Earnings Call: Q4 2018

Mar 19, 2019

Dear ladies and gentlemen, welcome to the conference call of Bakashimi. At our customer's request, this conference will be recorded. Questions. May I now hand you over to Mr. Joockman, Head of Investor Relations. Please go ahead, sir. Thank you, operator. Welcome to the Vacker Kimi AG conference call on Full Year 2018 Results. Doctor. Doudelofdaudigal, CEO and Doctor. Tobias our CFO, will take you through our presentation in a minute. The presentation is available on our web page and atwfacker.com under the caption Investor Relations. Before we begin, allow me to point you to our Safe Harbor statement, which you'll find at the end of our presentation deck. Good afternoon. Ladies and gentlemen, welcome to our Full Year 2018 Conference Call. We reported full year sales of just under 1,000,000,000 growing by 1% Key drivers were higher volumes and better prices in chemicals, especially in silicones. These effects more than compensated headwinds from currency effects and lower prices and volumes for polysilicon. Our EBITDA, on the other hand, declined 8% to about 1,000,000. This is less than what we expected when we spoke the last time reached full capacity only in early December 2018. There was simply not enough time to conclude talks with the insurers for 2018. This year we expect to receive insurance compensation covering both the repair work at the site and the business interruption loss. Our chemicals business is the core growth driver for Vaca. Over the last 5 years, our 3 chemicals businesses increased sales by 35% to just over 1,000,000,000. Chemicals growth in EBITDA was even more impressive climbing 15% year over year to EUR 788,000,000 and essentially doubling the amount of 2014. Improved product mix recently stronger pricing and cost reductions are the primary drivers for this excellent development. Our portfolio has improved significantly and we continue to invest in supporting had to cope with multiple challenges last year. At the end of May, last year, news from China about feed in tariff reductions in restrictions and PV installations created turbulence in the market. As a result, demand for solar modules in China in prices along the entire value chain, corrected downwards sharply. This affected us as well. We experienced significantly lower shipments and lower average prices. Sales in the polysilicon segment declined therefore to EUR 824,000,000. In addition, the ramp up costs for the Charleston site weighed on earnings in the segment. We used the weaker market environment to cut delivery times for our products into the solar industry by nearly 2 months. This is a big step forward to maintaining and expanding our leading supply position in polysilicon. Lower PV power costs triggered a demand response globally. In summary, the growth in PV markets outside China near compensated for the contraction of the installations of 105 gigawatts. Solar installations in Europe grew even by 70% last year. This resurgence of installations in Europe is driven by much lower costs as witnessed by the latest results of competitive TV tenders in Germany, which closed at per kilowatt hour in line with German wholesale power prices. The transition to a modern, more competitive option based scheme for solar grid access in China results in a shift perth high efficiency modules. Market growth this year is expected between 10% 20%, while the share of high efficiency systems is expected to grow even faster. However, the new solar policy in the bigger market, China has not been published yet. Although we saw higher demand in the first months, an upward movement of prices has not been seen yet. In chemicals, We had a good start into the year and look to solid volume growth for the full year. But will not repeat last year's earnings performance due to lower prices in silicones Looking at the group level and to the full year 2019, we expect sales growth in the mid single digit and see EBITDA contracting between 10% 20% compared to last year, excluding insurance compensation. Tabias will now walk you through the financials and segment performance and will provide some Q1 guidance. Tabias? Welcome everyone to our full year 2018 call. Let me take you through our financials and present the outlook of each segment. As Rudi said, we are currently working with our insurers to settle the claim. Although we expect to complete this during the year, our guidance for 2019 excludes insurance compensation. Let's begin with our P and L on Page 4. Sales improved as higher chemicals volumes compensated for the lower polysilicon volumes resulting from the plant rebuild. In pricing, the positive effects in chemicals more than compensated weakness in polysilicon. Nevertheless, cross profits declined year over year by about 1,000,000, following higher raw material costs, FX effects and ramp costs. As profit before tax decreased only slightly in the composition of taxable and nontaxable components shifted with the higher equity income from Siltronic. This leads to an overall tax burden, which is lower and subsequently a higher income from continuing operations. The overall effect of this is that our earnings per share from continuing operations increased to a share. Moving on to Page 5 of our balance sheet. You'll see the increase in inventories which translates into higher working capital at yearend. Business growth in silicones and strategic stock building in silicon are the main drivers for this increase as Rudi