"Saltigo - Customized Competence"

Transcription

1 News Release Saltigo GmbH Contact: Udo Erbstößer LANXESS Deutschland GmbH Corporate Communications Trade & Technical Press Leverkusen Germany Phone Fax LANXESS Media Day September 14, 2006 Leverkusen "Saltigo - Customized Competence" Address by Dr. Axel Westerhaus, Managing DirectorSaltigo GmbH (Please check against delivery) ( e)

2 Ladies and gentlemen, Saltigo is a globally operating custom manufacturing specialist, providing services in three lines of business - Pharmaceutical, Agricultural and Specialty Chemicals. As a wholly owned subsidiary of LANXESS, we are serving innovative customers in innovative industries. ( e-1) Within LANXESS, Saltigo is part of the business segment and reporting line Chemical Intermediates. The Leverkusen-based company with production facilities in Leverkusen and Dormagen serves almost 150 customers worldwide and annually provide around 500 products according to customers' orders. The company employs approximately 1,400 people worldwide. Page 1 of 18

3 ( e-2) Saltigo regards itself as a "full-service" provider that offers its customers comprehensive solutions rather than mere products. Clearly, our primary aim is therefore to meet the requirements of our customers. We will never be the kind of company that offers a static product portfolio or a mere order list. What's more, we're no longer an internal service-provider for a large chemicals company. Gone are the days when we were its strategic reserve for technology development and production, as in Bayer times. Now, we're going to act flexibly to constantly align our resources to market requirements. Our service portfolio, our plant structure and our investment plans will be shaped by customer requirements as part of an ongoing, dynamic process. That's why we can no longer be considered in the same light as the Fine Chemicals business units that existed at LANXESS and, even more so, Bayer. Page 2 of 18

4 ( e-3) A transition of this kind necessitates a wide range of structural and organizational changes. Plant and staffing structures had to be aligned fully to market requirements because we want to rapidly achieve the kind of earnings enjoyed by many of our competitors. In the meantime, we've achieved a substantially improved cost structure. What's more, thanks to the constructive input of the works council and the solidarity shown by LANXESS employees, we've been able to resolve staffing issues. We've also made great strides with our business structure. A great deal of urgently required restructuring processes has been already finalized and we want to complete the remainder as soon as possible. We have closed inefficient plants and facilities and created a number of new, clearly structured operating units that can be managed more efficiently and thus more profitably. Altogether we are faster than expected with the restructuring process. Page 3 of 18

5 ( e-4) In recent years, sales figures for LANXESS's and, going further back, Bayer's Fine Chemicals business unit have always amounted to almost EUR 400 million, 90 percent of which resulted from custom manufacturing services. On the back of these figures, Saltigo is aiming for a strong market position in all three lines of business. We're already a "top player" in the agricultural chemicals sector. We intend to systematically develop our Specialty and Pharmaceutical Chemical lines, because these are the most important cornerstones of our relevant market, as obvious from the pie diagram showing respective shares of the custom manufacturing market. Pharma and Specialties together give rise to about 85 percent or approximately EUR 11 billion of the total relevant market volume. Page 4 of 18

6 ( e-5) In general, the fine chemicals industry is characterized by small and mid-sized companies. Even for the big ones in the business, annual sales are only slightly exceeding one billion euros. Therefore, our sales of close to EUR 400 million already make us a member of the top group in terms of sales, belonging to the largest two dozen companies or so. Would we focus on sales from custom manufacturing alone, our position in this ranking would definitely improve significantly because for many of our competitors, custom manufacturing is just one among several business activities. As I have already emphasized, this is different for Saltigo. We are clearly focused on custom manufacturing and specialties in profitable market segments. Furthermore, we are among those companies in the market offering a highly comprehensive portfolio of technologies and expertise, which makes us a full player in the business. This is quite a difference to the large majority of fine chemicals companies. Most of these specialists and low cost suppliers are only provided with very limited capabilities. Page 5 of 18

