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Result

Gross profit

The cost of sales increased at a slightly higher rate than sales, rising by 15.8% to €1,796 million. This was due to higher raw material costs and, to a lesser extent, higher energy prices. There were also portfolio effects from the businesses acquired in the previous year, most notably the Keltan EPDM business. Currency effects also had a negative impact on the cost of sales.

Gross profit came in 13.4% ahead of the prior-year quarter, at €592 million. The gross profit margin decreased from 25.2% to 24.8%. Prices for strategic raw materials, especially butadiene, and other important raw materials rose considerably in some cases. However, we succeeded in passing these increases along to the market in all segments. Our firm adherence to the price-before-volume strategy thus supported the gross profit margin. The slight drop in demand had an adverse effect which was, however, diminished by the positive balance of currency effects reflected in the gross profit. Capacity utilization was below the level of the prior-year quarter because of the demand situation and scheduled maintenance shutdowns.

EBITDA Pre Exceptionals by Segment
       
€ million Q1 2011 Q1 2012 Change %
       
Performance Polymers 199 255 28.1
Advanced Intermediates 75 70 (6.7)
Performance Chemicals 90 83 (7.8)
Reconciliation (42) (39) 7.1
  322 369 14.6

EBITDA and EBIT

The operating result before depreciation and amortization (EBITDA) pre exceptionals advanced by €47 million, or 14.6%, to €369 million in the first quarter of 2012 when compared to the same period a year ago. This increase was driven mainly by price effects in conjunction with positive portfolio effects, and supported by exchange rate developments. However, the rate of increase was held back by lower volumes and higher production costs, which in part were due to higher energy costs. Selling expenses rose by 9.4% to €186 million as a result of portfolio effects from the acquisitions made in the previous year and targeted adjustments to sales and logistics structures. There was a slight decrease in freight costs in line with the volume trend. Research expenditures came to €45 million, versus €31 million in the prior-year period, due to the planned expansion of research activities as part of the LANXESS Technology Initiative. The Performance Polymers segment accounted for a major share of these expenditures. The Group’s EBITDA margin pre exceptionals was level with the previous year at 15.5%.

The Performance Polymers segment raised first-quarter EBITDA pre exceptionals by a substantial €56 million to €255 million. The continuing high rate of raw material cost inflation was offset by corresponding price adjustments. Positive currency effects, particularly relating to the U.S. dollar, and the portfolio effect from the acquisition of the Keltan EPDM business more than offset the effects of the drop in volumes and the increase in costs, the latter being partly due to the expansion of research activities. Capacity utilization in the segment was below the level of the prior-year quarter due to more extensive shutdowns for expansion work and maintenance.

EBITDA pre exceptionals of the Advanced Intermediates segment receded to €70 million against the high figure of €75 million for the same period last year. Positive price effects compensated for the higher raw material costs, but did not offset the increase in production costs or the effects of the slight decreases in volumes.

EBITDA pre exceptionals for the Performance Chemicals segment came in €7 million below the high level of the prior-year quarter, at €83 million. In this segment, too, higher raw materials costs were passed along to the market in full, but earnings were held back by lower volumes in the majority of business units and by rising production costs. The acquired Darmex group and material protection businesses were slightly accretive to earnings.

The Group operating result (EBIT) came to €277 million in the first quarter of 2012, up from €246 million in the year-earlier quarter. The exceptional charges included in other operating expenses totaled €4 million and fully impacted EBITDA. They related mainly to expenses for the planning and implementation of IT projects. Exceptional charges in the prior-year quarter amounted to €5 million.

Financial result

The financial result amounted to minus €28 million in the first quarter of 2012, against minus €27 million in the same period last year. Interest expense rose slightly due to the acquisition-driven increase in financial liabilities compared to the previous year, capital expenditures and the business-related growth in working capital. An increase in the amount of construction-period borrowing costs that were capitalized had an offsetting effect. Most of these costs related to the major investment project in Singapore. All in all, the recognized interest expense was €3 million above the previous year. Interest income was level with the prior-year quarter. The balance of other financial income and expense improved partly because of the absence of non-recurring expenses that affected the prior-year period. The pro-rated earnings of companies accounted for in the consolidated financial statements using the equity method, mainly Currenta GmbH & Co. OHG, came to €3 million, against €5 million in the previous year.

Income before income taxes

Income before income taxes rose from €219 million to €249 million in the first quarter in line with the improvement in the operating result. The effective tax rate was 22.5%, compared with 23.7% for the prior-year quarter.

Net income and earnings per share

Non-controlling interests accounted for €0 million of income in the first quarter of 2012, against €1 million in the prior-year quarter. First-quarter net income advanced to €193 million from €166 million in the prior-year period. With the number of LANXESS shares in circulation unchanged, first-quarter earnings per share rose from €2.00 to €2.32.

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