Earnings Call: Q4 2019

Mar 11, 2020

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the LANXESS conference call. I would like to turn the call now over to Andres Herman, Head of Investor Relations. Please go ahead. Thank you very much, Angela. A warm welcome to everybody from Cologne and many thanks for joining our Q4 and full year 'nineteen call. As always, I have our CEO, Matthias Darkhard and our CFO, Michael Thompson with me. Please take notice of our Safe Harbor statement. And for that, I'm happy to hand over to Matias. Please go ahead. Yes. Welcome to all of you ladies and gentlemen. Will start the presentation on Page 4 addressing strategic highlights and financial highlights. Overall, if you look at 2019 achievements and what we did, it has we mentioned that we further developed our portfolio, of course, through significant value creation through the divestiture of Coranta, the 40% shareholding that we had. This is going to be implemented in the coming months I. E. In the 1st month of second quarter, either April or May. And seats will then be in our bank accounts starting with this closing date. We worked quite heavily on the Chrome value chain and we are successful here in the completion of divesting and closing Salumedecromats transaction and finding a partner for our Chrome or mine. Also, 2 years ago, we communicated to you that we will find a solution to upgrade organometallics, and we clearly can confirm that the Aluminum Catalysts' Alamo mechanics will become core to our portfolio the rest we have divested. Of course, for this, we incurred one time charges which were visible in the fourth quarter. The transformation is paying off in difficult times and 2019 was definitely a difficult year where the economy was not anymore that rosy and industry tended to be a strong like Automotive And Agro Industry were weak. And despite that, 3 out of 4 segments were rock solid and even could improve the results with which we could then compensate the shortfalls of the business units that we are more exposed to the automotive industry. Battery technology, the concepts we worked upon in the last 12, 15 months, we gave you indication that we are in a very nice starting position for benefiting from battery technology being now introduced here into the European economy for the e mobility sites and we get prepared to hear fully participates. We want to be in a prime starting position. Financial highlights to 2019 is a year where we decided on discontinued operations because basically we are here repositioning the leather business The Chrome business line has been fixed. On the organic letter side, we are working on 2 options. 1 is a divestiture. The remaining one would be a turnaround restructuring scenario where the size eventually would become a negligible and the profitability, however, brought back to acceptable levels that LANXESS would like to achieve in any of its businesses. EBITDA, thus increased to 1,000,000,019 from the adjusted base, 986 the year before. With or without letter, would not have meant any difference because eventually leather did not contribute to EBITDA at all and reported full year numbers we would like. So last year, when the markets, we are sending our share share price down to 40. We took respective actions and went on very decisively with the buyback program and markets are similarly reacting due to the corona a virus. And we think at these levels where the company trades, it's an EBITDA level of the 5 or 6 depending on what numbers you use we also take proactive actions because we are in the wonderful position to have a rock solid balance sheets that will be even Rockier solids once the core interproceeds will be booked in our bank accounts. So thus, with the balance sheet that we have we are also prepared to further take action on internal external growth as we see opportunities, but not an Aerie, we remain very focused like you've seen in the past. I'm happy to say that in difficult times, we also reported now for the first time an EBITDA margin of 15% never reported in our company history. Ladies and gentlemen, I turn my attention to page number 5 because effective 2020, we will now establish and develop a new business segment. Performance Chemicals, the days of Performance Chemicals are over letter will be reported as discontinued, so it moves out. And we will hear change inorganic pigments to Advanced Intermediates the business model of inorganic pigments fits pretty well to the intermediates models. Intermediates are characterized by technology leadership, market leadership where many areas we have market shares above 25%. This definitely holds true for pigments as well where we are even higher So cost leadership is another element next to technology and market leadership. And of course, here, we focus on clearly organically consolidating the industry platforms. And therefore, this segment will be a good contributor going forward. Specialty Additives will remain as is. I would like to note at this point in time that 2019 was another year where we improved EBITDA and margins. So at the outset of Chemtor Acquisition, we said we will bring this business from at that point in time, 16% margin up to 20%. And with the 18% margin in 2019, I think we another year in a row continued this improvement. Consumer Protection will emerge new. We guided for this in our Capital Markets Day event consumer protection will consist of the following 3 business units, material protection disinfect business as we have explained in November last year, liquid purification technology follows the same regulatory trends that we all to see in material protection as far as Saltigo is concerned. All of you know that we are here in the protection of food and eventually also in the protection of human skin with Saltedine. So we contribute here in a massive way to the underlying, health of the consumer and food protection of consumer. So this would be a new segment. It will be from the characteristic characteristics 1, a segment that would post at the starting base, a billion sales, with roundabout 200,000,000 EBITDA. So you see a business that has high margin and growth potential, we consider that all three businesses in the unit business units in the segment will contribute to growth and it will be one of the most resilient ones in our portfolio. Engineering materials will not change. It will stay as