• Sales up 40.8% in fi scal 2010 largely due to signifi cant price- volume effect
• Increased demand in customer industries • Latin America posts strongest sales development • EBITDA pre exceptionals nearly doubled to €918 million • EBITDA margin pre exceptionals of 12.9% tops pre-crisis level • Net income of €379 million, up from €40 million in previous year • Earnings per share of €4.56, up from €0.48
• Solid statement of fi nancial position and fi nancing structure • Increase in working capital due to current and expected business
performance
• Net fi nancial debt up moderately to €913 million despite extensive investment programs
Key Financial Data
€ million 2009 2010 Change in %
Sales 5,057 7,120 40.8
Gross profi t 1,101 1,739 57.9 EBITDA pre exceptionals 465 918 97.4 EBITDA margin pre exceptionals 9.2% 12.9% –
EBITDA 422 890 > 100
Operating result (EBIT)
pre exceptionals 204 635 > 100 Operating result (EBIT) 149 607 > 100
EBIT margin 2.9% 8.5% –
Financial result (117) (114) 2.6 Income before income taxes 32 493 > 100 Net income 40 379 > 100 Earnings per share (€) 0.48 4.56 > 100
Sales and earnings Fiscal 2010 was characterized by robust demand in all of the LANXESS Group’s customer markets. Sales rose signifi cant- ly by 40.8% from €5,057 million in the prior year to €7,120 million. Positive portfolio and exchange rate effects – the latter relating espe- cially to the U.S. dollar – came to 5.2% and operational sales improved by 35.6%. Sales volumes expanded in all segments with fi gures in the fi nal quarter refl ecting the high level seen throughout the year. Due to higher raw material prices, selling prices also exceeded those of the previous year in all segments, particularly in the Performance Polymers segment. Sales contributed by the businesses acquired in India and China in fi scal 2009 generated a positive portfolio effect of 1.0%.
Effects on Sales Approximate data in % 2010 Price 13.2 Volume 22.4 Currency 4.2 Portfolio 1.0 40.8
The Performance Polymers segment performed very positively through- out the year, expanding sales signifi cantly by 58.4% compared with the previous year, when business was weak due to the economic crisis. The recovery in demand resulted in a strong double-digit percentage increase in volumes. A sharp rise in raw material prices against the prior year led to a correspondingly steep increase in selling prices, although prices for some strategic materials had stabilized by the end of the year. The positive operating performance was further enhanced by favorable currency effects.
Sales by the Advanced Intermediates segment also increased by a substantial 19.7%, mainly on account of volume effects. Increased raw material costs resulted in higher selling prices in this segment as well. Currency effects and the portfolio additions made in India and China in fi scal 2009 also contributed to this positive development. In the Performance Chemicals segment, the sales trend was equally satisfactory in 2010, with growth of 29.3%. Here, too, the key driver was a signifi cant increase in volumes. Selling prices were raised slightly over the prior year. Exchange rates also had a positive impact.
Group Sales
€ million
LANXESS grew sales signifi cantly in all regions, with positive momen- tum coming above all from Latin America, where the Performance Polymers segment in particular was a major growth driver and more than doubled its sales. This positive regional performance is repre- sentative of the improvement in demand worldwide in nearly all our customer industries in fi scal 2010.
Sales by Segment € million 2009 2010 Change in % Proportion of Group sales in % Performance Polymers 2,388 3,782 58.4 53.1 Advanced Intermediates 1,104 1,321 19.7 18.6 Performance Chemicals 1,530 1,978 29.3 27.8 Reconciliation 35 39 11.4 0.5 5,057 7,120 40.8 100.0 6,944 6,608 6,576 5,057 2010 0 2,000 4,000 6,000 8,000 2009 2008 2007 2006 7,120
REPORT
Business P
erf
ormance
Order book status Most of the LANXESS Group’s business is not subject to long-term agreements on fi xed volumes and prices. Instead, our business is characterized by long-standing relationships with cus- tomers and revolving master agreements.
Any disclosure of the Group’s order book status at a given point in time therefore would not be indicative of the Group’s short- or medium- term earning power. For this reason, no such disclosure is made in this report.
Gross profi t The cost of sales did not rise as steeply as sales, increasing by 36.0% over the prior year to €5,381 million. As a result, our gross profi t margin improved considerably, from 21.8% to 24.4%. The prices for strategic raw materials – especially butadiene, cyclohexane and isobutylene – climbed substantially year on year, although the price of butadiene stabilized in the fourth quarter. Group-wide, the higher prices were passed on in full to the market so our price-before-volume strategy remained intact. Earnings were also impacted positively by consistently strong demand from customer industries throughout the year and the resulting volume growth, particularly in Performance Polymers and Performance Chemicals. At approximately 85%, capacity utilization was well above the prior-year fi gure of around 70%, which was low due to the economic crisis. Scheduled maintenance shutdowns meant that capacity utilization in the fourth quarter fell slightly below the level for the year as a whole. Idle capacity costs were substantially down from the previous year. The optimization of production cost structures over several years was accretive to earnings. While gross profi t was improved by positive currency changes, other operating expenses included losses from hedging transactions.
