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 André Simon, Head of Investor Relations. Please go ahead.
Yeah. Thank you very much, Judith, and a warm welcome to everybody on the phone to our Q2 2020 call here in Cologne from my end as well. I hope every one of you is fine in these special days. I have with me our CEO, Matthias Zachert, and our CFO, Michael Pontzen. Please take notice of our safe harbor statement. With that, I'm happy to hand over to Matthias for a brief presentation and as always, the Q&A. Matthias, please go ahead.
Hello, everybody, and welcome to second quarter 2020 conference call results of Lanxess. I move to page number four immediately, where we give the business overview, business highlights, that's basically happened in the last few months. Lanxess was one of the few companies providing Q2 guidance and also guidance for the full year. We are very happy to report today that we were hitting or have hit midpoint of second quarter guidance with EUR 224 million EBITDA. As far as margin is concerned, we kept pretty close to the margin we reported last year. That's overall 15.6% of EBITDA margin. As far as segmental performance is concerned, we achieved basically here what we had indicated a few months ago, was three segments were 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. We had some pre-buying activity by one customer who basically ordered in the second quarter what he normally orders in the entire year. If you blend that out, the Consumer Protection business would still have reported top-line and bottom-line growth. Of course, second quarter was also impacted nicely by the divestiture of the Currenta 40% share that we were selling to MIRA. Here we had an exceptional boost in net results, being a record net income quarter. 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 the balance sheet is in proper order and we can sail with a 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, two nice strategic moves, which I will share with you in a moment. Basically on the membranes business, which we flagged in our Capital Markets Day as a troubled business in our hands, and we indicated also with the full-year financials that leather 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 an increase versus the EUR 0.90 we were paying out last year. I turn the attention to page number 5. Short update on where we stand on Corona or COVID-19.
I think all of us are learning as we go through this crisis. We try to all find our new normality. 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% and a little above right now. We find our new normality and have returned to our standard shift 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. 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% of activity, and month by month, this moves up more to normality, in some cases, even reaching previous years' level. In Europe, this is yet to come, and we will see when this will happen. Of course, other regions like India and Brazil notably, are far away from this trading level yet. Home office is something we have experienced afresh. 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. As I said before, China is back into the office.
In Europe, we are basically around these 40%, 50%, 60%, depending on which country you are looking at. The cost containment measures we announced in March have been swiftly implemented. We benefited basically from these EUR 50 million reductions that we announced, and respectively reduced costs already in the second quarter. 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, one a few weeks ago in July and the second one now as of yesterday evening.
As a matter of fact, 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 event, where I reflect that the business unit leather, consisting out of a chrome chemicals, chrome ore mine, and Organic Leather Chemicals, will be addressed. The chrome value chain we have already executed or are in the process of executing the closing. Yesterday, we signed a binding agreement with basically the second player in the market, TFL, which stands for Together for Leather. We've been, over the last few years, player number three. The industry is in the process of consolidating. There's number one player in place, who's clearly leading the pack.
With a combination of TFL and Lanxess, I think a second powerful player is going to emerge. It makes a lot of strategic sense, whilst Organic Leather Chemicals was not really fitting to our portfolio anymore because of the fact that we specialize on faster-growing specialty businesses that are structurally in a different league. For that very reason, we have decided to exit it. As far as financials are concerned, EUR 80 million will be paid in cash as a kind of equity value. Around about EUR 25 million of financial burdens, liabilities, majority is pension, are going to be moved over as well. We have earn-out mechanisms in place that could at best lead to EUR 115 million incremental purchase price. Closing to be expected by mid 2021. Further financials on page number seven.
I've seen that from this year onwards, when we decided to report leather as discontinued operations, I have basically not seen any value in your models, in the analyst models associated to the leather chemicals business at all. I think this is a value transaction. Let me give you some backup information. The Organic Leather Chemicals will post this year around about EUR 150 million of sales with around about EUR 10 million of EBITDA. As indicated, enterprise value at closing will be around about EUR 105 million, being made up of EUR 80 million cash payment for the purchase price and EUR 25 million of debt. We will see over the next three to five years how much incremental value through the earn-out optionality will be in the bank account of our company.
