Earnings Call: Q1 2019

Apr 25, 2019

Ladies and gentlemen, welcome to the Q1 Conference Call of Akashimi. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. May I now hand you over to Mr. Yaakov Manhead of Investor Relations, who will lead you through this conference. Please go ahead, sir. Call on our Q1 twenty nineteen results. Doctor. Rudolf Staudigl, our CEO and Doctor. Tobias Ola, our CFO, will take you through our presentation in a minute. This presentation is available on our webpage on www.bucker.com under the caption Investor Relations. Before we begin, allow me to point you to a safe harbor statement, which you'll find at the beginning of the presentation deck. Doctor. Staudigl? Ladies and gentlemen, again, welcome to our Q1 2019 conference call. Q1 group sales came in as expected at 1,240,000,000, 2% over last year and 4% sequentially with strong volumes overall. Group EBITDA for the quarter was EUR 142,000,000, benefiting from good results in chemicals and held back by very challenging market conditions in polysilicon. Q1 EBITDA was 18% below the fourth quarter of 2018, and 44% below last year, mainly due to much lower prices for polysilicon. In Q1, silicones impressively delivered constant sales year over year, despite missing volumes in connection to a force majeure that weighed temporarily on profitability during the quarter. Polymers continued to expand strongly reporting 7% top line growth with accompanying earnings growth. BioSolutions growth according to plan. Polysilicon on the other hand suffered from weak pricing, while shipping very high volumes. Before Tobias gets into more detail on the quarter, let me just focus on silicones and polysilicon. The silicones market saw tightness from Q2 2017 through the end of Q3 last year. Since then, The markets relaxed somewhat from the unusual tightness we experienced last year. An overheating market, especially in China, normalized, as demand moderated and inventories were cleared. While some industry observers expected a search in new siloxane capacities, we see that siloxane supply and demand is being more or less balanced. The announced expansions appear in line with expected demand growth. An important event in Q1 was the mechanical failure a piece of equipment, which caused us to declare a force majeure in high temperature curing silicone rubber, and consequentially in some specialty materials downstream. This held back silicones revenue and profitability in the quarter significantly. New product development and marketing into the cones are progressing well. Our operations across the board are now so fully loaded that we had no capacities available to make up for the lost production from the force majeure. This resulted in lower volumes and negative mix effects. Our colleagues in silicones worked hard to resolve this outage and we have since resumed full deliveries. Our strategy in silicones is unchanged we will continue to We continue to invest into downstream assets to address our customers' demands growth. In polysilicon, we continue to see strong growth in solar installations globally. As solar has become the most competitive and scalable form of energy generation today, new market opportunities open up. The shift to higher performance products continues, as the market moves from multi to mono and within mono towards the higher performing in type material. Which is strong demand growth in markets outside China, with, for instance, Spain reporting record installations this year. In the world's largest solar market, China, industry consultations on a new renewables policy proceed. China remains committed to be a global leader in renewables with initial proposals designed to accelerate installations. The current debate focuses a lot on the ability to reach grid parity We appreciate this approach as it drives technological improvements and unlocks new growth potential for the solar industry worldwide. The trend towards higher efficiencies accelerates. That said, it is uncertain at what time it the new policy will be formulated and implemented. In our view, this increases the likelihood of a stronger second half for twenty nineteen. Moving onto the larger picture, Brexit and trade disputes are casting shadows. While experts' overall view on the global economy is still positive, it appears to be slowing down. Chemical Industry bodies report subdued business activity, especially in Automotive, Industrial Goods And Exports. Yet at the same time, construction activity in Europe is still expanding at a good pace. Polymers, for instance, saw very strong volume growth in Europe in Q1 for smart construction products. In our businesses, we see some weak spots in areas such as traditional automotive, while other segments such as electromobility are rapidly expanding. Given the economic backdrop our businesses all developed well. We remain confident about good demand for our chemicals products and strong volumes in polysilicon. Looking at the group level, We maintain our full year guidance, first given just a few weeks ago. We see full year sales with a mid single digit percentage increase and EBITDA between 10% 20% below last year. As a reminder, our guidance excludes insurance compensation. Sabias will now walk you through the financials and segment performance. Welcome, everyone. Let me begin with our Polymers was the key driver during the quarter benefiting from both higher volumes and prices. Cross profit declined year over year by about 1,000,000 to 1000000. The decrease was primarily due to the much lower average