Specialty chemicals group LANXESS AG had sales of EUR 1,535 million in the first quarter of 2008 (Q1 2007: EUR 1,711 million) worldwide. Adjusted for portfolio and currency effects, global sales grew by 8.1 percent year on year. Reported sales declined as expected, coming in 10.3 percent below the prior-year quarter.

EBITDA pre exceptionals rose by 0.5 percent to EUR 220 million (Q1 2007: EUR 219 million), with selling price and volume increases more than offsetting adverse raw material price and currency developments. The prior-year figure contained earnings of roughly EUR 10 million from the since-divested Lustran Polymers activities.

The EBITDA margin before special items rose by a substantial 1.5 percentage points to 14.3 percent. Net income improved significantly, moving ahead 13.2 percent to EUR 103 million (Q1 2007: EUR 91 million).

“Through our strict alignment toward premium products with leading market positions, we once again achieved above-average corporate success in a challenging market environment,” commented Axel C. Heitmann, Chairman of the LANXESS Board of Management. He said Group sales benefited from 3.8 percent higher prices and 4.3 percent volume growth. “We succeeded in passing on the increase in raw material costs in all segments,” Heitmann added.

Business trend by region

LANXESS increased sales in all regions on a portfolio- and currency-adjusted basis. There was an encouraging increase in sales in Asia-Pacific, supported by ongoing market growth in the region. Adjusted sales climbed by 25 percent, while the reported sales figure was down 6.3 percent year on year at EUR 281 million. This region’s share of LANXESS’s global sales increased from 17.5 percent to 18.3 percent. Double-digit growth rates were recorded in India, Japan and China.

In a positive economic environment, adjusted sales in Germany rose by 1.8 percent. The reported figure declined by 9.2 percent to EUR 373 million (Q1 2007: EUR 411 million). Germany’s share of Group sales edged upward from 24.0 to 24.3 percent.

In the EMEA region (Europe, Middle East and Africa, excluding Germany), LANXESS saw sales grow by 5.9 percent after adjusting for portfolio and currency effects. Growth was driven particularly by the western European markets, with sales rising by a double-digit percentage in Belgium and single-digit figures in France and Italy. Sales also increased in eastern Europe. Reported sales receded by 6.4 percent to EUR 552 million (Q1 2007: EUR 590 million). The EMEA region’s share of total sales rose from 34.5 percent in the first quarter of 2007 to 36.0 percent in the first three months of 2008.

Adjusted sales in the Americas region grew by 5.4 percent, with both North and Latin America posting single-digit growth rates. Reported sales fell by 19.8 percent to EUR 329 million (Q1 2007: EUR 410 million). The region’s share of Group sales moved back from 24.0 to 21.4 percent.

Business trend by segment

Sales in the Performance Polymers segment rose by 5.3 percent to EUR 693 million (Q1 2007: EUR 658 million). Adjusted sales rose by more than 12 percent. The significant increase in raw material costs was passed along in full to the market. The Polybutadiene Rubber, Technical Rubber Products and Semi-Crystalline Products business units all registered volume gains, while the Butyl Rubber business unit operated almost continuously at full capacity. The Polybutadiene Rubber business unit benefited from the additional capacities of the production line brought back on stream in 2007 in Orange, Texas. EBITDA pre exceptionals for the segment improved by 3.0 percent to EUR 104 million (Q1 2007: EUR 101 million). The EBITDA margin dipped by just 0.3 percentage points below the prior-year quarter, to 15.0 percent.

Sales in the Advanced Intermediates segment rose by a substantial 7.2 percent to EUR 329 million (Q1 2007: EUR 307 million). After adjusting for currency effects, business expanded by a double-digit percentage. The Basic Chemicals and Saltigo business units benefited from growing demand for agricultural intermediates. Saltigo’s sales to the pharmaceuticals industry rose slightly year on year. EBITDA pre exceptionals of the segment remained nearly steady year on year at EUR 56 million (Q1 2007: EUR 57 million). The segment’s EBITDA margin declined by 1.6 percentage points to 17.0 percent due to the adverse movement in exchange rates.

Sales in the Performance Chemicals segment dropped by 1.2 percent to EUR 495 million (Q1 2007: EUR 501 million) due to shifts in exchange rates. Adjusted for this effect, business gained 4.2 percent. The Rubber Chemicals business unit benefited from a good market environment particularly in the Asia-Pacific region and the withdrawal of some competitors from the market. The decline in volumes in the Inorganic Pigments business unit, which was the result of lower construction activity in North America, was more than offset by higher volumes in other business units in the segment. EBITDA pre exceptionals for the segment held steady at EUR 82 million. The corresponding margin rose by 0.2 percentage points to 16.6 percent.

Outlook for the full year

LANXESS assumes that global economic growth will continue to slow during 2008. The chemical economy, however, should remain stable overall, bolstered by robust demand in Asia-Pacific, Latin America and central and Eastern Europe. Prospects for the chemical industry in North America, however, are increasingly gloomy. This applies particularly to precursors for the construction and automotive sectors. However, customer industries specific to LANXESS – such as tires and agrochemicals – are expected to experience robust demand.

Further increases in raw material and energy costs need to be offset at global level. Prices for petrochemical raw materials are likely to remain high and volatile. The strength of the euro against other currencies, especially the U.S. dollar, will also affect business trends. LANXESS believes the euro is unlikely to depreciate against the dollar before the second half of this year at the earliest.

Based on these assumptions, the specialty chemicals group anticipates operational sales growth for the full year 2008, with EBITDA pre exceptionals expected to come in at over EUR 700 million. The acquisition of the Petroflex group, Brazil, should prove accretive to EBITDA pre exceptionals right from the second quarter.

The EUR 719 million EBITDA pre exceptionals reported for the full year 2007 included EUR 20 million in earnings from the Lustran Polymers activities prior to their divestment at the end of September 2007. “In light of our sound structures, heightened competitiveness and clear focus on a specialty chemicals portfolio, and given the robust demand we expect to see in Asia-Pacific, in parts of Europe and in Latin America, we’re optimistic for the full year 2008,” said Heitmann.

LANXESS is adhering to its target for 2008 of achieving an EBITDA margin in line with the industry average, having no business unit with an EBITDA margin below 5 percent, and maintaining its investment-grade rating.

Sourced From: Madison Public Relations

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