Lanxess raises earnings forecast on growth in ‘new’ segments
Specialty chemicals company Lanxess raised its earnings forecast this calendar year on good business in the ‘new’ segments .
Revising the forecast up for the second time this year, the company now expects EBITDA pre exceptionals within a range of EUR 930 million and EUR 970 million mainly due to good business prospects in the ‘new’ Lanxess segments, Advanced Intermediates, Performance Chemicals and High Performance Materials, for the second half of the year. Previously, Lanxess had assumed earnings of between EUR 900 million and EUR 950 million.
In a strong second quarter of 2016, EBITDA pre exceptionals rose by 8.5 % to EUR 293 million, compared with EUR 270 million a year earlier. The EBITDA margin pre exceptionals improved year-on-year from 12.8 % to 15.1 %.
“The strong operating result derived especially from increased volumes, leaner cost structures and an improved product mix achieved by the new Lanxess segments. This shows that our realignment has enabled us to create a powerful and efficient organization and that we are operating in the right markets with the right products,” said Lanxess Chairman of the Board of Management Matthias Zachert. “We are very optimistic for the second half of the year and expect new Lanxess to improve earnings against the prior year. Although the rubber business remains difficult, we are again raising our forecast for the full year.”
Lanxess expects to close the acquisition of the Clean and Disinfect business of U.S.-based chemical company Chemours by the end of the third quarter at the latest. The acquisition will be accretive to the company’s earnings per share in the first fiscal year. The acquired business is expected to deliver an annual EBITDA contribution of around EUR 20 million, which will be gradually increased by synergy effects to about EUR 30 million by 2020.
In the second quarter of 2016, net income stood at a good level of EUR 75 million. Also in this quarter, Lanxess for the first time deducted a share of the profits to Saudi Aramco for its 50-% interest in ARLANXEO, the joint venture for synthetic rubber. The income of EUR 87 million in the same period last year also included the proceeds from the sale of non-current assets. Adjusted for exceptionals, net income amounted to EUR 76 million compared with EUR 67 million in the prior-year quarter. Earnings per share pre exceptionals were EUR 0.83, after EUR 0.73 a year earlier.
Group sales declined by 7.7 % in the second quarter of 2016 to EUR 1.94 billion, compared with EUR 2.1 billion in the prior-year quarter. Lower procurement prices for raw materials were passed on to customers. Higher volumes could not compensate for price reductions and the slightly unfavorable currency effect of the U.S. dollar.
Lanxess virtually debt-free
On April 1, 2016, Lanxess received around EUR 1.2 billion from Saudi Aramco for its 50-% share in ARLANXEO. This payment substantially reduced Lanxess’ net financial liabilities at the end of the second quarter to just EUR 198 million. In December 2015, the company’s net financial liabilities still stood at around EUR 1.2 billion. In May, Lanxess also added EUR 200 million to its German pension assets. “Our balance sheet is strong and solid,” explained Lanxess CFO Michael Pontzen. “We have thus created an excellent basis for the company’s further development.”
Segments: “New” LANXESS is developing strongly
Sales in the Advanced Intermediates segment decreased by 5.3 %, from EUR 468 million to EUR 443 million. EBITDA pre exceptionals came to EUR 88 million, 10 % higher than the prior-year level of EUR 80 million. Higher volumes and improved capacity utilization in particular had a positive impact on earnings. The EBITDA margin pre exceptionals of 19.9 % was above the high level of 17.1 % reported in the prior-year quarter.
The Performance Chemicals segment posted a slight year-on-year decline in sales of 1.8 %, from EUR 553 million to EUR 543 million. However, EBITDA pre exceptionals increased by 3.6 % to EUR 114 million, compared with EUR 110 million a year earlier. Higher volumes, an improved product mix and favorable exchange rates had a positive impact on earnings. The EBITDA margin pre exceptionals increased from 19.9 % to a strong 21.0 %, so far the highest figure in the company’s history.
Sales in the High Performance Materials segment declined by 5.8 % to EUR 275 million due to raw material prices, down from EUR 292 million in the prior-year quarter. EBITDA pre exceptionals increased by a substantial EUR 12 million, or 36.4 %, to EUR 45 million. The EBITDA margin pre exceptionals of 16.4 % was significantly above the figure of 11.3 % posted in the prior-year quarter. The segment’s focus on high-performance plastics is therefore having an increasingly tangible impact on profitability.
Sales in the ARLANXEO segment fell by 14.1 % to EUR 670 million, compared with EUR 780 million a year earlier. EBITDA pre exceptionals came to EUR 95 million after EUR 116 million in the prior-year quarter. The ongoing pressure on prices for synthetic rubbers had a diminishing effect, as did the production outage at a major supplier in Asia. By contrast, the EBITDA margin pre exceptionals in the second quarter stood at the relatively high level of 14.2 %, compared with 14.9 % in the year-earlier period.