Earnings Call: Q1 2021

May 12, 2021

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the LANXESS conference call. I would like now to turn the conference over to Andres Simon, Head of Investor Relations. Please go ahead. Yes. Thank you very much, Judith, and a warm welcome to everybody on the phone to our Simon. Q1 2021 conference call from my end as well. I have with me our CEO, Matthias Zachert and our CFO, Michael Pontzen. Please take notice of our Safe Harbor statements. And with that, I'm happy to hand over to Matthias for a brief presentation Simon, Head of Investor Relations, please go ahead. Thank you, Andres, and warm welcome from my side to Q1 20 20 conference call, PhoneXis. I start with a presentation on Slide number 3, where we Simon. The key attention to strategic highlights and financial highlights. As far as strategy is concerned, definitely the acquisitions that we have embarked on beginning of the year With 2 bolt ones in consumer protection and a larger one yet to be closed, Emerald Calomer, We're definitely a clear sign that we are on track as far as external growth is concerned, and we will continue pursuing this direction, however, with Head of Focus and with discipline. Noteworthy also what we've communicated recently, the team up in partnership with Tinci, where we are going to start producing the electrolyte for Tinci for the European customer base, As far as financials are concerned, we clearly see that industries are rebounding. There's definitely restocking that is happening across the industry. But we also see production is moving upwards. In some cases, Supply chains are extremely tight, and therefore, obviously, our volumes are needed. We also see quite drastic increase in raws across the value chains. Simon. There are some that are particularly hits also due to force majeures. And therefore, we have seen price increases Simon. Many of the raw material products that basically have not been seen in the last 10 years before. As far as EBITDA is concerned, we came out better compared to what we've stated in March. This is basically driven by March momentum, which was Very strong. And therefore, we could catch up with profitability, even though I clearly have to stress that we took Internal hits, so to say, due to the winter shutdowns in the U. S. United States. All of you know that we have substantial production assets in North America, in El Dorado, Memphis, but also in Charleston, etcetera. And our Eldorado wells, Where we extract bloom, we're frozen for 2 weeks. And believe it or not, even in Texas, I had never thought that this would be possible. But even in Texas, we had blizzards and water infrastructure leading to our sites were This besides freight and energy costs and of course also escalation on prices in raws The devaluation on the dollar were impacting Q1. So by and large, we closed Q1 on the level of 2020, which was all in all Simon. Still an okay quarter with little impacts from corona. With this, I move to Page number 4. ESG is Dear to our heart, as you know, and I think we've accelerated here nicely. We were one of the most ambitious chemical companies in Europe. Communicating early on our aggressive CO2 reduction targets. And from that day onwards, we are benchmarking ourselves in absolute terms versus our previous year. And step by step, We are able to reduce emissions nicely also for the year 2020. And as Many of you have seen, I hope you have studied the AGM agenda. We have put Simon. On the agenda of our coming AGM and we link Head of Investor Relations, Board's incentive schemes towards absolute CO2 reduction going forward should shareholders, and of course, vote in favor for it. On the right hand side of the slide, you see that we don't have to shy away from being benchmarked against Simon. German Industry Trajectory or European Green Deal Industry Commitments, which might Simon. But even if this is being put legally into place, we are well ahead with our CO2 reduction targets. On Page 5, we conveyed to you that we also Now go for new standards of ESG reporting. We see that Simon. ZASB and TCFD are being internationally recognized. And in order to give more transparency on the sustainability Reporting standards, we embark on them as well. And of course, we will try then to move into the leading slots for these respective standards depending on who is eventually going to be the global standards, which Page number 6, we shed some lights on our divisions Simon. For Advanced Intermediates, I clearly would like to stress we saw a hit on Margins in Q1, this has to do with the raw material escalation. I indicated this already in March Simon. We have contractual clauses, which is an asset. And with this, we show that we have Something that many of our peers don't have, so we can pass on RAS. But this always happens with Simon. Quarterly delays. So you should see prices on the rise in Q2 in this big business unit called Advanced Industrial Intermediates. And this is the delay effect stemming from Q1. It will be passed on Q2, as you've seen in many of the other years In the past, the only one thing which will burden us in this year are energy prices. We normally don't have energy price clauses. We are looking into the contracts now, and we discussed that with our customers because energy is, of course, on the rise for this year. And we have to see how much we can mitigate this because the end demand is strong, and therefore, we see what we Simon. But at this point in time, we have to be a little bit more humble, therefore, on our Advanced Industrial Intermediates. Even though the Simon. As far as