Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining LANXESS Full Year 2018 results call. I would now like to turn the conference over to André Simon, head of investor relations. Please go ahead.
Thank you very much, Stuart. A warm welcome to everybody from Cologne, and many thanks for joining our Q4 and full year 2018 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.
Welcome, everybody. I turn to page four of the presentation for Q4 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 phosphorus 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, an investment for the future. We, in 2018, started and implemented brownfield, debottlenecking investments in the neighborhood of EUR 150 million. Besides this, we, as promised, implemented an upgrade in our production network, closed Zárate in South America, closed Ancy-le-Franc, and unplugged Reynosa, of course, leading to cash outs, especially burdening 2018. We will continue upgrading our production network as planned, also in 2019.
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. Chemtura integration is fully on track. We deliver on the promised synergies even faster than originally anticipated. 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 five. 2018 was a mixed development in terms of half year momentum. H1 was rock solid, H2 was challenging. We saw profit warnings in Q3 from automotive industry several times, Q4 saw then profit warnings in the other industries, quite a lot of chemical companies were among them.
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 the Q3, but especially in the Q4. 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 concerned, we achieved this despite a shortfall in volume momentum in our ag 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.
Of course, as far as overall financial stability is concerned, you can see that in the Q4 in the P&L, you can see that also in the Q4 in the balance sheets. Let's move to page number six, 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 ag industry, we compensated everything completely through our strong, really powerful business unit, Advanced Industrial Intermediates. We grew in absolute terms nicely, expanded our EBITDA by 7%, completely absorbing the shortfall and profitability of Saltigo. Ladies and gentlemen, take note of the fact that Organometallics is not fixed yet. We just start doing it. Specialty Additives, we just walk 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 lube adds nicely the weakness in Q4, which we saw in the Rhein Chemie business, which of course, has exposure to the automotive industry. The automotive industry, let's face it, eroded in Q4, and I am therefore also cautiously looking at the automotive industry in Q1 2019. As far as Performance Chemicals is concerned, that was really a drag in the entire year of 2018, but the other segments compensated for this. Chrome value chain, we started restructuring in 2017 and executed this in 2018. That led to volume declines, but further price erosions happened. Of course, Construction Chemicals was also adding to the drag, and therefore, I think the current result 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, Xinxiang, 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. We look at this segment to, not in Q1, but throughout 2019, to stabilize and then to turn a chapter towards the more profitable future again. Engineering Materials speaks for itself, and here despite Q4 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 monomeric MDI, we are still facing some constraints in the U.S.
I turn my attention to page seven. Here, based on the financial results of 2018, but also our comfort and clear view, conviction that LANXESS will further improve in the years to come. We raise our dividends to EUR 0.90 the share because we believe in the future of our company and, of course, in what we are doing on a daily basis. On page eight are some key messages here we have taken down. The one point I would like to add, Q4 was a tough one. Q4, we also 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.
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 will 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, Matthias. Hey, everybody from my side as well. On page nine, you find an overview of our financials. Indeed, given the overall environment, as Matthias said, rising energy, freight cost, Rhine 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 effects 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 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. 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. We obviously right on track when it comes to the successful integration of the operational business. We saw first signs of weakening auto demand, especially in our Rhein Chemie businesses. We were as well, and keep that in mind, comparing to a year where we closed sites and sold smaller sites in ADD, while the volume decline doesn't ring an alarm bell at this point in time.
As said earlier, in Rhein Chemie, we were facing declining volumes coming from auto. EBITDA grew again nicely. Same is true for the margin. 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 EUR 10 million faster than we previously anticipated. For the overall year, Specialty Additives now comes in with a margin of 17.3%, which is the best performing segment in the group, which shows us 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 chrome prices and effects from closure, a decline coming from China, which basically leads and led to the fact that EBITDA was reduced to EUR 24 million. As Matthias Zachert said, in 2019, we should see the inflection point at one point in time. The fourth segment, Engineering Materials, and the three or third segment, which is improving, which is true for the overall year, is Engineering Materials. Where we saw strong price increases, especially in HPM. Volume increased nicely, but here we had a certain trade deal which was inflating to some extent top line and COGS. Nevertheless, in HPM, we still saw some nice volume growth that was not the case for Urethanes, as Matthias Zachert was mentioning.