7 ( e-6) This brings me to another strategic aspect of our business: our positioning. Saltigo's business activities, namely custom manufacturing and specialties in profitable market segments, are characterized by a medium to high business risk and a high volatility, which for instance means a rapid turnover of projects over time. In return, such a business rewards us with a medium to high profitability. Multi customer business providing a relatively constant cash flow at the price of relatively low returns on investment is not primarily in our focus. This is also the reason why we do not consider generics production as a part of the markets relevant to us. In total, we rely on an optimized business setup arising from a balanced business mix. Page 6 of 18

8 ( e-7) In our core businesses, we aim at being as comprehensive as possible. With a comprehensive set of services ranging from synthesis and process development, to pilotation, scale up and ultimately manufacturing and also including special services such as analytics or registration support, we are serving our customers along their complete value chain, from lab scale to production scale. We escort our customers from the idea to the market, as this chart illustrates. Page 7 of 18

9 ( e-8) Our capabilities are supported by highly educated and experienced employees. We have a proven track record in and comprehensive access to our relevant market. Our state-of-the-art assets, broad technology base and substantial know-how regarding processes and technology make us a partner of choice. We are clearly aware that IP protection, confidentiality and a trust-based relationship to our customers are prerequisites of our business. Let me give you some concrete examples of our business strategy by referring to four objectives: - Increased efficiency in process development, - Support innovation, - Pilotation, - Investments in technologies, - Investments in GMP-capacities. Page 8 of 18

10 ( e-9) Firstly, we want to increase the efficiency and speed of process development in future, even in "difficult" cases involving challenging reactions at high pressure or hazardous substances such as chlorine or phosgene. To achieve this, we intend to use the automated parallel reactions that are already common practice in other fields. In some cases, the equipment needed for this has not been commercially available. However, we've managed to close these gaps with our own developments. These include KASPAR, "catalyst screening for phosgene reactions with automatic reactor systems", and also parallel hydrogenation, which enables the development and testing of hydrogenation catalysts in mini autoclaves. These two technologies have already come through testing and are now being used in development work for our customers. "Miniature reactions" of this kind can be performed very safely and involve less waste disposal than standard reactions. Page 9 of 18

11 ( e-10) Saltigo offers its customers competitive advantages arising from innovation - not only in process development but also in chemical research. One of our specialist areas is organic fluorochemistry. Our experts can boast around 40 years' experience in this field, and have immediate access to thousands of substances. Our portfolio of synthesis regulations currently supports the production of approximately 22,000 fluorine organic compounds - and this figure is on the rise. In future, our "Fluorine Team" will provide even more know-how to customers looking for a high-performance custom research partner. Nowadays, around half of all pharmaceutical and agrochemical intermediates and active ingredients contain fluorine. We will help our customers meet these challenges - from the R&D phase onwards. The "Fluorine Team" offers individual services - covering everything from consulting and custom synthesis of research quantities to R&D partnerships and the generation of complete substance libraries on behalf of the customer. Page 10 of 18

12 ( e-11) A recently concluded investment project has allowed us to increase efficiency and expand one of our key areas of expertise. At a cost of some 1.5 million euros, we've integrated our small-volume production plants in terms of location and organization and upgraded these units throughout. With the introduction of "Plant 5", which comprises these upgraded units and parts of our Central Organics Pilot Plant (ZeTO ), we're even better equipped to handle more than 5,000 jobs a year for more than 300 custom products - flexibly, reliably and on schedule. The new network includes the high-pressure laboratory, custom manufacturing on a scale of kilograms, batch piloting, and mini-plants for scaling up continuous reactions. Small-volume production, from 100 ml flasks to 400-liter reactors, is essential for our customers in the pharmaceutical industry who require substances for the preclinical and early stages of clinical examination - quickly, reliably and in some cases also compliant with GMP standards. We're already highly satisfied with the level of business in this sector. I'm convinced, however, that we'll become even more of an attraction for customers in future. Page 11 of 18

