Earnings Call: Q2 2020

Aug 13, 2020

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the LANXESS conference call. I would now like to turn the conference over to Andre Simon, Head of Investor Relations. Please go ahead. Thank you very much, Judith. And a warm welcome to everybody on the phone to our qq2 2020 call here in Cologne from my end as well. I hope everyone of you is fine in these special days. I have with me, our CEO, Matija Zacher, and our CFO, Michael Pontzen. Please take notice of our safe harbor statement. And with that, I'm happy to hand over to Matias for a brief presentation, and as always, the Q And A. Matias, please go ahead. Hello, everybody, and welcome to Second Quarter 2020 Conference Call Results of Linksys. I move to page number 4 immediately where we give the business overview business highlights, that's basically happened in the last few months. Nexus was one of the few companies providing Q2 guidance and also guidance for the full year. And we are very happy to report today that we were hitting or have hit midpoint of 2nd quarter a guidance with $224,000,000 EBITDA. As far as margin is concerned, we kept pretty close to the margin we reported last year and at overall 15.6% of EBITDA. Margin. As far as segmental performance is concerned, we basically followed here the we achieved basically here what we had indicated a few months ago was 3 segments where impacted by demand decline. We've had one segment stemming out and showing strong performance, consumer protection, the segment, which was just created, beginning of the year. Where we had some pre buying activity by one customer who basically ordered in the second quarter, what he normally orders in the entire year? But if you blend that out, the Consumer Protection business would still have reported top line and bottom line growth Of course, 2nd quarter was also impacted nicely by the divestiture of the current 40% share that we were selling to Mira. And here we had an exceptional boost in net results, being a record net income quarter. And of course, As far as financial performance, financial liquidity is concerned, this was also nicely impacting our liquidity position reducing the overall net debt. So that's the balance sheet is in proper order, and we can sail with the nice momentum through this crisis. I'm happy to say that the portfolio transformation despite corona, continued. We were executing, within the last few weeks, months, 2 nice strategic moves, which I will share with you in moments, basically on the membranes business, which reflect in our Capital Markets Day, as a troubled business, in our hands. And we indicated also with the full year financials that ladder business is no longer core and it has been taken into discontinued operations. Now we execute with a respective divestiture program. Our AGM is going to be held soon. It's going to be virtual and I'm happy to say that the dividends will be paid on that day, which reflects a increase versus the $0.90 we were paying off paying out last year. I turned the attention to page number 5. Short updates on where we stand on corona or COVID 19. I think all of us are learning as we go through this crisis we find all we try to all find our new normality. And as far as, Asia is concerned except India, as far as Europe is concerned, I'm happy to say that, all plants are running and, people are more and more back into the office in China. It's 100%. In Europe, we are gradually coming from 20 going to 30, 40, 50 percent and a little above right now. So we find our new normality and have returned to our standard shift to model now also in Europe. Of course, we've increased our hygienic high standards more and more over the last several months and keep, of course, social distancing in place in some areas especially where we have production for automotive industry. We have short time work in place. All in all, this is in Germany, a modest amount of roughly 600 people. And we can clearly say now after a few months, that China is currently leading the demand recovery. In the second quarter, we still had somewhat 75, 80 percent of activity and month by month, this moves up more to normality. In some cases, even reaching previous year's level in Europe. This is yet to come, and we would see when this will happen. And of course, other regions like India and Brazil notably are far away from from this trading level yet. Home Office is something we have experienced, a fresh. We learned out of it that this is something where productivity can be maintained at high levels. We keep home office in place, of course, but, as I said before, China is back into the office. And in Europe, we are basically around these forty the 60% depending on which country you are looking at. The cost containment measures we announced in March have been swiftly implemented. So we benefited basically from these 50,000,000 reductions, that we announced, and respectively reduced costs already in the 2nd quarter. And this is going to continue, of course, and kept in place in Q3 and Q4 as well. With this, ladies and gentlemen, let me move to the strategic moves. We have implemented 1 in July 1 in a few weeks ago in July. And the second one, now as of yesterday evening, as another effect, we negotiated here over the last several months and came to a conclusion yesterday night and, are happy to communicate to you that we have executed on what we've stated in the last Capital Markets Day events where I flex that the business unit leather consisting out of a chrome chemicals, chrome or mine, and organic leather