UpdateLANXESS looks at cost savings as weak demand hits net profit

08 May 2013 10:16  [Source: ICIS news]

(adds plans to cut costs, comment from chairman)

By Franco Capaldo

LANXESSLONDON (ICIS)--Germany-based specialty chemicals producer LANXESS is planning to implement cost-saving measures in its Performance Chemicals segment after posting lower earnings in the first quarter of 2013, it said on Wednesday.

The company saw its total net profit in the first-quarter of 2013 fall 87% year on year to €25m ($33m) because of weak demand.

Axel Heitmann, chairman of the board of management, said in order to counter a weak market environment and improve competitiveness LANXESS plans further cost-cutting in the group’s Performance Chemicals segment on top of already announced temporary facility shutdowns in its Performance Polymers segment.

In March, LANXESS said it would temporarily shut down its butyl rubber plant in Belgium and its ethylene-propylene-diene monomer (EPDM) production in Texas, the US, to counter soft demand.

Details regarding the additional measures were not disclosed.

“We are not immune to a sharp drop in demand, but we are responding to it proactively as always,” said Heitmann.

“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," he added.

LANXESS also said it is reducing its capital expenditure budget for 2013 to €600m from the previously planned level of €650m-700m.

The group’s net financial liabilities rose by 21% in the first quarter compared with the end of 2012, to around €1.8bn mainly as a result of the increase in working capital, it added.

“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,” said LANXESS CFO Bernhard Duettmann.

On Wednesday, LANXESS also reported that first-quarter sales were down by 12% year on year to €2.10bn, mainly due to lower volumes and a fall in selling prices.

Earnings before interest, tax, depreciation and amortisation (EBITDA) pre exceptionals fell 53% against the prior-year period to €174m. The group’s EBITDA margin fell from 15.5% in the first quarter of 2012 to 8.3% in the same period in 2013.

“The operating result was diminished by scheduled one-time effects of about €30m for the start-up of the new butyl rubber plant in Singapore and the conversion to Keltan ACE [Advanced Catalyst Elastomers] technology at the EPDM [ethylene-propylene-diene monomer] rubber plant in Geleen, the Netherlands,” LANXESS said.

The company said its agrochemicals business as well its position in the growth region of Asia proved to be stabilising factors in the first quarter.

In the group’s Performance Polymers segment, first-quarter sales fell 18% year on year to €1.1bn as a drop in selling prices due to lower raw material prices led to a negative price effect, while volumes were down because of a fall in demand from the automotive and tyre industries. Segment EBITDA pre exceptionals fell 56% to €112m.

In its Advanced Intermediates segment, first-quarter sales rose 1% to €433m as higher prices for raw materials were passed on fully to the market. Segment EBITDA pre exceptionals rose by €1m against the prior-year quarter to €71m, the company said.

LANXESS’ Performance Chemicals segment saw sales decrease 7% to €520m as volumes “declined as a result of the weak demand from the construction industry due to the long winter and from the business units linked to the tyre industry”. Its EBITDA pre exceptionals totalled €51m, down €32m from the prior-period figure.

Regionally, 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 €530m, LANXESS said.

Sales in the EMEA (Europe excluding Germany, Middle East, Africa) region, which accounts for approximately 30% of sales, declined by 11% to €623m. Sales in Germany during the quarter fell by 11% to €370m.

In the North America region, sales fell 23% to €327m, while in Latin America, sales were down 19% to €245m. LANXESS said sales in the five BRICS countries (Brazil, Russia, India, China and South Africa) dropped by 11% year on year to €492m.

For the second quarter, LANXESS said it expects 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 €220m,” said Heitmann.

A mid-double-digit million euro amount of exceptional charges will be incurred for the additional cost-saving measures, LANXESS added.

Heitmann said: “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.”

($1 = €0.76)

By: Franco Capaldo
+44 (0)20 8652 3214

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