Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Lanxess conference call. I would now like to turn the conference over to André Simon, Head of Investor Relations. Please go ahead.
Yeah. Thank you very much, Lucas. A warm welcome to everybody from Cologne from my end, and many thanks for joining our Q3 Conference Call. As always, I have our CEO, Matthias Zachert, and our CFO, Michael Pontzen. Please take notice of our safe harbor statements. With that, I'm happy to hand over to Matthias for a brief presentation, and afterwards the Q&A. Matthias, please go ahead.
A warm welcome from my side for third quarter 2022. Dear ladies and gentlemen, I will start the presentation directly on page number four, where we are going to shed light on key strategic and financial highlights. As far as third quarter is concerned, this is the first quarter in which we see the contribution coming from IFF Microbial Control business. We will discuss it in further detail tomorrow in our Capital Markets Day event. All in all, you see from the third quarter financial performance of Consumer Protection that IFF, next to Emerald Kalama Chemical, contributed very nicely to the overall performance of this segment. Integration goes well and therefore, the business is up and running and more to come.
As far as the next transaction is concerned, that has not yet closed, but we are preparing for that. With this, I'm alluding to the High-Performance Engineering Polymers joint venture that we would like to set up with Advent. This is fully on track. After we have announced the CEO, the designated CEO for this business, in the following weeks, we have then decided on the organizational structure, the business model of the joint venture, and eventually have decided also on the next line of management. This is a good combination between DSM pros and Lanxess pros.
By now, I would say we have the management team fully identified, and they are of course meeting already as we speak so that they get their act together to take the fundamental decisions that will most likely then drive the business from hopefully Q1 onwards. When precisely we will see, but at this point in time, it's more and more tends to be the first quarter than the second. Therefore, this is also based on a good feedback we are getting from the antitrust authorities. By now, we have clearance in the United States. We were very happy to have received clearance from China as well, which normally takes always a bit longer. The Brazilian authorities have approved as well, and now there are just one, two jurisdictions where we are now finalizing all the questions.
Once this is being done, the filings will happen. If this goes according to the normal schedule that is foreseen by these jurisdictions, we should then hopefully have a closing in first quarter next year. Now, on the financial side, you can see that the third quarter, even though it was clearly more bumpy than the first two quarters, we achieved 38% price pass-through. With that, we were again in the position to pass on all inflated input costs. The third quarter, ladies and gentlemen, was most likely the most toxic one, alluding to a raw material, but especially energy price inflation, which will still be a lagging, a negative driver for the fourth quarter and then hopefully, starting to ease a little bit as we advance into 2023.
As far as EBITDA, previous concerns with EUR 240, we are above previous year. I would say in this regard, we differentiate a little bit to other chemical companies, fortunately. Therefore, I think with a more bumpier third quarter, the financial profitability at least could again be above previous year trading. I think the exceptional financial gain has been noted and has been explained by my team, so I will not dwell deeper into this operating cash flow in third quarter. Definitely is not a highlight but a low light. There are reasons that Michael will address later on in the Q&A. I would like to stress with this, we most likely have seen clearly the peak.
We had in the third quarter, as we alluded to in the first half of the year, the change of our ERP system here in Germany. That caused turbulence, unfortunately, and led to a modest outflow in inventories, because simply the system was not up and running. I think this you see in many other companies, unfortunately as well. When ERP systems are changed, we've now got it under control. Therefore, as far as fourth quarter is concerned, be prepared so that we are running the fourth quarter now for cash, cash. We will clean the barn very clearly also on the inventories. I've discussed it with the business in order to get a tidy balance sheets at the end of the year again. With this, I turn my attention to page five, and here to group numbers.
