Ladies and gentlemen, thank you for standing by. Welcome, thank you for joining the LANXESS conference call. I would now like to turn the conference over to Eva Ferkel. Please go ahead.
Thank you, Lucas. Good morning. Well, late morning also from our end for the first time, it's my pleasure to welcome you to our earnings call for full year 2022. As we will be making forward-looking statements, I would like to start out the call by asking you to take notice of our safe harbor statement. With me today are Matthias Zachert, CEO, and Michael Pontzen, CFO at LANXESS. Matthias will start with a brief presentation, and then we are happy to take your questions. I will now hand over to Matthias. Please go ahead, Zachert.
Thank you, Eva, and warm welcome from my side to all of you participating to this Q4 call. I will address the presentation instantly on page four, characterizing, describing here the key strategic and financial headlines, highlights. Portfolio-wise, we made strides in the right direction as far as changing our company setup, leaving behind polymers and focusing on chemicals. We are about to execute this as we speak. To look at overall yearly profitability, we are one of the few companies that could deliver absolute growth. We increased our EBITDA by roundabout 14% in a pretty difficult environment. I'm especially proud that we were able to pass on completely raw material inflation and energy cost explosion, as well as trade costs. Here we caught clearly up and closed all the gap to 2021, where we were running behind.
This eventually we could fully achieve despite a more and more difficult economic environment in the second half of last year. Working capital was definitely a drag on the cash flow for the full year, impacting us by nearly EUR 500 million. First signs of improvement clearly visible in Q4 on the operational side with the clear first step on inventory reduction, which will continue especially in the first half of the running year. As far as dividend is concerned, we looked at overall liquidity, at our overall sensitivity analysis, and clearly confirm our rating policy, but keeping dividends stable and not posting another increase. For the time being, we consider that this is exactly the right approach. As far as climate strategy is concerned, we went out in the last year with a target on Scope 3.
After we had been very swift in our S1 S2 communication several years ago, and from that point onwards, implemented on a yearly basis, we have now, in all transparency and after having collected all details at global level, we've now communicated where we stand on S3 and what our targets are. I think also here we can communicate good execution in the meantime. Let's be specific. Let's move to slide number five, and here, address some of the financial indicators.
On the left-hand side, if you look at the P&L KPIs as relates to sales, EBITDA and EPS, I think P&L-wise, this was a successful year in light of the high volatility and all the disruptions we saw on value chains, on the aggression war against Ukraine, on energy scarcity, energy price inflation, and we can go on, go on, go on. All in all, I think we managed a very turbulent year, P&L-wise, relatively well. However, there are weak spots. One is the leverage. We are, through the acquisition, and working capital increase, we are in a higher leverage setup. We've seen that in the last 10, 15 years before. If you come out of an acquisition phase, you end up with more leverage, and now we are in a divestiture phase and a consolidation phase, so we need to lever down.
With the steps we are taking on the HPM joint venture transaction, we make a big stride in that direction. More to come. This will automatically, from first of April, reduce our gross leverage and our net debt leverage substantially, of course, more to come in course of the year. Cash flow, you saw first strides in the right direction, especially on inventories in Q4, mitigated by some other cash outs that Michael will address. All in all, the operational working capital level has to move downward further in course of 2023. Lower CapEx we've guided for, this is sustainable based on the new setup of portfolio and of course, reduction in exceptionals has been announced last year. This will be a theme for 2023, 2024.
The two-week spots, leverage, and cash flow will be addressed and will be already implemented in course of the next 12 months. With this, I would like to move to the joint venture. I know there are always rumors here and there. Six months ago, the rumors were no antitrust approval will come. All nonsense. This has been implemented now. Green light given everywhere, so there's nothing that holds us back from closing. The carve-out has been one closing condition. This has been completed end of December last year. Antitrust approvals are worldwide. There, we expect closing first of April 2023. On that day, we will receive EUR 1.1 billion cash proceeds with little tax implication, and therefore, that will lower gross debts substantially.
As far as the 40% are concerned, they will be booked in our balance sheets, with EUR 1.4 billion, and also this has been discussed, validated in depth with our auditors so that all the accounting preparations are being done and implementation of that you will see in balance sheets going forwards. That is as far as closing is concerned. We are currently in the midst of, together with Advent as joint venture partner, with finalizing also the capital structure. I know there are rumors for the last two, three days. You cannot comment on any rumor because Bloomberg is coming up with many speculations ongoing. If it's not Bloomberg, then Reuters. We use this conference call to give clarity as much as possible.
The clarity that I would like to give is, when we set up the joint venture, the trading was at different levels. Both joint venture partners have agreed to support in a certain way the joint venture on a shareholders basis. Here Advent has 60, we 40%. Both of us will support the joint venture. The fine-tuning of this is being done as we speak. The likelihood is that LANXESS provides a certain amount of money through a financial fixed income loan with market respective interest rates. Therefore, this is something we are contemplating. Maximum amount is going to be EUR 200 million periods.
