LANXESS AG 10 th German Investment Seminar

Transcription

1 LANXESS AG 10 th German Investment Seminar Matthias Zachert, CFO January 2008 December 2007 Q Roadshow Presentation Chart-No. 1

2 Safe harbour statement This presentation contains certain forward-looking statements, including assumptions, opinions and views of the company or cited from third party sources. Various known and unknown risks, uncertainties and other factors could cause the actual results, financial position, development or performance of the company to differ materially from the estimations expressed or implied herein. The company does not guarantee that the assumptions underlying such forward looking statements are free from errors nor do they accept any responsibility for the future accuracy of the opinions expressed in this presentation or the actual occurrence of the forecasted developments. No representation or warranty (express or implied) is made as to, and no reliance should be placed on, any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein, and, accordingly, none of the company or any of its parent or subsidiary undertakings or any of such person s officers, directors or employees accepts any liability whatsoever arising directly or indirectly from the use of this document. Chart-No. 2 Focus on value generation Agenda Review of 2007 Strategy update Financial transformation Current market topics, outlook and guidance Chart-No

3 Looking back at an operationally very successful year % 100% Completion of share buyback in the amount of 50 m Q3 EBITDA reported ~3% ahead of consensus Acquisition of Petroflex announced 90% 80% 70% 60% FY 2006 reporting meets market expectations Appointment of Dr. van Roessel and Dr. Breuers as new Board Member Q1 EBITDA reported ~4% ahead of consensus Initial dividend at 3 rd Annual stockholders meeting Lustran JV with INEOS announced Q2 EBITDA reported ~3% ahead of consensus Sale of Borchers Group Ratings upgraded by Moody s to Baa2 and S&P to BBB Specified dividend policy LANXESS has met or exceeded market expectations with each quarterly result Chart-No. 4 Focus on value generation Agenda Review of 2007 Strategy update Financial transformation Current market topics, outlook and guidance Chart-No

4 Consistent delivery as four-phase strategy is implemented Portfolio EBITDA* margin target >10% 3. Portfolio optimization 4. Acquisitions Acquisition Purchase of Petroflex, strengthening worldwide presence in synthetic rubbers with Latin American activities Purchase of chrome chemicals activities of Dow Chemical Portfolio optimization Individual businesses given new perspectives through divestment to investors Costs 9-10% 2. Targeted restructuring Targeted restructuring Four restructuring packages successfully implemented Cost reduction of approx. 65m achieved until 2006 ( 205m annually from 2009**) <5 % 1. Performance improvement Organic growth Performance improvement Price-before-volume strategy implemented Working capital management remains tight * pre exceptionals ** adjusted for impact of Lustran exit Chart-No. 6 Targeted restructuring results in 205 million cost savings* Closure of several sites worldwide Closure and consolidation of plants Reduction of workforce Optimization of sites, plants and processes Optimization of internal services New business models for Saltigo and Lustran Restructuring savings vs. prior year ( m) *Adjusted for LUP and TPC divestments 10 Rigorous cost management Total Chart-No

5 Portfolio management has continuously strengthened the company Divested Acquired Leadership Position Cyclicality Profitability Expectation Business Driver Fibers Weak High Low Market shifting to Asia Paper Moderate Moderate Medium High industry consolidation Textile Processing Chem. Weak Moderate Medium Market shifting to Asia Lustran Good High Low Overcapacities, Commoditization CISA Good Low High Upstream Integration Petroflex Good Low High Global mobility trends Chart-No. 8 Acquisition of Petroflex - a compelling strategic rationale Overview of acquisition target Petroflex is a major player in synthetic rubber in Latin America 2006 sales of ~ 500 million with 1,300 employees (incl. contractors) Solution (PBR, SSBR) and emulsion (NBR, ESBR) rubber Three manufacturing sites in Brazil with total capacity of ~400 kt Strategic rationale Strengthens LANXESS position in the synthetic rubber market globally Reflects the strongly growing Latin American market for synthetic rubber Potential for synergies after integration Shareholder value creation EPS accretive in first year Investment in profitable growth markets, where the products are expected to grow above GDP Chart-No