chemicals, will be addressed, the Chrome value chain we have already executed or under process of executing the closing. And, yesterday we signed a binding agreement with basically the 2nd player in the market, TSL, which stands for Together for Leather. We've been over the last few years player number 3. The industry is in the process of consolidating this number 1 play in place, who's clearly leading the tax And with a combination of TFL and LANXESS, I think a second powerful player is going to emerge. So it makes a lot of strategic sense. Whilst it doesn't organic leather chemistry was not really affecting to our, portfolio anymore because of because of the fact that we specialize on faster growing specialty businesses that are structurally in a different leak and, for that very reason, we have decided to exit it. As far as, financials are concerned, 80,000,000 will be paid, in cash as kind of equity value, roundabout 1,000,000 of financial Burden's liabilities, majority's pension are going to be moved over as well. And we have earn out, mechanisms in place that could, at best, lead to 115,000,000 incremental purchase price, closing to be expected by mid-twenty 1. Further financials on page number 7. I've seen that from this year onwards, when we decided to report letter as discontinued operations, I have basically not seen any value in your models and the analyst models associated to the leather chemicals business, at all. So I think this is a value transaction. Let me give you some, backup information, the organic letter chemicals. We'll post this year roundabout runs 150,000,000 of sales with roundabout 10,000,000 of EBITDA, as indicated enterprise value at closing will be round about 1,000,000, sorry, 1,000,000 being made up of 1,000,000 cash payment for the purchase price and 1,000,000 of debt. And we will see over the next 3 to 5 years, how much incremental value through the earn out optionality will be, in the bank account of our company. As Leather has had, legal entity sites, representation, sales reps, admin people around the world. We are going to have a remnant costs incurred in cost of in cost of 20212022. And then of course, we will address them one by 1, but this will linger in the P and L for this, for this mentioned time periods. On page number 8, we give indication on the, water chemistry that we have in our Consumer Protection division, I reflect here in the last Capital Market Day event as well that's We do like ion exchange resins. It's a business where we take 1 of the leading positions worldwide. Here, growth rates have been sounds, strategic drivers like enforced regulation on, recycling industry used water, more and more, are benign. So here we like the business trends. We like the market position. We like the technology advantage that we have. Our capacities are tight. And for that very reason and due to the accelerating trends for our products, we are now analyzing where to build another world's scale plant. This would take some time. Investments will be between 1,000,001,000,000. Spread over roundabouts, two and a half, three years. The decision on where we are going to build this plant is yet to come, but, we are excited to basically hear, surface service the biotechnology industry the battery technology industry, but also the semiconductor industry. So whilst we are going to strengthen our position in ion exchange resins, we are going to say goodbye to our membranes business. I think we found a good home, that is Zuwis a world reputed. A technology leader also with deep understanding and water technology, they are going to take over the business, which for us was loss making and roundabouts generating roundabout of 20,000,000 of sales Unfortunately, we will have an impairment of 20,000,000, which is in the books of Q2 already reflected. Closing year is expected end of 2020. And with this, you see that the portfolio transformation of our company continues despite corona, and we are happy that we could execute on this, on these two projects, which we announced, give and take 9 months ago and are happy that we can announce that to our shareholders and interested parties. Page number 9, I turn the attention to our AGM. I hope that all of our existing shareholders will register and vote and give feedback to the recommendations that we do on the AGM. And one of the recommendations is that we stick to our dividend policies and even increase our dividend versus previous year despite current art economic recessionary times. So also on the dividend policy, day by day, year by year, we want to deliver on our promise. On page number 10, we provide the guidance, the new guidance or the sorry, the old guidance. We confirm the old outlook economic view has not really changed. The government stimuli on from our point of view are going gradually to kick in in Germany, government stimuli has started in third quarter. In European Union, it's yet to come and yet to be implemented. So, our view in Nexus is that step by step government stimuli are going to kick in and support economic trading. Outlook on our sites, we confirm the guidance we have provided in last quarter. I. E. 800 to 900,000,000 EBITDA. And on q3, we see that From very low level, in Q2, directionally improvements also in utilization but it's only a very gradual improvement of roundabout 12 percentage points month after month moving up. And so we don't expect a steep increase in business momentum, but we see business momentum wise, at least now month on month, always a little incremental improvements. I think my team