Restructuring of the Group is making rapid headway

A subdued start for the new Degussa


The current figures are compared with pro forma data for the first quarter of 2000, which were calculated as if the merger of Degussa-Hüls and SKW Trostberg had already taken place as of January 1, 2000. Agreements have been signed on the divestment of dmc2 and Phenolchemie, but they are still included in the figures for the first quarter of 2001. The recent acquisition of LaPorte is included in the balance sheet but not in the sales and earnings figures.

A subdued start for the new Degussa

Following on from the economic slowdown in North America, growth momentum weakened considerably in Europe and especially Germany in the first quarter of 2001. At the same time the prices for energy and some important raw materials have increased significantly. Degussa was unable to escape these trends.

Total sales excluding precious metals trading advanced 15 % to € 4.4 billion . In our core businesses, sales were 6 % higher at € 2.6 billion. 4 % of this increase came from higher prices as some of the rise in raw material prices was passed on to customers. A further 1 % was attributable to changes in the group of companies consolidated and 1 % was due to currency translation effects. Overall, volumes were unchanged. The 32 % hike in sales to € 1.8 billion in the non-core businesses was chiefly due to a strong rise in sales at dmc2.

Despite the positive sales trend, EBITA was 16 % below the good performance in the first quarter of 2000 at € 265 million. However, business trends were better in the core divisions, with EBITA slipping 7 % to € 246 million. Including the earnings generated by the Services and Corporate segments, which were held back by a number of non-recurring factors, the core businesses generated EBITA of € 184 million, which equates to a year-on-year decline of 20 %. In the non-core businesses EBITA dropped 5 % to € 81 million.

EBIT slipped 19 % to € 213 million. After deduction of significantly higher net interest expense, the operating result was 38 % below the previous year’s level at € 120 million. Income before income taxes was depressed by high one-off charges, which were expensed in full in the first quarter and recognized in the non-operating result. The non-operating result of minus € 119 million contains merger expenses of € 70 million. € 46 million of these costs comprised land transfer tax relating to the official registration of the merger of Degussa-Hüls and SKW Trostberg and € 8 million was for the transfer of patents and the stock market listing. The non-operating result also includes a guarantee commitment to the German Industry Foundation “Remembrance, Responsibility and Future”, in line with a decision which we as one of the founding members supported. Other items were a residual write-down in connection with the sale of Phenolchemie, restructuring expenses for ASTA Medica and the cost of a corporate advertising campaign for dmc2.

Reconciliation from EBITA to Group net income

(1st quarter in million Euro)










































































 

2001


2000
Pro forma



Change








EBITA divisions


246


265


-7

+/- Services

-4

10


– Corporate

-58

-44


= EBITA Core businesses


184


231


-20

+ Non-core businesses

81

85


= EBITA


265


316


-16

– Amortization of goodwill

-52

-54


= EBIT


213


262


-19

– Net interest expense

-59

-30


– Interest on pension provisions

-34

-37


= Operating result


120


195


-38

+/- Non-operating result

-119

7


= Income before income taxes


1


202



+/- Income taxes

68

-102


– Minority interests

-5

-2


= Group net income


64


98


-35



Earnings per share (in Euro)


0.31


0.48


-35

Earnings per share before
amortization of goodwill (in Euro)

0.56

0.74

-24

Overall, income before income taxes came to € 1 million in the first quarter. Income tax expense was more than offset by deferred tax income from losses carried forward, so on balance we reported tax income of € 68 million. Group net income after minorities therefore only slipped 35 % to € 64 million. Earnings per share for the first quarter declined from € 0.48 to € 0.31. Excluding amortization of goodwill, earnings per share were € 0.56, down from € 0.74 in 2000.

A varied divisional performance

In the Health & Nutrition division sales advanced 14 % to € 291 million and EBITA improved from € 37 million to € 44 million (+19 %). Feed Additives was particularly successful and reported very high demand. The Flavors & Fruit Systems business unit posted a significant year-on-year rise in EBITA as a result of an improved product mix. Texturant Systems also lifted sales and EBITA again as a result of strong demand. Weaker demand for dietary supplements in the USA impacted the BioActives business unit, leading to a drop in EBITA.

The Construction Chemicals division raised sales 6 % to € 376 million. EBITA of € 23 million was almost in line with the previous year’s good level of € 24 million. Because of the continued weakness of the German construction sector, EBITA in the Germany business unit was considerably lower than a year earlier. By contrast, business trends were good in the Americas, where both sales and EBITA increased further. We also registered positive trends and slightly higher EBITA in Europe and Asia.

In the Fine & Industrial Chemicals division, sales rose by 5 % to € 441 million. EBITA came to € 26 million and was thus well below the year-back figure of € 42 million (-38 %). The Fine Chemicals business unit reported a considerable decline in EBITA year-on-year due to weaker demand and an appreciable rise in the cost of energy and some raw materials. In the Bleaching & Water Chemicals business unit EBITA dipped perceptibly because of higher production costs. By contrast, the C4 Chemistry business unit reported good business and a clear improvement in EBITA.

