Lanxess Slashes Profit Forecast

Last Updated: 9. November 2023By

The German chemical industry is currently in crisis. In particular, the worldwide decline in demand for chemical products and the steeply rising energy prices are causing difficulties for the third largest German industrial sector. Several publicly listed chemical companies have therefore already announced significant cost-saving programs.

Lanxess, a Cologne-based specialty chemicals provider, is also affected by this economic downturn. In the fourth quarter, a weaker demand is emerging than was expected in advance.

This has led to Lanxess significantly revising its expectations for the full year 2023 this week. In addition, the Lanxess board of directors plans to drastically reduce the dividend. But before I go into this in more detail, I would like to introduce you to the chemical company in more detail.

Lanxess in brief: The Lanxess AG based in Cologne is, according to its own statement, a leading specialty chemicals company. The company was founded in 2004 through a spin-off of the chemical and parts of the polymers division of the Bayer AG based in nearby Leverkusen.

The core business of the Lanxess AG consists of the development, production and distribution of chemical intermediates, additives (additives) and consumer-oriented protection products. The company employed a total of 13,100 employees.

Significant reduction in profit forecast and dividend cut In its latest news, Lanxess not only announced that the demand for specialty chemicals in the fourth quarter of 2023 will be weaker than expected. Additional burden factors are the beginning inventory reduction by customers of the agricultural industry as well as a supplier-related production restriction in the Flavors & Fragrances business at the Botlek (Netherlands) site.

Due to these burden factors, the Lanxess management now expects an earnings before interest, taxes, depreciation and amortization (EBITDA) before special items for the full year 2023 between 500 and 550 million euros. At the beginning of the year, Lanxess was still expecting an EBITDA before special items of between 850 and 950 million euros. This forecast was already reduced to 600 to 650 million euros in June.

Due to the weak business trend, the board of directors also plans to propose a reduction of the dividend for the fiscal year 2023 to 0.10 euros per share at the next annual general meeting. For 2022, Lanxess had already paid out a dividend of 1.05 euros per share.

The dividend cut would lead to further reduction of the net debt, according to Lanxess. This could also be contributed by the expected proceeds from the planned sale of the Urethane Systems business at the Botlek, Netherlands, site.

To explain: This business deals with the production of polyurethane (PU). Polyurethanes are versatile plastics or resins that have a certain hardness and can replace rubber or even metal.

Even after the recent price drop, the Lanxess share is not a buy candidate for me. I prefer less cyclical business models in the current economic environment. In a better economic environment, however, the Lanxess share can be a good investment idea.