International Chemical Summit Moscow, March, LANXESS in Russia: Seizing Market Opportunities despite the Crisis

Transcription

1 International Chemical Summit Moscow, March, 2009 LANXESS in Russia: Seizing Market Opportunities despite the Crisis Address by Dr. Werner Breuers LANXESS AG Contact: Daniel Smith Financial and Business Media Relations Leverkusen Germany Phone Fax lanxess.com Contact: Rudolf Eickeler Financial and Business Media Relations Leverkusen Germany Phone Fax Member of the Management Board (Please check against delivery)

2 Chart 1: LANXESS in Russia Seizing market opportunities despite the crisis Page 2 of 19 Ladies and Gentlemen, When the leaders of the chemical industry gathered in Moscow one year ago, no one could have predicted the tsunami that was poised to hit the global economy. And we certainly could not have predicted the devastating effect that the financial storm would have on our own industry. The one thing we have learned from all this is that life comes at you fast. So I will make no predictions today except to say that we are now one day closer to the recovery that is bound to come. Though LANXESS is fortunate to have a well-diversified product portfolio and a well-diversified customer base and though we are welldiversified geographically with 44 sites around the world we are not immune to what is happening. Our business has been hit by slowed production, anemic demand, tight credit and all the other things that industry everywhere is now feeling.

3 So we, of course, are taking the measures we have to take in order to deal with the hard times in which we all now find ourselves. Page 3 of 19 However, as we make some difficult decisions today, we will not take our eyes off tomorrow. And we most certainly will not lose sight of our long-term plans for the sustainable growth of our enterprise. Those plans definitely include a stronger presence for LANXESS here in Russia. And we have very recently demonstrated that we intend to pursue that objective crisis or no crisis. You see, at LANXESS we have learned, from hard experience, that a crisis is a time to focus on what is important. A time to concentrate on what it takes to shape the future. Chart 2: LANXESS a global and crisis approved specialty chemicals player Five years ago we were born into a crisis. LANXESS used to be part of the chemical division of Bayer AG. The spin-off from Bayer was the result of a less than favorable situation.

4 The Bayer Group s chemical division was losing money in most areas, and the business was feeling the pressure of substantial debt. Most experts did not believe our new company could survive. Page 4 of 19 So from the beginning we had to concentrate on what was important. We did our homework. Cut costs. Dropped unprofitable businesses. Totally restructured the company. Focused only on what we did best the business we really knew specialty chemicals. And we seized opportunity when the moment was right. Today LANXESS is a highly successful and much respected specialty chemical company with 44 sites in 21 countries around the world. We have round about 15,000 employees. And global sales 2008 are of nearly 7 billion Euros. We have learned how to survive a crisis. So you can see why we are not the kind of company to let this crisis keep us from taking the next important step in our long-term growth strategy. Chart 3: LANXESS clearly envisions long-term presence in Russia

5 And that step is having a strong presence here in Russia. Page 5 of 19 Until recently we have done all of our business in Russia through sales agents.we are now establishing our own independent company here. We are opening a LANXESS sales office in the magnificent Federation Tower. We begin with a staff of 30 highly trained LANXESS employees who report to Georges Barbey, who already has some years of experience dealing in this region. We are currently in negotiations with the local government of Nizhny Novgorod with the objective of setting up a production facility there. We are close to finalizing a cooperative scientific research agreement with the Russian Academy of Science. And we will be continuing to enlarge and strengthen our presence here in many ways over the foreseeable future. Chart 4: Russia just right for LANXESS There are three good reasons why we felt it was important to make this commitment, notwithstanding the economic crisis:

6 One we like what we see on the horizon here in Russia. Page 6 of 19 Things may look somewhat dark today in our industry and in the economies of our two countries, but we like to take the long view at LANXESS. And from our perspective, we see growth in Russia far outstripping that of Western Europe in the years ahead. Importantly, we see growth in the automotive, tire, agricultural, chemical, construction and electronic industries the core industries that rely on our major products to be healthier here, over the long term, than in Western Europe. So we see continuing and growing demand for the high-quality specialty chemical products that we produce. and a number of economic factors suggest that Russia could be among the fastest to recover after the crisis. Two we know that Russia welcomes innovative companies that offer quality, premium products and that certainly describes LANXESS. In January of this year Prime Minister Vladimir Putin, in his speech at the World Economic Forum in Davos said that one of Russia s top priorities was the creation of a favorable business environment. He said that Russia will continue our policy of openness to foreign investment. And he said that Russia is going to actively develop the innovation sectors of the economy. For us, that seemed like an engraved invitation to LANXESS from the Prime Minister of Russia to pursue our goal of a solid, long-term commitment to Russia.