Even though we saw some relief in the prices on a certain raw material, still the availability in the U.S. was limited. Nevertheless, overall EBITDA in that segment improved and margin is now at 11%. Matthias Zachert, please give the outlook for the year.
I turn to page 12. 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. Of course, as far as automotive industry is concerned and also China is concerned, everybody speaks about softening. As far as we look into macroeconomic trends, we of course take all of that into consideration. 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 start having a bit of fun about it. 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 momentum, how we have managed a tough Q4 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. 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 track as far as 2018 is concerned. 2018 financially is our clear target for 2019. For Q1, we see clearer. Here we have two months in the bank. The current March trading we are aware of.
Based on the current tough environment, and please recall last year, the chemical industry had the best start to the year for many, many years in a row. We had a very, very strong H1. Notably Q1 was a good one. We want to achieve, based on what we know as of today, the good financial performance that we achieved last year. Of course, we would then like to further work on our cost structures, on our portfolio, on everything in order to continue delivering good set of results. With this, I turn my attention to page 13.
With full year 2018, you see that we have over four years now in a row upgraded our financial matrix year-on-year, coming from somewhat nine, 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 above 14 percentage points. We are striving to implement further debottlenecking projects with nice ROCE numbers in the years to come. The incremental volumes at good profitability will come on stream. We are going to execute further synergies stemming from the Chemtura acquisition and the Solvay acquisition. Saltigo is most likely going to be a nice contributor already from this year onwards. Of course, we clearly have the ambition to fix Organometallics. Of course, further portfolio alignment will come. That is what we would like to implement as far as self-measures are concerned.
Through these measures, we feel in the position to obtain our financial targets as far as margins are concerned, cash conversion is concerned. As far as stability is concerned, i.e. EBITDA margin volatility is concerned, I think we have proven 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 and Q4. I open up the conference call for your questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. The first question is from the line of Thomas Wrigglesworth from Citi. Please go ahead.
Good afternoon, Matthias, 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, and what you've baked into your guidance. Second 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 was some Rhein costs potentially, that you've incurred, if you could help identify the kind of one-time items around that. Thirdly, just what you're seeing on the ground in China as we exit Q1 would be very helpful. Thank you.
Thank you, Thomas. I will take them one by one and ask Michael to make further additions to question number two. 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. We have, for additives, still synergies to be implemented stemming from the Chemtura acquisition. Therefore, we think all in all, with the measures that we've implemented last year and the measures we will take this year, we see here end industry, which is diverse. 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, it is positive in terms of growth. Point two, 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, as you could see in Q4, we have mitigated that. This would be a theme that is embedded into our guidance for 2019. Point two, Rhein costs, Michael will step in afterwards. I think P&L wise, we haven't seen major impact on our P&L. Our team did an excellent work, excellent job, really. I'm very proud of them. I've recognized their daily energy level and conviction to mitigate everything that was there.
We were successful in doing so, therefore you didn't see any major P&L hit by this. What you have seen is a stock up in working capital. We did that deliberately in order to have enough stuff, raw materials in our tanks, storages, and boats 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 than in the bank in the balance sheet end of the year. As far as Q1 is concerned, well, China was from December, November levels going deeper in terms of January, February trading. We saw the single-digit volume erosion of Q4 continuing in Q1. After Chinese New Year, there was just a modest pickup. It didn't go down southwards anymore. It stabilized and slightly improved.
Of course, we have to see how trades disputes continue, we have to also see how the measures that the Chinese government has decided upon are going to kick in. These were major measures taken, I think here clear sign that China is doing everything to accelerate on domestic demands. They've done that successfully in the past, I see their determination for addressing this also now in 2019. 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, we are focusing very professionally on turning every screw and making sure that we mitigate like last year in Q4 and Q1 ongoing the challenges that we face in macroeconomic terms. Michael?