As leather has had legal entities, sites, representation, sales reps, admin people around the world, we are going to have remnant costs incurred in course of 2021 and 2022. Then, of course, we will address them one by one. This will linger in the P&L for this mentioned time periods. On page number eight, we give indication on the water chemistry that we have in our Consumer Protection division. I reflect here in the last Capital Markets Day event as well that we do like ion exchange resins. It's a business where we take one of the leading positions worldwide. Here, growth rates have been sound. Strategic drivers like enforced regulation on recycling industry-used water more and more are benign. 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-scale plant. This will take some time. Investments will be between EUR 80 million and EUR 120 million, spread over around about 2.5, three years. The decision on where we are going to build this plant is yet to come, but we are excited to basically here service the biotechnology industry, the battery technology industry, but also the semiconductor industry. 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 Suez, a world's reputed technology leader, also with deep understanding in water technology.
They are going to take over the business, which for us was loss-making and generating roundabout EUR 20 million of sales. Unfortunately, we will have an impairment of EUR 20 million, which is in the books of Q2 already reflected. Closing here is expected end of 2020. With this, you see that the portfolio transformation of our company continues despite Corona, and we are happy that we could execute on these two projects, which we announced, give and take, nine months ago, and are happy that we can announce that to our shareholders and interested parties. Page number nine, 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.
One of the recommendations is that we stick to our dividend policies and even increase our dividend versus the previous year, despite current hard economic recessionary times. 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 old guidance. We confirm the old outlook. Economic view has not really changed. Government stimuli from our point of view, are going gradually to kick in. In Germany, government stimuli has started in the third quarter. In the European Union, it's yet to come and yet to be implemented. Our view in Lanxess is that step by step, government stimuli are going to kick in and support economic trading. Outlook on our sides, we confirm the guidance we have provided in the last quarter, i.e., EUR 800 million to EUR 900 million EBITDA.
On Q3, we see that from a very low level in Q2, gradually improvement also in utilization, but it's only a very gradual improvement of roundabout one, 2 percentage points month after month moving up. 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 the second quarter, we had some support coming from raws being in the magnitude of EUR 10 million.
We've indicated already at the beginning of the year that we will have a major standstill, which is basically happening all three years in Antwerp, and this is the year where the turnaround maintenance is going to happen in one of our biggest sites in HPM, which will lead to idle costs in the neighborhood of EUR 10 million to EUR 20 million. Of course, this will be something hitting the third quarter. We have flagged as well that as far as Consumer Protection is concerned, we had 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 the previous year. Overall, if you look at the yearly performance, Consumer Protection will grow and will shine with strong momentum and strong profitability and margins, as well as EBITDA.
With this, ladies and gentlemen, I close 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 zero followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press zero followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press zero followed by one at this time. One moment for the first question, please. The first question is from Matthew Yates, Bank of America. Your line is now open
Hi. Good afternoon, everyone. I think I was one of those people that didn't value your leather business for very much, Matthias, so 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%-70%. Just wondered, to what extent does that mean there's a lot of inventory already in the channel? Were you overproducing at your own sites ahead of the planned maintenance that you referenced? I'm just trying to get a sense of the shape of recovery you're seeing in engineering materials in the second half.
The second question, which you touched on in your introductory remarks, that was the Consumer Protection, as you say, quite an abnormal growth rate there. I am just wondering if you can help us disaggregate the impact of that order that was pulled forward. 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 and 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. Let me take them one by one. You're totally right. If you look into the automotive industry in second quarter, I've never seen in my life before, not even in Lehman times, declines of volumes between 50%-70% depending on which month you look at. This is really a drastic decline. It has been a drastic decline in Europe. If you look at this decline from the order side, you have to say that 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. We see now that measures were taken by the OEM producers, by the suppliers to the OEMs. They drastically reduced mothballed plants. We're sending people into short labor. Now gradually they are moving up.