Sales in the Performance Chemicals division increased 7 % to
€ 344 million while EBITA declined from € 29 million to € 22 million
(-24 %). The Superabsorbents business unit did not do as well as expected and reported a loss, chiefly because demand was a good deal lower in the NAFTA region. To counteract this, in April we shut down one of our two US production facilities, with annual production capacity of 40,000 tons. The good earnings contributions from the Care Specialties and Oligomers & Silicones business units were only slightly lower than in 2000.

Coatings & Advanced Fillers lifted sales 6% to € 635 million. However, EBITA came to € 84 million, 12 % below the previous year’s very good level of € 95 million. EBITA was again good in the Coatings & Colorants business unit but failed to match the previous year’s level as a result of higher raw material costs. In the Aerosil & Silanes business unit, too, EBITA was below the previous year’s excellent level due to a decline in volumes, especially in North America. By contrast, the Advanced Fillers & Pigments business unit improved slightly on its good year-back earnings thanks to a better product mix and lower fixed costs.

In the Specialty Polymers division sales declined 5 % to € 317 million as some operations were transferred to newly formed joint ventures. EBITA rose a further 24 % to € 47 million. Trends were particularly pleasing in the Specialty Acrylics, Methacrylates and Plexiglas business units where earnings advanced substantially as a result of high demand. In the High Performance Polymers business unit, EBITA was on a par with the previous year.

The Services segment contributed sales of € 189 million (2000: € 168 million). EBITA was minus € 4 million, partly due to one-off fac-tors at Infracor, and thus below last year’s high level of € 10 million.

“Corporate” comprises costs for the Corporate Center, strategic research and the depreciation of hidden assets under the purchase accounting method. In the first quarter, this item also included extraordinary charges of € 15 million for exchange rate losses and consultancy fees for divestments. Overall, EBITA was minus € 58 million compared with minus € 44 million in the first quarter of 2000.

Non-core businesses

The non-core businesses comprise operations scheduled for divestment. Overall, our non-core businesses generated sales (excluding precious metals trading) of € 1.8 billion, a year-on-year improvement of 32 %, but EBITA slipped 5 % to € 81 million. As expected, the highest absolute earnings contribution came from the dmc2 group, which again posted a good performance as a result of high global demand. Degussa Dental, Phenolchemie, SKW Piesteritz and the gelatins business reported a year-on-year improvement in earnings, too, while EBITA was lower at ASTA Medica and Oxxynova.

Foreign business accounts for over 70 % of sales

We posted sales of € 1,352 million in Germany. That was 30 % of total sales excluding precious metals trading. Another 31 % of sales (€1,364 million) was generated in other European countries. Europe is thus still our biggest market, accounting for 61 % of sales. Sales in North America came to € 906 million, representing about 21 % of the total, while Latin America accounted for 4 % of sales (€194 million). In Asia, where we plan to step up growth in the future, we reported sales of € 497 million in the first quarter. This region thus accounted for 11 % of total sales. Sales in Africa, Australia and Oceania came to € 134 million (3 %).

Higher capital spending

Capital expenditures on property, plant and equipment totaled € 254 million in the first quarter of 2001 (Q1 2000: € 246 million) and were thus once again higher than depreciation on property, plant and equipment, which came to € 223 million. The highest share of capital spending on property, plant and equipment went to Coatings & Advanced Fillers (23 %) and Fine & Industrial Chemicals (20 %). 9% went to Health & Nutrition, Construction Chemicals and Performance Chemicals each received 8 % and 7 % went to Specialty Polymers. About 16 % was allocated to the non-core businesses. We invested
€ 1,743 million in financial assets, including € 1,651 million for the acquisition of Laporte.

Employees

On March 31, 2001 the Degussa Group had 62,359 employees worldwide, 582 fewer than on December 31, 2000.

Outlook for 2001: EBITA expected to be higher than last year

Global economic growth momentum slipped faster than anticipated in the first quarter and the impact will continue into the second quarter. By contrast, we are expecting an economic recovery in the second half of the year. We assume that raw material costs will ease over the year.

On this basis, we remain confident about the year as a whole. We are making good progress with our strategic refocusing on specialty chemicals and will start to reap the benefits in 2001. At the same time, we will be pressing ahead systematically with the cost-containment measures instituted promptly in our business and service units in response to earnings trends. We expect our core businesses to report a perceptible rise in sales and EBITA, aided by the consolidation of Laporte. By contrast, sales and EBITA in the non-core businesses will be down year-on-year, primarily as a result of divestments. Overall, we expect the Degussa Group to report higher EBITA in 2001 than in 2000, while the operating result after goodwill amortization and interest expenses should be around last year’s level.

Company news:
Restructuring of the Group is making rapid headway


We have come a good deal closer to our goal of focusing entirely on specialty chemicals through the acquisition of British specialty chemicals producer Laporte plc and the divestments made in recent months.