construction is concerned, I'm Basically, hinting to our pigments business. Construction will do well this year and next Simon. With all these government stimuli, the one industry that does benefit is construction. So IPG should do well. Specialty Additives, we had the strongest quarter in Q1 last year. Therefore, we are not back to the same performance level. However, the end industries are rebounding except aviation, still weak. But you should see from Q2 onwards that additives comes back into the performance range, again outpacing than previous year performance. Consumer Protection, you all know that last year, this business did extremely well, increasing by more than 10%, 20% bottom line, Simon. Spending margins above 20%. So I know that some of you said this is somewhat high level, Tough base. Well, ladies and gentlemen, our expectation is consumer protection will continue to grow Simon. Versus 2021, even though this 2020. So 2021 should be better than 2020 Simon. Despite the hard days, but we see that this business is on the rise, we took a hit in Q1 because Memphis was down impacting the anti disinfection chain, But Memphis is up and running again and capacities are being debottlenecked. So the Simon. The capacity by end of the year, beginning of next year will grow up nicely. And therefore, we are quite Simon. I'm optimistic on the entire division Consumer Protection. And of course, with the acquisitions that we've done in TES They will contribute in the second half. And once Emerald is closed, Of course, depending on the antitrust approvals. But as United States is now approved, Our expectation is that in the Q3 end of Q3, we have clarity on the other jurisdictions. And then of Simon. Consumer Protection will automatically also strengthen from this contribution. Engineering Materials doing strong. We have issues here due to force measures from a supplier side. So, POCAN, which is Simon. Pretty much needed in the entire automotive industry, but also electronics and in the capital goods industry Simon. It's tight. We saw how much this product is wanted. We are doing everything, even Sourcing from Asia now the precursor in order to be back to operational level for our customers. And I think we've shown a speed in replanning, rearranging our supply chain so that Simon. So we will be earliest back to our customers with supply, I think, which will be Simon, Head of Investor Relations. With this, I turn your attention to Page number 7, LANXESS guidance. Current economic environment we see is rebounding everywhere. Restocking is visible. Difficult to quantify because customers don't tell you how much they restock, but we see that customers move back production. In some cases, they are at 100 percent utilization. We see that even agro industry is rebounding. Construction, as I commented before, should be strong for this year next year. Aviation or assumption will Simon. Improve in the second half and potentially go back to happy days next year again. It would be earlier than we had originally assumed. Oil and Gas is gradually improving, but of course, uncertainties are out there. We are living in volatile times. Geopolitical uncertainties Simon. Also visible, and therefore, we should all be humble, but nevertheless, optimistic. This is how we look at LANXESS. 2nd quarter, our range $240,000,000 $280,000,000 This is what we were deciding in the Management Board When we've prepared our numbers for The Streets, I know that some of your questioning is this a Rather wide range of the guidance. Well, it is our guidance for Q2. If you ask me specifically, I would be Simon. Even comfortable to nail it down to €250,000,000 €260,000,000 But hey, let's look at the guidance provided here. But For your models, I try to be a little bit more sophisticated. We take a hit in Q2 on Simon. 2 PM, PohCahn here. Due to the shutdown, we faced the U. S. Dollar being weaker, which is protected somewhat by Oliver Smart's hedging approach, but nevertheless, we take a hit here. And as far as full year is concerned, We are more optimistic than March and move up the guidance to € 950,000,000,000 and that's Basically, the short summary on Q2 outlook for entire year 2021. And with this, we accelerate to your questions Head of Investor Relations. Ladies and gentlemen, at this time, we will begin the question and answer session. Simon. Simon. Simon. And the first question is from Andrew Stott, UBS. Your line is now open. Thank you. Good morning, good afternoon, everybody. Just Start with pricing and then I've got a separate question on the balance sheet, if that's okay. So pricing was minus 2 for the group, and that was due to AI and consumer protection specifically. Your peers, your European peers did a range in the wide one of that of 0% to 5% on pricing in Q1, Obviously, none of them negative. So how would you respond to that That you're really not displaying pricing power in an inflationary environment. And what do you think you can do going forward to address those 2 divisions? So that's the first question. The second question was around the balance sheet. So your definition of net debt Means that you don't include non current assets. The non current assets have grown by about 150, 160, Which sounds like a really boring point, but it's trying to explain that net debt delta. So the simple question is, why can you not include those non current assets in your net debt definition? And when will you be able to? Is it just the maturity profile of what you've acquired on the money markets? Thank you. Andrew, good to hear your voice. Loud and clear and healthy, that's Positive. So