LANXESS predicts stronger Q1 but Belgium strike to weigh on results

LONDON (ICIS)–LANXESS is predicting year-on-year growth for the first quarter of 2014 after announcing on Thursday a €204m net loss for the closing three months of last year, but noted that a strike at a Belgian plant is likely to weigh on earnings.

Taking place at the company’s Zwijndrecht butyl rubber plant, the strike has left production at a standstill for around three weeks, LANXESS said, and is likely to impact earnings growth for the first quarter of the year.

The company maintained that earnings before interest, taxes, depreciation and amortisation (EBITDA) excluding special items for the quarter would be €200m, 15% above the €174m posted for the first quarter of 2013.

The company’s fourth-quarter 2013 net loss relates to €257m impairment charges announced earlier this year related to the reassessment of the earnings potential of its Keltan Elastomers and High Performance Elastomers unit and the performance chemicals division’s rubber chemicals unit.

€30m in exceptional charges related to the company’s efficiency programme also weighed on earnings for the closing quarter of the year, LANXESS said.

Fourth-quarter EBITDA before exceptional items fell 27% year on year to €176m, and sales fell 5.1% to €2.01bn. The fall in sales was “primarily due to lower selling prices in the Performance Polymers segment resulting from declining raw material prices and the challenging competitive situation,” the company said.

Full-year sales for 2013 fell 9% year on year to €8.3bn, while EBITDA pre exceptionals slumped 40% to €735m, and net income swung to a €159m loss.

“Behind us lies a challenging year,” said LANXESS CFO Bernhard Duettmann. “Negative effects were the volatile raw material prices and increasing competition, especially in the synthetic rubber business.”

LANXESS’ advanced intermediate and performance chemicals divisions both recorded modest sales declines in 2013 compared to 2012, but performance polymers sales – which represented 54% of the company’s full-year sales – declined by 13% to around €4.5bn on the back of lower and volatile prices for raw materials, particularly butadiene.

Currency effects also weighed on division earnings, contributing to a 52% drop in performance polymers EBITDA pre exceptionals to €389m.

Advanced intermediates sales were slightly below 2012 levels at €1.6bn and EBITDA pre exceptionals fell 6% to €286m as an increase in selling prices broadly compensated for a decline in volumes. Demand was particularly stable from the agrochemicals business, LANXESS added.

Performance chemicals sales fell 3% year on year to €2.1bn while EBITDA pre exceptionals fell 18% to €231m, due to higher production costs and raw materials prices, coupled with lower volumes and prices and exchange rate issues.

Sales fell sharply in the Americas, dropping 17% in North America to €1.3bn and almost 19% in Latin America to €1bn. Sales in the Asia Pacific region fell 3% year on year to €2.1bn, and by 5% in the Europe, Middle East and Africa (EMEA) region to €2.4bn, excluding the company’s home market of Germany. German sales were down 8% in 2013 at €1.5bn.

The company is projecting a slight improvement in EBITDA before special items in 2014 on the back of fewer one-time items, but projects that market conditions for synthetic rubber will remain challenging and exchange rates will remain volatile.

Capital expenditures this year are forecast to be around 2013 levels, to fund the construction of a performance butadiene rubber facility in Singapore and an ethylene-propylene-diene monomer rubber plant in China, expected on stream in 2015. The company’s planned Antwerp polyamides production facility is expected to be running by the third quarter of 2014.

Capital expenditure levels should fall next year, and be used mostly to expand and maintain existing facilities, the company added.