On March 12, 2001 the European Commission approved our takeover bid for Laporte. In return, we have to withdraw from some operations. However, the majority of these are outside the fine chemicals area. They comprise the production of persulfate at Degussa’s Rheinfelden site in Germany and Laporte’s sites in Zaltbommel, Netherlands, and Hythe, UK. As soon as Brussels gave the go-ahead for the takeover, business unit teams led by the relevant heads of division started work on the integration of Laporte. By March 31, 2001 we held about 97 % of Laporte’s shares. The company’s assets are therefore already included in the balance sheet for the Degussa Group as of March 31, 2001. Laporte will be included in the group’s income statement from April 1, 2001.

We have also been pressing ahead with our ambitious divestment program since the establishment of the new Degussa Group. On April 24, 2001 we sold our subsidiary dmc2 Degussa Metals Catalysts Cerdec AG, Hanau, Germany to Om Group, Inc., Cleveland, Ohio, USA for € 1.2 billion and thus successfully completed our biggest divestment project. The purchase price includes the assumption of the financial debt of the dmc2 group of around € 0.6 billion. The agreement still has to be approved by the antitrust authorities. In fiscal 2000 dmc2 had about 5,500 employees worldwide and generated sales of € 2.6 billion (excluding precious metals trading). EBITA was around € 107 million.

On March 30, 2001, we sold our subsidiary Phenolchemie GmbH & Co. KG to the INEOS Group of the UK for € 422 million, including the assumption of financial debt. This transaction still has to be approved by the antitrust authorities. Phenolchemie is the world’s leading producer of phenol and acetone. In fiscal 2000 it had just over 700 employees and posted sales of € 1.2 billion. The change of ownership will give Phenolchemie a better basis for future global growth.

We have reduced our stake in Südsalz GmbH, Munich, where our salt activities are grouped, from 64 % to 49 %. Strategic management will be taken over by SWS-Alpensalz GmbH, a 100 % subsidiary of Südwestdeutsche Salzwerke AG. We also have the right to sell the remaining 49 % interest to SWS-Alpensalz GmbH at a suitable juncture in return for a contractually agreed cash payment. Südsalz GmbH is Germany’s biggest and most efficient salt supplier with about 520 employees. It reported sales of over € 155 million in 2000.

Degussa and Ciba Specialty Chemicals have sold their 50 % stakes in the joint venture TFL Ledertechnik to Schroder Ventures. The transaction was completed on March 15, 2001. TFL is one of the world’s leading suppliers of chemicals for the leather industry and generates annual sales of around € 250 million with about 900 employees.

In terms of sales, we have thus already completed over 60 % of our divestment program just three months after the start of the new Degussa.

New R&D drive in the high-growth biotechnology sector

We will be investing some € 20 million in researching and designing biocatalysts over the next three years. The project work will be undertaken by Degussa’s Biotechnology Project House, which will supplement existing work and generate synergies.

As part of this strategy, on June 1, 2001 we will be acquiring the chiral technology research activities of Aventis Research & Technologies GmbH & Co. KG, Frankfurt, Germany. These include genetic processes for the development of biocatalysts and highly efficient modern methods of producing and testing catalysts. The aim is to develop new catalysts and processes to generate base substances for active ingredients that are adapted to natural molecular structures. Such substances are becoming increasingly important in the pharmaceuticals and agrochemicals sectors.


Degussa at a glance

(1st quarter in million Euro)






































































































































































































2001


2000
Pro forma


Change
in %


Sales


5,504


4,710


17


Sales (excl. precious metals trading)


4,447


3,860


15

thereof:




Health & Nutrition

291

256

14

Construction Chemcials

376

355

6

Fine & Industrial Chemicals

441

419

5

Performance Chemicals

344

323

7

Coatings & Advanced Fillers

635

601

6

Specialty Polymers

317

332

-5

Total divisions

2,404

2,286

5

Services

189

168

13

Corporate

6

3

100

Total core businesses

2,599

2,457

6

Non-core businesses

1,848

1,403

32

EBITDA


481


550


-13



EBITA


265


316


-16

thereof:




Health & Nutrition

44

37

19

Construction Chemcials

23

24

-4

Fine & Industrial Chemicals

26

42

-38

Performance Chemicals

22

29

-24

Coatings & Advanced Fillers

84

95

-12

Specialty Polymers

47

38

24

Total divisions

246

265

-7

Services

-4

10

-140

Corporate

-58

-44

32

Total core businesses

184

231

-20

Non-core businesses

81

85

-5

Amortization of goodwill

-52

-54

-4

EBIT


213


262


-19

Net interest income

-59

-30

97

Interest on pension provisions

-34

-37

-8

Operating result


120


195


-38

Non-operating result

-119

7


Income before income taxes


1


202



Income taxes

68

-102


Minority interests

-5

-2


Group net income


64


98


-35
 

Earnings per share in Euro


0.31


0.48


-35
 

Earnings per share (before
amortization of gooodwill) in Euro


0.56


0.74


-24
 

Investments in pp&e and intangible assets


260


248


 

Investments in financial assets


1,743


35





Employees (March 31, 2001)


62,359


62,941