All in all, a key theme I've addressed. Prices have been passed on 38%, sales increase. In a quarter I've rarely seen in my professional career, but hey, this is the inflationary environment. We are dealing with this by now. In many cases, we are now even up for monthly pricing adjustments, something that the industry a few years ago has never imagined. Now, I mean, it's a somewhat best practice, EBITDA as indicated. Margin through inflationary cost and pass-through on the top line. Of course, there's a arithmetic margin contraction, but also this is something we would like to see going northwards again in 2023 as raw materials come back into more normal territory, levels. A volume, another 6% volume decline, similar to the second quarter.
My personal assumption is that this will increase in Q4 for sure. We are getting prepared ourselves for tougher trading environments in 2023, most likely, Q1 and Q2, and then hopefully starting to rebound. Let's first of all get prepared for a tough market environment or tougher market environments. I think our portfolio all in all will be reasonably robust. Nevertheless, we look at that, of course, with care and being prepared. On the sustainability side, I'm very happy that we can flag to you that we are getting top best ratings from the respective authorities. MSCI, that is well known with all of you, has communicated recently and confirmed the double A rating and clearly stated in their comments and remarks that we are advancing extremely well on carbon emissions reduction.
Our intensity is significantly lower than industry average. It has also been nicely noted that next to emissions, our waste ratios and indicators are improving. It has been stressed that our water improvement projects in the areas where water is scarce is advancing nicely, and we have provided full transparency. Last but not least, the corporate governance that we have here in our company in the respective structures is recognized as being in a highest category with highest scores. Bottom line, MSCI ranks us in the diversified chemical space worldwide under the top three companies. ESG is dear to our hearts, and therefore, we will continue advancing on this with all focus, commitment, and conviction.
On the next slide, I would like to provide you a little bit more color on our configuration in the management boards. I'm very happy to communicate to you that Frederique van Baarle will become member of the Management Board of the Lanxess Group in 2023. Once the closure of the joint venture with Advent will be achieved on the next day, which she will enter into the Management Board. Until then, she will lead the HPM business for which she is in charge. It's one of our biggest business units. Once the closure has occurred, she will enter into the management boards, take over immediately the responsibility as Labor Director. From first October 2023 onwards, she will also in addition relocate to Pittsburgh.
Of course, to support the Steelers, but not notably, of course, our American business customers and teams. Here from Pittsburgh, she will be responsible for Americas region and be a direct representative in the Management Board for the region. Because Americas, over the last several years, turned to become next to Europe, our strongest market, strongest pillar with the broadest coverage in the markets, customer proximity, production site as a base, you name it. As such, we would like to have a face for the Americas region directly involved, responsible in the Management Boards. The transfer of responsibilities is therefore well prepared, and I think this will be a strong addition of capabilities in our Management Boards going forward. The background of Frederique van Baarle, I mean, we really developed her over the last four or five years.
When I joined, I very quickly offered her the EMEA position for High Performance Materials. Afterwards, after successful management of the biggest region in HPM, she was offered the senior VP position for global procurement and did that extremely well. After successful work in procurement departments, we then nominated her for the senior VP position in High Performance Materials, which she did for the last 2.5 years. Therefore she is well prepared. She has been really developed in our company and will do extremely well once she will enter into the Board of Management. Ladies and gentlemen, with this, I move on to page 8, full year guidance, current economic environment. I mean, we are still dealing with volatile, uncertain energy, raw material prices.
Every day there is something different on the telly and on the newswire that we have to cope with, which we are doing because I think we have learned to address volatile markets and have shown that in the past few quarters, if not to say in the last two-three years. General inflation pressure will weigh on demand. We will address that through our pricing going forward. Of course, we also expect that some of the end industries that all have seen increase in inventories will address working capital and rather clean up balance sheets at year-end. This will be addressed by us as well. Very clearly, we revise the guidance between EUR 900-EUR 950. If it comes to management decisions, we definitely will run Q4 for cash.
The primary indicator and direction for us will be improving cash flow. If this will be done in line with the corridor, but on the burden of EBITDA, then we will rather optimize cash than going for the last EUR billion in EBITDA. This, I think, gives you also a good strong frame. With this, ladies and gentlemen, let's open up the door for all of your questions that you are having.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press zero followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press zero followed by two. If you're using speaker equipment today, please lift the handset before making your selections. The first question is coming from Charlie Webb at Morgan Stanley.
