LANXESS Smashes Q1 2023 Earnings Projections, Setting the Pace for the Rest of the Year

Germany: LANXESS, the specialty chemicals company, has met its projected earnings for Q1 2023, with EBITDA pre-exceptionals totalling EUR 189 million, falling within the range of EUR 180 to EUR 220 million forecasted in March. Despite a 27.9% decrease from the previous year's figure of EUR 262 million, sales remained relatively consistent at EUR 1.899 billion, representing only a 1.7% dip from the previous year's mark of EUR 1.931 million.

LANXESS's earnings were affected by sluggish demand in certain customer industries, particularly in construction, and ongoing destocking by several customers, causing a noticeable impact on the Advanced Intermediates and Specialty Additives segments. On the other hand, the Consumer Protection segment remained resilient, as sales and earnings rose despite slightly lower sales volumes. Additionally, the acquisition of the Microbial Control business from U.S. company IFF in mid-2022 had a positive impact on LANXESS's overall performance. Despite increased raw material and energy costs, LANXESS successfully managed to pass on the costs and gained from favourable currency effects across all segments.

In the first quarter, free cash flow saw a noticeable increase of EUR 264 million year-on-year, resulting in a total of EUR 112 million. This growth can be attributed to stable working capital, despite a seasonal rise in patterns. Meanwhile, net income from continuing operations for the first quarter of this year was EUR 10 million, compared to EUR 66 million in the previous year. The EBITDA margin pre-exceptionals was 10.0 percent, down from last year's 13.6 percent.

LANXESS foresees a difficult economic landscape marked by a high degree of uncertainty in the upcoming months. As a result, the Group predicts that earnings in the second quarter of 2023 will likely be comparable to those of the first quarter. However, LANXESS expects a significant increase in earnings during the second half of the year, due to the global economy gaining momentum and the Chinese market experiencing growth. Therefore, the Group estimates that the full financial year 2023 will yield an EBITDA pre exceptionals between EUR 850 million and EUR 950 million.

On April 1, 2023, LANXESS continued its focus on specialty chemicals by transferring its High Performance Materials (HPM) business unit to a joint venture with private equity investor Advent International. The new joint venture, Envalior, specializes in high-performance engineering polymers and includes the former Engineering Materials business from DSM. Advent has a 60 percent stake in Envalior, and LANXESS holds around 40 percent. As part of the transfer, Advent paid LANXESS approximately EUR 1.27 billion on March 31, which the Group will primarily use to reduce its debt and strengthen its balance sheet.

In the first quarter, the Consumer Protection segment witnessed a notable increase in sales, recording EUR 647 million, which is a boost of 27.9 percent compared to last year's EUR 506 million. Additionally, the segment's EBITDA pre exceptionals grew by 9.3 percent, reaching EUR 94 million as opposed to the previous year's EUR 86 million. The Microbial Control business acquired from IFF in July 2022 contributed to this growth. However, lower sales volumes and delivery issues with a supplier impacted earnings negatively. Despite this, all business units in the segment achieved higher selling prices, with the EBITDA margin pre exceptionals standing at 14.5 percent, down from last year's 17.0 percent.

In the first quarter, the Specialty Additives segment observed a 9.0 percent decline in sales from EUR 730 million to EUR 664 million, compared to the previous year's strong quarter. The decrease in sales can be attributed to weaker demand from the construction and automotive industries, leading to lower volume in all business units of the segment. Additionally, a weather-related production facility shutdown in the U.S. and increased freight costs contributed to the reduced earnings. As a result, EBITDA pre exceptionals decreased by 27.9 percent from EUR 136 million to EUR 98 million, and the EBITDA margin pre exceptionals reduced from 18.6 percent to 14.8 percent.

The Advanced Intermediates segment's sales and earnings were negatively impacted in the first quarter due to weaker demand, particularly from the construction and chemical sectors, and decreased sales volumes. Sales plunged by 15.8 percent to EUR 516 million from the previous year's figure of EUR 613 million. The year-over-year comparison of EBITDA pre-exceptionals shows a significant drop of 49.4%, with current earnings at EUR 44 million compared to the previous year's earnings of EUR 87 million. The EBITDA margin pre-exceptionals dropped to 8.5 percent, in contrast to 14.2 percent in the prior-year quarter.