Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining first quarter 2018 results conference call. I would like to turn the conference over to André Simon, Head of Investor Relations. Please go ahead, sir.
Thank you very much, Emma, a warm welcome to everybody on the phone to our Q1 conference call from my end as well. I am very happy to have, as always, our CEO, Matthias Zachert, and our CFO, Michael Pontzen, with me. Before I hand over, please take notice of our safe harbor statement. With that, I am happy to hand over to Matthias Zachert for a brief presentation, and afterwards, as always, the Q&A. Matthias, please go ahead.
Thanks, André. A warm welcome from my side to the start of the year. I will enter into the presentation on Page four. Key messages, overall strong performance operationally. Noteworthy improvements in Specialty Additives start to materialize. This has been compared to the last few quarters, the strongest EBITDA contribution from the new division, Specialty Additives. We indicated to you last year, that was the year where we integrated Chemtura, and now for the next two years, we would like to deliver according to promises. Second point I would like to address on the highlights, we had a tremendous strong volume base Q1 2017. I know there is some chatter in the markets why volumes have been stable, but please take note of the fact in some segments last year, we saw significant pre-buying due to the dramatic increase in raw materials 2017 Q1.
There was pre-buying in a significant nature, not only in Lanxess, but selectively also in some other segments. Based on this, of course, volumes have been benign in Q1 2018, and we were able to make the strong base of 2017 happen again. On the lowlights, clearly Performance Chemicals. When you look into the bridge on price volume currencies, you see Performance Chemicals are the hardest hit, suffering not only from the ZAR, but the U.S. dollar is definitely a tough one. This is something that is visible across the industry. I strongly alluded to this six weeks ago in the March conference call that that will be the theme in Q1 for European chemicals and for us, and asking for model adjustments.
I think now you all see that this is a theme that over the last few days, weeks, has been reported by the European chems. Second point on the lowlights, definitely business unit Leather. Here, chrome is still in tough territories. We saw versus previous year, a more modest chrome ore price. Again, this doesn't rock the needle substantially, but it left pricing decline in the books. On the volume side, as we closed Zárate last year, of course, a lot of the volume has been now loaded into the South African sites, but some volume you do lose when you switch from South America to South Africa. Ladies and gentlemen, I would like to move to page 5, and here on the left-hand side, you see group numbers. Noteworthy, 14% increase versus previous year on EBITDA, increase further on EBITDA margin.
EPS pre, 32% increase speaks for itself. On the financial debt side, again, seasonality of last year. We have built up in Q1 and will also build up in Q2, working capital, and that correspondingly leads to an increase in financial debts. That will again be a theme for Q2, and then you will see the deleveraging in Q3, Q4, same pattern as the years before. As far as New Lanxess is concerned, on the right-hand side, we've splitted the divisions now in a separate way for New Lanxess on the next few pages, but both numbers for New Lanxess at Lanxess are reflected here for transparency's sake. Sales increased to EUR 1.8 billion, 24% increase EBITDA-wise versus last year, 40%. Of course, in Q1 last year, we were not recording the Chemtura contribution, so therefore this 40% increase is a nice one.
Even if you would add a quarter of Chemtura into the numbers last year, operationally, it would still be very strong despite US dollar weakness. EBITDA margin increase 15% for New Lanxess. As far as overall margin is concerned, I think we step-by-step go into the direction where we want this group to be in a few years from now. I now move on to page 6. We have now, based on Q1 numbers, also divided the new segments of New Lanxess and of course, historic segments of ARLANXEO. This includes the allocation and the split up of reconciliation correspondingly. Here these are unaudited numbers, indicative only, but with a very high precision. If it's 95% or 99%, let's basically give indication it is very high level of accuracy, but of course, unaudited. This will follow from Q2 onwards.