We have to look if August is going to be impacted or not. Basically, I would say everybody had stocks on hand. We were also reducing production, in second quarter, we kept reasonably the production still in place because in one area, we of course, are preparing for the plant maintenance and turnaround in Antwerp. We could have stocked down more, but didn't for the reason of producing goods for the plant maintenance. 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. As far as Consumer Protection is concerned and your question on what was the incremental take or incremental inflow that we had, it was in the low teens.
If you adjust that, you would see that second quarter Consumer Protection performance would still be very strong. 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 Biocides. It was strong last year. There was no substantial one-time increase in second quarter. The Biocides business will continue with its growth rates in third and fourth quarter from everything that we see. The business is nicely positioned for growth. Of course, the incremental momentum that we saw in Saltigo in the second quarter will be reduced in third quarter and fourth quarter, and that will eat up, of course, then the growth that we see in the Biocides.
Water chemistry is going to maintain a good momentum, that's the reason why we look at the Consumer Protection business with delight for 2020. It will be from margin perspective, from the absolute growth perspective, the best performing segment in our portfolio.
Thanks for taking the questions.
Always welcome, Matthew. Next question, please.
The next question is from Thomas Wrigglesworth, Citi. Your line is now open.
Matthias, Michael, thank you very much for the presentation. Couple of questions, if I may. Firstly, I think in the first quarter, you talked about preparing for a potential period of two years, but a willingness to consider M&A towards the end of this year. Is there anything that's changed that either made you more positive or negative around that kind of earlier statement? Any detail there? Secondly, on Specialty Additives, can you give us some of the later data points on that business, how that might recover through the second half and into 2021, and any guidance there would be very helpful. Thirdly, just a point of clarification, cost savings. Did I hear you say that you'd had EUR 50 million of cost savings in the first half? Are you still targeting EUR 50 million-EUR 100 million for the full year, for 2020? Thank you.
Tom, thanks for your questions. Let me take them one by one. As far as the two years tough trading environment is concerned, we are still looking at this in the same way, even though I clearly would like to say macroeconomists are expecting a rebound. I assume that this is likely because of the government stimuli being passed by now. When we gave indications on how we look at 2020 and 2021, of course, not all governments had decided on respective stimuli. The EUR 750 billion 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. Most likely 2021, we are going to see a rebound in the European economy.
For 2020, I think it will be all in all, one of the toughest recessions we have ever seen. We are prepared for that, and I think we are maneuvering through this crisis in a decent way with strong financials and reasonable, resilient financial performance at group level. M&A, we will reassess. We are in a position to maintain good investments in place on CapEx, but also on M&A sides. We will more and more open up to M&A the more we see that the economy is stabilizing, trading is stabilizing, business is stabilizing. Now on your second question regarding Specialty Additives. Well, Specialty Additives has been hit predominantly in the Rhein Chemie additive business due to the automotive exposure. The lube adds have been hit by the aviation industry, which is the highest margin lube adds in our portfolio.
Of course, the roundabout EUR 120 million, EUR 130 million of additives going to the automotive industry, we're suffering as well. The so-called PLA business, which is the brominated and phosphorus flame retardants and plastic additives, overall did reasonably well. 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've seen in second quarter. 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 here 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 stimuli. Now on the cost savings, Michael will answer this question.
I would look at this simplistically, the EUR 50 million we have put in place, nothing more has been announced so far. The EUR 50 million we've put in place, we implemented basically instantly in March, as we had prepared for a recessionary environment already last year. I would slice that into three pieces, one third, one third, one third, coming quarter-on-quarter, Q2, Q3, Q4, and Michael will give you more color on this.
Thank you, Matthias. 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 drawing, 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 costs are variable costs. As you know, there are travel bans out there. We stopped on certain processes. We brought down costs, and that is all full in place and fully controlled by the organization.
Thank you both. That was very helpful.
The next question-
Thanks, Tom. Next question, please.
Yes. The next question is from Georgina with Goldman Sachs. Your line is now open.
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, Matthias, 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. 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 third quarter, the group will be down versus previous year. Thanks for clarifying this matter. On your second question, fit of Saltigo to our company setup, it's very strong. Saltigo is one of the technology leaders in what it's doing. It 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 Lanxess, Saltigo is the place to go to. Therefore, if it relates to precursors in the Biocides business, we get the teams from Saltigo in place as it relates to sophisticated chemistry in other parts of our portfolio, here going into the additives division, for instance, and even in intermediates.
