Lanxess restructuring reflects positive 3Q

By Wai Lang Chu

- Last updated on GMT

Related tags Cent Chemical industry

Chemical company Lanxess, release its third quarter results that
show restructuring strategy is bearing fruit, with sales up and the
reduction of net financial debt that is supported by strong growth
in the chemical industry.

Lanxess, the fine chemicals unit spun out of Germany's Bayer, recorded an operating income of €148 million (EBITDA), an increase of 41 per cent compared to €105 million in 2004.

The company is currently going through a period of major reorganisation, which started in June of this year. Styrenic Resins and Fine Chemicals business units - two of Lanxess' loss making sectors has been the main focus.

The elimination of approximately 960 jobs and the recent announcement of a reduction of some 200 positions led to a unique series of measures, implemented by the company, that put employee's welfare in the spotlight.

"The incentives offered to employees to leave the company - such as the payment of so-called 'sprinter bonuses' - met with a greater response than we had anticipated,"​ explained Axel Heitmann, Lanxess management board chairman.

Sales increased slightly, up by 0.7 per cent to €1,776 million (2004: €1,764 million). Net financial debt shrank to €811 million, from €1,250 million on June 30, 2005, and by 28.5 per cent compared to December 31, 2004.

Lanxess​ commented that in light of the very strong fourth quarter in 2004 and the consistent implementation of its "price before volume" strategy, sales were predicted to decline slightly in the final three months of 2005.

"We currently assume the upward trend in the world economy and market environment will continue in the months ahead. However, the company does not expect to see any relief from the high raw material and energy costs, which will continue to be reflected in its pricing,"​ said Heitmann.

Earlier this month, Lanxess revealed the launch of its Fine Chemicals business unit under the name Saltigo. With a workforce of around 1,400 employees the unit already generates roughly 90 per cent of its nearly €400 million in sales from purely service-related business, such as custom manufacturing, which means developing synthesis methods and carrying out contract production.

Third-quarter business in the Chemical Intermediates segment showed a year-on-year decline, with sales down by 10.3 per cent. The decline was attributed to the prior-year quarter, where sales had not weakened as they usually do in the summer months.

A 14.9 per cent drop due to lower volumes was partially offset by positive price and currency effects amounting to 4.3 per cent and 0.3 per cent, respectively.

EBITDA pre exceptionals in this segment rose 44.7 per cent year on year to €55 million (2004: EUR 38 million), fuelled by considerably improved cost structures. The EBITDA margin pre exceptionals rose from 9.1 per cent to 14.7 per cent.

Sales in the Performance Chemicals segment, which was less affected by seasonal factors than any other part of the Lanxess Group, remained virtually unchanged from a year earlier at €489 million. Prices were up by more than 11 per cent across the segment as a whole.

This increase was offset by a 12.6 per cent decrease from lower volumes. Functional Chemicals, in particular, posted a sharp drop in volumes on account of portfolio changes.

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