Weak tyre, automotive demand weighs on Lanxess in Q1
The earnings posted by chemical company Lanxess in the first quarter of 2013 were lower than the company expected, and it says the weak market environment in the tyre and automotive industries is particularly responsible for this.
First quarter sales sank 12 per cent to 2.1 billion euros, mainly due lower volumes and reduced selling prices. EBITDA pre-exceptionals declined 53 per cent year-on-year in the January to March quarter to 174 million euros, remaining in the 160 million to 180 million euro ‘corridor’ communicated by Lanxess in March, while operating result diminished due to scheduled one-time effects of about 30 million euros for the start-up of the company’s new butyl rubber plant in Singapore and the conversion to Keltan ACE technology at the EPDM rubber plant in Geleen, Netherlands. The group’s EBITDA margin fell from 15.5 per cent to 8.3 per cent, while net income receded 87 per cent year-on-year to 25 million euros. Earnings per share plummeted from 2.31 to 0.30 euros.
“We are not immune to a sharp drop in demand, but we are responding to it proactively as always,” stated Axel C. Heitmann, chairman of the company’s Board of Management.
At the start of the year, Lanxess initiated temporary facility shutdowns in the Performance Polymers segment. Now additional measures are planned in the company’s Performance Chemicals segment – a business associated with the tyre industry. “These measures are not merely designed to achieve short-term savings. We aim to raise the competitiveness of our international sites in this segment for the medium and long term,” added Heitmann. Lanxess also reported on 8 May that it will reduce its 2013 capital expenditure budget from the previously planned level of 650 to 700 million euros to 600 million euros.
As expected, Lanxess’ net financial liabilities rose in the first quarter compared with the end of 2012, namely by 21 per cent to roughly 1.8 billion euros, mainly as a result of the increase in working capital. Operating cash flow was negative at 160 million euros due to the weak operating result coupled with the higher working capital. “We currently see a rise in net debt in the first half of the year which is typical for us. Our financing position, however, is sound and remains secure for the long term. We are also exercising strict spending discipline,” commented Lanxess’ chief financial officer, Bernhard Düttmann.
Regional sales development
Sales declined by double-digit percentages in all regions except for Asia-Pacific, where sales remained roughly at the same level year-on-year, at 530 million euros. This region’s share of group sales rose to 25 per cent, from 23 per cent in the prior-year quarter.
EMEA (Europe excluding Germany, the Middle East and Africa) was the strongest region, accounting for approximately 30 per cent of sales compared to 29 per cent in the previous year. Business there declined 11 per cent to 623 million euros. Germany’s share of Group sales was nearly 18 per cent, compared with 17 per cent a year ago. Sales in Germany fell 11 per cent to 370 million euros.
Lanxess generated some 15 per cent of group sales in the North America region, compared with 18 per cent in the same period of last year. Sales there receded 23 per cent to 327 million euros. The chemical manufacturer says this decline is primarily due to the fact that raw materials were used for captive consumption instead of external sale. Sales in Latin America fell 19 per cent to 245 million euros. The region’s share of group declined from 13 per cent in the prior-year period to 12 per cent in January to March 2013.
In the five BRICS countries (Brazil, Russia, India, China and South Africa) sales dropped 11 per cent year-on-year to 492 million euros. These countries accounted for 24 per cent of group sales, compared with 23 per cent in the first quarter of 2012.
Segment business development
In the Performance Polymers segment, sales moved back by about 18 per cent to 1.1 billion euros. Here, a drop in selling prices as a result of lower raw material prices led to a negative price effect. In addition, volumes were down on account of lower demand from the automotive and tyre industries. EBITDA pre-exceptionals fell 56 per cent to 112 million euros. Earnings were diminished due to the abovementioned one-time effects.
The Advanced Intermediates segment saw stable development in light of the sound demand for agrochemicals. Sales edged up one per cent in the first quarter of 2013 to 433 million euros. Higher prices for raw materials were fully passed on to the market. Compared with the strong prior-year period, however, volumes moved back as a result of weak demand from the construction and paint industry. EBITDA pre-exceptionals rose by 1 million euros against the prior-year quarter to 71 million euros.
Sales in the Performance Chemicals segment decreased seven per cent to 520 million euros. Volumes declined as a result of weak demand from the construction industry due to the long winter and from the business units linked to the tyre industry. Selling prices were stable. EBITDA pre-exceptionals, at 51 million euros, was 32 million euros below the prior-period figure.
For the second quarter, Lanxess anticipates a slight improvement in business. “The weak demand from the tyre and automotive industries persists, but customer destocking is slowing down. We currently anticipate EBITDA pre-exceptionals in the second quarter to improve sequentially but to be below 220 million euros,” said Heitmann. A mid-double-digit million euro amount of exceptional charges will be incurred for the additional measures.
Heitmann added: “The market environment will remain weak and volatile with low visibility persisting. We nevertheless expect an economic improvement in the second half of this year. Asia, particularly China, will perform substantially better, whereas market conditions in Europe will remain difficult.” Lanxess predicts demand for agrochemicals to remain strong and anticipates a moderate recovery in the construction industry. The megatrends of mobility, agriculture, urbanisation and water remain intact.
The company now anticipates EBITDA pre-exceptionals of below 1 billion euros for full-year 2013 and confirms its mid-term EBITDA targets of 1.4 billion and 1.8 billion euros in 2014 and 2018, respectively.