is. With this ladies and gentlemen, I'll turn the page to slide number 6. And here, let's look at 2013. That was a year where Automotive segment was or automotive industry was as weak as we've seen in 2019. And at that point in time, our automotive exposure was of course largely different than it is today. And even though the market environment in 2019 somewhat tough as 2013, you see the profile of our company has changed completely. Not only that we kept the EBITDA stable and slightly increased it on a like for like basis. We are now 6 basis percent points better than in 2013 when market dynamics will also rather heal. And this is, I mean, the nice results of the transformation that is paying off and needless to say the journey will contain based on this better platform that we have business wise, but also based on the solid financial balance sheet that we have, we recommend on page 7, an increase to our shareholders in May in the AGM from $0.90 to $0.95 because we we have said we feel well with our business platform. We feel well with our solid balance sheet. So we have the basis for this. Turning now the attention to page number 8. In the management board, we have decided a few days ago, that we would like to go out with a buyback program, with a volume of up to 500,000,000 This is backed by the authorization that we have received from our shareholders in the AGM 2019. We structured this in a disciplined approach. So the volume of 1,000,000 will be executed in the first, in two tranches, the first one will start as quickly as possible because I reiterate when our company trades at EBITDA Multiples of 5 to 6. We think this is a very good time for acquiring our own shares, so to say. I would like to state here that in the meantime the management board decided also to buy stocks on their own accounts. If you look into directors dealing, you would see that we took respective acquisition actions today as well, not only the CFO and COO were active, you also see that other people participated. Now let's turn our attention to page number 9. Let's talk about Corona or COVID-nineteen. At this point in time, I would clearly like to stress that is based on current assumptions, the assumptions change every day. And this virus of course, leads to new information on a daily daily basis. So we are preparing, of course, for this and we are here very focused, but I would like to make very clear. When we discussed our guidance, we debated internally. Let's give a guidance with or without COVID. And we decided it's better to precise the numbers to give a financial corridor because otherwise you are left on the analyst side in the buy side or sell side with complete uncertainties. So based on today's assumption, this is our guidance to you. And I hope this is helpful for a somewhat modeling the effects of corona. So on the left hand side of the slide, you see our production sites. Some of them were having a 1 week standstill. Some of them had a prolonged standstill. By today, all production sites are back up and running. But I can confirm to you that China per se is not back to full utilization yet. So we see that in February, end in March, we are gradually wrapping up the production, not only our own sites, but our clients, our competitors, etcetera. So this led to temporary shutdowns and led to disruption in the value chains. Our assumption is that 2nd quarter will be fierce because in February, Corona developed And in March April, we basically see now a major logistical challenges in February for instance, round about 60% to 70% of the logistical capacities that could not really come on the market and therefore products did not travel when they reached the harbor and they were not able to be shipped to customers or reach production sites So now of course there's a lot of pressure on the logistical value chain in China still and this will be therefore definitely something that will lead to an issue in March and also April. We assume therefore that the Q2 impacts will be more than the 20,000,000 that reflect we assume that in Q3 and Q4 Corona will gradually lift off or will be more relieved. Total impacts we consider to be between 1,000,001,000,000, but I clearly would like to reiterate this is based on today's information on today's knowledge. It does not include, for instance, should we be forced to a shutdown major production side. So this is the impact that we consider, corona will have on the volume side. With this, I'll turn to Page 10 and tie it to the guidance. Of course, ongoing geopolitical macroeconomic uncertainties exists. The biggest one for me is, of course, Corona and how it will impact the world economy. When we started the year, we always as you have seen in the past 2 years, we always start the year looking at the markets, looking at the bottom on our financial outlook for pretty spot on with our guidance that we gave at the beginning of the year and of course developed it then throughout the year. When we did our bottom up forecasting, January, we basically saw a good start to the year in January trading and we went through the markets still saw that auto and agro would be sluggish, but basically we looked at the markets, similarly like we have seen 20 19. So the numbers that then came in from our businesses were rock solid on previous year financial levels, but then from mid February onwards, we suddenly see that saw that China sales slump versus our historic trading base completely different. And of course, we are therefore seeing that Corona has left its mark in the financials and we'll continue doing this going forward. So operationally, we see ourselves pretty stable. We know that Corona will be somewhat a one off. It will go through the the regions will impact, of course, then volumes and momentum, but, Corona is for me considered is something that will level off. But of course, for 2020, it will impact Worldwide Economy. This is at least our view and we want to shed light on this and want to give you our feedback on the impacts, which we consider 1000000 to 1000000 And based of this, including Corona impacts, we give you a guidance of SEK 900,000,000 to SEK 100,000,000. Ladies and gentlemen, this is all for the presentation. So I just I think we have completed very successfully 2019 and prove this with our resilience and our financials. We are excited to act in a tough environment 2020 because LANXESS has never had such a strong business platform and financial form. And we want to use this in these days to further accelerate. Thank you very much. And with this, I'll open up the call for Your questions please. Session. Session. And we've received the first question. It is from Thomas Wrigglesworth Citi. Your line is now open. Please go ahead. Good afternoon, this is Andre. Thank you very much for the opportunity to ask questions. 