Lanxese's earnings in the first quarter of 2023 met expectations

Specialty chemicals company Lanxese achieved its expected earnings for the first quarter of 2023: earnings before interest, tax, depreciation and amortisation in the regular business range of 189 million euros, within the range of 180 million to 220 million euros forecast in March. The profit was down 27.9 percent from 262 million euros a year earlier. Sales remained largely stable at 1.899 billion euros, just 1.7% lower than the 1.931 billion euros in the same period last year.

In particular, weak demand from some of our clients' industries, particularly construction, and continued inventory drawdowns by many of our clients have weighed on earnings. This is particularly evident in the high quality intermediates and special additives business segment. In contrast, consumer protection showed a strong performance, with sales and earnings rising despite a slight decline in volume. The microbial control business, acquired from IFF in the US in mid-2022, played a particularly positive role. Lanxage once again managed to pass on rising raw material and energy costs, and all its business segments also benefited from a positive currency impact.

Free cash flow increased significantly by €264 million year-on-year to €112 million. This was helped by stable working capital, although there was also a seasonal growth factor. Net income from continuing operations was €10m in the first quarter, down from €66m a year earlier. Profit margin before interest, tax, depreciation and amortization on a regular basis was 10.0%, down from 13.6% a year earlier.

"As expected, 2023 will be a difficult year for the chemical industry and for LanXESS," said Mutian Chang, CEO of LanXESS. Our first-quarter numbers show this very clearly. It is therefore all the more important that we hand over our performance plastics business to a joint venture on April 1 as planned. As a result, we further shifted our portfolio toward specialty chemicals and improved our financial position. That would make us more resilient in our current predicament. However, I expect the economy to improve significantly in the second half of the year and that will be reflected in our earnings."

For the coming months, LanXESS expects the economic environment to be challenging and remain highly uncertain. As a result, LanxESS expects earnings in the second quarter of 2023 to be roughly in line with the first quarter. For the second half of the year, LANXESS expects earnings to recover significantly in view of the recovery of the global economy, especially the positive development of the Chinese market. Against this background, Lanxese expects earnings before interest, tax, depreciation and amortisation in the regular business scope to reach between €850 million and €950 million for the full fiscal year 2023.

Focus more on specialty chemicals

Lanxess continued its focus on specialty chemicals and on April 1, 2023 transferred the High Performance Materials (HPM) business unit to a joint venture with private equity investor Anhon Capital. The high-performance engineered polymers joint venture, named Envalior, includes HPM (High Performance Materials Business Unit) and DSM's former Engineered Materials business unit. Lanxess owns about 40 per cent of Envalior and Anhon Capital owns about 60 per cent. As part of the transaction, Lanxess received a payment of approximately 1.27 billion euros from Amhon Capital on March 31. Lanxess will primarily use the proceeds to reduce debt and improve its financial position.

Segments: Consumer protection was strong

In the first quarter, sales in the consumer protection segment were €647 million, 27.9 percent higher than €506 million in the same period a year earlier. Earnings before interest, tax, depreciation and amortisation from regular operations reached €94m, up 9.3% from €86m a year earlier. The microbial control business, acquired from IFF Corporation in July 2022, made a particular contribution to this business segment. All business units in the segment also achieved higher selling prices. However, lower sales volumes and delivery issues at one supplier had a negative impact on earnings. The segment's regular business scope margin before interest, tax, depreciation and amortization was 14.5%, down from 17.0% a year earlier.

Compared with a strong performance in the first quarter of the previous year, sales in the special additives segment fell 9 percent to 664 million euros from 730 million euros. Earnings before interest, tax, depreciation and amortisation at regular operations fell 27.9 per cent from €136m to €98m. Weak demand in the construction and automotive sectors has hit earnings particularly hard. Sales in all business units of the segment were below year-ago levels. A weather-related shutdown at a U.S. production plant and higher freight costs also contributed to the drop in earnings. The segment's regular business scope margin before interest, tax, depreciation and amortization was 14.8 percent, down from 18.6 percent a year earlier.

Weaker demand, particularly from the construction and chemical industries, and lower sales volumes had a negative impact on sales and earnings in the high-quality intermediates segment. First-quarter sales in the segment were €516 million, down 15.8 percent from €613 million a year earlier. Earnings before interest, tax, depreciation and amortisation from regular operations were €44 million, 49.4 per cent lower than €87 million a year earlier. Profit margin before interest, tax, depreciation and amortization on a regular basis was 8.5%, down from 14.2% a year earlier.