on price, I would take this and Michael will address the balance sheet question. Simon. And so let me start with price. We entered last year 2020 On a relatively strong footing as far as prices were concerned. And therefore, we benchmark ourselves right now in Q1 Simon. Versus previous year with a relatively high pricing level that we still have to reach again, and this will most likely come in Q2. And as the inflationary environment right now Accelerated in Q1, we are bound in AII basically to our quarterly contracts Simon. With pay or pay clauses, everything being big and span, but we can only catch up on the prices in Q2, which will happen. I see that already now in April. Prices are on the rise again now in Q2. So we will again Roll that over in Q3. This is currently how I look at the market developments. Simon. But here on pricing for Advanced Intermediates, you basically see this quarterly lag. With the statement I've made at the beginning, We started on a 12 month basis with a relatively high price base already in Q1 Last year versus peers, there would be the catch up that we will do. And therefore, you should see that Consumer Protection, this has to do with one contract in Saltigo where we changed Simon. The pricing formula and that led to a distortion and then also to one other product where we had an underlying contract with the 12 months clause that was therefore reducing the prices on an agreed However, this will vanish in course of the forthcoming quarters Because pricing eventually in raw materials in consumer protection do not really matter. This business is relatively Simons. Resilient towards rewards because raw materials are simply not The name of the game in this value chain and this business profile. Michael will address balance sheet. Hi, Andrew. Hi, everybody as well from my side. Yes, we had the discussion about how to display The investment of EUR 150,000,000 which we did now in the Q1 already in Q3 last year because we did the same kind of investment at that And the clear message and the feedback was it's not part of the way we should determine liquidity and therefore net financial debt. So your observation is principally absolutely right, Andrew. We have the increase in reported net financial Simon. And the decrease in liquidity and the majority or basically the vast majority is driven by the EUR 150,000,000 investment, Which will come back next month. So in Q2 reporting, you will again find the inflow in the cash flow statement and therefore, the improvement in the liquidity coming from that investment. Okay. Thank you very much. Welcome. The next question is from Thomas Wiegersberg, Citi. Your line is now Just With regards to the electrolytes, is the P and C contract exclusive? How much capacity have you got available above and beyond that which you've already agreed? And can you give us some sense of the margin of this Simon. The second question is, Clearly, that was an ambition for Specialty Additives to get to 20% margin. Obviously, the Aviation situation is exogenous to LANXESS. But maybe taking account of that, noting that bromine markets and prices are back on track, Can we now when should we think about you being able to hit this 20% margin ex Aviation for Specialty Additives? Thank you. Well, Thomas, good to hear you. And let me address the questions 1 by 1. As far as electrolyte is concerned, I mean, first of all, we are happy to team up here with the worldwide Hecht, a leader in the electrolyte chemistry, Genche. And I cannot be specific on our customer and his plans. I would just like to indicate they are following the requests on the OEM industry that I think you are well aware of that A lot of the big players in Asia are coming to Europe as far as battery cells are concerned. Again, these are the worldwide leaders, and they bring along their current suppliers, But these suppliers eventually need the raw materials. We stressed we have the raw materials. And at this point in time, however, we use our high technology base in Saltigo Simon, who already produced the electrolytes. So this is the first that comes. And now we have to see what else we are going to do with Kinche. This is definitely an exclusive contract with us. It's a bilateral long term contract starting from 2020 Simon. But definitely, this would not suffice to satisfy the marked Simon, Head of Development, which is going up like a rocket. We are talking here about 20%, 30% volume growth rates on a yearly basis. And now I think this is the first step. We have to see what other steps we are going to do. And this is yet to be sorted out. Now as far as your second question is concerned, 20% Simon. On Specialty Additives, I would like to make the following adjustments to this. The first one you mentioned yourself, the high margin Aviation business Simon. This is not yet back on track, point number 1. Point number 2, we transferred beginning of the year Out of advanced intermediates into Specialty Additives, a business, Simon, Head of the Accelerators Antioxidants that reported around about EUR 300,000,000 in sales and no EBITDA. So we transferred that, adjusted our segment reported reporting. And if you move EUR 300,000,000 sales with no profitability, I. E, 0 EBITDA, of course, margins are Not going up, but they are diluted, and you need to take this into consideration for the SA segments. Having said this, we moved the business over in order to derive synergies from the combination of Rhein Chemie and Simon. The antioxidants and accelerators because eventually they have the same markets, the same customer base. And of course, we would like to achieve synergies going forward, but this business will dilute the Specialty Additives, Which is, of course, a negative. At the same time, the positive is When I look at the new configuration of Rhein Chemie, we now have it at Simon. In 2020, it's a low. My personal belief is if we approach this business in a correct way, this business Simon. At least double in profitability. My expectations are, however, that it's going to triple. If everything goes well, It's going to quadruple. What will happen then is a different story. I think then we have to see Simon. How further we can scale it up going forward. But this decision will be taken, I would say, in something like 2 Simon. 