flagged in his opening comments. Pensions went up slightly at at the discount rate decreased. Looking at silicones, 20 18 sales improved by 14% to 1,000,000,000 or more than half of group sales. At the same time, EBITDA went up by 39% to 1000000. This reflects tight market conditions in most of 2018 in all product groups. Operating at capacity limits benefited from positive mix and price effects. After Q3, however, markets in China started softening, Pricing in China saw the biggest movements both up and down last year. Standard silicone prices there are now stabilizing at levels previously seen in early 2017. For 2019, We see silicones sales moving up at low single digit percentages. Good volume growth and better pricing in specialties should help achieve an EBITDA margin of around 20% for the full year 2019 despite negative effects from standard silicone pricing. The dominating theme in 2018 was the increase in raw material prices, specifically in VAN. Sales grew at 3% to billion on higher volumes for dispersions and powders. EBITDA, however, declined to 1,000,000. Better pricing was not enough to compensate much higher raw materials. In addition, around million turnaround costs burdened our 2nd quarter. For 2019 in polymers, we expect, again, mid single digit percentage sales growth. With volume growth, slightly higher prices and lower average raw material costs, we see a full year EBITDA margin improving to around 14%. BioSolutions improved sales following strong growth in biopharmaceuticals, and in pharma and agricultural products. Profitability in 2018 was held back by integration costs mainly at the new site in Amsterdam. With our acquired facilities we are positioned well to rapidly grow our biopharmaceuticals business. 1st project successes at the new site here are promising. For the full year 2019, we expect for BioSolutions a mid single digit percentage sales growth with an EBITDA about 1,000,000 as new capacities ramp up and prepare for new customer campaigns. Rudy already covered market developments in polysilicon shown on Page 9. With a plant repair, ramp and inventory build, we shipped about 60,000 tons last year, down from about 70,000 tons 2017. We currently see strong shipments, but with very weak pricing Looking into the full year 2019, we expect sales to grow at a low double digit percentage. Given the dynamics of the market, rising energy costs and our own accelerated cost reduction efforts, We expect a neutral result in EBITDA for 2019 in this segment. Moving on to Page 10, cash flow. We achieved again a good gross cash flow of 1,000,000 despite the ramp costs and the inventory build. We invested well below overall depreciation again this year with group CapEx of 1,000,000. Gross CapEx is targeted for the chemical segments. Cash flow from investing activities was 1000000. Our 2018 see it to pay out around 50 percent of net income from continuing operations. Last year, we distributed regular dividend of per share with a bonus of per share essentially, forwarding some benefits of the Sertronic controlling stake disposal in 2017 and also honoring the low gearing at year end 2017. Net debt at the end of 2018 was 1,000,000 in line with our targeted leverage ratio of EBITDA to net financial debt between 0.51 times. Based on our 2018 performance, we will propose again a 2 point a share dividend to the AGM on May 23 This continues our distribution policy and underlines our confidence in our businesses this year Looking at our detailed guidance presented by Rudi. In addition, we see net cash flow in 2019 substantially higher than last year, as we decrease CapEx to about 1,000,000 and expect to work off some working capital. Net debt at year end 2019 would be at prior year level, however, will be driven up by about 1,000,000 from the application of the new IFRS 16. Under IFRS 16, leasing liabilities are now classified as debt. Following lower earnings, income from continuing operations will decline reducing ROCE substantially below prior year. Now let's have a look into current trading conditions. Moving to the Q1 update on Page 12. In chemicals, we see a reasonable volumes, but also some weak spots with pricing overall at about the same level as last year and somewhat lower raw material prices. For chemicals, this should result in a sales and EBITDA performance comparable to last year's Q1. For others, we do not expect a meaningful change year over year as well. Polysilicon on the other hand sees strong growth volumes but faces significantly lower prices. Sales should come in close to Q1 last year with an EBITDA below the Q4 result of last year. On a group level for Q1 2019, We now expect sales of about 1,000,000,000 with an EBITDA clearly below last year. With this, let me hand you back to Rudi. Thank you, Tobias. Ladies and gentlemen, 2019 is going to be certainly a challenging year for us. Results and our overall strategic position is where we want it to be. Specialty Products, customer focus and market leadership find our market presence in chemicals. The situation in polysilicon, however, is more difficult. As a solar power, As solar power becomes a serious contributor to the world's power needs, the industry needs to refocus from volumes to profitability and efficiency. Macroeconomic challenges are trade disputes and impending Brexit with unknown ripple effects and risky energy policies in Germany. Yet I have confidence and trust in our capabilities, beat in cost performance where we operate some of