Earnings Call: Q4 2018

Mar 14, 2019

Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome and thank you for joining the Lancash's Full Year 2018 Results Call. Relations. Please go ahead. Yeah. Thank you very much, Stewart. A warm welcome to everybody from Cologne. And many thanks for joining our Q4 and full year 2018 call. As always, I have our COO, Matias Zachert and our CFO, Michael Ponton with me. Please take notice of our Safe Harbor statements. And with that, I'm happy to turn it over to Matthias. Please go ahead. Welcome everybody. I turn to page number 4 of the presentation for fourth quarter 2018. 2018 was a year with a lot of operational delivery, but also strategic milestones that were taken. Noteworthy, the divestiture of rubber. And I think in the hindsight, we can say good timing. We also integrated the phosphor chemicals businesses of Solvay that we acquired in February 2018. We signed a cooperation agreement with Standard Lithium in El Dorado, which is definitely if it comes through investments for the future. And we, in 2018, started and implemented brownfield debottlenecking investments in the neighborhood of 1,000,000. Besides this, we as promised, implemented an upgrade in our production network closed Sarate in South America, closed Anchawyek and Unplugged Reynosa of course, leading to cash outs, especially burdening 2018, but we will continue upgrading our production network as planned also in 2019. And with this, of course, delivering also the synergies that we have promised and that will help us with self help to achieve our targets for 2021 onwards. Kaltura integration is fully on track. We deliver on the promised synergies even faster than originally anticipated. And if you later on, get the explanation on the numbers in Specialty Additives, you can see that here, really, we walk the talk and execute as communicated. Let's turn the attention to page number 5. 2018 was a mixed development in terms of the half year momentum. First half was rock solid. 2nd half was challenging. We saw profit warnings in Q3 from Automotive Industries several times and Fourth Quarter saw then profit warning profit warnings in the other industries and quite a lot of chemical companies were among them. So despite a year showing sunlight and storm, showing constraints on the macroeconomic environments, definitely headwinds as far as currencies are concerned. I think financially LANXESS proved its resilience. Not only in third quarter, but especially in the fourth quarter. We came out at the upper end of the guidance we had communicated in summer and we therefore delivered according to our promises. As far as resilience is therefore concerns, we achieved this despite the shortfall in volume momentum in our back business, notably Saltigo, despite a really bad financial result in leather chemicals here, notably stemming from the chrome value chain. And also the construction industry made us suffer in notably the emerging markets where also currency, the weakening of currency led to a financial erosion in our pigments business. But of course, as far as overall financial stability is concerned, you can see that in the fourth quarter in the P and L, you can see that also in the fourth quarter in the balance sheets. Let's move to page number 6 and that's before moving to Q4. Let's take a step back and look at our segments. I think here, the segments, intermediates, Additives, and engineering materials speak for themselves. Despite a tough environment in ARC Industry, we compensated everything completely through our strong really powerful business unit, Advanced Industrial Intermediates. So we grew absolute in absolute terms nicely expanded our EBITDA by 7%, completely absorbing the shortfall in profitability of Saltigo And ladies and gentlemen, take note of the fact that Organometallics is not fixed yet. We just start doing it. Specialty Additives, we just walked the talk. We implement synergies. We advanced very, very nicely in the integration. And here, we absorbed through additives and here, through the flame retardant additives and the loop adds nicely the weakness in Q4, which we saw in the Rhein Chemie business, which of course has exposure to the automotive industry, And the automotive industry, let's face it, eroded in Q4. And I am, therefore, also cautiously looking at the automotive industry in Q1 twenty nineteen. As far as Performance Chemicals is concerned, I mean, that was really a drag in the a year of 2018, but the other segments compensated for this. Chrome value chain, we started restructuring in 2017 and and executed this in 2018 that led to volume declines, but further price erosions happened. And then, of course, construction chemicals was also, adding to the drag and therefore, I think the current results is really not a good one. We acknowledge this. Take appropriate actions, in the Annual accounts and annual reports, you will see that we have also announced the closure of a pigment plant in China, Xinjiang, which will go off stream in end of March, April completely. Therefore, we walk the talk, take corrective steps And I think we are somewhat at the very trophy levels in Performance Chemicals. So we look at the segments to not in Q1, but throughout 2019 to stabilize and then, to turn chapter towards the more profitable