2, if I may. Just going back to your outlook comments, obviously ex Corona, your, you would be forecasting growth And obviously, you highlight, auto recovery is limited. Could you just help me or refresher on what on the underlying basis across the divisions you would see as the key growth drivers. I mean, I think we're aware of Vircon product and NPP, but what are the other ones that are, that the on an underlying basis are already coming through in 2020? Secondly, on lithium, you you mentioned in your state, in your press release, the lithium project. Just wondering, there been any, delineation around whether you would go for the in series approach on CapEx or the in parallel approach on Cap And just around that, is there anything in there in the CapEx guidance for 2020 on lithium? Hello, Tom. Nice to hear your voice again. Let me address both of your questions Excorona, the business development by segment would have been comparable to last year. We did our budget for, of course, internal incentive reasons worldwide. And, the forecast that we ended in January beginning February was again confirming the budget view out of November last year. So we saw the similar trend that we've seen in 2019, meaning that intermediates would stable, slightly up, specialty additives being stable, slightly up and Performance Chemicals being up. So following the trends that 3 divisions, with gradual improvement, on EBITDA and thus compensating the shortfall that we would still see in the weak automotive sector because when we did our budget last year, and when we did our November reporting, we highlighted to you the production stands still in Antwerp. On top of that, beginning of the year, we have considered that automotive industry, will again have a volume erosion between 2 and 5 percentage points. And therefore, we were beginning of negative beginning of January still negative to the automotive industry. And I think this is, as a matter of fact, also the view of the OEMs themselves. So that was the trend how we looked into the industry's Corona will definitely now also put strain on the other divisions, intermediates and specialty additives because, for instance, in March, we see how difficult it is to get our container from as far as Brom containers, for instance, is concerned, from our sources to the customers or to the production side. So that is something, just as an example, it will also hit specialty additives It will also, impact the Intermediates division. The one that will be the least impacted is the new division consumer protection, but all other divisions will be, of course, impacted through the volume impacts coming from Corona as well as from logistical issues that arise. Now on the lithium project, the lithium project is advancing. And here we have now finished the pilot plant is in place the pilot plant has done, January, February, the cold commissioning, I. E, you test the plant with without chemistry, you tested only with water to see if pipes and vessels and whatever you have there is up and running. Now chemistry has entered and the solvent has entered the plants. And now we will take basically, March, April, May to see what kind of refined products we can get out of that. And then of course, we will send these products for quality testing to a customer who eventually would use this lithium, one of our biggest potential customers has agreed to this. He would like to test it. And if the quality is reached that the customer needs, then we take the decision on where we go. Currently, the status is rather to do it sequentially, but of course a lot will depend on the quality that we will reach if we don't reach any quality, we will do nothing. If we reach good quality, we will do it in a sequential way. It would be still a likelihood that we do everything in parallel, but I'm not in preference for this at this stage. If this would be the data, if this would be decided, the data would have to be mouthwatering and therefore my assumption is if the proof of concept is confirmed, we will go for a sequential approach. But at this point in time, it's digital. It can be 0. It can be 1. The decision will come most likely in the second quarter. The next question is from Georgina Iwamoto of Goldman Sachs. Your line is now open. Please go ahead. Hi, Matias. Thanks very much for taking my questions. My first one is just on your guidance and what you've said on the coronavirus today. First of all, I just wanted to thank you so much for making an effort to give us some indication of to expect. And I think, you know, it's been helpful to understand how you see the 2nd quarter progressing. I wanted to know, should we be thinking about more towards the more cautious end of your guidance given that we're likely going to still see supply chain impacts in the second quarter that started in the first? And can we therefore think the same for Europe? And we haven't really seen much yet from the U. S. So I mean, how convinced are you in terms of the potential for relief in the second half of this year? And then my second question is on M And A. I was just wondering if you could give us an idea of the kind of opportunities that you're seeing and if the share buyback is any reflection of kind of fewer opportunities at this point in the market? Hello, Jean Junior. Let me address your questions 1 by 1. The guidance that we've given out today is I mean, we've never given, at this point in time, at this early in the year guidance, we always did it in a qualitative way. And then confirmed numbers in May, but in light of the uncertainty that I see in the markets, Of course neither investors nor analysts have clarity on business momentum order books procurement, everything that we are currently going through. And based on this, we decided we have more facts. We have more data points for our company. We see how things are working operationally. And based on this, we decided, in terms of uncertainty, it makes sense