the most efficient assets in the industry to our strategic positioning and our collaborative approach to customers, which are second to none. Vacker is well positioned to weather the uncertainty. I firmly believe that some of today's challenges as difficult as they may be will propel us and our industries into a better performance in years to in chemicals, while providing the semi and solar markets with benchmark quality products that provide our customers with superior yields. Ultimately, this will translate into improving returns in capital and value creation for our shareholders. Thank you very much. This concludes the presentation today. We will now commence now to First question is from Thomas Riggasberg of Citigroup. Please go ahead. Thank you very much, gentlemen. Three questions if I may. The first question is with regards to your guidance and the upper and the lower end of the range that you've provided. Could you just identify what is defining that upper end and lower end? That'd be very helpful. Secondly, on polysilicon supply and the prices, obviously, we're expecting a lot of supply growth from Chinese new entrants. Was wondering if you thought that this was we'd seen all of the price damage in the market today. Noting that that will really happen before they start ramping up. And thirdly, I guess, sorry to focus on polysilicon, but if everything stay the same as it is today, if you were to re augment your cost base, how long would it be before you could be profitable? And is that is it cost savings that are driving your neutral EBITDA expectation, in polysilicons. Questions. Thomas Tobias speaking, Mary, on the overall guidance, the upper and lower end, I think it's easy to calculate if we have a total capacity of 80,000 tonnes in polysilicon, just the change in average selling price assumption actually drives you from the lower to the upper end. So there is the highest sensitivity also in our, full year guidance. Maybe on the polysilicon supply side, yes, there are new capacity, capacities coming on stream. That certainly has an influence on market pricing. This is, yeah, maybe a common scheme with some let's say, yeah, new industries, that some suppliers obviously just don't see the limits. And So that's certainly a difficulty in this market. On the other hand, we see some, let's say, older capacities also being shut down, especially in the east of China. And we certainly see the industry growing So at a certain point in time, when exactly we do not know, there will be a balance again. This is on the supply side. On the market side, we see growth. We again see significant growth even in Europe. And the growth, as I said, will be happen on the high quality side of the material So we absolutely are the leading supplier for this type of the material and we will stay there. In addition, we will see further cost reductions through cost reductions on all segments of the production sequence, as well as on automation. Automation, digitalization. So and then of course, as I said, we are focusing on the high end side of the material. And this combination, including even, synergies with other other divisions in our company, we see an excellent chance to stay the leading supplier and we will definitely be successful in that market. There is no question in my mind about it. Okay. And is it sorry, just to follow-up my third question, In terms of the outlook for 2019 and, the EBITDA neutral, is that obviously a better second half than first half, and is that price orientated, or can you get there at current market prices? Everybody in this industry is projecting a better half this year, a better second half this year. And we certainly figured that in to a certain extent. However, if it really gets a or will become a very good second half, I think we see significant upside potential. Okay. Brilliant. Very clear. We are, as usual, we are very careful with our prognosis for this year because I mean, nobody can really say what's happening in the second half. But there is optimism and a great part in the industry. The next question is from Sean McLoughlin of HSBC. Good afternoon. Thank you. Just a follow-up to the polysilicon. Just to understand your strategy on sales, we've seen you building back inventories, and now that you are at 80,000 tons where are you selling? Is this a real drive to sell outside China? Are you discounting to get into China just to understand whether we can expect to see maybe more inventory build or you're really pushing now to really get material to your customer Secondly, just wanted to understand on the insurance payment. I mean, is there any risk around the receipt of payment on the timing? Is this a Q1 slash H1? And how could we think about anything possibly going wrong with that. Thirdly, just on your drive to higher specialties mix in silicones, I mean, clearly, you're guiding for significantly weaker margin this year. I mean, what is, what is going to be the effect from a positive mix in silicones in 2019? Thank you. In terms of the market for the polysilicon, it's inside and outside of China. And, we are positioned to to deliver to all markets. Insurance, we always said that it's a function of the production shortfall, the ramp cost and the repair cost. And why did we not book it for 2018, we just reached full capacity in December. And, so now we are in and to conclude the amount of the business interruption loss, I mean, it was absolutely necessary to reach full capacity. Again, So we