Special Report

191Chemical Weekly October 12, 2010

FINANCIAL PERFORMANCE

Lanxess unveils ambitious earnings target for next five years; organic growth to remain key focus

German speciality chemicals company, Lanxess, has an-nounced its goal to increase its

leading earnings indicator by roughly 80% in the coming five years. The company is targeting EBITDA (earn-ings before interest, taxes, deprecia-tion and amortization) pre exceptionals of approximately €1.4-bn in 2015. The company also confirmed its earlier forecast of about €800-mn EBITDA pre exceptionals in 2010.

“We are poised to enter a new era of growth and have set an ambitious target, which we can achieve based on the strategic position of our business portfolio,” said Chairman of the Board of Management, Lanxess AG, Dr. Axel Heitmann, at the Group’s fourth Media Day in Dusseldorf, Germany.

“We have increased our EBITDA pre exceptionals on average by nearly 15% annually, even taking into account the dramatic downturn in 2009. This is particularly impressive given that last year, in the midst of the crisis, our plants were running at only 60-70% of capacity utilisation. For the chemical industry over a normal cycle, the ave-rage capacity utilization is typically around 80-85%,” observed Mr. Mat-thias Zachert, CFO of Lanxess.

“Our track record reflects our opera-tional strength. By the end of this year, we will have increased EBITDA pre ex-ceptionals by roughly 80% since 2004, in spite of the global economic crisis. The leap from the 2009 crisis year to our strongest year ever in 2010 shows that our focus, consistency and discipline can deliver the momentum needed to achieve sustainable growth,” added Dr. Heitmann.

Lanxess, with sales of €5.06-bn in 2009, is present in 23 countries and is represented at 42 production sites worldwide. The core business of Lanxess is the development, manufac-turing and marketing of plastics, rubber, intermediates and speciality chemicals.

Lanxess has identified four ‘mega-trends’ of mobility, agriculture, urbani-sation and water, which would help to drive its future growth. Moreover, the company is hoping that its focus on BRIC nations and the expected growth of its leading customer indus-tries would help each of its businesses to generate an EBITDA compound an-nual growth rate of at least 5% through 2015. The percentage of group sales in BRIC countries has more than doubled in the last five years.

Focus on BRIC paying offTracing the growth in the last six

years, Dr. Heitmann said the company implemented a four-phase strategy in-volving performance improvement in all businesses, a more entrepreneurial management system, targeted divesti-tures and acquisitions.

He also spoke about the global ‘Challenge’ programme initiated by the company to mitigate the effects of the global economic crisis. It con-sisted of a combination of stringent technical measures and temporary compensation reductions. “We are pleased to say that business has al-ready recovered enough to allow us to shelve most of the Challenge pro-gramme,” he remarked.

Dr. Heitmann pointed to the focus on BRIC countries as a key aspect of the company’s strategy. “This strategy has been validated by the fact that these nations were the first to emerge from the crisis. They are all now far above pre-crisis levels,” he observed. The emerging markets will be setting the tone for the chemical industry in the fu-ture,” added Mr. Zachert.

Dr. Axel Heitmann, CEO, Lanxess

Mr. Matthias Zachert, CFO, Lanxess

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Chemical Weekly October 12, 2010192

“By 2012, more than 38% of our capital expenditures will have been di-rected toward Asia and Latin America, compared with less than 20% in 2005. Our asset base will grow even faster in the BRIC countries themselves in the coming years. This shift in focus can already be seen in the sales results for BRIC, which are expected to have doubled as a percentage of group sales by the end of 2010,” the Lanxess chief revealed.

Megatrends driven growthAs the world’s leading synthetic

rubber company, Lanxess is looking forward to capitalise on the megatrend of mobility. The tyre market is Lanxess’ largest customer industry, with an ex-pected annual growth rate of roughly 5% up to 2015. In order to meet this growing demand, Lanxess is construct-ing a new €400-mn butyl rubber plant in Singapore that will predominantly serve the booming tyre market in Asia. In addition, Lanxess is expanding its butyl rubber plant in Belgium.

