Thank you for standing by. Welcome to LANXESS Fiscal Quarter 2025 Results Webcast and Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would like to hand the conference over to our first speaker today, Andre Simon, Head of Investor Relations. Please go ahead, sir.
Yeah, thank you very much, Amber, and a warm welcome to everybody to our Q1 2025 conference call from my end as well. As always, we begin by asking you to take notice of our safe harbor statements. With me today is our CEO, Matthias Zachert, and our CFO, Oliver Stratmann. Matthias will start with a short presentation, and then we will open the floor for your questions. With that, I'm happy to hand over to Matthias. Please go ahead.
Thank you, Andre, and welcome to everybody on the Q1 conference call today. I will start the presentation on page four, and all in all, I would like to say and state that Q1 has been a straightforward quarter. No surprises vis-à-vis our expectation that we have communicated to you guys in March. Only one comment on the segments: all segment divisions improved, but we had a quite sharp increase in Consumer Protection. This is largely driven by the fact that Q1 2024 was simply a deplorable comparable base. That was the quarter where we had the severest impact on the destocking in agro, which continued in the following quarters in 2024, but more or less came to an end with Q4 2024. Now in Q1, we see that agro comes back to normal ordering, while the entire industry is not back to happy times yet.
With this, I move into the group key performance indicators. EBITDA is up by roundabout 32 percentage points, which is a big step according to our communication, but of course still at low levels, but fortunately better than Q1 2024. Working capital in Q1 increased lower than Q1 2024, but this is the normal seasonal increase, driven especially by sales pickup and thus receivables making up the majority of the increase versus Q4, which is the normal seasonal development. Thus also, net debt versus Q4 moved up on the back of an increase in working capital. As we have communicated beginning of April, we closed the divestiture of the urethane business to the Japanese group called UBE. This was clearly faster than we originally anticipated.
All institutional clearance came in extremely well on time, and therefore, instead of closing at the end of Q2, we were able to close beginning of April, and we will use the proceeds to strengthen the balance sheets already. Let's move now to page number five, a few more comments on tariffs, which now have been communicated second of April. Here we would like to comment on the direct implications that we are, of course, continuously assessing. We have a task force that is globally operational, provides feedback to us on a weekly basis, and I think this is needed due to the volatility in the decision-making process, which sometimes changes on a daily basis. From what we are assessing as of today, we can make the following statement on the direct impacts. Here, let's look into the US position first of all.
We have seen that with the announcement on tariffs, there are country-by-country duties, tariffs being imposed. However, there exists also an annex with exemptions, the so-called Annex II lists with thousands of products that are being exempted. We have seen and analyzed this business unit by business unit. Numerous product categories are exempted, but by and large, for those products that are not exempted, of course, we clearly see a relative price advantage versus Chinese competitors. Our direction is very clearly to make use of that through volume gains and price increases. What we have seen, however, in March, when we analyzed import-export duties from the data that was being issued in April and in the recent weeks, we saw that quite a lot of goods were heavily imported in March in our end industry from our clients. We see that storage inventories have been built.
Our assumption is this will take around about four to eight weeks to get deployed. Our assumption is that by June, our customer base is then starting to order locally due to the massive tariffs that have been communicated, notably versus Chinese imports. That is the approach we are going to take. We are well prepared and will take action as soon as we see that volume is locally starting to increase. On the European position, we see that from April onwards, more and more Chinese goods are surfacing here in Europe, also in Latin America. Therefore, if we look at the direct impacts, all in all, we consider that this is neutral, perhaps slightly positive, but that is what we see from the direct tariff implications. As a lot of macroeconomic institutions have conveyed, the tariffs will leave a mark on the global economy and global growth.
The indirect tariff impact, of course, is difficult to assess. We will have to wait and see what our end industries are going to do, but our concern is more on the indirect side and not on the direct side going forward. Now, a few words on our guidance. All in all, macroeconomic uncertainty has clearly increased, and what we have noticed from our client base is that after the communication of the tariffs second of April, uncertainty is not only high, but also our client base is reacting, rather ordering with two- to three-month certainty. This has rather reduced to a one- to two-week order pattern. Customers take a wait-and-see approach because there is no point in making long-term orders when suddenly tariffs are being adjusted next day. That would be unwise. Therefore, we do see that volume momentum is ongoing.