future again. Engine nearing materials speaks for itself. And here, despite fourth quarter, showing sluggish demands in China predominantly, but also of course, notably in the automotive industry. Urethanes room for improvements, the situation on TDI and MDI generally improves, especially on pricing. Only on the volume side, on the monomer MDI, we are still facing some constraints in the United States. I turn my attention to page number 7. So here, based on the financial results of 2018, but also our comfort and clear, view conviction that Linksys will further improve in the years to come. We raise our dividends to $0.90 the share because we believe in the future of our company. Of course, in what we are doing on a daily basis. On Page 8, some key messages here, we've taken down And the one point I would like to add 4th quarter was a tough one. 4th quarter, we also dropped, absorbed higher energy, higher freight costs, higher personal costs, and what I was really seeing for the first time since many, many years an ongoing decline in volumes in China. Normally, you see this on a monthly basis, but not for an entire quarter. And we've seen that now for a few months in a row, And of course, this is something that we've also baked into our quarterly guidance for Q1. I would address that in a few Moments. With this, I will turn the page to the financials and, hey, Michael. Come on. Take it to the next level. Thank you, Matias. Everybody from my side as well. Yeah, on page 9, you find an overview of our financials indeed given the overall environment as my Tears said rising energy freight costs, Ryan level discussion, Brexit, auto China, you name it. We managed to keep our EBITDA stable on a year on year basis. You see as well that, the EPS pre improves further for the continuing business. For the group, we obviously have some special effect for last year and this year. We can figure it out later on in the discussion if you want to. On page 10, you will find our quarterly results of our businesses, starting with Advanced Intermediates In Advanced Intermediates, we had a very strong quarter, strong price increases where we managed to pass on our raw material prices strong volume increases in both business units. We addressed earlier in the year that we see an inflection point in Saltigo and we expect 2019 to improve versus 2018, the first proof you will find in the numbers of Q4. So the overall EBITDA improved further as well did the margin in that segment. Next, nice improvement comes from specialty additives. We were able to further increase prices like we did in the last couple of quarters. So we obviously ride on track when it comes to the successful integration of the operational business. We saw first signs of weakening auto demand, especially in our Rhine Shimi businesses. And we were as well and keep that in mind comparing to a year where we closed sites and sold smaller sites in ADD, why the volume decline doesn't ring an alarm bell at this point in time. But as said earlier, in Rhein Chemie, we were facing declining volume coming from auto. EBITDA grew again nicely. Same is true for the margin. And next to the operational improvement, for sure, the realization of our synergy is further kicking in. For the overall year, we came in better than we previously expected. So we were able to generate $10,000,000 faster than we previously anticipated. As well for the overall year, Specialty And Additive now comes in with a margin of 17.3 percent, which is the best performing segment in the group, which shows as well the very well improvement of that new business segment. On the opposite, Performance Chemicals, again, very weak performance of leather and IPG, which is continuing. We saw next to the common topics of, of, Chrome crisis and effect some closure. As well a decline coming from China, which basically leads and led to the fact that EBITDA was reduced to EUR 24,000,000, but as Matthias said, in 2019, we should see the inflection point at one point in time. The 4th segment, Engineered Materials and the 3 or 3rd segment, which is improving, which is as well for the overall year is Engineered Materials where we saw strong price increases, especially in HPM, Volume increased nicely as well, but here we had a, let's say, certain trade deal, which was inflating to some extent top line and COGS. But nevertheless, in HPM, we still saw some nice volume growth. That was not the case for Eurothanes as Tears was mentioning, even though we saw some relief in the prices on certain raw material, still the availability in the U. S. Was limited. Nevertheless, overall EBITDA in that segment as well improved and margin is now at 11%. Matias, please give the outlook for the year. So I turn to page number 12 and here, We all read macroeconomic reports, 2019, from all the macroeconomic assumptions most likely is going to be a year where the development of the economy will be more uncertain and bumpy. And of course, as far as Automotive Industry is concerned and also China is concerned, everybody speaks about softening. So as far as we look into macroeconomic trends, we of course take all of that into consideration. And I would very much like to stress, however, nobody has the crystal ball. Will Brexit happen or not, we look at this on a daily basis. And I think by