Result

Gross profit

The cost of sales showed a disproportionately large decline of 1.4% compared with sales, to €1,639 million. The decline in raw material purchase prices and idle capacity costs provided relief, more than offsetting the effect of higher volumes. Shifts in currency parities had a slightly positive impact.

Gross profit was €401 million, up by €13 million or 3.4% against the prior-year quarter. The gross profit margin rose from 18.9% to 19.7%. The expansion of volumes and lower manufacturing costs contributed to this positive development. The decline in selling prices, which slightly outweighed the positive effect of lower raw material costs, had the opposite effect. At the Group level, shifts in exchange rates had a positive effect on the gross profit. Capacity utilization was higher than in the prior-year quarter.

EBITDA and EBIT

The operating result before depreciation and amortization (EBITDA) pre exceptionals rose in the third quarter of 2014 by €23 million or 12.3% against the prior-year period, to €210 million. This was mainly attributable to higher volumes and lower manufacturing costs. Overall, slightly favorable currency and portfolio effects also had a positive impact. Earnings were burdened by selling price adjustments, which slightly exceeded the relief from the decline in raw material costs because of the challenging competitive situation. Selling expenses, at €186 million, were on previous-year level. Research and development expenses, at €39 million, were down against the prior-year level of €43 million. General administration expenses declined by €14 million to €62 million. The development of functional costs already reflected cost savings from the “Advance” and “Let’s LANXESS again” programs. The Group’s EBITDA margin pre exceptionals improved from 9.1% to 10.3%.

EBITDA Pre Exceptionals by Segment
 
€ million Q3 2013 Q3 2014 Change % 9M 2013 9M 2014 Change %
             
Performance Polymers 84 93 10.7 290 332 14.5
Advanced Intermediates 71 74 4.2 216 219 1.4
Performance Chemicals 72 76 5.6 190 230 21.1
Reconciliation (40) (33) 17.5 (137) (127) 7.3
  187 210 12.3 559 654 17.0

EBITDA pre exceptionals in our Performance Polymers segment increased by €9 million in the third quarter, to €93 million. This was mainly the result of considerably lower manufacturing costs, which resulted in part from lower idle capacity costs, and also of lower research and development expenses. Lower selling prices resulting from the persistently difficult competitive situation for synthetic rubbers and due to a decline in purchase prices for some raw materials had the opposite effect. The net influence of currency and portfolio effects was slightly negative.

EBITDA pre exceptionals in the Advanced Intermediates segment advanced by €3 million to €74 million. Continued good demand for agrochemicals led to positive volume effects. The decline in selling prices was in line with the development of input costs. Shifts in currency parities did not have a significant impact. 

The Performance Chemicals segment generated EBITDA pre exceptionals of €76 million, up €4 million over the prior-year period. At the segment level, earnings were improved by an expansion of volumes, a positive price effect and favorable currency developments. Higher manufacturing costs had an opposing effect.

Reconciliation of EBITDA Pre Exceptionals to Operating Result (EBIT)
 
€ million Q3 2013 Q3 2014 Change % 9M 2013 9M 2014 Change %
             
EBITDA pre exceptionals 187 210 12.3 559 654 17.0
Depreciation and amortization (114) (100) 12.3 (332) (302) 9.0
Exceptional items in EBITDA (21) (27) (28.6) (58) (72) (24.1)
Operating result (EBIT) 52 83 59.6 169 280 65.7
               

The Group operating result (EBIT) amounted to €83 million in the third quarter of 2014, up from €52 million in the year-earlier quarter. Depreciation and amortization, at €100 million, was €14 million or 12.3% below the prior-year period, even after additions from capital expenditures. The reduction in the depreciation and amortization base at the end of 2013 due to impairment charges had an impact here. 

The exceptional charges included in other operating expenses totaled €27 million, which fully impacted EBITDA. They related mainly to the “Let’s LANXESS again” program and to expenses for the design and implementation of IT projects. EBITDA in the prior-year quarter had been fully impacted by exceptional charges of €21 million.

Financial result

The financial result for the third quarter of 2014 was minus €28 million, compared with minus €32 million for the prior-year period. Interest expense declined by €12 million against the same period of last year. This was mainly due to the repayment of the €500 million Eurobond issued in 2009, which matured in the reporting period. As in the prior-year quarter, the net interest position was improved by the capitalization of pro-rata borrowing costs, which partly related to the new plants in Singapore and in China. The earnings contribution from investments accounted for using the equity method came to €1 million in the reporting period, against €0 million in the prior-year quarter.

Income before income taxes

Third-quarter income before income taxes came in at €55 million, against €20 million for the prior-year period. The effective tax rate was 36.4%, compared with 45.0% for the prior-year quarter.

Net income/Earnings per share/ Earnings per share pre exceptionals

Net income for the third quarter came to €35 million, compared with €11 million in the prior-year period. Non-controlling interests accounted for a loss of less than €1 million in the third quarter, as in the prior-year period.

Earnings per share are calculated by dividing net income by the weighted average number of LANXESS shares outstanding. The number of shares outstanding rose due to the shares issued for the capital increase. The higher number of shares was accounted for pro rata temporis. Earnings per share were €0.38 in the third quarter, ahead of the €0.13 recorded for the prior-year period. 

Earnings per share pre exceptionals came in at €0.59 in the third quarter of 2014, compared with €0.34 for the prior-year period. This value was calculated by adjusting earnings per share for exceptional items and the attributable tax effects. Exceptional items in the third quarter came to €27 million, against €21 million in the prior-year quarter.