selling prices in polysilicon after positive tax effects during the first quarter, net income came in at -1000000 equating to an EPS of minus 0.16versus last year. Moving on to Page 4, our balance sheet. While not clearly evident on this slide, Inventories in absolute terms are up strongly year over year, but only slightly up Sequentially because volumes sold in polysilicon followed the higher production volumes. Accounts payables decreased since the end of 2018 as builds categorized as CapEx large year were paid during the first quarter. Pensions were up as a discount rate declined to one point 67%. The first time application of the IFRS 16 standard saw financial liabilities increased by around EUR 130,000,000. Looking at silicones on page 5, we achieved last year's sales level of approximately EUR 600,000,000 despite a force majeure situation during first quarter of 2019. The missing volumes held back our specialties business and EBITDA declined to EUR 128,000,000, while the resulting change in product mix was a primary effect. Sequentially, slightly lower prices for standard silicones also played a role here. Following the sharp decline in prices in China in Q3 and Q4 of last year, Prices in Western markets were also sequentially down, but are still similar to the prior year. As we progress through the 1st few months of 2019, prices for standard silicone products in China are moving up once again. For 2019, we see silicone sales moving up at a low single digit percentage, and user demand for silicones remains healthy, but pockets of weakness in various industries are evident. Good volume growth and better pricing in specialties should help achieve an EBITDA margin of around 20% for the Sales started strong during 2019 sales increased by 7% year over year to approximately EUR 324,000,000, Both volumes and prices are up year over year. The EBITDA increased to approximately 45,000,000. Efficiency gains supported the improvement in profitability, but the margin remains below our target margin for chemicals. Looking for polymers in the full year 2019, we expect a mid single digit percentage sales growth With volume growth, slightly higher prices and lower average raw material costs, we see the full year EBITDA margin improving to around 14%. BioSolutions improved sales following strong growth in biopharmaceuticals, following the acquisition of the new site in Amsterdam. But will take some time before the plant is fully loaded. Profitability was therefore held back by under utilization at percent of sales growth with an EBITDA of about 1,000,000 In polysilicon, shown on Page 8, sales came in at 1,000,000 slightly below last year's level. Although we sold significantly more polysilicon, the markedly lower prices offset the much higher volumes sold. We see good demand for our materials as our quality is the industry benchmark. But pricing remains unattractive. The 1st quarter EBITDA of minus EUR 36,000,000 is disappointing as further price declines and inventory valuation adjustments weigh on the segment's profitability. As Rudy already discussed, the industry trends, I would just like to add that we are taking every step to reduce costs improve our product mix and improve customer service. During the quarter, we were able to meet strong demand in the spot market from mono customers with inventory out of our Asian hubs. Without the inventory in those hubs, we would not have been able to bond to the demand as fast. Looking into the full year 2019, we expect sales to grow at a low double digit percentage and a neutral result in EBITDA polysilicon prices continued to decline over the quarter and we expect a somewhat stronger second half to reach our guidance Gross cash flow was held back by reduced profitability and higher levels of working capital following higher business volumes and typical first quarter seasonality. We expect to see a release in working capital as the year progresses. As a reminder, prior year Q1 included the advanced payment of the insurance of $100,000,000. Net debt increased to 1,000,000 at the end of the 1st quarter. I said before, first time application of the IFRS 16 standard resulted in a net debt increasing by about EUR 130,000,000. Looking at our detailed guidance for 2019 on Page 10, our expectations for the full year 2019 are unchanged. With this, let me hand you back to Rudi. Thank you, Tobias. Ladies and gentlemen, as I said, when we spoke the last time, 2019 going to be a challenging year for us. While we share concerns about a potential economic slowdown, our businesses show only a few weak spots that get compensated by new business. A clear challenge is the pricing situation in polysilicon. Here, we continue our efforts to lower costs. For our chemicals businesses, we continue to introduce new innovative products At the European Coatings Show, for example, we presented many innovations binders that are partly made with starch or bio acetic acid and stand out due to their lower carbon dioxide footprint. We also showcased new dispersible polymer powders that can be used to make powder form interior wall paints. They do not require the addition of bio size and offer additional advantages when it comes to storing and transporting paints. Among the various new products and application areas for silane silicones and fumed silica, we presented anti soiling coatings and industrial adhesives with adjusted viscosity. The newly developed highly hydrophobic fumed silica is perfect for using high strength industrial adhesives. These are employed in automotive bonding