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Result

Gross profit

The cost of sales fell at a slower rate than sales, decreasing by 5.3% to €1,736 million for the quarter. Lower prices for strategic raw materials and declining volumes had a particularly favorable impact. By contrast, production costs rose, in part because of higher levels of depreciation. On top of this came write-downs of inventories necessitated by decreases in the price of the key raw material butadiene.

Gross profit came in at €405 million, for a significant €185 million or 31.4% decrease on the prior-year quarter. The gross profit margin dropped from 24.3% to 18.9%. With volumes only slightly below the prior-year level, this was mainly attributable to negative price effects. Shifts in exchange rates had a slightly negative effect on gross profit. The persistently difficult demand situation meant that capacity utilization was well below the previous year, which resulted in higher idle capacity costs.

In the first half as well, the cost of sales did not fall as much as sales, decreasing by 5.3% to €3,436 million. Gross profit came in at €800 million, a decline of €382 million or 32.3% on the first half of the previous year. The reasons for this were largely the same as for the second quarter. The gross profit margin fell accordingly, from 24.6% to 18.9%.

EBITDA and EBIT

The operating result before depreciation and amortization (EBITDA) pre exceptionals decreased by €163 million or 45.2% in the second quarter of 2013 to €198 million. This was mainly the result of price effects, exacerbated by negative volume effects. Rising production costs and higher energy prices were additional factors. Exchange rate developments and acquisitions had no material impact on earnings. Selling expenses rose by 2.6% to €200 million because of higher storage costs. The expenses for regional and central research activities came to €43 million, against €53 million in the prior-year period. The Performance Polymers segment accounted for the largest share of this spending. The Group’s EBITDA margin pre exceptionals came in at 9.2%, well below the 14.9% achieved in the corresponding period of last year.

EBITDA Pre Exceptionals by Segment
             
€ million Q2 2012 Q2 2013 Change % H1 2012 H1 2013 Change %
             
Performance Polymers 257 94 (63.4) 512 206 (59.8)
Advanced Intermediates 79 74 (6.3) 149 145 (2.7)
Performance Chemicals 78 67 (14.1) 161 118 (26.7)
Reconciliation (53) (37) 30.2 (92) (97) (5.4)
  361 198 (45.2) 730 372 (49.0)
2012 figures restated

The Performance Polymers segment generated EBITDA pre exceptionals of €94 million in the second quarter, which was substantially below the prior-period figure of €257 million. This was mainly due to lower selling prices, the effects of which could not be fully compensated by lower raw material costs. Additional factors were inventory write-downs and rising production costs, in part because the butyl rubber plant in Singapore is not yet in full utilization. Volumes, by contrast, were level with the prior-year quarter. The impact of exchange rate and portfolio effects was insignificant, both individually and on aggregate.

Our Advanced Intermediates segment generated EBITDA pre exceptionals of €74 million, which was €5 million less than the prior-period figure of €79 million. Reasons included rising production costs and declining volumes due particularly to weak demand from the automotive industry. By contrast, changes in selling prices and raw material costs had a positive effect overall.

EBITDA pre exceptionals of the Performance Chemicals segment receded from €78 million a year ago to €67 million. Rising production costs and declining volumes impacted earnings. A slightly negative effect from exchange rate developments was largely offset by a positive portfolio effect from the acquisition of Singapore-based PCTS Specialty Chemicals Pte. Ltd.

The Group’s EBITDA pre exceptionals for the half-year decreased by a significant €358 million to €372 million. As in the second quarter, this development was driven particularly by negative price and volume effects as well as higher production costs. Selling expenses increased by €8 million or 2.1% to €389 million, while research expenditures were €7 million below the prior-year period at €91 million. The Group’s EBITDA margin came in at 8.8%, against 15.2% the previous year.

Earnings of the Performance Polymers segment were depressed above all because the decrease in selling prices exceeded the decrease in raw material prices. Higher production costs exacerbated this development. EBITDA pre exceptionals for the half-year declined from €512 million to €206 million. Earnings in the Advanced Intermediates segment for the half-year were €145 million, following €149 million in the prior-year period. The impact of lower volumes was more than offset by the overall positive effect of prices. Earnings in the Performance Chemicals segment also declined, from €161 million a year ago to €118 million, due in particular to lower volumes and higher production costs.

The Group operating result (EBIT) came to €50 million in the second quarter of 2013, down from €250 million in the year-earlier quarter. Due to the extensive acquisition and investment activities in recent years, depreciation and amortization was €23 million or 24.7% above the prior-year quarter, at €116 million. The exceptional charges included in other operating expenses totaled €38 million, of which €32 million impacted EBITDA. They related mainly to measures aimed at increasing the competitiveness of our Performance Chemicals segment. Exceptional charges in the prior-year quarter came to €20 million, of which €18 million impacted EBITDA.

For the half-year, LANXESS achieved an EBIT of €117 million, compared with €527 million the year before. Depreciation and amortization came to €218 million, which was €37 million or 20.4% above the prior-year period. The exceptional charges included in other operating expenses amounted to €43 million, of which €37 million impacted EBITDA. They related mostly to the measures described for the second quarter. The exceptional charges of €24 million in the prior-year period, of which €22 million impacted EBITDA, related mainly to facility consolidation measures in our Performance Chemicals segment as well as expenses for the design and implementation of IT projects.

Financial result

The financial result came to minus €39 million in the second quarter of 2013, compared with minus €24 million in the prior-year period. Interest expense was up slightly year on year. The amount of capitalized construction-period borrowing costs was lower than in the previous year due to the start-up of the butyl rubber facility in Singapore. 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.

The financial result for the first half was minus €75 million, against minus €54 million a year ago. This was partly attributable to the decrease in the net interest position and a lower earnings contribution from companies accounted for in the consolidated financial statements using the equity method.

Income before income taxes

Income before income taxes for the second quarter of 2012 came to €11 million, compared with €226 million for the prior-year period. The effective tax rate was 27.3%, compared with 22.6% for the prior-year quarter.

Income before income taxes for the first half decreased from €473 million to €42 million, in line with the lower operating result. The effective tax rate was 23.8%, against 22.4% a year ago.

Net income and earnings per share

Non-controlling interests accounted for a negative income of minus €1 million in the second quarter of 2013, against an income of plus €1 million a year ago. For the half, non-controlling interests accounted for minus €2 million of income in 2013, following plus €1 million in 2012. Net income for the second quarter came to €9 million, compared with €174 million in the prior-year period. Net income for the first half fell from €366 million to €34 million. With the number of LANXESS shares in circulation unchanged, earnings per share dropped sharply from €2.09 to €0.11 for the second quarter and from €4.40 to €0.41 for the half.

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