The high-performance tyre market – the fastest growing segment in the tyre industry, with an an-nual global growth rate of about 9% – is yet another growth area for the compa-ny. Lanxess is expanding its production capacities in

Germany, USA and Brazil for neody-mium polybutadiene rubber (Nd-PBR), which is essential in the production of high-performance tyres. Furthermore, it is considering building a new produc-tion plant for Nd-PBR in Asia.

Lanxess is also addressing the mega- trend of mobility also through its high-tech plastics ‘Durethan’ and ‘Pocan’, which help to make cars lighter and more fuel-efficient. Growing demand

for these products has prompted the company to expand production in Wuxi, China, and to build a new com-pounding plant in Jhagadia, Gujarat.

“The growing need to expand the world’s food supply is also on the Lanxess agenda,” noted Dr. Heitmann. “Our Saltigo business unit is a leading supplier of precursors for crop protec-tion chemicals and is now boosting capacity to meet growing demand,” he said. Lanxess’ purchase of Gwalior Chemical Industries has added to its

position as a leading global producer of important building blocks for agro-chemicals.

The Lanxess chief also spoke about other investment projects to serve the megatrends of urbanisation and water. Among them is the investment in a new production facility in Bitterfeld, Ger-many, for membrane filtration techno-logy. It will enable the company to offer a new class of water treatment products by 2011.

Future strategyOutlining the Group’s future growth

plans, Dr. Heitmann noted that the pri-mary focus would continue to be on or-ganic growth. “We will be growing our profitable existing businesses through product innovation, improvements in process efficiency, capacity and pricing power,” he said.

Simultaneously, Lanxess will con-tinue to explore external growth op-portunities to strengthen the existing business portfolio. Mr. Zachert stressed that the current focus would be on small to medium-sized acquisitions similar to the transaction size of past acquisitions.

“We will continue to make targeted acquisitions that can build on our exist-ing portfolio of businesses,” Dr. Heit-mann informed. “We are on the lookout for attractive, mid-sized businesses and technologies that can broaden our exist-ing portfolio,” he said.

“Over the next five years, we will pursue a similar blend of or-ganic and external growth to achieve the increase in EBIT-DA. A ratio of two-to-one or-ganic to external worked well for us in the past. And we will continue to emphasise organic over external for the next five years,” concluded Dr. Heitmann.

16%71%

25%10%

13%3%

North America

LatinAmerica

EMEA Asia

20052005 H1 2010Sales LANxESSShare of sales in BRICCumulated 2005-2012e

A Foundation for an optimized regional asset base Share of sales in BRIC doubled since 2005

Strategic shift of asset base (CAPEX and M&A) LAnXESS sales

10.1% 23.9%

12% 50%

Source: LanxessFocus on emerging market

Special Report

193Chemical Weekly October 12, 2010

Lanxess is currently setting up an ion exchange resins plant in Jhagadia, which is likely to go on stream in end-2010. The semi-crystalline products business unit is investing more than €10-mn to build a compounding faci-lity for the engineering thermoplastics – Durethan and Pocan – that will have an initial capacity of 20,000-tpa. This

facility is likely to begin production in 2012. At this facility, the company is also constructing a captive power plant that will run on biomass fuels.

Lanxess’ Madurai plant produces chemicals used in the leather indus-try including synthetic tanning agents. This plant also produces rubber addi-

tives used in the auto, engineering, tyre and footwear industries. The company is expanding this plant to double its monthly production capacity of mate-rial protection products. Lanxess’ Nag-da plant in Madhya Pradesh produces speciality chemicals catering to the agrochemicals, pharmaceuticals, dye-stuffs industries.