applications and for the bonding of wind turbine rotor blades. As innovation thrives in our businesses, we continue to look for opportunities to improve productivity and efficiency. This has a high urgency in polysilicon. Our chemical businesses are also generating new ideas and opportunities to lower costs, and improve processes. Looking into our businesses, I feel overall confident. Yes, we have a tough time in polysilicon, but we are working on all positioned and performed very well. Therefore, we confirm our recent guidance for the full year. Ladies and gentlemen, this concludes the presentation today. We will now commence with the Q And A session. Operator? Thank you. You. First question is from Patrick Rafaisz, UBS. Your line is now open. Thank you. I have three questions if that's okay. I'll start with the first one. With polysilicon, can you talk a bit about the how you see the 2nd quarter starting, would that be a similar quarter to the first, excluding the inventory write downs? And do you have any evidence here from customers that would support your more optimistic view into the second half of the year? That's the first question. Yes, the second quarter will certainly not be a very strong quarter, more flattish And, yeah, we certainly see indications of higher demand in, the second half of the year. Our customers confirmed that, but of course nobody really can look into the future, but I think there are reasons to be confident. Okay. And the second question around cash flow, obviously you're starting the year with a pretty poor number here. The guidance remains for substantially higher net cash flow than last year. Has this term substantially higher in your head, such as the order of magnitude changed here? From what you thought, just a short while ago with Q4, or are you still just as confident as after the fourth quarter result? Patrick Tobias speaking, the Castle in the first quarter was disappointing, but there's a lot of seasonality in there and our guidance doesn't change at all. So we see net cash flow clearly, substantially above last year, as we said 6 weeks ago. It's also a stronger second half. So to be frank, the 2nd quarter is a cash flow quarter typically challenging because we pay out dividend, we pay out variable compensation But the second half typically releases working capital and that brings us to the unchanged expectation of cash flow up against prior year. Our CapEx is lower than last year. And we don't expect a working capital increase in inventories in this year. So, you have to bear in mind that last year was burned very heavily by the inventory increase. Okay, helpful. And the last short question, just on the force majeure in silicones, would it be possible to quantify the volume impact here you had in the first quarter and has there been a Or is there now some sort of pent up demand that means that the second quarter could be even stronger now for silicones? I don't want to quantify the impact exactly, but I want to say it has had a meaningful impact on the Q1 results without the force majeure, we definitely would have been above prior year in sales and our EBITDA would have been much closer to prior year. The plant is now up and running again. We are making deliveries, but it doesn't have an mean, so it doesn't have an impact on Q2 anymore, but we cannot catch up the lost sales because we are running very tight in this unit. So force majeure that hit us for a month is actually lost for the entire year. We couldn't make that up again. So we cannot expect an uplift in the second quarter just from the lost volume in the first quarter. Okay, understood. Very helpful. Thanks for the answers. Welcome. The next question is from Andreas Heine, MainFirst. Your line is now open. Yes, thank you. I'd like also to start with polysilicon. I'd like to know whether your increase in inventories, which you have done strategically in China is done or whether you have more to do. And then related to these inventories, do you have any visibility how the inventories, across the polysilicon producers are there on a high level or lower level? And I'm a little bit puzzled about, let's say, and second half being better if it comes to installation volume. As far as I know, you deliver as much as you can in polysilicon. So if the market does better in the second half, that doesn't mean anything for your volume. So do you expect an immediate impact on the price side here to have a better second half? I leave it with that on polysilicon, but I have two questions on this Collins Espial. Yes. I'll start with the inventory question. We never said the inventory build is done. We always said that a strategic inventory build is important because we want to be flexible and be closer to our customers to shorten delivery times. And that's exactly a point where we already benefited in the first quarter in 2019 because we could fulfill a customer demand that we could only fulfill with a very short delivery time out of the hub in Asia. So for the rest of the year, it needs to be seen how, inventories will develop. So most likely we will see also fluctuations from quarter to quarter. And on the volumes side and price side, we certainly expect some recovery in prices in the second quarter due to the, installations. I mean, you could assume, I mean, nobody knows exactly, but you could assume that, of the overall installations this year, about 40% are in the first half and six percent of the second half. Okay. Then, thank you a lot for that. And then on silicones, I'd like to understand