now starts having a bit of fun about it. And in many other areas in the world, predict uncertainty. So who are we to make a call on where all of that goes? When we look, however, into our underlying on how we have managed a tough 4th quarter and how we currently manage a tough start of the year in terms of macroeconomic dynamics, then we look at our business setup at our portfolio And therefore, based on what we see, we are, of course, ambitious for the year, but we are also cautious for the year. And we would like to therefore be around the current levels that we've posted operationally 2018. That I think is the message for the full year guidance. If it's slightly above, if it's slightly below, if it is on track, we have the ambition to be on the on track as far as 20 18 is concerned. So 2018 financially is our clear target for 2019. For Q1, we see clearer. Here we have 2 months in the bank. The current March trading we are aware of And based on the current tough environment, and please recall last year, the chemical industry had the best start to the year for, for many, many years in a row. So we had a very, very strong first half, notably Q1 was a good one. And we want to achieve based on what we know as of today, the good financial performance that we achieved last year. And of course, we would then like to further work on our cost structures, on our portfolio and everything in order to continue delivery good set of results. With this, I turn my attention to page number 13. And with full year 'eighteen, you see that we have over 4 years now row upgraded our financial matrix year on year coming from, somewhat 9, 10 percentage points EBITDA moving to 11, 12, 13. And now on a reported basis, 2018, finishing for the first time on a full year basis about 14 percentage points. We are striving to implement further debottlenecking, projects with nice roosting numbers. In the years to come. So they were incremental volumes at good profitability will come on stream. We are going to execute further synergies stemming from the Kaltura acquisition and the Solvay acquisition. Zalkego is most likely going to be a nice contributor already from this year onwards. Of course, we clearly have the ambition to fix organometallics And of course, further portfolio alignment will come, that is what we would like to implement as far as self measures are concerned. And through these measures, we feel in the position to obtain our financial targets as far as margins concerned, cash conversion is concerned. And as far as stability is concerned, or I. E, EBITDA margin volatility is concerned, I think we've given proven to our strategic direction in Q4. We want to underline this further with 2019 financial performance. And of course, accelerate in this regard in the years to come. Ladies and gentlemen, this is the comments on full year fourth quarter. I open up the conference call for your questions. At this time, we will begin the question The first question is from the line of Thomas Wrigglesworth from Citi. Please go ahead. Good afternoon, Matthijs, Michael. Thank you very much for the presentation. Three questions, if I may. Specialty additives, it looks like one of your competitors, Albemarle, gave a more conservative outlook. I'm very interested to know what you see the outlook is for the bromine additives market going forwards, over and what you baked into your guidance? 2nd question, you've noted obviously this trade sale in engineering Materials. And it looks like Advanced Intermediates had some one off benefits, but I'm guessing there were some Rhine costs potentially. That you've incurred, if you could help identify the kind of one time items around that. And, thirdly, just what you're seeing on the ground in China, as we exit Q1 would be very helpful. Thank you, Thomas. I will take them 1 by 1 and ask Michael to make further additions to question number 2. As far as specialty additives is concerned, I basically would like to say that, I cannot comment on our competitors, they make comments on their own. We basically see that flame retardant markets end industry, which among others is construction, is softening right now, but we have 4 additives there's still synergies to be implemented stemming from the Kumtura acquisition. And therefore, we think all in all with the measures we've implemented last year and the measures we will take this year. We see here an industry, which is diverse, So we are not only selling our additives in areas of construction, electronic equipments, and others are here, the industry focus and that is not as dynamic anymore as it used to be, but it is positive in terms of growth. Point 2, if you look into China pricing and competitive environment in China, this is turning into our direction, which is positive and synergies are going to come through. Some sluggishness, of course, I would like to highlight in the division coming from Rhein Chemie. Here, we have a little more automotive exposure, but as you could see in Q4, we have, mitigated that but this would be a theme that will that is embedded into our guidance for 2019. 