Specialty chemicals company LANXESS announced its 2016 fiscal result on the “LANXESS Speeds Up, Quality Works”press conference on March 23 in Shanghai. Data shows LANXESS successfully advanced its transformation, underscoring this with strong performance data. EBITDA pre exceptionals increased by 12.4% to Euroo 995 million, compared with Euroo 885 million a year earlier. The main drivers of this positive development were higher volumes in all segments, the associated increase in capacity utilization and cost savings resulting from the improved competitiveness of plants and processes. The EBITDA pre exceptionals was therefore at the upper end of the recent guidance range of Euroo 960 million to Euroo 1 billion. The Group’s EBITDA margin pre exceptionals improved from 11.2% to 12.9%. Net income also increased by a substantial 16.4% to Euroo 192 million from Euroo 165 million. Sales declined slightly, from Euroo 7.9 billion in 2015 to Euroo 7.7 billion, primarily due to the adjustment in selling prices to reflect lower raw material costs.
Also in 2016, the company made a number of important strategic decisions and realigned its portfolio. ARLANXEO, a joint venture with Saudi Aramco for the synthetic rubber business, started operating on April 1. At the end of August, LANXESS closed the acquisition of the Clean & Disinfect business of U.S. chemical company Chemours. In September, LANXESS announced the acquisition of U.S. specialty chemicals company Chemtura, a leading supplier of flame retardant and lubricant additives. Both acquisitions strengthen LANXESS’s position in high-margin specialty chemicals markets.
“LANXESS is back on track for success. We have achieved key milestones in our reorganization to make LANXESS a more stable and profitable enterprise and we have progressed a good way on our course of growth. This is reflected in our very positive business data for 2016,” said Matthias Zachert, Chairman of the Board of Management of LANXESS AG. “We aim to continue on this growth path, above all through the planned acquisition of Chemtura, and to further increase our operational strength.”
Substantially improved balance sheet
At the end of the past fiscal year, net financial liabilities fell very substantially from Euroo 1.2 billion to Euroo 269 million. This was mainly due to the proceeds from the joint venture with Saudi Aramco. In 2016, capital expenditures amounted to Euroo 439 million, which was more or less level with the prior-year figure of Euro 434 million. The company is planning capital expenditures of some Euro 450 million to Euro 500 million for 2017.
“We again significantly strengthened our balance sheet in 2016 and are continuing along this path of financial stability. We secured the financing for the planned acquisition of Chemtura quickly and at attractive conditions, while at the same time maintaining our investment-grade rating,” explained Michael Pontzen, Chief Financial Officer of LANXESS AG.
The financing for the planned acquisition of Chemtura, which has an enterprise value of approximately Euro 2.4 billion, is provided mainly by two corporate bonds, a hybrid bond and existing liquidity. Already in 2016, LANXESS was able to place all three bonds - each with a volume of Euro 500 million.
Planned acquisition of Chemtura on schedule
The planned acquisition of Chemtura is a crucial step on LANXESS’s growth path and continues to progress on schedule. At the start of March, the authorities in South Korea approved the acquisition as antitrust authorities in the United States and Brazil did before. In early February 2017, Chemtura’s shareholders had voted by a large majority in favor of the planned merger. LANXESS expects to receive all remaining regulatory clearances and to close the transaction by mid-2017.
Higher dividend proposed for 2016
The company’s good business performance in 2016 should be reflected in a higher dividend again. The Board of Management and the Supervisory Board will be proposing to the Annual Stockholders’ Meeting on May 26, 2017, a dividend increase of 17% compared with the prior year to Euro 0.70. This would result in a total dividend payout of around Euro 64 million.
China is still the cornerstone of LANXESS’ long-term strategies
Mr. Ming Cheng Chien, CEO of LANXESS Greater China, said during the press conference: “In the fiscal year of 2016, sales volume of LANXESS Greater China increased by 6.5%, which accounts for a 13% of global sales. It means that we have been widely recognized by our local clients in terms of all-round and high-quality product offering and service.”
Mr. Chien continued, “It is quite an important message to us all that in 2016,” Buildingaquality-strong country” has been officially included in the 13th Five-year Plan of our country. Quality has been put into the spotlight in the new economic norm. As a German company which has been localized well in China, LANXESS prompted ‘Quality Works’ slogan since last year, to emphasize that qualityis the top priority for LANXESS. With applying the highest quality standards for products, processes and technologies worldwide, LANXESS commits itself to fulfilling local clients’ demand for safety, environmental protection and high quality from our products.”
