Matthias Zachert, Chairman of the Board of Management of Lanxess, during the press cobference on November 5, explaining third quarter business development. (Source: Lanxess)
The Group is raising its guidance again for the full year 2015 and now expects Ebitda pre exceptionals to come in between Euro 860 million and Euro 900 million. It had previously announced Ebitda pre exceptionals for the full year between Euro 840 million and Euro 880 million.
“Our business performance in the first nine months of 2015 was satisfactory,” said Matthias Zachert, Chairman of the Board of Management of Lanxess. “However, we also recognize that global economic growth is subdued and many emerging markets are marked by uncertainty. In view of this, we have once again picked up the pace of our realignment. This is already having an impact on our operating result and our guidance for the year.”
The effects of the improved administrative and business structures are already evident, with the company set to achieve annual savings of Euro 150 million following this first phase of the realignment already by the end of 2015, one year earlier than expected.
Lanxess is also accelerating the second phase of its realignment program. From the optimization of its global plant network, the Group anticipates additional annual savings of Euro 150 million. These will be achieved progressively over the coming years and will be fully realized by 2019; roughly Euro 10 million of this already in 2015. The additional expected savings result from a global analysis of the company’s plants and processes. This analysis will extend into 2016. Roughly Euro 100 million of this figure is expected to be generated through a comprehensive package of process improvements at production sites, resulting, among other efficiencies, in lower consumption of energy and raw materials and in optimized maintenance processes. Capacity adjustments and efficiency measures at rubber production facilities in Latin America and France will contribute up to Euro 30 million in savings. The reorganization of the production network for ethylene propylene diene monomer (EPDM) and neodymium-based butadiene rubber (Nd-BR), announced previously, will result in further savings of Euro 20 million.
New strategic focus: Profitable growth in mid-sized markets
Through its rapid realignment and, in particular, the agreement with Saudi Aramco on the creation of a joint venture for synthetic rubber, Lanxess has established the basis for its new strategic focus. “Now that we have solved the main structural problems, we can once again concentrate on growth,” said Zachert. “Lanxess will be a more profitable and less cyclical specialty chemicals company – with a balanced portfolio of quality products and with growth potential.”
The benefits of feedstock integration by the joint venture between Lanxess and Saudi Aramco or favourable trading conditions will not occur immediately. Lanxess has binding feedstock contracts with other parties, which it has to stick for the next two or three years, Zachert explained during a a press conference.
The company has already defined its strategic cornerstones for future growth and will focus on mid-sized markets. Its new growth platform includes the businesses with chemical intermediates and additives, agrochemicals, color pigments and high-tech plastics, as well as specialty chemicals for water treatment, material protection and the leather industry.
“In these businesses, we have leading positions in diversified, less cyclical markets, which we plan to expand,” explained Zachert. “We will thus be able to increase our profitability and simultaneously become more resistant to cyclical fluctuations.” In particular, Lanxess sees China, North America and Southeast Asia as major growth regions.
The company is also planning to expand its cutting-edge plant network and to move ahead with the integration of its value chains. To achieve this, Lanxess intends to invest up to Euro 400 million in growth projects by 2020. This is part of the proceeds that the company will realize from concluding the joint venture for synthetic rubber.
Investment in agrochemicals production
Lanxess has decided to expand production of its Saltigo business unit at the site in Leverkusen and is investing Euro 60 million there to build two new production lines, primarily for agrochemicals. Construction is scheduled to begin in the middle of next year, while production should start at the end of 2017. “Our ‘Verbund’ sites in Germany will remain a major contributor to Lanxess’ success in the future, and this is clearly underlined by our first major investment as part of the realignment,” said Zachert.
Operating performance in the third quarter
Sales in the third quarter of 2015, at Euro 1.953 billion, fell slightly, down 4.3 percent compared with the strong prior-year quarter. This development was largely attributable to selling price adjustments owing to lower raw material costs. In contrast, Ebitda pre exceptionals increased by 11.9 percent to Euro 235 million, primarily due to the strong U.S. dollar and savings from the realignment program. The Ebitda margin pre exceptionals improved accordingly to 12.0 percent, compared with 10.3 percent in the prior-year period. All three segments contributed to the earnings increase. Net income rose by 17.1 percent to Euro 41 million in the reporting period, against Euro 35 million in the prior-year quarter. Net financial liabilities decreased slightly to Euro 1.323 billion, against Euro 1.336 billion at the end of 2014.
Business trends by segments
Sales in the Performance Polymers segment declined year-on-year by 6.6 percent from Euro 1.045 billion to Euro 976 million. Despite the persistently difficult competitive environment, slightly higher volumes, favorable currency effects and savings from the realignment program led to a year-on-year improvement of the operating result. Ebitda pre exceptionals for the segment advanced by a substantial 35.5 percent to Euro 126 million.
In the Advanced Intermediates segment, sales decreased by 7.6 percent from Euro 476 million to Euro 440 million. Ebitda pre exceptionals for the segment increased 1.3 percent year-on-year to Euro 76 million as a result of positive currency effects and savings from the realignment.
Sales in the Performance Chemicals segment increased by 2.9 percent from Euro 509 million to Euro 524 million. While selling prices remained virtually unchanged, positive currency effects more than offset lower volumes. Ebitda pre exceptionals rose considerably by 14.7 percent to Euro 86 million, primarily due to the strong U.S. dollar and cost savings.
Joint venture for polychloroprene rubber
Lanxess entered into agreement with Chongqing Changshou Chemical in Ocober to establish a 50:50 joint venture, which will act as the exclusive agent of polychloroprene rubber and adhesive products of both companies. This reported the Chinese Lanxess subsidiary in mid October. The transaction is still pending approval from relevant authorities and is expected to be completed in first half of 2016.
The joint venture brings together the leading Chinese chloroprene rubber producer and the world’s largest synthetic rubber producer. “Combining the strengths of Chongqing Changshou Chemical’s sales channel and fairly complete product range with Lanxess’ expertise in product quality and brand value will surely result in a win-win cooperation and enhance the competitiveness of both companies’ products,” said Jan-Paul de Vries, head of Lanxess’ High Performance Elastomers business unit. At present, the joint venture will concentrate on marketing and sales of polychloroprene rubber and (solid) adhesive grades of both companies.
“We are very pleased to ally with Lanxess, the world’s largest synthetic rubber manufacturer. Lanxess’ know-how in safety, environment protection, premium quality and applications will increase the competitiveness of the joint venture. This JV will provide quality products, outstanding services and will be a long-term strategic partner for customers ”, said Xu Yaping, Chairman of Chongqing Changshou Chemical.
Lanxess produces polychloroprene rubber at its Dormagen site in Germany. It is marketed under the name Baypren. Due to its excellent overall properties among all the synthetic rubbers and attractive combination of key technical properties, Baypren finds a wide diversity of applications including diving suits, cable sheathing, high speed train and vibration isolation rubber products. Baypren high-performance rubber grades are highly versatile and combine good resistance to weathering, oil and heat with impressive impermeability to gases. Applications include the automotive sector, where they are used to make windshield wipers, hoses, belts, seals, insulating foams and air springs.
“China is the world’s largest chloroprene rubber market. With the advancement of urbanization, the growth of the automotive industry and the continuous expansion of China’s railway transportation network, local demands for polychloroprene are expected to keep growing in the long run,” said Ming Cheng Chien, CEO of Lanxess Greater China. “The alliance will add to our advantages and facilitate our growth in the local market.”
(dw)