0.2 Rhein Costs and Michael will step in afterwards. I think P and L wise, we haven't seen a major impact on our P and L. Our team did an excellent work, excellent job, Rita. I'm very proud of them. I've recognized they are daily, energy level and conviction to mitigate everything that was there. We were successful in doing so. And Therefore, you didn't see any, major P and L hit by this. What you have seen is a stock up in working per tool. We did that deliberately in order to have enough, stuff raw materials in our tanks, storages and boots in order to, be prepared for a further deepening of the Rhine River. Fortunately, it didn't happen, but of course, we had some higher raw materials then in the bank in the balance sheet end of the year. Then as far as Q1 is concerned, Well, China was, from December, November levels going deeper in terms of January February trading. So we saw the single digit volume erosion of Q4 continuing in Q1. After Chinese New Year, there was just a modest pickup. So it didn't go down southwards. Anymore. It's stabilized and slightly improved. Now of course, we have to see how trades, disputes continue. But we have to also see how the measures that the Chinese government has decided upon are going to kick in these where major measures taken. And I think here ClearSign that China is doing everything to accelerate on domestic demands. They've done that successfully in the past, and I see they are determination for addressing this, also now in 2019. But as you have heard from our statements, there's no reason to be optimistic We are optimistic only on our company. We cannot be optimistic on the world economy because this is not in our hands, but we are focusing very professionally on turning every screw and making sure that we mitigate like last year in Q4, in Q1 ongoing the challenges that we face in macroeconomic terms. Michael? Hi Thomas. Yeah, first question with regards to engineering materials or effectively, volume increase in HPM. So that was basically a deal which we were making where we were able to net the impact on top line and the impact on COGS. So both lines were inflated And, a good chunk out of that, that million increase in volume was driven by that trade. Saying that you will through terms and it's rather dilutive when it comes to the margin. But it's simply due to the fact that we were not able to net it and we wanted to give full transparency, not that you think that we have such organic volume increase. With regards to the comment, which we have in intermediate and Saltigot in particular to IFRS 15. That is something where we had and we started to do so throughout the whole year that we had some impacted to reclassify certain businesses, which we used to have in the other operating income. So we had to reclassify in Q4 a relatively higher number to the top line as well to the COC on EBIT or EBITDA level, it's a net net effect. So no impact. And we're not talking about a large number. It's rather a very high single digit or very low double digit million number, which was inflating top line and COGS. Most welcome. Next question, please. The next question is from the line of Martin Rudiger from Kepler Cheuvreux. Please go ahead. Yes. Thanks. I've only, minor questions. On the tax rate in Q4, can you explain why it was only 7% Secondly, on the cash conversion rate, 2018 seems to be a step back as it's dropped from 57% in the year before to now below 51%. With EBITDA and CapEx guidance being flat in 2019, there is no improvement ahead in this cash conversion rate this year. How realistic is your cash conversion rate target of above 60% by 2021. Or in other words, would you consider to slash CapEx towards your maintenance CapEx level in 2 years' time to achieve your target? And then finally, only a clarification question, you guide for 1,000,000 operational depreciation and amortization charges that I guess that does not include the effects from IFRS 16 because I guess on top of it will come some roughly 30,000,000 dollars, $35,000,000 depreciation charges because of IFRS 16. Thanks. I will answer cash. Cash is important, and Mike will take tax and, IFRS 16. So Cash conversion, 2018, 2019, we've been pretty straightforward in 2016 at the outset of the Kaltura integration when we announced end of September Kaltura, that we have a catch up in CapEx 0.1 2nd, we will do restructuring, 2, and 3, we will go for focused investments, I. E. Brownfield Investments in the neighborhood of CHF 400,000,000. Reflect that 18, 19, you would see the upgrade in CapEx for Kaltura sites. But you would see also a lot of the restructuring charges for, the cost savings. That's happening now. So we I think there's the expression you cannot have a cake and eat it. We are currently, eating the cake in order to accelerate afterwards. So higher CapEx is, therefore, given in 2018 2019 and higher cash outflow for the restructuring that we did last year. We booked it last year as one timers and cash it out now 19 18. So that is what we are doing. Now on top of that, I have to cleanly state we see that the macroeconomic environment is not going upward. It's downwards. We will not wait and see that markets will get more challenging, we will take appropriate actions in order to make sure that we counter fight any headwind that we will have might we take some cash in our hands to reduce cost base to close further plants like I've indicated before, construction industry did badly 2018. We take out an entire Chinese site close it, took 10,000,000 