There is no sudden shortfall like we have seen in Lehman times or Corona times. Momentum is ongoing, but the order book is filled only on a weekly, biweekly basis and no longer on a two to three-month basis. This is the momentum we see in the order book and from customers. Based on this, our communication on the guidance is reiterated, EUR 600 million-EUR 650 million. On Q2, we see a sequential improvement versus Q1. Of course, Q1, we had some shortfall due to the pre-buying in December that we flagged. That will, of course, stop in Q2. We see a sequential improvement, but please take note of the fact the urethane contribution, which we still had in Q1, will stop in Q2. This is operational EBITDA of roundabout EUR 11 million-EUR 12 million. That is falling away.
The remnant costs that we have highlighted with the communication of the UBE transactions will now come through. All in all, the lack of urethanes will be a EUR 15 million reduction on second quarter. We do see some trading uncertainty that will fill the gap, and that is something you should take into consideration. That is all what we would highlight on Q1 by and large. We would love to take all of your plenty questions. Thank you so much.
Thank you. To ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now take our first question from the line of Tom Rigglesworth from Morgan Stanley. Please ask your question, Tom.
Thank you very much. Thanks for the presentation, Matthias, and the opportunity to ask questions. First question, if I may, obviously, you've given us some color there on the outlook. Have you also taken into consideration things like FX in your guidance? Because obviously, that's stiffened up significantly. Is that a material headwind that you've now incorporated into the outlook? In confirmation, I'm right in understanding that you've included no indirect impact. You've just taken on board the direct impact. That's my first question. My second question is, obviously, very good volumes in Consumer Protection, up 5%. Obviously, you cite the agro picture there, but I'd be keen to know about some of the other markets. Is this the area where you think you might see increased competition from Chinese exports that might have been going to the U.S., which now come to Europe?
Just wanted to understand, given the volume recovery, how you see that picture going forward. Thank you.
All very valid questions, Tom. Thank you so much. I will take them one by one, give the introduction on ethics, and pass on to our CFO. We always hedge, of course. We have a clear methodology approach of a rolling hedging, strategic hedging, technical hedging in place. When your new president was elected, we were concerned about the currency. We beefed up 2025 and are basically fully protected at rates which are better than the existing ones. On the currency side, we are not concerned. We are covered for this year and largely also for next year. I hand over the word to the master of the ceremony. Oliver has all the facts, details, and instruments in his place, in his hands, and in his office and in his drawers. Oliver.
Yeah, Matthias, thank you. I believe to be efficient here, the one thing I can add is that you can assume based on what Matthias has said with regard to hedging that we are planning with a rate of around EUR 1.10, so not far away where it is on average going through the year so far.
If the dollar weakens further, we will still make our forecast with 110 because we can afford to make this clear statement. What I would like to indicate, however, our currency hedging is done at group level. You will see the volatility in the business and divisions whilst this is being protected at group level. We do not allocate hedges down to divisions and business units and keep that in the corporate accounts. Now, on the direct tariffs, indeed, what you have said is correct. This is being factored into our overall numbers. Indirect, you cannot quantify. Indirect would mean, of course, our end industries. We see at this point in time that our end industries are continuing a little softer here and there in automotive Europe. Agro remains unchanged compared to what we have stated this morning in our presentation deck. Indirect is factored in.
Direct is factored in. Indirect, we are monitoring closely. If there is a change in business momentum, of course, we will comment on this in our quarterly statements. Now, on agro, where do we see Chinese competition? On agro, we do not see that in our active production. We see that with our customers where they are pricing-wise under pressure or volume-wise under pressure. The good thing is that the agro players have in the last one to two years started to more focus on innovation, which will be a theme going forward. If you watch and listen to the company presentations of the five big agro players, most of them have highlighted what they do in this direction. You can assume that on many of these innovations, our business is part of it. On the generic products, definitely, there is quite a lot of pressure in the system.