2 3 years down the road, first of all, we are trying to extract as much profitability out of it going forward. Okay. Thank you. Very helpful. You're welcome, Tom. Next question, please. The next question is from JD Pangya on Field Research. Your line is now open. Thank you. I Just wanted to ask you on Polyamide 6. So 66 is basically out right now. So what is really happening in Nylon 6 In terms of your ability to sort of pass this crazy benzene move up. And then if you look a little bit more longer term, Once the polyamide 6.6 sort of improves in precursor supply next year and the year after next year, How do you see that as an impact on Nylon 6, just in terms of as EVs ramp up and given both these Simons. Polymers are so important for the auto industry. That's my first question. The second question is just any update on Enbrel Kalama, given the fact that the Flavors and Fragrance market is coming back, the pharma industry is doing well. So any update there would be appreciated. And the third question really is about bromine and apologies for this, but Chinese bromine has Hit new records and both your key close peers have talked up this business. So If you can just remind us, how should we think about your flame retardants business in terms of pricing versus Well, on polyamide, I agree. PA is tight on the 66 side, but also on the Simon. I do assume PA6 has, in Europe, the better position going forward Due to the value chain being more robust than the 66 value chain, And as long as the market is tight, and it is very tight these days, we cannot produce as much as we want to. And if we see that the demand is on the rise and continues to go up, We have various customers like competitors Simon. That currently don't get volume. In some areas, we have to cancel C customers because we simply don't have the volumes anymore. And this is something happening in the entire market. So we have seen benzene going through the roof, Simon. Going up by 200, 300 percentage points, unbelievable. This hits cyclohexane, of course, as the next Simon. And we are now passing all of that on. Peers and ourselves are out with price increases, and this will be a theme Simon. Going forward, and as long as demand is robust and not yet all industries are back in the order book, So the situation from my point of view is not going to soften at least In the next few quarters, it might get even get tighter. And this is, therefore, a Good time for the polyamide value chain, all in all, for 2021. And with all the e mobility accelerating in 2022, 2023, I think that Simon. The polyamide value chain is going to be a after 2 tough years, 2019 2020, should benefit going forward. So this is What I would like to say on PA6. On Emerald, I agree. I think we bought Emerald at the right point in time. And of course, the business is not in our hands yet. We are doing all the filings, answering to all jurisdictions, antitrust authorities. But of course, whatever we can do and what is Simon. This can be done from an integration standpoint, which is in line with legal prerequisites, Simon. Legal laws we are doing, we are preparing for day 1. We want to be ready with operational analysis, Synergies verification, etcetera, by end of June, so that we are prepared for taking the business on board Should approvals come. We like the team. We like the people, great people, energized, Simon. It's fitting very well to us. And yes, I think it was the right purchase at the right point in time where industries Simon. Quite positively on the 2nd biggest acquisition that we did, and it will catapult the consumer protection business in a Differently. Emerald is a business where we've detected some substantial savings on a Business, which is already around 20 percentage points. We see growth here, sales growth. We see, Of course, productivity gains. So I think this business going forward in the next 2 to 3 years, Together with our consumer protection businesses, we'll move this entire segment into a new league, Which from the KPI standpoint is, of course, impressive. Now your third question, I know that, Abamalie went out with good comments on bromine. I agree on prices. I mean the prices you see are Chinese prices, spot prices. We Have not only Chinese prices, but also European and U. S. Based pricing often with contracts in place. The Chinese prices Simon. But if they're on the rise, it's good, and we are happy about it. Markets are tightening again in bromine business, definitely the case also in flame retardants. We had simply one big issue, Jaideep, we could not produce, we could not extract bromine. Our wells were frozen. El Dorado was Basically for 2 weeks out of production. So we had demands and orders all over the place We couldn't ship. And I think other money made I looked at their comments in Q1. Their Magnolia plant was impacted Because it's 50 miles away from ours, they were also down and alluded to the fact that they will have volume impacts Simon. From the winter season, not only in Q1, but due to the lack of the production, they will also be short on volumes in Simon. And therefore, there is a lot of demand out there from flame retardants, construction industry, but 2 of the 3 big players Had issues to get the volume for the customers, and that's the situation in the market. So I'm not negative on bromine, the opposite, As long as we can keep our production running and we have to catch up with the volume demand coming from the end market, and the end market is strong. Very clear. Thanks a lot. You're most welcome. Stay tuned. Next question please. The next question is from Andreas Heine. Yes. Thank you for the opportunity to ask question. 