UpdateLANXESS predicts weaker 2013 as global demand stays sluggish

22 March 2013 11:24  [Source: ICIS news]

(updates with regional and segment data, outlook, analyst commentary)

LANXESSLONDON (ICIS)--Germany-based specialty chemicals manufacturer LANXESS predicted on Thursday that its earnings for 2013 are likely to be below the levels seen in 2012, with demand remaining depressed during the first quarter of the year.

“Based on the weak business development in the first quarter, LANXESS currently expects that the EBITDA [earnings before interest, taxes, depreciation and amortisation] pre exceptionals in the business year 2013 will not reach the record level of the previous year,” the company said in an earnings update.

The company confirmed that its net income for 2012 had increased 2% year on year to €514m ($668m), driven by strong emerging markets sales growth and solid agrochemicals demand.

The company posted a 7% increase in EBITDA before exceptional items to €1.23bn, while sales increased by 4% to €9.09bn.

LANXESSperformance in the Asia Pacific region, which it described as a “stabilising” factor in 2012, included a 10% sales increase to €2.2bn, including sales of over €1bn in the China, Hong Kong and Taiwan region.

North American sales increased by more than 10% to €1.6bn, while Europe Middle East and Africa (EMEA) region sales fell by slightly under 1% to €2.5bn. LANXESS excludes Germany from its EMEA sales figures, and noted that sales there were up slightly to €1.6bn.

Sales grew across each of the company’s three core business segments. Performance polymers – LANXESS’s most significant division by sales volume – posted a 2% sales increase during the year to €5.2bn, despite prevailing weakness in the automotive and tyre manufacture end markets.

Sales for the division were buoyed by positive portfolio effects from elastomer specialist Keltan, which the company acquired in 2011.

Advanced intermediates sales grew by 8% in 2012 to €1.7bn year on year, on the back of strong agrochemicals demand, while performance chemicals sales increased by 3% year on year to €2.2bn, due to the performance of acquisitions made by the Material Protection Products, Functional Chemicals and Rhein Chemie business units.

However, the company noted that global demand had been lower in the second half of 2012, a trend which has continued into 2013, leading it to warn that EBITDA before exceptional items would be “significantly” lower than the first quarter of 2012.

LANXESS posted EBITDA of €369m in the first quarter of 2012, its strongest quarter on record, whereas current guidance for this quarter stands at between €160m and €180m. This figure factors in the €20m start-up costs of the company’s new butyl rubber plant in Singapore.

The projected weaker first-quarter performance means that EBITDA for the year is likely to be below 2012 levels, according to LANXESS, although it maintained its predictions of €1.4bn EBITDA before exceptionals in 2014.

The company said: “The megatrend of mobility remains intact. The company believes the agrochemical end markets will continue to develop positively, particularly in Asia. LANXESS also expects a moderate recovery in the construction industry, with growth occurring mainly in Asia and Latin America.”

US-based investment bank JP Morgan Cazenove described LANXESS’s first-quarter earnings guidance as “disappointing”, predicting that the forecast €160-180m EBITDA for the period would lead to a downgrade in full-year earnings forecasts for the company.

“[The first-quarter forecast is] a sharp reminder how poor market conditions in European tire and auto, ramp up costs and adverse currencies will result in a very weak start to the year. As a result, we believe full-year Bloomberg consensus will have to decline from current levels of €1.2bn (possibly below €1bn),” JP Morgan said in an investor note.

LANXESS shares were trading down 8.18% as of 10:35GMT, falling to €56.90 per share from yesterday’s closing price of €62 per share.

($1 = €0.77)

By: Tom Brown
+44 208 652 3214

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