Lanxess Ag · XETR:LXS
Lanxess — Q1 2009 Earnings Presentation
51 slides from Lanxess's earnings presentation, April 2009
Slide 1: LANXESS – Q1 2009 Roadshow
LANXESS – Q1 2009 Roadshow Taking action in a tough environment Matthias Zachert, CFO Q1 2009 Results Roadshow Presentation Chart-No. 1
Slide 2: Safe harbour statement
Safe harbour statement This presentation contains certain forward-looking statements, including assumptions, opinions and views of the company or cited from third party sources. Various known and unknown risks, uncertainties and other factors could cause the actual results, financial position, devel
Slide 3: Agenda
Agenda Highlights Q1 2009 Business and financial review Q1 2009 Outlook/Guidance Q1 2009 Results Roadshow Presentation Chart-No. 3
Slide 4: Highlights Q1 2009
Highlights Q1 2009 Q1 2009 Price before volume strategy remains intact Challenge09: further flexibilization of fixed cost structure effective EBITDA* impacted by inventory devaluation and destocking Strong cash flow management leads to net debt reduction vs. year end of €120 m Successful placement o
Slide 5: First quarter substantially impacted by lower demand and customers destocking
First quarter substantially impacted by lower demand and accelerated by customers destocking Q1 Sales variances Price Volume Currency Portfolio Performance Polymers -7% -40% +4% +8% Advanced Intermediates 0% -24% +2% 0% Performance Chemicals +4% -38% +3% 0% LANXESS -2% -36% +3% +4% Sales Sales dec
Slide 6: Drastic sales decline in all regions, Petroflex supports LatAm
Drastic sales decline in all regions, Petroflex supports LatAm Sales by Region (in %) Regional development of sales (€ m) LatAm 1,535 9 Germany Operational Asia Asia 281 -37.7% 23 development* 17 LatAm 79 +21.5% 1,054 North America 250 -27.6% 175 -45% 96 -30% 181 -39% EMEA 552 -35.1% (excl. Germany)
Slide 7: Agenda
Agenda Highlights Q1 2009 Business and financial review Q1 2009 Outlook/Guidance Q1 2009 Results Roadshow Presentation Chart-No. 7
Slide 8: Three major burdens impact chemical industry in Q1
Three major burdens impact chemical industry in Q1 LANXESS EBITDA* Q1 2009 severely affected Inventory write-offs EBITDApre Ongoing high raw material prices (€ m) Customers destocking, awaiting lower raw 300 material prices 220 200 Continuing macroeconomic recession with -154 significantly l
Slide 9: Q1 2009 financial overview: business tightly managed in a recessionary environment
Q1 2009 financial overview: business tightly managed in a recessionary environment (€ m) Q1 2008 Q1 2009 Δ in % Sales 1,535 1,054 -31.3% Sales decreased 31%, with currency and portfolio effects EBITDA pre except. 220 66 -70.0% mitigating price and volume margin 14.3% 6.3% impact EBITDA* impacted
Slide 10: P&L reflects strict cost management in a tough environment
P&L reflects strict cost management in a tough environment (€ m) Q1 2008 Q1 2009 Δ in % Sales 1,535 1,054 -31% Price decreases of only 2% while raw material prices declined more; Cost of sales -1,158 -857 -26% favorable portfolio (+4%) and SG&A -213 -174 -18% currency effects (+3%) slightly R&D -2
Slide 11: Challenge09 – fast and effective response to demand crisis
Challenge09 – fast and effective response to demand crisis Status update Reduction of remuneration now in effect since March 1 2009 Structural cost saving projects in BTR, TRP and realignment of FCC proceed well Streamlining of Petroflex is continuing Consolidation of U.S. and Canadian admin
Slide 12: Ongoing productivity increase
Ongoing productivity increase Headcount development since 2003 LANXESS 2008 includes initial Headcount headcount additions from Petroflex 22000 22,000 20,423 19,659 20000 20,000 18,282 18000 18,000 16,481 16000 16,000 14,610 14,797 14,612 14000 14,000 12000 12,000 10000 10,000 Dec 2003 Dec 2004 Dec
Slide 13: LANXESS Break-Even now at around 10% points lower capacity utilization
LANXESS Break-Even* now at around 10% points lower capacity utilization Fixed and variable cost management lower Break-Even Variable cost aspects Renegotiation of raw material contracts Capacity Seek new sources for variable energy Utilization Renegotiate service contracts, insourcing of servi
Slide 14: Advanced Intermediates relatively resilient while other segments were severely impacted