a little bit what the price dynamics. So you said that during One, you have seen some softening in the standard prices in the Western Hamis Saum, is that continuing in the 2nd quarter? Should we build this in our models? And how do you see the price trend in the specialties. Is there some spillover, you think, from softer prices in standard products or not? And maybe lastly, to understand all the seasonality. Usually, you have quite some exposure to the construction industry in silicones so that Q2, Q3 is stronger than Q1 and Q4. Is that something we will see this year as well or are other trends offsetting this seasonality? For the price movements, we highlighted that we had Western standard prices also moving down sequentially. And I would assume that trend to continue in the second quarter. So the blip in improvements in prices in China has no relevance yet for the second quarter for Western prices. So we have to see that regional prices are connected somehow. But they move with a time lag. But for, most part of our standard business, we see more price pressure in that what we actually included also in the overall guidance for the full year. So 2019, margin decrease from 25% to 20% is mainly from lower standard prices. The seasonality question is a good one. We typically have a much not much, but a stronger second and third quarter and 1st and 4th quarter are slower. And that's also the case this year. Is the price movement and and this stuff, offsetting this? I would expect, the 2nd quarter largely on prior year level in silicones and then have the second half of the year stronger against prior year. But the seasonality pattern is the seasonality pattern is unchanged Second And Third Quarter as always. Stronger. And when you say that the same quarter should be on last year's level that was extremely strong in the same quarter last year? Yeah. We are fighting hard. We increase specialty volumes. We have slight increases in prices on the specialty side. Our exchange rate. It's also supporting a bit in the second quarter as it looks today. Okay. Thanks a lot. Question is from Charlie Craig, Citi. Your line is now open. Hi, yes, thanks. I just wanted two questions. First on polysilicon, Could you talk us through how your cost position in polysilicon is developing? You call out higher energy costs, but given also you're working on your fixed cost base, looking overall, would you say that on a cash cost basis, your this year is lower than last year? And do you have any and what's your kind of expectation for how energy costs will develop this year next year going forward? I would say without energy costs, our cash costs certainly are lower. And we assume that, costs are coming down as well by how much hard to say. But we would expect that energy costs year over year are higher in 2019. Basis, what roughly flat year on year on that basis? Low effects cost higher, higher energy or? No, energy costs will be higher. Than last year from the average. But we could have seen the peak in the first quarter. And in silicones, just to clarify again on the previous question, so you saw 27% EBITDA margins in the second quarter. You're not you're saying probably the volume dynamics can be as good as they were in 2018 for Q2 and Q3, but you're probably you're not going to enjoy margins in that range, like given the pricing? Yes. Sorry. I was talking just about the seasonality in top line. Not in profitability. And just one final question. Could you give us a rough split? I know you have in the past between your specialty and standard volumes in silicones. Where are you in that? And Yes, and how that's progressing in terms of the strategy to push further down into specialty? Well, it's moving in the right direction. That's what we can say. BC. Your line is now open. Thank you so much. Three questions from my side. Firstly, on polymers, just to understand the lack of margin improvement despite better volumes and pricing in the first quarter The second question on polysilicon, your efforts to reduce costs, how quickly can you realize these and how significantly are you able to offset pricing pressure? And the third question, just coming back to silicone, you've previously mentioned 100,000,000 of non repeatable EBITDA. Are these 100,000,000 confined to Q2 and Q3 last year? And how should we think about these comps from an EBITDA perspective? Sorry, the last question about the €100,000,000 non repeatable EBITDA, I don't get it. You've guided before that $100,000,000 of the EBITDA last year was due to, let's say, exceptional circumstances that that are not again repeating this year. And I would like to understand these GBP 100,000,000, which point in the year were these actually generated? Yes. Now I see what what you mean. Well, if you equate from our performance of last year, 25% margin versus the guidance for this year, 20% margin, it comes roughly to 1,000,000 and This is largely as I said before from lower standard prices that we assume. Maybe a comment on the cost reductions in polysilicon, of course, you know, with such precipitous fall of pricing, nobody can reduce costs at the same speed. As you can see on the results of everybody who really truthfully reports the results. And So, but on the other hand, you know, everybody is working very, very hard to reduce and we are moving forward. Can I just rephrase that question? I mean, you've talked about accelerating costs reduction I mean, are there any easy can you give us examples of any easy actions that you can take in order to see concrete