Industry News

Sales and earnings of LANXESS jump in the second quarter of 2005

Published on 2005-08-25. Author : SpecialChem

LEVERKUSEN -- In the second quarter of 2005, chemicals company LANXESS AG grew sales by more than 11 percent to EUR 1.86 billion (Q2 2004: EUR 1.67 billion). Earnings before interest, taxes, depreciation and amortization (EBITDA) pre exceptionals rose by nearly 42 percent from the prior-year quarter, to EUR 163 million (EUR 115 million). The EBITDA margin pre exceptionals improved to 8.8 percent (6.9 percent). The operating result (EBIT) climbed to EUR 77 million (EUR 10 million). "Restructuring measures already initiated and the consistent pursuit of our price-before-volume strategy have had a positive effect on earnings," explained LANXESS Management Board Chairman Axel C. Heitmann. "However, we continue to suffer from structural disadvantages. The realignment of the LANXESS Group will therefore remain our top priority so that we can catch up with the competition in terms of earnings."

Against this background the LANXESS CEO announced a second restructuring package designed to achieve annual savings of EUR 60 million through process optimization, efficiency improvement and cost reduction. Two-thirds of this savings volume is to be achieved by 2007, and the full annual amount starting in 2008. The package comprises the closure of smaller sites and the consolidation of unprofitable facilities in the Inorganic Pigments (IPG), Leather (LEA), RheinChemie (RCH), Technical Rubber Products (TRP) and Textile Processing Chemicals (TPC) business units, and the related service functions. The main focus of these measures is on the United States and Europe. Some 450 positions will be eliminated. LANXESS estimates the total one-time charges associated with this program at approximately EUR 100 million through 2008.

Second phase of restructuring

The newly announced restructuring measures relate mainly to the following business units and locations:

  • Technical Rubber Products (TRP): The goal in this business unit is to streamline the manufacture and marketing operations of the nitrile butadiene rubber (NBR) business. Some EUR 150 million has been invested in this business over the past decade, yet losses of roughly EUR 200 million were incurred in the same period. The reorganization will focus on the production site at La Wantzenau, France.
  • Leather (LEA): Plans call for an increase in the efficiency of global administration and production activities.
  • Inorganic Pigments (IPG): The production site for yellow pigments at New Martinsville, West Virginia, United States will be closed.
  • RheinChemie (RCH): The U.S. site at Trenton, New Jersey, which has been operating below capacity for years, will be closed.
  • Textile Processing Chemicals (TPC): The loss-making site at Wellford, South Carolina, United States will be closed.

Said Heitmann: "The extensive restructuring in the United States will boost our competitiveness in a market that is very important for LANXESS." U.S. sales account for about 20 percent of the Group total. LANXESS currently has 15 sites there, 10 of which house production facilities. About 2,100 people work for LANXESS in the U.S.

First phase of restructuring on schedule

Implementation of the savings program presented at the beginning of June for the company's two biggest loss-makers, the Styrenic Resins and Fine Chemicals business units, is proceeding to schedule. In Styrenic Resins, new appointments have been made to key global management positions. The carve-out of the Fine Chemicals business unit into an independent, medium-sized company under the umbrella of the LANXESS Group is due to be completed by the end of the first quarter of 2006. The company will be headquartered in Leverkusen and will employ about 1,350 people worldwide. Two production units have been closed as part of the reorganization already initiated. The fine chemicals production operation at Murcia, Spain, is to be relocated to Leverkusen.

Second-quarter performance by segment

Sales of the Performance Rubber segment grew by more than 17 percent to EUR 432 million (Q2 2004: EUR 368 million), mostly due to price increases. Volume sales also increased thanks to heavy demand for rubber. EBITDA pre exceptionals climbed by nearly 43 percent to EUR 70 million (EUR 49 million). The EBITDA margin pre exceptionals improved by 2.9 percentage points to 16.2 percent.

Sales of the Engineering Plastics segment expanded by 3.9 percent to EUR 448 million (EUR 431 million). The pillar of this segment's sales growth was the Semi-Crystalline Products business unit, which recorded an upward business trend. As was already the case in the first quarter of 2005, slight price increases in the Styrenic Resins business unit were accompanied by a drop in volumes resulting from the company's strategy of forgoing unprofitable business. EBITDA pre exceptionals of the segment improved by 75 percent to EUR 14 million (EUR 8 million). Although the EBITDA margin pre exceptionals edged 1.2 points higher, to 3.1 percent, the segment continues to deliver the lowest profit contributions in the LANXESS Group in both absolute and relative terms.

Volume and price increases led to a 26.9 percent increase in sales of the Chemical Intermediates segment, to EUR 406 million (EUR 320 million). Substantial price- and volume-based gains were achieved in the Basic Chemicals business unit, with Inorganic Pigments also recording small increases from both prices and volumes. Due to an improved situation for agrochemicals and pharmaceutical intermediates, the Fine Chemicals business unit achieved significant, largely volume-driven sales growth from the weak prior-year quarter. Fueled mainly by improved capacity utilization and better cost structures, EBITDA pre exceptionals in the Chemical Intermediates segment rose 90.3 percent year on year to EUR 59 million (EUR 31 million), and the EBITDA margin pre exceptionals advanced from 9.7 percent to 14.5 percent.

Sales of the Performance Chemicals segment grew 4.3 percent from the prior-year period, to EUR 511 million (EUR 490 million). The Rubber Chemicals, Ion Exchange Resins and Leather business units, in particular, succeeded in passing the higher raw material costs through to the market. The Textile Processing Chemicals business unit once again posted a decline in sales in Europe and the Americas. Effective cost management led to a 34.9 percent increase in EBITDA pre exceptionals for the segment, to EUR 58 million (EUR 43 million). The EBITDA margin pre exceptionals rose 2.6 points to 11.4 percent.

Outlook for the full year 2005

In light of the continuing upward trend in the world economy, LANXESS expects to record a positive trend again in the second half of 2005. The company predicts moderate sales growth and an increase in EBITDA pre exceptionals to between EUR 550 million and EUR 560 million for the full year 2005, compared with EUR 447 million in 2004.

Capital expenditures are likely to be at the lower end of the previous forecast of EUR 250 million to EUR 270 million.

Forward-Looking Statements

This news release contains forward-looking statements based on current assumptions and forecasts made by LANXESS AG management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.


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