Advanced Intermediates relatively resilient while other segments were severely impacted Q1 2008 Performance Polymers and Performance Q1 2009 Sales Chemicals deteriorated severely compared (€ m) to last year’s level due to substantial volume 800 693 declines driven by customer destocking, 600 448 4
Slide 15: Performance Polymers: slump of volumes, destocking, idle costs and inventory devaluation
Performance Polymers: slump of volumes, destocking, idle costs and inventory devaluation weigh on performance (€ m) Q1 2008 Q1 2009 Sales decreased, supporting currencies & portfolio only mitigated lower pricing and severe volume reduction Sales 693 448 BTR, TRP with continued high pricing at pr
Slide 16: Advanced Intermediates: relative stability remains in most markets
Advanced Intermediates: relative stability remains in most markets (€ m) Q1 2008 Q1 2009 Lower sales as stable pricing and positive currency effects only mitigated volume decline Sales 329 258 BAC indexed selling prices lag raw material downward trend. Still stable volumes from agro but softenin
Slide 17: Performance Chemicals: price and cost management
Performance Chemicals: price and cost management (€ m) Q1 2008 Q1 2009 Sales reduced, with price increases and positive currencies only mitigating severe volume decline Sales 495 338 Business units LEA, IPG and FCC benefiting from pricing EBIT 60 21 RUC, RCH volume-wise impacted most due to hu
Slide 18: Balance Sheet: working capital tightly managed, net financial debt reduced
Balance Sheet: working capital tightly managed, net financial debt reduced (€ m) Dec 31, 2008 Mar 31, 2009 Dec 31, 2008 Mar 31, 2009 Non-current Assets 2,169 2,184 Stockholders’ Equity* 1,339 1,314 Intangible assets 145 150 thereof minority interest 16 16 Property, plant & equipment 1,646 1,659 Equi
Slide 19: Special focus on working capital management
Special focus on working capital management % of Inventory: Sequential decrease sales**: 21.7% 20.1% 20.2% 20.3% 19.6% 19.6% in past three quarters due to Total WC* LANXESS de-stocking, in € m: €1,468 €1,439 €1,369 €1,217 €1,289 €1,193 devaluation and lower raw 2500 material prices 2000 Receivab
Slide 20: New bond further improves solid financing and balanced maturity profile
New bond further improves solid financing and balanced maturity profile New EUR Bond – Quick facts Liquidity and maturity profile Rationale: A window of Bond** opportunity was seized to lock-in In € m Bond** liquidity, further diversify the 500 Term maturity profile and reduce 400 Loan** dependency
Slide 21: Strong operating cash flow
Strong operating cash flow (€ m) Q1 2008 Q1 2009 Profit before Tax 142 -21 Q1 2009 profit before tax mainly Depreciation & amortization 64 63 burdened by volume decline Gain from sale of assets -4 -7 and inventory devaluation Result from investment in associate -7 -2 Cash inflow from working Fin
Slide 22: Agenda
Agenda Highlights Q1 2009 Business and financial review Q1 2009 Outlook/Guidance Q1 2009 Results Roadshow Presentation Chart-No. 22
Slide 23: Business trading outlook 2009
Business trading outlook 2009 Destocking expected to further decline in Q2 Performance Restocking probable from Q3 onwards Polymers Only minor inventory devaluation expected in Q2 Resilience of agrochemicals expected to persist Advanced Other customer industries exposed to cyclical downtur
Slide 24: Demand in Q2 expected to gradually improve from low Q1 level
Demand in Q2 expected to gradually improve from low Q1 level Unfavourable effects are expected to level off Positive developments: - Only minor additional inventory write-offs in Q2 (~€10 m) - Gradual demand recovery mainly from Asia - Reduced customer destocking - Challenge09 yielding results N
Slide 25: Q2 guidance provides some comfort
Q2 guidance provides some comfort Guidance: Q2 EBITDA considerably better than Q1 Based on previously mentioned assumptions, LANXESS expects Q2 EBITDA pre exceptionals to be between €100 and €120 million Additional financial expectations for 2009 Capex*: reduced to ~€300 m D&A: ~€270 – 280 m T
Slide 26: Q1 2009 Results Roadshow Presentation Chart-No. 26
Q1 2009 Results Roadshow Presentation Chart-No. 26
Slide 27: Appendix
Appendix Q1 2009 Results Roadshow Presentation Chart-No. 27