Now, where we do see next to agro Chinese competition is definitely in the intermediate space with advanced industrial intermediates, but also in pigments. You see here that we are defending our market position, fighting back. Therefore, price reduction here and there is needed to keep our A and B customers and keep competitors at bay. We see selectively also in additives and consumer protection, Chinese competitors less pronounced because here the client network and client proximity is important. Basically, when China cannot ship products to the United States, the products are being attempted to be shipped to Europe and Latin America. I think this is a theme you've heard from other chemicals as well, and we are no different in this regard. I hope, Tom, all of your questions have been cleared.
Thanks for the additional color.
Thank you.
Most welcome. Next question, please.
Thank you. Our next question comes from the line of Martin Rodriguez from Kepler Cheuvreux. Please go ahead, Martin.
Hello. Good afternoon. Thanks for taking my questions. Can you talk a little bit about the momentum in demand, especially the exit rate at the end of Q1, because we have different statements from different companies? What is your impression about the volume momentum in March going into April? You said that visibility is low. Our customers order on a one to two-week basis. The order book for May looks certainly also a bit depressed. Maybe some color, how you see this momentum in these months to occur. Secondly, you mentioned in your presentation that energy costs are a burden for advanced intermediates in Q1. What is your budget for energy costs this year? I recall that last year the energy budget was around EUR 500 million. Is that correct? Thank you.
Martin, I will take the momentum question, and Oliver will make comments on energy. On momentum, if you look into Q1 on a monthly basis versus Q1 last year, we saw that, of course, here, not totally comparable. It's not Apple to Apple, but rather peer to Apple because of precursors being differently priced. When you compare here, the monthly developments, March 2025 was weaker than March 2024. If you look at the monthly developments within the quarter 2025, you see that from January and February to March, there was an increase in momentum. March was better operationally than the two months before. Overall, the momentum in the industry is still weak. If you listen to what the Chemical Industry Association in Germany has communicated, the industry, excluding pharma, is still around 70% utilization. This is a trough, trough environment. We are used to 80% plus.
That clearly gives you the indication that the industry is still in a tough trading environment. That is the reason why all chemicals, by and large, with only very few exceptions, have been rather humble in their statements on Q1 and modest in their expectation for 2025. That is on the momentum side. Now I shift over to Oliver.
Yeah, Matthias. Hi, Martin. On energy costs, the way I would approach this is that in the past, we have clearly said for a sufficiently long period of time, we will be in a position to pass on energy costs where they really matter. There may be a quarter where indeed we see a burden or a benefit one or the other way. What I would like to avoid is really to give a rule of thumb here and talk about budgeted numbers because then you will probably call me next time and ask me to break out the difference on energy costs that has contributed or not.
Let's rather, in these volatile times, look at the whole year and take the energy costs in those contracts where energy really matters as a pass-through item, even though there may indeed be quarters like this time in Advanced Intermediates where energy, indeed, specifically here at the Niederrhein sites, has really burdened.
Thank you.
All clear, Martin?
Yes.
Wonderful. Let's go for the next question, please.
Thank you. Next question comes from the line of Andres Castanos-Mohler from Berenberg. Please go ahead, Andres.
Hi, hello. I would like to ask about what you have seen so far in the U.S.-China chemicals volumes, in particular about U.S.-broadband shipments to China, if they're healthy, and also on biocide precursors from China into the US. I understand you have reasonably well-integrated, backward-integrated supply there. And I assume maybe some of your peers—I mean, I don't know. I would like to ask. Maybe they're not as well-integrated as you and probably impacted by tariffs to Chinese imports. So these two supply chains I'll be very interested on. Thank you.
Very valid, Andre. Now, on your first one, as far as bromine products and bromine derivatives are concerned, we saw a spike in the bromine price in first quarter, continuing into April. This was not really—the increase was not really related due to tariffs. The increase was basically driven by shortage of supply. Therefore, the entire value chains were impacted in Asia. Prices moved up quite substantially by around about 20, 30, 40, 50 percentage points. Has now come down because of further increase in supply. Therefore, the tariff was not the driving factor for pricing. It was rather the supply side. Demand remains modest. Construction industry is still in a trough. I think this will still last into 2025 and then will improve, notably in Europe and particularly in Germany.