The message I would like to convey, first of all, commenting ARLANXEO, it was not a bad quarter. If you look at the trajectory over the last few years. Q1 2017 was simply outstanding with this high volatility that we saw in raws, and therefore leading to somewhat over strong EBITDA Q1 2017. Q1 2018, despite still trophy markets, came in well, and I think you would see a different pattern this year in the quarterly EBITDA of ARLANXEO compared to previous year. What you also see in these numbers is that there's a higher volatility, always has been in the EBITDA of ARLANXEO. Overall, we keep profitability at reasonable level despite tough market environments. As regards New Lanxess, the most important element here I would like to make, is the developments. We grew organically. We grew through cost savings. We grew through acquisition.
You see that now the New Lanxess has basically 85% of the EBITDA of the group. The 50% of rubber make less than 15% of our group EBITDA. Second, if you look at New Lanxess trajectory, you see what we have done over the last few years. That is our goal, as indicated to you last year in our Capital Markets Day events. We would like to bring this company step by step to different territories. That's what makes us enthusiastic, and that's what makes me so enthusiastic to be able to do that in the coming five years. Michael, take it to the next level.
Thank you, Matthias. Warm welcome as well from my side. Looking into the segments, you recognize what Matthias just said. We recorded some nice operational performance throughout all segments. Starting with Advanced Intermediates. Advanced Intermediates having a very strong first quarter. We saw nice price development in both business units. We were able to further drive volume up in AII compared to a 9% volume growth in Q1 2017. On the other hand, we were posting a decline in volume at business unit Saltigo, which we addressed earlier the year. We told you that ag market is still weak and we expect only in the second half of the year an improvement.
Nevertheless, despite the weak ag market and despite the currency headwinds which we were facing, we were able to not only operationally but in total increase EBITDA further and are posting now a number north of EUR 100 million for that segment. Next to Advanced Intermediates is Specialty Additives. Specialty Additives is posting the strongest quarter in the new setup. We were not able to improve EBITDA in absolute terms, but as well on a sequential basis, EBITDA margin. Chemtura integration is fully on track. We were able to pass on price developments. We were able to maintain a good volume level on previous year. We were facing currency headwinds. Nevertheless, posting an EBITDA of EUR 81 million is record to this segment. Page number eight, you'll find Performance Chemicals and Engineering Materials.
Performance Chemicals was to some extent driven by the currency, because we had tremendous currency headwinds and the highest exposure on the New Lanxess segments. On the other hand, we saw next to business unit Leather, good price and volume development. In Leather, we were mainly reflecting price declines driven by the decline of chrome ore prices, which had an effect on pricing and an effect on EBITDA. Volume, we were able to further improve in LPT and MPP and in Leather, again, we were posting a decline, but that was related to the closure of our Argentinian asset back at the end of last quarter. Nevertheless, the operational good development was more than mitigated by price effects. If we compare on an operational basis, we would have seen an improvement in EBITDA as well in Performance Chemicals. Last but not least, Engineering Materials.
Engineering Materials is posting a very good first quarter. Raw material prices were passed through. We further improved the already very good volume development we had in Q1 2017, which was earmarked through pre-buying activities and was growing by 9%. Next to the volume growth, we as well improved the mix and we further keep on improving the mix, selling less CAPRO and PA6 and more and more compounds, which does as well help and support EBITDA and margin. Next to the operational HPM performance, we as well reported some very nice development of the Urethane Systems business, which we acquired from Chemtura as well. All in all, we saw a very nice operational and absolute performance for New Lanxess in the first quarter, and Matthias is now giving you a heads up what we expect for the remainder of the year.
Thanks, Michael. I turn my attention to page number nine. Overall, we see the growth in all regions intact. As far as the agro market is concerned, please take note that the second half of 2017 was very tough. We expect that second half of 2018 will be slightly better than second half of the previous year, whilst the agro market in total most likely will only turn more positive in 2019. All of us are, I think, watching Twitter, television, and journals every day to see what is the latest status on trade tariffs and so on. Of course, this always has an impact to change global growth expectations going forward. That's basically what we would like to flag on the macroeconomic scenery. As far as Lanxess is concerned, we assume that raw material price trends will continue upwards. We do see ongoing FX headwinds.