reductions in Q2, Q3, Q4? Nothing's easy in this business, anymore. And we certainly do not want to disclose, you know, special items With respect to the polymers question, your first one Sean, We had 14% margin in this year and also 14% margin in last year. But please bear in mind that the raw material prices were still at a more moderate level in first quarter last year and the increase came through Q2, Q3, Q4. So the year over year comparison is not that big on raw materials. Understood. Thank you. The next question is from Anthony Manning Berenberg Bank. Your line is now open. Good afternoon. This is Sebastian Bray of Berenberg Bank speaking. I would have two main questions please. The first is on polysilicon. Am I right in saying that if prices do not recover, the guidance as it stands for 10% to 20% increase in EBITDA and decrease in EBITDA cannot be held. Are there any reasons that you would assume that would recover in H2 given that I think further capacity is due on the market at this stage. That's my first question. And the second is on insurance, it's now been almost a year and a half since the accident of the U. S. Facility at the end of 2017. And I'm wondering how certain are you of covering the full loss given that there seemed to be some torturous negotiations that took a bit longer than originally expected. So for the insurance, there's no update, but there's also no change in our assumptions. So we excluded it from the guidance And if there was something to report, we would report it. On the capacity is in polysilicon, yes, there is our new capacities coming on stream. There are also older capacities being shut down to quite some extent. And of course demand is increasing in the 2nd quarter. That's certainly the assumption. So could I just follow-up on the insurance question again? Is it fair to say that it's taken longer than you originally expected for this issue to be resolved? And why would it be reasonable to assume the payment materializes in Q2? And if that isn't the case, then why you're not unable to say at this stage when exactly the payment comes? We are in the midst of discussions. So the plant in Tennessee just ramped in December And for that reason, as we are talking big numbers, we take our time And for that reason, there's no change to what we said before. There's also no different notion in what I'm saying. It's completely unchanged. Okay. Thank you very much. Your line is now open. Yes, good afternoon. Thanks for taking my questions. I have 2 on polysilicon, please. The first one is, given the weaker pricing for solar type polysilicon, you mentioned that you are planning on expanding exposure to the semi market. Could you possibly provide your exposure in terms of volumes and sales today and how much you expect this to raise these 2 in the short and mid term? And do you see any challenges to this? And would this reduce the overall production capacity? And the second question is, if you are fully loaded in semiconductor polysilicon in the first quarter, always volume and demand overall weaker in line with the general industry trends? And then also of the negative million EBITDA you generated. Could you possibly tell us how much of this was driven by inventory write downs? Thank you. I mean, first of all, if we produce more semiconductor material. It does not substantially reduce the overall capacity at all. 2nd, we certainly do not disclose the exact amount of semiconductor polysilicon. We are producing, we just can see that we are more and more successful in that segment. And we already are the leading supplier of Semiconductor material. And, of course, if the wafer demand is going down, of course, the amount of semiconductor polysilicon is needed is also coming down for sure. But on the other hand, these are just cyclical events in in the semiconductor industry and in the wafer industry. So it's not really of great concern. Martin, to the inventory write downs, we do not disclose exactly, but we can say that it had a major effect on quarterly results. And I would like to help you equate it If you take 1st, PV insights price movements, average forward to Q1 sequentially, that was down roughly euro or U. S. Dollar a kg. If you take then an assumption on our inventory you know that we have 80,000 tons capacity. So just take a number that you deem fair as inventory, you easily come to a double digit €1,000,000 effect in inventory write downs. And this is, so a significant portion of the minus 1,000,000 in EBITDA performance in the first quarter. Okay, very helpful. Thank you very much. The next question is from Margaret Farley, Exane BNP Paribas. Your line is now open. Hi. Just a quick one in polysilicon, I think in prior calls, you had mentioned that domestic producers China haven't been sort of very active in the mono segment of the market yet. And I just want to check if you can confirm if this is still the case or how the competitive landscape has changed recently, maybe. And then if I can sneak in a follow-up on polymers, just thinking beyond 2019, Are you still looking to push prices in the context of recovering towards that 16% level or does the lower input cost environment sort of hamper that ambition? I'm sorry. Wafer customers, of course, are using domestic polysilicon, also for mono applications. In China, I mean domestic in China. For very high qualities, our material is definitely significantly superior. And I already mentioned in several calls and it's still the case that some producers and not really able to assess in detail how