Ladies and gentlemen, thank you for standing by. Welcome and tha nk you for joining the LANXESS conference call. I would like to turn the call now over to André Simon , 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 2019 call. As always, I have our CEO, Matthias Zachert, and our CFO, Michael Pontzen, with me. Please take notice of our safe harbor statement. With that, I'm happy to hand over to Matthias. Please go ahead.
Yes, welcome to all of you, ladies and gentlemen. I will start the presentation on page four, addressing strategic highlights and financial highlights. Overall, if you look at 2019 achievements and what we did, it has to be mentioned that we further developed our portfolio, of course, through significant value creation from the divestiture of Currenta, the 40% shareholding that we had. This is going to be implemented in the coming months, i.e., in the first month of the second quarter, either April or May, and proceeds 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 sodium dichromate transaction and finding a partner for our chrome ore mine.
Also, two years ago, we communicated to you that we will find a solution to upgrade organometallics, and we clearly can confirm that the aluminum catalysts, aluminum organometallics 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 any more that rosy and industry tended to be strong in the past, like automotive and agro industry were weak. Despite that, three out of four segments were rock solid and even could improve the results with which we could then compensate the shortfalls of the business units that were more exposed to the automotive industry.
Battery technology, the concepts we worked upon in the last 12, 15 months, we gave the 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 side, and we get prepared to here fully participate. We want to be in a prime starting position. Financial highlights. 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 leather side, we are working on two options. One is a divestiture. The remaining one would be a turnaround restructuring scenario where the size eventually will become 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 EUR 1.019 billion from the adjusted base EUR 986 million the year before. With or without leather, it would not have meant any difference because eventually leather did not contribute to EBITDA at all and reported full year numbers with zero. We have a strong platform to take action on any resource allocation we would like. Last year, when the markets were sending our share price down to EUR 40, we took respective actions and went out very decisively with a buyback program. Markets are similarly reacting due to the Corona.
We think at these levels, where the company trades at an EBITDA Level of 5 or 6, depending on what numbers you use, we also take corrective actions because we are in the wonderful position to have a rock-solid balance sheet that will be even rockier solid once the Currenta proceeds will be booked in our bank accounts. Thus, with the balance sheet that we have, we are also prepared to further take action on internal and external growth as we see opportunities, but not in a hurry. 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 five because effective 2020, we will now establish and develop a new business segment. Performance Chemicals, the days of Performance Chemicals are over. Leather will be reported as discontinued, it moves out. We will here change Inorganic Pigments to Advanced Intermediates. The business model of Inorganic Pigments fits pretty well to the Advanced Intermediates models. Intermediates are characterized by technology leadership, market leadership, where in many areas we have market shares above 25%. This definitely holds true for pigments as well, where we are even higher. Cost leadership is another element next to technology and market leadership. Of course here, we focus on clearly organically consolidating the industry platforms. Therefore this segment will be a good contributor going forwards. 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. At the outset of Chemtura acquisition, we said we would bring this business from, at that point in time, 16% margin up to 20%. 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 events. Consumer Protection will consist of the following three business units. Material Protection, disinfect business, as we have explained in November last year. Liquid Purification Technology follows the same regulatory trends that we also 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 Saltidin.
We contribute here in a massive way, to the underlying health of the Consumer Protection of the consumer. This would be a new segment. It will be from the characteristics one, a segment that would post at the starting base EUR 1 billion sales with around EUR 200 million EBITDA. You see a business that has high margin and growth potential. We consider that all three business units in this 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 turn the page to slide number six. 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.
At that point in time, our automotive exposure was of course, largely different than it is today. Even though the market environment in 2019 was 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 percentage points better than in 2013 when markets dynamics were also rather evil. This is the nice result of the transformation that is paying off. Needless to say, the journey will continue. 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 seven, an increase to our shareholders in May in the AGM from EUR 0.90 to EUR 0.95 because we feel well with our business platform.
We feel well with our solid balance sheet. We have the basis for this. Turning now the attention to page number eight. 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 EUR 500 million. This is backed by the authorization that we have received from our shareholders in the AGM 2019. We structure this in a disciplined approach. The volume of EUR 500 million would be executed in two tranches. The first one will start as quickly as possible because, I reiterate, when our company trades at EBITDA multiples of five to six, 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 will see that we took respective acquisition actions today as well. Not only the CFO and CEO were active. You also see that other people participated. Now let's turn our attention to page number nine. Let's talk about Corona or COVID-19. At this point in time, I would clearly like to stress that it is based on current assumptions. The assumptions change every day and this virus, of course, leads to new information on a daily basis. We are preparing, of course, for this, and we are here very focused. I would like to make very clear, when we discussed our guidance, we debated internally, let's give a guidance with or without COVID.