I'm more positive on construction going forward, which is important to us, not only in additives, but also in the biocide space because biocides are also in the construction. If you go to paintings, if you go to floor ceilings, etc., biocides are also in there. This is an area that is not very strong globally at this point in time. We do have a very broad and strong position. We are one of the market leaders in biocides. We are also playing strongly in the United States through the IFF microbial control business. Therefore, that should be a business that will take advantage in the United States once inventories are deployed. Therefore, on biocides, we clearly look positively into the next few quarters going forward. I hope this clears all your two questions, Andre.
Thank you.
You're most welcome. Next one, please.
Thank you. As a reminder to ask a question, please press star one and one. For questions again, please press star one and one. We will now take our next question from the line of Chetan Udashi from JP Morgan. Please ask your question, Chetan.
Yeah, hi. Hi, thanks for taking my question. I was just curious. You mentioned you saw some pre-buying from your customers ahead of tariffs. Maybe can you expand on which product segments might that be for LANXESS or which end markets? Thank you very much.
Yeah, thank you very much, Chetan. With regard to the pre-buying, I do not think you can specifically boil it down to certain markets or certain products. As you will know, when you look at the tariff lists, the exemption lists, but also the tariffs, it is extremely broadly applied. Customers basically through the bank were seen to fill their stocks, which is also a reason why so far in the market we have not really seen any price reaction to the tariffs. As Matthias outlined, we expect these stocks to be sold off in the next weeks. Afterwards, we expect to see really inflation and in the US rise. I would not really specify any product groups here.
That's clear. Thank you.
Thanks.
Thank you. We'll now take our next question from the line of Jeremy Kincaid from Verne Lanskert, Camden. Please go ahead, Jeremy.
Good afternoon, gentlemen. Just a quick one from me. You obviously talk to numerous product categories which are exempt from tariffs. I was just wondering if you could quantify maybe what % of the portfolio or maybe what % of revenue that represents. Also maybe if you could call out also which products are exempt.
I would say around about 30-40% of products being exempted. Now, specifying products, this would take, I would say, a few days. This is public information. My recommendation to you, look up the lists, the Excel list yourself. You will see in chemicals, most likely 200,000-300,000 products. Alone on pigments, I give you one hour. Red pigment has various color grades. The brand is called Bayferrox. There are 80 Bayferrox products being listed in this annex. Therefore, my feedback to you, going by product is meaningless. The name of the game is rather what portion of products being produced in the United States or in Europe being shipped to the United States is exempted. This is by and large in the area of 30-40 percentage points.
Great. Thank you very much.
Most welcome. Next question, please.
Thank you. Next question comes from the line of Anil Shunoy from Barclays. Please ask your question, Anil.
Yeah, hi. Good morning. Thank you for taking my questions. Just two of them, please. The first one is on pre-buying. You had quantified that the impact of pre-buying in Q4 was about EUR 20 million on EBITDA. I was wondering how much of this impact would be in Q1 EBITDA. In other words, in the absence of this pre-buying, how much higher would the EBITDA be in Q1? Am I right in assuming that the rest of the impact we will see in Q2 and not beyond that? That is my first question. The second question is on the FCFF bridge for 2025. Given that your EBITDA guidance for 2025 is similar to that of EBITDA that you achieved in 2024, would FCF be also similar to 2024? What are the various line items that can impact the bridge for 2025 FCF?
Thanks a lot.
Yeah. Anil, most welcome. Good questions. Oliver will address them one by one.
Yeah. Thank you, Anil. On the pre-buying, your understanding is completely correct. If we say there has been pre-buying with an estimated effect of EUR 20 million on EBITDA in Q4, that means purchases in that value have been pushed forward to the fourth quarter out of the first quarter. With regard to the free cash flow question, referring to the EBITDA guidance that we've given, I would say if you compare the quarterly pattern in cash flow that you've seen last year, which started pretty much in line with this year, with a build-up in working capital stemming from receivables, which tells you that there has been a business pickup. In the respective latter part of last year, we have unwound, be it the inventory piece or the receivables going into the fourth quarter.
I can confirm fully that we are absolutely dedicated to generate cash here. I do not feel in a position to give a numbers guidance, but I would like to re-ensure when you look at the movements of last year that we will be working in the same direction in this year. Next question, please.