However, implications in the second half will not be as severe as in the first half. Notably, Q1 was the toughest for the European chemicals and for us as the reference rates Q1 2017 was around 106, 107 cross rates. This is, of course, therefore the biggest gap, compared to the other quarters, assuming current cross rates is maintained. After Q1 this year with a very tough volume-based Q1 last year, we do assume that for the remainder, volume momentum will improve. As far as full year guidance is concerned, please take note with Q1, we always give quantitative guidance, never before. Like last year when we gave a hard guidance and kept it for the entire year but narrowed the bandwidth, we would like to follow the same practice this year. This is our hard guidance.
We want to improve our EBITDA despite strong headwinds on the US dollar by 5-10 percentage points, we feel good about it. With this, ladies and gentlemen, I would like to turn the conference call to a Q&A session. Please go ahead.
Thank you. 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 are using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. First question comes from the line of Patrick Rafferty with UBS. Please go ahead.
Hi. Good afternoon, everyone. Three questions, please. First, in Specialty Additives, can you talk a bit more specifically about brominated products, how you're seeing that business coming out of the Chinese New Year now? You also mentioned ongoing raw materials inflation. You think that that can continue, or would you expect that to level off as the comparison base gets tougher a year as well in the coming quarters? The last question on New Lanxess EBITDA, the indication you gave 40% increase. You said New Lanxess was strong even without the consolidation impact. Can you be more specific here how big the consolidation impact was and how the underlying business performed with the currencies adjusted for? Thanks.
Patrick. Thank you for your questions. I will take them line by line. As far as Specialty Additives is concerned, of course you have the seasonality on bromine. Q1 is stronger on bromine pricing, and Q4, whilst Q2, Q3, you normally have the dip as China is coming into the markets. Overall, however, we see that the bromine pricing, which is only a small chunk of our business. Please recall that the significant amount of bromine is captive, and we are making our margins on the derivatives and not on bromine per se. You've asked for bromine, here prices are indicated the seasonality over the year.
Point one, point two, pricing compared to previous year is positive and what we indicated in course of the Q4 roadshow and also in our conference calls last year, that the bromine market to say, has gradually improved as there are less competitors, which is a positive surprise to us compared to when we bought Chemtura. As far as pricing is concerned, if you look into Specialty Additives, please take note of the fact that the price-volume variances are still artificial because in the Q1 numbers last year, it's basically the former Rhein Chemie business by and large, whilst the portfolio of Chemtura is shown under portfolio. That will change from Q2 onwards when we will more factor into the numbers the operational developments on a comparable basis versus previous year. What we have had to do, in Q1 was to adjust prices on the entire portfolio.
Of course, what we are in the process of doing is also to go out with focused price increases in the second quarter, some were announced already. For that there was some pre-buying also in the Performance Chemicals/Specialty Additives division. We needed to go out with price increases in order to mitigate the rising raw material costs. All of that I think is doing normal operational business. We have a differentiated portfolio in New Lanxess, and with a differentiated portfolio, you have to roll over price increases in the raw material account. That is something which is operational excellence. As far as your last question is concerned on New Lanxess developments, I think we've communicated through investor relations with Q4 numbers, the unaudited performance numbers for New Lanxess Q1, where we indicated that EBITDA was at EUR 240 million.
With this, you can see we came out at EUR 270 versus EUR 240, despite headwinds from US dollar. You can see the underlying operational improvement, which was also rock solid. I think with this, all questions have been answered.
Indeed. Thank you very much.
You're most welcome. Next question, please.
Next question is from the line of Andreas Heine with MainFirst. Please go ahead.
Yes, two questions, if I may. The first is Advanced Intermediates. Sometimes the raw material and price fluctuations give some variations from one to the other quarter if it comes to earnings. It was a very strong quarter in the first quarter. The full-year guidance you've given in the annual report was on flat earnings. Could you describe a little bit how you see this specific segment after the strong quarter going forward? And maybe only in a housekeeping question if it comes to the others line. You said that New Lanxess was EUR 105 million, that brings me to others line for New Lanxess being at minus EUR 38 million. Is that a good guideline for the upcoming quarters and for our estimates, about EUR 40 million a quarter?