The fine-tuning, the communication on this we will give once the joint venture has closed, and therefore, this is yet to be finalized and agreed between the joint venture partners. Once the closing is done, I think the contractual terms will be finalized. Then, of course, we will do respective communication. I stress again, there's no equity contribution. This is a pure financial fixed income instrument with markets respective rates. This is all. At the end of the day, there is some further fine-tuning on closing accounts, et cetera. It might well be that the EUR 1.1 billion that we achieve might also be after the loan has been subtracted in the area of EUR 1 billion because there are other closing conditions that lead to further cash proceeds.
Therefore, the final clear communication, we will do once all closing conditions are implemented, closing accounts and purchase price have been paid. With this, I would like to move to page seven and here the dividends. As I stressed before, we are living in shakier times. 2022 was tough, but we managed well. We assume that 2023 is going to be a tough one as well, most likely in the first half. The industry will suffer from what happened in the last six months in 2022, i.e., high energy prices, high raw material costs leading to high product prices, and having softer demand now in the end markets. For that very reason, we assume that 2023 is going to be a tough year.
From everything that I've seen from my peers, I conclude that this is being confirmed industry-wise. Nevertheless, 2023 is a year where our gross debt should go down through divestiture proceeds, but also through a visible inflow from net working capital. In light of this, our financial position holds strong, and thus we can stick to our dividend policy, but keep it stable as long as we operate in volatile times. I think this is also a prudent approach that you are used to in our company. Let's come to page eight. Sustainability. As far as Scope 2 is concerned, we achieved record results last year. For the first time, we reduced our emissions on Scope 1 and Scope 2 below 2 million tons CO₂.
Please take care or please recall that when we in 2018 announced our S1, S2 targets, we stood at 3.2 million tons. Within the last few years, we clearly executed deliberately and reducing S1, S2 below 2 million tons, I think this is first class. Also on Scope 3, if I look back, where we stood in 2018, our emissions were at 23 million tons for Scope 3. We've now achieved through portfolio changes, but also through sourcing differently, putting new sourcing streams in place. We've mentioned a few here on the slides. To reduce from 23 million tons in 2018 to 11 million tons in 2022. This means chopping basically half of it off. There are not a lot of companies who've done that in a short period of time.
That's pretty much the reason why sustainability rating agencies are giving us best results. A lot of credit for what we are doing that relates to CDP being ranked on the A list, that relates to Dow Jones sustainability, where we are taking up the number one position in Europe, number two worldwide. Also, if you go to EcoVadis or MSCI, where we achieve a double A rating, I think all of that gives somewhat proof that we are really executing swiftly and in a focused way. I'm pretty happy about the fact that also SBTI has given us the clear feedback that we are fully compliant with the 1.5 degrees road map as far as COP21 Paris is concerned. There are not a lot of companies who can say that.
With this, I move to Q4 solely. Hey, that was a bloody tough quarter. 2022, if I look at 2022, was characterized in the first half with an environment where our order books were full. I mean, we could not ship as much as customers wanted. The reason behind it was pretty simple. Rebounds being caused by the pandemic because products were scarce. We had disrupted value chains. I mean, recall 12 months ago, we had on telly harbors being congested and containers not being deloaded. That is just 12 months ago. We were living in an environment of inflation. That's not over as we know. The first half of 2022 was characterized with customers ordering as much as possible.
They were not ordering 100%, they ordered 120%, 130% of volumes because they knew when they order 100, they will get 80. On top of that, customers feared that later on during the year, due to inflation, prices would even be higher than on the day when they ordered their products. We were living in an environment where customers overstocked. That has changed. We are now in Q4 and in Q1 experiencing completely different customer behavior. Customers destock. Customers are now getting enough products because containers and logistics are no longer disrupted. This has come to a complete change. On top of that, everybody sees energy prices going down, so people assume product price erosion to come. Right now we have the opposite trading pattern with customers from ordering more as much as possible.
Clearly Q4, the key theme, destocking, and it continues. Destocking will be a theme also in Q1 and we saw it in Q4. Some businesses were little impacted, like Consumer Protection. We saw only a volume decline in single digits. If you look into the group, we posted a volume decline in Q4 of 13% and in Advanced Industrial Intermediates and Inorganic Pigments, we saw it, as you see from the reporting, it's 22%. This is tough. Despite that, we managed profitability reasonably well, being somewhat at par with Q4 last year's level. It was a tough quarter and I do expect that Q1 we will continue having trough volume trading due to destocking still being visible. With this, I come to page number 10.
Guidance for year 2023, we do expect recessionary environment in the first half of the year and then, in second half rebounding. The industry definitely has a challenge to address basically the still high costs and high value inventories in the books. What we have in the books has been produced with Q4 raw material prices and with energy prices, which in Q4 were still sky high. Energy prices started to soften in January onwards. In the balance sheet, in the inventories, we have high-priced inventories. In Q1 we see soft volume. Of course, whilst customers expect a reduction in product prices, we still have to defend product pricing level in Q1 because we have to mitigate here the high value pricing in our inventories.
