Opportunity report

Strategic opportunities

The LANXESS product portfolio is systematically aligned to key global trends that promise continuous growth in the coming years. With our products, we offer innovative solutions for these trends and generate measurable added value for our customers. We are successfully positioned in those markets in which our product portfolio will enable us to particularly benefit from these trends in the medium and long term. The BRICS countries – especially Brazil, China and India – will retain a central role in this regard.

Product portfolio aligned to four global megatrends
With its product portfolio, LANXESS has a presence in all key customer industries. Our broad diversification of this portfolio ensures that we are not primarily dependent on any single product or process. We are focused on strengthening the individual product segments with optimized production processes and methods, ongoing innovation, capacity expansion measures, new production facilities or acquisitions. Our work in this regard is aligned to the global megatrends that are most relevant to us:

Mobility: The increasing demand for vehicles, especially in the emerging economies, and the need to improve the environmental compatibility of mobility throughout the world are providing key impulses for growth in tire production and automotive engineering, both of which are important customer industries for LANXESS. At both European and international level, existing laws and ongoing legislative initiatives seek to improve quality standards by requiring the classification of vehicle tires on the basis of their rolling resistance, wet grip and noise emissions or durability. A good rating can only be achieved using high-performance rubber. In automotive engineering, it is above all the efforts to achieve substantial weight reductions using high-performance plastics that are providing us with opportunities for growth.

Agriculture: The demand for agricultural products driven by the growing world population and the urgent need to improve efficiency in agriculture associated with the limited availability of arable land are crucial issues for our customers in the agrochemical industry in particular. Our products help protect crops and increase agricultural yields.

Urbanization: Urban expansion and the development of more new megacities can be observed especially in the fast-growing emerging economies such as Brazil, China and India. The need for new buildings and an efficient infrastructure is correspondingly large. Moreover, demand for better consumer goods and a higher standard of living is evolving with the growing middle class in these countries. This trend is benefiting our customers in the construction and consumer goods industries in particular.

Water: Given escalating environmental pollution and the steady rise in water consumption because of ongoing population growth and industrial requirements, the demand for clean water will continue to rise. With our innovative solutions for purifying and treating drinking water, wastewater and industrial process water, we are therefore serving a high-growth market. The BRICS countries (which include India, China and Brazil) are major growth markets in terms of water.

Sustainable expansion in the growth regions
In recent years, we have substantially strengthened our business activities in Asia, Central and Eastern Europe and Latin America and will continue to expand our market positions there in the future. Our growing presence in these key economic regions will enable us to participate in their dynamic economic development. We have laid the foundation for further growth in Asia, in particular, by making targeted investments in China and Singapore.

Strengthening the Group through acquisitions
At the present time, we are not planning to make any fundamental changes to our corporate structure. However, strengthening our segments through targeted acquisitions will remain an important element of our strategy, alongside organic growth.

Focused research and development activities
We make targeted investments in the research and development of new solutions that underscore the premium nature of our products and generate added value for our customers. We intend for customer- and market-oriented innovations to continue playing a large role in supporting organic growth and further cementing our competitive positions as a supplier of high-quality solutions. Process and product innovations will remain the focus of our research and development activities.

Operational opportunities

Unlocking and exploiting operational opportunities is an important aspect of LANXESS’s entrepreneurial activities. We are committed to using existing products and new solutions to advance our growth and sustainably strengthen our position in global markets. Investing in new plants as well as expanding the capacities and increasing the productivity of existing ones are key elements in these efforts. Sales and earnings effects expected from our investments and acquisitions are already considered in our forecasts. These targeted investments may also generate further operational opportunities because they give us access to new potential and advance our positioning in key markets. Against this background, we made the key investments described below.

In addition, we constantly review our existing portfolio and production network. In the challenging reporting year, we initiated and in some cases already implemented targeted efficiency-enhancing measures within the context of our Advance program in order to improve the competitiveness of individual businesses. The identification of further measures may unlock additional opportunities.

As we already reported, the Performance Polymers segment faced mounting competition in fiscal 2013. However, in light of tire labeling initiatives, demand for high-quality tires may increase further. Thanks to our global production network, our market position and our long-standing customer relationships, our rubber activities remain well positioned.

