The restructuring under way at chemical company LANXESS AG showed initial success in the first quarter of 2005. Further earnings growth was attained in the traditionally strong January-March period by containing costs, raising selling prices and in some cases foregoing unprofitable business. ‘We have had a satisfactory start to 2005’, commented LANXESS CEO Axel Heitmann, ‘but as the year progresses we need to achieve further substantial improvements in earnings, and above all intensify our restructuring, to make LANXESS globally competitive for the long term.’ On the status of the negotiations with the employee representatives concerning the restructuring of the loss-making styrenic resins and fine chemicals units and the possible elimination of up to 1,200 jobs, Heitmann said: ‘Intensive discussions are currently ongoing. I still anticipate that we can bring them to a conclusion this quarter.’

EBITDA pre exceptionals for the first quarter of 2005 rose by 9.7% to 181 million euros (2004: 165 million euros). The EBITDA margin pre exceptionals was 10.5% (2004: 10.2%). The operating result (EBIT) of LANXESS rose by 65.7% to 116 million euros (2004: 70 million euros). Sales advanced by 7.4% to 1,729 million euros (2004: 1,610 million euros), due mainly to increased business in the performance rubber and chemical intermediates segments.

Group net income for the first quarter of 2005 came to 70 million euros, a strong improvement compared to the same period of 2004 (26 million euros). The 8.7% increase in net financial debt to 1,234 million euros (December 31, 2004: 1,135 million euros) was due mainly to the increase in working capital resulting from the improvement in orders and higher raw material costs. First-quarter capital expenditures were up by 2% to 51 million euros.

Sales in the EMEA (Europe, Middle East, Africa) region, excluding Germany, rose by 4.7% to 640 million euros (2004: 611 million euros). Sales in Germany rose 9.2% from the prior-year quarter, to 390 million euros (2004: 357 million euros), with growth recorded by the performance rubber and engineering plastics segments. In the Americas region, sales were up by a substantial 8.7% to 449 million euros (2004: 413 million euros) despite adverse currency effects. Sales in the Asia/Pacific region grew by 9.2% to 250 million euross (2004: 229 million euros).

Sales of the chemical intermediates segment were up 6.3% to 389 million euros (2004: 366 million euros), due mainly to higher volumes and price increases. Trends varied considerably from one business unit to another. In the basic chemicals business unit, the operating environment enabled considerable price and volume increases. In the inorganic pigments business unit, however, the combined effect of weather-related low demand from Europe’s construction industry and high customer inventories caused a drop in sales. Despite an improvement in the situation regarding agrochemical and pharmaceutical intermediates, sales of the fine chemicals business unit showed a year-on-year decline. EBITDA pre exceptionals for the segment fell to 65 million euros (2004: 81 million euros). As a result, the EBITDA margin was down 22.1% to 16.7%.

Sales in the performance chemicals segment were on a par with the prior year, at 478 million euros, a slight decline in volumes being offset by price increases. Gratifying volume growth was recorded in the ion exchange resins business unit. The textile processing chemicals business unit reported lower sales, especially in Europe and the Americas. Effective cost management was the main factor behind a 5.5% increase in EBITDA pre exceptionals for this segment, to 58 million euros (2004: 55 million euros). Other reasons for the gain included a better product mix and higher capacity utilisation. The EBITDA margin rose slightly, up 0.6 points to 12.1%.

The LANXESS group anticipates a continuing upward trend in the world economy for the rest of fiscal 2005. In the second quarter, the company again expect to see a year-on-year increase in EBITDA pre exceptionals. The goal for the full year 2005 is to increase EBITDA pre exceptionals by more than 10% compared to 2004. While LANXESS also aim to increase sales vis-à-vis the prior year, growth in business will probably be limited, particularly in the second half of the year, in light of the company’s ‘price before volume’ strategy and an unusually strong second half in 2004. LANXESS expect to make total capital expenditures of between 250 million euros and 270 million euros in 2005.

A table with figures for the first quarter of 2005 can be found at: