Earnings Call: Q2 2018

Jul 26, 2018

Dear ladies and gentlemen, welcome to the Baccaratimi Q2 Results 2018 Conference Call. And our customers request this conference will be recorded. As a reminder, all participants will be in a listen only mode After the presentation, there will be an opportunity to ask May I now hand you over to Yir Kaufman, Head of Investor Relations of Baca who will lead you to this conference. Please go ahead, sir. Thank you, operator. Welcome to the Vaca Kimi AG conference call on Q2 2018 results. With me are Doctor. Urs Schaudig, our CEO and Doctor. Tobias Ola, our CFO, who will take you through our presentation in a minute. Presentation is available on our webpage under www.vacker.com under the caption Investor Relations. Before they begin, however, allow me to point you to a safe harbor statement, which you will find at the beginning of the day. With this, Let me now hand you over to Mr. Fastardigler, CEO of Fastardiguer. Ladies and gentlemen, welcome to our Q2 2018 Conference call. Our Q2 sales came in strong at 1,000,000,000. This is 9% better than last year and Q1. Group sales saw strong support from silicones, which grew by 19% over 3% up over last year and 2% up over Q1. Our silicones division showed a great performance The division runs at capacity limits. Q2 EBITDA climbed 1,000,000 which is 59% higher than last year. Strong growth in specialty products supports this development. Demand for silicones is strong across all industry segments and global markets are tight. Not all orders can be fulfilled. Given the size of the imbalance between supply and demand, We do not currently I do not see short term relief coming from new capacity additions. Situation, we try to serve our customers as best as possible. Polymers saw growing volumes in sales but it was not enough to offset other effects. The van turnaround in Germany added further costs to the quarter. In addition, effective environmental reforms in China and an unforeseen series of force majeure declarations by acidic acid producers drove up the cost of vinyl acetate monomer to new historical heights. We continue to work hard to adjust prices to meet rising raw material costs. Ponsilicon sold sequentially higher volumes in Q2. Sales were slightly below last year, as prices declined towards the end of the quarter. This was due to policy changes for the solar market in China, implemented by the regulators against this background, Q2 EBITDA came in at EUR39 million. Bear in mind that this result contains no insurance reimbursement and is held back by ramp costs from the Tennessee plant restart. We are ramping a fast as possible and are very satisfied with the material quality that's coming out of the plant. Presently, we see many polysilicon plants in maintenance shutdowns. Such a reaction is in line with historical precedent. They have seen similar patterns in the past when markets lumped as a consequence of changes to feed in tariffs. Every time, these reactions have been followed by fairly quick recoveries. In my view, the announced policy changes in China are ultimately positive for the growth of solar installations. They help to speed up the arrival of subsidy free solar power. In addition, The recent price adjustments for modules have stimulated exports from China into new markets. This is an excellent base for tended future solar PV growth. In addition, we see a shift to higher efficiency technologies using more high quality polysilicon. Across the group we continue to push for productivity and efficiency improvements. Our initiative for digital transformation is a logical extension of these efforts. The systematically assess digitization options in core operations along the supply chains, R and D and in customer interacting applications. We see great opportunities for enhanced IT capabilities across business functions. Looking at the full year, We confirm our previous guidance for the group. We continue to see a low single digit percentage increase in sales and expect a mid single digit percentage increase in full year group EBITDA. Since our last guidance, we have made a few Welcome to our core ladies and gentlemen. Let me walk you through our financials and then through the outlook for each segment. Starting with the P and L on Page 3. Sales went up by 9% over prior year quarter following 7% volume and mix effects. Overall, prices increased by 5%. Polysilicon is the only segment with price decline. Currency have slowed the development on a group level by around 3%. Gross profit was up by around 6% despite some 1,000,000 higher costs for raw materials and energy year over year. Our results benefited from the equity contribution of Siltronic at 23,900,000 after purchase price allocation effects. Our tax rate came in at 23.7 percent Earnings per share from continuing operations went up 36% year over year to per share. Moving on to the balance sheet on page 4, The balance sheet shows no significant changes to prior quarter. Although this is not evident here, We refinanced that in 2018 at lower interest rates, which helped reduce our reported interest expenses. Silicones on page 5 expanded its Q1 record margin now to 27% in Q2. Sales in the quarter were up 19%, driven both by volume mix enterprise and held back by currency effects. With continued tightness in the market and a good operating performance at capacity limits, we have upgraded our guidance. We now expect of around 1000000. This guidance assumes a seasonally somewhat weaker Q4. Polymers on Page 6 reported positive pricing in very strong seasonal volume effects. A number of factors helped performance back and resided in an EBITDA of 1,000,000. A series of supply interruption and force majeure declarations for acetic assets and VAM contributed to tightness driving up raw material pricing. In addition, the Q2 turnaround of our BAM plant weight on EBITDA was about 1,000,000. For the full year, we continue to see mid single digit percentage sales growth based on volume growth and better pricing despite currency headwinds. However, our earnings expectations have become more muted for the rest of 2018. We now see higher raw material costs for longer than previously expected. As a result, we adjust our full year EBITDA guidance to about EUR 115,000,000 1,000,000 with a second half year performance being similar to the first half with the typical 4th quarter seasonality. On Page 7, Biosolutions. Our guidance on sales is unchanged, but the integration and ramp costs as we begin the loading of the latest capacity additions from recent M and A way on EBITDA. With a mid single digit percentage sales growth, we now see EBITDA at about 1,000,000 for the full year 2018. Polysilicon on Page 8 saw excellent Q2 performance in our German plan, but ramp costs and no insurance payment being recognized for the business interruption at the Tennessee side weighed significantly on the results. As such, our reported EBITDA does not actually reflect the strength of our underlying business. While polysilicon sales volume were overall slightly higher than Q1, The quarter ended with soft pricing. The recent changes to Chinese solar policies resided in a period of uncertainty. With industry wide inventory clearance and widespread capacity shutdowns. In contrast to this, We keep our facilities running at the capacity limit and use the opportunity to rebuild inventories as we want to improve customer service. Overall, the temporary slowdown results initially a lower growth in global installation for 2018. As other markets outside China benefit from the lower cost solar installation. We expect global PV solar installations now to be in the range of 100 to 115 gigawatts in 2018. The ramp of the Tennessee plant continues in Q3 with its effects on costs. Full capacity should be available again in Q4. We also expect to conclude the claim discussion with our insurance provider in Q4. Following all of this, our guidance for polysilicon changes. We now see sales down by a low double digit percentage while we see EBITDA now around 10% below last year. Relating to the other segment, we now see a low double digit negative EBITDA for the full year before adjusting for the Siltronic earnings effect. 2 years puts a lot of strain on our logistics infrastructure, from material handling to warehousing and loading facilities. As a result, we are stepping up technical spend to ensure smooth operations to our customers. In addition, we reinforced our efforts on productivity and efficiency and spent more to support our initiatives digital transformation. On page 9, we see how our net financial debt increased to about 1,000,000 in the quarter. Operating cash flow came down following seasonal effects like variable compensation payments and higher tax payouts. In addition, we deployed some funds received from the insurance companies in Q1 to pay for the repairs of our Tennessee plant. Other items affecting cash flow were the 30% higher CapEx in the 1st 6 months than last year and the Synchow acquisition. Net financial debt was also impacted by our dividend payout in May which was more than twice as we now see our net financial debt at year end slightly higher than previously forecasted at about 1,000,000. With this, let me hand you back to Rudi. The highlights in this quarter's numbers, as you know, is clearly our silicones division, which performs exceptionally well. While we certainly benefit from the global tightness, the bulk of the improvement tracks back to the hard work done here to drive specialty growth and our uncompromising approach to cost reductions. This helped us sustain a period of pricing in the past which was not attractive for reinvestment. Therefore, now we can look again into financially sound brownfield expansion economics. As we always said, silicones provides a profitable driven growth trajectory above other chemistries. We're happy to support our customers' growth and demand. Our Polymers division in general is in a great business position, but currently squeezed by a series of unfortunate events. It started with the effect of Hurricane Harvey and was followed by a number of unexpected shutdowns of suppliers. As a result, prices for raw materials increased fast in a very short period of time The underlying trends for long term growth in the business, however, are unchanged as we see the market transformation and the regional growth trends uninterrupted. Biosolutions is busy with integrating and starting up the recently acquired capacities. I expect loading these capacities will take some time, so we'll most likely see positive effects of it in the next year. At polysilicon, the immediate outlook is somewhat uncertain as the main market in China adjust itself to the policy change implemented during the quarter. The temporary slowdown adds pressure to pricing but will also act as a catalyst to accelerate the transition to high performance technologies, which is a benefit for us. Solar is already competitive now to other forms of power generation. We believe that economic forces will drive the recovery in this market as it just makes sense to add solar power to the overall power mix. Saw an exceptional performance. Each of our other businesses showed us challenges in the quarter that were special. Polymers digested the cost of a turnaround amid a market tightness. Biosolutions starts filling up new capacities and integrates 2 organizations. Polysilicon not only face sudden changes in demand, but also carried ramp costs and the fixed costs of a full site without relief from insurance payments yet. In light of this I am proud of the underlying strength of our businesses. As far as the rest of the year is concerned, We continue to see the biggest risk to our performance in a potential slowdown of the global economy as a result of general protectionism. To a certain extent, we have tried to take those macroeconomic risk factors already into account. However, assuming a continued positive development of the global economy and convinced that we have a good chance Operator, we're ready to take session. You. Operator, the first question is from Mr. Patrick Rafais at UBS. On the fumed silica expansion in Tennessee, you were talking about, can you remind us about, when this will happen? And can you give us also a rough indication of the size versus your current capacities in this area? That's the first question. Okay. The answer is the startup will be next year as scheduled. The project is going very well. And this will add about 13,000 tons capacity. Okay. And on top of what kind of capacity do you have currently? Well, we do not publish exact numbers there, but, it adds Yes, significant percentage amount. Okay. Good. Thank you. And then the second question, on polymers, You're growing actually still in that business, right? But you get severely punished by these swings in raw materials. Do you have any plans here to maybe rethink your pricing policy? Have you approached your customers about maybe quarterly pricing instead of annual pricing, you still have in some parts of that business? 2nd question. Well, we, we have different pricing schemes with different customers. And, of course, when there are fast upload changes in the material cost, to try to adjust as fast as possible. And, so that's a standard way of performing this business. However, sometimes, like this time, It simply was not possible to adjust the prices upwards as fast as the material costs went up. So these periods have been, and we have experienced, these things in the past, just as we have experienced times when material costs or raw material costs came down much faster than we had to reduce our prices. And so we really have to have a long term look on this business. And, even with its actual performance, it's definitely still a great business. Okay. Good. Good. And then the last question, on polysilicon. Can you talk a bit about the inventory build you're seeing currently? I mean, we know from the past that you use the environments as we're seeing now to build up some strategic inventories. Can you give us some more color here? Is that still ongoing? When do you expect that to reverse again and customers to draw down inventories? And sorry, just sneaking in another one here on polysilicon. What's your average price assumption for, underlying the guidance for polysilicon in the second half? Thanks. Well, there is certainly a building of inventory happening right now because you simply, do not sell it at any price. But it's also healthy to build up inventory to serve our customers better. And, the question, how long this period of depressed pricing will last is, of course, very difficult to predict in the past. These periods, of sudden, price drops were followed by also a nice increases of the prices. We certainly see some uptick in demand right now. The question is whether this is already a sign of an overall acceleration of the market and how that can be sustained. But There are certainly some slight, positive, signs on the horizon. And but yes, as I said, we will see how sustainable that is. But Yes. As I said, of course, short term, it's unfortunate, but long term, I think it's guides the markets in the right direction. Okay. And the average price assumption for the guidance in poly? We do not give specifics there. However, I just want to remind you that the beginning of the year when we gave out our first guidance, we already predicted a lower pricing, average than last year. So we did not believe that this market simply goes on continuously over the year. I think something like that effect in China was, or the handwriting was already on the wall, I would say. Okay. Thank you very much. The next question is from Andreas Heine of MainFirst. Your line is now open. Good afternoon. I have a couple of polysilicon and one on silicon, please. I'd like to start with what you said about your PV installation you expect for this year, which is quite an upbeat number with 1000000 to 1000000. So at least flat up to 50 percent increase. According to what I read, China might go down from 50% to 35% and U. S. Is going down, maybe 4% to 5 that would mean 20 gigawatts less from these two countries? Where do you see the growth and what gives you the confidence that we will see then a very strong Q4. That's the first. And related to this, maybe, according to what I read, the monochelle last year was about 25 and in the installation, what do you expect the mono share will be this year and next year? As you highlighted that you expect a higher shift to the higher efficiency mono technology? Well, we As you know, we have published our expectations for the various countries and we have quite a number of people working on these forecasts. So in the past, these forecasts were pretty reliable. And this gives us the confidence we are not, not too far away from the reality with our forecast or with our expectations, I would say. I mean, nobody knows, of course, but, I think at least a flat development this year compared to last year is in my opinion, a very reasonable assumption with opportunities to even grow simply because of the fact that the module prices drop down so fast. And there are there's a lot of willingness to and actually significant needs to install, power generation, especially in countries like India, South America, etcetera, etcetera. And in the meantime, I think the world realized that it just makes a lot of sense to to generate the power for air conditioning by solar. And as you can see, in the market, right now, I mean, the ones that really continue to operate, at least at the highest level, are the monosilicon producers because of the demand or the continuing demand for, high quality, cells and modules, And of course, there are also very high quality multi, crystalline based cells and modules, And in those high quality multi crystalline and as well as mono are in the highest demand. And And we expect the highest growth in that segment. What exactly it will be this year? I cannot predict, especially, but the trend is in line of our expectation, since many years. And the demand for high quality polysilicon certainly is getting higher and higher. Thank you. Then maybe one question on Q3. You build up inventories and could you explain a little bit what that means for the P and L if you build up inventories? So I guess that obviously it has not a negative EBITDA impact But what do we have to expect in a period where you cannot sell too much as the market is said to be very quiet right now, on the P and L impact? Andreas, Tobias speaking. We typically do not go into that kind of detail with respect to a P and L effect of inventory. But I can say, yes, we built and we would also expect hubs in Asia. Of course, as in previous situations, we really take those opportunities when the market is little bit slower that we tried to get closer to our customers. And, but it was not I think we shouldn't talk about the P and L here. Okay. Thank you. Maybe then the last question from my side on silicones. You said the market is very tight. It has basically tightened with 2 effects. 1 was the closure of one of your competitors planned in Germany and the other was net cut in capacities in China, not least due to environmental reasons. Is there any chance that those capacity come back And do you have visibility whether there are any Chinese player, coming up with plans to build a new greenfield or brownfield expansion? Yeah. There are certainly ideas and projects, but, not really concrete. Capacities that are coming up, very soon. The, of course, the question is, and I think it's, absolutely the right, consideration what happens to the plant that has been shut down for environmental reasons. I think they certainly are some of them might be able to be upgraded But, that certainly adds to add significant costs to these plants. And most of these plants are, under critical in terms of capacities. So if they really, sort of have to come forward with their real costs, I do not see a big threat, to the overall price level for silicones because of that. The next question is from chetan Udeshi, JP Morgan. Hi, thanks for taking my questions. I have a few actually. Maybe I'll start with silicones first. Your sales were up 19%. And correct me if I'm wrong, but there was supposed to be some impact from IFRS 15 on reported sales. So Can you just help us understand how much of the 19% is actually just price seeing and how much is actually driven by volumes? The second question on silicones is given that the tight has lasted longer than expected and you think it will continue. What is sort of stopping you from beginning, the brownfield capacity expansion just yet. I mean, in the sense why I'm not taking the call just now, And maybe I have a couple of questions on polysilicon, which probably our last half year's response to these questions. So Chetan, Tobias speaking on the second question and the 90% sales increase, yes, at the beginning of the year, we are highlighted with the IFRS changes, some 1,000,000 would go out not any for the full year, not being any more reported as sales and according to the new standard. But I think with the 19%, this is just a very small number in comparison. So the 90% basic stems from a very a good performance in growing volume for, specialties and that leads to a much better mix And then price increases, which are much stronger for the standard product than for the specialty products where we have more annual contracts. And in terms of capacity additions, of course, something like that, if we do let a big debottlenecking or big, not only debottlenecking, but, addition of capacity, in an existing plan, careful planning in the beginning will speed up the investment later on. That's the answer. I mean, we simply are very meticulously planning all the individual steps have to be taken, to add the capacity in an existing, let's say, brownfield environment. Understood. And until that capacity comes online, whenever you decide to add the expansion is, I mean, is there room for you to grow your volumes from existing capacity because you guys have been running in silicones at 100% from for last 3, 4 years at least. So but still yet you've been able to grow the volumes. Is there more flexibility to grow volumes you think for the next 18 months before your new green brownfield expansion happen. In silicones? Yes. I mean, there is always a way to add a little bit of volume by yes, small debottlenecking activities. On the other hand, of course, we especially the times. They just have to be very much detailed in, in getting the highest value out of the volume you have available. Understood. And maybe just question on polysilicon I know you did not say, I mean, there was a question previously on what is the assumption prices, which you didn't give, but Is it fair to assume or at least understand that you think the market in terms of both volumes and prices will were in the second half of this year? Is that what? We are convinced about it. Okay. And One question I had was, I think, Tobias, you mentioned on earlier in the call that there was some insurance payment which was used to rebuild the plant? Did I hear that correctly? So can you just, if possible, give a split of how much of the insurance is be between what goes in P and L and what goes into the cash flow line? And I think maybe it's related to some extent is There was a big material decline in the other liabilities line in the balance sheet. So it was just wondering whether part of that was related to the recognition of insurance payment on cash flow in cash flow, sorry. Thank you. Yes. We received a USD 100,000,000 payment from the insurance in the first quarter and we take this, a control payment in order to take care of the spend that we have on rebuilding the damaged plant. And that's why that doesn't burden our P and L right now. And that is also what you have seen in the cash flow statement and the balance sheet. That is exactly the effect that is taking place there. But for the business interruption, it is, as we said before, we didn't book anything so far. And we expect that we book that in the fourth quarter when the plant is running at full steam again. Thank you. The next question is from Paul Walsh, Yes, thanks. Afternoon guys. Two questions for me please. Can we just go back over the math around the insurance payment, particularly interested in how much you are assuming in your new guidance for the polysilicon business for this year. So the quantum you mentioned around Q4, but how much is included in that guidance? And then my second question around the silicones business, Obviously, this is a chemical chain that is incredibly tight at the moment. Why should we not assume that these are deeply cyclical dynamics that are inflating profits in the silicones chain at the moment, versus just simply structurally better margins in the industry, I. E, how much of this do you think is temporary versus sustainable, which I know is a tough question to answer. But I think you get the gist of my question. On the insurance payment, our assumption for the business interruption is unchanged. We said before that we do not close that number. But the guidance is the guidance is not changed by that And I want to highlight one thing because I think in some market participant, there's a misunderstanding with insurance. It just puts us as if the plan was running. And we would have run the plan if we hadn't had that incident in September last year. So it's not a special that you need to take out of our performance in 2018. And for that reason, it's part of our guidance and it also compensates the burden that we have right now in ramping the plant in the second quarter and also in the third quarter. And just on that point, Meyer, so what you're saying is that the plan will run back up and add those EBITDA anyway, the insurance payment just mitigates for the gap that's been left in the meantime. Exactly. Okay. And on the silicones business, please? Yes. I already mentioned that one of the previous calls that the total market size for silicones is about 2,000,000 tons. And if we assume a, a growth rate of 5% per year, which I think is fairly reasonable plus minus in this business. An additional capacity of 100,000 tons per year is needed anyway, just even on the present market, market circumstances. So, in order to drive the prices down significantly, we would need an addition of capacity of more than 100,000 tons per year. Potentially sequentially for maybe 2 years. And this is, at this point in time, hard to imagine, let's say, for the next, 2 or 3 years. In the past, if we look at the past 10 years, then a significant capacity was, was established, on the one side, we, for example, together with the dark corning built the, let's say, roughly 200,000 ton plant, in China. And there were many, many smaller plants coming up in China with capacities somewhere between 10,050,000 tons. And many of these had to be taken down because us or shutdown, for environmental effects. So I cannot foresee at this point in time that for profitability reasons, many small plants that are environmentally sound will come up soon in this new environment, in China. And this is why there is this sort of lack of capacity that, potentially is sustained at least some time. And I mean, nobody is able to predict what happened after 3, 4, 5 years. But, these considerations lead us to the assumption that there is no that's a short term drop of pricing for silicones. That's very clear. Just to just to understand the 2,000,000 tons, you're talking about siloxane capacity rather than downstream specialties? Yes. Okay. But every downstream specialty needs dialogue very commodity material also needs cell locksmith. In terms of percentage wise even more, And I should not assume that you've been selling merchant volumes of siloxane given the tightness specifically in that part of the chain. That you are capturing the value in the downstream specialties? Yes, exactly. This is why this is what I meant when I said before that we are carefully considering, to get the highest value out of our raw material. Of course, if somebody, out of the need, pays an appropriate price, for a sort of a standard type or commodity type material, then, of course, if the value we create is higher than if we would sell a certain specialty, then of course, a certain percentage we always consider, selling, so called, a standard. That's very clear. It's really a question of, yes, creating the highest value for us, but also course, keeping, you know, customer needs, in our mind. Okay. Thank you very much. The next question is from Thomas Riggers Forest, Citigroup. Your line is now open. Thank you very much. A few questions, if I may. Thank you for your presentation. Just firstly, you mentioned ramp up costs at the Tennessee facility. I'd just be interested obviously noting that you will be paid insurance, but I'm just interested to know what those ramp up costs are. If you could provide any color there, And then, as you talk about the silicones market, of that 19% growth, in sales, could you provide the split of how much was mix versus volume? Within that, that would be very helpful. And lastly on silicones, as we think into 2019, obviously, you've given us a very explicit forecast for profit for this year, how do you think about the in a blue sky scenario, as you optimize that value, what do you think the, that blue sky scenario would be if you could really maximize the business given that we seem to be in somewhat uncharted territories versus history in terms of your margin performance here. If you just nice to know what you think the very maximum would be? Thank you. Well, we have some competitors that talk about sustainable EBITDA margins of 30%. As you rightfully say, it's uncharted territory. That's why I think we do not want to add to the speculation. Fair enough. Sorry, I didn't mean to interrupt you. I was just trying to remind you of business questions? Yeah, no, I was still aware of, a question about the ramp up costs. Ramp up costs simply are inefficiencies, that you have in the beginning in the whole production chain And, you know, the production of polysilicon is a sequence of production steps that all have to be or all have to be, have to perform, extremely well. So, you have to make sure that, your yields are high that the contamination is as low as possible. So in order to clean all the equipment, again, before you really produce a final product that all needs additional efforts that you don't have in a normally running production. So personnel costs, material costs maintenance costs, analytical costs, all of these our ramp up costs. Sorry. Coming for your question on silicones, the 19% goes against prior year quarter. What's the split between volume mix and price? I mean, you know that we don't disclose that at that level, but we having the wording of our, not a great differentiation between the 2 and maybe that helps you a little bit in your modeling. Okay, understood. Thank you very much. Is now open. Good afternoon and thank you for taking my questions. My first one would be on polysilicon think it was mentioned in the previous answer that in some respects this insurance should not be treated as a one off charge because it essentially makes Vaca whole for volumes it could have achieved in that year. Of course, there is the that this plant, I think, came off line in September last year. Am I right from saying that relative to the guidance, current for polysilicon, which in my view, I think implies about 1,000,000 to 25% to get an underlying run rate at the million EBITDA that would have been made by Tennessee to get an underlying run rate for this segment? That's my first question. The second question is on the potential for earnings growth in 20 19. And apologies there's a bit of an overlap with previously asked questions. But if I look at the silicone segment, it's making all time high margins. And it looks as if the scope for debottlenecking much beyond, let's say, 1% to 2.5% next year is rather limited. Is there any scope? Are you starting to reach the stage where pricing increases beyond current levels are either not loseable or start to destroy demand or generally have unintended consequences? And finally, my last question is on phrasing earlier during the call. I think it was mentioned that Vaca is hopeful of beating guidance in 2018. To clarify, does this mean the guidance of adding up the individual segments, which takes you to about CHF 1,150,000,000 in EBITDA, will be guiding for mid single digit percentage EBITDA growth in the year. I'll turn on the insurance question. You are right. I think you shouldn't take that out as a special effect, and I can confirm that. But you are right, assuming that a portion of that is from 2017 from last year when the plant went down, but I think you can do your assumption on how much is that Yes, on the silicones, in 2019, of course, it's if possible at this point in time to really, predict anything there. But I just, would like to refer back to what I said earlier that, of course, in the times of, tight raw material supply, we try to optimize the value. And there is still a considerable amount of, so called, standard business that, either has to comply with the the demand on pricing or is replaced by higher margin specialty material. And this is the way, of course, as I said before, always also keeping mid- and long term customer demands in consideration, but along these terms, we will certainly optimize the performance of the division. That is helpful. Thank you. And sorry, the last question on the being hopeful to beat guidance, is this for you some of the individual references or the current group guidance as a whole for group fee EBITDA. Sebastian, on the individual guidance, you should take into account that we've for the first time guided also to a low double digit negative others. And, then I would like to, hint you again to the speech of Doctor. Schadig, when he highlighted that We continue to see the biggest risk of our performance in a potential slowdown of the global economy, also including general protectionism. And we do have tried to put that into our guidance. And the statement is on the group level that if that doesn't materialize and, the wallet is and the global economy is developing nicely also in the second half that we are convinced that we have a good chance to beat our full year guidance. All right. Thank you very much. Maybe one more comment, on the pricing of the silicones standards as well as, specialties. I think we we all, the producers, as well as especially the customers have to keep in mind that for an extended period of time, in the past, pricing for silicones simply was too low in order to, to justify the investments that have been made in the past as well as to justify investments to be made in the future So it's just a normal correction now, that, is due simply to the real value of this material. So it's, in other words, the, so the corn producers are not trying to rip up anybody. I think it's just to really be able to long term, keep this market growing and produce the value for the customers as well as their customers, that is necessary. All right. Thank you very much. The next question is from Laura Lopez, Bara Helvea. Your line is now open. Good afternoon, and thanks for taking my questions. So first on polymers, I just wanted to get your view is there a structural supplydemand imbalance in aesthetic asset or is this tightness only driven by continuous unplanned interruptions? Or is it the need of new capacities also? Or if that's not the case, then should we expect like a sharply sharp recovery when the capacities come back into the market? So that will be the first one. And the second one in silicones. Can you also give us kind of an indication how your contracts work here? So how is it for standard silicones? Is it more in a monthly or just spot and maybe in the more specialized grades? And the last one, how good is your visibility to know how do you capacity utilization rates will improve in the new plant in Spain and in the Netherlands for BioSolutions? And I remember that in 2017, you also faced some faced some pricing pressure due to competition in in sustain and gum base. How have this developed in 2018? On the contracts and silicones, of course, in standards, the contracts are shorter terms. Of course, in these times, there is the wish of customers also to get longer term contracts and stability and specialty or I mean, in general, the specialties, the contracts are longer terms. And, so I mean, these terms and conditions are adjusted to the markets. And the applications and the customer demands, etcetera. So that's fairly valuable, but in general, for standards, it's shorter term and for specialties, it's longer term. And sorry, in specialties, let's say, in a normalized market, would that mean, I don't know, quarterly or more like half year contracts? More like half year or annual. And for your question on polymers and the acidic asset suggestion, it's basically been a series of force majeureus and that's in a short period of time that led to this tightness. And I would say acetic acid is a general commodity and it behaved like a general commodity with which means that if prices allow for reinvestment, then there will be new capacity added. So I definitely do not this current level that pushed also BAM prices up sustainable. But we have muted our our guidance in polymers because we see it continuing into the second half. That's reality. So we face it. Okay. And your question on the new Biotechnology Facilities in Spain, and in Holland, of course, we presently upgrade these facilities so that They have the capability of producing our materials. And this, of course, take some investment expenditures as well as just higher production costs in the beginning, but, as I said, also in the beginning, These effects, I mean, we will try to compensate or reduce these effects as fast as possible, but But this year, we definitely have a negative overall effect, but that's taken into account with our guidance. Okay. And sorry, the last one, just housekeeping in your guidance today. Did you change your ForEx assumption? So in the past, you had 1.25 for US dollar euro change. Did you change that? Yes, we did. We did change it to a 120 now. The next question is from Thomas Voboda from SocGen. Your line is now open. Yes, good afternoon, gentlemen. This is Thomas Voboda from Societe Generale. I have hopefully 2 quick questions on polysilicon. Firstly, on your cost roadmap, Could you give us a hint if possible, how much of the costs reduction potential you have been expecting from your plant in the U. S? And how much from the German plants? And the follow-up on this, is it fair to assume that once the Tennessee plant is is back producing at full capacity that it will come back with much lower production cost versus the status quo before the accident? Thank you. Let me put it this way. Our cost reduction efforts are on track with the roadmap. And, once Tennessee is at full swing, It also will be There's a follow-up question of Andreas Heine of MainFirst. Your line is now open. Silicons. You have 2 big investments running. 