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Business performance of the LANXESS Group

  • Slight sales growth of 3.6%, largely due to currency and portfolio effects with offsetting volume effect
  • Substantial sales growth in North America and Asia-Pacific regions
  • EBITDA pre exceptionals up 6.9% to €1,225 million
  • EBITDA margin pre exceptionals up to 13.5% from 13.1% the previous year
  • Net income of €514 million slightly above prior-year level
  • Earnings per share of €6.18, up from €6.08
  • Statement of financial position and financing structure still solid
  • Net debt ratio improves from 1.3 to 1.2
Key Financial Data    
       
€ million 2011 2012 Change %
       
Sales 8,775 9,094 3.6
Gross profit 2,010 2,108 4.9
EBITDA pre exceptionals 1,146 1,225 6.9
EBITDA margin pre exceptionals 13.1% 13.5%
EBITDA 1,101 1,188 7.9
Operating result (EBIT) pre exceptionals 826 849 2.8
Operating result (EBIT) 776 810 4.4
EBIT margin 8.8% 8.9%
Financial result (121) (141) (16.5)
Income before income taxes 655 669 2.1
Net income 506 514 1.6
Earnings per share (€) 6.08 6.18 1.6
 

Sales and earnings

Chart: Group Sales
Grafik: Konzernumsatz

LANXESS Group sales rose by 3.6% from €8,775 million in the prior year to €9,094 million. The course of business was shaped by a portfolio effect of 2.6% relating, in particular, to the acquisition of the Keltan EPDM business in 2011 as well as by positive currency effects of 3.9% resulting mostly from movement in the U.S. dollar. Declining volumes, down 3.5% from the strong prior-year level, had an offsetting effect. Selling prices were raised by a slight 0.6% over the prior year.

Effects on Sales
Chart: Effects on Sales

Sales in our Performance Polymers segment expanded by 2.3% in the reporting year. Alongside the favorable movement in exchange rates, this was due particularly to the tangible contribution to sales by the Keltan EPDM business acquired from DSM in May 2011. The two effects offset a mid-single-digit percentage drop in volumes. Selling prices in this segment remained at the prior-year level.

The Advanced Intermediates segment posted a sales increase of 8.3%, largely resulting from the increase in volumes attributable to the continued strong demand for agrochemicals. High purchase prices for raw materials were offset by selling price adjustments. This, as well as the positive exchange rate trend, contributed to the gratifying business performance.

Our Performance Chemicals segment also grew sales, achieving an increase of 3.4% on the previous year. Lower volumes were offset by positive currency effects and a slight adjustment in selling prices. In addition, there was a positive portfolio effect from the acquisitions made in 2011 and 2012. These activities were assigned to the Rhein Chemie, Material Protection Products and Functional Chemicals business units.

Sales by Segment
         
€ million 2011 2012 Change % Proportion of Group sales %
         
Performance Polymers 5,059 5,176 2.3 56.9
Advanced Intermediates 1,545 1,674 8.3 18.4
Performance Chemicals 2,130 2,203 3.4 24.2
Reconciliation 41 41 0.0 0.5
  8,775 9,094 3.6 100.0
 

We grew sales by around 10% in both the North America and Asia-Pacific regions. The Performance Chemicals segment was the main growth driver in the North American market in both absolute and relative terms. Business in the Asia-Pacific region was still dominated by the Performance Polymers segment, which posted sales growth in the low-double-digit percentage range. Sales in the other regions were essentially level with the previous year.

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 Group operating targets. 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 did not rise as steeply as sales, increasing by 3.3% from the prior year to €6,986 million. Gross profit advanced by €98 million to €2,108 million. The gross profit margin improved slightly, up 0.3% to 23.2%. The softer demand led to a corresponding drop in volumes. This was offset by a significant positive net effect from exchange rates as well as portfolio effects from the prior-year acquisitions, including, in particular, the Keltan EPDM business. Changes in raw material prices were passed on to the market at Group level, which had a positive net effect on gross profit. There was a deflationary effect on the price of butadiene, in particular, over the course of the year, which contrasted with price increases, some substantial, for nearly all of our other strategic raw materials, including isobutylene, benzene, toluene and cyclohexane. Capacity utilization, at roughly 81%, was 5 percentage points below the level for 2011 due to the decline in demand over the course of the year and the associated adjustments to inventory management. The resulting idle capacity costs adversely affected earnings.

EBITDA and operating result (EBIT)

Selling expenses rose by €31 million to €763 million in 2012, mainly due to portfolio and currency effects. The ratio of selling expenses to sales edged up from 8.3% to 8.4%.

Research and development costs increased by 33.3% to €192 million, underscoring the continued expansion of research activities as part of the LANXESS Technology Initiative. As a percentage of sales, they were higher than the prior-year level of 1.6%, at 2.1%. The number of employees in R&D grew to 843 as of December 31, 2012, up substantially from 731 on December 31, 2011.