are in discussions right now, and in discussions with the insurance, and we are definitely talking big numbers So on both sides, everybody wants to go into details. But we also said that we don't want to leave any money on the table. So our clear goal is that we get the right compensation to be made whole again. And, we did not include it into the 2019 guidance, although we expect into it in 2019, we did not include it because it's not an operational effect. It goes back to the year of 2018 2017. So that's the only reason there's no doubt that we will get compensation for our, for our incident with the damage and repair costs and the business interruption. Then there was a question on specialty growth in chemicals Yes, I mean, the specialty part will certainly grow. But, just as we We pursue this, specialist market as we did it in the past. So, yeah, we will see some growth there. So we had a stronger volume growth in specialties in silicones, especially in 2018 than in standard. And we see that continuing into 2019. The next question is from Andreas Heine of MainFirst. Yes, I'd like also to start with polysilicon. So coming towards you, provided this guidance with 10% at least increase in sales, bringing sales in total to 1,000,000 and 8 kilo tons production, you at least would then give an outlook that the average prices could be for you. And with breakeven in EBITDA, you basically have the same cost which is according to my calculation, more on higher and then lower than at the time when you had all three plans running last time in the first half 17. Maybe you can give me some update how I can measure, how your progress on the unit cost side was. Then one question on net working capital. So you had a strong increase in this trade payables, which probably unwind in Q1 And on the other hand, my understanding is that what you build up in inventories is strategically, so not expected to come down maybe you could shed a flavor on how net working capital then can come down in 2019? Again, I'm over it on these trade payables. And then in the total input costs, so putting together electricity and falling raw material costs, what do you thing is the balance of dose? Is it, the higher electricity costs more than offsetting the advantage of lower raw material costs or more the other way around? Andreas, I take your questions. Number 1 was on calculation on the, yeah, specific cost of polysilicon. I think your calculation as a little flaw, I must say, doesn't account for the product mix that we have. That we have increased the semi part of the business, successfully over the past year. And then it does not account for, nonmanufacturing costs, which are an EBITDA, I mean, general G and A and R and D costs. So, I hope for your understanding that we continue with our policy not to disclose specific cost of our production as we did the past. The second question was about trade payables. Yes, you were rightly sold depicting that they went up with the year over year comparison, but is, has something to do with year end, but we also paid very strongly our builds in 2017. So it's more or less the unbinding also of this effect that shows up there. With respect to the inventory assumption, that we have built strategic inventory. So you are right in assuming that we do not want to unwind that immediately, but I can say that we already sold, I mean, stronger in the first, the 1st few months of the year because, we take the inventory also to just improve our delivery time to our customers we need to be really flexible in that. But we see some binding in inventory in in silicones also where with the business growth in last year, we also had to run really, all our supply chain very much output optimized and we have here some potential to improve that over the course of the year. I think the last question, number 3, was on the balance of raw material cost changes and energy price changes, We see the raw material markets, that were, yeah, giving us some headwinds in last year, normalizing but not to the same extent as they went to the higher levels in 2018. And we see energy prices up specifically up since the second half of twenty eighteen. I would say on balance, it's a slight improvement, for lower raw material prices against higher energy costs. The next question is from chetan Udeshi of JPMorgan. Please go ahead. Yes, hi. Thanks. Just first question is on chemical divisions where you I think I heard you say the Q1 EBITA in total for chemicals will be flat. So can you sort of help us understand why the full year number you've guided to a decline because I would have thought given the decline in silicone prices in China already from Q4 onwards you might seen some impact already in Q1. 