We cooperate between Intermediates and Saltigo. There is no doubt that Saltigo is going to remain a core pillar, a core element in our overall portfolio.
Okay. Very helpful. Thank you.
You're most welcome. Next question, please.
The next question is from Samuel Weber at 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 Currenta sales. I think there couldn't have been a better timing for a cash injection than now. 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 base it on EBITDA pre-exceptionals. 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? Does that have to do with Chemondis? Is there any news regarding Chemondis? Thank you.
Well, dear Samuel, thank you for your respective questions. I think you're totally right on the Currenta divestiture. When we did that in September, we were not aware that a worldwide century recession would hit our nice blue planet. In this time, posting a capital gain of EUR 800 million and a cash intake of an amount similar to this is, of course, greatly nicely taken. We are, for that very reason, of course, in an outstanding setup. I think the leather chemical business is also a nice incremental value because it was unleashing a hidden reserve, because it was not taken by anybody as a value driver. I hope that this is another 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 world. Your teams and your organization will understand and follow. If you want that your entire workforce of 14,000, 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. This is a very simplistic definition of cash conversion. Everybody in our group understands that, and everybody understands what we want to achieve with this target. When I spread out to you, to the sophisticated financial world, a cash conversion target, for you, it might be too simplistic. Of course, Michael and his team follow more sophisticated analysis.
In order to be in sync internally and to the external world, these need to be definitions that everybody understands. On exceptional digitalization, of course, Chemondis is part of this. We've decided to do this if we want to do innovation on digitization faster than other companies, and Chemondis is 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 Chemondis, where it stands. It has developed nicely. Functionality has developed nicely. You can test and check it. Go to the internet. Punch in Chemondis and you will access the platform.
As customer, more and more customers have used Chemondis in the times of corona. Therefore, we are happy that we are present at a time where digitization is going to kick into the entire industry, but also as far as go-to markets place is concerned. Therefore, more to come in due course.
Thank you.
The next question is from Andreas.
If I may.
Sorry.
I hope that all of you have seen, you were one of the persons following our cash flow. I hope all of you have seen that the operational cash flow entire first half 2020 has been very strong. Next question, please.
The next question is from Andreas Heine, MainFirst. Your line is now open.
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. You refer to the EUR 10 million raws you had as a tailwind and the EUR 10 million-20 million maintenance shutdown, which we have to have in mind for Q3, and the pre-orders you had or early orders in Saltigo. If I take the sequential view, then usually Q3 is seasonally weaker, which this year runs against a recovery from the lockdown. 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. Going into what your guidance is for the full year, where you usually feel most happy with the mid-range, EUR 850 million, 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 keys?
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 referred 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 US dollar will be in the remainder of the year. If it stays at 117, 118, that will have an effect. 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 than it is and will be and expected to be in the third quarter.
That is in absolute terms and in relative terms?
Yes.
Thanks.
We are not going to see in third quarter, we're not going to be back to happy times. Q3 trading last year, the world was already in a difficult economic environment, as you know. Q3 this year, we will still see that automotive industry is heavily impacted. We will 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. 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.
Therefore, let's be prepared still for a tough quarter in this third quarter. Again, I reiterate, my belief is that fourth quarter, the relative decline versus previous year will soften out. I hope then that we will see further improvements in the year to come, but it's early stages. Corona has brought a lot of surprises, therefore, our approach here in Lanxess is run operations tightly, keep the firepower, and accelerate afterwards. That is our approach, so far it has worked well. Next question, please.
The next question is from Martin Roediger, Kepler Cheuvreux. Your line is now open.
Yes, thanks. I have 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, and you mentioned that number two and number three player come together. What makes you confident that antitrust authorities will agree on that deal? Second question is on the underlying tax rate in the P&L. When you take out the items, disposed gains from Currenta and the tax payment for Currenta, what was the underlying tax rate? Was it 28% or different? 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? Thanks.