That's the challenge that all of us have to work with and of course that is what we operationally address. What we have to deal with in Q1, unfortunately, are force majeures. We have a ugly force majeure on chlorine, notably in North Rhine-Westphalia, particularly in Uerdingen. This impacts the Benzyl Chloride in F&F quite heavily. Here Q1 we will most likely lose something like EUR 5 million-EUR 10 million because simply we are not able to produce Benzyl Chloride. Then we have to see when the force majeure of our supplier will be lifted. In U.S. Again, we experience winter storms impacting some of our big sites. Fortunately, it seems that this should again be dealt with and Q2 will no longer be an issue in our additives business.
China, I got a lot of questions here over the last four to six weeks. China, our hope was that we will see China being present in the order book more and more after Chinese New Year. That's not the case. We don't see really volumes starting to pick up in March. Q1 will not be a quarter of China. I mean, at the end of the day, the customers need to buy. They were the ones not going to shopping centers, et cetera, until China continued with the zero-COVID strategy. The customers is back in the shopping malls. Until the value chain is really stocking up and production is going to be started again, most likely three to six months are going to pass.
Therefore, our view is China ordering will be earliest seen in May, June, but potentially might only be a theme of third quarter onwards. Of course, that would be positive in its entirety for macroeconomic industries perspective, but notably also for the chemical industry, because China, when they order, they do not only order for the local markets, it also set pricing impetus on global pricing. This will be net positive everywhere. As far as LANXESS outlook is concerned, we basically expect full year with the economic scenario I've just explained. We expect full year to be around 2022 level, give and take. As far as now, cash or balance sheet targets are concerned, working capital to sales is a ratio we will pursue further. We need to go back into the lower 20s.
We have reduced from 28%-29% at September level to somewhat 25%, but it needs to get lower. We used to be in ranges of 20%, and we have to go further from the 25% into this 20% direction. Working capital optimization reduction will be a theme that we will focus on, and therefore more look at cash than on P&L priorities. CapEx should be lower because of course HPM leaves the Consolidation perimeter and thus leading to lower maintenance CapEx on an annualized basis and in a more asset lighter portfolio setup. EUR 400 million includes growth. We are not running the company only on maintenance with this, so this clearly is the CapEx approach. As far as profitability is concerned, when we give guidance, I mean, this is a process where we go region by region, business by business.
The process started, two, three, four weeks ago. Our conclusion at that point in time was, EBITDA between EUR 180-EUR 220 should be a good corridor. Today I would clearly reinforce to all of you, for sake of cautiousness and for approach and taking reality, trading books into consideration, I would rather be in the lower end of the guidance, for model security than on the upper end. That as of today, we will be here in the range of EUR 180-EUR 190. It would be the right approach if I would be in your shoes, I would take this more into consideration than anything else.
With this, ladies and gentlemen, presentation has been delivered. Now I would open up the call for your questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star one one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star one one again. If you're using speaker equipment today, please lift the handset before making a selection. One moment, please, for the first question. The first question is coming from Andrew Stott at UBS.
Good morning, everybody. I've got two questions. Thanks for the opportunity. The first one is on Consumer Protection division. If I go back to the capital markets slide, you sort of said profit potential in 2023 was for growth. Admittedly, that was mainly for MPP and Saltigo. Is that now still possible considering the chlorine issues you have and considering the comments you're making on Q1? That's the first question. The second question, I'm looking at the back of the report and accounts, and I see that the HPM subsegment made roughly EUR 180 million of EBITDA last year, if you exclude an exceptional item. I wondered if you could comment on what that exceptional item was?
My point is, I'm trying to get to what I might consider a clean number to work with for the value of the remaining stake. Thank you.
Thank you, Andrew. Let me address the first question. As far as CP is concerned full year, my today's view, despite the force majeure, it's still clearly that we will be above previous year level. Nevertheless, we know that the force majeure will impact Q1 for sure. We now have to understand the technical implication, how long it takes on the supplier sides to correct that. Should this be an element impacting us for the entire year, i.e., there's a shortfall for the entire year, of course, we would not simply take the EUR 5 million-EUR 10 million and multiply this by four. We would see if we can somewhat find for chlorine other way of sourcing. Transporting chlorine is not easy. It has restrictions. You need to follow certain strict regulations.
Nevertheless, this is something we would investigate, how we can go for alternative sourcing. This is something that is operational work in progress. As of today, from everything that we know, our conclusion is that Material Protection will be better than last year, that Liquid Purification Technologies will be at last year's level or slightly above. F&F we had seen at or higher compared to previous year. Now we have to consider that is, it might be softer. As far as Saltigo is concerned, I mean, the agro industry is doing well. We would consider that Saltigo would be at or above previous year level. The message on Consumer Protection that I conveyed in last year, I would confirm today. Yet, of course, we still have to investigate the force majeure on the chlorine side.
