Thank you for joining our LANXESS Q3 results 2026 conference call. If you would like to ask a question, you will need to press star, nine, and the pound key on your telephone and wait for your name to be announced. I will hand over to Eva Husmann, Head of Investor Relations, for the opening remarks.
Yeah. Thank you, and welcome everyone also from our side. Thanks for joining today's call. Please, as always, take note of our safe harbor statement. With me today are, as always, LANXESS CEO Matthias Zachert and CFO Oliver Stratmann. We will share a brief overview today and focus on your questions afterward. With that, let me hand over to Matthias.
Thank you, Eva, and welcome to all of you participating to this conference call, Q3 LANXESS. We will be super brief and will only present to you three slides, as we know that today is a heavy reporting day, especially for the sell-side analysts, so that we can quickly present and then move to the questions. All in all, I would like to make the entry statement that the economic environment remains tough, and for that very reason, we are doing our best wherever we can. You see that the Q3 print is characterized by price increases, which we started to announce and implement from Q2 onwards. Of course, in Q3, you see that also the contractual side, where we have quarterly contracts, the price increases are visible.
Second, we keep our costs under tightest management, and this is visible if you look at the nine months financials, that in the functional costs, by and large, we reduce everywhere. The cash flow is a strong priority, has been clearly confirmed to you already last year, and this year, clearly, it continues. The measures that we have implemented are, of course, now more and more visible, which we are happy to report. Let me go to slide number four. As far as EBITDA is concerned, we have not only achieved a sales price increase of 8 percentage points , total sales moving up by 10 percentage points , but EBITDA moving up by 11%, leading to an absolute value of EUR 139 million. We clearly would like to stress this is still too low. It is a consequence of the economic environment, persisting high energy prices.
The latter ones are even going up, but we are dealing with this. We are doing our best, and we would like to bring this in absolute terms and margin-wise also forward in the years to come. Free cash flow clearly improved, and one reason behind that is the tight net working capital management. When you look at absolute numbers, they are pretty much stable year-on-year, but I would like to stress that we have seen a very inflationary environment on raw materials and also energy costs. With an increase in the input costs, it is, I think, an outstanding job of the organization to reduce volumes respectively, and therefore be capable of keeping working capital at the level of previous year. Net financial debt is therefore tightly managed, and it goes without saying that we will reduce this absolute net financial debt going forward.
Let me turn your attention to page number five, operational free cash flow. You see here the clear improvement year-on-year, and not only with one quarter improvement, but now a continuous improvement, which is the result of our effective cost savings that we implement. You see also that headcount in the reported print goes down sequentially, and this will continue going forward. Strict capital, working capital management, I have already stressed. With this, I turn your attention to page number six, and here our guidance. It is obvious that the broader range that we had communicated beginning of the year, I think we stated that with our full-year financials that we communicated in March, the first range was broader, and now we have narrowed it down.
In light of the increasing energy costs that we basically see from the second quarter onwards, of course, we appear to fight hard to get that passed on into the market. We have done that for Q3. For Q4, we will fight for it, even though the energy increase in Q4 is the steepest. In light of that, we have narrowed the guidance, which is EUR 450 million to EUR 500 million, and we precise it to be rather at the upper end. Fourth quarter, we clearly focus on cash flow, as we have done year to date, so please understand that we will not lose the priority and the focus on this one, and will do our very best to be delivering a good free positive cash flow also for Q4. Ladies and gentlemen, this is all from us as far as presentation is concerned.
Now, I think after 10 minutes, we can swiftly turn to your questions. Eva, please start the process.
Yeah, sure. First question is from Martin Rödiger at Kepler Cheuvreux.
Okay. Hello. Thank you for taking my two questions. First question is on Saltigo. One big crop protection producer recently said that it wants to bring down costs, including renegotiating the existing contracts with its suppliers. Can you confirm that some customers put pressure on Saltigo regarding pricing, which weighs on your earnings and margins at Saltigo? Second question, you talked about the rising energy costs, especially for Q4. What is your expectations for your energy bill in the current year and also in the year 2027, and to which extent are you hedged for energy costs? Thank you.
