News

News

2010-03-17

Annual Press Conference on March 17, 2010 in Cologne

Address by Dr. Axel C. Heitmann, Chairman of the Board of Management

Leverkusen -

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Good morning, ladies and gentlemen, and welcome to the Annual Press Conference 2010 of LANXESS AG. 


As you can see, water has a special importance for our company. In fact we’ve even declared 2010 “LANXESS Water Year” – for both ecological and economic reasons. But more of that later. 


And of course it’s appropriate that in our Water Year, we are holding our Annual Press Conference here on the banks of the Rhine river. 


This new conference venue in Cologne symbolizes the fact that today we are not just reviewing last year but looking to the future too. 


One day our company will be headquartered here in Cologne – even though we’ve had to postpone the move because of the crisis. 


But on this issue – as on all others – we remain on track. 


Even the crisis hasn’t changed that.

But of course the crisis has impacted the entire chemical industry, including us – leaving a considerable mark on our 2009 results. 


Sales receded significantly last year – by 23 percent overall – from approximately 6.6 billion euros in 2008 to roughly 5.1 billion euros in 2009.


Ladies and gentlemen, this was a decline of historic proportions. 


It was attributable to the dramatic drop in demand from the most important customers of the industrial chemicals sector. 


The automotive industry alone saw production fall by 13.5 percent worldwide. 


Tire manufacturers saw an 8.5 percent drop in business, while the construction industry registered a 6.7 percent decline in sales.

 

In 2009 we posted EBITDA pre exceptionals of 465 million euros. We are pleased that this figure turned out to be higher than we predicted at the start of the year. But it is still 36 percent below the previous year.

 

However, ladies and gentlemen, although our capacity utilization in 2009 as a whole averaged only 70 percent, we succeeded in achieving an EBITDA margin pre exceptionals of 9.2 percent. That was only 1.8 percentage points below the previous year. 


And we generated positive net income of 40 million euros – which means our operations were profitable despite the low capacity utilization. 


Net debt receded from EUR 864 million to EUR 794 million thanks to our strict capital discipline.



Although 2009 was a difficult year, we did not lose sight of the future, but continued to invest: 


With total spending of 101 million euros for research and development, we underscored our commitment to developing innovative and customer-oriented solutions in order to safeguard our competitiveness over the long term. 


That means we spent an amount equivalent to 2 percent of sales on R&D last year, compared to 1.5 percent in 2008. The number of employees based in research and development rose from 441 to 505. 


And since the beginning of 2009, the new Group Function “Innovation” has been conducting central research and development activities for LANXESS across business unit lines. 


And in the year of the worst global economic crisis since the Second World War, we also continued to invest: 

275 million euros in total! 


In this way we also successfully strengthened our activities in the rapidly expanding BRIC countries.


Despite the crisis, our sales in these markets remained practically level, and we considerably increased their share of Group sales.


Our businesses in the Asia/Pacific region, in particular, made a major contribution in 2009. Sales there fell by a comparatively modest 1.3 percent. After an initial sharp decline, business recovered quickly during the year and is now already above the pre-crisis level. 


China, South Korea and India sent out especially positive signals, with double-digit growth rates in some businesses. 


This benefited the entire LANXESS Group, with the Asia/Pacific region now accounting for well over one-fifth of total Group sales, or nearly 23 percent. 


This is by far the highest proportion ever. 


Compared to the previous year, the region’s share of total sales rose by 5 percentage points. And volumes have doubled since the company was launched five years ago. 


This now makes Asia/Pacific the second-most important region for LANXESS behind EMEA (excluding Germany) and ahead of Germany and North America, which occupy the number 3 and 4 positions. This is a good thing, because we expect this region to remain the principal driver of our growth in the future.


Here our strategy of consistently exploiting additional growth opportunities in Asia/Pacific is proving effective.


In this connection we are focusing particularly on the Performance Polymers segment. 


Operational sales of this segment in Asia/Pacific rose by 2 percent in 2009.

 

This proves once again that even 100 years after the invention of the first synthetic rubber, high-quality synthetic rubber is more important than ever – especially in Asia/Pacific. 


Now LANXESS is reaping the benefit of having systematically positioned itself in the markets of Asia with its premium products. 


We will adhere to this strategy, as I will explain in more detail in a minute.


