Lanxess Ag · XETR:LXS
Lanxess — FY2004 Earnings Presentation
55 slides from Lanxess's earnings presentation, April 2005
Slide 1: 2004 Full Year Results Roadshow
LANXESS 2004 Full Year Results Roadshow April, 2005 2004 Full Year Results Roadshow, April, 2005 Chart No. 1
Slide 2: Disclaimer
Disclaimer This document does not constitute an offer or invitation to purchase or reliance should be placed on, the fairness, accuracy or completeness of the subscribe for any securities, and neither this document nor anything contained information contained herein and, accordingly, none of the Com
Slide 3: Agenda
Agenda 1. Review of 2004 2. FY 2004 Financials 3. Strategy and Restructuring 4. Outlook 2004 Full Year Results Roadshow, April, 2005 Chart No. 3
Slide 4: Margins Continue to Lag Behind Competitors Despite All Positive Developments
Margins Continue to Lag Behind Competitors Despite All Positive Developments EBITDA Margins 2004* BASF 19.5% Degussa 14.6% Ciba 14.3% DSM 13.1% Clariant 11.1% Rhodia 8.4% LANXESS 6.6% ∅ ∼12.5% * EBITDA pre exceptionals in % of sales FY 2004; Source: annual reports 2004 Full Year Results Roadshow, Ap
Slide 5: Major Challenges Overcome in 2004
Major Challenges Overcome in 2004 LANXESS established as a unit – Several major areas addressed in parallel within one year Carve-out Listing – Spin-off – Structure LANXESS – Listing – Each of them a challenge in itself Building the company – Essential to maintain at least the previous level of busi
Slide 6: LANXESS Inherits a Difficult Legacy
LANXESS Inherits a Difficult Legacy Mainly mature, low-margin Little Cash-Flow flexibility businesses Starting Point LANXESS Heavy debt burden Employment Pact III 2004 Full Year Results Roadshow, April, 2005 Chart No. 6
Slide 7: Major Tasks Determined by Starting Position
Major Tasks Determined by Starting Position Improve performance Reduce costs Focus on profitable businesses 2004 Full Year Results Roadshow, April, 2005 Chart No. 7
Slide 8: Action Taken Immediately
Action Taken Immediately Highlights 2004 – Transparent organization Improve performance – Responsibilities clearly defined – New price/volume strategy Reduce costs – Restructuring – Reduction in personnel costs (pay components above collectively agreed rates) – Lean asset strategy in Asia Focus on p
Slide 9: Improvements in 2004 over 2003
Improvements in 2004 over 2003 Sales EBITDA* Net earnings +7% € 6.8bn € 6.3bn +44% 2003 2004 € 447m € 311m € -12m 2003 2004 2003 2004 € -997m EBITDA* margin: 4.9% 6.6% * pre exceptionals 2004 Full Year Results Roadshow, April, 2005 Chart No. 9
Slide 10: Significantly Higher Sales in EMEA and Asia
Significantly Higher Sales in EMEA and Asia Sales by regions 2004 Sales trend by region (in %) (€ million) 6,773 6,315 + 15.8% 987 Asia 852 + 8.7% Asia Germany 1,757 15% 24% 1,617 America + 12.6% Americas 2,419 EMEA 2,149 26% EMEA excl. (excl. Germany) Germany 35% - 5.1% 1,679 1,610 Germany 2003 200
Slide 11: Price- and Volume Increases Offset Unfavorable Currency Effects
Price- and Volume Increases Offset Unfavorable Currency Effects (€ million) percentages rounded + 7% -3% 6,773 + 3% 6,315 + €458 million 2003 Price Volume Currency 2004 2004 Full Year Results Roadshow, April, 2005 Chart No. 11
Slide 12: Performance Rubber: Capitalizing on Market Leadership