has, already taken calls from investors and analysts, so we have conveyed that in second quarter, we had some support coming from raws being in the magnitude of 1,000,000. We've indicated already at beginning of the year that we will have a major standstill, which is basically happening in the happening all the 3 years in Antwerp. And this is the year where the maintenance turnaround maintenance is going to happen in one of our biggest sites, in HPM, which will lead to idle costs in the neighborhood of 1000000 to 1000000. And of course, this will be something hitting 3rd quarter. And we've flagged as well that as far as consumer protections concerned with a fantastic second quarter with volume increase, which was somewhat abnormal due to this, pre ordering of one customer, you should rather expect that third quarter will be on par with previous year. But overall, if you look at the yearly performance, consumer protection will grow and will shine with strong momentum and strong profitability in margins as well as EBITDA. With this ladies and gentlemen, I closed the presentation and with happiness, Michael, and myself with happiness and energy, we will take all of your questions. Please go ahead. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press 0 If you are using speaker equipment today, please lift the handset before making your selections. The first question is from Mr. Yates Bank of America. Your line is now open. Hi. Good afternoon, everyone. And I think I was one of those people that didn't value your leather business for very much, Metair. So that was that was a good bit of news. I have a couple of questions about the trajectory into Q3. Firstly, on Engineering Materials, I think your volumes were down 24% in Q2, which is pretty respectable against global car production that was probably down 50 to 70%. So just wondered, to what extent does that mean there's a lot of inventory already in the channel? Or were you over producing at your own sites ahead of the planned maintenance that you referenced? I'm just trying to get a sense of the shape or recovery you're seeing in engineering materials in the second half. The second question, which you touched on in your introductory remarks, and that was the consumer division, division, and, and as you say, a quite abnormal growth rate there. I'm just wondering if you can help us desegregate the impact of that order that was pulled forward. And then in terms of your disinfectant business, if you can just give us a sense Was there kind of a crazy panic buying in March April or have volumes been more consistent through the quarter and have remained that way into Q3 so far? Thank you. Matthew, very valid questions. And let me take them 1 by 1. You're totally right. If you look into the automotive industry in second quarter. I've never seen my life before, not even in Lehman times, declines of volumes between 50% to 70% depending on which month you look at. So this is really a drastic decline, in it has been a drastic decline in Europe. And if you look at this decline from the order side you have to say that there are there were still enough inventories on the side of the automotive producer. Because no automotive producer was assuming that in Europe at least volumes could decline that significantly. But we see now that measures were taken by the by the by the OEM producers, by the suppliers to the OEMs They drastically reduced, mothballed plants. We're sending people into short labor. And now gradually they are moving up. We have to look if August is going to be impacted or not. But basically I would say everybody had stocks on hand. We were also reducing production, but in second quarter, we kept reasonably the production still in place because in one area we, of course, are preparing for the a plant maintenance and turnaround in Antwerp. So, we could have stopped down more but didn't for the reason of producing goods for the plant maintenance But all in all, even if you would adjust for that, we were not falling as drastically as the automotive industry was falling. I think that speaks for the value chain we have put in place, which in itself is pretty strong and powerful. Now as far as consumer protections concerned and your question on what was the incremental take or incremental inflow that we had it was in the low teens. So if you adjust that, you would see that 2nd quarter consumer protection performance would still be very strong. But of course, the EBITDA in the low teens, you basically need to take that off the normal growth we would have had in Q3 and Q4. Business performance, of Biosites, I mean, it was strong last year. There was no substantial one time increase in second quarter, the Biasat business will continue with its growth rates in 3rd and fourth quarter from everything that we see. So the business is nicely positioned for growth. But of course, the incremental momentum that we saw reduced in third quarter 4th quarter and that will eat up, of course, then the growth that we see in the bio sites. Water chemistry is going to maintain a good momentum. So that's the reason why we look at the Consumer Protection business With the lights, for 2020, it will be from margin perspective, from the Absolutes growth perspective, the best performing within our portfolio. The next question is from Thomas Wigglesworth, Citi. Your line is now open. Ms. Anna, it's Michael. Thank you very much for the, for the presentation. Couple of questions if I may. Firstly, I think in the first quarter, you talked about preparing for a a a potential period of 2 