Thank you, Martin. I mean, in light of very tough agro market environment, it's obvious that everybody is trying to put pressure on everybody. This is happening from, of course, customers, this is happening by us on our suppliers, and therefore there is pressure in the system. It's quite normal that everybody announces that he will put pressure on whoever is supplying him. So this is, I think, more than normal. With this, immediately I hand over to Oliver on energy.
Yeah, Matthias, thank you, and hello, Martin. Matthias has already mentioned we're expecting quite a substantial hike in energy costs in the fourth quarter. I would point to something like EUR 50 million that we have to carry then. What I found more difficult, now you also asked for 2027, this is really like looking into a crystal ball, so I would refrain from giving any views there. In terms of hedging, indeed, we have basically two layers that add to each other. One is that we had announced earlier, we have in the relevant contracts clauses that allow us to push through energy costs to customers with a certain time delay. This, in addition to some financial hedges we put in place, I would guide you to expect in the magnitude of around about 30% of our energy exposure. I think with that, I've answered both questions.
Yeah, the only point I would like to pick up is on energy, is predominantly gas. I know there is a lot of speculation on gas storage levels, et cetera, and tightness in the markets. When I speak to my colleagues in the industry, also as far as the energy companies are concerned, to some extent, we consider that the current gas prices are having some overreaction embedded into it. People consider that potentially the storage levels in Europe are too low, specifically in Germany. The only point I would like to address here, they are lower than in the past. There are reasons for that, and one of them is, by now, Germany has four LNG terminals, which did not exist four years ago.
The German system is set up to be more flexible, and when you use these terminals respectively, you can basically relatively quickly store up if need be. For that reason, we look at energy prices. We also, of course, will take our assumptions going forward. We do assume that energy will remain at an elevated level, but the likelihood that this could also go down compared to 2026, we consider as likely. With this, I think we have broadly answered your information request.
Just one clarification. If you factor in the EUR 50 million additional energy cost in Q4, as Oliver said, and knowing what your energy bill was last year, 2025, should I expect then something like a EUR 600 million or a EUR 700 million bill for this year?
Well, we had around about, as Oliver indicated, EUR 70 million increase all in, 2026 versus 2025. You can rather take numbers around EUR 450 million for last year for the entire group, leading now to something like EUR 520 million for 2026.
Thank you.
You're welcome, Martin. Next question, please.
If you would like to ask a question, please press star nine and the pound key on your telephone keypad. We have the next question from David Symonds from BNP Paribas. The floor is yours.
If I just come back on Martin's question, I want to double-check that I heard you correctly that it's EUR 50 million additional energy costs in Q4. It's EUR 70 million for the year, so I guess the increment is EUR 30 million. Sorry, you've seen EUR 20 million already, so you have an additional EUR 50 million in Q4. Just struggling to see how you get to the top end of your new guidance with that in there. Could you perhaps help with the Q4 bridge, whether there are any offsets? Second one, could I ask on- It seemed like pricing accelerated quarter-on-quarter when you mentioned contractual pricing started to kick in, but volume growth slowed despite an easier comp from the prior year on volumes.
Is it getting harder to push those prices through and maintain share, or was there a temporary share gain in Q2 that then normalized in Q3? Or was it a net working capital mechanism as sort of support to your net working capital? Then, I think the last one, please. Is there anything you can do to accelerate deleveraging outside of the Envalior stake? I am thinking here about some of the assets that might command a higher multiple, like, for example, the Liquid Purification Technologies division. Is there anything else that you would consider selling? Thanks.
Yeah. I will give a high-level statement on your first question and leave it up to Oliver if he wants to back that up further. I mean, we have now done our guidance. The guidance is, we have precised it now on the back of our Q3 numbers. But of course, we look also into now October, November, and December order book, point one. Point two, Q4 is not a walk in the park, no doubt about that. I mean, we give you the incremental pressure that we will face from energy. But at the same point in time, I would like to allude to the fact that we, over the last two quarters, always stressed that our savings and cost savings are backend loaded. You see in the print that headcount reduction is moving up, accelerating.