impairment charges. And 1st quarter, we will take it offline. So we take actions. We don't talk. We act And of course, for this, we need resource allocation, but these are good investments in order to improve our cash flow and cash flow conversion in the years to come. And there is no reason why we should step away from the target that we have given. Michael, please explain the difficult tax topic and this depreciation IFRS accounting standards. I'm more than happy to here. So Martin, with regard to tax rate, yes, it's probably the magic of the small numbers. Let's put it like this, yes, because if you're having an earnings deferred tax of 14,000,000, it's not really right to, determine and discuss the applicable tax rate. Therefore, I always say you have to have a longer view. I guided to you, we will be at the lower end of the range of 30% to 35% for the full year. Full year, we are at 30.3 percent, I think, right on spot where I guided you to, but on a quarterly basis, a especially if the numbers are so relatively low, it's hard to really, meet the sweet spot of that guidance but we should on an yearly basis. And with regards to the G and A rate, yes, it does include the roughly 1,000,000 from, from the IFRS 16 impact. Thank you. Next question please. Next question is from the line of Chetan Udeshi from JP Morgan. Please go ahead. Yes, hi. A couple of questions. Firstly, just talking around the M and A environment right now as you see Matthias, especially now with the cash from the sale of remaining stake in Elangio. Can you maybe give us some color on how you think about inorganic opportunities and which are the key areas that you would think of of expanding into that's number one question. Number two question is, you've guided to flat EBITDA in Q1. As it seems right now, Q1 might probably be the worst quarter in terms of auto production from a yearly perspective. So is there something that you think might weaken to rest of the year, which why you sort of assume that EBITDA remains flat for the full year or say around the same level as 2018? Chetan, thank you for your questions on M And A. Mean, we've clearly stated we are prepared to do M and A, but we are, of course, in the current environment, not in a hurry. If we do transactions, we do transactions because they, have a clear strategic fit, and they have a clear financial rationale. In the current market environment, we do our analysis. We prepare our targets. And of course, with the due care, we do all measures in order to see what opportunities are arise. When they arise and if we then come to an agreement depends on 2 parties and not only one, And therefore, we think that here, 2019, 2020 might be a year where we take something on board again. But of course M and A, we evaluate next to other areas of resource allocation. These are organic investments, which we pursue as communicated. You see that also share buybacks are something that we consider actively and we are just executing a share buyback program as we speak. And in the annual general meeting, of course, we can take appropriate resolutions to again, make sure that we can continue doing this in the future. And therefore, we look at all opportunities, with a clear ambition to create value in a sustainable way. And of course, we also use our financial proceeds to continuously reconsider our dividends. We know that for some shareholders, we received this feedback constant and increase in dividends has been noted to be of higher value to some shareholders, whilst others indicated that they would like to have more organic investments in M And A and others again would like to have share buybacks. So I think we are considering all of that and and are trying to deliver value creation in all aspects. As far as Q1 seasonality is concerned, well, Chaton, who am I to make a call on macroeconomy? Who am I to make a call on trade disputes between 2 giant nations? Who am I to predict UK Parliament on Brexit. I look at 2019 in the following way. 1st half for the chemicals faces tough comparables. 1st half had strong volume momentum. And then second half twenty eighteen had erosion on volumes. We saw tough numbers already in Q3 and tough reported numbers in the chemical industry already with Q3 results. In Q4, many companies faced real hard times. So if I look into 2019, my assumption is that, Q3 and Q4, we will all face a better comparable base but Q1, Q2 is going to be tough. If macro and economic environments, however, implodes in second half, it might be a high base. And therefore, I clearly would like to straight to states. We feel more comfortable clearly on what we have in the bank and we see what we have in the bank in Q1. For 2019, we will do everything in order to deliver on our full year guidance, but of course full year, you have to take a lot of assumptions and the assumptions we've given before. I hope that gives some color to what we've guided for. Most welcome. Next question please. Next question comes from the line of Martin Evans from HSBC. Please go ahead. Yes, thanks very much. Just one question really on, I guess, the weak link, this time, Performance Chemicals. And Matias, your comment, I think you said it was sort of troughy. You've done a lot of work there already in terms of site closure, and so on. But is your comment