Lanxess Ag · XETR:LXS
Lanxess — Q2 2005 Earnings Presentation
53 slides from Lanxess's earnings presentation, Aug 25, 2005
Slide 1: LANXESS Q2 2005 Results
LANXESS Q2 2005 Results August 25, 2005
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 1. Highlights Q2 2005 2. Restructuring 3. Q2 Financials and Business Issues 4. Outlook and Summary Chart-No. 3
Slide 4: Continuous High Speed in Q2
Continuous High Speed in Q2 April July Announcement Buyback of Annual Signing of Restructuring €200 m Mandatory General agreement with 1st Phase Convertible Bond Meeting works council / and placement of unions underlying shares (Germany) Constitution of 2nd investment Issuance of Share based Fast-en
Slide 5: Improvements Q2 2005 vs. Q2 2004
Improvements Q2 2005 vs. Q2 2004 Sales EBITDA* Net income + 11.1% + 41.7% €1.9 bn €1.7 bn €163 m €115 m €24 m €-29 m Q2 2004 Q2 2005 Q2 2004 Q2 2005 Q2 2005 EBITDA* margin: Q2 2004 6.9% 8.8% * EBITDA pre exceptionals Chart-No. 5
Slide 6: Agenda
Agenda 1. Highlights Q2 2005 2. Restructuring 3. Q2 Financials and Business Issues 4. Outlook and Summary Chart-No. 6
Slide 7: Step-by-Step Approach to Creating Value
Step-by-Step Approach to Creating Value EBITDA*- Short-term Mid-term Long-term Margin 4. Acquisitions Portfolio > 10% Portfolio 3. adjustments 9-10% Targeted 2. restructuring Cost Performance 1. improvement <5% * EBITDA pre exceptionals Selective organic growth in profitable businesses Chart-No. 7
Slide 8: Focus on Targeted Restructuring
Focus on Targeted Restructuring EBITDA*- Short-term Mid-term Long-term Margin 4. Acquisitions Portfolio > 10% Portfolio 3. adjustments 2006 9-10% Targeted 2. restructuring Cost Performance 1. improvement <5% * EBITDA pre exceptionals Selective organic growth in profitable businesses Chart-No. 8
Slide 9: Restructuring 1st Phase
Restructuring 1st Phase LANXESS
Slide 10: 1st Phase: €100 m Savings with €150 m One-Time Costs
1st Phase: €100 m Savings with €150 m One-Time Costs 1st Phase: Characteristics €m − Restructuring with focus on Germany and Spain 150 − Headcount reduction of 960 − FCH: Implementation of new business model and asset 100 consolidation − STY: Realignment of Dormagen and Tarragona sites − Solidarity
Slide 11: Immediate Action Taken for FCH and STY
Immediate Action Taken for FCH and STY - Agreement with works representatives / unions settled - Implementation started Fine Chemicals Styrenic Resins - Independent legal entity - Realignment of Dormagen and Tarragona sites - Closure of two unprofitable plants already finalized - Capacity adjustment
Slide 12: Restructuring 2nd Phase
Restructuring 2.4 Phase LANXESS
Slide 13: 2nd Phase: Aggressive Restructuring to be Continued
2nd Phase: Aggressive Restructuring to be Continued - Site consolidation or closure Asset Consolidation - Plant consolidation or closure - Facility consolidation or closure - Rationalization Process Optimization - In-Sourcing / Out-Sourcing - Efficiency gains - Eliminate unprofitable products Adjust
Slide 14: 2nd Phase: €60 m Savings with €100 m One-time Costs
2nd Phase: €60 m Savings with €100 m One-time Costs 2nd Phase: Characteristics €m − Program consists of: 100 − Five BUs are effected: RCH, IPG, TPC, TRP, LEA 60 − Headcount reduction of approx. 450 − Negotiation with works representatives started one-time costs sustainable savings in 2008 Chart-No.
Slide 15: 2nd Phase Restructuring in U.S. and Europe
2nd Phase Restructuring in U.S. and Europe USA Europe Focus on Asset Consolidation Focus on Process Optimization Chart-No. 15
Slide 16: Small U.S. Production Sites to be Closed
Small U.S. Production Sites to be Closed Asset Consolidation – Approx. 20% of LANXESS sales are in the U.S. market – Some production sites of under-critical size with unfavourable cost structure – Closure of three out of ten production sites Chart-No. 16
Slide 17: RheinChemie: Closure of Trenton to Regain Profitability in U.S.