to give the best precision that you can have and therefore, that was the approach we took. But of course, assumptions at this point in time are changing on a daily stage we do not know if this virus will be leveling off due to seasonality when it becomes warmer. Some say yes, some of the viral logs say yes, some say no. So our view right now is we have seen the impact in China. China is the biggest chemical market of the world. And we've seen the impact at least in our P and L, which we quantify with roundabout 20,000,000 We assume that, the virus will now go region by region, but of course, then it will level off as far as Europe is concerned, we are a European chemical company. As such, we have 50% of our markets in Europe. And therefore, if it hits Europe, there would be the same kind of issues that we have seen in China. And therefore, our assumption is based on this, that second quarter will be harder. But again, the virus will come. It will also go and based on everything what we know, what people are saying, it should it's assumed to level off in Q3, Q4. This might come, this might not come. And for this, we give the 2 indications and and that's it more we cannot give. On M and A, I mean M and A, we are still having room for maneuvering. We are not with a 500,000,000. We're not doing the 500,000,000 within this year. We given clearance or clarity that we take 24 months for this. And therefore, it's not going to limit us in M and A activity. We are pursuing M and A activity also in the next 12 months because we think that they are opportunities arising. And we will also, of course, look at our CapEx, what kind of CapEx projects in our guidance that we've given to you today need to be reflected because potentially some of the volumes are shifted rather to 2021 or 2022 instead of coming or are needed according to our original plan. So CapEx we are having we have provided a guidance for CapEx. This one, however, we will review if needs if need exists, but we will pursue all directions, organic, inorganic, and also share buyback. Okay. Thank you, Matthews. If I could just have one very short follow-up, not just from your position, at LANXESS, but from your kind of other board seats, can you give a sense if there's any particular supply chain that is of concern in Europe specifically? No, there's nothing specific. I talked to colleagues in in other corporates and other companies. The logistical constraints are not only specific to us. I just mentioned them because everybody talks about the disruption in supply chains, as a matter of fact, a lot of the disruption has to do with logistical issues. If you go to China, China, ring fence basically province by province. And the traveling of products between the provinces was therefore disrupted. This is a logistical issue. The transportation to and from harbor when products were delivered was disrupted containers stuck there. No new containers could be shipped and this has to get back in order. And so therefore, it's not a specific issue to us. We just tried to, in this conference call, give you more specifics so that you understand the situation. The China is very professional in addressing this, so they would break bring the ship back to order. I'm clearly convinced because I see the measures that governments and provinces are taken. And therefore, I'm confident that China will rebound and then of course catch up. But at this point in time, they are still addressing the issues that have started in February. You're most welcome. Thank you. The next question is from Markus Mayer of Baader Bank. Your line is now open. Please go ahead. Good afternoon, gentlemen. A question from my side as well. The first one, would be, again, on corporate, basically, that is but more maybe on the potential. I would not say positive side, but more, the, volume impact you would have had or has have, at the material protection product site, maybe you can shed some light here how this business was post positive effect effect by the COVID. My second question will be on this, 38,000,000, D and A 1 off effect in in Q4, which was in the exceptional line. Could you, then explain where this from was solely from the letter, discontinued operations or where they are. So I I will I will fix them there. And then lastly, on, engineering materials, could you quantify how much of your capital capacity is meanwhile sold to the merchant market? Thank you so much. Well, I would take the first and, the third one, and Michael would take the second one. So we are talking here about Wilcon. Wilcon, of course, here, not the disinfect Wilcon for animal disinfects, but the human Wircon, which is called rely on Wircon. This is a powder spray that needs to be liquid fights. And when you've seen on tele, when people were spraying hospitals or spraying, airports, etcetera, Wilcon was used So this is a product that is now worldwide asked for. The problem is, however, we are already running at capacity limitations. In this formulation plans, we are not as big as in the animal disinfect formulation plants. So therefore the capacities are already at its limits. You will therefore not see a huge amount of sales being incremental. For this rely on Vircon, there will be moves, but this is in the small millions and not in the tens or 20 or 100000000. We currently do everything with rely on Bercon. To make it accessible to all markets that are of need. At this point in time, we maximize the shift workers to get out of the existing capacity as much as possible, but more we cannot do. And with this, I hand over to Michael and then I would take Kapole. Thank you, Matthias. Marcus, a warm welcome from my side as well. Thanks for your question. Yeah, you were referring to the DNA exception, which we booked in the 4th quarter. As you saw, we booked a total of 1,000,000 in the 4th quarter, which was to a large extent, driven by the transaction at the OMS business In total, OMS exceptionals amounted to roughly 1,000,000. And in that 50,000,000, you have the respective 38,000,000 you were referring to. And we guided at an earlier stage that on the 10 based organometallic, you should expect some exceptional of around 2020 plus and the same obviously then hold true for the Gallium based Organometallic business. Okay. I understand. Okay. Perfect. Thank you. So then on Capo, we will always have merchant market exposure, but different