Poor Q2 Financial Performance for Bayer MS and LanXess, Eastman Advanced Materials Up

Thermoplastic polymer manufacturer Bayer MaterialScience, part of the Bayer group of chemical manufacturing companies, and butadyl rubber producer LanXess, which until 2004 was also part of Bayer, have announced poor sales performance in Q2 2013. Bayer MaterialScience's fall was down to lower selling prices as total volumes remained steady. Both companies reported record earnings in the reference period Q2 2012.

The two companies are headquartered at Bayer's chemical manufacturing site in Leverkusen, Germany.

By contrast, the Advanced Materials division of USA-based Eastman Chemical has posted a positive performance during the same period. The financial results and an editor's summary are published as follows.

Bayer MaterialScience

Sales came in at €2,875 million, 2.7 percent below the prior-year quarter of €2,954 million. "The market environment for MaterialScience remained difficult in the second quarter," explained Bayer chairman Dr Marijn Dekkers, pointing to lower selling prices in Asia/Pacific and Europe. Volumes matched the prior-year period, with increases in North America offsetting declines in Latin America, Africa, Middle East and Europe.

Business with foam raw materials (polyurethanes) rose by 3.0 percent. This increase was attributable to higher volumes. Selling prices overall were at the level of the prior-year period. Sales of the high-tech plastics business (polycarbonates) declined by 8.2 percent as the result of lower volumes due to weaker demand. In addition, selling prices as a whole were below the prior-year period on account of market overcapacities. Sales of raw materials for coatings, adhesives and specialties fell by 4.0 percent. This decline resulted from both lower selling prices and a decrease in volumes in nearly all product groups.

EBITDA before special items of MaterialScience fell by 28.5 percent to €274 million (Q2 2012: €383 million), largely because of a decline in selling prices and an increase in raw material costs. Polycarbonates showed particularly weak earnings development. However, EBITDA before special items of the subgroup improved substantially compared to the first quarter of 2013.

LanXess

Compared to the strong second quarter of the previous year, sales were down by roughly 12 percent to €2.1 billion in the second quarter of 2013. EBITDA pre exceptionals declined by 45 percent against the prior-year period to €198 million and was in the middle of the guided range of €174-220 million. Net income declined by 95 percent year-on-year to €9 million.  

In contrast to expectations in May, LanXess does not see an improvement in business conditions in the second half of the year. Customers continue to destock their inventories, noticeably in Asia, and overall consumer sentiment remains weak.  

For the year 2013, the company has substantiated its outlook given in May of EBITDA pre exceptionals of less than €1 billion. LanXess now anticipates EBITDA pre exceptionals of €700-800 million, excluding potential inventory devaluations.  

“The first half of 2013 does not meet our own high standards,” said LanXess’s chairman Axel C Heitmann. “Trading conditions for our businesses remain tough and the fragile sentiment in Europe is now evident in other markets that are important for us, such as China and Brazil.”  

Against the background of the continuing weak demand in the current business year, the target of €1.4 billion EBITDA pre exceptionals in 2014 is no longer realistic, even taking into account an expected upturn in demand next year.  

Despite the difficult conditions, LanXess is maintaining its mid-term target of €1.8 billion EBITDA pre exceptionals in 2018, although it has become more challenging to reach it.  

“The megatrends, above all mobility and agriculture, still remain intact and the growth markets will see better times again. That is why we believe we have in principle the right set-up,” said Heitmann.

Eastman Advanced Materials

In contrast, results posted by the Advanced Materials division of Eastman Chemicals, announced on July 29, 2013, showed a positive performance as sales increased due to higher sales volume for Eastman Tritan copolyester, a transparent, durable and sterilisable alternative to polycarbonate. Eastman quotes higher sales volume for interlayers products attributed to strengthened demand in Asia and North America transportation markets, and higher sales volume for performance films products. Pro forma combined operating earnings increased to US$81 million in the second quarter 2013 compared with $63 million in second quarter 2012. Higher sales volumes and increased sales of higher-margin products resulted in higher capacity utilisation which led to lower unit costs.

Editor's Summary

The results posted by these companies represent a continuation of a theme of dampened demand in 2013 for high volume polymer resins like polycarbonate (Bayer MaterialScience) and butyl rubber (LanXess). Polycarbonate producers face an uphill battle as criticisms of bisphenol A, the monomer used to make polycarbonate, are spreading like wildfire, following a ban in France, without there being any clear clinical evidence of the risks.  In polyolefins, Austrian producer Borealis posted a decline in profit, despite a slight increase in turnover, as part of its Q1 2013 results announced in May 2013.