Michael will take the second questions, even though the EUR 105 million were ARLANXEO , including recon. Michael will take it. I will address AII. In Q4 or with Q4 numbers, if you look at the transcripts of fourth quarter conference call, I think there was one question on AII, why margin was low. I indicated no worries, this is the quarterly lag effect and AII will again make up for that in Q1. Here we are. It's the same that happened over the last few years that I see that some people are following it, others don't follow it. In Q1, we catched up for already raw materials moving up in Q4, and here we are back with strong margin, back with strong contribution. This is simply the Advanced Intermediates business model. The business itself is rock solid.
Point one of your first question, point two of your first question, it's a strong business and we think that despite tailwind from No, it's the headwind, I think. Headwind, right? Oliver tells me it's headwind. Despite headwind of currencies, AII will do strong this year. We also see that we more and more get our hands on the organometallics business. Therefore, that is part the performance of AII in Q1 gives us full trust that this business will develop further in the years to come. You see in the appendix of our conference call today that we have put on track a few nice projects, CapEx projects, and with the long-lasting understanding you have on our company, Andreas, you would see that the investments that we have done are pretty focused, strong investments, which takes some time to be executed.
Once they come, they will be goodies. Therefore, we feel good for AII for 2018, but also for the years to come. Michael.
Hi, Andreas. With regards to the expectation on our reconciliation segment, we remain and stick to the guidance which we gave previously, which is around ZAR 150 million. Given the number which you saw on the quarter, I think that number still is true. We do have some fluctuation in that number on a quarterly basis, why we stick to the roughly ZAR 150 on an annual basis.
Thanks. Next question, please.
The next question is from the line of Georgina Clemens with Bank of America. Please go ahead.
Hi. Thanks for taking my questions. Firstly, on the guidance, I'm trying to understand. At full year results, you guided to slightly better earnings, which you said at the time was 1%-5%. Can you give us a bit more color on what has changed since then? Why you now see potential for 10% growth? Secondly, on the Engineering Materials business, how much further capacity is there to continue to improve the mix in that business through producing compounds? Thanks.
Let me take questions one by one. On the guidance, I would like, again, to be very clear, I stressed that in Q4 conference call. When we do give a guidance with full year numbers, we only guide in a qualitative way. I was forced in last March's conference call to describe if it's the BASF guidance slightly. I said, "We are not BASF, we are Lanxess, and our words are qualitative in nature." Then it was forced on me to instantly give a quantitative indication. I said, "Slightly for me is rather 1%-5%." Again, this is not a quantitative guidance. That's all I would like to say on the guidance we've provided in Q4. It was a qualitative guidance. It remains a qualitative guidance. What has been made out of it is up to the market. That's your call.
The tonality of Q4 conference call was a strong one for 2018. I acted like that on road shows. We were very transparent that 2018 should be another step in the transformation of our company, we will execute this quarter-on-quarter. Despite challenges that all of us face on currencies, global geopolitical issues, we execute our transformation process. With Q1, we now give quantitative guidance, I would like to stress again, when we gave our quantitative guidance last year, we stuck to it throughout the year. Of course, we narrowed the bandwidth. This is how you should interpret our guidance Q1 2018 as well. On the Engineering Materials, we step further into the balancing of our value chain. We are not there yet. I've indicated two years ago that the goal is to have a more balanced value chain by 2020.
At the same point in time, I would clearly like to allude to the fact there are some structural changes currently happening in the polyamide markets that will still unfold going forward, which I consider to be positive for our business because the market is regrouping. Consultations have happened, therefore structurally, the market seems to be in a more benign setup. This is the positive. The concern I would still like to put on the table, you've seen a very strong development in our value chain. Everything is going right. Therefore, I simply would like to keep expectations in the right corridor. Emerging Engineering Materials is doing well. We see that our compounds, our technology compounds are strong hitters. We get more and more momentum from lightweights in automotive sector.
We've shown that in last year's Capital Markets Day event when a customer presented how strong he sees our end compounds. They're differentiated. We feel positive about our High Performance Materials segment business units. At the same point in time, please keep expectations in a reasonable corridor.
Okay. Thank you very much.