RheinChemie: Closure of Trenton to Regain Profitability in U.S. Trenton; RCH Trenton – Two U.S. production sites; Trenton and Chardon – Trenton of under- critical size with unfavourable cost structure – Closure of Trenton after years of unprofitable U.S. business Chart-No. 17
Slide 18: Inorganic Pigments: Closure of New Martinsville Site
Inorganic Pigments: Closure of New Martinsville Site forced by Material Structural Problems New Martinsville; IPG Trenton – Small plant size leads to lack of economies of scale – Cost structure not competitive – Losses for years – Transfer of products to our world-scale facilities New Martinsville C
Slide 19: Textile Processing Chemicals: Closure of Wellford Site
Textile Processing Chemicals: Closure of Wellford Site Following Declining of U.S. Market Wellford; TPC Trenton – Declining market in U.S. - shift to low cost regions such as Asia and Latin America – Capacities underutilized – Losses for years – Business under pressure due to Wellford “WTO effect” N
Slide 20: Technical Rubber Products: Process Optimization and Aggressive Cost-Cutting
Technical Rubber Products: Process Optimization and Aggressive Cost-Cutting La Wantzenau; TRP – NBR-business has been unprofitable for 10 years – Despite investments of €150 m, losses of €200 m were incurred – Double-digit million euro saving is necessary to ensure sustainable profitability La Wantz
Slide 21: Leather: Closure of Outdated Plant and Shift of Production
Leather: Closure of Outdated Plant and Shift of Production to Other Facilities Uerdingen; LEA Uerdingen – Eroding European Leather Plant market – Outdated plant design – Capacities underutilized – Plant closure and shift to other facilities improves profitability La Wantzenau Chart-No. 21
Slide 22: Restructuring and Portfolio Initiatives Underway for Over Half of BUs
For More than Half of all BUs Significant Restructuring and Portfolio Initiatives Underway Board Material Protection Butyl Rubber Styrenic Resins Basic Chemicals Products Semi-Crystalline Polybutadiene Rubber Fine Chemicals Functional Chemicals Products Technical Rubber Fibers Inorganic Pigments Lea
Slide 23: Restructuring Financials
Restructuring Financials LANXESS
Slide 24: Restructuring Financials - Updated Guidance Phase I
Restructuring Financials - Updated Guidance Phase I Phase I (€ m) 2005 2006 2007 2008 P&L Expenses -100 -10 -10 -5 Cash outs -25 -50 -50 -25 Cost reduction 20 50 100 EBITDA improvement 20 50 70 Headcount reduction ~200 ~380 ~380 – €125 m total P&L expense – €150 m total cash costs (remains unchanged
Slide 25: Restructuring Financials - Guidance for Phase II
Restructuring Financials - Guidance for Phase II The following financial savings and restructuring potential has been identified: Phase II (€ m) 2005 2006 2007 2008 P&L Expenses -45 -25 -20 -10 Cash outs -15 -45 -25 -15 Cost reduction 20 40 60 EBITDA improvement 20 35 50 Headcount reduction ~140 ~29
Slide 26: Major Restructuring initiated - despite given constraints
Major Restructuring initiated - despite given constraints Phase I+II (€ m) 2005 2006 2007 2008 P&L Expenses -145 -35 -30 -15 Cash outs -40 -95 -75 -40 Cost reduction 40 90 160 EBITDA improvement 40 85 120 Headcount reduction ~340 ~670 ~400 Key Take-Aways: – €225 m total P&L expense – €250 m total ca
Slide 27: Agenda
Agenda 1. Highlights Q2 2005 2. Restructuring 3. Q2 Financials and Business Issues 4. Outlook and Summary Chart-No. 27
Slide 28: Financial Highlights: Necessary Performance Improvement Achieved
Financial Highlights: Necessary Performance Improvement Achieved (€ m) Q2 2004 Q2 2005 ∆ in % Sales 1,673 1,859 11.1% – Sales growth on the basis of strong pricing (+8%) and EBITDA pre except. 115 163 41.7% risen volumes (+4%) Margin 6.9% 8.8% – Strategy changes and improving cost structures EBIT 10
Slide 29: On Track to Start Closing the Gap
On Track to Start Closing the Gap (€ m) Q2 2004 Q2 2005 ∆ absolut ∆ in % Sales 1,673 1,859 186 11% – Sales increase Cost of goods sold -1,301 -1,419 118 9% mainly due to SG&A -290 -292 2 1% higher selling prices R&D -31 -28 -3 -10% and strong volumes Other op. expense -41 -43 2 5% – COGS increase EB
