Lanxess’s 100 Million-Euro Cost Squeeze Spans Bonuses, Jobs

Lanxess AG, the synthetic rubber maker that joined Germany’s benchmark DAX index a year ago, said it will cut 1,000 jobs and bonuses to save about 100 million euros ($134 million) annually from 2015.

The savings program will cost 150 million euros in one-time charges that will be booked in 2013 and 2014, the Cologne-based company said in a statement. Lanxess will explore strategic options for non-core units with about 500 million euros in combined sales and 1,000 workers.

Chief Executive Officer Axel Heitmann said the downturn in markets is temporary and the industry remains a viable one. Lanxess, which generates about 40 percent of sales from the auto and tire industries, has suffered as European car sales faltered, with August deliveries at the lowest since records began in 1990.

“Lanxess has taken the difficult and brave decision to deploy new savings initiatives and update its portfolio strategy to a changing operating environment,” Paul Walsh, an analyst at Morgan Stanley, said in a note. “However, it also likely signals greater structural challenges.”

Shares of Lanxess traded 2.6 percent lower at 50.09 euros as of 12:23 p.m. The stock, prior to today, had dropped 22 percent this year, making them the second-worst performer on the DAX index after potash maker K+S AG.

Pay Trimmed

Bonuses will be cut to help save a “significant double-digit million” amount, Heitmann told reporters at a briefing in Cologne today. Workers’ variable pay will be reduced by 3 percent of their salary and the executive board’s bonuses will be cut by 6 percent of their salaries, the CEO said.

While job cuts will be achieved with the help of early retirement packages and voluntary departures, forced firings can’t be ruled out, the CEO said. Of the 1,000 positions to go, about 300 will be in Germany.

In an effort to reduce the company’s dependence on rubber, Lanxess will target acquisitions in the mid to long-term that will strengthen its chemicals units, it said today. Three of its biggest investment projects serving the auto and tire industries -- a synthetic rubber plant in Singapore, an ethylene propylene diene monomer rubber factory in China and a polyamide plant in Belgium -- are on track, Lanxess said. The company can adapt spending on projects to optimize cash flow, it said.

“We were in full growth modus,” Heitmann said. “Now we’re facing the challenge of higher capacity and lower demand.”


Operations that have been earmarked for potential sale, worth a combined 30 million euros in earnings, include a perlon-monofil operation that’s part of the high performance materials division, accelerator and antioxidant lines serving the rubber chemical operation, and the nitrile butadiene line at the performance elastomers business unit.

“Each of these businesses is well positioned in its market, but can develop better over time with a different partner,” Heitmann said.

The CEO said in August that he would review company strategy after orders slumped and he had to abandon a 2014 profit forecast. The synthetic rubber maker is sticking to a new full-year target of earnings before interest, tax, depreciation, amortization and exceptional items of 700 million euros to 800 million euros. The forecast excludes potential inventory devaluations, Lanxess said.