to, I don't know, 5 years ago, where we had something like 50%, 60% merchant market exposure, it's now roundabout 10 percentage points. Next question is from Matthew Yates of Bank of America. Please go ahead. Your line is now open. Hi, everyone. A couple of questions please. The first one is just around your pigments business, which you're moving over into the Intermediates division. Can you just update us generally what the strategy is for that asset, whether this is a temporary home or what options you're looking at? The second question is around the balance sheet, which I think you just as rock solid earlier in the call. I just would like to ask around the pension and how you factor that into your thinking around leverage level how much firepower you might have for buybacks, M and A, anything else? Because I would imagine when we next see a balance sheet at the end of March, presumably that deficit is going to be bigger when you mark to market the yield. So how does the pension fit into the financial framework and the amount of capital you have to recycle? Yeah. Let me take them 1 by 1. Michael will step in on pensions. On inorganic pigments, We like businesses in our company, which have technology advantage. Pigments has through the logs process the best industrial cost curve. So per se, the technology is great. We like market leadership I. E. That you are number 1, 2, or 3 in the global market. And we are number 1 in inorganic pigments. You must have, of course, products that are needed in the, in the respective regions. And eventually we like global businesses. Inorganic pigments fits to all of that. And per se, therefore, it is a business that we consider as core. And when we consider also that through organic investments, we will be able to further consolidate the markets because in the past, we basically achieved that more and more Western Hemisphere competitors left this business leading to a stronger market share on our side. On balance sheet and pensions, the only word I would like to say, if you look into the pensions year end, you have seen that we went down from a, discount rates in Germany for instance, from 2 to 1.3. So, there is not such a lot of room for further a pension stress coming out of this, but Michael will go in detail. Yes, Matthew. Thanks for the question. Indeed, we saw in Germany a decline of the interest rate, which does impact obviously the accrual, but not at all the cash flow, which we have to spend on pension. And we still have a rather high sensitivity to the pension accrual So give and take, 100 basis points changes does mean a change in the accrual of 1000000 to 1000000. We are now today at 1.3%, which is like a very low in historic terms. With regards to how do we see pensions with regards to our debt. Basically, the answer is we see it like the rating agencies because at the end of the day, We and you know that strive for being an investment grade rated company and the pension are regarded as debt, but what do the rating agencies do? They not only take the pension accrual as a whole, they have a look as well at the cash flow impact, which means you also have to and should put into your model the deferred tax assets, which we display with around 1,000,000, which lowered let's say, the net impact of the pensions. Next to that, we have an asset, which we book in the, asset part of the balance sheet over the accruals, which is as well in the ballpark of $70,000,000 to $80,000,000. So all in all, the pension accrual is not the only element you should or let's see the rating agencies put into their models when it comes to that relation to pensions? So that was a pretty complete question. I think now I come back to your a final question on financial flexibility. We have always taken a conservative financial approach Michael stated investment grade is important. I confirm this. And therefore, when you look at the buyback, we have structured the buyback in a disciplined approach, not in one trench, but in 2 tranches. So the first one with 1,000,000 we are starting now. And then we can see in the next 3 to 6 months while this program will run, where markets will go, where Corona will go, and that is a disciplined approach to make a good focused decision also on financials. This has been a theme in our company in the past, and it will be a theme of our company in the future. But of course eventually, we want to go for value in all areas if it is buybacks, if it is acquisition, if it is organic investments, innovation, but we are taking here focused and then a us and then we go where we think the pocket are the deepest and the value, the greatest. Thank you very much guys. Always welcome. Stay healthy. Thank you. The next question is from Robin Drager of Deutsche Bank. Your line is now open. Please go ahead. Hey, good afternoon guys. Thanks for taking my questions. I'm just really to follow on to the topics you guys touched upon before. First one on actually the buyback you just mentioned. Can you just, perhaps explain maybe there's an easy explanation for this why you guys decided to come forward with this yesterday already and you guys just didn't decide to actually announced it today. And the second one is on Consumer Protection. Just looking at the assets you're pooling into that new division, Can you maybe shed some light on the margin profile you're looking for by grouping those 3 businesses as it stands together? Yeah. So on the buyback, well, of course here, we we looked at we look at all instruments all the time and the lower the share price, the higher the level of interests to buy back stocks. And as I said before, when a company is trading at the 5 or the 6 times, I think this is always when you should go for value creation, which we see because Corona one day will go off. While we went out yesterday, we had, yes, today, our supervisor report meeting. So here we if you make such a big amount of a share buybacks. It's something that you can decide on your own as ports. But we wanted to consult with our advisory board. This is what you should normally adhere to. We have a strong commitment to good corporate governance and therefore we took the decision only after we consulted our supervisory board. And then in order to be completely correct, with a with a German law, we went out instantly with an ad hoc release yesterday, by law, you are bound to do this and we do