Business performance of the LANXESS Group

  • Substantial and largely price-driven sales decline of 8.7%
  • All regions below prior-year level
  • EBITDA pre exceptionals down some 40% to €735 million
  • EBITDA margin pre exceptionals at 8.9%
  • Net loss of €159 million due especially to write-downs totaling €279 million, €257 million of which were recognized in the business units of the Performance Polymers and Performance Chemicals segments following impairment testing
Key Financial Data    
 
€ million 2012 2013 Change %
       
Sales 9,094 8,300 (8.7)
Gross profit 2,106 1,548 (26.5)
EBITDA pre exceptionals 1,223 735 (39.9)
EBITDA margin pre exceptionals 13.4% 8.9%
EBITDA 1,186 624 (47.4)
Operating result (EBIT) pre exceptionals 847 288 (66.0)
Operating result (EBIT) 808 (93) < (100)
EBIT margin 8.9% (1.1)%
Financial result (148) (146) 1.4
Income before income taxes 660 (239) < (100)
Net income 508 (159) < (100)
Earnings per share (€) 6.11 (1.91) < (100)
2012 figures restated

Sales and earnings

Group Sales
Graphic: Group Sales

In 2013, LANXESS Group sales declined by 8.7% from €9,094 million in the prior year to €8,300 million. An increase of 1.6% in sales generated by volume growth did not offset the impact of lower selling prices. After adjustment for negative currency effects and positive portfolio effects, operational sales dropped by 6.9%.

Effects on Sales
Graphic: Effects on Sales

Sales in our Performance Polymers segment decreased by a substantial 13.3% in 2013 and thus contributed in large part to LANXESS’s negative business performance. The dominant factor in this development was the significant decline in selling prices of 15.1%, driven primarily by decreasing raw material prices and the challenging competitive situation. This decline was partly offset by volume growth of 3.5%, especially in the second half of the year, which was facilitated by factors such as newly available capacities for high-performance rubber products and high-tech plastics. A negative currency effect resulted in a decrease of 2.0%, more than offsetting a positive portfolio effect of 0.3% from the acquisition of Bond-Laminates GmbH.

The Advanced Intermediates segment posted a slight sales decrease of 1.6%. Price increases canceled out the negative development of sales volumes, which were characterized by contrasting trends in the coatings market on the one hand and the agrochemicals market on the other hand. There was also a negative currency effect of 1.5%.

In our Performance Chemicals segment, sales declined by 3.2%. This was attributable above all to negative currency effects of 3.0%. Selling prices were mostly stable over the reporting period. Recovery in demand in the second half of the year raised volume sales to just below the prior-year level. There was a slightly positive portfolio effect from the acquisitions made in 2012 and 2013. These activities were assigned to the Rhein Chemie, Material Protection Products and Functional Chemicals business units.

Sales by Segment
 
€ million 2012 2013 Change % Proportion of Group sales %
         
Performance Polymers 5,176 4,486 (13.3) 54.1
Advanced Intermediates 1,674 1,647 (1.6) 19.8
Performance Chemicals 2,203 2,132 (3.2) 25.7
Reconciliation 41 35 (14.6) 0.4
  9,094 8,300 (8.7) 100.0
 

Sales declined in all regions, especially in North America and Latin America. The Performance Polymers segment was affected by this development in almost all markets in both absolute and relative terms. Business in the Asia-Pacific region proved comparatively robust, with sales declining by 2.5%.

Order book status

Most of our business is not subject to long-term agreements on fixed volumes or prices. Instead, our business is characterized by long-standing relationships with customers and revolving master agreements. Our activities are focused on demand-driven orders with relatively short lead times which do not provide a basis for forward-looking statements about our capacity utilization or volumes. Our business is managed primarily on the basis of regular Group-wide forecasts of the Group operating target. For additional information, please see “Company-specific lead indicators.”

Any disclosure of the Group’s order book status at a given reporting date therefore would not be indicative of the Group’s short- or medium-term earning power. For this reason, no such disclosure is made in this report.

Gross profit

The cost of sales decreased by 3.4% from the prior year to €6,752 million, which was lower in percentage terms than sales. Gross profit fell back by €558 million, or 26.5%, to €1,548 million. The gross profit margin fell accordingly, from 23.2% to 18.7%. One main reason for this development was the decline in selling prices, which exceeded the decrease in procurement prices for raw materials, especially butadiene. Moreover, production costs increased because of inflation and newly available capacities, mainly in the Performance Polymers segment. The gross profit margin was additionally impacted by net negative currency effects. In the second half of the year, demand started to recover and made a net positive contribution to gross profit. This was slightly underpinned by portfolio effects from businesses acquired in 2012 and 2013. Capacity utilization, at roughly 78%, was 3 percentage points below the prior-year level because the positive demand trend which developed in the second half of the year was served in part from inventories. The resulting idle capacity costs adversely affected earnings.

EBITDA and operating result (EBIT)

Selling expenses declined by €8 million to €755 million in 2013, mainly due to lower personnel expenses.

Research and development costs were down 3.1%, to €186 million. The number of employees in R&D grew to 931 as of December 31, 2013, up substantially from 843 on December 31, 2012.

General administrative expenses decreased from €339 million to €301 million in 2013, mainly due to lower personnel expenses. At 3.6%, the ratio of general administrative expenses to sales was slightly below the prior-year figure of 3.7%.