Michael, you take HPM?
Yes. Andrew. Hi, everybody from our side as well. With regards to the reported number on HPM, you're right. Operationally, we were at an EBITDA pre of give and take EUR 180 million. The reported exception is in the amount of roughly EUR 20 million was largely related to the carve-out
Which we conducted in course of 2022. you know, that was the remaining closing condition on our side to separate the HPM business to a legal entity structure. These were the majority which were relating to the exception as reported.
Okay. Thank you very much. Just to follow up on HPM, on your comments, Matthias, at the beginning, can I just check that you said the following: "It is likely we will do a loan to the JV, which will be repayable, I think, in FY 2026, and that loan will have a maximum value of EUR 200 million.
We said it's a loan, so that was the question, that it could be equity. This is not the case. There's no intention on our end to step away from the deconsolidation, that's the message number one. Message number two, from our side, of course, we are a good shareholder, but we have our restrictions, and other priorities, EUR 200 million is the max, nothing more. Third, it's a fixed income instrument. We have not talked about duration. We only talked about the scope or the magnitudes and fixed income instruments as a fixed income coupon. I stated a third element, this will be market pricing. That's basically it. All other details, we would communicate once the thing is contractually finalized.
Perfect. Thank you very much.
You're welcome, Andrew.
The next question is coming from Georgina Fraser at Goldman Sachs.
Hi. Good afternoon, Matthias and Michael. Thanks for taking my question. I wanted to ask on your cash flow outlook, I think we've had another fairly kind of disappointing quarter, and it's an area that you know the market is incredibly focused on. If I take a look at all of your building blocks in the outlook, it implies a cash inflow of up to about EUR 500 million. I just wanted to ask if you could, you know, confirm that, run through the various moving parts, and then maybe give an idea of where you expect to end the year on a net debt to EBITDA basis, if you also include the proceeds and maybe the loan for the engineering materials JV. Thank you.
Well, Michael will definitely address this question specifically. I would, however, like to shed some high-level comments on this as well. We know that cash flow is something we are going to improve on. I made that crystal clear in my presentation. If you look into Q4, you at least see that on the CapEx side, we executed respectively lower CapEx versus Q4 CapEx 2021. Second, for the first time you see inventory reduction. We walk the talk on what we have communicated in November. Q4, what took us by negative surprise was the low volume momentum that was lower than we originally had anticipated. Of course, when you have lower volume, you've lower utilization or you have higher idle costs that you need to absorb.
We operated, believe it or not, in Q4 with a utilization slightly below 60%. Delivering profitability of EUR 175 million with a utilization below 60%, I could not have imagined a few years ago. Q4 was really a tough quarter in terms of volume decline. It's a theme in the industry. Most of our peers had a collapse in profitability versus previous year. We mitigated that basically through a change in portfolio over the last two years. Cash-wise, we definitely suffered as well. Despite reducing inventory by more than EUR 120 million, we took a hit on cash. Second, in Q4, if you look into the details, you see that we had some cash outflows for legal, technical rulings that date back to 2014, 2015.
I think Michael can explain that in further detail. It has to do with the renewable energy legislation in Germany. Therefore, we paid our dues according to a new regulation, and we executed this respectively, which was by and large, EUR 50 million cash outflow. With this is dealt with. Therefore, you saw hits on the Q4 cash flow respectively. You can look at this from a negative standpoint. Here, if you only look at the absolute numbers, I fully agree with what you said. If you look at what we had communicated in November, you see we start executing on CapEx, we start executing on working capital and all other themes that we would like to implement in order to improve cash flow, we will continue going forward into 2023.
On net debt EBITDA range, I give you feedback on cash proceeds. Net debt EBITDA will go down. We don't give a guidance here. We simply say that we would like to stay with an investment grade. We are not giving an absolute cash flow targets in the, on the financial side for the models. I think this is some work that you can do as analysts. We give indication where we would like to be networking capital-wise in terms of ratios, and what our priorities are. Michael can be more specific at his discretion. Michael.
Hi, Georgina . Giving a little bit more glance, maybe at first hand on the Q4 changes in other assets and liabilities. What Matthias Zachert said, and you find it as the first bullet on the slide, exceptional cash out to German EEG, which is the renewable energy law. In the past years, we built accruals in our P&L. Why we don't have a P&L effect in the fourth quarter, but the final settlement now was done in the fourth quarter. That is why you don't find a P&L effect no longer because the accruals were done over the past years, but the cash out, and that is then reflected in that line. The second element, which we highlight here, is variable compensation, and that goes kind of in the same direction.
Throughout the whole year, we build an accrual for especially, or namely our, let's say, 13th salary, which we're paying back in the fourth quarter. That is why you usually find in the fourth quarter a negative cash out of EUR 30 million-EUR 40 million every year. We did not display that last year because we had positive effects last year, which were compensating that effect. The last effect is, and that is happening from time to time, when we are recording F15 earnings. F15 earnings usually do not come in line, or let's say, in par, in terms of timing with cash-ins. You usually have these cash-ins at a later point in time, and that is the third element on that line.