Afternoon, everyone. Thank you very much for the time and taking some questions. Maybe two from me to kick things off. First on the discontinued business, just wondering if you could help us understand how HPM kind of performed through Q3, in terms of profitability. I understand it's not the continuing business anymore, but just any sense on that, and the trends you're seeing there would be helpful. Just secondly on, Matthias, the last point you raised around working capital and obviously prioritizing that into the fourth quarter. Maybe just help us understand, how easy will that be, given, you know, your customers are likely also gonna be destocking. Now, how easy is that to do?
You know, do you plan to turn off any plants into the fourth quarter, to kind of bring down those inventories a bit quicker? Just trying to understand, you know, how easy will that be to do? Will some of that potentially linger into Q1? When you think about that, you know, destocking event, you know, is this in concern that we might see some deflation and therefore there's some write-down effects mechanically possible, through second half of last quarter and maybe first part of next year? Just trying to understand, you know, the urgency. I mean, it makes sense, but just trying to gauge, you know, some of the moving parts around that. Thank you.
Charlie, you are most welcome. Let's tackle them one by one. First question on HPM discontinued business. I mean, this is a strong business, as I've always explained, but it's a business that is more volatile than others, also due to the precursors on caprolactam, polyamides, which eventually then ends up in the compound business, which is definitely more stable. That the upstream part is more volatile, and I think is known to all of you and has been reported by our companies in the years. Here, of course, in the upstream part, you also, due to the higher volatility, you also have higher volatility on raws that can go up, within one quarter, substantially up, but also substantially down.
We've seen that in Q3, the benzene value chain suddenly drastically went downwards after it inflated in the first and notably in the second quarter. Here the business was, I mean, was hard hit on inventory revaluations, and that led to a very modest EBITDA contribution. The remaining portfolio of our company has not seen that, and that's what we have always commented on. HPM is a great business, but when economic sentiment suddenly turns, and we have seen after the mass murder turned off gas, the prices suddenly went through the roof abruptly. That, of course, left its mark also on the HPM business. Here you see the reflections in Q3 if you look into business discontinuations. Now on destocking, your point is very valid.
We see that customers destock. We will do that as well. We don't shy away from taking plants off stream. We clearly have now scheduled, and this is operational work. We have prepared now for plant maintenance shutdowns in November and December, so we will go off stream earlier than we normally did. That's the reason why we also had to be a little bit more precise on the guidance, EBITDA guidance. We clearly factored in now more idle costs for plant closures that might start from mid-November to end of December. With this, we definitely will eat up our inventories. That's therefore something that we have analyzed, looked at and decided, and this has been reflected in our communication this morning.
Now, as far as first quarter spillover is concerned, write-downs, I think I made my comments on the new lengths and our existing parameter. That raw material volatility is not really that much of an issue. Inventory write-ups, write-downs have always been pronounced in polymers, in rubber or polyamides, and less in the chemical space. I cannot exclude a little write-off here or there, but this is in the future no longer a big topic for us and should not be a big blip on the radar, if at all, a very small blip. I hope that clarifies also your third question, Charlie.
Brilliant. Thank you very much.
All good? You're welcome. Next question.
The next question is coming from Matthew Yates at Bank of America.
Hey, good afternoon, everyone. Charlie preempted one of my questions, but I just want to say thank you for including the slide 20, that gives a bit more detail on the working capital evolution. I think that's helpful. Maybe my question, Matthias, the Consumer Protection Division has reported negative volumes in each of the three quarters this year, and the third quarter in particular was on a much easier comp from a year ago. Can we put all of that down to the unfortunate operational and logistical issues you've had? Or is there a degree of end market weakness that we need to think about, especially how the coming quarters may develop? Thank you.