Performance Rubber: Capitalizing on Market Leadership Example: PBR Turn Leadership Into Value – PBR and BTR organized in two separate business units for – Exploit growth potential clearer business focus – Substantially increase profitability – Results: – Asset consolidation bearing fruit – New price
Slide 13: Engineering Plastics: Focus on Restructuring
Engineering Plastics: Focus on Restructuring Example: SCP Turn Restructuring Into Value – Increase profitability by expanding capacities for – Utilize growth opportunities intermediates – Reduce complexity – Substantially increase profitability – Higher volumes – Broadly similar cost structure – Exp
Slide 14: Chemical Intermediates: Utilizing our Asset Base
Chemical Intermediates: Utilizing our Asset Base Example: BAC Turn Strong Asset Base Into Value – Utilize our competitive, integrated production facilities – Remain competitive against emerging Asian suppliers to maintain our position in a consolidation scenario – Maintain high capacity utilization
Slide 15: Performance Chemicals: Regional Expansion
Performance Chemicals: Regional Expansion Examples: RCH, TPC, LEA Turn Application Engineering Into Value – Markets migrating to Asia – Growth in profitable niche markets – Regional expansion – Application engineering shifting to customers – RCH: Expansion of capacities in Qingdao – LEA: Technical s
Slide 16: Agenda
Agenda 1. Review of 2004 2. FY 2004 Financials 3. Strategy and Restructuring 4. Outlook 2004 Full Year Results Roadshow, April, 2005 Chart No. 16
Slide 17: Agenda: FY 2004 Financials
Agenda 2. FY 2004 Financials 2.1. Profit and Loss Statement: Overview, Exceptionals, Business Performance 2.2. Balance Sheet 2.3. Cash Flow 2.4. Housekeeping 2004 Full Year Results Roadshow, April, 2005 Chart No. 17
Slide 18: Nature of Combined Financial Statements (CFS)
Nature of “Combined Financial Statements” (CFS) – CFS reflect LANXESS’ historical financial performance as if spin-off had occurred on January 1, 2002 whereas discontinuing operations (“DO”) figures present LANXESS as integral part of the Bayer Group – CFS also differ from “pro forma financials”, as
Slide 19: Improvement in Full Year Results (CFS)
Improvement in Full Year Results (CFS) (€ m) FY 2003 FY 2004 Abs. chg. Chg. in % Sales 6,315 6,773 458 7% Cost of goods sold 5,211 5,349 138 3% SG&A 1,192 1,144 -48 -4% R&D 168 123 -45 -27% Other op. Result -1,041 -98 943 91% EBIT -1,297 59 1,356 n.m. thereof exceptionals -1,178 -99 -1,079 -92% Net
Slide 20: 2004 Sales Variance by Segment
2004 Sales Variance by Segment (approximate numbers) (€ m) FY 2003 Price Volume Currency FY 2004 Performance Rubber 1,375 ~ +4% ~ +3% ~ -3% 1,431 Engineering Plastics 1,401 ~ +4% ~ +22% ~ -3% 1,722 Chem. Intermediates 1,411 ~ +2% ~ +6% ~ -2% 1,487 Perf. Chemicals 1,925 ~ -1% ~ +3% ~ -3% 1,910 (€ m)
Slide 21: Increased Raw Material Costs Were Mainly Passed Through
Increased Raw Material Costs Were Mainly Passed Through (in € million) Full year 2004 Price increase vs. 2003 Net Sales 6,773 160 Full Year 2004 COGS 5,349 190 ~80% of Raw Material price increase passed-through to customers in 2004 • Cost pass-through lags behind raw material price increases by ~3 m
Slide 22: 2004 D&A and Exceptionals by Segment
2004 D&A and Exceptionals by Segment (€ m) D&A 2004 thereof excep. D&A total exceptionals Performance Rubber -61 0 -12 Anti-Trust litigation TRP €24 m amendment to Impairment in STY Engineering Plastics -37 3 -€21m Depreciation of 3 capex in STY €5 m Adjustment of Chemical intermediates -113 -22 ‘03