2 I have. 1 is on Rhein Chemie. Simon. You said about you were talking about your ambitions to double triple or quadruple your earnings. Well, it's easy if you're the start is very, very low. Going to what margin might be after having done the homework, can it be also 10% or let's say in the range of where the group margin is? Or is that so tiny right now that this quadrupoleum is even not getting And the second question is the sequential improvement from Q1 to Q2. If I just Simon. What you mentioned about advanced intermediates rolling over prices, which we were not able to do in Simon. And taking the U. S. Weather related impact, and I would basically get to the midpoint of what you have Simon. So is the 2nd quarter in general more or less the same and these two Negatives in Q1 are not existing anymore in Q2. Is that the right reading on the sequential trends? Well, let me address the margin question first. I mean margins are if you take 0 EBITDA on €300,000,000 in sales, the margin is not there. Of course, this Was the case for the accelerators and antioxidants, they were badly hit. At the Rhein Chemie business, I would say the former Rhein Chemie business, the Renault grants, was a business in last year in the high single digit, Low teens margin. So simply unacceptable. Simon. And therefore, this business, we've changed the management team. It's a good one. I'm looking at this now Impress by the analysis that we now put in action. And therefore, this business has to definitely this is a double digit Simon. In the new configuration periods, if it will not achieve the group margin Simon. The margin standards for me are not where they used to be 5 or 6 years ago. We are bringing this business, our group, to different margin levels. Either this business moves there Simon. But the first thing that I want to see is that in absolute terms, this business goes up strongly. And as long as it goes up strongly, they have the right to be under the length of this roof. If they long term can then keep a low asset base With high double digit margins, I will revisit. But this is something the business yet needs Simon. And this is the strategic plan we discussed, and now we put it into place. Now as far as Q2 is concerned, the one thing that is clearly visible is strong volume momentum and that we catch up on prices. The one thing that, of course, is negatively impacting us is the force majeure. It is the energy prices And it is the USD, which last year was something like $0.10, $0.11 better in our direction. Now it's the opposite. Oliver is mitigating this to some extent, but of course, the delta is still something like 6%, 7 Simons. Send points, so it does hurt. But all in all, Q2 should be a sequential further improvement versus the Q1 numbers Simon. You have seen and that's what I've indicated earlier on also in terms of narrowing the guidance range somewhat To be absolutely certain, it's EUR 2.40 to EUR 2.80. You're most welcome, Andreas Heine. Next question, please. The next question is from Markus Mayer, Baader Bank. Your line is now open. Good afternoon, gentlemen. Two questions remaining. First one is on the Engineering Materials business. We've heard from several companies more anecdotal evidence, but Simon. I think you have better views maybe that there was double sourcing, in particular, at automotive customers. Do you see this as a risk for the second half? Or do you think that this is was only as said anecdotal evidence? And secondly, on the Specialty Additives business, this €10,000,000 1 off winter impact. And does I do understand this right, this was basically mainly in the Specialty Additives line and in particular, Simon. Can you repeat the second question, please? Yes. Yes. You lined out that you had a €10,000,000 negative one off effect from the harsh U. S. Winter. And my question was if this effect was mainly then in Specialty Additives or even solely? And if so, If this was basically then attributed to your ProMINE business, as you said, your well was off over 2 weeks. Okay. Very clear. Thank you. So on your first question, you're totally right. Automotive industry is normally going for double source, sometimes even triple source, but the big guys are double sourcing. But hey, in this case, both suppliers Head of the PBT business, the both the 2 big players In the European camp, both were on force majeure because it was not us Simon. It was the biggest raw material supplier who was supplying our competitor and ourselves. And therefore, The next step of the value chain was reporting as well the force majeure, leading to tightness in the Capital Goods Industry, E and E Industry and Automotive Industry. By now, we have sourced from Asia. So we are liquids, and we will go back on stream already earlier than anybody else, Simon. Most likely Friday this week, we run extra shifts and we are the first to supply customers