2nd question is on polysilicon, from memory, I think you guys talked about or have talked about in the past of 7% cost reduction per year. Is that something which can be achieved even when the shipments or the volume production for you guys are probably not going to go up simply because you're not adding and in new capacity in that business. This is not for 2019, but just looking more into the midterm. And last question would be it would be helpful if you can give us some color on how you see demand trends in your chemical divisions by end markets or regions I hope I did get the first question, right? I think it was about the price trend that we see, and the guidance that we give. So silicone pricing, for the 1st few months, on average, stable, We have that effect that specialty prices did go up. And while we have yes, we have pressure on standard prices, But on average, we have, prices that are very similar to the level that we had in Q1 last year. But for the full standard prices would come in lower than the for the full year 2018. And that mainly comes from also from, prices in China. I think everybody is aware of that and more or less the regions are communicating a bit. I mean, effect in Europe and U. S. Are much more moderate but we would see on average, lower standard prices for the full year, and that's our guidance. And, on the polysilicon cost reductions, of course, we aggressively pursue cost reductions. There is no let up there. I think in some areas we even now can really work much hard on cost reduction since the plant is fully running in, in Tennessee We were really handicapped last year, there because of the reconstruction of the plant. So this will give us a boost. And we see many opportunities. And I mean, our people are aggressive and optimistic there. And normally, this led to to significant improvements. And as I said, we are not letting up, and we will be successful in the end. And The growth drivers, yes. The growth drivers for the chemical businesses and I focus now on polymers and silicones is the quality improvement, for all kinds of applications in, especially in emerging markets, then, which, which need more silicones per capita. Because the there is still a significant difference between the per capita use of silicones, for example, and also our polymers compared to industrialized nations. And this certainly overall will be, the growth drivers. And then, of course, in biosolutions, I mean, the application of more complex molecules in the pharmaceutical industry certainly drives growth for our biological segment. So in other words, the growth drivers that we have seen in the past, for these products, will continue. They still apply. And as we stated in the trading up Dayton Chemicals, we see reasonable volumes in the 1st couple of months, but we also flagged that we see some weaker spots in think it's no surprise that for us, also automotive is part of weaker spots, but it's only 5% of our silicones sales textile is also a little weaker, but we also have stronger, much stronger, segments like consumer care, electronics, we are in volumes up in construction. We are up also in health and wound care. So it's, we are typically growing with GDP, and we are coupled to GDP in general. But we have the same patchy, yeah, development as all other chemical other chemical suppliers have in the industry. The next question is from Martin Jungfleisch of Kepler Cheuvreux. Please go ahead. Afternoon. Thanks for taking my questions. I have 2 on polysilicon and 1 on chemicals. Firstly, on polysilicon, there has been a substantial increase in greenfield as it is in China this year. My understanding is that these are currently mainly producing multi type polysilicon, but many players have the ambition to produce mono quality in the near term. Could you possibly share if you have already witnessed an increase in mono grade supply in China recently? And what do you think the chances are that the sufficient monograde quality of these players will be reached given your experience in the past? Second question is also on polysilicon given the weaker pricing for solar type polysilicon, is it a possibility to increasingly focus on semi grade polysilicon where prices appear to be much more favorable? And the last question is on chemicals and especially on Chinese demand. Could you please provide some additional color on how demand for your chemical products in China has developed following the end of Chinese New Year. And also if you can comment on how much room you see for additional price increases in silicones and polymers, especially in your specialty products? Yes, there have been greenfield capacities coming on stream and the output has not been seen in the mono segment, yet. It's very hard to tell from our side how long it will take And, so it's, yeah, it's very difficult, but it's certainly will take some time and adjustment. And yes, we are focusing a lot on semi grade. And we increase even our market share in the semi grade. But this takes time. But the focus is very clear and the path is, is set and we see successes. Actually, we see over the past years increased sales into the semi grade and and gain of market share. The demand for chemicals, I mean, we certainly can see that the automotive segment is, you know, not growing that fast. But it's not a disastrous level at all. I think it's a solid start in the industry. And whether we can increase prices this year, probably not in the standard segment, maybe in one of the other parts, of the specialty segments. Okay. Thank you very much. The next question is from Thomas Swoboda of Societe Generale Securities. Please go ahead. Yes. Good afternoon, gentlemen. I have three questions, and I would try to take them 1 by 1, if I may. I would like to start with the with the smallest unit, with, we should buy your products. You're guiding for 1,000,000 EBITDA in 2019. This is still significantly below the level you were achieving before the acquisitions. So two kinds of question. Firstly, what is holding back the results in Biosolutions? And what is the normalized EBITDA level in this division thinking 2 to 3 years out? Okay. What is holding us back? It's, I mean, we have acquired plant in Amsterdam. We had to retrofit