We decided it's better to precise the numbers or to give a financial corridor, because otherwise, you are left on the analyst side, in the buy side or sell side with complete uncertainty. Based on today's assumption, this is our guidance to you. I hope this is helpful for somewhat modeling the effects of Corona. On the left-hand side of the slide, you see our production sites. Some of them were having a one-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. We see that in February and in March, we are gradually ramping up production, not only our own sites, but our clients, our competitors, et cetera.
This led to temporary shutdowns and it led to disruption in the value chains. Our assumption is that 2Q will be fierce because in February, Corona developed. In March and April, we basically see now major logistical challenges. In February, for instance, round about 60%-70% of the logistical capacities could not really come on the markets, 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. Now, of course, there's a lot of pressure on the logistical value chain in China still. 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 EUR 20 million that we 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 EUR 50 million and EUR 100 million. 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 shut down major production sites. This is the impact that we consider Corona will have on the volume sites. With this, I turn to page 10 and here 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, as you have seen in the past two years, we always start the year looking at the markets, looking bottom-up on our financial outlook for the year.
We did that over the last several years. As you have seen in the past, we have been always 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 in 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. Basically, we looked at the markets similarly like we have seen 2019. The numbers that then came in from our businesses were rock solid on previous year financial levels. From mid-February onwards, we suddenly saw that China sales slumped versus our historic trading base, completely different.
Of course, we are therefore seeing that Corona has left its mark in the financials and will continue doing this going forward. Operationally, we see ourselves pretty stable. We know that Corona will be somewhat a one-off. It will go through the regions, will impact, of course, volumes and momentum. Corona is, for me, considered something that will level off. 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 EUR 50 million-EUR 100 million. Based off this, including Corona impacts, we give you a guidance of EUR 900 million-EUR 100 million. Ladies and gentlemen, this is all for the presentation. I think we have completed very successfully 2019 and proved 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 platform. We want to use this in these days to further accelerate. Thank you very much. With this, I open up the call for your questions, please.
Thank you very much. We will now begin our 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're using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press zero followed by one at this time. One moment please for the first question. We've received the first question. It is from Thomas Wrigglesworth of Citi. Your line is now open. Please go ahead.
Good afternoon, Matthias, André. Thank you very much for the opportunity to ask questions. Two, if I may. Going back to your outlook comments, obviously ex-Corona, you would be forecasting growth. Obviously, you highlight auto recovery is limited. Could you just help me or refresh us on what, on the underlying basis across the divisions, you would see as the key growth drivers? I think we're aware of the Virkon product and MPP, what are the other ones that are, on an underlying basis, already coming through in 2020? Secondly, on lithium, you mentioned in your press release, the lithium project. Wondering if there had been any delineation around whether you would go for the in-series approach on CapEx or the in-parallel approach on CapEx. Just around that, is there anything in there in the CapEx guidance for 2020 on lithium? Thank you.
Hello, Tom. Nice to hear your voice again. Let me address both of your questions. Ex-Corona, the business development by segment would have been comparable to last year. We did our budgets for, of course, internal incentive reasons worldwide, and the forecast that we then did in January, beginning of February, was again confirming the budget view out of November last year. We saw the similar trend that we've seen in 2019, meaning that Advanced Intermediates would be stable, slightly up. Specialty Additives being stable, slightly up, and Performance Chemicals being up. Following the trends that three 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 standstill 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. Therefore, we were, beginning of January, still negative to the automotive industry. I think this is, as a matter of fact, also the view of the OEMs themselves. That was the trends, how we looked into the industries. 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 containers as far as bromine containers, for instance, is concerned, from our sources to the customers or to the production site. 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. All other divisions will be, of course, impacted through the volume impacts coming from COVID as well as from logistical issues that arise. On the lithium project. The lithium project is advancing, and here the pilot plant is in place. The pilot plant has done January, February, the cold commissioning, i.e., you test the plant without chemistry. You test it only with water to see if pipes and vessels and whatever you have there is up and running. Chemistry has entered, and the solvent has entered the plant. Now we will take basically March, April, May to see what kind of refined products we can get out of that.