We will continue to drive forward key investment projects in the Performance Polymers segment to ensure that we can benefit from our assumed operational opportunities in the medium and long term and achieve sustainable and competitive positions in major growth markets. In 2012, we started construction of a new production facility in Singapore for high-performance neodymium-based performance butadiene rubber (Nd-PBR) for our Performance Butadiene Rubbers business unit. Investment in the new plant on Jurong Island will total around €200 million. With an annual capacity of up to 140,000 tons, the plant is scheduled to come on stream in the first half of 2015. Our high-performance Nd-PBR contributes to optimizing the rolling resistance and wet grip of tires, which are key criteria for a good tire classification, as increasingly required of tire manufacturers worldwide following the example of the European Union.

In the year under review, we commissioned our new butyl rubber plant in Singapore, enabling us to supply our customers in Asia’s growth markets from within the region. We plan to increase the output of our new plant to 70,000 tons in 2014. Overall, the plant is designed for an annual capacity of 100,000 tons. With the construction of our world-scale butyl rubber plant, we have established an early position in Asia to meet the medium- and long-term growth in demand for butyl rubber for tires.

In China, we are also investing around €235 million in our production plant for EPDM synthetic rubber. Assigned to the Keltan Elastomers business unit, the plant will have a maximum annual capacity of 160,000 tons and is due on stream in 2015. Despite the changes in the market and competitive environment for EPDM rubber, our presence in China is crucial to our ability to benefit from the long-term growth opportunities in the market and region with the highest growth potential.

In support of our business with high-tech plastics, which provide innovative solutions for lightweight construction to serve the mobility trend, we will be bringing a new polymerization plant on stream in Antwerp, Belgium, during the third quarter of 2014. The plant represents an investment volume of about €75 million and will have an annual capacity of around 90,000 tons. It will strengthen the production network for high-tech plastics in our High Performance Materials business unit. In the future, we will be able to supply our global compounding network from Antwerp, which is also home to the facility for caprolactam – the key precursor for plastics manufacturing – and glass fiber production.

With the commissioning of the new compounding plant in Porto Feliz, Brazil, in the first half of 2014, we will also be expanding our global compounding network and will be able to directly supply high-tech plastics to our customers in the growth market of Latin America. This site expansion will also enable us to develop individual solutions for our customers in Latin America within the region.

In the High Performance Materials business unit, the successful integration of Bond-Laminates GmbH – which we acquired in 2012 – and the ongoing trend toward weight reduction in vehicles offer us further options in the business with lightweight plastics. Having added Tepex® lightweight plastics to our portfolio, we are now investing in this growth area by significantly expanding capacities at the Bond-Laminates site in Brilon, Germany, by summer 2014. Depending on their field of application, the innovative composite materials are reinforced with different fibers such as carbon or glass fibers. They are being increasingly used to replace heavier metal components in many assemblies, especially in vehicles.

We are also driving forward the development of innovative products and see the optimization of our production processes as the key element in sustainably improving our competitiveness and exploiting additional opportunities to strengthen our market position. Against this background, one of our major innovations in the Performance Polymers segment is the development of two new grades of neodymium-based performance butadiene rubber. These have the high molecular weights that are essential for the production of tires with particularly low rolling resistance. Thanks to the new polymer chain modification technology we use, these rubber grades have properties that greatly facilitate processing by our customers.

With our Advanced Industrial Intermediates and Saltigo business units in the Advanced Intermediates segment, we are well positioned in the market to meet the growing demand for agrochemicals that is rooted in the agriculture megatrend. At the end of the year under review, we completed the expansion of cresol capacities in the Advanced Industrial Intermediates business unit so we can now offer the market further capacities from our aromatic network for this high-quality intermediate that is used in, for example, agrochemicals. By supporting our customers’ growth through the expansion of capacities for high-quality intermediates like cresol, we are also taking advantage of the opportunity to strengthen the position of the Advanced Intermediates segment in the medium and long term.

We already took measures in 2012 to align our Saltigo business unit more strongly to the agrochemicals business, thereby enabling us to increasingly participate in this key growth market in the future. Saltigo is seeking to extend its offering of tailor-made end-to-end solutions for customers in the agrochemical industry and will additionally focus on attractive projects in the pharmaceuticals sector. By aligning Saltigo to key growth markets, we see a possibility for exploiting operational opportunities in the future – as we did already in the year under review.

In our Performance Chemicals segment, we are implementing a range of measures as part of the Advance program in order to place the Rubber Chemicals business unit on a more competitive footing in the market. In 2013, we began consolidating the production of rubber chemicals for the tire industry at our sites in Belgium and the United States, a process that will be completed in 2014. Also in 2013, we withdrew from the market a number of products that had reached the end of their life cycle. In this connection, we closed the Rubber Chemicals site in South Africa. By focusing on key products in our business unit and on streamlining our plant network, we will be able to improve our productivity and increase our competitiveness.

