Fuchs SE

Dear ladies and gentlemen, welcome to the analyst conference call of Fuchs Petrolup SE. At our customer's 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 for the analysts or Fuchs to ask questions. If any participant has difficulties hearing the conference, please press start key followed by zero on your telephone for operator assistance. May I now hand you over to Lutz Ackermann, Head of Investor Relations, who will lead you through this conference. Please go ahead, sir.

Good afternoon, ladies and gentlemen. On behalf of Fuchs Petrolub, I would like to wish you a very warm welcome to today's conference call on the fiscal year 2020 figures. My name is Urs Ackermann, and I am the head of investor relations. I'm here together with Dagmar Steinertz, CFO, and together with Stefan Fuchs, CEO of Fuchs Petrolub. As always, Stefan and Dagmar will walk you through the presentation, which will then be followed by a Q&A session. All the relevant documents have been uploaded this morning on our IR section on our Fuchs.com homepage. Having said that, I would like to hand over to Stefan. Stefan, please take over.

A very warm welcome also from my side. Unfortunately, we can't see each other. It was a nice tradition to go to Frankfurt and to meet you there in person and hopefully later within one year we can do so again. Thanks, Lutz, for handing over to me. We are very happy that we have you on board since January 1, now a little bit over two months. We had a very nice handover from Thomas, who is now in this new company, and I'm sure you will also meet him over there. So all in all, I think it was a great change, and we are happy to have you. 2020 was a challenging year for the Fuchs Group, to say the least. It's exactly now one year ago that we started to deal with Corona. You know, most of our people work from home since about one year. All our manufacturing people and the lab people are at our premises. We were able to manufacture through the entire year. We had only one or two adjacent locations where we had one or two weeks a shutdown. I think, you know, we had in the second quarter when for us we were in the eye of the storm, we had a significant reduction in earnings by 50%. Also, we made a profit every month. And as you know, from the corona pandemic, the first country hit was China in February last year. Then in Europe and in America, China came back pretty quick, I think, already in the third quarter, in the beginning. Europe during the third quarter, America a little bit later, but all in all, we started to see very good trading months as of September. And therefore, within the same year where we had a profit reduction of 50% in the second quarter, we had the highest quarter ever in the fourth quarter, which made us very proud. And we had also made the decision to keep quiet and don't do short-term actions and fire a lot of people and stop trading. A handful of projects. We have invested about 120 million euros, more or less we kept to our team worldwide. And all in all, we are satisfied with the result, especially with the cash flow. And now I'm happy to hand over to Dagmar, who will lead you through the entire numbers for 2020 and the outlook for 2021. I will then come back with a strategic section of certain topics we are dealing with, and then both of us will be there for your questions.

Thank you, Stefan, and a warm welcome from my side as well. 2020 was a challenging year, and I will start with chart number two, our highlights for the full year. We had to manage significant macroeconomic headwinds, and as Stefan already mentioned, we had a strong year-end finish. Sales are down by 8%, and our EBIT exceeded our January forecast for the full year and was above consensus. Our cost discipline, in combination with an improved gross margin, resulted in a disproportionate EBIT decline of 3%. As part of our growth initiative, we delivered the second biggest investment budget in our company's history. By way of acquisitions, we strategically expanded our specialty business with Nye in the U.S. And due to our solid balance sheet and the high cash generation, we propose a dividend increase of 2%. So let's now move on to chart number three, our quarterly sales development. As you can see, we have a drastic decline in sales in the second quarter 2020. The third and fourth quarter recovered, and the fourth quarter, as you know, is in general a weaker quarter for Fuchs. If we have a look at the next chart, number four, EBIT development, you can see an even more clumpy development in 2020. You see a drastic decline in EBIT in the second quarter, a good recovery in the third quarter, and an extremely strong finish in the fourth quarter 2020. As Stefan already mentioned, it's the highest quarterly result in the company's history. Let's have a deeper look into our sales development on chart number 5 for the group sales. We generated sales of 2.4 billion euros and limited the organic sales decline to 187 million or 7%. All regions showed volume-related organic sales declines. I will give you more details to the regions later. Our external growth of 53 million, or 2%, was more than offset by growing negative currency effects over the course of the year. These negative currency effects totaled to 60 million, or minus 3%. Let us now move to the income statement, chart number six. 2020 was a difficult year for us. The COVID-19 pandemic hit us hard and resulted in significant declines, not only in sales as well as in earnings over the course of the year. On the other hand, we benefited from falling raw material prices and improved our gross margins. Compared with previous years, we improved it by 1.3 percentage points. Gross profit therefore declined to a lesser extent than sales. The development of other function costs reflects the cost-saving measures which we took. We implemented specific cost-cutting actions with a sense of proportion and without making major cutbacks or jeopardizing future projects. As a result, the group's function costs were reduced in the last three quarters 2020 compared to the first quarter 2020. Year on year costs are down by 29 million or 5% and by as much as roughly 50 million if you adjusted for acquisitions. The equity income was one million lower than in the previous year at 10 million. This is particularly income from our joint venture in Saudi Arabia, which was down year on year. Our EBIT therefore fell by 8 million or 3% to 313 million. Earnings after tax declined by 7 million, also equivalent to 3% to 221 million. But anyhow, we can be satisfied with how we have got through the crisis and how quickly we have recovered again. Let's have a look at chart number seven, our balance sheet. We continue to have a solid balance sheet and a strong cash flow generation. In 2020, total assets increased by 5% or roughly 100 million euro, mainly due to our acquisitions. The goodwill recognized in the balance sheet increased by 61 million to 236 million, corresponding to only 15% of equity. Our equity increased again. It rose by 19 million compared to the previous year. Due to the increase in total assets, the equity ratio fell slightly to 75% after 77% in the previous year. Our net liquidity is still at a high level and just 14 million down on previous year's level. Operating cash flow increased significantly and the free cash flow before acquisition increased from 175 million Euro to 238 million Euro in comparison to the previous year. If you turn to the next chart, number eight, you can see our investment in the future. Our R&D work in 2020 was at a similarly intensive high level as in the previous year. We managed around 560 projects and as part of the FUCS 2025 strategy, we are continuing to base our organization on the regional concept with three technologically equivalent R&D centers. We want to have one in Europe, one in Asia, and one in America. And of course, sustainability is a key topic in R&D. If we have a look at our CapEx, with investments of around 122 million in 2020, we completed our investment initiative. Within the last five years, we almost spent 600 million in new plans, in existing plans, in modernization, and so on. Following the end of the investment initiative, we intend to permanently reduce our capex volume to the level of depreciation, and that is planned from 21 onwards. As a result of the increase in capex, Of course, depreciation and amortization increased again from 73 million in 2019 to 80 million in 2020. With that, I come to chart number nine, our net operating working capital. There you can see a reduction. Compared with the end of 2019, our net operating working capital fell by 48 million to 495 million Euro. The improvement in the absolute amount of the net operating working capital along with high Q4 sales resulted in a reduction of net operating working capital in relation to the annualized fourth quarter sales. There you see for 2020 a number of 19.4%. This represents an improvement in the average capital tie up period of nine days to 71 days. Coming to our net liquidity on chart number 10, this shows our net liquidity position. This is unchanged at a high level. Even after a generally challenging financial year due to the pandemic and after considerable investments and acquisitions we still have a high net liquidity of $179 million. Despite the decline in earnings, free cash flow before acquisitions increased from $175 million to $238 million by releasing funds in net operating working capital and reducing investments in comparison to the previous year. We were able to pay not only the dividend, but also the acquisitions almost entirely from the free cash flow. On chart number L, we have an earnings summary for the year 2020. It was a difficult year for us. COVID-19 hit us hard and resulted in significant decline in sales and earnings over the course of the years. However, we consequently took counter measures and implemented specific cost-cutting action. We can be satisfied with how we have got through the crisis and how quickly we have recovered again. In the final quarter, we even achieved the highest quarterly results in Fuchs history. With that, I would like to come to chart number 12 and having a deeper look into the region. Starting with EMEA, their sales are down by 8%. With the exception of Russia and South Africa, the companies recorded substantial organic declines in sales. Sales were also impacted by negative exchange rate effects of 26 million euros, which resulted in particular from the weakness of the Russian ruble and the South African rent. the region managed to exceed the previous year's EBIT by one million. This positive earnings development is an environment of slightly decreasing raw material prices, was facilitated by an improvement in the gross margin and by consistent cost management. But of course the prior year was burdened by an impairment of six million Euro. Coming to Chart number 13, Asia-Pacific, their sales are down by 3%. After a strong sales decline in the first quarter, Asia-Pacific was the first region to recover. Main driver was China, and China achieved a slight organic growth in 2020. The region benefited from positive developments in raw material prices, and in the product mix. At the same time, the region succeeded in reducing costs. As a result, earnings increased year-on-year by 7 million or 8%. On chart number 14, we see the region America. America is most affected by the crisis. The strong external growth of 11% mainly due to NICE, could not compensate the organic decline of 14% in sales. In addition, the weakness of the US dollar and the South American currencies contributed to a negative exchange rate effect of 4%. Overall, the region saw a decline in sales of 7%. EBIT is down by 14% year-on-year, and the 50% decline in the first half of the year could not be made up in the second half. However, gross margin improved compared to prior year. On chart number 15, you can see our dividend proposal. Our continuous high cash generation, even in the crisis year 2020, and of course, the solid balance sheet, made it up our mind to propose the 19th dividend increase in a row. So we intend to pay a 2% higher dividend. With that, I would like to come to chart number 16, our outlook for the year 21. Our outlook, of course, has some assumptions. The effects of the further development of the COVID-19 pandemic on the global economy and thus also on FUC's supply chain, production and customer demand cannot be estimated reliably. Regarding sales, we expect to achieve the pre-crisis level 2019. So just under 2.6 billion. With regard to earnings, we expect to maintain the level of 2020. Of course we continue consistent cost management and the limitation of new hires to a minimum to contribute to this. At the same time, however, we must take into account inflation driven cost increases and of course we will continue to invest in our future. We will see around 80 million capex in 21 and of course we will invest into our IT infrastructure. In addition, we do not expect to draw any further government support to cushion the impact of the COVID-19 pandemic in 2021. And of course, we anticipate rising raw material costs in the highly volatile environment. With that, I would come to chart number 17, continuing with the outlook. There, we want to say that we expect with a good start in the year, a strong January, a quite good first quarter. And having in mind that the second quarter in the year 2020 was a very weak quarter for us, we might expect or we expect higher earnings in the first half of the running year compared with previous year. And then of course, due to the raw material price increases, which were temporarily to margin compression, and the very strong second quarter, which we had in 2020, a slightly weaker quarter in the running year. With that, I would like to hand over to Stefan, who will give you more insights in the strategic outlook.