7 As an innovative company, we have long admired the spirit of innovation that is so much a part of the Russian culture. Page 7 of 19 After all, we are chemists and modern chemistry really began in Russia when Dmitri Mendeleev created the first periodic table of the chemical elements in Professor Mendeleev also founded the Russian Chemical Society, introduced the metric system to Russia, and his oil research led to the founding of the first Russian oil refinery. So he is not only a hero to us chemists he is a hero to the whole world. That is the kind of inventive and creative spirit that is right for an innovative chemical company like LANXESS. And Russia, with 12 Nobel Prize winners in chemistry and physics, has always demonstrated that spirit of discovery. We know that in Russia we will find the talented, knowledgeable chemical and scientific minds that are so vital to our enterprise, and that here we will find the technology and the research facilities that are critical to our success. The cooperative arrangement with the Russian Academy of Science that we expect to sign is evidence of how important this is to us.

8 Chart 5: LANXESS portfolio of quality premium products for Russia s future Page 8 of 19 But the third and most important reason why we feel confident about our new commitment to Russia and the CIS countries is that we come here with a portfolio of quality premium products that meet the current and future needs of Russian industries products that can help improve the quality of life in Russia. As a specialty chemicals group, LANXESS primarily develops, manufactures and sells plastics, rubbers, specialty chemicals and intermediates. We supply our customers in dozens of different industries around the world, with emphasis on the chemical, automotive, tire, agricultural and construction industries. Our business is divided into three areas Performance Polymers, Advanced Intermediates and Performance Chemicals. We have 13 Business Units that create, produce and manage the products that emerge from these three areas. Our core competencies are in the areas of chemical and application know-how. We focus on innovative, high-quality products and services that will secure us the position of market leader. We pride ourselves on

9 being a supplier of all things premium, be it products, processes or services. Page 9 of 19 One of our greatest strengths is our expertise and leadership position in synthetic rubber. It is one of the keys to our future here in Russia. It is also our heritage. Chart 6: Strong innovative heritage: special expertise in synthetic rubber One hundred years ago, Fritz Hoffman, a chemist in our predecessor company, succeeded in polymerizing the hydrocarbon isoprene, which forms the basis of natural rubber. That was truly a transformational moment in world history. For he had discovered the process for creating synthetic rubber. The tires on our cars, the shoes on our feet and countless other useful products and critical industrial processes all spring from that moment a century ago.

10 It was a discovery that not only improved all of our lives and created millions of jobs, but it also brought an end to the frantic pursuit of natural rubber, which had caused massive human suffering and the destruction of many of the world s rainforests. Page 10 of 19 We are now leveraging our heritage and our expertise in synthetic rubber with a steady stream of innovations. In fact, LANXESS is now the global leader in the production and technology of high-performance synthetic rubber. We provide rubber for today s advanced, high-performance truck and car tires tires that are safer, last longer, and, because they have lower rolling resistance, save energy. That means lower CO 2 emissions, and thus less pollution. Right now our high-performance rubber is rolling down the highways of the world, helping mammoth jets land safely, and enabling the powerful Kamaz trucks to keep working in the toughest arctic conditions. Our specialty rubber is in the heavy-duty tires that helped Kamaz win the grueling Dakar Rally a record eight times. As we mark the 100th anniversary of our invention of synthetic rubber, we can celebrate a steady stream of technological breakthroughs. At tomorrow s session, my colleague, Dr. Guenther Weymans, who has headed the LANXESS Technical Rubber Products Business Unit since 2004, will describe many of the latest developments in rubber in some detail.