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. 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. 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. There's still a likelihood that we do everything in parallel, but I'm not in preference for this at this stage.
If this would be decided, the data would have to be mouth-watering and therefore my assumption is if the proof of concept is confirmed, we will go for a sequential approach. At this point in time, it's digital. It can be zero, it can be one. The decision will come most likely in the second quarter.
Very clear. Thank you very much.
Thank you, Tom. Stay healthy.
Thank you. The next question is from Georgina Iwamoto of Goldman Sachs. Your line is now open. Please go ahead.
Oh, hi, Matthias. 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 what to expect. I think, it's been helpful to understand how you see the second 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? We haven't really seen much yet from the U.S. How convinced are you in terms of the potential for relief in the second half of this year? My second question is on M&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. Thank you.
Hello, Georgina. Let me address your questions one by one. The guidance that we've given out today, we've never given, at this point in time, as early in the year a guidance. We always did it in a qualitative way, and then confirmed numbers in May. In light of the uncertainty that I see in the markets, of course, neither investors nor analysts have the clarity on business momentum, order books, procurement, everything that we are currently going through. Based on this, we decided, we have more facts, we have more data points for our company. We see how things are working operationally. Based on this, we decided, in terms of uncertainty, it makes sense to give the best precision that you can have. Therefore, that was the approach we took.
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 virologists say yes, some say no. 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, it leaves in our P&L, which we quantify with round about EUR 20 million. 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 market in Europe, and therefore, if it hits Europe, there would be the same kind of issues that we have seen in China.
Therefore, our assumption is based on this, that second quarter will be harder. Again, the virus will come, it will also go. Based on everything, what we know, what people are saying, it's assumed to level off in Q3, Q4. This might come, this might not come. For this, we give the two indications and that's it. More we cannot give. On M&A, we are still having room for maneuvering. With the EUR 500 million, we're not doing the EUR 500 million within this year. We've given clearance or clarity that we take 24 months for this, and therefore it's not going to limit us in M&A activity. We are pursuing M&A activity also in the next 12 months because we think that there are opportunities arising. We will also, of course, look at our CapEx.
What kind of CapEx projects, in our guidance that we have given to you today, need to be reflected. Potentially some of the volumes are shifted rather to 2021 or 2022 instead of coming or are needed, according to our original plan. CapEx, we have provided a guidance for CapEx. This one, however, we will review if need exists, but we will pursue all directions, organic, inorganic, and also share buyback.
Okay. Thank you, Matthias. If I could just have one very short follow-up.
Sure.
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 other corporates and other companies. The logistical constraints are not only specific to us. I just mentioned them because everybody talks about 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 ring-fenced basically province by province. 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 stood there, no new containers could be shipped. This has to get back in order. Therefore, it's not a specific issue to us. We just try to, in this conference call, give you more specifics so that you understand the situation.
China is very professional in addressing this, they will bring the ship back to order. I'm clearly convinced because I see the measures that governments and provinces are taken. Therefore I'm confident that China will rebound and then of course catch up. At this point in time, they are still addressing the issues that have started in February.
Okay. That's very helpful. Thanks, Matthias.
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 COVID 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 had at the Material Protection Products side. Maybe you can shed some light how this business was positively affected by COVID. My second question will be on this EUR 38 million D&A one-off effect in Q4, which was in the exceptional line. Could you then explain where this from? Was this solely from the leather discontinued operations, or were there also other effects in there? Lastly, on Engineering Materials, could you quantify how much of your Capro capacity is meanwhile sold to the merchant market? Thank you so much.
Well, I will take the first and the third one, and Michael will take the second one. We are talking here about Virkon. Virkon, of course, here, not the disinfect Virkon for animal disinfects, but the human Virkon, which is called Rely+On Virkon. This is a powder spray that needs to be liquified. When you've seen on telly when people were spraying hospitals or spraying airports et cetera, Virkon was used. This is a product that is now worldwide asked for. The problem is, however, we are already running at capacity limitations. In this formulation plant, we are not as big as in the animal disinfects formulation plants. Therefore, the capacities are already at its limits. You will therefore not see a huge amount of sales being incremental.
For this Rely+On Virkon, there will be moves, but this is in the small millions and not in the EUR 10 million or EUR 20 million or EUR 100 million. We currently do everything with Rely+On Virkon 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. With this, I hand over to Michael, and then I will take Capro.