As each of the elements account for give and take a third, you can see that the hit which we were taking in that line was way over-exaggerated. As I said earlier, usually fourth quarter, if you look back the past three, four years, the number is between EUR 30 million and EUR 40 million, give and take. For the outlook for next year, or let's say 2023, I think Matthias mentioned the major elements. I can as well only reflect to what we were saying at the Capital Markets Day. We said from working capital, indeed, there should be or could be, and we're targeting an inflow of something between EUR 300 million-EUR 500 million from the number which we were displaying in the first nine months. We knocked down now working capital by EUR 126 million in Q4 already.
If you dig in a little bit deeper, you recognize that the inventories and receivables come down already to a good element. Yeah, we were in a position to knock down inventories, and that was to some extent driven by prices and by volumes. That is what I would like to add for the cash flow statement.
Okay, great. Thank you.
The next question comes from Martin Rödiger at Kepler Cheuvreux.
Yes. Thanks for taking my two questions. one question is on for the handout page 16. Thanks for this chart. It seems that pricing catch up in 2022, in absolute terms, is more pronounced than the pricing gap you suffered in 2021. What makes you confident that customers will not put pressure on you to give back the windfall profits? The 2nd question, it seems to change your mind on the intended EUR 300 million share buyback program, obviously, due to feedback from investors. Is it right to assume that primarily some European or German investors are against share buyback? Is it because they want to see a leverage first? Thank you.
Well, thank you for your questions, Martin. On pricing, basically, we always said that in 2023, we would like to cap-catch the delta of previous years. The lack that we saw on energies, notably in 2021. We did that. Therefore, 2022 was on pricing a very good year. We executed well, and I think this was visible quarter on quarter throughout our three divisions. As far as price, you mentioned windfall profits. What we now have to do, and this is operational orchestration, we have to make sure that in Q1, whilst everybody is seeing energy pricing going down, that we still defend our product prices because our inventories are still priced on the energy prices of Q4 and raw materials of Q4.
This is the challenge that all of us in the industry have. We have to defend our product prices whilst we still have high-priced inventories on our balance sheets. We need to defend this in Q1. Of course, in Q2, we have to see where demand is. Based on this, we will then decide on pricing going forward. The challenge in Q1 is basically digest the high-priced inventories and defend that through product prices that are still at quite robust levels. Now, on share buyback, I will not be country-specific. There are definitely differences in the regions. By and large, all investors clearly give us the feedback preferences for liquidity or net debt reduction. Gross debt and net debt reduction, that's the key theme for 2023.
Preference here is net debt reduction. Some investors, not only in Germany, basically say, your enterprise value is okay, and whatever you reduce in debts will be one to one reflected in equity. The feedback is net debts and gross debt reduction, and this is, of course, what we take into consideration. For that very reason, the decision on the communication we've done today.
Further questions, please.
The next question is coming from Rishi Chaudhary at Citi.
Hi. Thank you for taking my question, please. Just the one. This comes up to this, the EUR 200 million loan. I think you said that the EUR 1 billion will be post the EUR 200 million subtracted. Just wanted to confirm with us if I heard that correctly. With regards to the actual loan, EUR 200 million, I should understand that as being a genuine loan and therefore there's no repercussions on the 40% stake of LANXESS in the JV, so that 40% remains in place. Just want to clarify the answer, please. Thank you.
I will reiterate what I've said before. It's a loan, and the loan periods. Second, it will be maximum EUR 200 million, and this is basically it. It has nothing to do with our 40% stake. Our final comment is we will get EUR 1.1 billion proceeds on first of April. Now we have to see in closing accounts or when you finalize the joint venture. Of course, you have to look at closing accounts. There are certain contractual mechanisms like working capital balance. If you deliver more working capital, you get cash. If you deliver less working capital, you get no cash. Therefore, my feedback here is we will get EUR 1.1 billion at least.
It can be more, and it will not be less. Of course, we have to look at where will we net cash stands after purchase price has been settled. It starts with 1.1, and then it can become more, depending on closing mechanisms. That's the reason why we will only comment on the net cash proceeds once we have finalized the calculations on the closing mechanism and also agreed with Advent on the capital support that we give to the joint venture.
Understood. Thank you.
You're most welcome. Next question, please.
The next question is coming from Jaideep Pandya at On Field Investment Research.
Thanks. I'm sorry to harp on this, but this EUR 200 million loan, could you just tell us from the action or contribution, given that you as a shareholder are giving a loan to the JV? The second question, which is a lot of investors these days, is given the low profitability of the joint venture right now, how that it will cover the interest payments and the restructuring, which potentially does JV needs to capture the synergies, given the strong complementariness between the two assets. That's my first question. Then the second question, shift gear. Plus, any update on the Tinci project that you have or the Standard Lithium project that you have around the radar?