Thank you. Our next question comes from the line of Oliver Schwartz from Warburg Research. Please ask your question, Oliver.
Thank you. Only one question left from my side. In regard to the insurance payment you received, can you quantify that number? Is there more to come, or is that it? Thank you.
Yeah. Olli, I'll take the question. That was a higher single-digit million amount that was expected. I wouldn't expect any further meaningful payments from insurances going forward for now.
Very clear. Thank you.
Sure. Next question, please.
Thank you. Next question comes from Chris Cunningham from Jefferies. Please ask your question, Chris.
Yeah. Good afternoon, gentlemen. My one is for Olli. I had the joy of reading your annual report, and thanks for publishing it, as always. An extremely helpful document. I was hoping you might just be able to help me clarify something on page 299. It's to do with invaluable. It helpfully highlights, as you guys have, why the cost base from an accounting perspective isn't relevant for the final divestment process. And it says that the potential selling price, should you decide to sell, is dependent on the prior 12 months of EBITDA. Now, I don't want to dig up old ground about what the asset is worth, etc., etc.
The bit I just could not understand in the annual report was, and I presume this has something to do with accounting policies or requirements, but it runs a sensitivity analysis on the simulated change in EBITDA of invaluable, changing EBITDA growth by 10%. It says that it would have resulted in a zero fair value change. Now, why is that the case? I would have thought LANXESS has far more leverage to growth in EBITDA within invaluable versus what the annual report suggests.
Yeah. Thanks for this very precise question, Chris, not on Q1, but on the hopefully very helpful annual report. Of course, appreciate whenever somebody digs through these 300 pages plus. What you are referring to is actually the requirement to go through evaluation and also scenarios valuing our right to offer. Here, scenarios have to be calculated, which has been done. The sensitivities to certain changes in the parameters of these scenarios have to be published. The takeaway below the line for you should be in the very last sentences of this complex paragraph where they basically summarize that at the end, the EBITDA is the number you have to refer to when it comes to a final valuation of our stake in Aerial.
If you ask me, I would not dig deeper into the scenarios because they have nothing to do with the value of our stake, but only of the book value from an accounting perspective of the right to offer.
Cool. Yeah. Thank you very much.
Of course. Wonderful. Next question, please.
Thank you. Our next question comes from Matthew Yates from Bank of America. Please go ahead, Matthew.
Hey, good afternoon, everyone. I'd like to ask a question about intermediates. I think in Q1, we're seeing that EBITDA margin around 8%, despite the fact that volumes were up because it looks like you gave away some pricing to defend your market position. I think it's Matthias said in the intro. We used to talk about this business being a sort of mid to high teens margin business. Perhaps the scope has changed over time with some reclassifications of what assets are in there. Can you talk a little bit about what the ultimate profitability target for that business is, how it's going to get there, and how long is that going to take? Are any of the building blocks things in your control, such as the cost base, or is it really dependent on market conditions and the degree of competition?
The second question, perhaps for Oliver, is on slide 16 when you detail the exceptionals. Only $1 million of the $21 million was restructuring. I guess if we think about that other $20 million, therefore, how long is that going to persist to be an outflow? Is there something one-off in nature about these projects that has got a finite time frame, or is it more recurring? Thank you.
I will take intermediates and then pass on to exceptionals. On intermediates, we talk about the businesses, AII and inorganic pigments, that are most relying on volumes. Intermediates, we have a broad diversified end market setup. Of course, construction plays a role in here too. Agro plays a role in it, as we indicate in our factbook and business unit information. All in all, when we look into the end industries, this business unit, Advanced Industrial Intermediates, always benefited from its broad coverage of end industries, but does need volume. This is definitely not the case. Low utilization here is more pain compared to other business units. When this business unit operates at close below 70 percentage points, the profitability is definitely not there where it has to be. This business will come back should volumes come back.
We have always indicated that the average profitability in a normal economic environment should be above 16 percentage points. We do not step away from this direction. We have addressed here the cost base already in our forward program. We reflect here also that one plant, which no longer is, from our point of view, structurally well-positioned, will be closed. We indicated here that this will be done in Q1 2026. Today, I can announce that we will take it off stream by end of second quarter. This plant is making losses, and it is not, from our point of view, competitive. It will improve the competitive position of AII from third quarter onwards. From the other side, by and large, we see that they are considered that they are competitive.
