Lanxess Considering Job Cuts and Site Closures on Weak Demand

Lanxess AG (LXS), the chemical maker that joined Germany’s benchmark DAX index in September, is considering job cuts and site closures at a unit making preserving agents and rubber chemicals to counter lower demand.

“As CEO you always have to ask the question: Can you, or must you, give up a non-critical site if the product is made at several sites?” Chief Executive Officer Axel Heitmann said today on a call. “It is too early to quantify job cuts that may eventually be necessary.”

Under scrutiny is the performance chemicals unit, which also makes pigments and leather additives, he said. Heitmann, who said that no jobs would be lost in Germany, is also reducing investment this year to 600 million euros ($788 million) from a previous 650 million euros to 700 million euros.

Lanxess, based in Leverkusen, generates 40 percent of sales from the tire and auto industries, leaving it vulnerable as European car sales slide to a 20-year low and the European debt crisis weighs on construction spending. The CEO said it’s too early to say which international sites would be affected by any restructuring measures, which won’t cost the company more than 40 million euros.

Earnings before interest, taxes, depreciation, amortization and one-time items fell to 174 million euros in the first three months from 369 million euros, Lanxess said today. Sales dropped 12 percent to 2.1 billion euros. Shares of Lanxess were little changed at 57.46 euros as of 12:12 p.m. local time.

Pricing

Profitability suffered as the synthetic-rubber maker went beyond compensating customers for a drop in input costs, cutting selling prices even further in a bid to keep clients, Heitmann said today.

“We did that knowingly to defy the difficult market conditions along with long-standing customers that we have a good relationship with,” Heitmann said. “We still ask for higher prices for our premium products.”

The company also predicted lower-than-estimated operating profit in the second quarter, saying Ebitda before one-time items will probably fall to less than 220 million euros. That compares with an average analyst prediction of 250 million euros, according to estimates compiled by Bloomberg.

Ebitda before special items is expected to be less than 1 billion euros for the full year, Lanxess said today. Analysts are estimating profit of 989.2 million euros. The company reiterated medium-term targets for earnings of 1.4 billion euros in 2014 and 1.8 billion euros in 2018.

A plant in Zwijndrecht, Belgium, that makes butyl rubber, used in the inner linings of car tires, is closed for four weeks this month. Production in Orange, Texas, of ethylene propylene diene monomer, or EPDM, used in wiper blades and door sealants, stopped production for as many as six weeks before reopening in April.

To contact the reporter on this story: Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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