Yes. Hello, Martin. I would take OLC leather question and our CFO, who is, of course, a tax expert and hedging expert, will take number two and three. These are two complicated matters for me. On organic leather, well, the number one is clearly heading here, market share, which is pretty strong. Number two and three, we have analyzed the market's configuration. The analysis that we have made came to the conclusion that we can do this transaction. Basically, we are not in the area of sales in the EUR 1 billion area. We are in the area of combining a EUR 200 million sales business with EUR 150 million, EUR 160 million. From the analysis so far, we consider that there is no legal hurdle, but of course, antitrust authorities have to make the call, we will do here all preparatory work to provide information.
Of course, we have to see what antitrust authorities will say. The experts, the legal experts, internal, external legal experts we consulted on these transactions, have seen that there are no complications. Michael, run the show on taxes and hedging.
Yes, two 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. With regards to the hedging approach, we still stick to the approach which the former CFO or the first CFO of this company implemented at one point in time.
Don't make jokes.
Which is a very good one. Yes, we are still on a rolling approach, yeah, on a quarterly basis. We're putting hedges in place, which include a forward curve, which goes into one and a half years or 18 months ahead of time.
Okay, thanks.
Welcome. Next question, please.
The next question is from Patrick Rafaisz at UBS. Your line is now open.
Thank you. Good afternoon, everyone. Three questions from me, please. The first is on the cost savings. You talked about the variable nature, also in those EUR 50 million. If we assume that the economy bounces back in 2021, as you mentioned is possible, how much of these savings you reckon would reverse again? 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 Q3 and for 2020 as a whole? The last one on the lithium from brine projects. I realize with Q1 you said, can't really move forward with the project in the environment. There's travel restrictions, et cetera. You think there's a chance you'll be starting to look at this more closely again pretty soon, or is there more something for 2021 and beyond?
Thanks.
Well, I will take the first and the third question. Michael will take the second on the working capital. 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, no traveling basically anymore. Freezing budgets in the entire organization that were due to be spent on initiatives. Should we rebound next year, I would say quite a chunk of this is going to move back into the business, into the functions. Of course, if you look into, for instance, the traveling costs, which we have reduced now versus previous year, or which we plan to reduce by something like EUR 50 million, this will not rebound. I don't think that 2021 we are going to travel as we did in historic times.
Of course, we would, again, go back to projects we wanted to do and which 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, that we have not cut 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. At this point in time, we kept the company clearly in the position to accelerate when it is time for acceleration. This is on the first question. On the third question, lithium. By now, we have extracted out of our pilot plant, lithium.
We are not there yet to confirm proof of concept. Why? We have extracted lithium chloride. Lithium chloride, in order to be usable in battery technology, 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, then, of course, we need to do the full processing. Therefore, our hope is that by end of the year, all of this will be put together, and the entire process is up and running and has been tested then for roundabout two months, three months. If this is the case, we can see if we get where we want to be.
Due to COVID, certain things are simply not as seamless as we thought they would be. Closed borders, no traveling by engineers, leads to simply a delay in the proof of concepts. 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 first 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. What we saw now in the second quarter, especially when it comes to the receivables, there was a huge swing. If you recall, when we discussed Q1, we said end of Q1, end of March, we were still in a trading environment which was not too bad. If you recall, in the first quarter, prices were down only 2% and volumes were down only 1%.
We saw the massive decline already in the raw material prices. At that point in time, I told you, we see it already in the payables 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 inflow 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. Matthias was referring to it. There are especially an uptick in inventories at HPM because we are about to get into our large plant maintenance turnaround.
To cut a 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. 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, Patrick, on the explanation that Michael has given. You saw in the second quarter a very strong inflow on receivables. In crisis times, sales force has to collect its receivables before others are in a difficult situation. Again, this is a learning out of Lehman, collect receivables before others are collecting them. I think this was a really strong operational performance by our sales teams. Therefore, so far, touch wood, we have had no issue in any outstanding invoice that we have sent. I think the team here around the globe did an excellent job. Of course, you will not see the same kind of inflow on receivables in the next few quarter because we have done our job so far. Next question, please.