Matthew, well, thank you for your comments on page 20. This is all, Michael's contribution, here very clearly. Of course, we always like to provide transparency. You see that a lot of cash resides in the working capital, which will unlock itself at some point in time. Now to your specific question on CP. I hope you rejoice about the strong growth on sales, but also on bottom line, which is noteworthy for the Consumer Protection segments. Now, on the volume side in CP, I would only like to allude to the major turnaround, planned turnaround that we have in the biggest sites in F&F. That was here in Europe. That's a turnaround that happens every three years, round about four years.
This took volumes off getting the plant up and running took us longer than originally anticipated. We had to basically unfortunately operate around about two-four weeks at lower utilization. That was taking off some volumes that we definitely could have sold in the markets, and therefore, the volume performance was not that great. The plant is back up and running, and I think in Q3, Q4, F&F will do reasonably well again on the volume side. That was definitely something that was on my radar and was not fortunate, but this happens.
Thanks very much.
With this, I think your questions are answered. All good?
Absolutely. Thank you, Matthias.
Next question, please.
The next question is coming from Martin Rödiger at Kepler Cheuvreux. The line is now open.
Yes. Thanks for taking my question. The first question is actually on specialty additives. Maybe you can help me to understand why volumes and lubricants were up. And also related to specialty additives. I would like to figure out the moving parts for Q4. The comparison base for Q4 is very low because last year you had the logistic issues and constraints, and you still benefit in Q4 for this year from favorable FX effects, and you may see some synergies from a part of Emerald Kalama, which is also consolidated here. Even if I assume a further volume decline in Q4 similar to Q3, is there any reason why earnings and specialty additives might go down in Q4? Thank you.
Well, Mr. Rödiger, we are not guiding on a segmental level, so I will not start doing this today. I think additives did pretty well throughout the entire year. The fourth quarter is always weaker, so don't assume that Q3 numbers will be the same in Q4. That is completely unrealistic. That would be a huge increase in profitability versus previous years. What I clearly would like to say, the business is doing well. Q4, what we are seeing is that definitely the Rhein Chemie business will be modest. They had a very tough time so far that was overcompensated by extraordinary profits in polymer additives and very good performance in lubricant additives.
These two businesses will do well, but of course, as far as Polymer Additives is concerned, construction is currently no longer as bold and strong as it used to be in the first half. Here, construction industry, which is a big end industry for Polymer Additives, is very soft in China and Asia. It's modest in Europe and somewhat no longer that bullish in the United States, but United States is still okay, especially as far as public investments are concerned. Commercial is also a little softening. Here you should simply be on that side not blue-eyed. Take our feedback into consideration. On Lub Adds, aviation has come back so far. On Lub Adds, also here we will run Q4 for cash. In both businesses, we will reduce inventories.
For that very reason, please take that into consideration. Now, the comparable base I stressed, and therefore, if we look at Specialty Additives all in all, it will finish the year with clearly showing a strong performance through the entire year. It has been one of the growth machines in 2022 and definitely benefiting from the very, very strong U.S. footprints that both business units, Lub Adds and Polymer Additives are having. All good?
Thanks a lot.
You are most welcome.
The next questions come from Chetan Udeshi at JP Morgan.
Hi, thanks. A few questions. First, simple one. Hopefully, you can help us with the EBITDA contribution from IFF Microbial Control business in Q3. I think, Matthias, you had previously talked about, I think EUR 60-ish million run rate for that business. Should we assume 60/ 4, so EUR 50 million in Q3 in terms of contribution, give or take? The second question was, you know, you guys don't hedge the energy costs and, you know, we've seen a significant decline in energy prices in Europe in Q4 versus Q3, especially on a day-ahead levels. So I was just curious, how is that impacting, say, Lanxess' profitability in Q4, if at all?
Last question was just to drill down a little bit on inventory, which seems to have gone up by EUR 300 million in Q3 versus Q2. Can you maybe split that between how much of that was just the cost-driven because of high energy price, and how much of that was maybe, you know, volume-driven, where probably because of the SAP and ERP, you know, transition, you ended up with probably higher inventory than you would have liked from a volume perspective. Thank you.