1 is the silicon metal expansion. How then the other one, the silica plant both starting up next year? On the EBITDA level, is that? And are these already contributing in a positive or a negative way in the start up year? Andreas, I don't have the detail in front of me, but the startup is late, well, in the second half of the year. So not a significant effect that you should bake into an early modeling of next year. Okay. Is that the ramp up which takes time if I take the Tennessee plant, which took more than half a year to be fully ramped out, will that be with the silicon metal expansion and the silica plant? Well, the silica plant will certainly be faster than half a year. I would be really surprised if it would take a half a year. With the metallurgical silicone plant, we do not have a lot of experience in, getting it up. So it's hard to say. But it's one furnace. So I would expect that you can't even run it at half capacity. So I would expect it to be a very fast ramp in silicone. There's a next follow-up question from Thomas Wrigglesworth, Citigroup. Thank you, gentlemen. And forgive me for a kind of housekeeping question. And polysilicon prices, I just do you mark to market your inventories, each quarter? And if you are building inventories in China, should we expect more fluctuations there? And are there any of the long term assets that may be changing with with the volatility in given the decline in the polysilicon price. Just wondering about the And if not, should we take that to mean that there's no material change in the medium term profit outlook for these businesses? The inventory is definitely valued, I mean, according IFRS standard in that mark to market. And long term assets, I mean, like the profitability of the Tennessee plant, does that have to go through a market review, with your auditors in terms of asset carrying book value? No, not that we see that. We definitely look at all three plans as we always said. As we have a production system of free sites to in Germany, 1 in the asset we are selling to one big market globally. The next question is from Sean McLoughlin HSBC. Your line is now open. Just around the Tennessee plant. You say you've sold your first volumes in the market already in Q2. I'm wondering, can you share with us by when you expect to be at full capacity production at this plant? At the latest by theendofthisyear. And what level of capacity utilization did you it the quarter. I'm just wondering if you may have further ramp costs and how these are built into your poly guidance? Yes, we do have further ramp costs because we are still waiting for equipment for the repair. And, so that's we are not why we're not running full yet, not in July and not throughout the third quarter, as Doctor. Staudia said. So I should bake into your quarterly assumptions that we still have the ramp effect in the third quarter. Super. Okay. And just thinking about the inventory build, feels a little bit like a rerun of last year where you use a lot of the early volumes from Tennessee to build inventories? I mean, at which point do you think you will be selling openly into the market full volumes from Tennessee without inventory as I said before, I think the market will recover again in the second half. The next question is from Michael Sherpa, Commerzbank. This was not us. Mr. McLaughlin, are your questions answered? Okay. I will go further to Mike Sheffer Medsbank. Your line is now open. Okay. Thanks for taking my two questions. Basically, keep it short. On the polymer side, back in the June, you announced a 10% price increase effective July 2018. So my question is do you think that this is sufficient in order to cover what you now assume as the cost run rate for the second half? It looks like with my first question. And the second one is on silicones. You mentioned in the call earlier on that basically the primarily standard grades have been showing very strong price increases, well, specialties are still lagging basically on the back of your terms of the contract. Is it fair to assume basically that looking into specialties and heading into 2019 that the bulk of price increases may come from there heading into 2019? Questions? Thank you. For the pricing reasons in Yukon, I said that yes, standard much stronger. But that's part of the nature of that business. And I highlighted that specialties haven't moved so much, but they are also priced at a different large it's more value based pricing, while the standard prices are commodity driven, supply demand and the value is created by the customers. So they need to face, the prices that are possible in a specific market environment to then pass it on as we do need to pass on raw material price increases to our And that basically leads me to your first question on polymers. We suffered a tremendous price hike along the raw materials in this year that, yeah, was much bigger than we originally expected. We pushed out the assumption for easing of raw material prices further and further. That's why we see the second half of polymers, from its performance, similar to the first half, although we don't have the WAM plan turnaround as in the 2nd quarter. So, it's overall, it's It's a challenging year, but we will see different times and we push hard to increase the prices for our product to pass it on at 5 possible. Okay. Thank you. Operator, this and gentlemen, this concludes our conference call today. We will be back in October on October 25th with our Q3 call. If you have questions until then, please contact the IR department. Thank you. Ladies and gentlemen, thank you for your attendance. This conference has concluded. You may disconnect.