Lanxess spins off custom manufacturing business

The German fine chemicals business of Lanxess will from the second quarter of 2006 be spun off as a separate custom manufacturing company called Saltigo.

The new unit, based in Leverkusen, Germany, will be a Lanxess company and will benefit from backwards integration from the chemical manufacturer but will see complete separation from former parent Bayer, which many potential customers would otherwise see as a potential competitor.

The new company will focus on custom manufacturing in the three sectors of pharma, agro and speciality chemicals. The current head of the fine chemicals business, Dr Axel Westerhaus, said: 'We expect that by 2007 most of our sales will be non-Bayer related. Major drivers of this structural change are the vanishing businesses in the photo and dyestuff segments.'

The pharmaceutical sector is expected to provide the greatest proportion of sales for the new business (around 50%) with agro chemicals around 25% and a further 25% in the specialities sector.

Westerhaus said: 'We believe that only 10-12 custom manufacturers will remain in the market a decade ahead. They will serve the needs of the majority of customers. Our target is to be one of them.' He said that despite overcapacity and the current economic turbulence, custom manufacturing could be a highly profitable business.

Lanxess took over the full responsibility for the fine chemicals part of the conglomerate Bayer early in 2005 and Bayer became an external customer. With many of its plants no longer running profitably and with further investment required to meet the needs of new manufacturing sectors, the company has had to review its strategy.

Following a lengthy consultation with its workforce, it has come up with a new strategy that requires a dramatic reduction in production costs. The company has already started closing unprofitable plants and is implementing a new business structure, with many of the workforce being reassigned new jobs. There will be an overall headcount reduction from the current 1,900 to around 1,400 employees by 2007 and all employees have also agreed to a pay cut of around 7% for the next three years. This is the first time that such a deal has been struck in Germany.

Lanxess will put a Euro 50m capital investment into the new business in the initial start-up period.