much higher quality of a material really benefits them. But this is a question of the the maturity of the industry and as the industry matures, the methods are becoming the processes are becoming more stable and the methods of analysis are becoming better. So more and more realize what benefits they have from high quality material. With respect to the polymers question and the outlook for 2020 pricing, it's really early to talk about pricing 2020. Bear in mind that some of our products up also based on formula prices. So if we have the trend that raw materials moderate again, we have the negative effect on prices as well from that. And in addition, as in last year and as in this year, and it will be same in 2020. It always depends on supply and demand. And this is different by region. We have some lusite capacity situation in Asia than in the Western markets. And that will also then determine the pricing for 2020 in polymers. Okay. Thanks very much. The next question is from Oliver Schwarz, Warburg Research. Some questions from my side. You said that the inventory write down affected the EBITDA by probably a double digit million number. Why does that affect, I may be thick here, but why does that affect the EBITDA and not the EBIT because that seems to be an accelerated depreciation which shouldn't affect the EBITDA. Some clarification on that line would be, would be nice. Consolidation of the polysilicon industry. It seems like no player at the moment is really able to be in black figures given the current prices. Have you seen signs of further consolidation of the market? Or is everybody hanging out, hanging in there and waiting for higher prices in the second half of this year to material And second question is on poly. As you stated that you want to go for higher market share, is that just a recouping of market share that you lost with the accident at Tennessee and the reduced volumes thereafter? Or is that something addition to that, each year, are you currently doing some additional bottlenecking that would allow you to produce higher work that you could push into the markets? And lastly, in silicones, could you quickly elaborate on demand from the automotive industry and their suppliers please? Maybe on the consolidation of the polysilicon industry, yes, there are too many hanging in there. That's for sure. But ultimately, there will be consolidation. That's not untypical for development of an industry, unfortunately. The silicones automotive market is down as end market segment, but it just makes 5% of our total silicones sales. So we feel that the car industry is going slower, but you also need to differentiate between traditional combustion engine and electric vehicles. So we have quite some new business also on the electric vehicle side that goes very nicely. To the accounting question, which was your question number 1, I think I don't like the term depreciation on the inventory. It's not correct. I would neither I mean, call it write downs. It's more like a revaluation. And from that, you also see that this clearly, it's a reevaluation of an asset that, then goes into the EBITDA, not below that line. I'm sorry, I skipped the answer on the growing market share in the semiconductor volume side of polysilicon, if I understood you correctly. This is not a not recouping lost market share. It's successively improving market share through performance, through reliability, through competitiveness. And it's not, reducing capacity on the solar side. Understood. May I sneak in an additional question regarding depreciation, please? Could you quickly elaborate why the depreciation level in Q11 2019 was higher than in Q1 2018, despite your guidance of having or aiming for a lower depreciation level in 2019? Yes, this is the IFRS 16 effect as the leases that go out of EBITDA become a depreciation and interest. So our depreciation goes up year over year by 1,000,000 just from the new standard. But shouldn't that be the case in full year as well because you're guiding at 12.25 and I guess that's including that effect. Yes, but it's I mean, we are getting close to prior year level with depreciation. So it's exactly these million that also show up for the full year. Okay. Thank you very much. Welcome. The next question is from Thomas Voboda, Societe Generale. Your line is now open. Yes. Good afternoon, gentlemen. I have one question left and it's on your guidance, especially in in polysilicon. I'm still trying to understand it. And sorry to make it a little bit longer. But if I understand you correctly, you said that EBITDA in Q2 should be roughly flat quarter over quarter. In the second quarter. So if you in order to make your guidance, you would then need to make EUR140 1,000,000 positive EBITDA in the second half of the year. I hope I got this right. My question on this is Can you give us a hint how much of this EBITDA swing you can control meaning how much or what proportion of cost savings, increased volumes, and other things you can control can contribute to this guidance? And how much is the the hope for the better pricing in H2. I'm where you don't want to show all your cards, don't want to put all your cards on the table, but any hinge on this would be very helpful. Thomas, we hinted that we don't see a large improvement in the second quarter. That was our statement, that means that we had 1,000,000 negative. So we continue negative but that doesn't add up to 1,000,000 in the first half minus. So that is the first statement. The second is with the inventory revaluation effects, that