Hi, Thomas. First question with regards to Engineering Materials or respectively, volume increase in HPM. That was basically a deal which we were making where we were not able to net the impact on top line and the impact on COGS. Both lines were inflated, a good chunk out of that 9 million increase in volume was driven by that trade. Saying that, you will recognize that the impact on gross margin and on EBITDA is rather limited in absolute terms, it's rather dilutive when it comes to the margin. It's simply due to the fact that we were not able to net it, we wanted to give full transparency, not that you think that we have such a organic volume increase.
With regards to the comment which we have in Intermediates, and Saltigo 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 impact to reclassify certain businesses which we used to have in the other operating income. We had to reclassify in Q4 a relatively higher number to the top line as well to the COGS on EBIT or EBITDA level. It's a net effect, so no impact. 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.
Very comprehensive. Thank you very much.
Most welcome. Next question, please.
The next question is from the line of Martin Roediger from Kepler Cheuvreux. Please go ahead.
Yes, thanks. I have only some 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 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? In other words, would you consider to slash CapEx towards your maintenance CapEx level in two years' time to achieve your target? Finally, only a clarification question. You guide for EUR 450 million operational depreciation and amortization charges.
I guess that does not include the effects from IFRS 16, because I guess on top of that will come some roughly EUR 30 million-EUR 35 million depreciation charges because of IFRS 16. Thanks.
I will answer cash. Cash is important. Michael will take tax and IFRS 16. Cash conversion 2018, 2019, we've been pretty straightforward in 2016 at the outset of the Chemtura integration when we announced end of September Chemtura, that we have a catch up in CapEx, point 1. Second, we will do restructuring, 2. 3, we will go for focused investments, i.e. brownfield investments in the neighborhood of EUR 400 million. Reflect that 2018, 2019, you will see the upgrade in CapEx for Chemtura sites, but you will see also a lot of the restructuring charges for the cost savings. That's happening now. 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.
Higher CapEx is therefore a given in 2018 and 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 2019 and 2018. That is what we are doing. On top of that, I have to clearly 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. Closed it, took EUR 10 million impairment charges, and Q1 we will take it off line.
We take actions. We don't talk, we act. 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. There is no reason why we should step away from the target that we have given. Michael, please explain the difficult tax topic and these depreciation IFRS accounting standards.
I'm more than happy to, Matthias. Martin, with regard to tax rate, it's probably the magic of the small numbers, let's put it like this. Because if you're having an earnings before tax of EUR 14 million
It's not really right to determine and discuss the applicable tax rate. I always say you have to have a longer view. I guide it to you. We will be at the lower end of the range of 30%-35% for the full year. Full year, we are at 30.3%, I think right on spot where I guided you to. On a quarterly basis, especially if the numbers are so relatively low, it's hard to really meet the sweet spot of that guidance, but we should on a yearly basis. With regards to the D&A rate, yes, it does include the roughly EUR 35 million from the IFRS 16 impact.
Thank you.
Next question, please.
The next question is from the line of Chetan Udeshi from J.P. Morgan. Please go ahead.
Yeah. Hi. A couple of questions. Firstly, just talking around the M&A environment right now as you see, Matthias, especially now with the cash from the sale of remaining stake in ARLANXEO. 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 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. Is there something which you think might weaken through rest of the year, which is why you sort of assume that EBITDA remains flat for the full year or say around the same level as 2018? Thank you.
Chetan, thank you for your questions on M&A. We've clearly stated we are prepared to do M&A, 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 due care, we do all measures in order to see what opportunities arise. When they arise, and if we then come to an agreement, depends on two parties and not only one. Therefore, we think that here, 2019/2020 might be a year where we take something on board again. Of course, M&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, we are just executing a share buyback program as we speak. 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. Therefore, we look at all opportunities with a clear ambition to create value in a sustainable way. Of course, we also use our financial proceeds to continuously reconsider our dividends. We know that for some shareholders, we receive this feedback. Constant and increasing 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&A and others, again, would like to have share buybacks. I think we are considering all of that and are trying to deliver value creation in all aspects.
As far as Q1 seasonality is concerned, well, Chetan, who am I to make a call on macro economy? Who am I to make a call on trade disputes between two giant nations? Who am I to predict a U.K. parliament on Brexit? I look at 2019 in the following way. H1 for the chemicals faces tough comparables. H1 had strong volume momentum, and then H2 2018 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. 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, improves in H2, it might be a high base.