years, but a willingness to consider M and A towards the end of this year Is there anything that's changed that, either made you more positive or negative around that that kind of earlier statement, any any detail there? Secondly, on on specialty additives, can you give us some of the later data points on on on that business? How that might recover through the second half and into 2021, and any guidance there would be very helpful. And thirdly, just a point of clarification, cost savings. Did did I hear you say that you'd have 50,000,000 of cost savings in the first half? And are we are you still targeting 50 to a 100,000,000 for the full year? For 2020? Thank you. Thanks for your questions. So let me take them 1 by 1 as far as, the 2 years tough trading environment is concerned. We are still looking at this in the same way, even though I clearly would like to say macro economists are expecting a rebound. I assume that this is likely because of the government stability being passed by now. When we gave indications on how we look at 2020 2021, of course, not all governments had decided on respective stimuli. Now the 1,000,000,000 of 1,000,000,000 of government stimuli are to be implemented in Europe as well. My assumption is this will not be really visible this year, but it will be visible next year. So most likely 2021, we are going to see a rebound in, in the European economy. But for 2020, I I think it will be all in all, the one of the toughest recessions we have ever seen. So we are prepared for that. And I think we are maneuvering, through this crisis in a decent way with strong financials and reasonable, resilience, financial performance at group level. M and A, we will reassess. We are in a position to, maintain good investments in place on CapEx but also on M and A sites. And we will more and more open up to M and A, the more we see that the economy is stabilizing trading is stabilizing, business is stabilizing. Now on your second question regarding Additives, Well, Additives has been hit predominantly in the Rhine Shimi Additives business due to the Automotive exposure. The loop ads have been hit by, the aviation industry which is the highest margin, the look at in our portfolio. And of course, the roundabout EUR 120,000,000 or additives going to the automotive industry suffering, we're suffering as well. The so called PLA business, which is the brominated and phosphoryous flame retardants and plastic additives overall did reasonably well. But of course, construction and electronic industry was suffering as well. We assume that in the third quarter, the decline on profitability will somewhat be the same as you have seen in 2nd quarter and then it should stabilize. We basically look at the fourth quarter in a way where we will see less decline from a percentage point of view because we will hear face a easier comparable base One reason, second, we think that also the underlying industry demand is going to improve and might, in some countries, even accelerate due to government stability. Now on the cost savings, Michael will answer this question. I would look at this simplistically, the 1,000,000 we have put in place nothing more has been announced so far. The 1,000,000 we've put in place, we implemented basically instantly in March. As we had prepared for a recessionary environment already last year. And I would slice that into three pieces, 1 third, 1 third, 1 third, 1 third coming quarter on quarter, Q2, Q3, Q4. And Michael will give you more color on this. Thank you, Matias. Hi, Tom. Always good talking to you and the rest on the phone. Indeed, as Matthias said, We initiated the program. We told you guys, that there is additional ideas in the drawing. Which we, for the time, being keep in the drawn, but we recognized a good third of the announced numbers in Q2 and the rest is, expected in the Q3 and Q4. The majority of the cost are, variable costs. We, as you know, there are travel bans out there. We stop on certain processes. We brought down costs, and that is all full in place and fully controlled by the organization. Thank you both. That's very, very helpful. The next question, please. Yes. The next question is from Georgina Iwona from Goldman Sachs. Your line is now open. Oh, thank you. Good afternoon, Matthias. Good afternoon, Michael. Nice to speak to you. My first question was just a clarification. In your kind of initial presentation, Matias, I heard you saying that 3Q would be roughly flat year on year, and I wasn't sure if you were referring to group EBITDA or consumer protection performance. And then my second question is if you could give us an idea of, the kind of strategic fit of the Saltigo business in the portfolio today. Thanks. Hi, Georgina. Well, on your first question, this of course relates to Consumer Protection in 3rd quarter, the group will be down versus previous year. So thanks for clarifying this matter. On your second question, 5th of Saltigo to our company setup, it's it's very strong. Zatigo is one of the technology leaders, in what it's doing. It's has always been the core of the former Bayer chemistry. We have here a technology setup, which is I think in Europe at least unique. If we have a chemical problem in any of our businesses here in it lengths lists as Saltigo is the place to go to, and therefore, if it relates to precursors in the biocides business, we get the teams from the Tiguan Place as it relates to a sophisticated chemistry and other parts of our portfolio here going into the Additives division, for instance, and even in intermediates we cooperate