Lanxess makes every effort to reduce costs and increase efficiency

● "FORWARD!" action plan: annual savings of approximately 150 million euros from 2025 and increased efficiency

● Sales in the second quarter were 1.778 billion euros, a year-on-year decrease of 11.1%

● EBITDA pre-order was EUR 107 million, down 57.7% year-on-year

● Positive contribution from the microbial control business acquired from IFF in 2022

● Net debt decreased by about a quarter to 2.9 billion euros

● Full-year guidance target: EBITDA pre-order to reach 600 million to 650 million euros

● CEO Chang Mutian: "We are taking measures to deal with the economic recession, but we urgently need competitive framework conditions - starting with industrial electricity prices."

August 7, 2023 - Specialty Chemicals Inc. LANXESS responds to weak economic development with "FORWARD!" action plan stage. Through one-off cost reductions and reduced investments, LANXESS will initially save around EUR 100 million in 2023. In addition, the group is improving efficiency and will reduce costs by about 150 million euros per year from 2025 to achieve long-term cost reduction.

Due to weak global demand in many customer industries, LANXESS' business data in the second quarter was once again affected: sales fell from 1.999 billion euros in the same period last year to 1.778 billion euros, a drop of 11.1%. Earnings before interest, taxes, depreciation and amortization fell from 253 million euros to 107 million euros, a drop of 57.7%. For the full year 2023, LANXESS expects EBITDA routinely to be between 600 million and 650 million euros. The Group thus confirms the interim guidance for the second quarter and full year of 2023 announced on June 19.

Due to the continuous weak demand of many customers, customers continue to reduce inventory, and the sales price drops, the group has negative profits. China, the world's largest chemicals market, also failed to stimulate demand. Only the Consumer Protection segment recorded sales growth. The microbial control business acquired from IFF in early July 2022 played a positive role.

The group's EBITDA margin before interest, tax, depreciation and amortization fell from 12.7% in the same period last year to 6.0%. Net income from continuing operations fell to -145 million euros in the second quarter from 48 million euros a year earlier.

"The chemical industry and LANXESS are struggling at the moment. There are no signs of a recovery in demand in the second half of the year. We are therefore responding: With the 'FORWARD! ' short term�Stabilize earnings, reduce costs in the long run, and improve structures and processes. When the economy picks up again, we hope to get back on track quickly," said Chang Mutian, Chairman of the Management Board of LANXESS Group.

"FORWARD!" action plan

The "FORWARD!" action plan is divided into three parts. First, the group has taken emergency measures to quickly stabilize earnings for the current financial year. The measures include tight cost controls in all areas and a Europe-wide hiring freeze. This will result in a one-time saving of 100 million euros, half of which will come from reducing costs and half from reducing investments.

Through a series of structural measures, the group plans to increase efficiency in the long term and reduce costs by 150 million euros per year. These measures will be implemented successively and will come into full force from 2025. LANXESS expects the one-time costs of implementing these measures to be approximately EUR 100 million. The focus of the work is on the analysis of energy-intensive operations in factories and production facilities worldwide and on the streamlining of administrative structures.

Among the production facilities in Germany, the program is focused on the Krefeld-Uerdingen production site. The production site's energy-intensive hexane oxidation facility will be shut down in 2026. In addition, the production site's chromium oxide production facility will be sold. If the sale fails, LANXESS will also consider closing the facility.

The third part of the action plan is to further improve the business model. "In recent years, we have continuously reoriented our product portfolio towards specialty chemicals and have achieved leading market positions in many areas. Now is the time to realize the full potential of our new business. In addition, we want to further expand our sustainable offerings scope," Chang Mutian said.

Significant reduction in debt

In the second quarter, LANXESS' debt was significantly reduced. Net financial liabilities decreased by 24.9% from EUR 3,814 million on December 31, 2022 to EUR 2,863 million on June 30, 2023. The reduction in debt was primarily due to the receipt of payments related to the establishment of the Envalior joint venture. On April 1 this year, Lanxess included its high-performance materials business unit into a joint venture with private equity investor Advent Capital, and received a payment of approximately 1.27 billion euros from Advent Capital.

Business Sector: Almost all industries suffer from sluggish demand

Completed integration of the Microbial Control business acquired on July 1, 2022, contributing significantly to sales in the Consumer Protection segment in the second quarter of 2023. Sales in this business segment increased by 8.2 percent to 604 million euros from 558 million euros in the same period of the previous year. However, lower selling prices and volumes had the opposite effect. As a result, EBITDA pre exceptionals amounted to EUR 82 million, 8.9 percent lower than EUR 90 million in the prior-year quarter. The EBITDA margin pre exceptionals fell to 13.6 percent from 16.1 percent in the prior-year quarter.

Weak demand, especially from the construction and electronics industries, had a negative impact on the sales and earnings of the Specialty Additives business segment. The business segment's sales in the second quarter of 2023 were 620 million euros, 18.8 percent lower than the 764 million euros in the same period of the previous year. EBITDA in the second quarter of this year was 37 million euros, compared with 134 million euros in the same period of the previous year, a sharp drop of 72.4%. The EBITDA margin pre exceptionals fell to 6.0 percent from 17.5 percent in the prior-year quarter.

The decline in sales prices and volumes negatively impacted the High Quality Intermediates business segment figures. Demand from the construction and chemicals sectors was particularly weak. The business segment's sales of EUR 484 million in the second quarter of 2023 were 17.5 percent below the EUR 587 million achieved in the same period of the previous year. Earnings before interest, taxes, depreciation and amortization fell by 68.9% to 23 million euros from 74 million euros in the same period of the previous year. The EBITDA margin pre exceptionals fell to 4.8 percent from 12.6 percent in the prior-year quarter.

The decline in sales prices and volumes negatively impacted the High Quality Intermediates business segment figures. Demand from the construction and chemicals sectors was particularly weak. The business segment's sales of EUR 484 million in the second quarter of 2023 were 17.5 percent below the EUR 587 million achieved in the same period of the previous year. Earnings before interest, taxes, depreciation and amortization fell by 68.9% to 23 million euros from 74 million euros in the same period of the previous year. The EBITDA margin pre exceptionals fell to 4.8 percent from 12.6 percent in the prior-year quarter.