11 Chart 7: Innovative specialty chemical products for the Russian industry Page 11 of 19 I would like to discuss a few of our specialty chemical products that I believe are of particular significance to today s industrial needs in Russia and the CIS countries, and in many other parts of the world. The following four examples from the LANXESS product portfolio demonstrate the scope of our offerings: The first example, Therban AT, is a high-performance elastomer with excellent flowability that is easy to process and enables more effective oil field exploitation. It is applied to special drill heads that even make it possible to drill around corners, thereby bypassing hard rock. The oil, aging and wear resistance of Therban AT are the key factors in optimizing this technology. The enhanced metal adhesion also extends the service life of the drill heads and makes oil production more efficient. In times of low oil prices, this is a benefit that should definitely not be overlooked and one that may prove attractive to Russian companies working in the oil industry. The second example, Lewatit FO36, is our innovative hybrid

12 adsorber. This product is used to remove carcinogenic arsenic from drinking water. A special process distributes iron oxide in the pores of a plastic-based anion exchange resin and creates a layer just a few nanometers thick. This highly reactive layer works like a filter and is able to selectively bind the toxic arsenic from the drinking water. Useful mineral substances such as chloride, nitrate, sulfate and carbonate, on the other hand, are left alone. They simply flow through the thin filter. The advantage of this innovative filter material is its uniform structure, which ensures that even the tiniest arsenic particles are caught. This is extremely important, because long-term consumption of drinking water containing even small traces of arsenic increases the risk of cancer and changes to the skin. Page 12 of 19 The third example is the special cable developed by LANXESS in cooperation with cable manufacturer Leoni for use in submarines. The material, used among other things to make the sheathing of the special cables, is not only halogen-free, flameretardant and oil-resistant it is also resistant to seawater and extremely flexible. The special cable material is made from the high-performance rubbers Levapren and Therban and other materials. This product represents a key step towards a new generation of cables for underwater applications. The fourth example is what I define as a very timely contribution to today s automobile industry. Our Semi-Crystalline Products Business Unit has a stake in the move towards lighter, more fuelefficient vehicles. Our plastics technology has made possible plastic/metal hybrid auto body parts, marketed through our Durethan product line. Computers are used to remove unnecessary material from a virtual block of plastic to create a customized structural component of minimal weight. Our processes have proven effective for the production of automotive front ends, roof frames and brake pedals. This technology is already used by a number of major automakers, and it is providing one of the answers to making lighter, more energy-

13 efficient cars. And we do not stop there but are always working on the next generation of polyamide compounds. For example, the hybrid assembly points we have developed offer an alternative to spot welding in plastic-metal composites. Page 13 of 19 The fifth example is Baynox an additive for modern biofuels. This is a fantastic product which prevents formation of insoluble polymers in biodiesel. This stabilizes biofuels for long-term storage and transportation. Furthermore this product enables cooking oil and other spent oil to be processed into biodiesel. The sixth example is Nanopren a product and additive which improves the properties of modern tires. This means better wet grip and abrasion resistance, increased service life and environmental friendly reduced particle emission. This is really innovation in response to increasing global mobility while at the same time giving respect to mother nature. I have touched on just a few of the hundreds of innovative, premium products that we offer.

14 Chart 8: Presentation of our innovative products at two leading industry fairs in Moscow Page 14 of 19 Earlier this month, for example, LANXESS participated in two major industrial exhibits at the ExpoCenter. We were showcasing our many rubber and rubber chemical products at the Tires and Rubber Trade Fair. And we presented our Functional Chemicals expertise especially organic and inorganic pigments and material protection products at the Interlakokraska Trade Show. At the Tires and Rubber Fair, four of our business units were represented Technical Rubber products, Performance Butadiene Rubbers, Rubber Chemicals and our wholly owned subsidiary, Rhein Chemie. Our friends in the tire and automotive industries were able to see many of our innovations in synthetic rubber. Our Performance Butadiene Rubber Business Unit, for instance, demonstrated several rubber grades that now account for roughly 65 percent of the synthetic rubber produced around the world. About 70 percent of this is used in tire manufacturing, and another 20 percent in the production of high-impact polystyrene plastics.