between intermediates and Saltigo. So there's no doubt that Saltigo is going to remain a core pillar, the core elements in our overall portfolio. Okay, that's very helpful. Thank you. You're most welcome. Next question, please. The next question is from Samir Weber as W Capital. Your line is now open. Hi, first of all, congratulations on your great management in tough times. And also on the perfect timing of your Kuenta sales, and I think there could have been a better timing for a cash injection than than now. So my question relates to your definition of free cash flow generation. You achieved your target of at least 60% in this quarter. However, when defining this target, you you base it on, EBITDA pre exceptionals. And I wanted to ask you, Is there a time in the near future? When this cash conversion pre exceptionals will equal the cash conversion after exceptionals, That's my first question. The other one is, why do you consider expenses for digitalization as exceptional items, stuff that has to do with Shemondi? And is there any news, regarding Shemondi? Thank you. Well, DSM, thank you for your respective questions. I think you're totally right on the current divestiture. When we did that in September, we were not aware that, a worldwide a century recession would hit our nice blue planets. But in this time posting a capital gain of EUR 800,000,000 and the cash intake of an amount similar to this is of course greatly nicely taken. And so we are for that very reason, of course, and then outstanding setup. I think the leather chemical business is also a nice incremental value because it was more, on lease, unleashing a hidden reserve because it was not taken by anybody as a value driver. So I hope that this is another a nice surprise, to your eyes. Now as far as the definition of cash flow is concerned, I've always learned one thing in my more than 20 years in this industry, be consistent in your targets that you give to the internal organization and to the external worlds because then your teams and your organization will understand and follow. If you want that your entire workforce of 14 15,000 people understand you have to be simple in your definitions. This means that you cannot be that sophisticated as most of you are in the financial world. My people, if shift worker, if sales rep, my people understand what EBITDA is, and my people understand what CapEx is. So this is a very simplistic, simplistic definition of cash conversion, but everybody in our group understands that and everybody understands what we want to achieve with this target. So when I spread out to you, to the sophisticated financial world, a cash conversion targets. For you, it might be too simplistic. Of course, Michael and his team follow more sophisticated analysis, but in order to be in sync internally and to the external world, It's it needs to be these needs to be definitions that everybody understands. Now on exceptional digitization, of course, command is part of this. We've decided to do this if we want to do innovation on digitization faster than other companies and definitely more and more, the leading platform in the chemical industry, still early stages. It still needs to develop, but I think in the second half of this year, we will most likely in with Q3 or November December time, around we'll give an update on reminders where it stands. It has developed nicely. Fortunities has developed nicely. You can test and check it go to the internet, punch in calendars and see you will access the platform. And, as customers, more and more customers have used this commando in the times of the corona, and therefore, we are happy that we are present at the top at a time where digitization is going to kick into the entire industry, but also as far as go to markets, a place is concerned. And therefore, more to come in due course. Thank you. The next question is from sorry. I hope that all of you have seen you are one of the persons following our cash flow I hope all of you have seen that the operational cash flow entire first half twenty twenty has been very strong. Next question please. Next question is from Andreas Heine, MainFirst. Your line is now open. Yes. I'd like to come back to the comments you have given on Q3. I'd like to refer to the quarter on quarter trend. So, you referred to the 10,000,000 raw mats you had tailwind and the EUR 10,000,000 to EUR 20,000,000 maintenance shutdown, which we have to have in mind for Q3. And the preorders you had or early orders in in Saltigo. If it takes a sequential view, then usually Q3 is seasonally weak up, which this year runs against recovery from the lockdown. But I would assume that these extra factors, you said, is something what means that Q on Q, Q2 to Q3 leads to, by roughly this amount lower earnings And then going into, what your guidance is for the full year where you usually feel most happy with the mid range, So 850, which is also where the consensus is. If I do the math, then Q4 has to get rather close to what you had last year. Could you comment on these two teams? Andreas, thank you for your question. In principle, your assumptions are right we told you guys that, in Q3, we expect an improvement in business momentum without now seeing a true pickup. Nevertheless, we gave you indications be it and you refer it to it on Saltigo on the raw materials. What you might also have in mind may be an effect from currency. It's a question where the U. S. Dollar will be in the remainder of the year if say that 2017, 118, that will have an effect. But clearly, the trend should be in