it and we had to acquire the the orders, in the industry and now we need to successively fill it And this is not something that can be done completely within 1 year. It's a continuous task. But we are moving along very nicely. And the same is true for the fermentation plant in Spain. And this is why we see an improvement this year, but we will not be at the top level where we want to be once these plans are fully running. And hopefully, we come close to the top level next year, but we will see, we will certainly continue to make significant improvements. And Tobias here, I'm just adding to your midterm modeling, I mean, we definitely target an EBITDA margin of above 16% for all the other chemical segments as well. But is this a 1,000,000 plus EBITDA business or will it, will it kind of stay smallish around 1000000, 1000000, 1000000. I mean, you have made those acquisitions for reason, I think. And I would just be interested what the midterm potential in absolute terms is, if if this is possible? I mean, such a plant, like in, in Amsterdam, will certainly bring us, in terms of sales for the whole including Halle and Dina for the whole business to a level of $100,000,000 in sales. And as a target, for example. And of course, the profitability of, the therapeutic approach their biologicals, certainly has to have an EBITDA significantly above this chemicals goals of 16%. So we expect a significant growth in profitability. On the other hand, we have to develop this business organically over time because it does not make sense for us to acquire whole companies for these incredibly high multiples that are paid in this business. We just don't want to do that and we see significant chances just by organically, growing a bit and this is our target. So if I may, I would like to move to to siloxane, a while ago, you signaled that you might be interested in investing in brownfield siloxane capacity. We haven't heard on this for quite a while, and there has been capacity additions, at least announced capacity additions by competitors. Are you still interested in expanding in siloxane? And if yes, how much CapEx you would you would think to invest? Well, one competitor was very precise in the announcement and they as far as we understand are going ahead and we understand that for them to really have world scale siloxane facilities. Another competitor made a big announcement and then scale it back significantly because of the changed pricing and market environment. There have been incredible announcements by by some Chinese companies, but we don't see anything, any movement there at all. Because these incredible additional capacities are really not needed in the market yet. Yeah, we have, talked about and we actually we have planned a brownfield investment, we don't see the need right now to really kick it off in a full scale. On the other hand, we are we have lots of opportunities to debottleneck our existing facilities, maybe even faster than we did in the past. And we are making these decisions without big announcement only only if we have a big project, or we would have a big project, we would make, an announcement there. So, you can count on us really keeping our market share in silicones and improving our share in specialties just as we said in our explanation of our strategy, we are consistently moving along this path. All right. And if I I still can ask you on polysilicon, please. I mean, looking back as to the last two conference calls, I think we've all been a little bit more upbeat on this feat with which the polysilicon market and the solar market overall should we cover with the with the from the Chinese cuts Now as we stand here, the dispute of recovery is much, much slower, if I can ask you what what do you think is holding back the market from recovering and why we should still be optimistic that something something could change to the positive in H2? Well, as I said, because we are not very certain about the market development in H2. We are not forecasting, or making our forecast on the basis of a significant let's say, rush into the market. However, just from talking to players in this market also regulators in China. There can be a reason for optimism or could be a reason for optimism because many people simply are waiting for these policy announcement that true announcements should propel the Chinese market. What makes us overall positive in the long term, I mean, even last year, with this downturn in the market in China, there was still a implementation of, I think, something like 42.4 Gigawatts in China, that means the affordable kayak is becoming more and more competitive. And as it becomes more and more, competitive, not only the Chinese market will keep its level or grow, the overall market in all over the world, will continue to grow. And this is why we are forecasting this year installations of 110 to 130 gigawatts. And there are competitors that even increase these numbers all the way to 240, some 150 gigawatts. So there is I mean, there's simply the opportunity to, to generate electricity in a renewable mode and these opportunities will be taken in the world because the energy will be needed. The next question is from Laura Lopez Pineda of Baader Bank. So can you please give us an update on the capacity on the expansion projects that are coming on stream on 2019? I think you have some new capacities on polymers in South Korea and also your backward integration in Silicon Metal and also the fumed silica