Analysis: 'New' Lanxess looks to growth regions

Cologne, Germany  - Materials major Lanxess AG intends to invest in mid-sized markets and the growth regions of North America, China and Southeast Asia following the spin-off of its synthetic rubber business into a joint venture next month.

The German group discussed its growth as it announced its 2015 financial results, which saw sales slipping 1.3 percent to €7.9 billion but earnings before interest, taxes, depreciation and amortization (EBITDA) rising by 9.5 percent to €885 million.

Lanxess said the Arlanxeo 50-50 joint venture with Saudi Aramco for synthetic rubber will start operating 1 April after the relevant antitrust authorities cleared the transaction earlier than expected.

Lanxess will receive €1.2 billion proceeds from the rubber transaction and it said it intends to invest €400 million of this in organic growth in the years ahead.

“The realigned company with its balanced portfolio of specialty chemicals, chemical intermediates and high-performance plastics is on a growth course,” said Lanxess in a statement announcing its 2015 financial results.

In its presentation at its results conference in Cologne, Germany, this morning, the company referred to “The ‘new’ Lanxess: Profitable, resilient and back on track for growth.”

“On the one hand, we aim to take advantage of consolidation opportunities in those areas of business in which Lanxess already operates,” said Matthias Zachert, CEO and chairman of the board of management, in the statement. “On the other hand, we are also investigating options to extend our portfolio into related areas of business that are the right fit. Here, we will consider both integrated chemical value chains and suitable application-driven businesses.”

Zachert said: “The precondition for any capital expenditure is that it will contribute to creating value. The individual segments will have budgets between €50 million and €150 million for capital expenditures.”

Lanxess also plans to use around €200 million of the rubber transaction proceeds for a share buyback programme and about €400 million to reduce financial liabilities.

The company said the growth in its 2015 operating profit was mainly due to savings from its realignment programme, the strong US dollar and volume growth.

“Fiscal 2015 was successful for Lanxess in every respect,” Zachert said. “We implemented our realignment faster than planned and, at the same time, significantly improved our profit situation and financial position. We have thus laid a stable foundation for our growth course.”

In the Performance Polymers business unit, which includes engineering thermoplastics as well as the tire and rubber portfolio that is being spun out, sales fell by 4.5 percent in 2015 to around €3.9 billion.

But, despite a “challenging environment,” said Lanxess, the business boosted EBITDA pre exceptionals by 28.1 percent to €502 million. Earnings were lifted by favourable exchange rates, savings achieved by the realignment program and higher volumes