favor on a sequential basis. That means that the difference on an operational level Q, which we will be short will be and should be smaller in Q4 versus previous year. Then it is and will be an expected to be in the 3rd quarter. And that is in absolute terms and then relative terms. Yes. So we are not going to see in third quarter, we're not going to be back to heavy times. So Q3 trading last year, the world was already in a difficult economic environment, as you know, but Q3 this year, we will still see that automotive industry is heavily impacted. We would see that aviation industry is heavily impacted versus previous year. And oil and gas are compared to last year heavily impacted. If we see an incremental improvement of 1 or 2 percentage points on utilization versus Q2. That doesn't mean that the world will be back to order. And then let's look into August. August is a decisive month I do assume that, in the automotive production value chain, some of the producers will go for prolonged shutdowns as they've done in Lehman times in order to simply destock their value chain. And therefore, let's be prepared still for a tough quarter in 3rd in this third quarter. But my, again, I reiterate my belief is that fourth quarter, the relative decline versus previous year will soften out. And I hope then that we would see further improvements in the year to come, but it's early stages. Corona has brought a lot of surprises and therefore, our approach here in Nexus is run operations tightly, keep the fire power and accelerate afterwards. That is our approach and so far it has worked well. Next question please. The next question is from Martin Roediger, Kepler Cheuvreux. Cheuvreux. Your line is now open. Yes, thanks. Just three little questions. One is on the disposal of organic leather. As far as I understand, the market is already consolidated. You mentioned the strong number one player. You mentioned number 2 and number 3 player come together, but what makes you confident that antitrust authorities will agree on that deal? 2nd question is on the underlying tax rate in the P and L, when you take out the items, disposal again from current and the tax payment for current what was the underlying tax rate? Was it 28% or different? And thirdly, can you remind us about your hedging policy? I think it's primarily dollar related. Is that like in the past, this 12 to 18 months forward hedges or is there any difference compared to the past? Yes, I would take, hello, Martin. I would take, OLC letter question and our CFO, of course, the tax experts and hedging experts. Will take number 23. These are 2 complicated matters for me. On organic letter, well, The number one is clearly, having here a market share with which is pretty strong. Number 23, we have analyzed the market's configuration the analysis that we have made, brought came to the conclusion that we can do this transaction And basically, we are not in the area of sales in the EUR 1,000,000,000 area. We are in the area of combining a GBP 200,000,000 sales business with a GBP 150,000,000. So from the analysis so far, we consider that there is no legal hurdle, but of course antitrust authorities have to make the call. And we will do here all preparatory work to provide information. But of course, we have to see what antitrust authorities with, say, the experts, the legal experts internal, external legal experts, we consulted it on these transactions, have seen that there are no complications. Michael run the show on Texas and hedging. Yes. 2 of my most beloved topics. I hope so. Absolutely. Martin, yeah, the underlying tax rate is in the ballpark of 28%, that is absolutely right. And with regards to the hedging approach, we still stick to the approach, which the former CFO or the 1st CFO this company implemented at one point in time, don't big jobs, which is a very good one. So yes, we are still on a rolling approach, yeah, on a on a quarterly basis, we're putting hedges in place, which have a, which include a forward curve, which goes into 1.5 years or 18 months ahead of time. Okay. Thanks. Welcome. Next question, please. The next question is from Patrick Rafaisz. Thank you, and good afternoon, everyone. Three questions for me, please. The first is on the cost savings And you talked about some sort of variable nature, also in those 50,000,000. And if we assume that the, economy bounces back in 2021, as as you mentioned, is is possible. How much of these savings you reckon would, would, would reverse again? And the second question is, maybe for Michael, on working capital, pretty big swings here on the various line items, for example, receivables. How should we think about this in, in Q3 and for 2020 as a whole. And the last one, on the lithium from Brian project. I realized with Q1, you said, it can't really move forward with the project and the environment. Travel restrictions, etcetera. You think there's a chance you'll be starting to look at this more closely again pretty soon. Or is that more something for 2021 and beyond? Thanks. Well, I would take the first And the third question, Mike, will take the second on the working capital. So as far as cost savings are concerned, the variable cost savings we've put in place basically from Q2 onwards, decisions were made mid March this year are reducing projects, of course, more traveling, basically anymore, freezing budgets in the entire organization that were due to be spent on initiatives. Now should we rebound next year? I would say quite a chunk of this is going to move back into the business into the functions. But