Before I do so, I would like to briefly go through the performance of our segments. 


In the Performance Polymers segment, an upswing in demand – particularly in Asia/Pacific – in the second half of the year partly offset the significant drop in sales in the first six months. Full-year sales were nevertheless down by roughly 27 percent.

 

EBITDA before special items in the Performance Polymers segment dropped significantly due to price and volume effects, receding by nearly 40 percent to 250 million euros. However, we managed to keep the EBITDA margin in double digits at 10.5 percent. 


The Advanced Intermediates segment saw sales decline less sharply. Overall, business here shrank by nearly 16 percent to 1.1 billion euros. EBITDA pre exceptionals fell by 32 million euros, or 17.2 percent, to 154 million euros. 


By contrast, the EBITDA margin came in at 13.9 percent, which was nearly level with the prior-year figure of 14.2 percent. Our successfully completed acquisitions in Asia also contributed to this.


In our third segment, Performance Chemicals, sales declined by nearly 21 percent in 2009, to 1.5 billion euros. EBITDA pre exceptionals was also down by almost 25 percent, to 182 million euros. Here, too, the EBITDA margin pre exceptionals, at 11.9 percent, was nearly level with the prior-year figure of 12.5 percent.



Ladies and gentlemen, 

2009 was a tough year for us all. 


Extensive corrective action kept the LANXESS ship on course. For this reason, we will propose to the Annual Stockholders’ Meeting that a dividend of 50 cents per share be paid for 2009, the same as for the preceding year.



Overall, the results we achieved in the crisis year show that we correctly positioned LANXESS in previous years from a strategic point of view and are well equipped to face major challenges. As soon as the crisis broke out, LANXESS set up a central crisis management team to develop and coordinate global measures.

 

There were basically three main factors in our handling of the crisis: 


First, our flexible asset management. 

This enabled us to precisely adapt the major production facilities in our global network to the decline in demand. We had to contend with both an unprecedented decline in volumes and with sharp fluctuations. We also adjusted our working capital very quickly to the slump in demand.  


Second, our package of measures entitled “Challenge09-12.” 

As you know, all employee groups worldwide all the way up to the Board of Management helped to achieve the necessary cost reductions in a spirit of solidarity. 

This involved salary reductions, postponing annual salary adjustments or forgoing significant components of variable compensation.


Third: 

We systematically exploited our strong position in Asia/Pacific as the region’s markets recovered. 



Ladies and gentlemen, we are continuing to tread a path of stability in 2010: 


This means on the one hand that we are moving ahead with our “Challenge09-12” program, designed to reduce costs by 140 million euros in 2010 and a total of 360 million euros through 2012. On the other hand, growth remains our main focus, and we intend to make greater use of further opportunities for expansion in markets such as China and India. 


That was why, at the beginning of this year, we restarted the construction of our new, roughly 400-million-euro rubber facility in Singapore, which we had halted as a precaution when the crisis began. In other words, we are maintaining our focus on Asia/Pacific, and especially on high-tech products and high-tech production – in Asia/Pacific and elsewhere.

 

Another example of our successful “LANXESS goes Asia” strategy can be found in India: There we very recently completed the first construction phase of our new production site in Jhagadia and started up production of rubber chemicals.


But we are active in Germany as well: Just two months ago we began the construction of a new chemical plant in Bitterfeld. There will be invested a total of about 30 million euros at this site and LANXESS will create roughly 200 new jobs in the long term. 


We expect to be developing and producing so-called membrane filtration technologies for water treatment at this facility by the end of 2010. These are important both for drinking water supplies and for high-tech manufacturing in the semiconductor or pharmaceutical industries, for example.


It will be among the most modern facilities in Europe, and it also clearly demonstrates our global commitment in the field of water treatment. It was not without reason that we declared 2010 the “LANXESS Water Year” – as you saw in the film shown at the beginning. 


Ladies and gentlemen, all of these examples document our premium product strategy: 


We offer our customers throughout the world precisely the premium products and services that justify above-average prices and margins. 


This combination – being in the right place with the right products and technologies to address the major trends – has proven an effective shield against the repercussions of crisis factors. 