The other operating result, which is the balance between other operating income and expenses, decreased substantially by €395 million to minus €399 million. Adjusted for exceptional items, the other operating result came to minus €18 million, which was €53 million lower than in 2012. Net exceptional charges of €381 million were incurred in the reporting year, €111 million of which impacted EBITDA and mainly related to the Advance program for improving competitiveness across all segments as well as to expenses associated with the design and implementation of IT projects. The exceptional charges of €270 million that had no impact on EBITDA were primarily due to impairment charges recognized in the Keltan Elastomers, High Performance Elastomers and Rubber Chemicals business units. In the prior year, net exceptional items amounted to €39 million, €37 million of which impacted EBITDA. Exceptional charges related primarily to reorganization projects and portfolio measures as well as expenses for improvements to the IT infrastructure.

EBITDA Pre Exceptionals by Segment
 
€ million 2012 2013 Change %
       
Performance Polymers 817 389 (52.4)
Advanced Intermediates 305 286 (6.2)
Performance Chemicals 281 231 (17.8)
Reconciliation (180) (171) 5.0
  1,223 735 (39.9)
2012 figures restated

Our operating result before depreciation and amortization (EBITDA) pre exceptionals decreased by €488 million, or 39.9%, to €735 million in 2013, from €1,223 million the year before. This decline was primarily due to the fact that selling prices fell more than raw material prices and to the largely production-related increase in costs. Negative currency effects also had a downward impact. Positive volume trends and slight portfolio effects were not sufficient to offset the decline. The Group’s EBITDA margin pre exceptionals fell to 8.9% from 13.4% in 2012.

EBITDA and EBITDA Margin Pre Exceptionals
Graphic: EBITDA and EBITDA Margin Pre Exceptionals

EBITDA pre exceptionals in our Performance Polymers segment receded by €428 million, or 52.4%, against the prior year. The positive volume trend could not compensate for the lower selling prices. EBITDA pre exceptionals was held back by lower selling prices, which declined by more than the amount of the decrease in raw material prices on account of the increasing competitive pressure. Inventory effects, exchange rate developments and start-up costs additionally had a negative impact. The Advanced Intermediates segment posted EBITDA pre exceptionals of €286 million, a decline of 6.2% from €305 million in the prior-year period. While raw material and selling price effects were positive, the increase in production costs and exchange rate trends in particular had a negative impact. The Performance Chemicals segment posted EBITDA pre exceptionals of €231 million, a decrease of €50 million or 17.8%. This was primarily due to increased production costs, declining volumes and net negative price effects. EBITDA pre exceptionals in the reconciliation improved by €9 million to minus €171 million.

The reconciliation of EBITDA pre exceptionals to the operating result (EBIT) was as follows:

Reconciliation of EBITDA Pre Exceptionals to Operating Result (EBIT)
 
€ million 2012 2013 Change %
       
EBITDA pre exceptionals 1,223 735 (39.9)
Depreciation and amortization (378) (717) (89.7)
Exceptional items in EBITDA (37) (111) < (100)
Operating result (EBIT) 808 (93) < (100)
2012 figures restated

The operating result (EBIT) dropped very substantially from €808 million to minus €93 million in fiscal 2013.

Reconciliation of EBIT to Net Income
 
€ million 2012 2013 Change %
       
Operating result (EBIT) 808 (93) < (100)
Income from investments accounted for using the equity method 1 0 (100.0)
Net interest expense (96) (106) (10.4)
Other financial income and expense (53) (40) 24.5
Financial result (148) (146) 1.4
Income before income taxes 660 (239) < (100)
Income taxes (151) 71 > 100
Income after income taxes 509 (168) < (100)
of which:      
attributable to non-controlling interests 1 (9) < (100)
attributable to LANXESS AG stockholders (net income) 508 (159) < (100)
2012 figures restated

Financial result

The financial result came in at minus €146 million in fiscal 2013, compared with minus €148 million for the prior year. The pro-rated income from investments accounted for using the equity method, primarily Currenta GmbH & Co. OHG, Leverkusen, Germany, came to €0 million, against €1 million the previous year. Interest expense was up slightly year on year. The capitalization of a portion of borrowing costs, some of which related to the construction of the new butyl rubber plant in Singapore, had a positive effect on the financial result. The amount capitalized was lower than the previous year and was not sufficient to offset the decline in interest income. In total, net interest expense was €10 million higher than in the previous year at €106 million. The balance of other financial income and expense items also included a value adjustment of €6 million in the carrying amount of the interest in BioAmber Inc., Minneapolis, United States, in light of that company’s share price performance. For the same reason, a value adjustment of €18 million was made in the carrying amount of the interest in Gevo Inc., Englewood, United States, in 2012.

Income before income taxes

Due to the negative EBIT, income before income taxes declined by €899 million to minus €239 million.

Income taxes

In fiscal 2013, the Group had tax income of €71 million, compared with tax expense of €151 million the year before. The Group’s tax rate was 29.7%, after 22.9% in the previous year.

Net income/Earnings per share/Earnings per share pre exceptionals

The LANXESS Group posted a net loss of €159 million, a decline of €667 million year on year. A loss of €9 million was attributable to non-controlling interests.

With the number of LANXESS shares in circulation unchanged, earnings per share dropped very sharply from €6.11 in 2012 to minus €1.91.

Earnings per share pre exceptionals were €1.37, against €6.44 the year before. This value was calculated from the earnings per share adjusted for exceptional items and attributable tax effects. In the reporting year, exceptional items came to €381 million after €39 million in 2012.