General administrative expenses climbed from €325 million to €339 million in 2012. Reasons for this included portfolio effects from acquisitions made in the past. Their share in sales was 3.7%, which was unchanged from the prior year.

The other operating result, which is the balance between other operating income and expenses, improved by €29 million to minus €4 million. Adjusted for exceptional items, the other operating result would have been €18 million higher. This was partly due to the absence of one-off expenses from the previous year. The net exceptional charges of €39 million incurred in the reporting year, €37 million of which impacted EBITDA, related to reorganization projects and portfolio measures as well as expenses associated with improvements to the IT infrastructure. In the prior year, exceptional charges amounted to €50 million, €45 million of which impacted EBITDA. These were also associated primarily with restructuring and portfolio measures.

EBITDA Pre Exceptionals by Segment
       
€ million 2011 2012 Change %
       
Performance Polymers 768 817 6.4
Advanced Intermediates 264 305 15.5
Performance Chemicals 289 281 (2.8)
Reconciliation (175) (178) (1.7)
  1,146 1,225 6.9
 

We increased our operating result before depreciation and amortization (EBITDA) pre exceptionals by €79 million, or 6.9%, to €1,225 million in 2012, from €1,146 million the year before. This improvement was primarily due to positive exchange rate effects, selling price adjustments made in response to raw material costs, and portfolio effects, especially from the acquisition of the Keltan EPDM business. These effects outweighed the negative effects, particularly from lower demand. The Group’s EBITDA margin pre exceptionals improved from 13.1% to 13.5%.

EBITDA and EBITDA Margin Pre Exceptionals
Chart: EBITDA and EBITDA Margin Pre Exceptionals

EBITDA pre exceptionals in our Performance Polymers segment grew by 6.4% against the previous year. Positive portfolio and currency effects more than compensated for the decrease in volumes. The positive portfolio effect from the acquisition of the Keltan EPDM business in May 2011 also offset further cost increases, for example in production. Earnings rose by a substantial 15.5% in the Advanced Intermediates segment due largely to the growth in volumes. In addition, higher prices for raw materials were passed on to the market in full. By contrast, the Performance Chemicals segment posted a decrease in EBITDA pre exceptionals of 2.8%. A slight increase in raw material prices was offset by corresponding selling price adjustments. The negative earnings impact of lower sales volumes was neutralized by positive currency changes of a comparable magnitude. Taken together, however, these effects and a portfolio effect were not sufficient to fully offset the segment’s higher costs in areas like production and energies, with the result that segment earnings were below the prior-year level. The slight decline in EBITDA pre exceptionals reported in the reconciliation was due in part to an increase in research expenditure from the expansion of centrally led cross-segment research activities and to a slight increase in personnel expenses.

The operating result (EBIT) improved tangibly in the reporting year, from €776 million to €810 million.

Reconciliation of EBIT to Net Income
       
€ million 2011 2012 Change %
       
Operating result (EBIT) 776 810 4.4
Income from investments accounted for using the equity method 7 1 (85.7)
Net interest expense (93) (96) (3.2)
Other financial income and expenses – net (35) (46) (31.4)
Financial result (121) (141) (16.5)
Income before income taxes 655 669 2.1
Income taxes (148) (154) (4.1)
Income after income taxes 507 515 1.6
of which:      
attributable to non-controlling interests 1 1 0.0
attributable to LANXESS AG stockholders (net income) 506 514 1.6
 

Financial result

The financial result came in at minus €141 million in fiscal 2012, compared with minus €121 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 €1 million, against €7 million the previous year. Interest expense was nearly level year on year. The capitalization of a portion of borrowing costs, mainly relating to the construction of the new butyl rubber plant in Singapore, had a positive effect on the financial result. The amount capitalized was higher than the previous year and offset the slight decline in interest income. In total, net interest expense was €3 million higher than in the previous year at €96 million. The balance of other financial income and expense items was impacted by a value adjustment of €18 million of the carrying amount of the interest in Gevo Inc., Englewood, United States, in light of that company’s share price performance. This figure included the accumulated losses of €10 million previously reported in other comprehensive income that were removed from equity and reclassified to the financial result during the reporting year.

Income before income taxes

Due to the positive EBIT trend, income before income taxes rose by €14 million to €669 million.

Income taxes

In fiscal 2012, the Group had tax expense of €154 million, compared with €148 million the year before. The Group’s tax rate was 23.0%, after 22.6% in the previous year.

Net income, earnings per share

The LANXESS Group’s net income increased by €8 million year on year to €514 million. As in the previous year, income of €1 million was attributable to non-controlling interests.

With the number of LANXESS shares in circulation unchanged, earnings per share increased by €0.10, or 1.6%, to €6.18, compared with €6.08 in 2011.

Service

Key Figure Analyser