Thank you, Matthias. Markus, warm welcome from my side as well. Thanks for your question. Yeah, you were referring to the D&A exceptionals which we booked in the fourth quarter. As you saw, we booked a total of EUR 75 million in the fourth quarter, which was to a large extent driven by the transaction at the OMS business. In total, OMS exceptionals amounted to roughly EUR 50 million. In that EUR 50 million, you have the respective EUR 38 million you were referring to. We guided at an earlier stage that on the tin-based organometallic, you should expect some exceptionals of around 20+. The same obviously then holds true for the gallium-based organometallic business.
Okay, understand. Okay. Perfect. Thank you.
On Capro, we will always have merchant market exposure, but different to, I don't know, five years ago, where we had something like 50%-60% merchant market exposure. It's now around about 10 percentage points.
Okay. All right. Thank you.
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 I ntermediates 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 described 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 levels, how much firepower you might have for buybacks, M&A, anything else. 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. How does the pension fit into the financial framework and the amount of capital you have to recycle?
Let me take them one by one. Michael will step in on pensions. On Inorganic Pigments, we like businesses in our company which have technology advantage. Inorganic Pigments has, through the Laux process, the best industrial cost curve. Per se, the technology is great. We like market leadership, i.e., that you are number one, two, or three in the global market, and we are number one in Inorganic Pigments. You must have, of course, products that are needed 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 where we consider also that through organic investments, we would be able to further consolidate the markets.
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-ends, you have seen that we went down from discount rates in Germany, for instance, from 2% to 1.3%. There is not such a lot of room for further 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. We still have a rather high sensitivity to the pension accrual. Give and take, 100 basis point changes does mean a change in the accrual of EUR 250 million-EUR 300 million. We are now today at 1.3%, which is 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, you know that, strive for being an investment grade rated company and the pension are regarded as debt. 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 EUR 300 million, which lowers, let's say, the net impact of the pensions. Next to that, we have an asset which we book in the assets part of the balance sheet with regard and related to pensions, which we are not able to net over the accruals, which is as well in the ballpark of EUR 70 million-EUR 80 million. 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 debt relation to pensions.
That was a pretty complete question, I think. I come back to your 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 tranche, but in two tranches. The first one with EUR 250 million we are starting now, and then we can see in the next three to six months while this program will run, where markets will go, where Corona will go. 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. Of course, eventually we want to go for value in all areas.
If it is buybacks, if it is acquisition, if it is organic investment, innovation. We are taking here focused analysis and then we go where we think the pocket are the deepest and the value the greatest.
Thank you very much.
Always welcome. Stay healthy.
Thank you. The next question is from Robin Dräger of Deutsche Bank. Your line is now open. Please go ahead.
Hey, good afternoon, guys. Thanks for taking my questions. Just really two follow-ons, 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 announce it today? 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, yeah, those three businesses as it stands together? Thank you very much.
Yeah. On the buyback, well, of course, here we look at all instruments all the time, and the lower the share price, the higher the level of interest to buy back stocks. As I said before, when a company is trading at five or six times, I think this is always when you should go for value creation, which we see because Corona one day will go off. Why we went out yesterday, we had yesterday our Supervisory Board meeting. Here, if you make such a big amount of share buybacks, it's something that you can decide on your own as boards. We wanted to consult with our Advisory Boards. 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.
Then in order to be completely correct with 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 bought 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 segments Consumer Protection to you. That leather 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. 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. Saltigo is not there yet, but it has the potential to move up in this category in the next two years, and the other two businesses are at 20% or above. We are looking for M&A targets that fit into 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. We know that the business can be developed into a high-margin business in the next two to three years. 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. That's the way how we look at acquisitions.
All right. Super. Very clear. Thanks a lot.
You're welcome. Stay healthy.
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 providing us with so much information on that. You say the EUR 50 million effect is if the situation improves significantly until summer and the EUR 100 million in case of a longer disturbance of the whole economy. Can you explain how did you get to these numbers? You mentioned low volumes and logistic issues are the parameters. Did you calculate the figure or is it a rough guess? In case of a calculation, does it include some idle costs? The second question is on Performance Chemicals. I saw that IPG has stabilized in Q4. I understand, 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 other two activities, especially in Material Protection Products. Material Protection Products and LPT were the drivers for volume growth. 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 and the prospects, especially in disinfectant products against African swine fever. Maybe you can elaborate on MPP volume development in Q4. The third question is on your battery technology concept. Did you receive already any orders from Tesla for their new plant in Brandenburg, or do you have any other orders on hand making you confident on that battery technology concept? Thanks.