Thank you, Dagmar. As you have heard, I think we go in an extremely robust condition and very well prepared into probably another very challenging year, 2021. We used the extra time we all had in the year 2020 due to Corona to prepare ourselves for the future. And I think we have spent significant time doing that and we feel very, very well equipped for our future and we go confident into it. As you know, the whole CapEx program with very high capital expenditures comes to an end, and we go back to a level of depreciation. But I want to show you some of the highlights we did in the year 2020, and I'm now on page 19. On the upper left, you see our PU grease plant in Kaiserslautern. PEU stands for polyurea creases. It's a special soap, which we believe has a lot of future applications in the initial fill, not only in the automobile industry, but also in many, many other equipments. The polyurea crease plant in Kaiserslautern is the first of its art in the Fuchs Group. We will build one in China and in the U.S. within, I would say, the next five plus years, but not at the same ticket of 25 million because there we have more infrastructure as we had in Kaiserslautern. But we have now done the whole prototype. We have made some batches already, and we are now in the valuation phases with our customers. And next week we have the opening celebration with many key accounts, again, in a virtual manner. On the lower right, you see our new plant in Sweden. Forge is outside of Stockholm. As you know, with the Statoil acquisition, we only rented their plant because we believe that there are some environmental aspects to be considered, which we didn't want to be involved, so we built a new plant. We incorporated all the... warehousing in the plant as well. So we spent about 40 million euros for our Nordics site. On page 20, you see our Shanghai headquarter laboratory that's in Nanjiang, just outside of Shanghai. You know, we shut our plant in Nanjiang two years ago. We built a state-of-the-art plant in the Suzhou province, about 90 kilometers outside of Shanghai. So today we have two very, very modern plants in Shanghai, one in China, one in the Shanghai vicinity, and the other one up in the north in Yinghu between Dalian and Shenyang. And here, those pictures are our headquarters and our R&D hub in Asia. On the upper left, you can see the increased office space with a parking garage to its right. In the lower right picture on the left side, you see the double laboratory space. So we are very proud of that one as well. If you go to page 21, you see our recent acquisitions. The most prominent, obviously, is the Nye acquisition, which we are very, very happy with. So they perform very well. They have some very unique applications, as you know. We think that they are at a level of about 50 million euros as of today. We closed the deal in January 24th, so we had 11 months in our accounts last year. And we made a share deal on purpose because we want to keep the Fairhaven site. This is about an hour driving south of Boston, and we want to convert Fairhaven, as we have Kaiserslautern in Germany, in our specialty site in the U.S., If you look, for example, for the PolySci acquisition, all of that manufacturing for the silicone-based lubricants will be moved to Fairhaven. We also had already some silicone products in our Kansas City facility. We also cleaned that one out and moved it to Fairhaven. And that's a very nice setup for us. Well, Pona was a smaller deal, 4 million euro in sales, but this was a long-standing partner in the specialties whom we took over. And Pauli Sayer just mentioned about $9 million in an asset deal, which we now move out to Fairhaven. All very nice acquisitions. And we continue to look for acquisitions, but we don't see increased activity due to corona. Maybe that's going to come in the next one or two years. I can't tell, but obviously we will continue to watch out for acquisitions. On page 22, you can see a very cool picture. As you know, in February 18, the Mars Perseverance rover landed on Mars and There was one Nye product actually on that equipment. That product applies a stable, durable film of low surface energy to prevent migration of fluids on surfaces with a higher surface energy. And this is not a lot of volume, but it's very, very interesting and it's a very prestigious delivery as well. We worked with them very closely. We have our products in satellites, but also in onboard materials for the aeronautic industry. As you know, NICE also in the medical industry and also serves a lot of special applications also in the automotive industry, like everything outside of the power train, mainly about noise reduction and seat adjustments, those kinds of things. On page 23, Just a brief update on our sustainability side. We delivered what we promised, so we were CO2 neutral in the year 2020. You know this is only from gate to gate. Our goal is to be CO2 neutral from 2020. Cradle to Gate until 2025. The whole sustainability matter plays a bigger and bigger role, also with all our larger customers, and I think we are on a good track with that. We have changed, for example, our European sites all to green energy, and you can read more about it in our annual report. When you go to page 24, you're all familiar with FUCS 2025. We have started that program more than two years ago, and I think it came exactly at the right time. As you know, we are engaged with our culture, with our structure, and with our strategy. And we have spent the entire corona year in actually dealing a little bit with ourselves and preparing ourselves for the future. On the structural part, you know we have large divisions like in OEM, mining, industry and specialties. We have now also a bracket around our automotive aftermarket business that was new in 2020. We have 12 dedicated segment managers because we have segmented our entire business and they will follow up on those segments with our local sales forces. I think that's very important. On the strategy part, we have rolled out a strategy in the middle of 2020 and have also informed you about it. We have now made the budget of 2021 first time according to the segmentation as well. So I think we are on a good way with that. And on the cultural part, mainly we talk about hierarchy-free communication and an open feedback culture. And we also made some inroads over there. If you go on the page 25, you see some current activities. I said it before, we really use the year to make a systematic execution of our strategy, and we have not cut back on any large projects on their way. I think that was very, very important. The segmentation approach I already mentioned to you, especially with regard to automotive aftermarket business and our segment managers. The acquisitions I went through, I just want to highlight the second bullet point. We are in Vietnam since a couple of years with a smaller unit, but we also have a long-standing partner over there. We have now joined forces. We have combined our business, and we own 70%. Our partner owns 30%. Our partner is our MD, and we feel very, very comfortable with him moving forward in a very interesting market. We also want to have a small manufacturing unit there not as expensive as you have heard about Sweden or Australia, but it's important also there for all the manufacturing and distribution licenses you need. Vietnam reminds us a little bit about China 20 years ago. I don't think it has the potential of China, but obviously it's going to be a very interesting market. I think also with regard to COVID-19, we are engaged the entire day in video conferences. They don't replace personal relationships. But we were very well equipped with our Office 365 program, which Dagmar and her team brought into play some years ago. So we were very well connected in preparation for COVID. And we made last year two virtual roadshows where we invited all our employees. And at some sessions, we had participation rates of 1,500 to 2,000 people. And I think it's very good to share content. but also very good because we had some lunch viewing sessions, so we also used the time to have some fun with each other, especially in Corona times. So I think that came very well. That brings me to the end from my part. I now hand back to Lutz, and then Dagmar and I are ready to answer any questions you can to the extent we can answer them.

