Following a modest start to 2014, LANXESS is currently developing measures to realign the company.

"We must become significantly more competitive and profitable again," said Matthias Zachert, LANXESS’ Chairman of the Board of Management. "The focus will therefore be on the business portfolio, our business units, the efficiency of our administration and our production sites."

Administrative structures are to be optimized and decision-making processes streamlined. Customer and market orientation in the business units are to be improved. The profitability of the sites will be analyzed and consideration given to temporary or permanent shutdowns of plants. LANXESS will also explore options to make its rubber activities more competitive and to balance its business portfolio. Further details on the realignment of the company will most likely be provided during the second half of this year.

The personnel adjustments that were initiated last year as part of the "Advance" program have been completed in line with expectations.

Business trends in the first quarter

First-quarter sales were down by 2.5 percent year-on-year to EUR 2 billion. The encouraging increase in volumes in all segments did not offset the drop in selling prices and negative currency effects.

EBITDA pre exceptionals rose by 17.8 percent year-on-year to EUR 205 million and thus reached the level of about EUR 200 million guided in March.

The improvement in earnings was mainly due to positive volume effects in all segments, a lower cost base resulting from the "Advance" program and the absence of one-time charges, especially in the Performance Polymers segment. Earnings were diminished by the effect of a drop in selling prices.

The EBITDA margin pre exceptionals rose to 10.0 percent, against 8.3 percent for the corresponding period of last year.

Net income for the reporting period came in at the prior-year level of EUR 25 million. Earnings per share were also level with the prior-year quarter at EUR 0.30.

"The first quarter was characterized by a persistently challenging market environment for synthetic rubber," said Zachert. "The agrochemicals business, however, continued to develop well. Positive impetus also came from the construction industry."

Financial data

Net financial liabilities rose in the first quarter compared with the end of 2013 by about EUR 100 million to EUR 1.8 billion. The rise was driven by seasonal increase in working capital, mainly due to the higher levels of trade receivables and inventories when business picked up at the beginning of the year.

Operating cash flow in the first three months was EUR 9 million compared to a negative cash flow of EUR 160 million for the same period of the previous year.

Business development by region

Sales in the EMEA (excluding Germany) region in the first quarter of 2014 were EUR 618 million and thus nearly reached the level of the prior-year period. This was the strongest region, accounting for 30.3 percent of sales.

In Germany, sales increased by 3.0 percent to EUR 381 million. Germany’s share of Group sales came to 18.6 percent for the quarter, against 17.7 percent for the same period a year ago.

Sales in the North America region grew by 1.2 percent to EUR 331 million. The region’s share of Group sales increased to 16.2 percent, compared with 15.6 percent in the prior-year period.

In the Latin America region, sales receded by 11.4 percent to EUR 217 million. The region’s share of Group sales came to 10.6 percent, against 11.7 percent for the same period a year ago.

Sales in the Asia-Pacific region decreased by 6.4 percent to EUR 496 million. Asia-Pacific’s share of Group sales fell to 24.3 percent, against 25.3 percent for the same period a year ago.

Business development by segment

Sales in the Performance Polymers segment declined by 6.3 percent in the first three months of 2014, to EUR 1.1 billion. Development was significantly impacted by lower selling prices that affected all business units. The volume trend was positive across nearly all business units against a weak prior-year quarter.

EBITDA pre exceptionals in the Performance Polymers segment rose by 4.5 percent to EUR 117 million. Volume gains and the absence of the prior-year quarter’s start-up costs for the butyl rubber facility in Singapore had a positive impact. These effects were partially offset by the drop in selling prices, which exceeded the decline in raw material costs. A strike in Belgium had an additional negative effect.

Sales in the Advanced Intermediates segment declined by 3.2 percent to EUR 419 million. The Saltigo and Advanced Industrial Intermediates business units benefited from good demand for agrochemicals. However, this positive effect was more than offset by lower selling prices that were mainly attributable to decreases in raw material costs. Exchange rate developments also had a slight negative effect.

EBITDA pre exceptionals, at EUR 72 million, came in slightly above the prior-period figure of EUR 71 million.

The Performance Chemicals segment grew sales by 5.8 percent to EUR 550 million. Volumes expanded in all business units. The business with inorganic pigments and other products used in the construction

industry benefited from the good demand attributable to the mild winter in Europe.

EBITDA pre exceptionals of the Performance Chemicals segment rose by one third to EUR 68 million, mainly due to the clearly positive volume development.

Outlook

LANXESS anticipates that the economic environment will continue to slowly recover during the remainder of the year. The main impetus is expected to come from the established economic regions.

The Group believes that the challenging competitive environment for its synthetic rubber businesses will continue, with price pressure persisting. LANXESS therefore continues to predict a subdued development for the Performance Polymers segment.

In the agrochemicals business, the Group expects demand to continue developing well in the upcoming quarters. The forecasted growth in the construction industry should provide additional impetus.

As a result of these factors, LANXESS expects an improved year-on-year earnings development in the second quarter of 2014 and anticipates that EBITDA pre exceptionals will come in at between EUR 220 million and EUR 240 million.

"We are giving a more concrete earnings guidance for fiscal 2014 and currently expect EBITDA pre exceptionals of between EUR 770 million and EUR 830 million," said Zachert.

Q1 2014 Key Data

(EUR million)