Thank you, Chetan. With delight, I pass on the ball to Michael.
Thank you. Welcome from my side as well. With regards, maybe I start with your third question first to the development of the inventories. You're absolutely right, Chetan. If you take a look at the balance sheet, there is an increase of give or take EUR 350 million. The majority, though, comes from the first time recording of the IFF inventory level, and that holds true for probably around a little bit less than half of the effect. The second element is then currency. The much stronger US dollar did have an impact on the working capital and in the inventory of give or take EUR 40 million in the third quarter. The remainder, some EUR 160 million, is then the operational change.
The operational change is driven, like in the quarters before, by pricing. The overall rule of the thumb, which you as well find on page 20 in the slide deck, is 70% is related to the price effect and 30% to the volume effect. The major driver of the price effect in the third quarter was then the energy cost. If you take a look, the energy cost basically here in Germany, more or less doubled in the third quarter compared to the second quarter, and that was then the major driver for the increase of the inventories. Still, you have to keep in mind we record on our inventories on an average rate in our accounts. It's not that we take, the rate as it is, the most recent one, but the average rate.
Clearly, if there will be in the fourth quarter, and that is what we see as of today, and the volatility of the prices of gas in Germany is rather high. As of today, we are on clearly lower level, and that should as well be then reflected in the fourth quarter. With regards then to the contribution of Microbial Control, as you rightly said in earlier occasion, we said, given the most recent development we saw prior to the closing of the transaction, you should expect that there will be a contribution of some EUR 60 million on an annual basis, which would then account for the number you were just mentioning, 15, on a quarterly basis. The business developed better than we anticipated and expected.
Therefore, you should have a little higher number in your model than the EUR 50 million, but please allow that we're not now guiding on single effects. The business, the Microbial Control business run or did run rather good in the third quarter, and it was above our expectation. That's it from my side.
Next question, please.
The next question has come from Andrés Castanos-Mollor at Berenberg.
Hello.
Hi.
My question is on CapEx. I hear you're running low on cash in Q4, and I know that perhaps you're running behind schedule in deploying the CapEx. I wonder if we should expect a low number in Q4 for CapEx. That is my first question. My second question is about the good, strong EBITDA margin in Consumer Protection. Is this coming from IFF? Is this coming from Saltigo or other parts of the business we have not talked about yet?
Well, Andrés, thank you for your two questions. As far as CapEx is concerned, definitely we are running the company for cash in Q4. This is notably addressing working capital. I've indicated that in some cases we advance plant maintenance and go for then a lower utilization production Q4. It might well be that this is something where we will also then look at CapEx, but then rather keeping the guidance we have for the full year, which you have in the appendix of our presentation. Because when you have plants that are not running, you can do whatever you always wanted to do. The CapEx envelope hasn't changed. The running for cash is explicitly focusing on working capital.
Now, on the Consumer Protection segment, of course, we add a business, IFF, going into the perimeter, which, as Michael indicated, contributed according to or slightly above expectation. We are here now addressing pricing initiatives wherever possible, but that will be an element that will continue now in Q4 and next year. This division, Consumer Protection, is a division that should more and more turn into higher margins once synergies are implemented. I will not now allude to one or the other business units. It's a segment, as we will describe tomorrow, that will turn into a more and stronger segment going forward and will most likely be, already next year, if not to say then the year following, the strongest EBITDA contribution segment in our entire portfolio.
I think this lays out the ground for our Capital Markets Day tomorrow. With this, I should have addressed all your question, Andrés. All good?
Thank you.
You're most welcome.
Next question. The next question is coming from Andreas Heine at Stifel.
