Lanxess Sees Earnings Slump as Tire Market Weakens

21.03.2013 -

Lanxess, the world's largest synthetic-rubber maker, has warned of a sharp drop in earnings in the first quarter, joining the list of auto suppliers to take a hit from anaemic European car markets.

Shares in the German company tumbled more than 7%, hitting their lowest in seven months and underperforming a 1.4% decline in the STOXX Europe 600 chemicals index.

Lanxess, whose former parent Bayer invented synthetic rubber, said its earnings would drop to between €160 million ($207.2 million) and €180 million before interest, taxes, depreciation and amortisation (EBITDA), adjusted for one-offs, in the first three months of the year.

That compares with 369 million a year earlier.

The group, which derives about 40% of sales from the auto industry, is suffering from the same trends that have already forced tiremakers Continental and Michelin to forecast challenging markets in 2013 as Europe's weak economy hurts car sales in the region.

Car sales in Europe fell last month to their lowest February level in at least 23 years, industry figures showed this week, shrinking to levels usually seen during the holiday month of August.

JP Morgan analyst Martin Evans described the Lanxess statement as "a sharp reminder of how poor market conditions in European tyre and auto, ramp-up costs and adverse currencies will result in a very weak start to the year".

Lanxess, which earlier this month warned that underlying demand remained weak so far this year, said 2013 adjusted core profit would not match the record level of the previous year.

The group said it would rein in costs but keep investment in plants and equipment broadly unchanged at between €650 million and 700 million this year, banking on long-term growth in emerging markets.

Like other European industrial groups, the company wants to tap into demand for tires and rubber car components in Asia and Latin America. It will bring a €400 million rubber plant on stream in Singapore this year and is also upgrading a facility in Brazil.

Start-up costs at its new butyl rubber plant in Singapore would be 20 million for the first quarter, it said.

Lanxess said it would pay an annual dividend of €1.00 per share, less than the average analyst estimate of €1.08 based on Thomson Reuters I/B/E/S data.