With this, we, of course, take all countermeasures, like we do on the pricing sides. So that is on the energy sides. On your second point, price volumes, in second quarter, we, on average, increased prices around 2% to 3%. You now see that contractual pricing kicks in. We are now at close to 8 percentage points, whilst volume are still positive. Of course, when you do prices, when you push prices upwards, you also need to be prepared for losing some volumes. But you have seen that on the third quarter developments, we did positively in both regards. As far as deleveraging is concerned, I clearly make the statement this remains a priority to get it down. We have been a company that over the last five to 10 years, I think, have always worked on our portfolio and adjusted it.
I am not here to make any further comments, but that we are a company that is always focusing on sound financials and do active portfolio managements is something that we have proven in the past, and I hope that nobody has forgotten this. Oliver, any further details?
No need for me to add anything, Matthias.
Well, you have well prepared me, so thank you for that. Next question, please.
Very good. Thank you very much.
You are welcome.
Next question comes from Chetan Udeshi from JP Morgan. The floor is yours.
Yeah. Hi. Thanks for taking my questions. First question is, can you confirm that your price increases were enough to offset both the raw material and energy cost inflation? That is first question. The second question was, I saw the mention in your report that there was some benefit from tariff refund. I would imagine it is probably small, but if you can clarify how much that was. And the third question, probably a difficult one for you to answer, but one of the things I hear from some investors is if you look at the coupon of Envalior debt, which is now today somewhere close to 16%, 15%, I guess people worry that the value of Envalior to LANXESS and the shareholders is virtually zero because that is what the debt market is pricing in for Envalior.
I do not know if you have any way you can bring more confidence to the market right now in terms of how they may be doing, and how do you think we should be thinking about in terms of the value of that stake for you? Because clearly it is quite material to the overall equity value of LANXESS. Thank you.
Yeah. Well, Chetan, all spot-on questions. I think the best is that Oliver takes the first two, and I will take the third one. You would like to go ahead?
Yeah. Fine. First one was on whether we have increased our prices enough to completely offset raw material and energy cost increases. Indeed, I can confirm that on a total company level, we have achieved that. Then you have mentioned the tariff refunds. Here, just to frame it, indeed, we have mentioned that we have received tariff refunds, while, of course, the tariffs are ongoingly there. So, we continue to have them as an expense, as a cash out as well. But the refunds we have received in the third quarter are in the magnitude of a mid-teens number.
Fantastic. Then I would just like to give some further color to you, Chetan, but also, I have seen some analyst reports putting concerns on intermediates. Also, in intermediates, we were able, in third quarter, to visibly raise prices. I think this is documented in our deck. When you look that up, you see that here in the third quarter, strong prices were pushed through by both business units in order to mitigate energy prices. I think this is a sign of strength.
That they have to deal with the steepest energy increases in intermediates is one you, I think, all understand. The good thing here is that they basically compensated all of that. That is what I would like to add to the answers of Oliver. Now I come to Envalior. Well, I think I hear your concerns, but I would like to put that a little bit into perspective and address some facts. The easiest is when it comes to liquidity and financials, I think, to make use of rating reports. I have the latest one of Moody's ratings in front of me that was issued on the 2nd of October, so quite recently.
Under the headline Liquidity, they write, "Envalior liquidity is adequate. As of end of June 2026, the company had around EUR 212 million of cash and access to EUR 208 million on the company's syndicated loan." So, I think this statement is very clear from a rating agency. Second, you have another indicator, and these are the term loans that Envalior has in the markets. These term loans are rather trading in the 70s and 80s and not close to zero. So, the fixed income lenders apparently have trust that the term loans are in a reasonable position, not best position, but in a reasonable position. That should answer, Chetan, your question on Envalior.
Got it. Can I clarify whether those tariff refunds, are those in your EBITDA, or are you refunding those back to customers? Because otherwise, one can argue your actual numbers maybe are inflated by EUR 15 million. But I guess there will be some refund of that to customers as well.
Yeah. The numbers indeed go into our cost base and are a relief there. But remember that I also mentioned that there are ongoing tariff burdens that we are carrying every quarter.
Understood. Thank you.
Thank you, Chetan. Next question, please.