Slide 28: Exceptional items incurred in Q1 2008 and Q1 2009
Exceptional items incurred in Q1 2008 and Q1 2009 (€ m) Q1 2008 Q1 2009 Exceptional thereof D&A Exceptional thereof D&A Performance Polymers 5 3 0 0 Advanced Intermediates 0 0 0 0 Performance Chemicals 3 0 1 0 Reconciliation 6 0 3 0 Total 14 3 4 0 Q1 2009 Results Roadshow Presentation Chart-No. 28
Slide 29: Change of pension accounting of Defined Benefit Plans as of 2009
Change of pension accounting of Defined Benefit Plans as of 2009 (switch from Corridor to SoRIE method) Corridor method SoRIE The portion of unrecognized gains and losses SoRIE = Statement of Recognized Income & which exceeds 10% of the higher amount of Expense DBO or plan assets is amortized th
Slide 30: Effects of switch to SoRIE on Balance Sheet
Effects of switch to SoRIE on Balance Sheet… (€ m) Dec 31, 2008 Dec 31, 2008 Mar 31, 2009 Dec 31, 2008 Dec 31, 2008 Mar 31, 2009 restated restated Non-current Assets 2,228 2,169 2,184 Stockholders’ Equity 1,407 -68 1,339 1,314 Intangible assets 145 145 150 thereof minority interest 16 16 16 Property
Slide 31: …as well as on P&L and on Cash Flow
…as well as on P&L and on Cash Flow Q1 08 restatement Estimated effects for ‘09 EBIT unchanged Expenses avoidance: Impact on Net Income: € 1 m P&L Impact on EBIT: ~ € 1,5m EPS improvement by 0,02 € to Impact on financial result: ~ € 7m 1,25 € per share Operating, financing and investing Ca
Slide 32: Pension underfunding – minor issue for LANXESS
Pension underfunding – minor issue for LANXESS Clear improvement of funded status Significant improvements of funded status by ~ € 300 m Defined benefit obligation since 2005 to only € 381 m External plan assets Underfunding (funding ratio of ~ 65% achieved) (in € m) Funded status: - Start up of C
Slide 33: Cash is king: tight working capital management strengthens cash flow, reduces net debt
Cash is king: tight working capital management strengthens cash flow, reduces net debt Cash flow strengthened by Net debt*: €1,135 €680 €511 €460 €864 €744 inflows from working capital 1.600 Petroflex and spending discipline acquisition 1.200 140 Conservative increase of cash position 800 959 10
Slide 34: Substantial further decline of raw material prices likely to trigger inventory adjustments
Substantial further decline of raw material prices in Q1 2009 likely to trigger additional inventory adjustments Global raw materials index* [%] Inventory devaluation in Q4 2008 according to year end prices amounted to ~35 million EUR 200 Further decline in prices likely 180 leads to additional
Slide 35: LANXESS focus on “self-help” measures
LANXESS focus on “self-help” measures Visibility of demand development remains low Governmental demand stimuli Gradual consumer spending recovery End of customer destocking ? Timing Magnitude of impact Substantial LANXESS “self-help” measures coming into effect LANXESS “Challenge09” Lower raw ma
Slide 36: Challenge09: specific measures in response to the crisis
Challenge09: specific measures in response to the crisis Flexible asset management (plant, site and global) 1 Adherence to price-before-volume strategy Savings volume: € 250 million in 2 years Temporary targeted cost reductions in specific areas 2 based on reduction of energy, infrastructure servi
Slide 37: Global personnel measures implemented
Global personnel measures implemented Performance Polymers Advanced Intermediates Performance Chemicals Group Level HR measures Tariff employees in Germany 35-hour week introduced in March 2009 with corresponding pay reduction No variable compensation components for 2009 Managerial staff Compe
Slide 38: Challenge09: substantial savings effective already 2009
Challenge09: substantial savings effective already 2009 In € m 2008 2009 2010 Σ 2009 2010 Break down of cost savings 2009 Reduction of remuneration ~€65 m Cost savings Reduction of G&A costs ~€20 m mitigating volume decline 45 130 120 250 Additional projects ~€45 m - Restructuring BUs BTR, TRP
Slide 39: Cash discipline to address weak business environment
Cash discipline to address weak business environment In € m 2009 2010 Reduction in planned cash outs ~280 ~30 Thereof Capex ~100 Cash protection measures 2009 include Delay of investments such as for BTR, SCP and headquarters move Cost savings measures Reduced spending for maintenance HR rem