6 Transaction overview Petroflex is a publicly listed company on the Brazilian stock exchange - Selling shareholder group consists of Braskem, UNIPAR and certain other shareholders - Purchase of shares representing 69.68% of the share capital of Petroflex Comércio e Indústria S.A. ( Petroflex ) Key financial terms (subject to price adjustment mechanism) - Purchase price of ~ 198 m* for ~70% - Plus assumed net debt (~ 109 m as per Q3 statements*) Transaction to be financed out of cash and bank loans Transaction is subject to approval by antitrust authorities in Brazil, Germany, the U.S. and other countries * Exchange rate as of September 30, 2007 Chart-No. 10 Acquisition of Petroflex strengthens our portfolio in the core of the chemical industry Segmentation of the chemical industry Pharma Agro Specialty Chemicals Intermediates Petroflex adds to LANXESS polymers businesses Mass Plastics Petrochemicals Feedstock, gas and oil Chart-No

7 Tire industry relocation to low cost countries continues, LANXESS to supply customers globally Comments Tire production evenly split between western and eastern hemisphere Strong growth rates in BRIC countries Tire industry with 4% growth globally expected in 2008 Tire industry with 7% growth rate in Latin America expected in 2008 Major tire producers have announced capacity expansions in Brazil in the amount of US$ 1 billion Gives LANXESS a production base in a low cost BRIC country Strengthens the global manufacturing network Provides opportunities for cost savings and technology upgrades * Source: Global Insight Consumption per capita of synthetic rubber 5,0 4,8 4,4 4,0 3,0 3,0 2,7 2,1 2,0 1,0 1,1 1,2 1,0 0,0 Asia China Latin America Brazil World Central Europe North America Western Europe Chart-No. 12 Financially attractive deal structure Financial assessment and background info Transaction detail: - Purchase price of ~ 198 m for the acquired shares (~70% of outstanding shares) - Final total purchase price depends on acceptance level for mandatory public offer and is subject to a price adjustment mechanism Sales multiple ~ 0.7x; EBITDA multiple on the basis of 2007 estimates ~ 7.5x Transaction is expected to be EPS accretive in first year Transaction has a positive net present value based on a discount rate of 12.5% Mandatory tender offer must be launched upon closing, expected in Q Petroflex will be fully consolidated upon closing Chart-No

8 Summary of the striking acquisition logic Strategic fit Targeted acquisition, enhancing regional coverage and product portfolio Growth Participation in opportunities on fast growing markets, strengthening leadership businesses Shareholder value Earnings accretive, delivering on strategy Chart-No. 14 Focus on value generation Agenda Review of 2007 Strategy update Financial transformation Current market topics, outlook and guidance Chart-No

9 Eleven successive quarters of EBITDA improvement Cumulated EBITDA improvement ( mn)* 250 year-on-year 200 ~ +60% +60% 100 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q * EBITDA pre exceptionals Chart-No. 16 Q3 continues on the new path of price and volume growth % cumulated changes of prices and volumes* 60% Change in price 1 Price increases to pass on rising costs of raw materials 40% 20% 2 Internal cost reductions were not passed on 0% -20% Change in volume 2004 Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 3 Firstly, minor volume reduction to support pricing strategy * Cumulated price and volume changes vs Chart-No

10 Effective margin protection through increased flexibility of costs Share of variable manufacturing costs including raw materials 75% 70% 65% 60% Share of variable manufacturing costs excluding raw materials 20% 15% 10% 5% 0% e e Doubling of variable portion of manufacturing costs Share of variable manufacturing costs, excluding raw materials was doubled since spin-off Restructuring and striving for efficiency have shifted our cost structure towards higher flexibility Chart-No. 18 LANXESS is closing the profitability gap to peers Profitability Productivity Return Stability 20% 15% 10% EBITDA* margin development (LTM**) Peer group EBITDA* margin Q % 14.6% 14.4% 12.7% 10.3% 5% 9.2% 8.9% 8.6% Q4 04 Q2 05 Q4 05 Q2 06 Q4 06 Q2 07 Q3 07 Ø12.0% * EBITDA pre exceptionals; ** Last twelve months Chart-No

11 Productivity increases made visible: EBITDA / employee even higher without LUP Profitability Productivity Return Stability EBITDA pre exceptional per employee of selected peers in 60,000 40,000 20, Arkema Ciba Clariant DSM Rhodia LXS Restructuring has helped improve productivity LANXESS is on track to reach its performance targets We will continue to improve our businesses in the future Source: KPMG s disclosures handbook, Annual reports, Companies websites; 2006 LANXESS data adjusted for Lustran Chart-No. 20 Rising returns have already reached the average peer level Profitability Productivity Return Stability 6% Return on Assets (ROA) 4% 2% 0% 16% 12% 8% 4% 0% Return on Equity (ROE) LANXESS generates value and is well comparable to its peers We aim to continue creating value for our stakeholders Source: KPMG s disclosures handbook, Annual reports, Companies websites; LANXESS peer group except where ROE / ROA is negative, all pre exceptionals Chart-No