Jaideep, the line is not very clear, but I think I've understood your questions, so I will take them one by one. EUR 200 million, I said, this is the maximum. We can take this as assumption, again, contracts are not finalized, but there would not be more than EUR 200 million, at max in the contract. This is something that we contribute on our end. We only do that because the joint venture partner does that as well. There is a support in the way we can support the joint venture, because we clearly acknowledge that at the outset of the joint venture, we had assumed a better trading for the industry, for the joint venture.
The trading, of course, in second half 2022, definitely was softer than originally planned. For an interim period of time, we would like to give support to the joint venture. That's basically it. Second question. This joint venture starts despite the current economic downturn and down cycle, our assumption is that the trough in the markets we have seen in Q3 and Q4, whilst Q1 already starts to improve. Therefore, our view is the joint venture doesn't start with now low profitability. The businesses that we reported in summer last year were at, without synergies at levels of round about EUR 500 million EBITDA. There are substantial synergies that will be delivered.
If this is in place, our view clearly is the joint venture will be able to pay its dues. Of course, once industry is rebounding, not only paying its interest, but also, generating enough cash in order to lower leverage. By and large, the portfolio of this joint venture should be a cash machine. We have only one point or one part of the value chain, which is upstream. That's the caprolactam polymerization that we contribute into the joint venture. That's to some extent, the backbone to the compounding, which is worldwide. It gives an integrated value chain. The caprolactam production, please take into consideration, there was one competitor who takes one capro off stream. Our capro plant in Europe is world scale, 230 kilotons-240 kilotons.
This is the monster plant here in Europe, at very competitive input costs, and even more competitive now that the industry landscape is consolidating further. This is clearly considered as an add-on for our automotive OEMs. They like the integrated value chain. Therefore, on your second question, once the markets somewhat improve, come back to normal trading, I think the joint venture will be a real strong cash machine. As far as lithium is concerned, I mean, we made a clear feedback in November that this is something for end of Q2, beginning of Q3, because studies are running and there is no change in timeline. Now, dear Jaideep, you need to simply wait as we are waiting.
Operational work needs its time, and they are doing the studies, and studies will be finalized end of Q2, beginning of Q3. Once, we are end of Q2, beginning of Q3, I think it's appropriate to raise the question again. Before that makes no sense.
Any word on Tinci?
Well, on Tinci we are meeting. The plan is that we will meet them again in Shanghai in the second quarter, and then we will see. If there had been a contract or anything close to it, we would communicate. As there's no communication, we are still in the discussions with them.
Great. Thanks a lot.
You're welcome.
The next question come from Andreas Heine at Stifel.
Yes. Thank you. Three questions. Sorry for coming again back to the joint venture and the calculation. The EUR 1.5 billion showing up in the balance sheet, my understanding that is the equity value. Whatever the enterprise value is minus that, and then you have the equity value, 40% is your part, and that is EUR 1.4 billion. Adding to this, the loan of EUR 200 million, I would think to show up as financial asset on top of that, so that we will actually see the EUR 1.4 billion plus EUR 200 million in the balance sheet. If that's true, I'd like to confirm as my first question. The second is, can you give an update on the IFF consolidation? You said you are behind or basically the former owner was behind in increasing prices.
Is there any progress you can report on? The last one is on net working capital. Q4 was a very weak one, which means the receivers were very low and inventories were very low. If you assume that the second half will show a pickup in the economy, usually you would assume that receivers go up and the requirement of inventories as well. If you plan for some net working capital decline or inflow, then it has to be your management in improving the whole net working capital management within the firm. Is that the right reading or do you plan for, let's say, lower raw material prices helping on your, on its own for the net working capital at year-end 2023? Thanks.
Thank you, Andreas. Michael will take questions one and three. I will start with IFF and give also a comment on number three, net working capital. IFF, yes, I mean, IFF is, we saw with IFF also volume contraction and destocking, and not in all industries, but we saw that also here end industries where, in most of the end industries of Microbial Control, there was a balance sheet cleaning at the year-end as well. That was definitely not as pronounced as we've seen in other industries, but it happened there too. As far as pricing is concerned, the journey on pricing is still a catch up and not a decline. That will be the theme for IFF.
Now on your third question, you're totally right on ratios, net working capital to sales, and your analysis on second half this year is valid. If there's a rebound in markets, there will also be a rebound in top line, and therefore the ratios are then nominal-wise increasing, the relative ratio can still be in line. The second answer to your net working capital to sales question is running the business for more cash instead of profitability will still be a theme for 2023. We stated in November that we will work on leverage and working capital in order to improve cash flow and lower indebtedness. That will be, of course, the consequence.
If the consequence is to have some more idle costs, for instance, in order to sweat out inventories, be it, then of course, we will take a hit on profitability but deliver on cash inflow. Therefore, the ratios we've communicated will be management decision in light of the priorities that I've just mentioned. Michael, why don't you take the first one and potentially drill further on the third one.