Therefore, I clearly would like to state 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. 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.
Yeah, thanks very much. Just one question really on, I guess, the weak link this time, Performance Chemicals. Matthias, your comment, I think you said it was sort of trophy. 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 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 Q4, sort of radical restructuring for this unit?
I guess finally connected with all of that is, you may have said it before, but is this division 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? Thanks.
Martin, very valid. I think as far as here Performance Chemicals is concerned, and it boils down notably to leather, and within leather, to the chrome value chain. Here, heavy lifting has been done, but we will not shy away from doing further heavy lifting. We will not accept eroding results, and therefore, the time spent 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 the course of 2019, and definitely we are addressing this. We will not accept falling results. My look at Performance Chemicals and leather going forwards in 2019, I think from everything that I know, Q1 will still be tough. 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. I 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. Today's trough, in recent years, was Performance Chemicals' highest margin. This is, to some extent, how I look at the company transformation. We have upgraded structurally LANXESS, 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.
Thanks very much.
Most welcome. Next question, please.
Next question comes from the line of Andreas Heine from MainFirst. Please go ahead.
Yes, thank you for taking my question. I 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. 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. On Performance Chemicals, the wording, if it comes to volume and price for Material Protection and Liquid Purification Technologies sounds quite good. I would assume, and maybe you can comment on this, that these two parts of Performance Chemicals are still performing well, meaning producing higher earnings.
Last but not least on automotive, you highlighted the impact it had to Rhein Chemie. How is the impact in rubber chemicals, which you still have in the Advanced Industrial Intermediates? You have said it looks like that is pretty stable, what you have in lube additives. There you have not seen anything negative from the weak OEM production. These are my questions. Thanks.
Many questions. Michael Pontzen will address the cash outs for restructuring. I will take the other three and start with them. On working capital, Q4, we basically stocked up due to River Rhine. Also we prepared 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 U.K., we stock them up and ship them now to U.K. so that we are prepared for two to three months of trades and customs chaos that might happen after Brexit. All in all, I think both measures, Rhine and Brexit preparations, will be roundabout EUR 100 million-EUR 150 million of incremental working capital. That of course, will be digested in course of 2019.
Where working capital will be in 2019, we take a modest approach to basically say, only if we increase volume-wise, we should increase volume in inventories. I cannot, however, give an absolute term because this depends eventually also on raw materials, and raw materials are by nature, volatile. That should address working capital question. Let's come to the bioscience and LPT. I'm positive on both. On MPP however, whilst the business developed nicely in 2018, and this is a pretty stable business, a growing business, we will have in H2 2019, launch costs for Nagardo. This is the natural products for the food and beverage industry. This is something we are going to launch, but we are speaking about single-digit millions EUR investment costs. 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, a lady running it, and the lady has great ideas. Since she came on board, profitability is going up very nice as well, and she is just in the business for three or four months. What an impact she has. I'm positive on both business units, and we will make them grow going forward. As far as our automotive exposure is concerned, we managed here, of course, Q4 already, the biggest exposure to automotive we have in HPM. Please recall that we have an entire value chain, not only the compounds. In the compounds going to the automotive industry, we saw already a stagnation and erosion in Q4, November and December especially. We still see that in Q1.
The earlier parts of the value chain, however, have compensated for that in Q4. Of course, we therefore consider our HPM business as one that might see profitability erosion in full year 2019, not a massive one, a moderate one. 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 we see the same weakness in China notably, it was mitigated through our flame retardants business, and that's our assumption also for 2019. As far as your statement on rubber chemicals is concerned, let's face it, this business has strategically been completely turned around. We've taken out massive costs in the last two to three 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 two years, that this business, despite headwinds in automotive industry, is going to grow 2019 because of the change in business model and the new end industries that we have opened up for these products. 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 Chemtura synergies and the related cash outs. There you see that for that topic, the peak was met in 2018, and in 2019 and 2020, the numbers are expected to decline by EUR 10 million in 2019 and another EUR 30 million in 2020. The next element which did have a rather high effect in 2018 was the closure of Zárate, where we booked some EUR 70 million exceptionals back in 2017 and were facing the majority of the cash outs in 2017 and 2018. There will be some cash outs for it in 2019 and 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, the cash outs for restructuring should come down in 2019 and much further down the road than in 2020.