Yes, thank you, Stefan. Thank you, Dagmar. We now come to the Q&A session. Operator, please take over for the moderation.

Thank you. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 0 and 2 to answer your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question is from Martin Rödinger, Capital Shibu. Your line is now open. Please go ahead.

Thanks. Good afternoon and congratulations for the record Q4 earnings. I have three questions and I would like to ask them step by step, so if that is okay for you. My first question is on the delta of the net operating income and the net operating expenses in Q4, which was a positive figure at 10 million euros. Did you have some release of provisions by year end or any other funny items which was included in this 10 million and which will not occur again next year or this year?

Well, thank you, Martin Rüdiger, for your question. I will take that. And, of course, we have a lot of fun, but we never have funny items in our P&L. Anyhow, in the fourth quarter... 2019 we had this impairment of our goodwill in Sweden with six million and in the fourth quarter 2020 in the running year we had earnings which just came in in the fourth quarter but where we had expenses before that in our P&L. So overall for the full year There is no one-off in the year, in the P&L 2020.

The second question is on the EBIT margin in the region EMEA in the fourth quarter, which was rather high at 60.3% when I look at the figure before equity income, so before your joint venture in Saudi Arabia. That margin in EMEA in Q4 was much higher than in the quarters before. Do you have any explanation for that very high margin level? How much of that improvement was from cost cutting, how much was from mix effect, how much was from the leverage effect?

Of course, your first question or my answer to your first question is more or less the answer to the second question because these earnings have been in the region EMEA and therefore, of course, the EBIT margin in EMEA compared to the other quarters is somehow higher. But that's just like the question of time shift or time difference. If you just look at the quarter, and of course we had a very strong, yeah, sales in the fourth quarter as well.

But Stefan, do you want to add? Yeah, I would like to tie on. We had very high sales in the fourth quarter. We had very high margins in the fourth quarter, cross-profit margins. And we still had a very low expense because we had no T&E and we kept the expenses tight, you know, coming out of the Corona year and all of that together came to, I think, an outstanding development. And, you know, what you asked before with your first question, that part happened in EMEA. You know, what Dagmar said, the Q4 recording was partly related to expenses in the quarters one and two. And the refund was in the fourth quarter. That all happened in EMEA.

Okay, thanks. And the final question from my side is on the prospects. What we know is that currently demand is still very strong, especially from the automotive industry. In case the semiconductor shortage for automotive is over and thus demand will rise even more, would Fuchs Petrol be able to increase its output, i.e., increase the number of shifts from two to three, or are you already working in your plants with three shifts?