12 Solid financing foundation in place for future opportunities Profitability Productivity Return Stability In mn e Equity 1,120* 1,256 1,428 1,526** Equity ratio 25.9%* 28.9% 34.0% 36.9%** Net financial debt 1, stable Strength Interest result stable Gearing*** 101.3%* 54.1% 35.8% 32.2%** Net financial debt / EBITDA 2.5x 1.2x 0.8x ~0.7x Financial metrics substantially improved on the basis of sustainable cash generation * 2004 comparable to 2005, i.e. incl. deferred tax adjustment; **as of ; *** net financial debt / equity Chart-No. 22 Acquisition financing re-levers the balance sheet while strength persists Comments Net financial debt / EBITDA 2007* LANXESS will finance the Petroflex acquisition by available liquidity and debt (initial financing through existing facilities) Long-term financing through mix of Group and local debt Together with currency hedging, will moderate investment risk LANXESS will meet all covenant ratios and internal financial targets after the transaction Ratings remain unchanged Balance sheet structure is improved and dividend power preserved * Excludes underfunded pension liabilities ** Net debt/(equity+net debt) 0.7x Actual Debt / capital** 25% Pre acquisition 1.2x Pro forma 37% Post acquisition Chart-No

13 Value generation in every respect Underlying EPS* in Capex allocation to profitable, growing businesses Accretive small to mid-size M&A deals that meet stringent financial hurdles Shareholderfriendly dividend policy (rising payouts with increased operational performance) LANXESS strives to generate additional values * EPS pre exceptionals Chart-No. 24 Focus on value generation Agenda Review of 2007 Strategy update Financial transformation Current market topics, outlook and guidance Chart-No

14 LANXESS manages its currency exposure Economic environment foreign currencies The current weakness of the U.S. Dollar is considered in our FY 2007 guidance Generally, a weak U.S. Dollar burdens our results Sensitivity: Based on our annual net exposure, a change of 1 cent of the exchange rate of the U.S. Dollar to the Euro affects our EBITDA by 5-6 m However, the actual impact may be significantly lower due to our rolling hedging approach Chart-No. 26 LANXESS has significantly reduced its volatility Peak to trough fluctuation is significantly reduced since spin-off Most volatile businesses divested (~ 1.4 bn of sales) Sales and purchasing contracts renegotiated Restructuring has led to a leaner and more efficient organization Cost structures have been changed to a higher portion of variable costs There is no reason why LANXESS margins* should be more volatile compared to its peers The market expects chemical companies margins* to fluctuate by 3%-4% peak to trough * EBITDA pre exceptionals Chart-No

15 Dividend policy specified with substantial increase targeted already for 2007 Successful transformation of the company On track to achieve average competitors profitability in 2008 Demonstration of trust and confidence in the strength of LANXESS businesses The final dividend proposal to be made on the basis of the confirmed financial statements of LANXESS AG for fiscal 2007 and published together with the Notice of the Annual Stockholders' Meeting, to be held on May 29, 2008 Significant increase of dividend already for 2007 Sustainable increase of future dividends Chart-No. 28 LANXESS is well on track to achieve its FY targets Guidance update for 2007 FY 2007 EBITDA*guidance reiterated: m, despite LUP performance shortfall in Q of ~ 10 m and an adverse FX effect in Q4 Capex expectation: ~ 300 m Underlying P&L tax rate seen around 30%, excluding effects from LUP JV. Reported tax rate will however be distorted due to LUP-divestment D&A around m (increase vs. 2006, mainly due to impairments in LUP of ~ 50 m) Reminder: majority of restructuring exceptionals expected to have occurred in Q * Pre exceptionals Chart-No

16 LANXESS will meet its ambitious targets faster than planned EBITDA* margin: Peer group profitability No business < 5% EBITDA* margin Investment grade rating Ongoing * EBITDA figures pre exceptionals; excluding acquisitions Chart-No. 30 Chart-No

17 Exceptional items incurred in Q and 2007 ( m) Q Q Exceptional thereof D&A Exceptional thereof D&A Performance Advanced Intermediates Performance Chemicals Restructuring Engineering Plastics Write off BU LUP Reconciliation Restructuring / M&A Total Chart-No. 32 Exceptional items incurred in 9M 2006 and 2007 ( m) 9M M 2007 Exceptional thereof D&A Exceptional thereof D&A Performance Advanced Intermediates Performance Chemicals Restructuring Engineering Plastics Write off BU LUP Reconciliation Restructuring / M&A Total Chart-No