these go both ways. So we have revaluation negative, but our assumption is clearly that we have a stronger second half end demand wise and such also will somewhat higher prices and that will then also lead to a higher inventory valuation. So that explains that we see the guidance of a neutral EBITDA unchanged. So are you saying that cost savings and additional volumes do not play a big role in the in this way? For sure they play a big role. We work intensely as we said on cost reductions and they make up a strong element as part of our profitability, but somehow the prices are expected higher in the second half. That's true. As the costs decrease, the need for price increase is less in order to get to the, That's fair enough, I think. Thank you. We have a follow-up question of Rias Heine. Your line is now open. Yes. Thanks for taking my question again. In some polysilicon and the inventories You said that you were happy to have these inventories in China to make use of the high demand. I I don't fully understand this, I have to say. Looking, even if I strip out the Awesome. So why does it make sense to begin to sell down inventories if the demand design, if you don't earn anything, And it's the first question and, working on what you just answered on the question before and the inventory is going in both directions. I would assume that you have kind of 1st in first out calculation in the inventory. So the more build up inventories would go on these costs. And, I would assume that then if you do not have to do any additional inventory reduction, but selling down the already let's say, revalued inventories at prices at current prices and building up the new inventories at cost base. I would not get to relieve of these, write downs you have done already even if prices go up. Could you explain this to me, please? So I'll start with the second question. The relief in the revaluation only comes when prices go up. That's if not, you're absolutely right in your accounting So you sell at the revaluation. I mean, at the revalued inventory level. And if that price is the same, you don't make margin on that. And then the first, could you explain why it doesn't make sense to sell from the inventories or do you mention this as a positive having these strategic inventories in China and being part of the higher demand, if you can't earn anything to that? Because we had a rush demand of a customer and sort of we need to with all our say for you at a certain period, we need to accept a certain price level. And we sell it then still at a better price than market price. And we also think strategically in building those customer relationships and just bear in mind at the Tennessee plant not running, for almost a year or not at least running at full capacity, So we lost some business opportunities. And in that situation, we are very happy that we could serve from a local, hap material. Selling at higher prices than competition. Okay. And then lastly, as you mentioned this and it's fair to assume that your deliveries in the first water when we're higher than your production capabilities? No, it's similar to production. Thanks for answering my questions. We have another follow-up question of Sean McLaughlin. Your line is now open. Thank you. Just a follow-up, another follow-up on the write downs. Given that polysilicon pricing has been in free fall over the past 9 months since June 2018. Can I ask about the frequency of the write down I don't recall what we've heard of any inventory write downs since the middle of 2018? So could you maybe share with us any any polysilicon inventory impairments that you've made over the past 3 quarters to help us get a better grip of underlying profitability trends in polysilicon Sean, the revaluation of inventory is standard procedure in IFRS accounting. You always go and have them in the books at total manufacturing costs. These include depreciation, but if you're selling prices below that, you revalue it to that lower selling price. And that was the case throughout the year or the second I would say the second half of twenty eighteen when prices dropped. But you compare against full manufacturing costs including depreciation. And we have with depreciation and tenants, we I mean, we have a very high level. The last question is from Olga Khashofa, Zwenska Handelsbanken. Your line is now open. Thank you. Hello. I have question regarding the production cuts at the silicone plant. Could you give us please more details in this regard? What happened? What exactly happened? Oh, you mean in the first measure case? Yes, yes. Oh, okay. Well, a piece of equipment failed. And, So our production capacity was reduced by a fair amount And, and then you just kind of produce this specialty material, and that's why we have not only lost sales, we have also lost, we have significant, profitability. But we do not specify detailed production costs. Okay. But it was not an accident, right? No, no, no. It was not an accident. It was an equipment fairly mechanical. Okay. So technical technically a piece of metal, a piece of metal. There are no further questions. I would like to hand back to the speakers. You for joining us today and for your interest in Barker Chemie. We're looking forward to further discussions with you as the quarter progresses. If you'd like to meet with us next time, we are in your city, please send us the message directly or register your interest with our corporate access partners. We will be back again with a conference call on the Q2 results on August 1, Goodbye.