From Blackout News

Lanxess, a specialty chemicals company, plans to introduce a cost-cutting program and could shut down two production sites in Germany. The sector is under a lot of pressure. Matthias Zachert, the chairman of Lanxess, was critical of politics (FAZ: 07.08.23).

Lanxess threatens plant closures – high energy costs and bureaucracy put a strain on industry

In view of high electricity prices and economic conditions, Lanxess is considering the closure of two production plants in Krefeld-Uerdingen. The process of hexane oxidation requires a lot of energy and could be stopped by 2026, according to the announcement of the Cologne-based M-DAX company on Friday. “We have been suffering financial losses there for some time,” said Matthias Zachert, Chairman of Lanxess, in a conference call. “We don’t expect this to change.”

Chromium oxide production at the same site has been suffering from low capacity utilization for months. Several ceramics manufacturers, who are among the clients, withdraw due to economic difficulties. Lanxess is trying to sell this area, but if that fails, the plant with its 52 employees could also close. Hexane oxidation employs 61 people.

Plants have to be closed in order to remain competitive, Lanxess said. Zachert blames politicians for this. High energy costs cause considerable locational disadvantages for German industry. As a result, companies are moving away. “De-industrialization is beginning,” Zachert explained. In addition to the high costs, companies suffer from excessive bureaucracy. “This means that prosperity in Germany and social security for people are seriously at stake in the medium and long term.” The federal government must wake up, Zachert stressed. “We need an economic policy worthy of the name.”

Cost-cutting measures at Lanxess: Europe-wide hiring freeze and cost reduction – other chemical companies follow suit

In addition to the planned closures, Lanxess is planning a cost-cutting measure. In order to support this year’s results in the short term, the company is halting new hires across Europe and looking for ways to reduce costs. Executives are giving up a quarter of their base salary, and bonus payments are also to be severely reduced at lower levels. Planned investments of 50 million euros have been put on hold, which should lead to a total saving of 100 million euros this year.

In addition, the company is reviewing its energy-intensive operations and facilities and plans to reduce its management in the long term. That will likely mean job cuts as well, but Zachert hasn’t given an exact number yet. The company expects one-off costs of 100 million euros for this process. In return, annual cost savings of 2025 million euros are expected from 150.

Other chemical companies are now also beginning to pay more attention to their spending, although Lanxess is the first to announce another austerity program. For example, Evonik, a specialty chemicals company based in Essen, Germany, has decided not to hire new employees by the end of the year, drastically cut travel budgets and reduced consulting costs – this is expected to save €250 million this year. Covestro, a plastics company, is also striving to reduce its costs.

Lanxess shocks shareholders: Forecast lowered, share plummets

In a stock exchange announcement back in June, Lanxess had already prepared its shareholders for the fact that the half-year figures could be disappointing – and also lowered its forecast. The company now expects adjusted earnings of only 600 to 650 million euros, instead of the originally forecast 850 to 950 million euros. Zachert admitted that there is no improvement in sight. In the course of the day, Lanxess shares were down almost 2 percent.

The Group’s expenses are high, and in addition, the economic situation is weak. Zachert described the demand from the major customer industries as “extremely poor”. Customers are emptying their warehouses, suggesting that they are producing less than originally thought and are therefore reordering fewer chemical precursors.

Chemical industry in crisis

In its latest report on the chemical industry on Friday, the Ifo Institute confirmed a deterioration in demand. Chemical companies have not seen such a pessimistic attitude towards orders since the financial crisis. Zachert was even more drastic: “I’ve been working in the industry for 30 years, I’ve never experienced such a difficulty,” said the Lanxess CEO. In the second quarter, adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) fell by almost 58 percent to 107 million euros. Lower selling prices and the reduction of inventories as well as weak demand weighed on earnings. Sales fell by a good 11 percent to 1.78 billion euros. In the end, there was a loss of 145 million euros, compared to a profit of 48 million in the previous year.