Most welcome. Next question, please.
The next question comes from the line of Thomas Wrigglesworth with Citi. Please go ahead.
Good afternoon, gentlemen. Thank you very much for taking my two questions. Obviously, I'm just intrigued to explore that a little further in terms of the price, volume, and synergy mix. Obviously, of the EUR 70 million-EUR 80 million that you've indicated that you might deliver in 2017, you've indicated you've done about half of that in this quarter. Of that bit outstanding, could you just divulge a little bit further on, is it price volume and synergies, noting that there could be more synergies to come? Second question, if I may. Just on the obviously Chemtura sitting in the portfolio effect. Again, if you could help us better understand, did the price and volume elements look the same for the Chemtura business?
Was there more price or volume effect or one or the other in that business relative to New Lanxess? Thank you.
Tom, thanks a lot for your questions. Let me take the guidance first. We guided for the Chemtura integration all in all, EUR 100 million. We reported six weeks ago that 30 of them had been in the bank already 2017. EUR 70 million are remaining, out of which we target for this year, EUR 30 million. That's what we would like to deliver on in 2018. As far as pricing is. On cost savings at the same point in time, I would like to make it clear, we are also on the personal cost side in an inflationary environment. If you followed the news, unfortunately, the German Union is pushing hard, stronger than in previous years on making wage inflationary adjustments. They went out a few weeks ago asking six percentage points.
This tariff discussion is most likely being sorted out in summer. It will kick in in the second half of the year. We always indicate this in transparency to all of you. It will be a bigger increase than in previous years. The guidance we are making, is not factoring in everything, but we think that we can make our numbers, even though, of course, not with the 6%, but with a reasonable increase that most likely will be asked for. As far as pricing is concerned, pricing is there to mitigate raw material costs. We see inflationary environments, we need to go out with price increases. Volumes should be a positive. Therefore this will contribute to our EBITDA improvement. On Chemtura, we are not guiding for selective Chemtura businesses.
I can only tell you that Urethane Systems did operationally well. Whilst volumes grew, of course, Urethane Systems has USD headwinds. Here the biggest products are, of course, being produced in Estonia. Here, the business faced USD headwinds. Also MDI and TDI supply is still tight, and will remain like this most likely, for the first, second, and potentially even third quarter. brominated flame retardants business, we like. organometallics, I made my indication that this was a stranded business, but we think we can improve it, and we've also shown that in Q1 numbers. Last but not least, the LAB business or the Lubricant Additives Business. I indicated this is part of our Specialty Additives. Specialty Additives did well. Also LAB contributed to this development. With this, I think I've given qualitative guidance that confirms also what we said at the March conference call.
Integration is going well. More to come because we are not there where we want to be. We are on a strong footing to deliver what we've promised. Next question, please.
Thank you very much.
You're most welcome. Looking forward to seeing you and welcome to the chemicals research teams. Fantastic sector.
The next question comes from the line of Martin Roediger with Kepler Cheuvreux. Please go ahead.
Yes. Good afternoon. I have three questions. Sorry to come back to the guidance. You mentioned 5%-10% EBITDA growth. With Q1 in the books and assuming EBITDA of the core activities in Q2, Q3, and Q4 being flat year-over-year, your EBITDA would land at EUR 1 billion or slightly more than that, which is 8% year-over-year growth. Do you want to convey that your EBITDA will be really flat year-over-year on average in the rest of the year because of the high comparison base in, for example, Engineering Materials in Q2, as well as in Performance Chemicals in Q2 and Q3, plus you're concerned about wage inflation?
How does that fit to your bullish tone about accelerating volumes in the course of the year, your bullish tone on AII, further mix improvement in compounds, further synergies to come, cost savings to come, the gradual improvement in Agro, and the softening effect from the U.S. dollar? The second question is on so-called pricing power. When I look in your chart on page 11, there we see that there is a positive delta between selling prices and raw material costs. When I use a ruler, I can calculate a roughly EUR 30 million effect on earnings. Is that the long-awaited catch-up effect on those Chemtura activities where you have been squeezed last year? Is there any mix effect also including in the price element? The final question is on tax rate. Officially, it was 33% in Q1.
