned, and nobody has the faintest idea how CBAM should really work in a European context,” he said.

“I see clear concern, and I hope that that people come back to the pragmatism and realism, while accelerating on ESG [environmental, social, and governance],” he added.

LANXESS narrowed its full-year guidance for earnings before interest, taxes, depreciation, and amortisation (EBITDA) before exceptional items at €900m-950m compared to earlier projections of €900m-1bn.

Adjusted 2021 EBITDA stood at €815m.

The company has a €1.8bn buffer in undrawn credit facilities in anticipation of further market volatility to come, Zachert said.

“It’s never a mistake – in crisis you need to be liquid,” Zachert said.

“We will be flexible in adjusting our production; we did so in the past, and we will continue to do so in this present situation and also in the future, in case 2023 should see a recession.”

Front page picture: LANXESS’ CEO Matthias Zachert at a press conference at the company’s headquarters in Cologne, Germany; archive image 
Source: Action Press/Shutterstock

 

Focus article by Tom Brown