In 2020, LANXESS’ sales and EBITDA came in at EUR 6,104m and EUR 757m, close to Scope’s estimates of EUR 6,122m and EUR 745m, respectively. On top of Covid-19, exceptional costs for the ongoing portfolio realignment and various digitalisation projects had a negative impact. Scope believes LANXESS was able to smoothly navigate the choppy waters in 2020 thanks to the completed off-load of its commodity-orientated activities (mainly ARLANXEO, chrome chemicals). This was helped by a broad recovery in Q3 2020 together with a busy Q4 (normally the weakest period of the year) as demand customers started to rebuild their inventories.

Based on LANXESS’ reported financials, key credit ratios at 31 December 2020 were as expected:

• Scope-adjusted debt (SaD)/Scope-adjusted EBITDA of 1.8x, which was anticipated by Scope;
   
• Scope-adjusted funds from operations (FFO)/SaD of 48%, compared to Scope’s expectation of 41%;
   
• Free operating cash flow (FOCF)/SaD of 8%, in line which Scope’s financial projection for 2020.

Phase III to realign the company structure continues – acquisition of Emerald Kalama Chemical (Emerald)

On 14 February 2021, LANXESS announced to purchase US-based Emerald Kalama Chemical (see: LANXESS: Acquisition of Emerald Kalama Chemical) for USD 1,075m, financed by a sufficient cash position of EUR 1,794m at the close of 2020. The acquisition should positively affect LANXESS’ end-market diversification, increasing the share of non-cyclical end-markets in sales and improving the resilience and granularity of its portfolio. Moreover, it will reinforce the position of LANXESS’ Consumer Protection arm, as Emerald is an established player in various preservatives for the food industry.

Transition year 2021 – moderate weakening of credit metrics expected –likely recovery to be partly offset by temporary decline caused by the acquisition of Emerald

LANXESS’ guidance of an EBITDA pre (before exceptional items) EUR 900m and EUR 1,000m for 2021 reflects Scope’s assumption that the recovery in the European chemical industry to extend into 2021. This will help to balance the deterioration in credit metrics following the acquisition of Emerald. Scope expects cash flow cover (FOCF/SaD) to remain weaker than other key credit ratios due to investments in working capital and higher capex in combination with the company’s historically weaker free cash flow generation ability.

Scope therefore expects the following credit metrics for 2021: SaD/EBITDA of ~2.5x FFO/SaD of ~30%; FOCF/SaD of <10%.

This publication does not constitute a credit rating action. For the official credit rating action release click here. On 8 September 2020, Scope affirmed its issuer rating of BBB+/Stable on LANXESS AG.