Andreas, hey. Yeah, your assumption is totally right. There are two lines which are affected, obviously, the investment in at equity. Assets, and here you will see the residual from the EUR 2.5 billion enterprise value minus the at least EUR 1.1 billion in cash, yeah, which is then around EUR 1.4 billion. If we grant the loan, it will be a financial asset, which will be then totally separated from this at equity line. With regards to net working capital, there is not truly much to add. Of course, there's always a certain seasonality to it, within our overall, let's say, development in the net working capital. Hey, at the end of the day, we have to knock it down and there is a good amount of management behind it. That is clear.
Sorry, Michael, to add again on this joint venture to be absolutely clear. I know that the EUR 1.1 plus the EUR 1.4 is exactly the enterprise value you were mentioning when you announced the deal. My understanding is what you show in the balance sheet has to be an equity value. It is the enterprise value minus the debt and then your 40%. Is that right? What you see is the equity value, what you should then receive when you sell the stake. Is that, is that fair?
That's fair. Then in future, you will have then the deviation of the equity of the joint venture being reflected in our at equity consolidation and the impact in the P&L you find in our financial result.
Perfect. Thanks a lot.
Thank you, Andreas.
The next question is coming from Samuel Weber.
Yes. Hello. Can you hear me?
Loud and clear.
Okay. I, first of all, I was quite impressed to see how your gross margins were holding up despite the huge inflation. This is quite a good sign of strength. I would be wondering if we, gas prices in the future will definitely be higher than in the past in Germany, and if we consider, like, a future price for term LNG to be like something like a Henry Hub plus transportation costs. How would that influence the long-term competitiveness of your Advanced Intermediates segment? That would be my question. Thank you.
Well, what we have to look at in Europe is where is the new normal on energy prices? This is something that you can make certain arithmetic calculations on that, like we have done. If you assume that, entire Europe will be priced on LNG, then the gas price in Europe should be somewhere in the area of, EUR 35-EUR 45 per unit. I think the precise calculation, would be, in the high 30s, but, therefore, let's keep the range of EUR 35-EUR 45. If you look at the futures now for, 2026, 2027, 2028, we see that gas prices TTF forwards for, Europe are already going in that direction.
We are now in the 40s, and we used to be in the 150s, three, four, five, six months ago. If the gas pricing somewhat stabilizes. However, if you look at N-Norway or Netherlands gas through pipes, definitely the pricing is lower. There is also rationale why futures can even obtain lower pricing than the 40s we currently see. With this set of assumptions, of course, we have to go through our assets, through our P&L, and we have done that. When we look at the current future pricing, i.e. TTF being at round about 40-45, and assuming that the gas price will dominate the electricity pricing and 100% of the energy prices in Germany, which is not the case because Erneuerbare-Energien-Gesetz or renewable energies are on the rise.
If we take the most conservative assumption, we will have to go through our portfolio, and then it pretty much boils down to the assessment we've provided in May last year, when we reflect that there are three plants out of 53 that are more gas-intensive, energy-intensive, and they might have more pain and lower profitability going into the future. For these three respective plants, we now need to analyze also, of course, what customers are thinking and if they have access to second and third supply sources. That might, in the next 12, 18 months, be a decision factor for can they be competitive or not. If you look at the majority of our sites, the majority of our sites in Advanced Industrial Intermediates is competitive.
The two, three sites, that in North Rhine-Westphalia are under pressure are the ones we have on our monitor.
Okay. Thank you.
You are welcome. Next question, please.
The next question comes from Markus Mayer at Baader Helvea.
Yeah, good morning. Two questions from my side. First one, a small question on this winter storm effect in Q1. Maybe as percentage, could you give us the magnitude, please? Second, you recently invested heavily in the Spain. Will potential subsidized industrial power prices change your investment focus in Europe? That is my second question.
Markus, can you maybe repeat your questions? We had a difficulty understanding you.
First question was on the magnitude of the winter storm effects in Q1. Understood that this is basically derivatives mainly. The second question was on your investment policy. In the past, you invested quite a lot in the Spain. My question is, will potential subsidized industrial power prices change your investment focus in Europe?
The question on winter storm, Michael will take. The investment policy, what was the question? Where do we invest?
No, basically the question.
From a regional perspective, right?
Exactly. From a regional perspective. If a potential subsidized industrial power price in Europe and in particular Germany, if this is coming, would change your investment focus?
Very, very valid. Michael will take the winter storms. I will more look at the sun parts, come to your second question. If we look in the United States, I mean, there are, if you look by and large into the macroeconomic institutions, let's see what the United States has done over the last several years. In 20, was it 2018 or 2019? The tax reform, which was massive under the previous administration, was put in place, making the tax base, one of the most competitive one for businesses and industrial players. The tax taxation for corporates, in the United States is first class.