EBITDA and operating result (EBIT) Selling expenses rose by €116 million to €646 million in fi scal 2010, mainly due to higher freight charges as a consequence of the increase in volumes. However, the ratio of selling expenses to sales receded from 10.5% to 9.1%. By contrast, research and development costs increased by 14.9% to €116 million, underscoring the planned expansion of research activities as part of the LANXESS Technology Initiative. On account of the disproportionately high increase in sales, the ratio of research and development costs to sales was just 1.6% after 2.0% the previous year. The number of employees in R&D was 519 as of December 31, 2010, up from 489 on December 31, 2009.
General administrative expenses climbed from €235 million to €298 million in 2010. Reasons for this included the suspension of the Challenge09-12 package of measures and an increase in employees’ variable compensation due to the company’s positive performance in 2010. These expenses accounted for 4.2% of sales, down from 4.6% in the previous year.
Other operating expenses, net of other operating income, decreased by €14 million to €72 million. The exceptional charges of €28 million included in this fi gure, all of which impacted EBITDA, related mainly to
affected EBITDA. These were associated primarily with personnel measures in connection with the Challenge09-12 program, as well as restructuring and effi ciency enhancement measures at various LANXESS sites.
EBITDA pre Exceptionals
€ million
EBITDA Margin Pre Exceptionals
in %
The operating result before depreciation and amortization ( EBITDA) pre exceptionals nearly doubled to €918 million in 2010 from €465 mil- lion the year before. This earnings hike was driven by an increase in volumes and aided by the fact that the signifi cant raw material cost increases were quickly passed along in selling prices. This trend was supported by tangible positive shifts in currency parities resulting from the fall in the value of the euro compared with the same period of the previous year, as well as by the portfolio effect from the acquisitions made in India and China in 2009. The Group’s EBITDA margin pre exceptionals improved by a substantial 3.7 percentage points, from 9.2% to 12.9%.
EBITDA Pre Exceptionals by Segment
€ million 2009 2010 Change in % Performance Polymers 250 585 > 100 Advanced Intermediates 154 222 44.2 Performance Chemicals 182 281 54.4 Reconciliation (121) (170) (40.5) 465 918 97.4 0 200 400 600 800 1,000 675 719 722 465 2010 2008 2007 2006 2009 918 0 3 6 9 12 15 9.7 10.9 11.0 9.2 12.9 2010 2008 2007 2006 2009
LANXESS
ANNUAL
REPORT
2010 EBITDA pre exceptionals of the Performance Polymers segment more
than doubled year on year. Higher raw material costs were passed on in full to the segment’s customers. Moreover, the signifi cant increase in volumes had a tangible impact on earnings. Volume effects were also a key factor in the improved earnings of the Advanced Intermediates segment. In addition, higher raw material costs enabled the segment to raise selling prices. The acquisitions successfully concluded in India and China in 2009 made a positive contribution to earnings. EBITDA pre exceptionals of the Performance Chemicals segment was similarly infl uenced by strong volume growth in all business units. Positive sell- ing price and currency effects were also accretive to earnings. The decline in EBITDA pre exceptionals reported in the reconciliation is attributable to performance-related, one-time payments at the end of the fi scal year, higher expenses for long-term compensation programs and the hedging result.
The operating result (EBIT) improved very substantially from €149 mil- lion to €607 million in fi scal 2010.
Reconciliation of EBIT to Net Income
€ million 2009 2010 Change in %
Operating result (EBIT) 149 607 > 100
Income from investments accounted for using the equity
method 8 16 100.0
Net interest expense (73) (83) (13.7 ) Other fi nancial income and
expenses – net (52) (47) 9.6
Financial result (117) (114) 2.6
Income before income taxes 32 493 > 100
Income taxes 7 (112) < (100)
Income after income taxes 39 381 > 100
of which:
attributable to non-controlling
interests (1) 2 > 100
attributable to LANXESS AG
stockholders (net income) 40 379 > 100
Financial result The fi nancial result came in at minus €114 million in fi scal 2010, compared with minus €117 million for the prior year. Income from investments accounted for using the equity method contains the interest in the net income of Currenta GmbH & Co. OHG. Net interest expense rose, primarily due to the bonds placed during 2009 to safeguard the Group’s long-term liquidity. The interest portion of interest-bearing provisions resulted in lower expenses than in the prior year, mainly because of interest rate adjustments, while the net exchange position worsened against the prior-year period.
Income before income taxes Due to the signifi cant increase in EBIT and the nearly unchanged fi nancial result, income before income taxes jumped €461 million to €493 million.
Income taxes In fi scal 2010, the Group had tax expense of €112 mil-
Net income, earnings per share The LANXESS Group’s net income increased signifi cantly by €339 million year on year to €379 million. €2 million (2009: minus €1 million) was attributable to non-controlling interests.
With the number of LANXESS shares in circulation unchanged, earn- ings per share improved substantially year on year, from €0.48 to €4.56 due to the high level of net income.
BUSINESS TRENDS BY REGION