In other business units in the segment, we made important investments as the cornerstone for future developments.

In the important growth market of China, our Inorganic Pigments business unit is continuing the expansion of its production network to increase its future participation in the urbanization megatrend. In Ningbo, we are constructing a new facility for iron oxide red pigments with an initial annual capacity of 25,000 tons. The plant will fulfill the highest environmental standards and raise the bar for the industry in terms of water treatment, waste gas cleaning and energy consumption. This investment will enable our Inorganic Pigments business unit – a leading producer of high-quality and sustainably manufactured pigments – to strengthen its global production network and further enhance its position in Asia.

In the year under review, our Leather business unit commissioned its new production plant for leather chemicals in China, which is the world’s largest market for leather chemicals. Representing an investment of about €30 million, the new plant has an annual capacity of up to 50,000 tons and satisfies the highest environmental standards. It enables us to offer our entire range of leather chemicals in China and should help us to further improve our position in the key Chinese market. In addition, we are strengthening our reputation as a company that utilizes environmentally compatible production processes, which is becoming increasingly important in China. Also in the Leather business unit, we commissioned a new CO2 concentration unit in Newcastle, South Africa, in the fourth quarter of 2013, thereby strengthening our value chain in this business area. This plant makes us independent of external CO2 supplies, enabling us to individually steer our production of sodium dichromate for chrome tanning salts, which is also located in Newcastle.

In 2013, the Liquid Purification Technologies business unit was able to successfully position our company as an end-to-end supplier of water treatment solutions with our products for ion exchange and membrane filtration. We are now seeking to drive forward this development. Against the backdrop of an anticipated increase in demand for innovative water purification and treatment solutions, we are expanding production capacities for ion exchange resins in Leverkusen, Germany, at a cost of around €10 million. In 2014, we expect to be able to supply the market with additional quantities of weakly acidic cation exchange resins which are used especially in the growing cartridge business for household water filtration systems.

We have also extended our product portfolio with, for example, new Lewabrane® grades for treating water with fouling potential, also by membrane technology. Further growth prospects are offered by the certification received in 2013 from the U.S. National Sanitation Foundation (NSF International) attesting to the safety of all currently available LANXESS membrane elements in drinking water treatment applications. This quality certificate, which is essential in the drinking water industry, confirms the high quality of our membranes and enhances customers’ confidence in our products. In most countries, compliance with NSF Standard 61 is a basic prerequisite for usage in drinking water applications and therefore a key quality indicator. We have also received approval for drinking water applications from the Russian and Czech authorities.

As well as investing in innovations to benefit from future operational opportunities for growth, we strengthened the business units in our Performance Chemicals segment with targeted acquisitions. Through the acquisition of Singapore-based PCTS Specialty Chemicals Pte. Ltd., we expanded the biocides portfolio of our Material Protection Products business unit and became one of the leading suppliers of biocides for coatings in Asia. We are now able to provide our customers there with products and expertise from within the region. PCTS specializes in the production of biocides for environmentally friendly water-based coatings that meet stringent health, safety and environmental standards.

We also expanded the phosphorus chemicals portfolio of our Functional Chemicals business unit by acquiring the activities of the French subsidiary of the insolvent Thermphos International B.V. of Vlissingen, Netherlands. This move enables us to supply additional intermediates for flame retardants and pharmaceuticals, thus strengthening our market position in this product segment.

The development of innovative products and the ongoing development of our production processes remain a central element in cementing our current market position and increasing our competitiveness. Other examples of our research and development activities are described in the “Research and development” section of this combined management report.

Summary of overall opportunities

In recent years, LANXESS has consistently aligned its product portfolio to the key growth trends and is successfully positioned in major growth markets. Through targeted investments, we are continuing to strengthen our segments worldwide and are pursuing our research and development activities to deliver process and product innovations in all segments that will continue to set us apart from our competitors. We countered the weak demand at the start of 2013 and the growing competitive pressure on our synthetic rubber businesses with our extensive Advance program and have already successfully implemented the first efficiency-enhancing and restructuring measures. Our global position and our flexible corporate structures enable us to rapidly respond to the challenges we face and successfully utilize the strategic and operational opportunities that arise in the future over and above the fundamental opportunities that already exist. Further information can be found under “Significance of risks and results of risk assessment” in this combined management report.