everything according to law. Today, we went out as board members and board stocks because we can only buy stocks when all material information on the company is conveyed. And this morning, we conveyed everything, we conveyed the segment's consumer protection to you. That letter is being discontinued. We reported all numbers gave an update on all strategic projects. And that's the reason why we were tempted to buy stocks before. But we were only in the position to buy stocks today. That's basically the rationale behind. Now on your second question for targets, This division and the businesses and sites are having margins above 20% or have the potential to be high teen margin or 20% margin businesses. So Saltigo is not there yet, but it has the potential to move up in the category in the next, 2 years. And the other two businesses are at 20% or above we are looking for M and A targets that fit to this area, but we are also willing to onboard businesses which are lower, for instance, the business that we bought in our biocides business in the fourth quarter in Latin America is not at the margins where we are right now. They are rather in the low teens, but we know that the business can be developed into a high margin business in the 2 to 3 years. And therefore, acquisition targets can be at the same margin level. They can also be lower But if they are lower, it means that they have to have the characteristics to be high margin fitting into the segment. And that's the way how we look at acquisitions. Alright, super, very clear. Thanks a lot. The next question is from Martin Roediger of Kepler Cheuvreux. Please go ahead. Your line is now open. Thank you very much. Good afternoon. Sorry to come back to the coronavirus impact. Thanks for writing us with so much information on that. You say the EUR 15,000,000 effect is if this situation improves significantly until summer and the EUR 100,000,000 in case of the longer disturbance of the whole economy. Can you explain how did you get to these numbers? You've mentioned all volumes and logistic issues are the parameters. But, did you calculate the figure or is it a rough guess? And, in case of a calculation, is it include some idle costs? The second question is on Performance Chemicals. I saw that IPG has stabilized in Q4, and I understand this, and this refers to volumes and probably in a year over year comparison because Q4 is seasonally anyway weak. I just wanted to understand, what happened with the volumes in, the, the other 2 activities, especially in material production products, material production products and LBT were the drivers for volume growth, but it seems to be that the volume growth in MPP was rather modest despite the fact that we know that you have been quite bullish at your Capital Markets Day and the post especially in disinfectant products against African swine fever. So maybe you can elaborate on MVP volume development in Q4. And the third question is on your battery technology concept. Did you receive already any orders from Tesla for their new client in Brandenburg Or do you have any other orders on hand making you confident on that battery technology concept? Yes. Thank you for all three questions. I will address the first and the third one and Michael will address the second one. So As indicated to you, we are making our assumptions and we are discussing that. We have we have discussed that with our business line by line. And of course, we have our corporate analysis, when we give a guidance. And therefore, based on the information that we had, as of yesterday or the week before, we concluded on this guidance. If you what we assume, of course, is we assume that the impacts in Q1 that we already see in February and which we see in our order book is one that can be used for confirming the underlying trading, the momentum and the issues that are arising through Corona and Of course, we see here currently currently I state very clearly that China is stabilizing also the Wuhan area is stabilizing. We see what drastic measures are being taken in the other cities, China take drastic measures and just to give you an indication in the other cities when you want to go out to restaurants, etcetera, you are being tested, tested, if you have temperature what location you came from. So China is very, very disciplined and rigorous, working on this. And through this a stabilization or certain stabilization at this point in time has been reached. So our assumption is that of course in any region focused measures will be taken, which will impact businesses, therefore reduce volumes. And as such, we have assumed that 2nd quarter will be hit more than Q1, but if then the virus has gone from region to region, it will then also level off That is the assumption we have taken. And based on this, we've made our calculation of 1000000 to 1000000 But I say it again very clearly based on everything what we know today. We tried to give you clarity on the facts that we have today, but facts can change in a week from now. This is a new topic, a new virus, And you need to learn what it means, what the effects will be, and they can change And based on this, I simply we simply wanted to provide as much clarity as we can, but with the annotation, we are looking at this on a daily basis. Michael takes the second question. I will take the better one. Yes. Hi, Martin. Yeah, with regards to Performance Chemical, the same holds true with regards then as well to clarity. Because we told you guys, for the whole year, that MPP and LP2 are doing very well IPG stabilizing and the overall segment is being dragged down by leather. Now without leather, you see the improvements be it top line, be it bottom line EBITDA growth by 23% year on year. And in the 4th quarter percent. And, the drivers here clearly, especially when it comes to the top line, are NPP and LPT because we stayed that IPG stabilized. And as we all know, IPG is when it comes to revenues, the largest business unit in that So if the overall segment is reporting a growth of 2% and the largest business unit is, coated or indicated a stable, by definition, MPP and LPT must show a rather attractive growth rate in the fourth quarter, which holds as well true for the overall year where we saw 4% volume growth. Matthias? So battery, Tesla will never be a direct customer because they are engaging with the electrolyte user. And with the