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Lanxess implements action plan as weak demand set to continue in second half; names new CFO

August 6, 2023
Energy & Chemical Value Chain

Lanxess AG (Cologne, Germany) said it is implementing a new action plan, called Forward, as a response to the “difficult situation” the chemical industry and Lanxess are currently facing with “no sign of recovery in demand” anticipated in the second half of the year.

Lanxess said it has taken immediate measures to quickly stabilize its earnings for the current fiscal year, as part of the Forward action plan. The measures include strict cost discipline in all areas as well as a Europe-wide hiring freeze, it said. This will result in one-time savings of €100 million, half of which from cost reductions and half from lower investments, the company said.

Lanxess also intends to become more efficient in the long term and reduce its costs by €150 million a year with a package of structural measures that will be implemented successively and will take full effect from 2025 onward, the company said. Lanxess projects one-time costs of around €100 million for the implementation of the measures.

The focus of this package of measures is on analyzing energy-intensive operations among the company’s plants and facilities around the globe and a streamlining of administrative structures, Lanxess said.

In Germany, the focus is on the Krefeld-Uerdingen site, the company said, as the hexane oxidation there is very energy-intensive and is to be shut down by 2026. The facility for chromium oxide production at this location is to be sold, Lanxess said. For the event that a sale cannot be realized, the company said it is also considering shutting down this facility.

In addition, the Forward action plan aims to further refine the company’s business model. “In recent years, we have consistently reoriented our portfolio toward specialty chemicals and already achieved leading market positions in many areas. It is now time to fully leverage the potential of our new businesses. In addition, we want to further expand our range of sustainable products,” said Matthias Zachert, chairman of Lanxess.

Zachert also said that with the Forward action plan, the company is stabilizing its earnings in the short term, lowering its costs in the long term and refining its structures and processes. This will help the company “to get back on track quickly,” when the economy picks up again, he said.

“But that is not enough. Politicians need to finally wake up. In the current phase of economic weakness, the location Germany is not competitive internationally. We urgently need sustainable framework conditions — above all an internationally competitive electricity tariff for the industry, the reduction of excessive bureaucracy and faster approval procedures,” he added.

Meanwhile, in a call earlier today, Zachert said he has never seen before a situation like the one the chemical industry faced in the second quarter of the year and urged Germany’s government to act as the country will suffer and companies will leave Germany if its competitiveness is not improved soon. He added that it is even difficult for companies in Germany to attract talent from abroad due to the amount of legislation and bureaucracy of the country.

A total of 113 employees will be affected from the planned plant shutdowns and the company may have to make further job cuts, Zachert said during the call. If the company needs to do further job cuts, they will happen in the “decent and socially compatible” way the company did in the past, he added.

He also said that he hopes Lanxess’s counteracting measures will be able to weather the storm, adding that Lanxess may proceed with the previously announced plan to divest its urethanes business in 2024 if the current operating environment does not improve.

2023 Outlook

Lanxess has reaffirmed the downward revision of its 2023 guidance, it announced in June, and said it expects EBITDA pre exceptionals to be between €600 million and €650 million. This is due to the weaker demand in the first half of 2023 and a result of customer destocking — also in businesses with otherwise stable consumer products, the company said.

“In light of the persistently weak demand, especially in the construction and electrical/electronics industries but also from nearly all other end markets, we now no longer expect demand to recover in the remaining part of the year,” Lanxess said, adding that the global supply chain situation has improved, but the positive momentum initially expected as a result of the easing of COVID-19 policies in China and the associated economic recovery are not in sight for fiscal year 2023.

The company said it expects earnings in the Consumer Protection segment to be on the previous year’s level, supported by the contribution from the microbial control business acquired in the previous year.

The business development of the company’s Specialty Additives segment is expected to be significantly lower than the prior-year level, due to a weakness in the construction and electrical/electronics industries, Lanxess said.

“For our Advanced Intermediates segment, we now also expect earnings to be significantly below the previous year’s level in the current fiscal year. In particular, sluggish demand in the construction industry will affect our inorganic pigments business here. The development of energy costs means continued uncertainty, especially with regard to the fourth quarter,” Lanxess said.

Second-quarter results

The company posted net loss of €145 million from continued operations in the second quarter of the year, compared with net profit of €45 million in the same period of 2022. Net profit from discontinued operations was, however, more than double on a year-over-year basis, to €1.52 billion, due to mainly “the gain on the deconsolidation of the High Performance Materials business unit in connection with the formation of Envalior,” the company said. As a result, the company posted net profit, from continued and discontinued operations, of €1.37 billion.

Sales were 11.1% lower year over year, at €1.78 billion, because of weak demand in large parts of the industry, ongoing inventory reduction among the company’s customers and lower selling prices, Lanxess said. Overall, lower volumes resulted in a sales decline of 8.6% and lower selling prices reduced sales by 5.9%, the company said.

EBITDA was €81 million, 64.6% down compared with the prior-year period, missing analysts’ consensus estimate of €98.5 million provided by S&P Capital IQ. Meanwhile, the company posted operational loss (EBIT) of €56 million, compared with operational profit of €97 million in the second quarter of 2022.

“The weaker demand and the associated reduction in sales volumes led to an earnings decline, especially in the Specialty Additives segment. All segments recorded lower procurement prices for raw materials and energy, which resulted in a decrease in selling prices. In addition, the change in exchange rates had a negative influence on earnings development in all segments,” Lanxess said.

Results by segment

Lanxess’s Consumer Protection division saw sales rise 8.2% year over year, to €604 million, mainly due to the “significant” contribution from the integration of the microbial control business acquired on July 1, 2022, the company said. EBITDA pre exceptionals was €82 million, down 8.9% compared with the prior-year period.

Sales of the company’s Specialty Additives division were 18.8% lower, at €620 million, due to weak demand, especially from the construction and electronics industries, Lanxess said. EBITDA pre exceptionals amounted to €37 million compared with €134 million in the second quarter of 2022.

The company’s Advanced Intermediates division recorded sales of €484 million, 17.5% down year over year, due to lower selling prices and volumes. EBITDA pre exceptionals decreased 68.9% year over year, to €74 million.

Company names new CFO

Lanxess has, separately, announced that its supervisory board has appointed Oliver Stratmann as the new CFO of the company, effective Sept. 1, 2023. He will succeed Michael Pontzen, whose request for an early termination of his contract has been approved by the supervisory board. Pontzen will leave the company on August 31 to pursue a new role as CFO at a company outside of Germany, Lanxess said.

Stratmann joined Lanxess in 2004. He has held different management positions in the finance organization, leading the treasury and investor relations department since 2015, the company said. Pontzen has also been with the company since 2004. He held various management positions within the company’s finance organization, prior to being appointed to its board in 2015, Lanxess said.

by Sotirios Frantzanas

Source: chemweek.com

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