With the IRA, or the Inflation Reduction Act, I think this was just passed in August last year, there is still drafting that needs to be done and interpretation that needs to be done. I mean, this is still fresh. Here a second element comes into play, that investments are being supported and tax credits are given. If you look into something that all of us know, discounted cash flow calculation, and you have a low tax rates and investments are being subsidized or supported, any discounted cash flow calculation looks mouth-watering. Now, if we look into the United States, over the last five years, we've enlarged our asset footprint from something like 10, 11, 12 percentage points to more than 26 percentage points.
It has substantially increased, and that's the reason why we are looking at our projects in the United States. We clearly prioritize organic investments in the United States. I will myself be next week in the United States, also informing myself on the Inflation Reduction Act. I will meet politicians in order to strengthen our connections and relationships in the United States. We clearly see that United States is the place to be in terms of production and investing.
Should we have the choice to invest between Europe and North America, today we would decide, if all things being equal on other perspectives like customers and markets, we would definitely decide for the United States because this is from the economic setup, from the market size, technology friendliness, et cetera, tax regime, and pragmatic administration, the preferred place to be. That's on your second question. Now, Michael, you will address winter storms.
Yeah, Markus. The effect from the winter storms is in the same ballpark, like the effects which we're highlighting for the chlorine force majeure of our suppliers. Around EUR 5 million-EUR 10 million.
Okay. Thank you.
You're welcome.
As a reminder, if you have a question for our speakers, please press star one one to enter the queue. The next question is coming from Chetan Udeshi at J.P. Morgan.
Yeah. Thanks. Two quick ones. First is, you know, thanks for flagging some of these one-offs on cash flow line. I was just looking at the cash flow in detail. It seems there were cash tax refunds both in 2022 and 2021. Can you maybe help us understand how you think about the cash taxes in 2023? Because we've seen with some other companies some sort of a catch-up in 2023 in terms of cash taxes phasing. The second question, I was just curious in terms of what you see for order book. I think Matthias, you referred to China not showing any improvement yet. What about, you know, Europe and U.S.?
Is that similar pattern that you see in terms of your order book looking into Q2, given that we are almost in the middle of March now? Any color on what you see for Q2 will be useful just from an order intake perspective. Thank you.
Yeah. On, on cash flow, Michael will make a call. On your second question, we make comments on Q4. We give, a color on Q1, and on Q2, we will make comments when we report Q1. Michael.
Chetan, you are absolutely right. We saw some refunds from the down payments which we did in previous years, in 2021 and 2022. If you look into the balance sheet, you will still find some receivables which we have from income taxes. You should for 2023 not apply the P&L tax rate, which we guide now down 1% from 28% to 27%.
At an even lower number. It's hard to really judge and guide now a tax outflow, clearly that number should be lower than the P&L tax rate, which you will find. There will be an outflow in 2023, in total.
That's clear. Thank you.
You're welcome.
The next question is coming from Rikin Patel at BNP Paribas.
Hi. Thanks for taking my question. Just one left. Again, just going back to some of the components around the guidance. Just on the CapEx number of EUR 400 million, how is that going to be phased throughout the year? Because I suppose last year, that was quite back-end loaded. Just curious how we should be modeling that this year. Thanks.
Thank you for your question, Rikin. I will immediately take it up. You will see the usual phasing as well in 2023. That's the plan. You usually see that in the fourth quarter, we spend around 40% of our overall CapEx budget. That is due to the fact that the majority of our good number of our maintenance turnaround is happening in the fourth quarter. That is why usually our earnings number is lower in the fourth quarter on absolute basis compared to the other quarters. To cut a long story short, you should expect as well a back-end loading in 2023.
Thank you.
You're welcome.
We have a return question from Jaideep Pandya at On Field Investment Research.
Thanks a lot, and I apologize for asking this again. Just wanted to understand the gesture you're putting of EUR 200 million and Advent put. Is this to support the business through a low point in the cycle and to maybe even quicken the restructuring needed? Or is from the debtors for the equity shareholders to put more capital for more confidence? Just wanna understand the motive behind. Thanks a lot.
The motive is very, very simple. We think this is a temporary situation where the shareholders need to help. If we would consider that this would be a long time structural difficulty, most likely the financial instruments would be different. Our clear assumption here is this is a temporary difficulty where the economy and the industry has gone downwards. We know that businesses go down, but they also go up. For the current downturn, we support. Once the business has implemented synergies and markets are rebounding, then we assume that we can basically lift and reduce the financial support again. That's therefore the answer to your question.
Thank you so much.
Thereby, we have really used a lot of your time. Thank you. Matthias, maybe some closing remarks.
Well, thank you very much to everybody. Thank you for dialing in. Michael and I and with the IR team will be on road show, looking forward to seeing you. Stay healthy and positive until then. Take good care. Bye-bye from Cologne. Bye-bye from LANXESS.
Ladies and gentlemen, this concludes the LANXESS conference call. Thank you for joining, and have a pleasant day. Goodbye.