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Result

Gross profit

The cost of sales declined in the third quarter by 5.9% to €1,698 million, mainly because of the substantially lower raw material costs and also due to lower volumes than in the prior-year quarter. In particular, prices for the key raw material butadiene moved downward. By contrast, the cost of sales was increased by currency effects.

Gross profit came in at €461 million, down by 13.2% against the same quarter a year ago. The gross profit margin receded from 22.7% to 21.4%. The softer demand led to a corresponding drop in volumes and thus to lower gross profit. The significantly lower capacity utilization compared to the prior-year quarter led to increased idle capacity costs that impacted the gross profit. Expenses were also incurred in connection with scheduled maintenance shutdowns, particularly in the Performance Polymers segment. Exchange rates, however, had a positive net effect.

EBITDA Pre Exceptionals by Segment
             
€ million Q3 2011 Q3 2012 Change % 9M 2011 9M 2012 Change %
             
Performance Polymers 213 152 (28.6) 641 664 3.6
Advanced Intermediates 68 75 10.3 208 224 7.7
Performance Chemicals 75 75 0.0 260 236 (9.2)
Reconciliation (45) (47) (4.4) (137) (138) (0.7)
  311 255 (18.0) 972 986 1.4

EBITDA and EBIT

In the third quarter of 2012 the operating result before depreciation and amortization (EBITDA) pre exceptionals declined by €56 million, or 18.0%, year on year to €255 million. The decrease was mainly due to negative volume effects resulting from lower demand. Sharply lower raw material costs were offset by corresponding adjustments to selling prices. Selling expenses were at the prior-period level of €183 million. Research expenditures came to €49 million, versus €40 million in the prior-year period, due to the expansion of our research activities as part of the LANXESS Technology Initiative. Earnings were supported by the favorable movements in exchange rates. The Group EBITDA margin pre exceptionals declined from 13.3% to 11.8%.

Third-quarter EBITDA pre exceptionals in our Performance Polymers segment came to €152 million, down €61 million from the prior-year period. Lower raw material costs were offset by selling price adjustments. Lower volumes and scheduled maintenance shutdowns led to lower capacity utilization, with a corresponding negative impact on earnings. Positive exchange rate developments had the opposite effect.

EBITDA pre exceptionals in the Advanced Intermediates segment, at €75 million, surpassed the prior-year quarter’s €68 million by €7 million, or 10.3%. Positive price effects compensated for the higher raw material costs. The earnings improvement was attributable to volume gains and exchange rate developments.

EBITDA pre exceptionals in our Performance Chemicals segment was unchanged from the prior-year level of €75 million. The relief resulting from lower raw material costs led to selling price adjustments in the segment as a whole. Volumes remained at the previous year’s level in light of comparable demand. The positive effect from shifts in exchange rates was accretive to earnings, which were also supported by a minor portfolio effect from the acquisitions made in the previous quarters.

The Group operating result (EBIT) came to €156 million in the third quarter of 2012, compared to €223 million in the year-earlier period. The exceptional charges included in other operating expenses totaled €4 million, the full amount of which impacted EBITDA. They related to expenses for the design and implementation of IT projects and for corporate transactions. Exceptional charges in the prior-year quarter came to €5 million.

Financial result

The financial result in the third quarter of 2012 came to minus €34 million, against minus €23 million in the same period last year. Interest expense, at €25 million, was nearly level with the previous year’s €27 million. Construction-period borrowing costs relating to the major capital expenditure project to build a new butyl rubber plant in Singapore were capitalized in both periods. The investment of liquid assets generated interest income of €1 million, against €5 million in 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, decreased from €7 million in the prior-year quarter to minus €3 million in the reporting period.

Income before income taxes

Income before income taxes decreased in line with the lower third-quarter operating result from €200 million to €122 million. The effective tax rate was 23.0%, the same as in the prior-year period.

Net income and earnings per share

As in the prior year, non-controlling interests accounted for less than €1 million of third-quarter income. Net income for the third quarter of 2012 amounted to €94 million, compared with €154 million in the prior-year period. With the number of LANXESS shares in circulation unchanged, earnings per share, at €1.13, were below the €1.85 achieved in the same quarter of last year.

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