Interim Report H1 2008

Segment Information

Segment Information

^{1) intangible assets and property, plant and equipment}

Second-quarter sales in the Performance Polymers segment gained substantially. Aside from an aggregate price increase of 11.5% and volume growth of 12.4%, the acquisition of the Petroflex business at the beginning of April contributed particularly to this increase. The inclusion of the sales of the Brazilian synthetic rubber producer led to a positive 19.7% portfolio effect, while currencies had an 8.3% negative impact. All of the segment’s business units succeeded in raising prices and volumes. The Butyl Rubber business unit achieved its sales growth chiefly on price increases occasioned by the higher raw material costs. The figure for the prior-year quarter was weighed down by a drop in volumes due to a strike. Most of the Petroflex activities were assigned to the Polybutadiene Rubber business unit, which was renamed Performance Butadiene Rubbers effective July 1, 2008 to reflect its now broader product mix. Apart from the portfolio effect, the business unit also recorded strong operational sales growth, particularly in Asia, and benefited from long-term customer agreements in the U.S.

The Technical Rubber Products business unit, to which small portions of the Petroflex business were assigned, succeeded in raising prices for all of its products. Volumes of certain products that were sacrificed in the prior year under the value-based strategy were regained in the reporting period at higher prices. Sales in Asia were particularly robust in this business unit, too. In the Semi-Crystalline Products business unit, the very positive sales trend of previous quarters continued. Demand for ammonium sulfate, adipic acid and caprolactam was at a high level. Increases in raw material costs, particularly for ammonia and sulfur, led to price adjustments.

EBITDA pre exceptionals for the Performance Polymers segment improved by a substantial 36.6% to €127 million. The very high prices for raw materials were passed on to the market in full. The first-time consolidation of the Petroflex group gave earnings an additional boost. The very solid volume growth and related high capacity usage across all business units also contributed to the earnings improvement. Unfavorable exchange rates and high energy costs hurt earnings, but were neutralized by the scheduled implementation of restructuring and efficiency programs. The segment’s EBITDA margin edged up 0.1 percentage point from the prior-year quarter, to 14.0%.

In the first half of 2008, the Performance Polymers segment expanded sales by a substantial 20.5% to €1,601 million. Steep increases in raw material and energy costs prompted price increases in all of the segment’s business units. Sales grew accordingly, advancing 9.5% on prices alone, while volumes rose 8.8% on brisk demand. The solid operational sales growth in all business units more than made up for the 7.7% negative currency effect. The inclusion of the Petroflex group in the second quarter gave a 9.9% portfolio effect for the half. Sales growth in the Polybutadiene Rubber business unit was particularly robust. Here, the additional capacity provided by the production line in Orange, Texas, which was recommissioned in 2007, resulted in above-average volume growth.

EBITDA pre exceptionals for the half, at €231 million, was up 19.1% from the first half of 2007. All of the segment’s business units contributed to the improvement in operational earnings. On top of this came the portfolio effect of the Petroflex acquisition. In light of strong global demand, the segment managed to offset the high cost of raw materials by raising selling prices. It also benefited from high capacity usage throughout its operations. Negative currency effects and the costs for the Petroflex acquisition, which is proceeding to schedule, had an adverse effect on earnings. The EBITDA margin, at 14.4%, remained at about the previous year’s level, slipping just 0.2 percentage points.

In February 2008, LANXESS launched a program to increase efficiency at its Butyl Rubber and Technical Rubber Products facilities in Sarnia, Canada, aimed principally at the continued streamlining of service areas and the closure of the technical rubber (NBR) plant in Sarnia. Some 270 jobs will be eliminated in Canada in connection with the program, and NBR production will be consolidated at the site in La Wantzenau, France. An efficiency program has also been launched for Butyl Rubber production in Zwijndrecht, Belgium, with the aim of further reducing production costs and improving the company’s competitiveness in the globally expanding butyl rubber market. The exceptional items related to these programs totaled €49 million for the quarter and €54 million for the half, including write-downs of €3 million.