sort of implying we might be at the bottom based upon your view that you've kind of done most of what you can do, the heavy lifting yourself, and therefore, it's it's the market, pricing and so on and demand bottoming, or I guess, do you have more plans up your sleeve for radical, which it would have to be because profits halved and margins halved in the fourth quarter? Sort of radical restructuring for this unit? And I guess finally connected with all of that is it, I mean, you may have said it before, but is this sort of this division is creating a lot of trouble for you and a lot of time and capital employed. Is it really one of the longer term sort of divisions within the group, or would you be happy to, at some point, think of exiting in some form? Martin, very valid. But I think the, as far as here, Performance Chemicals is concerned, and it boils down notably to to leather and within leather to the chrome value chain. And here, heavy lifting has been done, but we will not shy away from doing further heavy lifting. We will not accept eroding result And therefore, the time spent on, on Chrome, of course, management wise exists We've worked on this already in the last 12 months. We'll continue working on this in course of 2019. And definitely, we are addressing this. We will not accept falling results. And my look at Performance Chemicals And Leather going forward in 2019. I think from everything that I know, Q1 will still be tough. But afterwards, I think leather will stabilize pigments. My view is that this should stabilize already in Q1 pigments is business wise, a strong business, but markets and currency wise, in emerging markets, we saw headwinds Here, our view is that pigments will stabilize and might even go upwards. So I see look at 2018, where we posted an EBITDA margin of 14%, somewhat as a trough margin. If you compare it to the years before, it was the high end of Performance Chemicals. So today's trough in recent years was Performance Chemicals' highest margin. And this is, to some extent, how I look at the company transformation. We have upgraded structurally LANxis. And therefore, with Performance Chemicals, I think the actions we will take will lead to increase in profitability and margins going ahead. But we don't shy away from heavy lifting. Next question comes from the line of Andreas Heine from MainFirst. Please go ahead. Yes, thank you for taking my question. My start with the cash flow Maybe you can give some indications how much the outflow for restructuring synergies, integration, and so on. In 2018 was and how this might be in 2019? And my understanding is that net working capital in 2018, especially towards year end had some special effects on the negative side by preparing for Brexit, preparing for the Rhine issue and so forth. Maybe you can highlight how you see the net working capital change going into 2019? And then on Performance Chemicals, the wording, if it comes to volume and price for material protection and liquid water technology, sounds quite good. So I would assume maybe you can, comment on this that these two parts of Performance Chemicals are still performing well. Meaning producing higher earnings. And last but not least, automotive, you highlighted the impact it had to Hi, Jimmy. How is the impact in rubber chemicals, which you still have in the, Advanced Industrial Intermediates? And, you have said that it looks like that it's pretty stable, but you have in loop additive. So there you have not seen anything a negative from the weak OEM production. These are my questions. Thanks. Well, many, many questions. Michael will address the cash outs for restructuring. I would take the other 3 and start with them. On working capital, Q4, we basically stocked up, due to River Rhine. But also we prepared simply for in October, we decided in the management board to prepare for hard Brexit and executed accordingly. And therefore, products that are produced in Europe being sold to UK, we stocked them up and ship them now to UK so that we are prepared for 2 to 3 months of traits and customs chaos, that might happen after a Brexit. So all in all, I think both measures, Ryan and Brexit preparations will be round about 1,000,000 dollars, $150,000,000 of incremental working capital that of course would be digested then in course of 2019. Where working capital would be in 2019. We take a modest approach to basically say only if we increase volume wise we should increase volume and inventories. I cannot, however, give an absolute term because this depends eventually also on raw materials. And raw materials are by nature, volatile. So that should address working capital question. Now let's come to the Biosites and LPT. I'm positive on both. On MPP, however, whilst the business developed nicely in 2018, and this is a pretty stable business. Growing business, we will have in second half twenty nineteen launch costs for Nagardo. This is the natural, products for the food and beverage industry. So this is something we are going to launch, but we are speaking about a single digit millions investment costs. But the business per se should develop nicely contributing to cash flow and profitability. As far as our water purification business is concerned we've announced a new leadership, the lady running it. And, the lady has