Slide 40: Portfolio management allows for regrouping of LANXESS businesses along chemical segmentation
Portfolio management allows for regrouping of LANXESS businesses along chemical segmentation Performance Polymers Performance Polymers Advanced Intermediates Performance Chemicals Butyl Rubber Basic Chemicals Material Protection Products Performance Butadiene Rubbers Saltigo Inorganic Pigments Techn
Slide 41: LANXESS has a broad customer portfolio with varying demand patterns
LANXESS has a broad customer portfolio with varying demand patterns LANXESS sales distribution by industry, 2008 Others Agro Tyre Construction Consumer Automotive Goods Chemicals Q1 2009 Results Roadshow Presentation Chart-No. 41
Slide 42: Performance Polymers – producing high performance products to serve mobility needs
Performance Polymers – producing high performance products to serve the world’s mobility needs Performance Polymers Position LANXESS Growth and StabilityAction LANXESS Products and end-uses EBITDA1 margin FY‘07: 14.0% World-wide top market participation in major growth Turn leadership into value pos
Slide 43: Advanced Intermediates – Basic Chemicals and Saltigo
Advanced Intermediates – Basic Chemicals and Saltigo, strong and reliable partners for the segment Advanced Intermediates Position LANXESS Growth and StabilityAction LANXESS Products and end-uses EBITDA1 margin FY‘07: 14.5% World-wide top market Turn leadership into value positions Industry shake-ou
Slide 44: Performance Chemicals – service- and application-driven products
Performance Chemicals – Producing service- and application- driven products for a wide range of industries Performance Chemicals Position LANXESS Growth and StabilityAction LANXESS Products and end-uses EBITDA1 margin FY‘07: 14.5% World-wide top market Partly strong growth in Turn leadership into va
Slide 45: Performance Chemicals – service- and application-driven products
Performance Chemicals – Producing service- and application- driven products for a wide range of industries Performance Chemicals Position LANXESS Growth and StabilityAction LANXESS Products and end-uses EBITDA1 margin FY‘07: 14.5% World-wide top market Partly strong growth in Turn leadership into va
Slide 46: Serving global markets with world-wide rubber manufacturing network
Serving global markets with world-wide rubber manufacturing network Butyl Rubber Zwijndrecht, Belgium Sarnia, Canada Singapore (planned) Performance Butadiene Rubbers Port Jerome, France Dormagen, Germany Orange TX, USA Technical Rubber Products La Wantzenau, France Cabo, Brazil Dorm
Slide 47: Asian growth dynamics are a major driver for LANXESS
Asian growth dynamics are a major driver for LANXESS Example: Asian rubber demand BTR PBR TRP Americas Asia-Pacific Americas Asia-Pacific Americas Asia-Pacific 25% 51% 27% 45% 29% 40% EMEA EMEA EMEA 24% 28% 31% End Uses 86% automotive/ tyres 69% automotive/ tyres 46% automotive 14% various o
Slide 48: Is LANXESS a swing producer?
Is LANXESS a swing producer? Tyre manufacturers produce insufficient synthetic rubber for their captive use Rubber producing capabilities of selected tyre manufacturers: Importance in LANXESS Michelin Goodyear Bridgestone Continental Pirelli Hankook portfoIlio major BTR none none none none none none
Slide 49: Does natural rubber cannibalize synthetic rubber?
Does natural rubber cannibalize synthetic rubber? Risk of substitution Low substitution risk High substitution risk BTR PBR1 S-SBR E-SBR NBR EPDM 1 Nd-PBR Overall, very limited substitution possibility Q1 2009 Results Roadshow Presentation Chart-No. 49
Slide 50: Abbreviations
Abbreviations Performance Polymers Advanced Intermediates BTR Butyl Rubber BAC Basic Chemicals PBR Performance Butadiene Rubbers SGO Saltigo TRP Technical Rubber Products SCP Semi-Crystalline Products Performance Chemicals MPP Material Protection Products IPG Inorganic Pigments FCC Functional Chemic
Slide 51: Contact detail Investor Relations
Contact detail Investor Relations Oliver Stratmann Verena Simiot Head of Investor Relations Assistant Investor Relations Tel. : +49-214 30 49611 Tel. : +49-214 30 23851 Fax. : +49-214 30 959 49611 Fax. : +49-214 30 40944 Mobile : +49-175 30 49611 Mobile : +49-175 30 23851 Email : Oliver.Stratmann@la