Slide 23: Performance Rubber: Improved Performance Despite Weak Q4 2004
Performance Rubber: Improved Performance Despite Weak Q4 2004 (€ m) FY 2003 FY 2004 – Higher selling prices after increased raw material and Sales 1,375 1,431 energy costs as well as higher volumes in all BUs, especially in EBIT -246 44 TRP more than offset negative currency effects Depr. / Amort. 2
Slide 24: Engineering Plastics: Reasonable Improvement vs. Prior Year But Still the Lagging Segment
Engineering Plastics: Reasonable Improvement vs. Prior Year But Still the Lagging Segment (€ m) FY 2003 FY 2004 Sales – Sales increased on higher 1,401 1,722 volumes and to some extend EBIT prices in SCP and partly STY. -488 7 Sales in FIB were lower due to Depr. / Amort. continuing overcapacities a
Slide 25: Chemical Intermediates: BAC and IPG Overcompensate Weak FCH Performance
Chemical Intermediates: BAC and IPG Overcompensate Weak FCH Performance (€ m) FY 2003 FY 2004 – Sales growth in BAC and IPG due to higher volumes and increased Sales 1,411 1,487 prices after risen raw material costs EBIT -344 65 – FCH sales were lower since Depr. / Amort. 463 113 improved sales in a
Slide 26: Performance Chemicals: No Performance Improvement
Performance Chemicals: No Performance Improvement due to Selling Price Pressure and Difficult Businesses (€ m) FY 2003 FY 2004 – Total sales were slightly lower - increases in RCH, LEA, ION Sales 1,925 1,910 and MPP almost offset EBIT -176 -20 decreases in the remaining BUs, mainly FCC and TPC Depr.
Slide 27: Agenda: Financial Content
Agenda 2. Financial Content 2.1. Profit and Loss Statement: Overview, Exceptionals, Business Performance 2.2. Balance Sheet 2.3. Cash Flow 2.4. Housekeeping 2004 Full Year Results Roadshow, April, 2005 Chart No. 27
Slide 28: Condensed Consolidated Balance Sheet
Condensed Consolidated Balance Sheet Dec 31, Dec 31, Dec 31, Dec 31, (€ m) 2003 2004 (€ m) 2003 2004 Non-current Assets Shareholders’ equity 1,358 1,331 Intangible assets 99 65 Minority stockholders’ interest 43 34 Property, plant & equipment 1,551 1,521 Investments 40 85 Provisions Pension & post e
Slide 29: Differences Between Assumptions in CFS and Reality Lead to Effects in LXS Deferred Tax
Differences Between Assumptions in CFS and Reality Lead to Effects in LXS Deferred Tax Assets and Therefore in LXS Shareholder Equity Background • Bayer‘s assumptions in the CFS: ~€540 million tax loss carry forwards (~€216* million deferred tax asset) related primarily to impairments in 2003 were a
Slide 30: Net Financial Debt Reduced and Maturity Profile to Become More Balanced
Net Financial Debt Reduced and Maturity Profile to Become More Balanced in € m Net financial debt Debt Maturity Profile 2300 100% 2100 90% 1900 80% 1700 70% 1500 60% 1300 50% 40% 1100 30% 900 20% 700 10% 500 0% 300 2003 2004 Arranged 100 Financing -100 Short Term Mid Term Long Term Instruments in De
Slide 31: Working Capital Reduced by Year End
Working Capital* Reduced by Year End Mainly due to Payment-Term Negotiation with Bayer in € m 23.9% of FY 26.1% of FY 21.7%** of YoY - Change: Sales Sales FY Sales – Inventory: Planned 3000 maintenance shutdowns and 2500 price increases as well as system migration in the US 2000 impacted inventory 9
Slide 32: Agenda: Financial Content
Agenda 2. Financial Content 2.1. Profit and Loss Statement: Overview, Exceptionals, Business Performance 2.2. Balance Sheet 2.3. Cash Flow 2.4. Housekeeping 2004 Full Year Results Roadshow, April, 2005 Chart No. 32