great ideas And since she came on board, profitability is going up. Very nice as well. And she's just in the business for 3 or 4 months, or what an impact she had. So I'm positive on both business units and we will make them grow going forward. Now as far as our automotive exposure is concerned, we managed here, of course, fourth quarter already, the biggest exposure to automotive we have in HPM. But please recall that our we have an entire value chain, not only the compounds. So in the compounds going to the engine to the Automotive Industry, we saw already a stagnation and erosion in Q4, November December, especially and we still see that And of course, we therefore consider, our HPM business as one that might see profitability erosion in full year 2019, but not a massive one, a moderate one. And that is what we've baked into our guidance for full year. As far as Rhein Chemie is concerned, this is a heterogeneous business as well and here and we see the same weakness in China notably, but it was mitigated through our flame retardants business. And that's our assumption also for 2019. And as far as your statement on Rubber Chemicals is concerned, I mean, let's face it. This business has strategically been completely turned around We've taken out massive costs in the last 2 to 3 years. Even though we have exposure on some antioxidants and accelerators to the tire industry. I personally assume with everything that we've done over the last 2 years that this business, despite headwinds in automotive industry is going to trees that we have opened up for these products. So here, I think you have to look at this business a little bit more differentiated. With this, I hand over to Michael on the cash flow restructuring items. Hi, Andreas. With regards to the cash outs, we give, in one slide of our deck, an overview of the part of the Contura synergies and the related cash outs. And there you see that for that topic, the peak was met in 2018 and in 2019 2020. The numbers are expected to decline by $10,000,000 in 20 19 and another $30,000,000 in 20. The next element, which did have a rather high effect in 8 team was the closure of Sarata where we booked some 70,000,000 exceptionals back in 2017 and we're facing the majority of the cash outs in 20172018. So there will be some cash outs for it in 2019 2020, but the majority of these restructuring cash outs should have been as well in 2018. That is the kind of guidance that we're giving that in a nutshell than the cash outflow restructuring come down in 2019 and much further down the road than in 2020. Unless we have to take further measures for macroeconomic turbulences, but this is what we then would communicate. Next question please. The next question comes from the line of Patrick Rifis from UBS. Please go ahead. Thank you. Good afternoon. 3 questions, please. The first one, a follow-up on that trade deal in engineering materials. Can you explain a bit in more detail what that was all about and if that's something that might reoccurred as we have to take into account in future modeling, not only 2019 but beyond? 2nd question, on the news item, flickering over the screens yesterday, your investments in iron exchange resins, can you talk a bit about that? What your, what your plans here are, what we should expect in terms of modeling? And lastly, the Saltigo inflect point you mentioned, you talked a bit about IFRS 15. Can you also talk about the underlying business? Why is it inflecting what are the new contracts? I think it's it was all about fungicides, right, originally? And and what do you expect for for 2019? Thanks. So Michael will address the The trading topic, I would take the other 2. Michael? Yes. So, Patrick, there is not much more to say. It's it was a deal which were where we were dealing with some raw material, we had to take it through the top line and to the COGS. We were not able to net it that is nothing we expect to have in the future. So therefore, there is not much more to say than that, and we gave the guidance to to tell everybody that the inflation of the top line is not driven by the organic or operational business. But rather by the fact that we had that deal. So, but that's nothing spectacular and nothing, but you shouldn't expect that to happen again. Okay. But was that related to Rhine and supply issues and logistics six issues? No, no, no, no, that was another thing. Okay. So then on Saltigo, that was what you referred to in terms of the contracts that we have, mentioned, I cannot be company specific. I can simply say that the products we onboarded were products where technology base is needed And as we communicated earlier on, we are one of the custom manufacturers with the best technology base for fungicides and agrochemicals in Europe. And as such, we have been chosen, and this leads, of course, to incremental volumes on very trophy volume level. And we've seen that kicking in in November. And we see that of course now, because these are not only quarterly contracts, these are yearly contracts up to 3 years contracts. This is going to push volumes upward in profitability because fixed cost of job absorption happens in Saltigo. And therefore, we are confident that despite tough macroeconomic environments in agro, we will do well in Saltigo. As far as, LPT is concerned, I'm