Slide 30: Performance Rubber: Continuous Strong Results in BTR and PBR
Performance Rubber: Continuous Strong Results in BTR and PBR - TRP Lagging Behind (€ m) Q2 2004 Q2 2005 – Higher sales in all BUs - increased selling prices in PBR and BTR as well as higher volumes in TRP, overall Sales 368 432 offsetting increased raw material costs EBIT 14 52 – BTR remains on high
Slide 31: Engineering Plastics: Slight Improvement Versus Prior Year
Engineering Plastics: Slight Improvement Versus Prior Year, Overall Performance Still Unsatisfactory (€ m) Q2 2004 Q2 2005 – Sales increased on strong SCP volumes and higher selling prices, offsetting weaker STY and FIB Sales 431 448 sales EBIT 17 -6 – Contract prices for major raw materials (styren
Slide 32: Chemical Intermediates: BAC With Continued Strong Results
Chemical Intermediates: BAC With Continued Strong Results, Supported by Slight FCH Improvement (€ m) Q2 2004 Q2 2005 – Overall higher volumes and improved pricing due to raw material cost increases in BAC and IPG contributed Sales 320 406 to sales growth EBIT 2 34 – EBITDA increased on strong overal
Slide 33: Performance Chemicals: Profit Improvement Fuelled Mainly by RUC and RCH
Performance Chemicals: Profit Improvement Fuelled Mainly by RUC and RCH (€ m) Q2 2004 Q2 2005 – Slight increase in Sales mainly on stronger pricing for RUC and higher volumes and prices for LEA, as well Sales 490 511 as higher ION prices EBIT -3 41 – RUC, RCH, FCC and LEA contribute to improved EBIT
Slide 34: Operational Items to Consider on a Quarterly Basis
Operational Items to Consider on a Quarterly Basis Planned “direct costs”: related to material and services used maintenance during maintenance additional turnarounds idle time costs: related to fixed unit costs that are not expenses each H2 have several capitalized due to inactive production impact
Slide 35: Earnings Fluctuation - Items to Bear in Mind
Earnings Fluctuation - Items to Bear in Mind EBITDA pre exc. Sales (€ m) (€ m) 1,859 300 1800 1,729 • Summer dip / Customer-vacation time 1600 250 1400 • Restructuring expenses 200 1200 181 163 1000 • Weaker product mix 150 800 600 • Additional expenses (maintenance) 100 400 50 200 0 0 Q1'05 Q2'05 Q
Slide 36: Condensed Consolidated Balance Sheet
Condensed Consolidated Balance Sheet Dec 31, Mar 31, June 30, Dec 31, Mar 31, June 30, (€ m) 2004 2005 2005 (€ m) 2004 2005 2005 Non-current Assets Stockholders’ equity 1,365 1,185 1,225 Intangible assets 65 62 60 thereof Minority interest 14 14 15 Property, plant & equipment 1,521 1,518 1,517 Inves
Slide 37: Additional Comments on Selected Balance Sheet Items
Additional Comments on Selected Balance Sheet Items Assets – Increase in inventories versus year end 2004 triggered mainly by stronger USD and preparation for maintenance turnarounds in the latter months of the year – Higher amount of trade receivables due to grown business volume and stronger USD –
Slide 38: Improved Operating Cash Flow: Remains Weak - Predominantly due to Working Capital
Improved Operating Cash Flow: Remains Weak - Predominantly due to Working Capital (€ m) H1 2004 H1 2005 EBIT 80 193 – Cash flow improved mainly on higher operating Income Taxes -37 -39 result Depreciation & Amortization 182 148 – Strong improvement of Change in Pension Provision -16 6 operating Cash
Slide 39: Agenda
Agenda 1. Highlights Q2 2005 2. Restructuring 3. Q2 Financials and Business Issues 4. Outlook and Summary Chart-No. 39
Slide 40: Outlook
Outlook Underlying assumptions – Exchange rate €1.0 = ~USD1.25 – Continuous supportive economic environment – Q3 somewhat weaker versus Q2 due to summer vacation in customer industries („summer dip“) – Restructuring expenses expected predominantly in Q3 2005 2005 Guidance based on above assumptions
Slide 41: LANXESS - Promise and Delivery
LANXESS - Promise and Delivery Status and Way Forward Independence - Clear roles and responsibilities and committed management - Price-before-Volume Strategy with positive results - Strengthened finance structure Restructuring - 1st Phase: Immediate action taken for largest loss makers - 2nd Phase:
Slide 42: Independence. Restructuring. Portfolio.
