Future perspectives

LANXESS assumes that the modest recovery of the global economy will continue for the remainder of the year. However, uncertainty about the strength of this recovery has risen due to the intensifying geopolitical crises, particularly in Ukraine and the Middle East. An additional factor is reduced economic expectations for Europe and some other regions.

Our performance forecasts for the various regions are as follows: We continue to predict a growth rate of 7.5% for China, which would be in line with our expectations. We expect a slight improvement for the United States and are raising our growth forecast from 1.5% to 2.0%, which nonetheless would remain below the original expectations. By contrast, we now predict growth of 1.0% in Europe, which would be slightly below the figure of 1.5% forecasted in recent months. For Latin America, and particularly Brazil, we believe the weak economic development will continue in 2014.

Further factors in addition to the aforementioned risks that could hold back growth are the persistently difficult financial situation that continues to confront European governments and banks, and the distressed loans on the balance sheets of Chinese banks.

We believe that the chemical industry will continue to see robust development that, however, will be somewhat weaker than originally assumed. The strongest momentum is expected in the emerging markets, and we believe that China will remain the focus of growth. We are reducing the growth expectation for the United States in 2014 to 1.5%, which is much lower than originally predicted. EMEA should continue to develop in line with existing expectations, at 1.5%.

With regard to our customer industries, we predict that growth of automotive production will slow somewhat, due particularly to the development in Russia, Brazil and India. Our growth expectation for automotive production is therefore now 3.0%, against 3.5% previously.

For the tire industry we also foresee a slight slowdown in growth due to the forecasted weaker development of automotive production and the assumption that the replacement tire business will post slightly lower growth. We are therefore reducing our expectation for 2014 from previously 3.5% to 3.0%. In view of the discussion in the United States surrounding punitive tariffs for Chinese tires, we anticipate reduced production and are lowering our growth expectation for the Chinese economic region from 9.0% to now 7.0%. The growth expectation for EMEA remains in place at 1.5%, which is still well above the original forecast. We continue to predict that growth in the United States will be in line with our expectations.

The market for agrochemicals is likely to continue developing robustly during the remainder of the year.

We anticipate a slower pace of growth in the construction industry over the remainder of the year. Despite somewhat weaker growth, the Chinese construction industry will likely develop in line with expectations. We believe the aforementioned crises will result in slightly reduced growth in EMEA. For the U.S. construction industry, we predict a continued good development of residential construction but weaker development of infrastructure investment in non-residential construction than originally presumed. We therefore now expect slightly lower growth overall for the United States.

We anticipate the following developments for our businesses over the further course of the year:

In our synthetic rubber businesses, which are closely linked with the automotive and tire industries, we foresee a persistently challenging competitive environment and continuing pressure on prices. As a result, we predict restrained development in the remaining months of the current year in our Performance Polymers segment, particularly for its synthetic rubber business units.

In the agrochemicals business, we expect demand to continue developing robustly for the remainder of the year, which will likely lead to a gratifying performance in the business units of the Advanced Intermediates segment.

Although growth in the construction industry is expected to slow, it should continue to support our inorganic pigments business in the Performance Chemicals segment, leading to good development there.

Our key investments focus on the implementation of our further growth projects in China and Singapore, which are already well advanced. We expect cash outflows for capital expenditures to be at about the prior-year level in 2014 due to these projects. After completing these production facilities, we plan to reduce our capital expenditure volume and focus on maintenance and efficiency improvement measures.

LANXESS will continue to resolutely implement the three-phase realignment program it initiated in July. As part of the first phase, which is aimed at increasing the competitiveness of the business and administrative structure, LANXESS will combine various business units and reduce their number from 14 to 10 effective January 1, 2015. In addition, the administration will be streamlined globally through the reduction of the workforce on a cross-functional basis and the consolidation of specific areas of activity.

LANXESS also has already initiated measures from the second phase that will be further implemented over the course of 2015. Through “excellence initiatives”, the company intends to optimize its operational competitiveness in production and distribution. All production facilities will be examined with respect to market requirements and synergies. On the distribution side, it is intended to increase the effectiveness and efficiency of the organization by analyzing its regional structures.

In 2015 and 2016, LANXESS will concentrate on implementing the third phase of the realignment, “competitiveness of the business portfolio.”

We confirm our guidance for the full year 2014 and expect EBITDA pre exceptionals in the range of €780 million to €820 million. Initial savings of €20 million generated from the realignment program will mitigate some of the additional burdens expected in the fourth quarter. 

Further information on this topic is given in the combined management report for LANXESS AG and the LANXESS Group in the opportunity report of the Annual Report 2013.