It has also made us very successful in attracting new customers in the growth markets:


For example, our three rubber-producing business units gained over 70 new customers for their rubber products in the Asia/Pacific region last year – including three leading tire producers in China, India and Vietnam. 


Another gratifying development was that we were able to tap into new areas of application for our innovative high-tech rubber grades.




One example is butyl rubber: 


Since 2009 our customers have included companies in India, South Korea and Thailand that use our butyl rubber for pharmaceutical and medical technology applications. 


We have gained new customers with high growth potential for our technical rubber grades in China, India, Japan, South Korea and nearly all the emerging markets in east Asia.



Ladies and gentlemen, since LANXESS was founded, we have consistently focused on the crucial market trends in the right regions. 


This applies particularly during the crisis:


Mobility, water treatment and urbanization have proven to be stable drivers of global growth. 


For example, global demand for our new tire rubber grades is rising steadily throughout the world, because demand for modern tires will continue to grow at a disproportionately high rate in the coming years. 


After all, the new tire generation is expected to be safer and perform better than their predecessors, possesses superior braking behavior, and at the same time considerably reduces fuel consumption.


This trend will intensify as a result of new laws like the one on tire labeling, which makes tire labeling mandatory throughout the E.U. for the first time with regard to fuel efficiency, wet grip and noise emissions. 

Manufacturers of these modern tires will require new high-performance rubbers such as those developed and produced by LANXESS. 


Ladies and gentlemen, global demand for hygienic water is increasing dramatically – driven by world population growth on the one hand and by economic growth initiatives and more intensive agriculture on the other. The targets set by the United Nations, for example, can only be achieved with the aid of modern chemistry. As previously mentioned, our Ion Exchange Resins business unit is therefore investing in new chemical plants and technologies.  


Many of our business units are benefiting from the enormous investment in infrastructure projects in the emerging markets, one example being the Inorganic Pigments unit with its solutions for fire and corrosion resistance. 



Yet these examples also show that much of what we do makes not only economic sense, but ecological sense as well.


Incidentally, the situation is very similar for CO2 reduction.


Here as well, sustainability pays off both for the company and the environment. 


In 2009 LANXESS achieved a 50 percent reduction in global CO2 emissions compared with 2007.


What’s more, with lighthouse projects such as the company-owned power plant that began operating just last week at the Porto Feliz site in Brazil, LANXESS is setting standards internationally in terms of sustainability. Here, the burning of sugar cane residues has made CO2-neutral energy production a reality. Similar facilities are now under construction at our sites in Nagda and Jhagadia, India. 


In the coming years we will invest some 80 million euros worldwide in sustainable and competitive energy production.



Ladies and gentlemen, 


We have managed the crisis well. 


We have positioned LANXESS effectively.


And I can say that LANXESS has passed the stress test.


However, LANXESS continues to look to the future with respect.  


After all, from today’s viewpoint this future remains uncertain in many ways. Although we can assume that in 2010 the world economy will continue on the path of recovery that it embarked on in the second half of 2009, we currently expect global GDP to grow by no more than 2.5 percent. 


The gradual recovery will vary from one region to another, with the normal seasonal fluctuations returning. 


The most marked improvement can be seen in Asia/Pacific. Positive growth signals continue to come from China and India in particular, especially in the rubber business.


In North America and Europe, on the other hand, uncertainty still prevails about the future economic trend.



LANXESS expects a further increase in raw material prices in 2010. 


Following the sharp decline in raw material prices, input costs began to rise again in the second quarter of 2009 and continued to do so through the start of 2010. 


We are deliberately adhering to our proven price-before-volume strategy. 


Overall, the fourth quarter of 2009 and the trend in the first quarter give us grounds for confidence. We expect a significant year-on-year improvement in earnings in 2010, even if there is currently no sign of a self-sustaining upswing. 


In light of the continuing risks to economic development, LANXESS will continue with the systematic and successful implementation of its global package of measures entitled “Challenge09-12,” which is intended to bring us savings of EUR 140 million in 2010. 


Ladies and gentlemen, LANXESS has successfully mastered the most difficult year in its history. Thanks to our stringent crisis management, we are now in an excellent position to emerge from the crisis stronger than before. As in the past, we will proceed on a step-by-step basis and maintain our capital discipline. 


And we will continue to focus on our culture of cooperation at LANXESS –


 

 

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.