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Result

Gross profit

The cost of sales fell by 5.3%, to €1,700 million, and thus more slowly than sales. While the decline in volumes diminished the cost of sales, production costs were increased by the start-up of new capacity, the resulting higher levels of depreciation and by higher energy prices, for example. On top of this came cost increases due to lower capacity utilization.

Gross profit came in at €395 million, for a significant 33.3% decrease on the prior-year quarter. The gross profit margin dropped from 24.8% to 18.9%. One reason for this was the negative development of selling prices, which was partly attributable to lower prices for strategic raw materials. Shifts in exchange rates had no tangible effect. Capacity utilization was below the level of the prior-year quarter because of the demand situation and scheduled maintenance shutdowns.

EBITDA and EBIT

The operating result before depreciation and amortization (EBITDA) pre exceptionals decreased by €195 million or 52.8% in the first quarter of 2013 to €174 million. This was mainly the result of price effects, exacerbated by negative volume effects. Rising production costs, partly caused by energy prices, contributed to this earnings performance. Lower capacity utilization also led to higher costs. Exchange rates, however, had no tangible effect. Selling expenses rose by just 1.6% to €189 million. A slight decrease in freight costs in line with the volume development had a mitigating effect. Research and development  expenses increased to €48 million, against €45 million in the prior-year period, due to the targeted expansion of regional and centralized research activities. The Performance Polymers segment accounted for the largest share of R&D  spending. The Group’s EBITDA margin pre exceptionals came in at 8.3%, well below the 15.5% achieved in the corresponding period of last year.

EBITDA Pre Exceptionals by Segment
       
€ million Q1 2012 Q1 2013 Change %
       
Performance Polymers 255 112 (56.1)
Advanced Intermediates 70 71 1.4
Performance Chemicals 83 51 (38.6)
Reconciliation (39) (60) (53.8)
  369 174 (52.8)

The Performance Polymers segment generated EBITDA pre exceptionals of €112 million in the first quarter, which was a substantial €143 million below the prior-period figure of €255 million. The drop in earnings occurred mainly because selling prices declined more steeply than raw material costs. This modulation  of the price-before-volume strategy was due to the sharp drop in demand against a strong prior-year quarter. The effect of this was heightened by an overall increase in production costs, which was partly the result of higher energy prices and the completion of the butyl rubber facility in Singapore. Currency and portfolio effects had only a minor positive impact. The segment’s capacity utilization was significantly below the high level of the prior-year period due to the lower demand, maintenance shutdowns and measures to control inventory.

EBITDA pre exceptionals in the Advanced Intermediates segment, at €71 million, was on the levell of the prior-period figure of €70 million. Positive price effects, which compensated for the higher raw material costs, and a slight reduction in production costs offset the effects of a decline in volumes.

EBITDA pre exceptionals of the Performance Chemicals segment posted a year-on-year decline of €32 million, from €83 million to €51 million. Earnings were impacted by declining volumes in the majority of the business units, combined with rising production costs. In addition, there was a slightly negative currency effect, but also a minor positive portfolio effect in the quarter from the acquisition of U.S. company Tire Curing Bladders, LLC.

The Group operating result (EBIT) came to €67 million in the first quarter of 2013, down from €277 million in the year-earlier period. Due to the extensive acquisition and investment activities in recent years, depreciation and amortization was €14 million, or 15.9%, above the prior-year quarter, at €102 million. The €5 million in exceptional charges included in other operating expenses, which fully impacted EBITDA, related mainly to the realignment of business activities and the design and implementation of IT projects. Exceptional charges in the prior-year quarter amounted to €4 million.

Financial result

The financial result amounted to minus €36 million in the first quarter of 2013, compared with minus €30 million in the prior-year period. Interest expense was at the previous year’s level, while there was a slight decrease in capitalized construction-period borrowing costs. The earnings contribution from companies accounted for in the consolidated financial statements using the equity method came to €0 million in the reporting period, against €3 million in the previous year.

Income before income taxes

Income before income taxes decreased from €247 million to €31 million in the first quarter, in line with the deterioration in the operating result. The effective tax rate was 22.6%, compared with 22.3% for the prior-year quarter.

Net income and earnings per share

A loss of €1 million was attributable to non-controlling interests in the first quarter of 2013, against a result of €0 million in the prior-year quarter. First-quarter net income amounted to €25 million, compared with a restated €192 million in the prior-year period. With the number of LANXESS shares in circulation unchanged, earnings per share were €0.30, versus a restated €2.31 in the prior-year quarter.

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