Slide 33: Essential for Future: Strong Cash Flow Generation
Essential for Future: Strong Cash Flow Generation (€ m) FY 2003 FY 2004 EBIT -1,297 59 – Higher taxation due to Taxes Paid 12 -45 higher taxable income and Depreciation & Amortization 1477 328 certain amounts of non- deductible tax items Change in Pension Accrual 25 -31 – Working Capital increases G
Slide 34: Disciplined Approach for Capital Expenditures
Disciplined Approach for Capital Expenditures 450 5.8% 400 4.9% 350 102 7 4.1% LANXESS rule of thumb for 300 12 Capex split: 63 250 57 141 200 79 Expansion 150 89 100 72 85 45 50 78 78 76 Maintenance 0 2002 2003 2004 Perf. Rubber Eng. Plastics Chem. Intermed. Perf. Chem. Reconciliation Annual Capex
Slide 35: Agenda: Financial Content
Agenda 2. Financial Content 2.1. Profit and Loss Statement: Overview, Exceptionals, Business Performance 2.2. Balance Sheet 2.3. Cash Flow 2.4. Housekeeping 2004 Full Year Results Roadshow, April, 2005 Chart No. 35
Slide 36: LANXESS LTIPs on Board Level: SPP and EVP
LANXESS LTIP’s on Board Level: Stock Performance Plan (SPP) and Economic Value Plan (EVP) • Condition to participation: Personal investment (40% of one annual fixed salary in three tranches) • Stock Performance Plan (SPP) • Benchmark: Outperformance of the DJ global STOXX 600 Chemicals index (index+
Slide 37: We Start with Realistic Targets
We Start with Realistic Targets 2003 2004 2006 Target*** Target*** EBITDA* Margin < 5% ~ 7% 9 – 10% Capex/Sales ~ 5% 4 – 5% ~ 4% Net Financial ~ 4.5 <3 < 2.5 Debt**/EBITDA* Guidances given prior to listing were achieved * Excluding exceptionals ** Net financial debt excluding pensions: financial obl
Slide 38: Agenda
Agenda 1. Review of 2004 2. Financial Content 3. Strategy and Restructuring 4. Outlook 2004 Full Year Results Roadshow, April, 2005 Chart No. 38
Slide 39: Step-by-Step Approach to Creating Value
Step-by-Step Approach to Creating Value EBITDA Margin Short-term Medium-term Long-term Portfolio Considered, once performance 4. Acquisitions significantly improved and previous steps implemented > 10% Creates twofold impact on cash by Portfolio 3. adjustments – Focusing on higher margin businesses
Slide 40: Targeted Restructuring in Problem Areas
2. Targeted Restructuring in Problem Areas Profitability distribution LANXESS EBITDA* Margin Share of Sales Action programs >10% ~ 30% – Volume/price strategy 5-10% ~ 30% – Cost containment, efficiency improvement – Large-scale restructuring <5% ~ 40% – Portfolio options * pre exceptionals 2004 Full
Slide 41: Engineering Plastics – Styrenic Resins
Engineering Plastics – Styrenic Resins 2004 Full Year Results Roadshow, April, 2005 Chart No. 41
Slide 42: New Capacities and Customers in Asia
New Capacities and Customers in Asia Market trend STY Customer industries – Global market growth around Other Electronics 6%, double-digit increases in China and India Automotive/ transport – Global capacity increasing by Medical equipment Leisure/sports about 5% a year (China Chemicals Construction
Slide 43: Growth Strategy in Europe Offers No Prospect of Success
Growth Strategy in Europe Offers No Prospect of Success Earnings trend in Europe Growth rates (p.a.) – Heavy losses in Europe for years CAGR ~6,400 kt – Earnings still negative despite ~5,400 kt +5.4% recovery in 2004 – Intense competitive pressure Asia from Asia for standard grades + 1.1% Americas