INDIA PLANS

Ion Exchange plant to come on stream end-2010; 20,000-tpa compounding plant for engineering plastics by 2012

HIGH PERFORMANCE TYRES

Lanxess planning to set up neodymium polybutadiene rubber plant in Asia

Lanxess has unveiled plans to set up a 100,000-150,000 tpa neodymium polybutadiene rubber (Nd-PBR) plant in Asia. Speaking to journalists from all over the globe at the company’s Media Day in Germany, Lanxess’ chief, Dr. Axel Heitmann said it was studying the feasibility of the plant and a decision was likely in the next six months.

“Lanxess estimates the global an-nual growth for Nd-PBR to be roughly 10%. That means demand will exceed

supply by 2014. Lanxess is a leader in this important technology. And we will strengthen that position and fuel our growth by developing additional capa-city in Asia,” he informed.

Market leader in performance rubber

The Performance Butadiene Rub-bers business unit of Lanxess manufac-tures polybutadiene and very high-per-formance solution-styrene butadiene rubbers (SSBR) that are produced us-

ing solution polymerisation processing. The unit also makes ‘general purpose’ ESBR (emulsion styrene-butadiene rubber). Polybutadiene grades from Lanxess are created in neodymium-, co-balt- and lithium-catalysed processes. Performance can be increased consider-ably due to a number of highly refined properties demonstrated by these rub-bers. For example, neodymium polybu-tadiene rubbers have a higher elasticity than many other tyre rubbers and also reduce tyre abrasion, thus playing a sig-nificant role in making cars safer and more economical. Presently, the unit has production facilities in Dormagen (Germany), Orange (US), Port Jérôme (France) and Cabo, Duque de Caxias and Triunfo (Brazil).

Lanxess lays claim to being the leader in global performance rubber market with production capacity of over 800,000-tpa (all rubber grades) and sales of more than €500-mn. The total global market size is estimated at around €11-bn in 2010.

Global tire production [bn units]

2

1

02005 2010e

Standard tires

(High-) performance tires

~ +25% ~ +53%

2015e

Growing share of performance tyres

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Chemical Weekly October 12, 2010194

While the general purpose ESBR accounts for more than 50% of the global rubber market, for Lanxess, performance rubbers like Nd-PBR and SSBR make up the majority share in

total sales, indicating its focus on high performance and high margin market. In the making of a tyre, SBR is said to account for almost 70% with PBR mak-ing up the rest, mainly in treads.

Catering to rising demandAccording to Dr. Joachim Grub,

Head of PBR business, Lanxess, future demand for PBR will be driven by fac-tors like ‘green’ tyre labelling regula-tions, growth in retreading for truck tyres, energy efficient tyres, and in-crease in consumption of performance goods due to rising population.

“Last year the European Union approved a regulation stipulating that new tyres sold in Europe will have to be labelled for fuel efficiency, wet grip and noise emissions. Tyre mak-ers in Japan voluntarily introduced comparable labelling at the begin-ning of this year, and South Korea and the US are evaluating legislation

similar to the European Union. These fundamental changes will create new demand for green tyres, which can only be made with high-tech syn-thetic rubber and additives. Our advanced technologies in Nd-PBR and Solution-SBR have an especially important role to play in this green tyre revolution. That is why we are globally expanding our high-tech rubber production facilities,” said Dr. Axel Heitmann, Lanxess’ CEO.

Lanxess is planning to invest roughly €20-mn to increase produc-tion by an additional 50,000-tpa at its Nd-PBR sites in Germany, USA and Brazil. The additional capacities will go on stream between the first quarter of 2011 and the first quarter of 2012. “Since market for all polybutadiene rubbers is in tight supply, this smart debottlenecking is fastest process to serve rising demand from Asia,” said Dr. Grub.

GROWTH STRATEGY

Investments in new facilities and debottlenecking emphasise good growth prospects in semi-crystalline products and ion exchange resins

Growing demand for high-tech plastics and need for good quality water resulting from growing urbani-sation are key trends driving investments in Lanxess’ semi-crys-talline products (SCP) and ion exchange re-sins businesses.