However, according to my calculations, the tax rate excluding ARLANXEO was at 27% in Q1. Can you explain to me why it was that low in Q1, and why do you expect the tax rate for your core business to increase sequentially in the next couple of quarters? You guide for the full-year tax rate to be in the low 30s. Thank you.
Well, Martin, all valid but very technical questions that nobody can answer as best as our CFO, Michael.
Martin, with regards to the guidance, if you do your math, you're basically with the midpoint of our guidance. The midpoint of our guidance is around EUR 1 billion. It's EUR 995 million. As you know, the midpoint of the guidance used to be the best point you should assume. If you take the increase in our EBITDA in the first quarter and you add it back to the remainder of the nine months of 2017, you basically come to that point. Even though we might see a positive relative trend in FX, we still will record a tremendous decline coming from the currency. We told you that for New Lanxess, a deviation of EUR 0.01 equals to €7 million of EBITDA. We recorded now a good portion because relative Q1 is expected to be, or was in 2017, the quarter with the strongest US dollar.
Nevertheless, there is still a change in the currency, which will weigh on our results to a large extent. Obviously, this extent is in a position to offset positive elements like volume growth or synergies. You were referring to inflationary tendencies. Yes, that is the case. If you take a look at our overall cost bill, if you take a look on the personnel cost, if you see the discussion Matthias was mentioning we have with the unions here in Germany, there are inflationary tendency which we have to swallow and which we have to fight as well through not only price increases, but as well improvement on our productivity. The same is true for the pricing power. The pricing power is always a function of the input cost changes.
Overall for the group, it was relatively stable, but if you distinguish, you will recognize that we improved prices on New Lanxess in an environment of increasing raw material prices. The opposite was true for ARLANXEO. In ARLANXEO, we were facing tremendous raw material price declines, which were then carried over to our customers. Why? In ARLANXEO, we recorded a huge decline on prices and therefore on top line. With regards to the tax rate, at this point in time, I must say I cannot truly follow up on your calculation. My calculation is that the tax rate is rather at 31%-32%, but we can take it up at a later stage to discuss your calculation, because what we said earlier, the overall tax rate for New Lanxess is rather expected at the lower end of the corridor, and the corridor is 30%-35%.
Thank you.
Next question, please.
Next question comes from the line of Tuhin Udeshi with J.P. Morgan. Please go ahead.
Yeah, hi. Thanks for taking my question. One question, just generic question. If you've seen from when you gave or reported full year results to now, any changes to demand that you might have seen in any of your end markets? More generic question. Second was just a clarification on new guidance. Have you assumed a specific FX in the new guidance for full year 2018?
Well, the guidance that we are providing is basically with, last time we stated FX cross rates around 1.20. On this basis, we are guiding with 1.20 as well, where dollar-euro stands these days. Therefore, that is something you should factor in for your models, please, as well. Any other points, Tuhin Udeshi?
No, that's clear. Anything on end markets? Any other end markets?
Well, end markets. We think that automotive is in the U.S. at this point in time, okay. Asia growing. Europe stable to growth. LATAM more pronounced positive. Agro market, I think I made my comments. Generally, we look at regions all in all positive, with Europe being mild but positive. Asia being strongest growing region from the big two regions, North America and Asia. In Asia, definitely India being visible, China being visible. North America, we do assume that volume momentum throughout the quarters is going to gradually improve. Having, however, a little delayed positive impact for chemicals because we, first of all, have to see our end industries moving upwards, but we see reasons for upwards trends. This could spill over then more visibly in the final quarters of the year, with then more impetus also for 2019.
As Latin America is concerned, definitely a more volatile region. We see good momentum improvements still versus a low base in Brazil. At the end of the day, Latin America is Brazil. Hopefully not in football, however. Here I'm betting on a different team. With this, I think your question has been answered. Also, a strong welcome from my side to you. It's a fantastic industry, and I'm sure you will find that out as well.
Thank you.
The next question comes from the line of Thomas Swoboda with Societe Generale. Please go ahead.
