LANXESS increase earnings and quadruples dividend12 March 2008
LANXESS AG significantly improved their earnings in 2007. EBITDA pre exceptionals rose by 6.5% to E719 million (2006: E675 million), close to the top end of the earnings guidance range of E700-E720 million. The EBITDA margin pre exceptionals moved ahead to 10.9%, compared to 9.7% in the previous year. ‘This positive earnings performance shows that LANXESS hasdefinitively achieved the turnaround. Last year we came even closer to the profitability level of our competitors', said LANXESS AG board of management chairman Axel C Heitmann.
Sales for 2007 came in at E6.61 billion, down 4.8% from the prior-year figure of E6.94 billion. After adjusting for currency and portfolio effects of 9.8%, however, sales growth was 5%.
The decline in sales resulted partly from the divestment of the Lustran polymers business unit. The same applies to the drop in Group net income from E197 million in 2006 to E112 million last year, which was due primarily to the exceptional charges related to this divestment. ‘We withdrew from this highly cyclical business at exactly the right time', commented Heitmann. ‘Lustran polymers was heavily dependent on petrochemical raw materials, the prices of which were highly volatile. LANXESS can now present itself as a flexible and very solid speciality chemicals group at the core of the chemical industry with considerably increased earning power.' Net financial debt declined further from E511 million to E460 million. ‘Our stated goal for 2008 is to achieve further growth based on our improved competitiveness', said Heitmann, explaining that the soon-to-be-completed acquisition of a majority interest in Brazilian company Petroflex should contribute to this. The acquisition, which is expected to close in the second quarter of 2008, will place LANXESS among the leading speciality chemicals companies and synthetic rubber producers in Latin America, too. In light of the ongoing uncertainty regarding the effects of the US subprime crisis, LANXESS anticipate regional differences in the pace of economic growth, with the slowdown in the United States likely to be offset by the growth momentum of customer industries in Asia, Latin America and eastern Europe. LANXESS continue to rigourously implement their growth strategy, particularly in Asia. The company are currently embarked on growth projects with a total volume of up to E800 million. In 2008, they plan to spend between E330 million and E350 million to replace or expand facilities. LANXESS are again striving for operational sales growth in 2008 and remain confident that the earnings targets previously set for 2009 can now be achieved a year earlier. The Group's EBITDA margin should be in line with the industry average in 2008, a year earlier than originally planned. All business units should generate an EBITDA margin pre exceptionals of more than 5% from 2008 onward. A further goal is to maintain the company's investment grade rating. This forecast is supported by the company's good start to 2008, a year in which LANXESS have announced their intention to implement further selling price increases. LANXESS will narrow their earnings guidance for 2008 when the first-quarter results are published. In 2007 LANXESS significantly raised their central controlling parameter, EBITDA pre exceptionals, despite negative currency effects and the absence of earnings contributions from the divested business units. Over the year as a whole, LANXESS succeeded in passing along all raw material cost increases to customers. Earnings in performance chemicals improved significantly on the strength of the portfolio adjustments. Sales in this segment were down 10.7% from the prior year, to E1.97 billion (2006: E2.20 billion), due to portfolio changes and negative currency effects. Adjusted for the 3.2% negative currency effects and a 9.7% decrease due to the divestment of the paper and textile processing chemicals business units, sales rose 2.2% year on year. The leather and RheinChemie business units benefited from a favorable market environment in the Asia-Pacific region. The inorganic pigments business unit recorded pleasing sales growth in the EMEA region, especially in central and eastern Europe. This made up for the lower demand from the US construction industry. EBITDA pre exceptionals for the performance chemicals segment edged down by 2.1% to E285 million (2006: E291 million), reflecting the absence of earnings contributions from the divested textile processing chemicals business unit. By contrast, the EBITDA margin pre exceptionals showed a tangible increase of 1.3 percentage points to 14.5% following this divestment and operational improvements in the segment. LANXESS recorded operational business growth in all segments in the fourth quarter of 2007. Sales, at E1.47 billion (2006: E1.67 billion), showed a 12.1% decline. After adjusting for currency and portfolio effects, however, sales growth was 7.6%. EBITDA pre exceptionals climbed by 8.6% to E114 million (2006: E105 million).