For the first quarter of the financial year 2023, specialty chemicals company Lanxess’ earnings have been more or less according to its forecast. EBITDA pre-exceptionals came to 189 million Euros, which was within the 180 million to 220 million Euros earnings forecast in March. However, if one compares it with the previous year’s figure of 262 million Euros, earnings declined by 27.9%. Sales remained almost stable, amounting to 1.899 billion Euros, down only 1.7% from the previous year’s figure of 1.931 million Euros. 1 Euro is equivalent to Rs 89.09 and US$ I.08.
Earnings were squeezed in particular by weak demand in some customer industries, especially in construction, and continued destocking by many customers, the company said. This was particularly noticeable in the Advanced Intermediates and Specialty Additives segments. The Consumer Protection segment proved robust in comparison, with sales and earnings increasing despite slightly lower sales volumes. The Microbial Control business acquired from the US company IFF in mid-2022 made a particularly positive contribution. Lanxess again successfully passed on the increased raw material and energy costs and benefited from positive currency effects in all segments.
Free cash flow improved significantly by 264 million Euros year-on-year and amounted to 112 million Euros. This was supported by stable working capital despite a seasonal increase pattern. Net income from continuing operations reached 10 million Euros in the first quarter after 66 million Euros in the previous year. The EBITDA margin pre-exceptionals came to 10.0%, against 13.6% a year ago.
“As expected, 2023 will be a tough year for the chemical industry and for Lanxess. Our figures for the first quarter make this very clear. It was, therefore, all the more vital that we transferred our high-performance plastics business to a joint venture as planned on April 1. We thus geared our portfolio further toward specialty chemicals and strengthened our balance sheet. This makes us even more resilient in the current difficult waters,” says Matthias Zachert, CEO of Lanxess AG. “However, I expect the economic situation to brighten considerably in the second half of the year, which will also be reflected in our earnings.”
For the coming months, anticipates an economically challenging environment still characterized by high levels of uncertainty. The Group, therefore, expects earnings in the second quarter of 2023 to be roughly on a par with those of the first quarter. For the second half of the year, Lanxess expects a clear rebound of earnings based on a pick-up of the global economy and, in particular, a positive development of the Chinese market. Against this backdrop, the Group expects EBITDA pre-exceptionals of between 850 million Euros and 950 million Euros for the full financial year 2023.
Focus on specialty chemicals sharpened
Lanxess has continued to sharpen its focus on specialty chemicals and transferred its high-performance materials (HPM) business unit to a joint venture with the private equity investor Advent International on 1 April 2023. The joint venture for high-performance engineering polymers is called Envalior and, alongside HPM, comprises the former engineering materials business from DSM. Lanxess has a stake of around 40% in Envalior, Advent around 60%. As part of the transaction, Lanxess received a payment of around 1.27 billion Euros from Advent on March 31. The Group will use this primarily to reduce debt and thus strengthen its balance sheet.
Consumer protection proves robust
Sales of the consumer protection segment amounted to 647 million Euros in the first quarter, up 27.9% on the previous year’s figure of 506 million Euros. EBITDA pre-exceptionals reached 94 million Euros, growing by 9.3% compared to the previous year’s figure of 86 million Euros. The segment benefited in particular from the contribution of the microbial control business acquired from IFF in July 2022. All the segment’s business units achieved higher selling prices. Lower sales volumes and a supplier’s delivery problems had a negative impact on earnings. The EBITDA margin pre-exceptionals amounted to 14.5%, against 17.0% a year ago.
Compared with a very strong prior-year quarter, sales in the Specialty Additives segment declined by 9.0% from 730 million Euros to 664 million Euros in the first quarter. EBITDA pre -exceptionals decreased by 27.9% from 136 million Euros to 98 million Euros. Earnings were constrained in particular by weaker demand from the construction and automotive industries. Volumes fell short of the prior-year quarter in all business units of the segment. Earnings were also reduced by a weather-related production facility shutdown in the U.S. and higher freight costs. The EBITDA margin pre-exceptionals was 14.8%, against 18.6% in the prior-year quarter.
Weaker demand, especially from the construction and chemical industries, and lower sales volumes negatively affected the Advanced Intermediates segment’s sales and earnings. At 516 million Euros, sales in the first quarter were 15.8% lower than the previous year’s figure of 613 million Euros. EBITDA pre-exceptionals amounted to 44 million Euros, down by 49.4% from the previous year’s figure of 87 million Euros. The EBITDA margin pre-exceptionals was 8.5%, against 14.2% in the prior-year quarter.