supplier of LEPF6, Tesla is not producing today. They want to build the plants, but they are interacting with the respective next supplier in the value chain. And with this next supplier in the value chain, we are talking to And therefore indirectly, we talk to Tesla, but indirectly, we talk to other OEMs at the same point in time because I say it again, our future assets or Hootsuite floor assets is unique in its capacity in Europe. We have the biggest world scale plants in Europe for the merchant markets, it world class. And therefore, we have here a trump asset in our hands. The same holds true for clause for chloride, which you also need. And here we have 2 plants in Europe, 1 in Levacuse and 1 in Trefford, and therefore, we are also very well prepared to, at the second molecule, chemical molecule for the elect lights. And if we are lucky, touch wood, touch head wood, we will have a third one, but this of course with the testing that we will do in 2nd quarter. Thank you. The next question is from Peter Sengler of Libert Bank. Your line is now open. Please go ahead. Thank you very much. Good afternoon. I have three questions. First is on COVID-nineteen again. So after the lower Rhine water levels, you and other chemical companies reacted with higher storage capacities and other means do you plan to maintain larger stocks in the future due to the situation at the moment or do you think of other things you could do to prevent such a great situation in the future? Then the second price is on the low oil price. How important is this still for you? And the third one is on the regional car end markets. Car units are expected to go down this year. So maybe you can elaborate a bit on how you are affected from this year and the question, connected to this. When do you expect 1st significant contributions from electric mobility? So you already have contributions definitely from electric mobility, but when do you expect something really significant? Thank you. Okay. Thanks for your questions. Let me dress them one by one. And Michael might step in on oil price. So stocks Are we considering building stocks? Let's put it like this, we are assessing this. We have not taken a deliberate decision on this, but we are assessing this. At this point in time, we first of all need to replenish our stocks in sites in China. This is not big, but we have to do this. So far, our supply chain on the procurement side has worked and we got everything that we needed. But we are assessing if certain raw materials need to be stocked up just to be prepared. As far as oil price is concerned, Rubber is no longer part of our portfolio. And therefore, oil price is one that I'm not looking at anymore. Of course, there are some derivatives of oil, but they do not always correlates with oil price direction. They have their different cycles that sometimes has to do with regional, supply altitude outages and quality constraints in terms of specification So therefore, oil is one I'm no longer looking at. Michael might comment if you're still looking at it There might be some derivatives that also fall now, but oil price would no longer use as indicator. On car, I've communicated earlier that at the beginning when of the year when Corona was not the topic number 1 in the media. At the beginning of the year, we considered that the automotive market will still shrink like it says, done in 2019. So we saw the same kind of momentum. My personal assumption is that this will now be fierce through Corona, and that is what we have figured out in our overall guidance. On e mobility, the battery plants that will come on stream in Germany in Eastern Germany, but also in the north of Germany are considered to come on stream on 2023, 2024. At the beginning, our assumption is that these companies will test electrolytes still being produced in China as however, this is pretty expensive. The travel, everything, they would test with do the trial runs with their used suppliers and then switch to the factories that are being built in the next 3 years for the electrolytes here in Europe. And then of course, we come into play. So you might see the first sales on battery chemicals, 23, 24. Michael, anything on the old ones? Not at all, Matias. Good. Thank you very much. You're welcome. Thanks. The next question is from Andreas Heine of MainFirst. Please go ahead. Your line is now open. Thanks for the opportunity. Raisa short questions. The first is, do you see any impact on the coronavirus already in Europe, or is it each exclusively in China what you see right now. And the second, CapEx was 500,000,000 last year. The guidance for this year is 500 as well. Looking on the plans you have, is this better meet battery materials and the leaching project? Is that the level you can live this, or might that up in the years to come. And maybe one word within the engineering, materials on how the polyurethane business did in 'nineteen and what you expect them, to run to, to, to show trends in 2020. That's my Yes, let me take them 1 by 1. And, Michael, please step in on CapEx. I would just make a top comment on this. So in the corona implications, of course, as far as second quarter is concerned, the comment that we made that we should see more impact in the 2nd quarter, is coming from Europe. As far as Q1 is concerned, the million this is by and large, China and the products that we could not really ship to our customers in China because they basically stock production. So there are implications out of China from production sites, but also lost sales that we had from Europe, not going to China. So that on on the corona. Now on CapEx, I mean, lithium, you're totally correct. If we would do leithium in parallel. So we would build 3 extraction units. I think the number on the million on the guidance will change. At this point in time, I think, somewhat that we can do a sequential approach within these 500,000,000 that we have, potentially a little more to 550 but it should be we are trying to have a CapEx envelope that is disciplined and, this is clearly what we would like to keep in the future. When substantial opportunities arise, of course, we will revisit like we have communicated in our CMD, but this is the approach we take. And on urethanes, urethanes improved in 2019 versus 2018. And of course, we would like to develop this business further, excluding the Corona. Thanks. Michael, anything