Thanks for having the chance. I have a couple, but I keep it very short. The first one is on Germany. Can you confirm that your German sites are still making profit on net earnings level in the second half? The first one. The second, in your guidance for basically Q4, which is left from this year, on the positive side, have you factored in the lower gas price, and clarify what you have in mind for the change from Q3 to Q4 on the energy bill. That's the second. Then it's really on the inventories again, and I also like the chart 20 a lot. If I look to this, then with all the portions given, my understanding is that the volume portion is where you have a chance to change that.
It was an increase of EUR 200 million by now. As volume across the portfolio is declining, is that fair to assume that all of these EUR 200 million can be unwind in one quarter, or is that
Well, Andreas, thank you for your questions. I will touch on the first two, and Michael will answer the third one. On your first one, are our German sites still making money? All the sites that are running are making money. The sites that are turning into the red, I've clearly discussed with my colleagues, will be switched off. We will not produce and run negative sites. Most of our plants here in Germany are running. Here and there, we have taken some plants off stream because we do plant maintenance or we now would like to adjust inventories. Wherever plants turn red, not on a daily basis, but on a weekly or bi-weekly basis, the decision here has been made.
The plants will be switched off and we are prepared for short labor. Looking at the portfolio, I mean, this should most likely, according to all assessments that we have done, the majority of our plants will run through. Of course, you need to prepare all kinds of scenarios. With energy or gas being volatile or not available, you should have these plans in your drawer. We have since early May these plans operationally in the drawer, but clear feedback. The majority of our sites here in Germany, despite the toughness that we have seen in third quarter, we're producing money. Otherwise, the EUR 240 million of EBITDA, we would have never been able to report.
Now on Q4, I mean, this is not an answer that captures everything in a standard way, because sometimes contracts are site-specific, even plant-specific. There are two effects that we have. In some cases, we benefit definitely from lower energy prices, but please take into consideration that we still have stocks that have the energy value of third quarter embedded into the costs. These inventories will flow through the P&L at Q3 energy costs, which will hurt. Actual goods being produced, of course, are produced at spot prices in the energy market. At the end of the day, Q4 in the P&L, you will see a blend. There's not one standard answer to your question.
We still see the high cost level of Q3, but also will take here and there an advantage of lower price level in Q4. Now to the super-duper page 20. Michael, take it from there.
Hi, Andreas. Yeah, with regards to your question. The volume increase throughout the year was around EUR 200 million, as you stated rightly, and it is written on the page. The development which we saw over the year had as well an impact coming from the logistic end markets as well. We see as we speak that the logistic end markets are easing, but we are not where we were at the beginning of the year. What is in our hand and what is in our control is the seasonality and the effect which we were recording in the most recent months. That is clearly something which we will tackle in course of the fourth quarter when having our turnarounds, and let's say the forced turnarounds. Therefore, it will take some quarters, but you should see a major effect in the fourth quarter.
Next question, please.
The next question is coming from Constantin Rigaud at Baader Helvea.
Yeah. Hi, ladies and gentlemen. Thank you for taking my question. Mostly answered already, maybe a bit more on the working capital. Again, as you mentioned, for the High Performance Materials that you have already had a couple of write-downs on your inventory in the third quarter. Have you also, just for clarification for me, seen that in the continuing operations business segment? Are you expecting, or can you give us maybe some insight what you might expect in the fourth quarter on inventory write-downs? Thank you.
Yeah, I cut a long story short here. I think I indirectly and even directly made the point here. This is not for the continuing business, has not been a topic in Q3, and should not be a topic in Q4. The nature of Lanxess is.
Is not that much of the nature of polymers. That's the reason why we clearly decided for the chemical value chain.
Okay, great. Thank you.
You're most welcome. Next question, please.
The next questions come from Jaideep Pandya at On Field Investment Research.
Hi. Thank you. First question really is on the HPM business, which is, you know, obviously things have changed quite meaningfully since you guys announced the deal. Just wanna confirm, are all the deal parameters still in place and, you know, there's absolutely gonna be no change in terms of, you know, going back to the drawing board? That's the first question. The second question is, you know, to Michael and on the second slide twenty. I mean, if we don't talk about quarters, but just look at 2023 overall. I mean, do we think that on a sort of five-quarter view, at least half of this EUR 920 million can be sort of brought back into the cash pool? That's my second question.
