News focus: Lanxess sticks to profit targets

05 April 2013 09:32  [Source: ICB]

Despite warning that Q1 earnings will be far lower than last year, the company is maintaining ambitious 2014-2018 goals

Germany-based LANXESS is "cautiously optimistic" for the full year 2013 and is sticking to its 2014 and 2018 targets despite current poor demand conditions and a first quarter (Q1) profit warning, its chairman of the board of management said.

The specialty chemicals group will benefit from stronger growth in China, an end to customer destocking, new product releases, and capacity expansions during 2013, together with flexible asset management, according to Axel Heitmann.

Speaking in March on the sidelines of the company's 2012 financial results conference in Dusseldorf, Heitmann said: "We face some weakness from the automobile industry in Europe. Growth in China has become a bit slower but it is expected that after the change in administration, business will pick up. This has been confirmed by the new leadership and this will impact demand."

He added: "Our customers are also telling us they expect a pick-up in the second half of the year. Also, destocking will have definitely come to an end as we move forward in Q1. We believe the crisis in Europe will not get worse - we are through the worst of it."

Heitmann said he expects full year earnings before interest, tax, depreciation and amortization (EBITDA) not to match 2012's record of €1.23bn ($1.53bn).

The company is sticking to its 2014 target of €1.4bn and €1.8bn for 2018.

EBITDA in 2013 will also benefit from a number of growth projects which will introduce new products and increase the company's footprint in emerging markets, said Heitmann.

In Singapore, a butyl rubber plant is under construction and will start production in the third quarter of the year as planned.

Heitmann highlighted the company's flexible asset management programme: LANXESS recently said it would temporarily close a butyl rubber plant in Belgium and an ethylene-propylene-diene monomer (EPDM) facility in Texas, the US, because of poor market conditions. "When demand is slowing we're not pushing for volume or reduced pricing. We respond by reducing output or shutting plants and this maintains our pricing power and mitigates costs."

Heitmann also highlighted the strength of the company's growing agrochemicals and specialty chemicals businesses. He said: "These are the elements: The macroeconomic situation is getting better plus we have new product initiatives with a strong focus on technology, competitiveness and emerging markets.

He added: "All this combined with our flexible asset management scheme. These give us the confidence to say 2013 will be a good year for EBITDA and in preparing for 2014. I'm cautiously optimistic for 2013. We will not beat 2012 but 2013 will be a good year for LANXESS."

Q1 profit warning driven by poor demand for automobiles
Germany's LANXESS expects poor first-quarter demand for automotive rubber to only marginally improve in the second quarter.

In March, LANXESS warned that first-quarter earnings before interest, tax, depreciation and amortization (EBITDA) are expected to plummet to €160-180m compared with €369m a year ago. It blamed poor demand, particularly from the European automotive rubber market.

Chairman of the board of management Axel Heitmann said that the first quarter has been slow, with an operating level similar to the fourth quarter of 2012. This is a change to the company's usual seasonal demand pattern.

Heitmann said: "Typically we have very strong first and second quarters with around 60% of our EBITDA being generated in the first half and 40% in the second half. This year has been different."

He said that the beginning of the year typically brings a huge surge in demand from the automotive and tyre industry. "But customer sentiment is down. The negative news flow impacts spending behaviour. Even after the Chinese New Year we did not see a significant increase in demand, particularly in Europe," he said.

He added: "That's why Q1 [first-quarter] demand is [poor] and we expect only a slight increase for Q2 [second quarter 2013]. However, we expect business to pick up in the second half."

LANXESS expects automotive production to fall by 8.5% year on year in western Europe during 2013, with auto tyre production sinking by 7.5% over the same period.

Heitmann added that EU new car registrations in February dropped by 10.5% from the same month a year before, to their lowest level in 20 years. New car sales in January were weak, while sales of original equipment tyres in February were 13% below last year.

However, Heitmann is more bullish about the global situation. A 10% increase in Chinese auto production should lead to a hike of 2.5% in global tyre manufacture for 2013, with some forecasts expanding that figure to 5%.

Tyre production in the Asia Pacific region is expected to grow by around 7.5% per year through to 2017, with a global figure of 5% annual growth, according to LANXESS estimates.

By: Will Beacham
+44 20 8652 3214

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