15 Our Technical Rubber Products Business Unit showcased highperformance products for other rubber segments in the auto industry, including bodywork seals, gaskets, belts and hoses. Page 15 of 19 Our Rubber Chemicals and Rhein Chemie Business Units demonstrated their specialty chemicals for the rubber, plastics and polyurethanes industries. At the Interlakokraska Show we featured products from three other LANXESS business units. The Functional Chemicals Business Unit offered unique organic and inorganic pigment preparations used for the coloration of paints and several other applications. The Inorganic Pigments Business Unit is one of the world s leading manufacturers of iron and chrome oxide pigments, and they demonstrated how they can bring vivid, lasting colors to many paints, pastes and coatings. The Materials Protection Products Business Unit featured a wide range of biocides and biocide formulations for paints, wood and antifouling coatings that protect against fungi, mold and insects. It also featured our Preventol product that helps protect ship hulls against algae, slime, and other fouling organisms. So you can see we are off and running in Russia. We want to do everything we can to present ourselves to industry here as a capable, innovative and reliable partner. We hope to establish new trends with our products, services and technologies and to stimulate the development of new products and processes.

16 We believe that, for an innovative chemical company, there is still growth potential in the CIS region. Despite the current difficulties, some markets are still growing. Page 16 of 19 We feel that there are many opportunities for us here in Russia especially in our target markets, which include the automotive and tire industries, the construction and infrastructure industries and the electrical industry. And let me repeat an important point that I made earlier we expect long-term growth in those industries to be significantly higher in Russia and the CIS than in Western Europe. Chart 9: Success fueled by tradition of innovation and collaboration As chemists, I know that you appreciate the fact that our success at LANXESS has been due to relentless, non-stop research and development. That is our lifeblood and it has led to a steady stream of chemical innovations.

17 And therefore I am especially excited about the cooperation agreement that we expect to sign with the Russian Academy of Science. Page 17 of 19 Being able to exchange information on scientific trends and research developments and actively drive new projects and development with the scientists and institutes of the Academy which has been one of the world s most distinguished scientific institutions for 285 years is a great honor and will be of great benefit to all of us at LANXESS. And for our part, we hope that we will be able to help further the Academy s purpose, which is to perform fundamental research to obtain greater knowledge of the principles that promote technological, economic, social and cultural development in Russia. There is one fact about our recently announced commitment to Russia that I cannot stress enough. All of us at LANXESS clearly envision a long-term presence in the Russian market. We think of this as key to the future growth of LANXESS. We are looking forward to a close and fruitful partnership with the industries, the institutions, and the countless good people that we do business with or would like to do business with here in Russia. One of the key reasons we are making this move is so that we can be closer to our customers, better understand them and be quicker to satisfy their needs. As you know, customer proximity is an important aspect of success in the chemical industry. Many of our products and technologies are designed to meet the special needs of specific customers. I believe that the closer we are to customers the more valuable we can be to them.

18 Chart 10: LANXESS adding state-of-the-art technology, knowhow and innovative spirit to Russia Page 18 of 19 We know these are difficult times today but our eyes are clearly focused on tomorrow. And what we see makes us very confident about our future here. I feel that we are coming to Russia with the kind of specialty chemical products that can help strengthen the industry of Russia and help improve the quality of life here. We are bringing our technological know-how, which is highly respected throughout our industry. We are bringing a corporate philosophy that puts sustainability and ecological awareness as one of our first objectives. We are bringing a deep commitment to research and development that helps to create a better world.

19 We are bringing our obsession with quality, of being the supplier of all things premium be it products, processes or services. Page 19 of 19 And we are bringing what Prime Minister Putin said he wanted for Russia in his speech at Davos a spirit of innovation that will help Russia develop the innovation sectors of the economy. So you can see in spite of the unpleasant economic situation we have many good reasons to say that we are very glad to be here. Thank you. Forward-Looking Statements This news release contains forward-looking statements based on current assumptions and forecasts made by LANXESS AG management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.