Thank you. Unless we have to take further measures for macroeconomic turbulences, this is what we then would communicate. Next question, please.
The next question comes from the line of Patrick Rafaisz from UBS. Please go ahead.
Thank you. Good afternoon. Three 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 reoccur that we have to take into account in future modeling, not only in 2019 but beyond? Second question on the news item flickering over the screens yesterday, your investment in ion exchange resins. Can you talk a bit about that? What your plans here are, what we should expect in terms of modeling. Lastly, the Saltigo inflection 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 was all about fungicides, right? Originally. What do you expect for 2019? Thanks.
Michael will address the trading topic. I will take the other two. Michael?
Patrick, there is not much more to say. It was a deal 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. Therefore, there is not much more to say than that. We gave the guidance 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. That's nothing spectacular. You shouldn't expect that to happen again.
Okay. Was that related to Rhine and supply issues and logistics issues?
No. That was another thing.
Okay.
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. As we communicated early on, we are one of the custom manufacturers with the best technology base for fungicides and agrochemicals in Europe. As such, we have been chosen. This leads, of course, to incremental volumes on very trophy volume level. We have seen that kicking in in November. We see that, of course, now because these are not only quarterly contracts, these are yearly contracts, up to three years contracts. This is going to push volumes upward in profitability because fixed cost absorption happens in Saltigo, 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 kind of press release you are referring to. We went out with some membrane communication a few weeks ago. If there was something else.
There was.
There was a fair recently. Of course at fairs you make a lot of comments on whatever you do. Fair communication is nothing that is now leading to a big statement on our side in this press conference or on this analyst call. If this would be big for the company, big for LPT, I would have taken that in my comments earlier on.
Okay. Understood. Thanks.
Thank you from our side. Any questions?
The next question is from the line of Peter Spengler from DZ Bank. Please go ahead.
Good morning. Good day. Thank you for taking my question. 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 H1 of 2019?
To some extent, yes. Your analysis is completely right. Now you have to look into the configuration of our entire business unit. The biggest plant we have in Gastonia, and this is where the HotCast is being produced. The HotCast polyurethane business, as you know, is a niche business with worldwide market of roundabout $1 billion. It's a really niche market. We have in North America, significant market share. Therefore we depend, however, in this HotCast business, notably from the monomeric 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 monomeric MDI in North America is somewhat still tight. Therefore we will have a better momentum on the raws for our business in 2019.
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 wait and see if an acceleration is happening.
Okay. Thank you very much.
Most welcome. Further questions?
The last question comes from the line of Markus Mayer from Baader Helvea. Please go ahead.
Yeah. Good afternoon, gentlemen. Three questions from myself as well. Firstly, again, on Saltigo. Could you give us some indication how you see the underlying ag business or the ag demand, going into 2019? Recently you said, or in the last call you said you expect an improvement there. Is this still the case? Second question on the other item in your cash load, there's roughly EUR 60 million year-over-year negative swing in the Q4. Could you split this other line up, please? Lastly, you said that at several business units you saw, in 2018, significant raw material cost and with this gross margin squeezes. What kind of gross margin improvement, due to low raw material cost, is baked in in your full year guidance? Is anything baked in?
Michael will answer the Q4 cash flow swing. I will be very short on margin. We've given an absolute EBITDA guidance. It was qualitative. 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 Saltigo 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 whilst we have done the appropriate measures to come out of the trough in our agro business in LANXESS. That's the full answer.
With this, I hand over to Michael. Do your best.
Markus, like usual, we have three major elements in here. First of all, it's the bookings for restructuring and exceptionals. 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, as I was referring to it earlier. 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 a 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. All in all, if you basically look from top to down, we basically generated an EBITDA on comparable level. We had some more cash outs. One were driven by taxes, the other by higher restructuring spendings, and the third element, a little swing in the hedging.
Okay. Thank you very much.
Welcome.
Any further questions?
There are no further questions at this time, I would like to hand back to André 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 LANXESS conference call. Thank you for joining and have a pleasant day. Goodbye.