We might still address one plant that I flagged in the energy crisis 2022, 2023 because of its energy intensity, and we still see no energy relief. There might be another plant at risk. If we keep these two plants outside, we do see that the underlying profitability of the business unit AII should come back to profitabilities of 16% plus once volumes and markets return. Oliver, you take exceptionals?
I do. I do. Matthew, only exceptionals in the 16, the category M&A digitization. Others, for the most part, contain expenses associated to the sale of our urethane business. Among or next to that, also projects like artificial intelligence in production or cybersecurity. On strategic IT projects, the vast majority of the EUR 8 million there is to be seen in connection to the implementation of our new ERP system, which is still ongoing.
You are absolutely right in mentioning that these numbers will go substantially down in the next years. In the past, we had guided to something like EUR 30 million-EUR 50 million on an annual basis. All of these expenses are, of course, related to projects, with a clear timeline and not repetitive in nature.
Matthias, can I just follow up? Are you able to contextualize for us that plant closure in terms of its materiality just for the purposes of sort of thinking about Q3 modeling and beyond? What sort of revenue and losses will be coming out of the business?
We will do that once we take the decision. First of all, the decision needs to be taken by the board. Analysis is running. Once analysis is ready, we take the decision. We start communicating with all financial implications associated to it.
Next question, please.
Thank you. Next question comes from Georgina Fraser from Goldman Sachs. Please ask your question, Georgina.
Hi there. I hope you can hear me. Hi, Matthias. Hi, Oliver.
We can hear you well.
Thank you.
Great. I've got a few questions left. One of them, a follow-up on Aerial, noted that you had a better financial result in the first quarter this year, citing a better performance of Aerial. If you could help share, what are the improving business conditions that you're witnessing for those assets? That was a little bit surprising to me. Second question, I'm sorry if you feel like in your commentary you have already answered this, but could you outline the rationale for the pickup in activity that's implied in your guidance for the second half of the year? Maybe just a follow-up on this plant that you just mentioned, Matthias. Is it related to that plant that's currently loss-making coming offline, or are you assuming a macro improvement? Final question is also a follow-up.
We've talked a lot about the pressure that the industry has been under and that volumes will come back and margins will come back. My question is why? Because we've actually had volumes down, I guess, at least mid-single digits since 2019. The automotive market, which is a smaller exposure for you but still meaningful, units are down versus then. China construction and manufacturing has all peaked quite some time ago. What exactly are the drivers that you see, meaning that volumes will pick up at some point? I think that's what we're all struggling with for the chemicals industry in Europe as a whole. Thank you.
Georgina, all good questions. Let me take them one by one. Let's start with Aerial. Here, I mean, overall, if you look into our financial results, you see in the equity consolidation our explanation that business is improving. This is a reflection of business improvement. The net income or bottom line at Aerial, as you can see through our financial reporting, is definitely still impacted by purchase price accounting and the interests. The operational business does improve despite the overall macroeconomic environments being still pretty tough. I would like to reference again the rating reports that have been published on Aerial in December. In the rating reports, rating agencies speak about $150 million of synergies that they take into account, while management is guiding rating agencies for synergies being far higher. Rating agencies normally take a haircut.
Therefore, you should not be surprised that the financial profitability of Invaluable improves despite industry still being sluggish. Guess what happens if momentum in this division will hit a lean and mean cost base? That is basically the driver behind Invaluable performance in our books. On the second half, we do assume that momentum does not change compared to the current volume momentum. This is our assumption. We do not assume that there is a sharp drop in the quarters to continue. Our assumption is that we will start benefiting from June, July onwards on US pricing. We do not assume a fundamental change in business momentum in Q3, Q4. That is not the case. If it comes, wonderful. If it does not come and continues like the current momentum, then we should be fine.
When we look at the plant being closed, that would be around $10 million positive contribution once the plant is taken off the network. It is a negative EBITDA plant. It is a cash-burning plant. That is the reason for the closure. That is definitely something that will help us moving forward next to the pricing that we will push into the US markets. Now, on the volume question, the fundamental question is, why should going forward business normalize or improve again? I mean, I come to two flagship industries for us. That is agro and that is construction. I am not positive on construction for 2025 in Germany or Europe, but construction should improve visibly, accelerating even further, but improving visibly in 2026, accelerating 2027, 2028. That is driven by the massive infrastructure program that has been decided.