In the first half of 2016, LANXESS inorganic pigment Ningbo plant was put into production. LANXESS has a breakthrough in iron oxide red technology - the Ningbo Process in that plant. It’s a benchmark for innovative and sustainable red iron oxide production. It is another perfect model of LANXESS practicing its localization strategies.
“As a joint venture in between LANXESS and Saudi Aramco which is the largest supplier of oil derivatives in the world, ARLANXEO was established on April 1, 2016, and strengthened our leading positionon synthetic rubber market all over the world. ” Mr. Chien introduced, “By the end of last year, the ALANXEO Rubber Technology Center was completed in Changzhou. It is not only the most comprehensive rubber lab of LANXESS’s in China, but also in the entire Asian Pacific region. The lab is capable of testing and synthetizing all kinds of rubber products. This move also shows how important China and the Asian Pacific regions are to LANXESS.”
Mr. Chien believes that 2017 will be a year when the supply-side reform would be furthered and strengthened. LANXESS will continue to devote itself as an enterprise as well as a part of our society, to sharing efficient and innovative solutions and techniques in water treatment, green mobility and urbanization, reducing production consumptions and energy consumptions and helping China realize industrial upgrade in the chemical industry.”
Business development by segment
Sales of the Advanced Intermediates segment in 2016 were around Euro 1.74 billion, 4.6% below the prior-year figure of Euro 1.83 billion. On account of the anticipated decline in demand in the agrochemicals industry in the fourth quarter, EBITDA pre exceptionals decreased by a slight 3.8% to Euro 326 million, down from a very strong prior-year figure of Euro 339 million. Nevertheless, the EBITDA margin pre exceptionals was slightly up on the prior year, from 18.6% to 18.7%.
Sales in the Performance Chemicals segment improved by 2.7% from some Euro 2.09 billion to around Euro 2.14 billion. EBITDA pre exceptionals advanced by a substantial 14.7% from the prior-year level of Euro 326 million, to Euro 374 million. This improvement in earnings was mainly attributable to strong volume growth and better capacity utilization. The EBITDA margin pre exceptionals improved accordingly to 17.5%, compared with 15.6% in 2015.
In the High Performance Materials segment, sales declined by a slight 2.7%, from Euro 1.09 billion to Euro 1.06 billion. However, EBITDA pre exceptionals advanced by around 43% to Euro 159 million, which was substantially higher than the prior-year level of Euro 111 million. The main drivers here were higher volumes in more profitable product groups and higher capacity utilization. The EBITDA margin pre exceptionals grew respectively to 15.1%, compared with 10.2% in 2015.
Given a persistently difficult competitive environment, sales in the ARLANXEO segment decreased by 5.2% to Euro 2.71 billion, from Euro 2.86 billion a year earlier. Despite the positive development of volumes, EBITDA pre exceptionals was 4.6% below the prior-year level of Euro 391 million, at Euro 373 million. In a still challenging competitive environment, the effect of reduced selling prices outweighed the cost relief resulting from lower raw material prices. The EBITDA margin pre exceptionals of 13.8% was virtually level with the prior-year figure of 13.7%.
Outlook for 2017
The good development seen in 2016 has continued into 2017. LANXESS had a very good start to the new fiscal year and is expecting EBITDA pre exceptionals between Euro 300 million and Euro 320 million for the first quarter of 2017. This would represent an increase in earnings of around 20% compared with the prior-year quarter (Euro 262 million).
For the full year 2017, LANXESS expects a slight increase in EBITDA preexceptionals compared with 2016. Successful closing of the planned acquisition of Chemtura would generate an additional earnings contribution that LANXESS has not yet included in its current guidance for 2017.
Traditionally, the company specifies its guidance when it announces its first-quarter data. The quarterly statement will be published on May 11, 2017.
LANXESS is a leading specialty chemicals company with sales of Euro 7.7 billion in 2016 and about 16 700 employees in 25 countries. The company is currently represented at 54 production sites worldwide. The core business of LANXESS is the development, manufacturing and marketing of chemical intermediates, specialty chemicals and plastics. Through ARLANXEO, the joint venture with Saudi Aramco, LANXESS is also a leading supplier of synthetic rubber. LANXESS is listed in the leading sustainability indices Dow Jones Sustainability Index (DJSI World) and FTSE4Good.
LANXESS China
On Jan. 31, 2005, LANXESS AG was initially listed on the Frankfurt Stock Exchange, and its subsidiary LANXESS Chemical (China) Co., Ltd. officially began operations. Today, LANXESS has 10 subsidiaries including 3 joint ventures, as well as 8 R&D centers in China, with over 1 700 employees in Greater China. LANXESS works closely with its local partners to develop market-oriented solutions that meet local market needs.