again. And we will go out to customers telling that we are now internationally Sourcing so that this situation will not occur again. So we are doing everything in order to be speedier and help our customers to regain lost production as quickly as possible. So I'm not concerned that in the second half, we will face an issue. Rather the opposite, I think customers will give us credit for our Simon. Speed and agility we are showing in this particular case. Now with the second question, You're right. The biggest hit on the €10,000,000 was in bromine Because Aldo is definitely our biggest site in the North America. We were also hit in lab Because with the Chemtura acquisition, quite a few sites of lubricants are North America too. And a little bit went on Memphis. It wasn't the millions, low millions, but we were basically hit in all big production sites. But the biggest chunk Definitely, out of the €10,000,000 was in El Dorado. And with that, of course, the significant chunk was Simon, Head of Specialty Additives, where we were incurring the idle cost, and the idle costs are seen in the EUR 10,000,000, But we lost volume as well. So this really this was really bad. Okay. Thank you so much. You're most welcome. Stay healthy. The next question is from Rob Hayes, Morning Head of Investor Relations. Yes, good afternoon. Thanks for taking my question. On Saltigo, I was wondering given the ag market, I know your business is project based, but are you seeing an increase in potential projects Simon. Discussing with your customers or is it more in the pipeline, I guess. And then, do you have some comments maybe on your View on raw material inflation for the full year. I'm just wondering if your guidance implies kind of an easing in the second half or what are your thoughts around that? Two good questions on the Ultigo. Momentum It's clearly better. We were, despite trophy ARC industry, Doing reasonably well in the last 2 to 3 years because of innovative Products and projects. So we did well in the last 2 to 3 years. Last year, we achieved Simon, Head of Aviation Power going forward. And my personal belief is TIGO will be on the rise also Simon. For the years to come, I mean, now we start with electrolytes. It's a different industry, which will Simon. Somewhat diversify the setting of Saltigo. But all in all, I'm looking optimistically towards Simon. The Saltigo business, this will not move up every year in the double digits, But it will move up in the millions and in the high millions. And therefore, I'm Optimistic on the on this year's performance of Saltigo, but also for the years to come. Now on RAS, I mean, this is potentially one of the most difficult questions to be answered right now. Macro indicators at this point in time are alluding towards a Softening of by and large raw materials in the second half. I'm saying to my guys, don't plan for that. I mean, let's do the bottom up Simon. Work and analysis and forecasting based on raw materials that potentially might be a bit softer. But operationally, you should all that's what I'm saying to my teams. You should all be prepared That even in the second half, we would see a further rise in raw materials. And if this is happening, we have to go out with further price Simon. So the situation right now is a one that is that's where I think you have to simply be flexible, agile. Simon. Speed is everything, and you cannot make predictions like you have done potentially 5 or 10 years ago. Great. Thanks very much. You're welcome. The next question is from Richard Pato, Exane BNP. Your line is now open. Hi, thanks for taking my questions. Just firstly on Container Protection in Q1. Of the 10% volume growth you printed, how much was underlying volumes versus the IFRS 15 impact you mentioned? And then secondly, on Q2 guidance, could you possibly strip out the raw material headwinds that you're assuming in that range? Deutsche. Let me Take both questions though. So with regards to consumer protection, in the Q1, we're not detailing out the exact effects. Simon. There are some part of it, but not the majority. The underlying business is, like Matthias said earlier, growing nicely And to go especially with regards to the overall environment in the ag industry. And second, we were as well displaying that The acquisitions which we did a couple of years ago with regards to MPP are contributing nicely as well to the overall growth Simon, Headwinds of the volume. So therefore, it's a part of it, but it's clearly not the majority. With regards to Q2 raw material headwind, I think if you read the newspapers, if you look into the markets, there are a few of our raw materials, Simon. Which are benzene, toluene, which are keep on skyrocketing. We saw further increases now in course of Simon. The Q2 and therefore, it is of utmost importance that we keep on rising prices fast now. Matthias was mentioning Simon. The price forward escalation clauses. But clearly then on a sequential basis, we will further see Simon. Pressure from the raw material and the pressure must be forwarded to our customers through price increases. On the spot, Michael. Very good. Next question, please. The next question is from Martin Roediger, Kepler Cheuvreux. Your line is now open. Yes. Thanks and good afternoon. Actually, it's two questions on the same topic, on antioxidants and accelerators. According to the restatement, we can calculate that the Sales of that activity last year was €237,000,000 and EBITDA was actually negative by minus €6,000,000 So I wonder about your €300,000,000 sales figure. Is there any other retroactive change in the Specialty