Yes. Good afternoon, gentlemen. Only one question left, and it's a follow-up on Engineering Materials. Thank you very much for your comments on the changing market dynamics. I'm still wondering, given the very strong results in Q1, whether there is eventually a non-recurring tailwind or a temporary tailwind is probably a better wording. I read a lot about bias of polyamide 6/6 considering switching to polyamide 6. That could have been benefiting you or could be benefiting you currently. You're still selling some merchant caprolactam. Could you comment, is what we saw in Q1 the new run rate, or is it eventually a little bit overstated? Thank you.
Well, Thomas, very solid question, and as a matter of fact, explaining the entire value chain. I would love to allude to our previous presentations we have given over the last few years. Understanding the polyamide value chain and the polyamide market is not that easy. However, the overall fundamental strategic change we have decided upon a few years ago is to make it a very powerful value chain, where at the end of the day, you only see the profitability of the engineering technology compounds. Which eventually foster lightweights in the automotive industry, foster smarter devices in the electric industry, and so on and so on. That being said, you would still have, in this business, volatility in earnings. Because sometimes you have to absorb in your entire value chain raw material price increases that can occur, and then you digest them.
It takes a few quarters. Then you are back to your desired profitability. Here, what I'm trying to allude right now, the entire value chain in 2018 first quarter is running strong. Therefore margins are strong. On a trajectory of this business, you see, however, that we did many things over the last few years. We took out visibly costs. We more balanced our value chain. We are not finished yet. We will proceed. Of course, we introduced new technology grades. Examples we have given over the last 12 months, which are all positive. At the same point in time, things need to be put into perspective and not get overexcited with Q1 margin. Now, specifically to your question, 6/6 versus 6. I would like to make two comments. First, the industry end players have consolidated. Especially in Europe, two consolidation moves have happened.
I think this structurally is positive for the polyamide producers. Point one. Point two, if you look at the value chain 6/6 versus 6, we see that the value chain 6 in the midterm might be more competitive due to the raw materials, whilst 6/6 might have a tighter raw material markets. That might lead to many customers switching from six-six to six. That is something that we, of course, can more explain through investor relations. I alluded to this already two years ago on a conference call. Of course, this gets very chemical. We are prepared to answer questions here.
No, this is already very helpful. Thank you.
We always try to do our best. Next question, please.
Next question comes from the line of Martin Evans with HSBC. Please go ahead.
Yeah. Thanks very much. Good afternoon, gentlemen. Just one brief question on the portfolio. Matthias, you referred to the value chain and the fact you're not finished yet, and I obviously appreciate you're extremely focused and busy with the existing structure, of integration and so on, of Chemtura amongst others. In your chemistry set or in an ideal chemistry set, apart from the broad term specialty chemicals, which particular maybe new areas of manufacture might you be interested in at some point to acquire if opportunities came up through the cycle? Thanks.
Hey, Martin. Welcome back.
Thank you.
On the question you're addressing, I can only tell to you, I'm a strong believer that in the chemical industry, you were always well-advised to basically think about product life cycles all the time, technology cycles all the time, and you have to be faster in analyzing this and executing on this. Of course, upgrading. If you buy something at a reasonable price where you can lift synergies, where you can consolidate structures and get a better footprint in the markets for a good price, reasonable price, then you create value. If you cannot extract value out of a business, and you think that somebody is the better home, you should also consider this. If you adopt this philosophy, I think long-term it generates value to customers, value to employees, but also clear value to shareholders.
It's simply something where you should always think out of the box and not stick to something that worked well in history because it might not work well in the future. You have to be agile, and we call that Energizing Chemistry.
There are no further questions at this time. I would like to pass back to Mr. Zachert for closing comments.
Well, ladies and gentlemen, thank you very much for your interest, participation. We started the year, please follow us as we go ahead and looking forward to seeing you on the roads this quarter, next quarter, or in the quarters to come. Thanks to all of you. Bye-bye.
Ladies and gentlemen, this concludes the Lanxess conference call. Thank you for joining, and have a pleasant day. Goodbye.