of course, if you look into, for instance, the traveling cost which we have reduced now versus previous year or which we plan to reduce by something like a EUR 50,000,000 that this will not rebound. I don't think that 2021, we are going to travel as we did in historic times. But of course, we would again, go back to projects we wanted to do and would we basically have stopped in order to optimize cash and keep costs under control. The one thing I would also like to say, we've deliberately not adjusted our, potential for growth. We've clearly stated in our calls in beginning of the year, especially in Q1 call, we have not cuts, capacities yet. We have not impaired our potential to further growth. We might do this if we see that industries are going to be impaired for a longer period of time. But at this point in time, we kept the company clearly in the position to accelerate when it is time for acceleration. So this is on the First question on the 3rd question lithium. By now, we have extracted out of our pilot pants Lithium, but we are not there yet to confirm proof of concepts. Why? We have extracted lithium chloride. Lithium chloride in order to be usable in battery technology leak needs then a certain crystallization to come to lithium carbonate. The crystallization unit is still in Canada because borders are locked down and it can only marry with our pilot plant once borders are open. We assume this is to come in the next few months. And then of course, we need to do the full processing. And therefore, our Hope is that by end of the year, all of this will be put together and the entire process is up been running and has been tested then for roundabout 2 months, 3 months. If this is the case, we can see if we get where we want to be, but due to corona, certain things are simply not if seamless as we thought. They would be because, close borders, not traveling by engineers leads to simply a delay in the proof of concepts. And with this, I hand over to Michael, working capital, another CFO topic. Patrick, thanks for your question. As you know, there is a usual seasonality in the cash movements coming from our working capital. Usually, we have a cash outflow in the 1st quarter, then in second and third quarter, relatively stable movements, some ups and down. And then in the fourth quarter, again, a release or a cash in from working capital. When I say so, then I'm talking about normal times and normal patterns. And what we saw now in the second quarter, especially when it comes to the receivables, there was a huge swing But if you recall, when we discussed Q1, we said end of Q1, end of March, we were still in a training environment, which was not too bad. If you recall in the first call, of prices were down only 2% and volumes were down only 1%. But then we saw the massive decline already in the raw material prices. And at that point in time, I told you, we see it already in the payable in the first quarter. This is why payables didn't move that much. Now we are in a position that we knocked down and receivables went down dramatically, why we had a high end flow of cash in the second quarter. When we look into inventories, you see an uptick, in the second quarter, which is as well a kind of usual pattern. And materials both referring to it. There are especially, an uptick in inventories at HPM because we are in in about to get into our large maintenance plant maintenance turnaround. So to cut the long story short, in principle, I would still expect the usual pattern, which we saw in the past years, that there should be especially in the fourth quarter, again, come a cash inflow. But as Matthias mentioned earlier as well, like we did in the past couple of few quarters, there is a very high attention on the cash generating ability of this company? Let me add, on the explanation that Michael has given, you saw in the 2nd quarter, a very strong inflow on receivables. Well, in crisis times, Salesforce has to collect its receivables before others are are in an in a difficult situation. So again, this is a learning out of Lehman, collect receivables. Before others are collecting them. And I think this was a really strong operational performance by our sales teams. And therefore, so far, touch wood, We have had no issue in any outstanding invoice that we have sent. And so I think the team here around the globe did an excellent job. Of course, you will not see the same kind of inflow and receivables in the next year quarter because we've done all jobs so far. Next question, please. The next question is from Markus Mayer. Your line is now open. Good afternoon, gentlemen. I have three questions, if I may. You elaborated on the sales and EBITDA forecast for organic leather chemicals for 2020, but I guess due to the automotive exposure, there was also a significant effect and applied to this kind of numbers. So could you help us on the, sales and EBITDA, of 2018 or 2019 or kind of 5 years, average, that would be helpful. Also, for modeling purposes. And secondly, on the you said you expect, pronounced Samalol for the automotive industry in in Europe. Have you, seen this already, at this kind, or if if your customers already, mirrored this already as it looks like that at least in China, that this recovery in the automotive industry, is is still in in full swing. And then the last question would be on the Special Additives business. Was there also inventory devaluation effect in the Special Additives business as I guess with this shop volume drop also, prices might have come down. And with this, you might have