The third question really is going back to Advanced Intermediates. You know, from memory, this always used to be sort of a very robust, solid margin business, around 17%-18% level. Do we go back there in the next few quarters as you catch up on price versus energy costs and raw materials or the difficult macro is gonna make this more challenging, and therefore we might stay in the lower end of the range for a couple more quarters? Thanks.
Jaideep, all good questions. Let me address them one by one. First one on HPM. I think you see the news flow over the last 4-8 weeks, which all show that we have highest activity on all sides to get the joint venture completed. Therefore, we do everything because we know that the likelihood for closing the joint venture increases every day with all the antitrust approvals that I've alluded to earlier on. Here I've been very clear that as far as the only topics that can hold up this joint venture is antitrust, and here we are advancing pretty well.
All indicators are on closing, and for that reason, we hire the best senior managers out of the markets that I think many of you know, as far as the top positions are concerned, and are transferring people worldwide into the designated legal entities. From everything that I'm seeing, that here we are creating a very nice joint venture for top customers that will benefit from this configuration, and it will be a good business. That's first question. Second question, on the EUR 920 million on inventories or working capital increase. I think the latter is the right word. We should see triple-digit numbers in the next six- 12 months, turning into cash, that's for sure.
In the next quarter, you should see already not double digits, but triple-digit numbers returning. It will be a theme also for 2023, very, very clearly. If we are regaining the entirety of EUR 900 to be seen, but that we are seeing not only EUR 100 or 200 million, should the markets no longer show inflationary, but deflationary tendency is very, very likely. Now, third question. Advanced Intermediates. Nothing has changed on the market structure. This is a stronghold. It's a fortress. Of course, it is a business where I would say the majority of the assets are here in Germany. With gas prices being at EUR 300-350, electricity at 600-800, this is toxic.
This business, technology-wise and market position-wise, is a fortress, a stronghold. Rightly, as you stated, this should deserve margins of high teens, close to even 20. This was the area where this business was before. It will go back to these levels, but of course, it has to be in a normal economic environment. I think here we are currently seeing tough times. Still managing this in the double-digit margins, but definitely this is not the area where this business should trade at in the future. All good?
Yep. Looking forward to tomorrow.
Well, we are singing, dancing for you every day now. Next question, please.
Next question comes from Georgina Fraser at Goldman Sachs.
Hi. Good afternoon, Matthias and Michael. Thanks for taking my questions. I've got two. The first one is that, if I remember correctly, during the 2Q conference call, Matthias, you alluded to a possible strategic preference for growth in the U.S. going forward compared to China. Now that seems quite different from the strategy that we've seen from other German industrial colleagues, and the delegation that traveled to China with Olaf Scholz recently. Could you please tell us a bit about where Lanxess' rationale is differentiated compared to your German industrial colleagues? Then my second question is on the price escalators that you have been pushing through your business since the start of the year or even at the end of last year. What are the mechanics of these now that we have lower gas prices?
What's the kind of timeframe for reflecting lower gas prices in your product selling prices? Thank you.
Thank you, Georgina. Let me take them one by one. I mean, everybody has to make his own decision, what he does, what he doesn't do. We only take the decisions that we consider are the best ones for our company. To be very clear, China is for us a great market. It's the biggest chemical market, and we clearly are dedicated to China, and we want to keep our position in China. When borders are closed, engineers and people cannot travel and are confronted with lockdowns in the domestic market and with lockdowns entering China, the likelihood that you can get new customers on board and make groundfields, brownfield or greenfield investments is not very high. You have to take the consequences. I was very clear and explicit.