The next question is from Markus Mayer, Baader Helvea. Your line is now open.
Good afternoon, gentlemen. I have three question, 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 is also a significant effect applied to this kind of numbers. Could you help us on the sales and EBITDA of 2018 or 2019 or kind of five years average, that would be helpful, also for modeling purposes. Secondly, you said you expect pronounced summer lull for the automotive industry in Europe. Have you seen this already at this kind, or have your customers already mirrored this already as it looks like that at least in China, that this recovery in the automotive industry is still in full swing? Then the last question would be on the Specialty Additives business. Was there also inventory devaluation effect in the Specialty Additives business?
As I guess with this sharp volume drop also, prices might have come down. With this, you might have had this effect this year in this division. Thank you.
Thank you for your questions. On the first one, OLC in 2019 was around about EUR 30 million high-end sales. I'm not precisely aware of the EBITDA, where it was, but I think if you add something like EUR 10 million, you will be in the right corner. From our side, don't see that the 2019 result, which was not the strongest one, but overall OLC performed relatively stable. We don't see that the automotive industry will come back to 2019 in the next two to three years. I don't think that a rebound here will be coming soon. 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. There are here and there some positive signs, here and there 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 or valuations on raw materials don't lead to big swings in any of our segments, and therefore there's no one-off impacts that was there in Specialty Additives in second quarter.
Okay. Very helpful. Thank you.
You're welcome. Next question, please.
The next question is from Peter Spengler, DZ Bank. Your line is now open.
Yeah. Thank you. Good afternoon to Cologne. There is 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 estimates. Now the midpoint of the forecast in Q2 has been reached. How can we now see the forecast for the full year?
Yeah. Valid question. The guidance is the guidance, 800 to 900. I think in current times, 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 four to five months, we see that infections are increasing. I urge everybody remain cautious, remain focused on the business, remain focused on hygienic, and remain focused on Corona. We will all manage this crisis well. If I can give you an advice, the guidance is the guidance that we've provided. 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.
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 while keeping, of course, open eyes for strategic moves and opportunities.
Thank you very much.
You're most welcome.
The next question is from Chetan Udeshi, JP Morgan. Your line is now open.
Hi, firstly, thank you for giving us the color on the impact from pre-buying in Saltigo in second quarter. Underlying except pre-buying, can you give us some color on how the ag business is doing in general outside of that one customer contract? Are the trends stable, improving, or down year-on-year? That would be useful. Just the second question was just to clarify the HPM shutdown in third quarter. Is this one of those big multi-year shutdowns? Which means that next year we shouldn't have similar impact on earnings. Thank you.
Well, thank you for your questions on ag business. I would say it's, versus previous year, stable to slightly improving. I would say, if you look at this conservatively stable, the answer is stable. If you are giving it a little positive spin, it would be slight improvements. This is how we look at the ag industry. The ag industry has not yet rebounded and gone up to a cyclical positive momentum. This is yet to come. This will happen one day, because this is ag cycle that I've seen over the last 20, 25 years. So far, if you look into prices of corns and soya, et cetera, they are not back to happy days. As consequence, farmers are not yet investing as they used to do in high-quality crop protection products.
On the second question, you're totally right. This is a multi-year turnaround. It happens in general every 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 EUR 16 million, EUR 17 million idle costs. Therefore, please understand that we've given the indication of EUR 10 million-EUR 20 million. Once this turnaround has been done, everything is spic and span. You're not going to be bothered with this, hopefully, for the next three years.
Thank you.
You are most welcome.
There are no further questions at this time. I hand back to our presenters for some closing comments.
Well, I wish you then a hopefully good summer and have a fantastic time. We will do virtual road shows all over the place, starting from tomorrow onwards. I am delighted, together with my team and Michael, to do this and to see you in a virtual way, better than nothing. I hope that we will see days when physical one-on-ones will be possible again. With this, stay healthy, all the best, and stay tuned. Bye-bye from Cologne. Bye-bye from Lanxess.
Ladies and gentlemen, thank you for your attendance. This concludes Lanxess conference call.