From what I hear from my talks with politicians newly elected in Berlin, you will see that in June, first actions will be taken. I'm pretty bullish on the new German government and here on both parties because they are both convinced that the economy needs to be reignited. Construction should come back. We have seen in the last two, three years that construction was double-digit down. That will change. On agro, I'm also positive, not bullish, but positive that trading environments will improve further. We see that already 2025 because destocking has come to an end. We will see that momentum here and new products, once they are introduced, will drive momentum with the big five agro chem players. With these two industries, we are already talking about round about 30-40% of our overall sales coverage.
I do acknowledge that automotive might be softer, but if construction agro comes back, it would be definitely for us not a game changer, but a fundamental improvement, which will most likely drive our utilization from the 70s rather close to the 80s again. That is our thinking about the momentum question. I hope we covered all three questions sufficiently.
You did very much. Thank you, Matthias.
Most welcome. Next question. Should there be any?
Thank you. Our next question comes from Tristan Lamotte from Deutsche Bank. Please go ahead, Tristan.
Hi. Thanks for taking my questions. The first one is on free cash flow. You mentioned the working capital outflow in Q1. If I strip that out and come back to operating cash flow pre-working capital outflow, the free cash flow is quite similar year on year despite the EBITDA increase. Could you maybe talk through if there are some other moving parts in there too? The second question is a quick one. You mentioned the repayment of a bond. Is the 1% interest rate that you talk about in your slides, how long is that locked in for after you redeem that bond? Thanks.
These are perfect questions to our CFO. Come on, partner. Keep on rolling.
Yeah. Tristan, many thanks. On the free cash flow, appreciate you look at this in a detailed way. Of course, there is the operating business. There is from quarter to quarter a certain seasonality. There are items like IFRS recognitions in there, and there is also hedging in there. Yes, there are other moving parts. I stick to what I said earlier. The commitment for a free cash flow, even in these difficult times, is fully there and will be working also on working capital, which has a normal seasonality towards year-end. On the 1% question, the bond we will be redeeming now has a coupon of 1 and an eighth. We will pay that fully back. The next one again has a coupon of 1% outstanding in 2026. If I take out the 1.125, not a lot will change.
With our maturity profile, if you look at it, which in the future contains bonds with a zero coupon and also with a 0.625 coupon, I think the average will not move substantially. As we continue to generate cash, I think we will be able to extend the maturity also nicely into the future if necessary.
Great. Thank you, Oliver. Next question, please.
Thank you. We will be taking our final question from the line of Martin Rodriguez from Kepler Cheuvreux. Please go ahead, Martin.
Yeah, just a housekeeping question regarding the depreciation amortization charges. That's for Oliver. There were EUR 135 million in Q1. When I multiply that with four quarters, then I get to EUR 540 million. Your guidance for D&A charges is EUR 520 million, EUR 370 million from operation depreciation, and EUR 150 million from intangible amortization. I cannot believe that you have depreciated the assets in euro cents in Q1 because once you announce a disposal, you do not need to depreciate the asset of a non-core activity. So my question is, why will D&A charges sequentially shrink in the quarters to come?
Yeah. That is a very fine question. DNA is depreciation and amortization. As you know, after acquisitions, and we've had a few in the past, you have purchase price accounting. The purchase price accounting leads to amortization that over the years simply comes down. That is the reason why you will see the depreciation here come down somewhat. Believe me, our intention to guide is to path away for you and give you to the best of our knowledge. Absolutely fair question. The accounting on amortization is the reason.
Thank you very much.
Sure.
Thank you. We have now reached the end of the question and answer session. Thank you all very much for your questions. I'll now turn the conference back to Matthias for closing comments.
Thank you very much for attending our Q1 results investor call, analyst call. We are now heading for roadshows. Looking forward to seeing you all. Best regards from Oliver, myself, from LANXESS here in Cologne. Take good care. Stay well. Bye-bye.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.