As long as the country is in lockdowns and quarantines are being imposed, I see no way of accelerating growth and foreign direct investments. We keep our markets. We like the markets, but expanding the market is utterly difficult in the current circumstances. This is different in the United States. We have a very strong platform. We have strong businesses. We have strong teams. We acquired this strategically, I would say, to some extent because we saw opportunities. To some extent it followed our strategic direction that we gave out in 2018 because these were the growth markets, China, United States. In the United States, we found good targets, so we accelerated and expanded massively in the United States. Now we harvest the earnings or the fruits, and therefore, we can invest there.
In the United States, borders are no longer closed. We are not quarantined. We can travel free. Governance and approval schemes are in most of the states speedy. Therefore, from an investment focus, this is an area where we can invest. Therefore, clearly, at this point in time, we expand clearly further strategically and operationally in the United States. Now on pricing, there are still raw materials on the rise. You see that labor costs are going up. You see that insurance costs are going up. You see that interest rates are going up. We have to earn our living. Pricing to keep pricing at the current levels is clearly a priority for the organization.
Of course, we have to see also where the economic environment is going to lead us to. I hope this should answer all your questions. All good?
That was great. Thank you.
The next question is coming from Sebastian Satz at Barclays.
Hi, everyone. Thanks very much. I've got two quick follow-up questions, please. The first one is again on the HPM at the deal. Just wanted to see if you could confirm if you've already filed with the European Commission for the deal and what other hurdles are still outstanding for the deal to be cleared. The second question is coming back on Advanced Intermediates. Assuming energy prices will stay higher for longer, what specifically can you do to get margins and absolute EBITDA back to its historic range? Thanks very much.
Well, let me take questions one by one. I think I've given more color on the antitrust scenario in HPM. In most of the jurisdictions we are well advanced, but every jurisdiction has a different procedure. In some jurisdictions, you file and then you get questions, and others you first of all have to answer questions, then you file, and then it gets a standard process afterwards. All in all, in most of the jurisdictions that I've indicated, we got approvals by now. For instance, the big one was the United States. One that is always rather on the delay track is China. Approval was reached here. Brazil takes quite a long time. Approval has been achieved.
Now the final ones are one, two jurisdictions, one being Europe, we are about to file. In Europe, the process is a little different. You first of all have to answer all questions from the Commission and this we have done and are finalizing now. Once questions are addressed, then basically you go for the approval process and that then takes normally the round about 35 working days. That is the reason why we rather assume that we will get clarity in Q1. We still stick to the first half year timeline, but from everything that we currently assume and the feedback that we get from our experts, internal, external, makes us believe that Q1 is the likely scenario.
Now on pricing margin, I mean, you've seen with all chemical companies that margins were distorted through inflationary environments. Our business in a normal economic environment has clearly higher margins than the what you've seen right now. You've seen that over the last several years. Therefore, this is to some extent the current context of an environment where we are dealing with 10% of inflation and that margins in a normal environment will turn upwards is, from my point of view, a question of when it occurs and not if it occurs. That should have answered all your questions.
Thank you very much.
You're most welcome. Please come along tomorrow as well. We've done a lot of work. With this, I would basically like to finish the call for today. Thank you for attending. Thank you for your interests and your time and questions. I would like to take the liberty to announce that, next to management board changes, André Simon, who was heading investor relations for the last five years, will now take a new role in our company. He will be in the management team of the business unit Urethane Systems, and he will take up here the strategic and marketing departments. Will lead pricing and market consolidation. He has a lot on his plate, and he will do great.
At the same point in time, I welcome Eva Frerker, who will succeed André Simon in the head of investor relations and will make sure that we keep the highest standards that we always were striving for. Therefore, from tomorrow onwards, Eva will take the lead. This is for your information so that you know where to direct emails to. With this, I finish the call for today and looking forward to hearing and potentially seeing you tomorrow at our Capital Markets Day event here from Cologne digitally. All good. Bye-bye.
Ladies and gentlemen, this concludes today's access conference call. Thank you for joining, and have a pleasant day. Goodbye.