18 Growth at high margin levels Performance Position LANXESS World wide top market positions Chem. Sales 2006* EBITDA 2006* Adv. Intermed. Chem. EBITDA Growth & StabilityAction LANXESS margin FY 06: 13.2% participation in major Turn leadership EBITDA into valuemargin 9M 07: 14.5% growth trends Market / Supply / Demand Adv. Intermed. Butyl Rubber A leading position International mobilization Growing and balanced until 2011 Integral part of tubeless tyres Polybutadiene Rubber A leading position High performance tires Growing and balanced until 2011 Tyre body and tread Technical Rubber Products Strong New applications Balanced for major products until 2009 / 10 Specialty applications Semi-Crystalline Products Strong Thermoplastics for modern applications, e.g. in cars * Percentage of sum of operational segments, excluding LUP and reconciliation / others Hightech plastics replacing metal Chart-No. 34 Growing and balanced until 2011 Stability in Intermediates Advanced Intermediates Position LANXESS World wide top market positions Chem. Sales 2006* EBITDA 2006* Adv. Intermed. Chem. EBITDA Growth & StabilityAction LANXESS margin FY 06: 15.3% Turn leadership EBITDA into valuemargin 9M 07: 16.5% Market / Supply / Demand Adv. Intermed. Basic Chemicals 2-Methyl- 6-Ethyl-Aniline Intermediate for agrochemicals Leading positions in all business lines Industry shake out process Supplying diversified and attractive niche markets Advantage due Consolidation in Americas and to world scale production Europe network Saltigo The user-friendly, effective repellent Among the top global players in custom manufacturing Pharma custom manufacturing market is expected to grow of 4% p.a. Outsourcing trend of chemical production Continuing consolidation in Europe and US * Percentage of sum of operational segments, excluding LUP and reconciliation / others Chart-No

19 Strong in Specialties Performance Chemicals Position LANXESS World wide top market positions Chem. Growth & Stability Partly strong growth in specialty niches Sales 2006* EBITDA 2006* Adv. Adv. Intermed. Chem. Intermed. EBITDA Action LANXESS margin FY 06: 13.2% Turn leadership EBITDA into valuemargin 9M 07: 15.7% Market / Supply / Demand Material Protection Products Preservatives / Biocides Leading positions in attractive market segments Trend towards increasing regulatory requirements Growth above GDP Registrations constitute high entry barriers into niche markets Inorganic Pigments Pigments for construction materials A leading global supplier High growth rates in Asia and Eastern Europe Economies of scale Partly upstream integrated End-markets: 50% Construction 25% Coatings 10% Plastics 15% Other * Percentage of sum of operational segments, excluding LUP and reconciliation / others Chart-No. 36 Strong in Specialties Performance Chemicals Position LANXESS World wide top market positions Chem. Growth & Stability Partly strong growth in specialty niches Sales 2006* EBITDA 2006* Adv. Adv. Intermed. Chem. Intermed. EBITDA Action LANXESS margin FY 06: 13.2% Turn leadership EBITDA into valuemargin 9M 07: 15.7% Market / Supply / Demand Functional Chemicals MESAMOLL special plasticizers for processing polymers Supplier to a broad range of markets with complex product portfolio Trend towards ecological products (plasticizers, flame retardants) Cost pressure especially from Asian producers FCC satisfies the demand for ecological products Leather EUDREM X-Grade Finishing of Leather A leading global supplier Sustainable market growth around 2%. Ongoing market consolidation One-stop-shop with unique upstream integration, reducing exposure to raw materials price volatility RheinChemie RHENOGRAN Polymer-bound Rubber Additive A leading position in additive formulations Average market growth expected ~2% Relatively stable business as solution provider for rubber and automotive industry * Percentage of sum of operational segments, excluding LUP and reconciliation / others Chart-No