Additives and Advanced and the new use Simon. And staying on antioxidants and accelerators, you shift that business from advanced and ambitis to specialty additives. Actually back to your Rhein Chemieur unit where it was some years ago. My question here is what Simon. What went wrong in the past under the advanced industrial umbrella? And from your experience, how often did it happen that a low margin business Simon. Negative margin business has caught up to a level where it did not anymore dilute the group margin. And finally, You say the profitability will rise due to synergies because it has the same customer industries as I mentioned me. But What is really different today compared to the past when it was part of INGME? Did the customer industries change in the meantime? Thanks. Hey, Martin. Good questions. By the way, my son, who is 13 years old, Simon. Here's the Martin song currently all the time. I thought about you when I heard that first at home. So let me come to your Questions. The EUR 300,000,000 with 0 EBITDA, it's basically not the Guidance on where true numbers 2020 are, but basically what's the configuration of this business? How has this business behaved in the past? Simon. In a trough economic environment, in 2020 and Past cyclical downturns, this was somewhat the sales Simon. The precise numbers you have mentioned are the ones that we have given in the adjustments overview that we, I think, issued in March. So here you have the precise numbers, I think, for 2020, but also for 2019. And with this, I would like to answer then the second question. This business, when we integrated it in Advanced Industrial Intermediates, Way back in 2014 or 2015, it was, I think, continuously on the rise. We went from basically 0 after the last Head of Crisis 2013. We went from 0 to roundabout €30,000,000 in profitability. Then 2019, the automotive crisis came and then 2020, corona. This business will go back in normal times to Simon. And with the synergies we can achieve in the Rhein Chemie business, on the sales muscle, on logistics, warehousing, You name it. My personal expectations are that this business will even go further than €30,000,000 If you then add the Simon. Bottom line contribution from Rhein Chemie. With respective synergies on top of this, you will understand that my expectation on this business 2020 is that this should not go up by double times, definitely rather Triple times. And if everything goes back and they are really doing well, quadruple times. Simon. And that's how I look at this business. I hope that you understand the rationale, but also that we successfully repositioned the business under the advanced Simon. Any further question? Thank you. Martin? You're most welcome. Do you know the Martin song? No. I said it to you. Okay. So the next question is then from Matthew Yates, Bank of America. Your line is now open. Hi, everyone. Two questions maybe. The first one just around the cash and the sizable swing in tax payments. Not that I want to over analyze and dwell on a given quarter, but can you just talk a little bit about What happened there, whether that was anything structural, whether that's purely a bit of randomness around quarterly timing? Simon. The second question, perhaps more of a midterm one, but it's around R and D Simon. It looks to me like you're only spending perhaps half of what some of your diversified peers in Europe do on a percentage of sales basis. I appreciate it could be an issue with definition or asset mix, But I just wondered what the approach was towards R and D as you continue this journey to becoming a more specialty company, whether you're investing enough right now or whether you need to use some of your stronger financial flexibility to ramp that up over the coming years. Yes. Two valid questions. Taxes, that's Simon. Difficult matter that only Michael will be able to really shed light on, so I pass it on. Before that, I address R and D. Well, in R and D, you have to look specifically where we report what kind of R and D. I've looked into this with other companies who made the assessment. In our company, we are doing R and D in Three areas that other companies combine, we don't. The process R and D we do on technology, Like when we now do R and D in order to reduce CO2 emissions. We are one of the leader In NOX, that is in German, Lachgas, Lassingase. We are one of the innovator here in Europe as far as this CO2 technology is Simons. We developed it in a catalytic but also thermal reduction way. We have patents, etcetera. And with this, we have improved our own CO2 emissions drastically in Leverkusen, but are in process of reducing this Simon. 100,000 tonnes in Belgium in 2 steps, but this is not reported under R and D. It's Simon. Even though we have patents and stuff like this, we report that in cost of goods sold because it's process technology, thus production related. 