Opportunities, risks and future perspectives
Significant opportunities and risks
There have been no significant changes in the opportunities or risks of the LANXESS Group compared with December 31, 2013. Further information on this topic is provided in the combined management report for LANXESS AG and the LANXESS Group in the Financial Report 2013. Based on an overall evaluation of risk management information, the Board of Management at the present time cannot identify any sufficiently likely risks or risk combinations that would jeopardize the continued existence of LANXESS.
LANXESS anticipates that the economic environment will continue to slowly recover during the remainder of the year. We expect the main impetus to come from the established economic regions with the exception of Japan, where development could be more restrained due to the imminent tax increase.
The recovery in Europe is likely to continue, with slower growth forecasted in Western Europe than in Eastern Europe. For the United States, we continue to assume that economic development will be better this year than in 2013. Development in China is expected to be more moderate, especially in light of the debate surrounding the financial sector. However, we still consider the forecasted growth of 7.5% to be achievable.
We believe the major risk with regard to further growth currently lies in the potential expansion of the political conflict between Russia and Ukraine.
In the chemical industry, we assume that production will continue to develop robustly, with Asia being the driving force in regional terms.
Regarding our customer industries, we expect that automotive production will grow faster than in the previous year. In the European automotive industry, we predict a slight improvement in overall demand. We expect demand to develop well in the Chinese economic region, and believe this trend will also prevail in most of the other Asian countries. In North America, we expect to see slight growth during the rest of the year as previously anticipated.
In our view the tire industry will continue to expand in 2014. In the replacement tire business particularly, however, it will not be possible for development to continue at the good level of the first quarter. We assume the European tire industry will show somewhat better development than was forecasted at the end of last year, but expect the slightly negative trend in Western Europe to persist. Tire industry growth will continue to be driven by the Chinese economic region, and there should be slight growth in the United States.
The market for agrochemicals should continue to develop well and be coupled with correspondingly high demand.
We expect the construction industry to continue growing during the year. Demand should come particularly from Asia, yet we also expect to see growth in the United States and Europe and also believe growth prospects in Europe are improving.
With respect to our business development, we believe the challenging competitive environment for our synthetic rubber businesses, with their close links to the automotive and tire industries, will continue. Thus we assess that price pressure will persist for these businesses. We therefore continue to predict modest development for our Performance Polymers segment.
In the agrochemicals business, we expect demand to continue developing well in the coming quarters and therefore also foresee favorable development in the business units of our Advanced Intermediates segment.
The effects of the forecasted growth in the construction industry should include further potential impetus for our pigments business in the Performance Chemicals segment.
As a result of these factors, we expect improved year-on-year earnings development in the second quarter of 2014 and anticipate that EBITDA pre exceptionals will come in at between €220 million and €240 million.
We are narrowing our earnings guidance for fiscal 2014 and currently expect EBITDA pre exceptionals of between €770 million and €830 million.
As part of the Advance program, we introduced efficiency improvement measures and targeted restructuring last year to increase the competitiveness of LANXESS. We have already completed the personnel adjustments under the Advance program in line with our expectations. We are currently working at full steam on a further realignment program for LANXESS. Detailed information on this is expected to be provided during the second half of this year.
We will continue to focus on the implementation of our major growth projects in China, Singapore, and Antwerp, Belgium, which are already well advanced. Cash outflows for capital expenditures are therefore expected to be at the prior-year level of more than €600 million. After completing these facilities, we plan to focus in the future on maintenance and efficiency improvement measures and to reduce the level of capital expenditures.
Further information on this topic is provided in the combined management report for LANXESS AG and the LANXESS Group in the Financial Report 2013.