in Tennessee maybe an update on those, how are they going? And will they have already an impact in 2019? And secondly, can you already mentioned a little bit, but can you give us, your outlook or how do you see the the construction market developing and the demand for your polymers products? And then on electricity cost in your press release and also in the in the report, you mentioned a lot higher electricity costs. How much does that increase? And you also mentioned a risk of policy changes in Germany So can you maybe elaborate a little bit on that and what could be the negative impact? I mean, if that's only a 2019 thing, or do you see that as a risk ongoing? And the last one, maybe on financial. So IFRS, will it have also an impact on the P and L? The impact of the IFRS change on the P and L, yes, but it's already in the forecast. I mean, I can start with the IFRS price impact. If you want to have more details, you have some pages in the annual report, I think it's around page 119. So what has changed is, we have to account for the lease now as liability as net debt. This is on the liability side, the balance sheet, some million that we have there starting 2019. And on the asset side, we have the right of use assets in the order of 1,000,000 from this change, net financial debt will increase by about 1,000,000. What happens to the lease that we pay. It used to be a cost and EBITDA in the order of magnitude of 1,000,000. So, EBITDA improves and that is included in the guidance, but it turns So the $35,000,000 lease turns into a $30,000,000 depreciation on the write off use assets and it turns into 1,000,000 interest. So it doesn't, dissolve the P and L So the effect on net profit from that accounting change of IFRS 16 is absolutely neutral. I might continue with your first questions on our big investment projects. The fumed silica in Tennessee is going to start in the second half of this year. So it's coming online soon. The furnace, silicon metal, furnace capacity expansion in Norway is to come into production in the latter part of the year. So end of twenty 19 and in Korea, we are going to start up our, dispersion powder dryer in also in the second half of this year. So we have significant yeah, yeah, capacity expansion and CapEx projects completed for our chemicals growth. But I think the EBITDA impact in 2019 is not meaningful and anyhow it's included in our overall guidance. So it doesn't make much sense to add something on top of it from the individual projects. With respect to your second question on the overall construction market, I mean, you know, we have a with the polymers segment, a strong focus on construction, but we like to call it also focus on smart construction. So we are with our polymer binders adding to quality increases in the construct market. So in general, we depend on the overall construction sentiment, And this is from what we see overall healthy, but a big part of our business is in renovation, 15% what we what we sell into construction goes into renovation. And it is renovation quality upgrades, more than typical. And in quality upgrades typically the vendor, the demand for our products also increases. So we have in the Polymer segment, the healthy outlook for the industry with good volume growth. Then you have a question on the electricity costs. Yes, of course, electricity costs or cost increases. Certainly have, an input that can be felt. The problem is compared to our Chinese competitors, we do not get subsidies. I mean, they get subsidies from regional government overall, but also subsidized electricity costs. So it just increases our, yeah, necessity and drive to, yeah, to reduce our costs, our the amount of electricity, we use for our products And the increase is also our efforts to for automation and everything we have in the plan for cost reduction. Okay. Thank you very much and then maybe just another add on the polymers. So I think you guided for an EBITDA margin around 14% So van prices, have significantly go down in Asia and also in the US. And I've and I was expecting this to be a little higher again to come more towards the 15 or 16 that you guide for the division. What is holding back also in this year. So I mean, last year, you also had the negative impact from the big turnaround you had in the second quarter. So can you maybe elaborate there a little bit do you maybe expect also some negative pricing in that part of the business? The pricing that we see is, a slight uptick but with raw materials coming down, also we will see, pressure again on our old sales prices. But I would say, we have also, as you mentioned, the turnaround in last year, we have a smaller turnaround again in this year, which is planned. So the typical progression back to target margin levels takes more than just a year. So we were at 12% last year. The target margin is at 16%. So with our guidance of 14% we are just right in the middle. Okay. Thank you very much. As there are no further questions, I hand back to the speakers. Thank you, operator. Thank you all for joining us today and for your interest in Wacker Chemie. We're looking forward to further discussions with you as the quarter progresses you'd like to meet with us next time we are in the senior city, please send us a message directly or register your interest with our show corporate access partner. We will be back again with a conference call on the Q1 results on April 25. Goodbye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.