not sure what's kind of press release you are referring to. We went out with some membrane communication a few weeks ago. And if there was something else, There was a fair recently and of course in fares, you make a lot of comments on whatever you do, but fair communication is nothing that, is now leading to a big statement on our side in this press conference or in this analyst call. If this would be big, big for the company, big for LPT, I would have triggered that in my comments earlier Thank you from our side. And any questions? The next question is from the line of Peter Spangler from GZ Bank. Please go ahead. Good morning, good day. Thank you for taking my questions. Fortunately, only one question is left. The price decline of isocyanates lately should have a positive effect on your engineering materials business Is it correct that the headwind in 2018 that you mentioned will become a tailwind in the first half of twenty nineteen? To some extent, yes, your analysis is completely right, but now you have to look into the configuration of our entire business units. The biggest plant we have in just stone here, and this is where the hot cast is being produced. The hot cast polyurethane business, as you know, is a niche business with worldwide market of roundabout $1,000,000,000. So it's really niche markets. We have a North America significant market share. And therefore, we depend, however, in this hot cast business, notably from the monomer monomer MDI, and that is still tight in North America. Worldwide the polymeric MDI and the TDI, especially these two products get long in Europe and Asia, price erosion happens. Solely, the monomer MDI in North America is somewhat still tight. And therefore, we will have, a better momentum on the roles for our business in 2019, but as far as the big chunk of volume, which is produced in North America, we know that capacity expansions will come on stream in 2021. We would love to have that already earlier on stream, but we have to rate and see if an acceleration is happening. Most welcome. Further questions. The last question comes from the line of Marcus Meyer from Baader Helvea. Please go ahead. Yeah. Good afternoon, gentlemen. Speakers from my side as well. Firstly, a government Saltigo. Could you give us some indication how you see the underlying act business or the active month, going into 2019 recently, you said, or in the last course, you said you expect an improvement there. Is this still the case? 2nd question on the other item and your cash flow, there's roughly 60,000,000 year negative swing in the fourth quarter. Could you split this other line up, please? And lastly, you said that at several business units you saw, in 2018, significant raw material costs and was this gross margin squeezes what kind of gross margin improvement due to lower raw material costs is baked in and your full year guidance? Is anything baked in? So Michael will answer the Q4 cash flow swing. I would be very short on margin. We've given an absolute EBITDA guidance. We don't give and it was qualitative. We don't give we've never given gross margin guidance and will not start doing this today. As far as Saltigo is concerned, I've been very crisp that we view Zaltego on the right track and will increase our volumes in 2019, where the agro industry is going as such in totality, we are the wrong person to talk to. We are the wrong company to talk to. You should talk to the pros, which are, of course, the agro companies themselves Our view on agro industry is it's going to be still a modest environment. Once we have done the appropriate measures, to come out of the trough in our agro business and LANXESS. And that's the full answer. And with this, I hand over to Michael. Do your best. Marcus, like usual, we have 3 major elements in here, channel, we had more bookings in the Q4 2017 and less bookings in 2018. Which do have an effect not only on the profit before taxes, but as well on the cash flow statement because when you book an exceptional or when you book certain provisions, they not necessarily come with a cash out the same moment. On the other hand, saying that not only that we booked less than 2017, we also had higher cash outs for the bookings we had in the past. So I was referring to it earlier. And then we had a small effect from hedging, as we in 2017 still had a larger share of intercompany loans, which we were hedging, and that number came down. We had last year in the Q4 swing of the U. S. Dollar, which went against us from a cash perspective. That is always a net effect because then you have more cash in the cash item, but you have a certain cash out here on that line. So all in all, if you basically look from top to down, we basically generated an EBITDA on comparable level. We had some more cash out One were driven by taxes, the other by higher restructuring spendings and the 3rd element, a little swing in the hedging. Okay. Thank you very much. There are no further questions at this time, and I would like to hand back to Andre Simon for closing comments. Please go ahead. Yeah. Thank you, everyone, for joining our call. And we will speak, to our Q1 figures in May. Thank you very much. Ladies and gentlemen, this concludes the LANXS conference call. Thank you for joining and have a pleasant day. Goodbye.