According to Dr. Hubert Fink, Head of the SCP business, growing car pro-duction and trend of

weight reduction will increase de-mand for high-tech plastics.

The SCP busi-ness makes interme-diates products such as caprolactam, adipic acid and glass fibres and high-tech engineering plas-tics like ‘Durethan’ based on poly-amide and ‘Pocan’ based on polybu-tylene terephthalate

Table 1PBR end uses

Application Market shareTyres 71%Plastics 16%Technical rubber (Industrial & mining)

7%

Lifestyle & leisure 6%Source: Lanxess

Table 2Global PBR demand

Region ShareAsia Pacific 52%Europe, Middle East, Africa 25%Americas 23%

Source: Lanxess

At Chempark Leverkusen, Lanxess manufactures products like basic chemicals and ion exchange resins

Special Report

195Chemical Weekly October 12, 2010

at Germany and in compounding facilities in Germany and China.

Lanxess is rolling out invest-ments totalling €50-mn in the com-ing years to expand production of caprolactam. The company is also expanding compounding facilities for engineering plastics in China and investing in a new capacity in India.

In China, the capacity is being expanded to 60-ktpa; the SCP manu- facturing capacity was 20-ktpa at the time of start up in 2005. Lanxess is investing around €10-mn to build a 20,000-tpa compounding facility at the Jhagadia site in India.

Tackling the water crisisLanxess’ ion exchange resins busi-

ness – one of its smallest business units, but one with annual growth rates of up to 10% – is also gearing up to tackle the daunting global problem of clean water scarcity.

“Population growth, pollution and climate change will make water nearly as valuable as oil in the next few decades,” said Dr. Axel Heitmann,

Lanxess’ CEO. “Lanxess products are used worldwide to treat water and en-sure that water resources are used effi-ciently. Our products and processes are used to purify drinking water, wastewa-ter and industrial process water. High-performance ion exchange resins from our ‘Lewatit’ family of products are playing an important role in addressing water issues.

These resins remove toxic impuri-ties from drinking water and save wa-ter through recycling. We are presently

stepping up our global activities in this area,” he informed.

Lanxess expects fast industriali-sation in Asian countries to increase demand for industrial water. In-creasing water pollution in Asia is also expected to intensify need for water treatment technologies.

The highest industrial water de-mand is likely to come from energy sector, mainly by increasing need for power generation, caused by urbanisation. Expansion of nuclear power will trigger need for water treatment in plants, according to

Lanxess.

To address these opportunities, Lanxess is investing €60-mn in mo-dern facilities in Germany and India to manufacture water purification chemi-cals for industrial water treatment, the semiconductor and pharmaceutical industries, food production and power generation. According to Dr. Michael Zobel, Head of Lanxess’ ion exchange resins business, the Indian facility at Jhagadia will add capacity of 20,000-m3 of resin and will target consumers in semiconductor and industrial wastewa-ter industries.

Other investmentsLanxess’ basic chemicals business

has earmarked investments of €50-mn for expansion. Upto the second quarter of 2010, the unit has expanded capaci-ties in Leverkusen (Germany) for the production of chlorotoluenes, cresols and their derivatives – intermediates used, among other things, in the pro-duction of crop protection agents. In addition, the business unit is building a new production plant for formaline at its site in Krefeld-Uerdingen (Ger-many). Lanxess will thus no longer be dependent on buying the feedstock, which it needs for the production of tri-methylolpropane (TMP).

At Chempark Krefeld-Uerdingen, Lanxess produces high-tech plastics and colored pigments, among other products

Worldwide ion exchange resins demand

~1,150

Europe

United States

2007 2010e 2015e

APAC

RoW[$ m] ~860

~950

CAGR: ~4%

Source: Lanxess