20 Strong in Specialties Performance Chemicals Position LANXESS World wide top market positions Chem. Growth & Stability Partly strong growth in specialty niches Sales 2006* EBITDA 2006* Adv. Adv. Intermed. Chem. Intermed. EBITDA Action LANXESS margin FY 06: 13.2% Turn leadership EBITDA into valuemargin 9M 07: 15.7% Market / Supply / Demand Rubber Chemicals VULKACIT Vulcanisation Accelerator A leading market position in a challenging market environment Between ~1% in the Americas and >5% in Asia-Pacific Overcapacities have led to margin pressure and caused market consolidation Ion Exchange Resins Purification of drinking water Leading producer of technologically advanced monodisperse ion exchange resins Mega trend clean water ensures longterm growth for ION One of two full solution providers on the market Growing population and environmental pollution foster growth for ION * Percentage of sum of operational segments, excluding LUP and reconciliation / others Chart-No. 38 Broad supplier base Suppliers Total raw material expenses in 2006 were approx. 3.2 bn Petrochemical raw materials accounted for a purchasing volume of approx. 1.6 bn of costs in 2006 LANXESS uses a centrally managed global procurement organization to ensure a reliable supply of materials and services. About 30% of all items ordered are now handled through e- procurement. Procuring petrochemical raw materials is a top priority at LANXESS. The biggest suppliers here in 2006 included BP, Chevron Phillips, Dow, Exxon Mobil, Huntsman, Ineos, Lyondell, Nova Chemicals, Repsol, Siam Styrene, Shell Chemicals and Total. Other important suppliers of basic inorganic and organic chemicals are BASF, Bayer, Degussa, European Oxo, Ineos and Polimeri. Butadiene Styrene monomer Acrylonitrile Cyclohexane C4 Raffinate 1 Toluene Isobutylene Ethylene Benzene Aniline ~30% lower exposure to petrochemical raw materials after divestment of BU LUP Chart-No

21 Diversified customer base and industry portfolio LANXESS end-customer industries Electro/Electronic 7% Coating 3% Textile 2% Leather 5% Others 15% Construction 7% Life Science 9% Chemistry 23% Automotive Transportation 14 % Tyre 15% Other contains (<2%): Furniture, Printing, Sport and Leisure Footware Packaging Water treatment Mechanical Goods Top five customers accounted for about 11% of all sales in fiscal 2006 Diversified endcustomer markets Chart-No. 40 LANXESS - a global player in the chemical industry Global presence LANXESS Agencies Other Assets by region Asia 6% Americas 24% EMEA w/o Germany 24% Germany 46% Sales by region Asia 18% Americas 26% EMEA w/o Germany 33% Germany 23% Employees by regions Asia 12% Americas 19% EMEA w/o Germany 19% Germany 50% based on 2006 figures Chart-No

22 Update of restructuring savings after transaction of Lustran Phase I+II+III+IV ( m) e 2008e 2009e P&L Expenses Cash outs Headcount reduction ~540 ~650 ~280 ~40 0 Cost reduction vs. prior year Cost reduction cumulative EBITDA improvement vs. prior year EBITDA improvement cumulative All future figures are adjusted for the exit of LUP. The main respective cumulative effects are: Reduction of expected cost reduction :~ 45m by 2009 Reduction of expected EBITDA improvement:~ 35m by 2009 Lower expected cash outs: ~ 50 m by 2009 Restructuring implementation continues according to plan Chart-No. 42 Abbreviations Performance Advanced Intermediates BTR PBR TRP SCP Butyl Rubber Polybutadiene Rubber Technical Rubber Products Semi-Crystalline Products BAC SGO IPG Basic Chemicals Saltigo Inorganic Pigments MPP IPG FCC LEA RCH RUC ION Performance Chemicals Material Protection Products Inorganic Pigments Functional Chemicals Leather Rhein Chemie Rubber Chemicals Ion Exchange Resins LUP Engineering Plastics Lustran Chart-No

23 Glossary Abbreviations BR High CIS ESBR HIPS Li-PBR NBR Nd-PBR PBLH PBR SBS SIS SSBR TR TRP Polybutadiene produced with high cis configuration Styrene-butadiene rubber from polymerization in emulsion High-impact polystyrene Polybutadiene rubber from lithium-initiated polymerization Nitrile rubber Polybutadiene rubber from neodymium catalyzed polymerization Hydroxyl-terminated polybutadiene Business Unit Polybutadiene Rubber (PBR+SSBR) Styrene-butadiene-styrene block copolymers Styrene-isoprene-styrene block copolymers Styrene and butadiene rubber from polymerization in solution Thermoplastic rubber composed of styrene and butadiene by solution polymerization process Business Unit Technical Rubber Products Chart-No. 44 Financial Calendar 2007 / 2008 Financial Calender FY Results 2007 March 11, 2008 Q1 Results 2008 May 14, 2008 Annual General Meeting May 29, 2008 Q2 Results 2008 August 13, 2008 Q3 Results 2008 November 13, 2008 Chart-No

24 Contact details Michael Pontzen (Head of IR) Oliver Stratmann Tel.: Fax.: Mobile: Tanja Satzer Dr. Gerd Zelesny Tel.: Fax.: Mobile: Please visit our website at: Chart-No