further on CapEx? No. Stay healthy, Andrea. No football games and mass events. The next question is from Patrick Rafais of UBS. Please go ahead. Your line is now open. Thank you. 2 follow ups, please. The first one is on cash flow and inventory and you already talked a bit about inventory management, but the inflow in the fourth quarter was quite significant as we've seen across the industry. And how much do you expect this to reverse in 2020? And the second question is around earlier comments about CapEx and how volumes could shift into into 2021. And how do you think about volumes then for the full year 2020? Thank you very much. Yes. I'm, thank you, Patrick. I will address the second question. Mike will take the first one on Q4 and overall cash flow. So on the second one, I expect that many businesses will on a quarterly or 2 quarterly basis see less volumes because when you look at what is happening out there that productions are shut down, you have in I give you feet on Shanghai talked to, our country hats, nearly on a daily basis. So the situation is and Shanghai is a very populated area and there was no literally this is a little bit over overstretched, but literally treats were empty. People were not shopping anymore. And this is something that will go through the chain. By now, this is again changing, but for 2, 3 weeks, you have seen that simply shopping activity. So it starts with this consumer consumer doesn't buy, the goods will be less produced, and that goes through the chain. And I think these temporary effects when Corona really will go through region by region, it will have an impact on volume demands. And therefore, in many areas, I think volumes will be negatively impacted. Now you need to run scenario models. I've seen different scenario models that go from impact on the global GDP by 50 basis points to on the global GDP by 200 to 250 basis points. So you have to take your assumptions. We have taken our assumptions. And we adjust them whenever we get new information. I think this is the feedback on the volume side your question, Michael will address cash flow. Yes. Hi, perfect. If you call what we said throughout the year 2019 and reviewing what we did then in fourth quarter, you will recognize that we as well on the working capital delivered what we told you guys. There is a seasonality within the year. We all know that. So an increase in working capital in the first half, stabilization through the third quarter and then usually a cash in from the decline of net working capital. That holds true as well in the fourth quarter of 2019. And we told you as well early in 2019 that we started the year with a relatively high level of inventories and that by and through the year and by year end, we will bring that number down because we want to, let's say, start 2020 from a kind of clean sheet, because even without corona times weren't that great. In 2019 and were not to be expected given the high uncertainty. Now it's way too early to give a guidance especially on a cash flow on a working capital basis. But what we told you as well is that usually in terms of percentage of sales. Net working capital should be around 20%. It can be a percentage points up. It can be a percentage point down. But give and take, it should be around 20%. For the full year 2019, we were below 20%, yes? So we did our homework. Does that mean it will go back to 20% too early to say? But clearly, we manage our cash flow to improve further on our cash I will. And the last question is from Chetan Udeshi of Morgan. Please go ahead. Your line is now open. Yeah. Hi, thanks. My question was just around the engineering materials margin in Q4, which was up nicely versus Q4 previous year. I know there was some trading volumes which depressed the margin in Q4. 18, but at the same time, and maybe you can correct us here, we do get some pricing data on polyamide 6. Which we all plug into our models try to do some spread. So a benzene and at least that mathematical spread has been coming down through second half of last year, but clearly we've not seen much impact on margin from that. So do you think that approach of using polyamide versus benzene spread is wrong or is there some lag in the pricing? Any clarification there is always useful Yes, Chetan. Let me step in here. If we look in Q4 Engineering Materials, the one thing that we reflect in 2018 was that we A, because the monomer MDI was, strongly tight and the price strongly up. And therefore, we had some very low profitability in the Eurothanes business in q44 2018. Urethanes was doing very well in Q44 2019. And the polyamide business, the bigger business units had simply a very low comparable base and I communicated that the volumes Q4 2019 will be better than Q4 eight and that has left that has led to the margin increase in fourth quarter 2019 in this division. Now on polyamides, my recommendation to you is, A, you need to distinguish with pa66andpa6, pa66 has been pricely, strongly affected, and PA6 as well because end demand is lower, but the price erosion in PA6 is less harmful because the price never went up that much. Then you need to differentiate the raw materials. PA 66 has different raw materials, largely than PA6 We've seen in definitely in January rise in benzene But now we've seen in February, end of February, and in March, a decline in benzene. So here, I would not look on a monthly basis, I would basically look at an average basis what our input cost is. In January, you might have followed when benzine went up. We went out with a price increase on the poly on our polyamide product And now the raw material price, which starts with Benzene is going down again, and therefore, I would always advise look at average costs. Don't look at monthly spreads. Understood. Thank you. Well, ladies and gentlemen, on basis of your question, I hope you can assess the business well. We wish you all the best. And, keep an eye on Linksys. We are energized in good and in tough times. We don't lose the passion for our business and we are very strongly committed to advance further in 20202021. And looking forward to see some of you on the roads, we will start with road showing as of this evening onwards. And I wish you all the best and stay healthy. Bye bye. Ladies and gentlemen, this concludes the LANXESS conference call. Thank you for joining and have a pleasant day. Goodbye.