07.05.2009

LANXESS reacts to slump in demand with package of measures

 

• First-quarter global sales down 31.3 percent to EUR 1,054 million
• China sales down 27 percent to EUR 84.8 million
• EBITDA pre exceptionals EUR 66 million (Q1 2008: EUR 220 million)
• Strong cash flow – lower net debt
• Outlook: EBITDA pre exceptionals EUR 100-120 million in second quarter

Leverkusen/Shanghai – Due to the extremely difficult market environment worldwide, specialty chemicals group LANXESS AG recorded a significant fall in demand in the first quarter of 2009. However, the company posted a positive operating result thanks in part to the package of measures named “Challenge09”. LANXESS expects business to pick up in the second quarter as demand recovers and the benefits of “Challenge09” are increasingly felt.

 

Group sales dropped by 31.3 percent year on year to EUR 1,054 million (Q1 2008: EUR 1,535 million). After adjusting for portfolio changes and positive currency effects, sales fell by 37.9 percent against the prior-year period. The decline in volumes alone came to 36.1 percent. EBITDA pre exceptionals fell by 70 percent to EUR 66 million (Q1 2008: EUR 220 million), while the EBITDA margin moved back to 6.3 percent compared with 14.3 percent for the same period of last year. LANXESS again had to make substantial inventory write-downs amounting to EUR 40 million due to the continuing decline in raw material prices.

The Group reported a net loss of EUR 14 million for the first quarter against net income of EUR 104 million for the prior-year period. The operating cash flow climbed by EUR 77 million to EUR 122 million, allowing a substantial reduction in net financial liabilities from EUR 864 million at the end of 2008 to EUR 744 million on March 31, 2009.

 

“All business units were impacted by the global recession,” said Axel C. Heitmann, Chairman of the LANXESS Board of Management. “The drop in demand of more than 35 percent reached historic proportions. But by immediately launching our extensive ‘Challenge09’ package of global measures, we succeeded in achieving nearly one-third of the very high earnings level seen in the prior-year period.”

 

“Challenge09” comprises a combination of numerous technical measures as well as reductions in employee compensation and fewer working hours. In this way, LANXESS aims to cut costs by about EUR 250 million this year and in 2010. A core feature of the global package of measures is flexible facilities management. Because LANXESS is organized in small units, has a global network of facilities and focuses on products that can be flexibly manufactured, it can respond quickly to fluctuations in demand. This in turn allows the company to maintain its “price before volume” strategy. In addition, capital expenditures of EUR 100 million are being delayed until later by postponing major projects scheduled for 2009.

 

“The flexible management of our production processes worldwide as well as the additional cost saving measures enable us to reduce the break-even point by at least 10 percentage points,” Heitmann explained.

 

LANXESS Performance in Q1 in Greater China

LANXESS Greater China sales dropped in the first quarter of 2009 from EUR116.4 million by about 27 percent  to EUR 84.8 million, compared to the same period of 2008.  Adjusted for exchange-rate effects and divested or newly integrated businesses, it receded by nearly 36 percent.

 

Most business units were strongly hit by the slump in the market at the beginning of the year. However, first signs of recovery could be seen already in February, and sales across segments picked up considerably in March and April.  “Even though it is still too early to say that China's economy had bottomed out, we see a positive trend for rising demand in most of our businesses,” says Martin Kraemer, CEO of LANXESS Greater China.

 

“Our stabilized earnings in this economically challenging environment are still promising. They are the direct result of our rapid action to reduce costs and tightly manage operations,” Kraemer adds.

 

"LANXESS will continuously battle the challenging economic situation in 2009 to ensure we have the necessary resources to implement our strategy and focus on our key initiatives," Kraemer comments.  "While we need to meet the challenges of today, we are firmly focused on positioning ourselves for the future and the economic recovery to come."

 

Outlook

 

With conditions in customer industries still difficult to predict, it remains impossible for LANXESS to give a detailed outlook for the full year 2009. Sales and earnings will be below last year’s level.

LANXESS expects to achieve EBITDA pre exceptionals of between EUR 100 and 120 million in the second quarter. “We anticipate a significant improvement compared to the first quarter, but of course earnings will still be below the second quarter of last year,” said Heitmann. “Apart from the positive effects of ‘Challenge09’, we believe that the inventory reductions by our customers are now more or less complete, and we expect demand to pick up again in Asia,” he explained. LANXESS also expects to take only another EUR 10 million in inventory write-downs.

 

Heitmann added that LANXESS is in a sound financial position and currently has liquidity reserves of well over EUR 2 billion.

 

Q1 2009 Key Data
(EUR million, changes in percent, *2008 figure restated)

 

                                         Q1 2008     Q1 2009     Change
Sales                                1,535          1,054          -31.3
EBITDA pre exceptionals 220             66               -70
EBITDA margin pre

exceptionals (percent)     14.3             6.3 
EBIT pre exceptionals      159             3                 -98.1
Net income (loss)*           104             -14