News

News

2010-03-17

Annual Press Conference on March 17, 2010 in Cologne

Address by Matthias Zachert, Chief Financial Officer of LANXESS AG

Leverkusen -

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Ladies and gentlemen,


May I also welcome you to our Annual Press Conference. 


As Mr. Heitmann already told you, we faced major challenges last year. LANXESS, like other companies, was unable to escape the effects of the severe global recession. That made it crucially important for us to take the right corrective action at an early stage. 


With regard to our financial indicators and the performance of our businesses, I can tell you today that LANXESS has come through the crisis very well. 


Now I’d like to give you some more details on the 2009 figures.

  

In a year of global recession, LANXESS achieved sales of more than 5 billion euros, considerably less than in 2008. 


Our earnings for 2009 – EBITDA pre exceptionals – came in at 465 million euros. The EBITDA margin pre exceptionals in the crisis year was a solid 9.2 percent – only 1.8 percentage points below the 2008 figure. These earnings demonstrated LANXESS’ economic strength and margin stability even in an extremely difficult environment.


We are also pleased that in this difficult year we again had positive net income, which came in at 40 million euros – something LANXESS was not able to achieve even in the favorable economic environment of 2004 or 2005. This therefore underlines the success of our transformation process. 


Let me also draw your attention to the change in our net financial debt, which you can see on this slide. In 2009, we reduced debt to 794 million euros from 864 million euros at the end of 2008. We achieved this despite two acquisitions in India and China and despite a difficult market environment. 

 


However, it is also clear that the crisis year turned our sales upside-down, so to speak. In previous years we have always reported a strong first quarter, while the last quarter was the weakest due to the seasonality of our products. In 2009, exactly the opposite happened. It was the last two quarters that saw a very encouraging trend. 


However, this recovery in the second half of the year cannot mask the fact that the effects of the economic crisis continue to be strongly felt, particularly in Europe and North America. This means we cannot simply assume that business will continue to develop as favorably as it did in the fourth quarter of 2009. We must continue to actively strengthen LANXESS` stable position through our own efforts. We therefore have no choice but to press ahead with our “Challenge” program to combat the effects of the crisis. The action we are taking under this program is designed to achieve 360 million euros in cost savings by 2012. In 2009 alone, the program brought us savings of 170 million euros.


Now let’s move on to the Group’s earnings performance.

Here you can see that sales of LANXESS fell by 23 percent in 2009. This was mainly the result of a 15 percent drop in demand due to the crisis. The lower product prices largely reflect the significant drop in raw material costs, which – following a dramatic increase in 2007 and 2008 – fell again just as quickly in the first months of 2009, leading to more destocking in nearly all industries. The slightly positive currency and portfolio effects were not sufficient to offset the decline in demand. 


The flexibility of LANXESS’ response is particularly obvious from the trend in our cost items. We succeeded in adjusting our production costs and our marketing and administration expenses to the crisis-related decline in demand, reducing these items by 23 and 18 percent, respectively. This was one of the key factors that enabled us to regain a higher level of profitability so quickly in the second half of 2009.


Despite the economic crisis, we continued to focus in 2009 on researching and developing innovative, high-performance products in order to maintain our positions in the major growth segments in the future. We therefore increased our research and development spending by 4 percent in 2009 to 101 million euros. 


Our statement of the financial position also presents a healthy picture, with very solid key indicators: 

Equity rose from the previous year, while our gearing was down from approximately 64 to 55 percent and our net debt from 864 million to 794 million euros, a decline of 8 percent. This is further evidence that LANXESS stood up well in a very difficult environment.  



Ladies and gentlemen, 

One of the main topics during the financial crisis has obviously been the question of liquidity, which is sure to remain a focus of attention in view of the current public debate about the high levels of government debt. 


We addressed this issue at a very early stage and further improved our financial flexibility in 2009. Among the key steps we took was the successful placement in spring of a bond with a volume of 500 million euros and a term of five years. This served to strengthen our long-term liquidity in general. We also carried out some refinancing by launching a further 200-million-euro bond on the market in the fall. From the proceeds of this issue we repaid existing bank loans and settled other financial liabilities. This bond has a seven-year term. The successful placement of both bonds clearly demonstrates LANXESS’ ability to tap the capital market with debt issues that are well received. These bonds have improved the debt maturity structure of the Group and created a substantial liquidity reserve, making us independent of capital market volatility, while at the same time reducing our dependence on banks.


LANXESS today has a good financing portfolio and maturity profile. As of December 31, 2009, we had a liquidity and credit volume of some 2.3 billion euros, including an undrawn credit facility of 1.4 billion euros. That means we will have no major refinancing requirements until 2012 and can selectively finance the continued expansion of our business.