INDEPENDENCE. RESTRUCTURING. PORTFOLIO.
Slide 43: Appendix
Energizing Chemistry Appendix
Slide 44: Built on Polymers and Chemicals
Built on Polymers and Chemicals Performance Engineering Chemical Performance Rubber Plastics Intermediates Chemicals Independence. Cost Reduction. Portfolio Management. Chart-No. 44
Slide 45: Entrepreneurial and Experienced Board Directly Connected to BUs
Entrepreneurial and Experienced Board Directly Connected to BUs Board of Management Material Protection Butyl Rubber Styrenic Resins Basic Chemicals Products Polybutadiene Rubber Semi-Crystalline Products Fine Chemicals Functional Chemicals Technical Rubber Products Fibers Inorganic Pigments Leather
Slide 46: Global Presence
Global Presence World Coverage Sales by Region Asia 15% Germany 24% Americas 26% EMEA w/o Germany 35% LANXESS Bayer Agency Other (21 countries) (~30 countries) Assets by Region Employees by Region Asia Asia 4% 20% Americas 22% Americas 10% Germany Germany EMEA w/o 51% EMEA w/o 51% Germany Germany 23
Slide 47: Strong Foundation, but Unsatisfactory Profitability in 2004
Strong Foundation, but Unsatisfactory Profitability in 2004 EBITDA Margin* 2004 Profitability Distribution LANXESS Sales Share EBITDA Margin* BASF 19.5% ~ 30% >10% Degussa 14.6% Ciba 14.3% ~ 30% 5-10% DSM 13.1% Clariant 11.1% ~ 40% <5% Rhodia 8.4% LANXESS 6.6% Æ ~12.5% *EBITDA pre exceptionals in %
Slide 48: Well Established Brands for Diversified Industry Portfolio
Well Established Brands for Diversified Industry Portfolio Brands End User Industries Others* Chemicals / Plastics Textile Leather (*) Electronic Automotive / Paper Transportation Life Science Construction Tire . * – Water Treatment . – Nutrition . – Furniture – Hygienics – Coatings – Packaging – He
Slide 49: Q2 2005 D&A and Exceptionals by Segment
Q2 2005 D&A and Exceptionals by Segment (€ m) EBITDA EBITDA EBIT EBIT Explanation pre excep. pre excep. of exceptionals* Performance Rubber 70 68 52 54 €2 m anti-trust litigation TRP €9 m impairment FIB Engineering Plastics 14 14 -6 6 €3 m depreciation of capex in STY €2 m depreciation of Chemical I
Slide 50: Improved Operating Cash Flow: Remains Weak - Predominantly due to Working Capital
Improved Operating Cash Flow: Remains Weak - Predominantly due to Working Capital (€ m) Q2 2004 Q2 2005 EBIT 10 77 – Cashflow improved Income Taxes -20 -15 mainly on higher Depreciation & Amortization 87 83 operating result Change in Pension Provisions -23 6 – Strong improvement in Gain/ Loss from S
Slide 51: Working Capital Increase in Past Quarter Due to FX Effects
Working Capital* Increase in Past Quarter Due to FX Effects, Higher Raw Material Costs and for Business Reasons Total WC in € million: €1,468 €1,714 €1,796 – Inventory: 70% of sequential increase attributable to FX- rate changes, remainder due FX-rate: € vs. USD: ~1,362 € vs. USD: ~1,296 € vs. USD:
Slide 52: Raw Materials and Currency Exposure are Managed
Raw Materials and Currency Exposure are Managed Raw materials Currency exposure Top 10 petrochemical raw materials 2005 in € million Our operating business is performed 1,3-Butadiene in the following major foreign currencies: US-Dollar, Yen, Pound, Styrene monomer Canadian and Hongkong Dollar Acrylo
Slide 53: Reminder: LANXESS' Long Term Incentive and Employee Participation Programmes
Reminder: LANXESS’ Long Term Incentive and Employee Participation Programmes • Long Term Incentive Programme consisted of: • Stock Performance Plan (SPP) • and Economic Value Plan (EVP) • Condition to participation: personal investment (40%* of one annual fixed salary in three tranches) • Individual