Yes. Thank you for all three questions. I will address the first and the third one, and Michael will address the second one. As indicated to you, we are making our assumptions, and we are discussing that. We have discussed it 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. 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. Of course, we see here currently I state very clearly, that China is stabilizing.
The Wuhan area is stabilizing. We see what drastic measures are being taken in the other cities. China takes drastic measures. Just to give you an indication, in the other cities, when you want to go out to restaurants, et cetera, you are being tested. If you have temperature, what location you came from. China is very disciplined and rigorous, working on this. Through this, a certain stabilization at this point in time has been reached. Our assumption is that, of course, in any region, focused measures will be taken, which will impact businesses, therefore reduce volumes. As such, we have assumed that second quarter will be hit more than Q1. If then the virus has gone from region to region, it will then also level off.
That is the assumption we have taken. Based on this, we've made our calculation of EUR 50 million-EUR 100 million. 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. Facts can change in a week from now. This is a new topic, a new virus. You need to learn what it means, what the effects will be. They can change. Based on this, we simply wanted to provide as much clarity as we can. With the annotation, we are looking at this on a daily basis. Michael takes the second question. I will take the battery one.
Yes. Hi, Martin. Yeah. With regards to Performance Chemicals, the same holds true with regards then as well to Colorants. We told you guys for the whole year that MPP and LPT 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. In the fourth quarter, 45%. The drivers here clearly, especially when it comes to the top line, are MPP and LPT, because we state that IPG stabilized. As we all know, IPG is, when it comes to revenues, the largest business unit in that segment.
If the overall segment is reporting a growth of 2% and the largest business unit is quoted or indicated as stable, by definition, MPP and LPT must show a rather attractive growth rate in the fourth quarter, which holds as well, too, for the overall year, where we saw 4% volume growth. Matthias?
Battery, Tesla will never be a direct customer because they are engaging with the electrolyte producer, and with the supplier of LiPF6. Tesla is not producing today. They want to build the plant, they are interacting with the respective next supplier in the value chain. With this next supplier in the value chain, we are talking to. 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 hydrofluoric acid is unique in its capacity in Europe. We have the biggest world-scale plant in Europe for the merchant markets. It's world-class. Therefore we have here a trump asset in our hands. The same holds true for phosphorus chlorides, which you also need, and here we have two plants in Europe, one in Leverkusen and one in Trafford.
Therefore we are also very well prepared to add the second chemical molecule for the electrolyte. If we are lucky, touch wood. We will have a third one, but this, of course, with the testing that we will do in second quarter.
Thanks.
Thank you. The next question is from Peter Spengler of DZ Bank. Your line is now open. Please go ahead.
Thank you very much. Good afternoon. I have three questions. First is on COVID-19. After the low 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? Do you think of other things you could do to prevent such a grave situation in the future? The second question is on the low oil price. How important is this still for you? The third one is on the regional car end markets. Car units are expected to go down this year. Maybe you can elaborate a bit on how you are affected from this this year. The question connected to this, when do you expect first significant contributions from electric mobility?
You already have contributions, definitely, from e-mobility, but when do you expect something really significant? Thank you.
Okay. Thanks for your questions. Let me address them one by one. Michael might step in on oil price. 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. 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 correlate with oil price direction. They have their different cycles that sometimes has to do with regional supply outages and quality constraints in terms of specification. Therefore, oil is one I'm no longer looking at. Michael might comment if he's still looking at it. There might be some derivatives that also fall now, but oil price we no longer use as indicator. On car, I've communicated earlier that at the beginning of the year when Corona was not the topic number one in the media. At the beginning of the year, we considered that the automotive market will still shrink like it has done in 2019. 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 plans 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 will test, do the trial runs with their used suppliers, and then switch to the factories that are being built in the next three years for the electrolytes here in Europe. Of course, we come into play. You might see the first sales on battery chemicals 2023, 2024. Michael, anything on the oil price?
Not at all, Matthias.
Good.
Thank you very much.
You're welcome.
Thank you. The next question is.
Thanks.
The next question is from Andreas Heine of MainFirst. Please go ahead. Your line is now open.