Thank you. As a reminder, if you would like to ask a question, you can press star, nine, and the pound key on your telephone keypad. We have the next question from Tristan Lamotte from Deutsche Bank. The floor is yours.
Hi. Thanks for taking my questions. The first one's on cash. I just wanted to check, am I right in saying that each of the businesses, say in Q1 2026, before this exceptional Middle East situation, is it fair to say that each of the business units, so Saltigo, Rhein Chemie, Lubricant Additives, et cetera, they were able to generate positive free cash flow maintenance CapEx? In that kind of Q1 2026 scenario, which of those businesses have a better and worse cash generation? Second one is kind of an adjacent question on Envalior. My understanding, which I hope is correct, is that the shareholder loan that you have outstanding from Envalior is subordinated to the other debt. I think there's an obligation to pay out some of the loan when you partially exit your position, so say in 2028.
Could you maybe clarify how that mechanism works and the level of confidence on that payout? Thank you.
Let me- Yep. Tristan, thank you for both questions. On the first one, we give divisional data. We give divisional EBITDA, and therefore, this should give you some color and understanding. We will not go business unit by business. I think what you clearly see is on group level that everybody contributes or- We everywhere try to improve cash generation. There is no business unit that gets relief or whatever. At group level, I think you see where we go. You see where we stand on costs. You see where we stand on working capital. We will not break that down at business unit level. That eventually is business intelligence, the scotomas in the markets. We are not inclined to go on business unit level. I hope you have understanding for that. Oliver will take your questions on the intercompany loan, the shareholder loan, and please take the ball.
Yeah. Tristan, the data on the shareholder loan or the valuation is actually a fair value valuation, and you can see the data in detail on page 11 in our quarterly report. Since that compares with a slight increase in value from December to now September 30th, I think that gives a clear indication with regard to the value that we measure the loan with, and indeed, it has to be paid back pro rata, including interest, in exactly the same portion that a stake in Envalior will be sold in 2028.
Very helpful. Thank you.
Most welcome, Tristan. Next question, please.
Thank you. We have one question from Matthew Yates from Bank of America.
Hey, good afternoon. Good afternoon, everyone. Thanks for taking the question. Probably directed at Oliver, just around cash conversion. Forgive me if I don't have these numbers exactly right, but the other asset and liability line of the cash flow statement shows a sort of year-on-year swing of a bit over EUR 200 million. Can you help us maybe disaggregate and break that down a little bit as to how much relates to restructuring charges, bonus provisions, any other big moving pieces, so we may have a better handle on how that line could evolve going forward? Thank you.
Yeah. No, thank you very much for the question, Matthew. Indeed, I'm glad you have already mentioned that basically all of the changes in any of the provisions that a company does, plus the correction for non-cash items, runs into exactly the other assets and liabilities change line item in the cash flow. Now, before I start breaking out individual provisions here, let me say that indeed everything that is in the EBITDA, which is not cash-relevant, is being corrected there. So you will have items that relate to variable compensation provisions, where we have alluded to last year in the third quarter that we had a relief there, which we didn't have this year. There is intercompany hedging, which is non-cash effects that are being corrected. You have vacation accrual changes in there, and you have also certain IFRS 15 effects, and I will not disaggregate them.
But you are right, they are all in there, and they do correct the non-cash effect of expenses.
Got it. Maybe just as a follow-up. So helpfully in the presentation, the slide on cost savings, I think it's slide 16. So you're guiding there EUR 25 million or so of cash out in 2027. Is there any other item that we need to think about that may sort of decouple from the P&L, so to speak, in terms of cash conversion?
Well, on 2027, we will communicate further in 2027. I think the color that we provide here is basically to show you very clearly what kind of cash we need for restructuring, and that is a all-in full clear picture.
Okay, thank you.
You are most welcome. Next question, please.
Thank you. I will now hand back to Matthias Zachert for the closing remarks. There are no further questions.
No further questions. Well, then I hope that everything has been properly answered. In light of the very intense reporting day and season, I wish all of you the very best also for the finish of the year. We will do our best to finish the year properly and start road showing now from today, tomorrow onwards, and wish all of you good luck for the finish of the year. Thank you. Bye-bye from Cologne.