The Group’s cash flow also shows that we did well in a challenging environment. We improved operating cash flow by 14.8 percent year-on-year to 565 million euros. An especially positive impact on cash flow came from our strict working capital management, in other words the active management of outstanding trade receivables and our inventory levels. 


We took a very prudent and targeted approach to capital expenditures in 2009, postponing major projects in view of the economic crisis and thus adapting our investment decisions to the change in the business environment. Our focus in 2009 was on expansion and efficiency-improvement measures.  We had total capital expenditures of 275 million euros. For 2010, we have planned capital spending of between 400 million and 430 million euros so that we can continue to pursue our selective growth strategy. 



Ladies and gentlemen, 

Mr. Heitmann has already presented the key data for our segments, so I would now like to go into the performance of each segment in a little more detail.

It was impossible to keep sales and earnings at the prior-year levels in any of our segments due to the difficult market conditions. 

 

 



The drop of 27.2 percent in the sales of the Performance Polymers segment was mainly due to a decline of about 20 percent in selling prices, which in turn resulted from much lower raw material costs. Volumes in this segment were 11.3 percent below the previous year.


The recovery in demand in the second half enabled us to raise prices again. The rubber business was driven by the uptrend in the Asian countries and the strong demand for winter tires in Europe and North America, particularly in the final weeks of 2009. There were also positive currency effects of around 2 percent as well as portfolio effects of the same amount resulting from the acquisition of Petroflex in 2008.


We succeeded in keeping the EBITDA margin in double digits despite the generally adverse environment. 

 


In the Advanced Intermediates segment, sales were down by 15.7 percent, mainly due to a 12.4 percent decline in volumes and a 5.9 percent drop in selling prices. The drop in sales was cushioned to some degree by positive currency effects. In addition, the inclusion of sales from the successfully acquired businesses of Gwalior and Jiangsu led to a positive portfolio effect of 1.3 percent.

Earnings of Advanced Intermediates were down by 32 million euros. The EBITDA margin came in at 13.9 percent, only 0.3 of a percentage point down and thus virtually level with the previous year. Here again, the savings achieved by our package of measures helped to stabilize the margin.



Our Performance Chemicals segment also felt the effects of the crisis. The figures reflect the impact on this business of the dramatic slump in demand from many customers in the automotive, leather and construction industries. 


Volumes declined throughout the segment by an average of 21.3 percent. Prices in this segment were virtually steady, receding by just 1.2 percent. EBITDA pre exceptionals fell by 24.5 percent. Although the slight drop in prices was more than offset by lower raw material costs and positive currency effects, earnings were weighed down by the decline in volumes.


Overall, however, our systematic action to reduce costs proved effective in the Performance Chemicals segment as well, particularly with regard to our flexible asset and cost management and the Challenge program. In this segment, too, we maintained a double-digit EBITDA margin of 11.9 percent – down 0.6 percentage points from the prior year.

 

 


Ladies and gentlemen, 

I’d now like to say a few words about how the capital markets viewed us last year. First let’s look at the equity market. 


Our stock trended very well, outperforming all the major indices in 2009 – from the DAX and MDAX to the Dow Jones Stoxx 600 ChemicalsSM with a gain of 92 percent. This meant that LANXESS stock not only reversed the previous year’s decline but substantially improved its performance.


Our ownership structure remained largely stable even during the financial and economic crisis. In 2009, as in previous years, most of our shares were held by value- and growth-oriented institutional investors. In Germany the proportion of institutional investors actually rose from 20 percent in the prior year to 24 percent in 2009. 

 

 


Our good positioning was also rewarded by the debt markets. In 2009 all three leading rating agencies – Standard & Poor’s, Fitch Ratings and Moody’s – confirmed their investment-grade ratings for LANXESS of BBB and Baa2, respectively, each with stable outlook. I am emphasizing this because it sets us apart from most of our competitors in the chemical industry. Downgrades have been more or less the rule over the past 12 months, with few companies maintaining their ratings.

 

In 2007 and 2008, one of the questions most often put to me by analysts and investors was: “How will LANXESS perform in a cyclical downturn?” I think a glance at our financial data in 2009 will give you a thoroughly positive picture. Of course we were hard hit by the drop in demand from industry, like other companies in our sector, but we also proved how well we as a company and the global LANXESS team could perform in this situation. And as CFO, I can therefore say that on this basis we are looking to the future with confidence.


Thank you for your attention.

Forward-Looking Statements

This news release contains forward-looking statements based on current assumptions and forecasts made by LANXESS AG management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.