Thanks for the opportunity. Rather short questions. The first is, do you see any impact on the Coronavirus already in Europe, or is it exclusively in China what you see right now? The second, CapEx was EUR 500 million last year. The guidance for this year is EUR 500 million as well. Looking on the plans you have with this battery material and the lithium project, is that a level you can live this or might that go up in the years to come? Maybe one word within the Engineering Materials on how the polyurethane business did in 2019 and what you expect them to show trends in 2020. That's my part.
Yeah. Let me take them one by one and Michael, please step in on CapEx. I will just make a top comment on this. 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 second quarter, is coming from Europe. As far as Q1 is concerned, the EUR 20 million, this is by and large, China and the products that we could not really ship to our customers in China because they basically stopped production. There are implications out of China from production sites, but also lost sales that we had from Europe not going to China. That on the Corona. Now on CapEx, lithium, you're totally correct.
If we would do lithium in parallel, we would build three extraction units, I think the number on the EUR 500 million on the guidance will change. At this point in time, I think, somewhat that we can do a sequential approach within these EUR 500 million that we have, potentially a little more to EUR 550, 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, this is the approach we take. On Urethane Systems, Urethane Systems improved in 2019 versus 2018. Of course, we would like to develop this business further, excluding Corona.
Thanks.
Michael, anything further on CapEx?
No.
Stay healthy, Andreas.
Thank you. I will.
No football games and mass events.
The next question is from Patrick Rafaisz of UBS. Please go ahead. Your line is now open.
Thank you. Two follow-ups, please. The first one is on cash flow and inventory, and you already talked a bit about the inventory management. The inflow in the fourth quarter was quite significant, as we've seen across the industry. How much do you expect this to reverse in 2020? The second question is around earlier comments about CapEx and how volumes could shift into 2021. How do you think about volumes then for the full year 2020? Thank you very much.
Yeah. Thank you, Patrick. I will address the second question. Michael will take the first one on Q4 and overall cash flow. On the second one, I expect that many businesses will, on a quarterly or two quarterly basis, see less volumes. Because when you look at what is happening out there, that productions are shut down. I give you feedback on Shanghai. I talk to our country heads nearly on a daily basis how the situation is. Shanghai is a very populated area and there was no, literally, this is a little bit overstretched, but literally streets 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 two, three weeks you have seen that simply shopping activity. It starts with this consumer.
The consumer doesn't buy, the goods will be less produced, and that goes through the chain. I think these temporary effects, when Corona really will go through region by region, it will have an impact on volume demands. 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 impact on the global GDP by 200-250 basis points. 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 sides of your question. Michael will address cash flow.
Yes. Hi, Patrick. If you recall what we said throughout the year 2019, and reviewing what we did then in the 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. 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. 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.
Even without COVID, times weren't that great in 2019 and were not to be expected given the high uncertainty. It's way too early to give a guidance, especially on a cash flow on a working capital basis. 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 point 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%. 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 flow.
Okay. Thank you both.
Thank you, and stay healthy.
I will.
The last question is from Chetan Udeshi of JP Morgan. Please go ahead. Your line is now open.
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 2018. 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 spreads over benzene, and at least that mathematical spread has been sort of coming down through second half of last year. Clearly we've not seen much impact on margin from that. 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 had severe issues with the urethanes business. A, because the monomer MDI was strongly tight and the price strongly up. Therefore, we had some very low profitability in the urethanes business in Q4 2018. Urethanes was doing very well in Q4 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 2018. 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 between PA66 and PA6. PA66 has been pricely strongly affected, and PA6 as well, because end demand is lower.
The price erosion in PA6 is less harmful because the price never went up that much. You need to differentiate the raw materials. PA66 has different raw materials largely than PA6. We have seen definitely in January, a rise in benzene. Now we have seen in February, end of February, and in March, a decline in benzene. 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 benzene went up. We went out with a price increase on our polyamide products. Now the raw material price, which starts with benzene, is going down again. Therefore, I would always advise look at average costs, don't look at monthly spreads.
Understood. Thank you.
Well, ladies and gentlemen, on the basis of your question, I hope you can assess the business well. We wish you all the best. Keep an eye on LANXESS. We are energized in good and in tough times. We don't lose the passion for our business. We are very strongly committed to advance further in 2020 and 2021, and looking forward to see some of you on the roads. We will start with road showing as of this evening onwards. 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.