13 ( e-12) To enable the plants to react more dynamically, we've made specific investments geared towards customers and market requirements. One example is the new liquid nitrogen low-temperature unit that we've recently installed. For around 500,000 euros, we equipped the ZeTO to perform syntheses in production volumes across the whole range of temperatures from +120 C to -120 C. This investment enables us to meet the growing demand for complex syntheses at very low temperatures - for new products, improved yields or higher purities. Page 12 of 18

14 ( e-13) Also in terms of expanding GMP capacities, we will take measures that allow us to meet market requirements at short notice. Here too, we will flexibly adjust ourselves to the demands of our customers. In doing so, we have just completed the analysis and evaluation of different options and decided to expand our GMP capabilities at our integrated site in Leverkusen by setting up a multifunctional facility. Suffice to say that the GMP market offers great potential for us to increase our pharmaceuticals business in the long term. I already pointed out that this is one of our key objectives. Page 13 of 18

15 ( e-14) Talking about objectives, let me add a few more and highly important points. Since the independence from Bayer, we have experienced and still experience a shift in customer structure. We are actively driving this change by broadening our customer base. From 2001 to 2006, business with current and former Bayer companies decreased by about 12 percent annually, while other business increased by 20 percent annually. In total this has led to only a minor decrease in overall sales, i.e. about two percent annually. Already today, almost two thirds of our sales result from business that is not Bayer-related. And this share will further increase in the years to come. Page 14 of 18

16 ( e-15) In our project portfolio, we are setting a focus on lifecycle stages which involve a maximum of intellectual property-dependent activities. This means that we concentrate on the early phases from product innovation to launch and early commercialization. We are convinced that we can best employ our strengths such as our experience and our own intellectual property in such a project environment. As a result, these segments are best suited as a basis for value-creating growth of our business. Certainly, there is also a regional activity focus associated with different lifecycle stages. For instance, the United States are definitely an R&D hotspot in our relevant market. Page 15 of 18

17 ( e-16) We see ourselves first and foremost as a partner for high-innovation, technology-driven, research-based companies. This is a sector which has remained largely unharmed by the competition with low-cost suppliers, particularly from Asia. We are taking into account that in the relevant industries, i.e. pharmaceutical, agrochemical and specialties business, a total of about US$ 66 billion has been invested into R&D in 2004 mainly in North America and Europe. It is our vision to become a turntable in a global flow of ideas and products as derived from these R&D efforts, as illustrated here by differently colored arrows. Already today, due to its high expertise in process development and to its high-tech manufacturing platform, Saltigo plays an important role when it comes to bringing new chemical products to the market together with innovation-driven companies from all over the world. Page 16 of 18

18 ( e-17) Ladies and gentlemen, Saltigo is on the right path to meeting its objectives and fulfilling the expectations of our customers and our parent company LANXESS. Hopefully, my presentation has demonstrated that: Saltigo is on the way to a strong global player in custom manufacturing market - Already one of the top player in custom manufacturing - Leading position in agro chemical sector - Advanced business model in custom manufacturing - Broad technology base for complex synthesis - Highly educated employees - Broad industry know-how - Covers all industry segments - Focused on innovative customers Page 17 of 18

19 ( e-18) There is a multitude of end products arising from our custom manufacturing activities. However, as we are working in a trust-based business where confidentiality is key, I cannot disclose customer or product names. However, you can be sure that we have been involved in many cases with our products when it comes to drugs against heart diseases, cancer or HIV, or antibiotics, when herbicides, insecticides or fungicides are needed, when you buy personal care or cosmetic articles, insect repellents or even photo prints and mobile phones. Saltigo is a reliable, forward-looking and committed partner for our customers around the world. This is a good basis for our success. Many thanks for your attention. 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. Page 18 of 18