2nd, I know that some peers are reporting technical application that is not on a yearly, but 2 to 3 years basis in R and D. We posted in marketing and sales. We basically did that right from the beginning, and we Stuck with this ever since. And the CFO that followed the first CFO in this Simon. The company was not bold enough to change it, and therefore, we are still having it in sales and marketing. Now the rest Staying in R and D is the normal R and D stuff. This will automatically go up over the years because consumer protection, of course, here Automatically, we'll post more R and D in this area. But therefore, if you Solely look at our own reporting. You could give it up. We don't do it, but we know what kind of R and D we are doing. I hope that gives a little bit of more clarity to your R and D question. Now we come to the real sophisticated stuff. And with this, I pass on the words to Michael. So thankful, Matthias, and I'm so happy that I'm not the CFO who followed the 1st CFO of this company. To remind everybody on that call, Offset, I thought about it. Dark Simon. Yes. With regards to the cash flow statement, Matthew, rightly said, so There is no quarterly timing and there is no like in the P and L, a quarterly write quote in tax payments. They come I don't want to say totally randomly, but they are clearly timing issues. Over time, you should recognize That the P and L quote of 28% will as well become true in the cash flow statement, but there are quarterly Simon. Changes, which means in some quarters, we have cash ins because we have down payments to the tax authorities, which Simon. We have finally received money back because our down payments were higher than the final cash payments we have to do. And in Q1 last year, that was the case. We received money back from the tax authorities, Including a nice interest payment as well. But not only that, last year in Q1, We were as well receiving some VAT payments, which were due in different countries, And that amount was in the neighborhood of €20,000,000 And these two tax elements We're basically the reason why our cash flow was impacted last year versus this year. 1st quarter now than our P and L reported. You should, over time, expect maybe a smaller cash out then the P and L expense. Thank you, Michael. I'm glad that you have your tight hands on it. Next question please. Your next question is from Georgina Aromos of GS. Your line is now open. Thank you. Hi, Matthias. Hi, Michael. Good to speak to you. I've got two questions. The first one, I think we've been anticipating by the midpoint of the year an announcement on your standard lithium partnership. Just wondering if you could update us on that. And then the second question is kind of a follow-up. If that ends up being a go ahead and we've had this Nice announcement of the electrolyte production with Tinche. How are you thinking about the portfolio in the medium term with all of the kind of growth That you are seeing in electric vehicles. You've done a lot of work reducing the auto exposure of LANXESS from 40% to about 20%. I mean, how high are you comfortable going for auto exposure as a percent of group sales? Thanks. Well, thank you on your questions. Let me address them 1 by 1, step by step, we make further strides on lithium. Of course, in the current environment, Simon. It's not as fast as we would like to and all of you know about this. Now what we can say at this point in time, The pilot process and technology indeed brings up or brings out That's the better English most likely, brings out lithium carbonate. So we are able, it seems, Simon. To convert to 1st of all, extract lithium out of the wells. 2nd, to then convert lithium chloride into lithium carbonates with a relatively high purification of 99.85 Simon, which is battery grade quality. And this is what we now see. However, The process the new process on this extraction is not fully there where we would like it to be. We have still two areas where we will need to optimize from an engineering perspective. The process in terms of content of extraction and purification or Simon. Waste reduction better to say. And here, our engineers need to work how long this takes in order to get Simon. Our entire process data in an area where we can then go full scale, I cannot tell you yet. Simon. Here, I need simply my engineers to do the work, the groundwork. But that's where we stand on lithium. So all in all, another step in the right direction. But technology and production processes, especially when they are new one, Simon. Simply need groundwork and great chemical engineers to put their head together and to come up with solutions where today we don't have a solution yet. We know where the problem is, but the solution yet needs Simon. So this is as far as lithium is concerned. Now on the electromobility growth, It's a big market. And first of all, you see that we are looking at this big market. We can Because we have the knowledge to do this, we have the precursors to do this. And if we see here a big Value pockets with a controllable risk, we will decide on going into it. If we then team up with a partner or if we do that on our own, we have to see. But first of all, let us Understand and analyze how big the value pocket is and what kind of risk profile we would take on our shoulders. And then we decide how we are going to enter into it. But I think the positive thing I take from my personal self or For me as a CEO of this company, it's nice that we have many options in our company. If it relates To this, if it relates to TINCI, if it relates to Lithium, if it relates to Kilometers, etcetera. The good thing is we have a strong platform and we have options. And now let's see what kind of options are coming through. Thanks, Matthias. You're welcome. I see no further questions Simon. And with this, I would then like to thank you for your participation. We will open up the doors or the video cameras Simon. And I hope that in the second half of this year, when we are all Simon. Vaccinated all over the planet or at least in most of the cities, we are going to have face to face meetings again. We are energized and Look forward to seeing you then. Take care. All the best for 2021. Ladies and gentlemen, this concludes the LANXESS conference call. Thank you for joining and have a pleasant day. Goodbye.