Slide 44: Only One European Facility Can Survive
Only One European Facility Can Survive Need for action in Europe Asset consolidation – LXS not competitive in standard SCH grades EMA TIC Unused capacity – Specialties are core business Standard grades – Marketing of unprofitable Profitabilität products to be discontinued Specialties – Asset consoli
Slide 45: Chemical Intermediates – FCH
Chemical Intermediates – FCH 2004 Full Year Results Roadshow, April, 2005 Chart No. 45
Slide 46: Overcapacities and Asian Competition Are Driving Consolidation
Overcapacities and Asian Competition Are Driving Consolidation Market trend FCH FCH Customer industries Pharmaceuticals –Pharma market suffering from overcapacities Specialties Agro –Increasing Asian competition –Price erosion in all segments Product spectrum –Continuing consolidation – BU offers cu
Slide 47: Continuing Loss of Sales to Bayer-Businesses
Continuing Loss of Sales to Bayer-Businesses Situation in FCH Sales – Steady losses for five years – Declining sales – LANXESS is subsidizing FCH New business Bayer and former Bayer Problem areas in FCH business – Market overcapacities – Continuing drop in sales to 2002 2003 2004 200x (former) Bayer
Slide 48: Markets for FCH are Basically Attractive
Markets for FCH are Basically Attractive Situation in FCH markets EBITDA in % of Sales – Market has offered high 50 margins for some years 40 – Market still showing slight Best 2* 30 growth 20 – Success in this business ∅ 18% depends on having the right 10 structures 0 1984 1987 1990 1993 1996 1999
Slide 49: Concentration on competitive facilities
Concentration on competitive facilities FCH model Concentrate on profitable projects – Expand sales force – Reduce production base / process development – Concentrate on competitive facilities Survival 2004 Full Year Results Roadshow, April, 2005 Chart No. 49
Slide 50: Restructuring Styrenics and Fine Chemicals to become competitive
Restructuring Styrenics and Fine Chemicals to become competitive Focus on more competitive structure and jobs in Europe Streamline current setup - up to 1,200 jobs at risk Despite unfavorable labor agreements talks with workers’ councils already started 2004 Full Year Results Roadshow, April, 2005 C
Slide 51: Portfolio Adjustment
3. Portfolio Adjustment EBITDA- Short-Term Midterm Long-Term Margin Portfolio – Portfolio adjustments form the third stage of the program for 4. Akquisitionen sustainable competitiveness > 10% Portfolio- – LANXESS open to discussions 3. adjustment – Search for a partner for PAP has begun Costs 9-10%
Slide 52: Agenda
Agenda 1. Review of 2004 2. Financial Content 3. Strategy and Restructuring 4. Outlook 2004 Full Year Results Roadshow, April, 2005 Chart No. 52
Slide 53: Outlook for 2005
Outlook for 2005 Economy – Continuing moderate growth worldwide – Still on the upside of the chemicals cycle Market conditions – Strong Euro – High raw material costs – Fierce competition in many areas LANXESS – Necessary restructuring a major challenge – Positive effect of – Operational improvement
Slide 54: 2004 Full Year Results Roadshow, April, 2005 Chart No. 54
2004 Full Year Results Roadshow, April, 2005 Chart No. 54
Slide 55: Independent. Sovereign. Autonomous.
INDEPENDENT. SOVEREIGN. AUTONOMOUS. PERFORMANCE DRIVEN SET-UP. SIGNIFICANT GLOBAL PLAYER. CLEAR STRATEGY FOR VALUE GENERATION. DISCIPLINED CASH MANAGEMENT. 2004 Full Year Results Roadshow, April, 2005 Chart No. 55