Lanxess in India: double-digit sales growth in 2006

In Fiscal 2006 the German based chemical company LANXESS recorded a double-digit sales growth in India to EUR 185.5 million (adjusted for portfolio changes). As part of its Asia strategy, India is a possible location for a completely new production plant for ion exchange resins in the Asia-Pacific region on which LANXESS will embark this year.

The Greenfield project will involve an eight-figure Euro investment. To make sure right from the start that site costs for the new ion exchange resins plant in Asia are kept as low as possible, LANXESS has initiated an international bidding process in which sites in China, India and Singapore will participate. For this business unit, the project represents the biggest investment since the late 1990s. Details on the status of this project will be announced soon.

On a global level, the parent company LANXESS AG had a successful year in 2006, posting a further substantial rise in earnings (EBITDA pre exceptionals). Presenting the 2006 results in Düsseldorf, Management Board Chairman Axel C. Heitmann commented: "LANXESS is firmly on course to close the gap to its international competitors."

Key data

The LANXESS Group's main performance indicator, EBITDA pre exceptionals, improved in 2006 by a substantial 16.2 percent to EUR 675 (581) million, which was at the top end of 2006 guidance. The EBITDA margin pre exceptionals gained 1.6 percentage points to 9.7 (8.1) percent. The operating result (EBIT) advanced significantly to EUR 376 (28) million. The positive trend was also reflected in net earnings, which were well in the black at EUR 197 million following a EUR 63 million net loss in the previous year. LANXESS achieved a further significant reduction in net financial debt, from EUR 680 million in 2005 to EUR 511 million in 2006.

Sales in 2006 developed as expected, declining by 2.9 percent to EUR 6.94 (7.15) billion, as a result of portfolio changes and adverse currency effects, especially regarding the U.S. dollar. However, adjusted for the divestment of the Fibers and Paper business units and RheinChemie subsidiary iSL as well as the adverse shifts in exchange rates, sales edged up 1.2 percent.

Dividend proposed for the first time

In light of the greatly improved earnings situation, LANXESS will for the first time propose the payment of a dividend for 2006. "This is a token of recognition of our stockholders' loyalty," said Heitmann. The Management Board and Supervisory Board of LANXESS AG will ask the Annual Stockholders' Meeting on May 31, 2007 to approve payment of a dividend of EUR 0.25 per share.

Outlook for 2007

By 2009 the Group aims to report an EBITDA margin pre exceptionals equal to the average of its competitors, which in 2006 was between 12 and 14 percent. In line with this objective, LANXESS expects its margin to trend better than its competitors' average over the next three years.

For 2007 LANXESS anticipates a stable economic environment and expects operating performance at Group level to improve. The company is forecasting moderate sales growth in 2007 after adjusting for portfolio effects. "LANXESS already experienced a good start to the current year," said Heitmann. Specific guidance on EBITDA pre exceptionals for the full year 2007 will be given when the first-quarter results are published. Capital expenditures in 2007 are planned to exceed EUR 300 million.

2006 results by segment

LANXESS improved its main performance indicator, EBITDA pre exceptionals, in all four segments in 2006.

Last year's figures again evidenced the strong market position of the Performance Rubber segment, which comprises all LANXESS's activities in the manufacturing and marketing of synthetic rubber. Segment sales expanded in 2006 by 5.8 percent to EUR 1.78 (1.68) billion. The nearly 16 percent rise in EBITDA pre exceptionals to EUR 248 (214) million was partly due to cost containment and efficiency improvements. Increases in raw material costs, which were in some cases substantial, were passed along in the market. In 2006 the segment reaped the full benefit of the restructuring and cost-saving measures initiated in the Technical Rubber Products business unit. The EBITDA margin pre exceptionals rose to 14.0 (12.8) percent.

The Engineering Plastics segment, which combines all LANXESS's polymers activities, recorded a further improvement in 2006. Although sales decreased by 1.7 percent to EUR 1.71 (1.74) billion because of the divestment of the loss-making Fibers business unit, the segment saw earnings in terms of EBITDA pre exceptionals jump by 56.1 percent to EUR 103 (66) million thanks to selling price increases and restructuring efforts. The EBITDA margin pre exceptionals improved tangibly to 6.0 (3.8) percent.

The segment's two remaining business units felt the positive effects of selling price increases that were driven by the rise in raw material and energy costs. The Lustran Polymers business unit continued its value-oriented growth strategy, deliberately foregoing unprofitable business. The Semi-Crystalline Products business unit experienced a very high level of capacity utilization throughout the year, with further earnings contributions coming from additional capacities in China.

The Chemical Intermediates segment, with its chemical precursors and intermediates, again turned in a strong earnings performance. Sales remained virtually unchanged at EUR 1.53 (1.54) billion. The Basic Chemicals and Inorganic Pigments business units raised their prices in order to pass on increases in raw material and energy costs. Thanks to a clear improvement in earnings of the Saltigo business unit, the segment's EBITDA pre exceptionals moved ahead 16.1 percent to EUR 245 (211) million, giving a margin of 16.0 (13.7) percent.

Portfolio adjustments left their mark on the Performance Chemicals segment, which has a broad range of user-oriented activities in the field of process and functional chemicals. Sales declined due to portfolio changes by 8.3 percent to EUR 1.81 billion. Adjusted for the divestment of the Paper business unit and the RheinChemie subsidiary iSL, sales edged up 1.7 percent. In all business units except Rubber Chemicals, prices were raised or maintained at the previous year's level. Sales of the Material Protection Products and Leather business units developed well. EBITDA pre exceptionals rose by 3.8 percent from the previous year, to EUR 220 (212) million. The margin advanced by 1.4 percentage points to 12.1 (10.7) percent.

Between 2004 and 2006, LANXESS succeeded in reducing the proportion of its sales yielding an EBITDA margin pre exceptionals of below 5 percent from about 40 percent to some 20 percent. The Group will rigorously pursue this course with the aim of having no businesses earning an EBITDA margin of under 5 percent by 2009.

Q4 2006 results

In the fourth quarter of 2006, sales fell 7 percent year on year to EUR 1.67 (1.79) billion due to portfolio and currency effects. EBITDA pre exceptionals increased to EUR 105 (89) million. EBIT improved to 39 (minus 111) million. Earnings in the previous year were held back by substantial restructuring charges.