had this effect here in this division Thank you. Yes, thank you for your questions. Now on the first one, OLC in 2019 was round about SEK 30,000,000 high end sales. And I'm not precisely, aware of the EBITDA where it was, but, I think if you add something like 1,000,000 will be in the right corner. We from our side don't see that the 2019 result, which was not the strongest one, but overall, OC performed relatively stable. So we don't see that the automotive industry will come back to 2019 in the next 2 to 3 years. So I don't think that, a rebound here will be, coming soon. Now as far as summer momentum is concerned. I fully confirm what you have said on China, China, what we are seeing will go smooth through the summer break. Europe, I'm still assessing. They are here and there are some positive signs here and there's some negative signs. I don't make a call on August trading yet. Now on raw materials, inventory reevaluations, these times are gone. That was rubber. And all in all, evaluations, evaluations on raw materials don't lead to the big swings in any of our segments. And therefore, there's no one off impact that was there in the Specialty Additives in Second Quarter. Okay, very helpful. Thank you. You're welcome. Next question, please. The next question is from Peter Spinga from Citibank. Yes, thank you. Good afternoon to Cologne. There's one question left. If I remember correctly, you said in the Q1 conference call that the midpoint of the guidance for Q2 was possible, but for reasons, of caution, you would recommend to tackling the lower end of the estimate So now the midpoint of the forecast in Q2 has been reached. How can we now see the forecast for the full year? Yes. A valid question. The guidance is the guidance 800 to 900. And I think in current times, where we still I mean, ladies and gentlemen, we are still fully in the pandemic crisis Worldwide, we still see an acceleration on infections. In Europe, we are seeing that even in Germany that did reasonably well so far over the last 4 to 5 months, we see that infections are increasing. So I urge everybody. I urge everybody, remain cautious, remain focused on the business, remain focused on hygienic, and remain focused on corona, then you then we will all manage this crisis well. And if I if I can gives you an advice. I mean, the guidance is the guidance that we've provided. I would I would give you the same advice as I've given last time. That means be rather in the lower end than in the mid or upper end. We will do our best to, manage through 2020. But in current economic environments in current pandemic crisis. I think all of us have to be cautious. All of us have to be alerted. When it's time to accelerate, we are in the position to accelerate. So far, it's time to focus and manage the business tightly whilst keeping, of course, open eyes for strategic moves and opportunities. The next question is from Chetan Udeshi JP Morgan. Your line is now open. Yeah. Hi. Just coming back to, and firstly, thank you for giving us the color on the impact from pre buying in Saltigo in second quarter. Underlying ex that pre buying, can you give us some color, on how the access is is doing in general outside of that one customer contract, other trends stable, improving, or down year on year. That would be sort of useful. And just the second question was must just to clarify the HPM shut down in third quarter. Is this one of those big multiyear shutdowns, which means that, you know, next year, we shouldn't have similar impact on earnings? Thank you. Well, thank you for your questions on ag. Agro business, I would say it's versus previous year stable to slightly improving. We don't see a rebound, a strong rebound in the ag business yet. But it I I would say it's if you look at this conservatively stable, the answer is stable, if you if you're getting it a little positive spin, it would be slight improvements. So this is how we look at the ag industry. The ag industry has not yet rebounded and gone up to a cyclical a positive, momentum. This is yet to come. This will happen one day, because this is act cycle that I've seen over the last 20, 25 years. But so far, if you look into prices, of porns and soya, etcetera, they are not back to happy days. And and as a consequence, farmers are not yet investing as they used to do, in high quality crop protection products. Now on the second question, you're totally right. This is a multiyear turnarounds it happens in general every 3, three and a half years. The last one we did, was basically 2017 also in the second half of the year. It led at that point in time, I think to something like 16,000,000, 17,000,000 idle costs. And therefore, please, understand that we've given, therefore, the indication of 1,000,000 to 1,000,000. Once this turnaround has been done, everything is big and span. You're not going to be bothered with this hopefully for the next 3 years. You are most welcome. There are no further questions at this time. I hand back to our present us some closing comments. Well, I wish you them hopefully a good summer and, have a fantastic time. We will do virtual road shows all over the place, starting from tomorrow onwards. I'm delighted, together with my team and Michael to do this and to see you in a virtual way better than nothing. And I hope that we will see days when physical one on ones will be possible again. And with this, stay healthy. All the best and stay tuned. Bye bye from Cologne, bye bye from Nexus. Ladies and gentlemen, thank you for your attendance. This concludes Landcrest conference call.