As you know, we have a number of plants. Just to take an example from here, out of Mannheim. In Mannheim, we run full throttle, but we never had to say to a customer we can't supply because of a capacity item. So, you know, we are really a team in place who does whatever it takes in order to get the product out of the door. We also saw an amazing volume increase in China in the first month of this year, also the end of last year, and our team did an outstanding job in getting the products delivered. The much bigger obstacle for us are the interruptions in the supply chain to us. What you read about the car manufacturers with regard to chips and those type of things also happens to us. And there are a number of reasons. Many specialty refineries didn't make turnarounds in the year 2020, so there will be a couple of them in 2021. That's a shortage. We see a significant interruption due to the freeze wave in North America in January and February. Texas is not geared for minus 20, so they still have a lot of burst pipes there, water pipes and other pipes. We see interruptions for us. We see also for us strange interruptions for steel drums, for example, where we ship steel drums empty from one plant to another to help each other. All kind of those things, you know, when you run at a high capacity in your plants and you have to reschedule batches all the time, it's pretty tough. But I can only thank our team. They do an outstanding job and so far they get out of the door what we need to get out. But, you know, from an outlook in our market, those interruptions are quite a chance.

Thank you very much.

Plus, increased freight rates, you know, for container freight, you have to fly in certain raw materials and things like this. So those both have some side effects.

Thank you very much.

The next question is from Marcos Maia, Vada Hezea. Your line is now open. Please go ahead.

Good afternoon, Stefan. I also have three questions, and I will ask them one by one. The first one is most likely for Stefan. The consolidation among independent lubricant companies is ongoing, but despite my expectation, there was not much, at least in the pandemic. How do you see the current market environment and Maybe you can also update us on the purchase price development for potential targets. That would be my first question.

I also anticipated more, to be honest. So far, they all seem to do well, and we see regular activity. Purchase price development always depends. When you have an owner who feels very comfortable with us and he talks exclusively with us, it's a different price level. For NAI, there was a bidding part going on, so that was, in our world, a more expensive but very well-invested acquisition object. So we haven't seen anything running past us which we desperately wanted. But I think over time, when you look at all the regulations with regard to sustainability, with regard to the chemical inventories and REACH certifications, etc., We see some increased pressure on smaller players because for them to handle all of that is not so easy. But we continue to look at the market and we would buy whenever it makes sense to us.

Okay, thank you. My second question would be on the national capital to sales ratio, which was outstanding for the full year. this 19.4% is the sustainable or what is basically the level we would say that's a good run rate going forward?

Well, Markus, I would say it's for us a bit too low and our target would be more like 20% and to run our net operating working capital on a level of 19% or slightly above 19% for our business is too low, especially in the current environment with disruptions regarding our supply chain. Maybe that might be your next question. We will see or we expect for the cash flow for the running year for 2021 a slightly increase in net operating working capital.

Okay, understood. And then my last question would be on the price volume effect of your organic growth. organic growth was a minus 7% for the full year and plus 4% for Q4. Maybe you can help us to get at least a feeling how much was price and how much was volume driven.

Well, of course, the reduction in organic sales is absolutely volume driven. and a pure volume driven, it would have been even a bit higher, but we have slightly positive like mixed effect, but it's all like volume, we are missing a lot of points. but it's more lower raw material prices and not increasing our selling prices.

Okay. Thank you.

The next question is from Sebastian Bray, Burenberg Bank. Your line is now open. Please go ahead.

Yes. Good afternoon, everybody, and thank you for taking my questions. Congratulations on the results. I'll do them in order with gaps as the previous analysts have done. My first question is on cash flow guidance for 2021. Despite a fairly hefty, about 40 million euro declining capex and flat earnings, the guidance for cash flow is substantially down year on year. And if I were to purely allocate this to working capital, it would imply close to 100 million euro headwinds. I understand there's some kind of deferred tax effect. Could you talk through the moving parts, please?

Yes, Sebastian, thank you for your question. Yes, there is a tax position in there, but it's not deferred taxes. In the crisis in the second quarter 2020, as we expected, our earnings to... so we are like decreased compared to 2019 quite a lot. Everybody like applied for less tax payment. And therefore, as we haven't expected the strong year end finish, we have, of course, in our balance sheet, yeah, tax payments, positions in there, and this will have two effects on the cash flow statement for 21. First of all, of course, we are going to pay the tax receivables, and secondly, there will be higher tax payments for the running year, so it's a double effect on the cash flow statement 21. So there won't be a release, but there will be two effects. We will pay the cash, the tax receivables, and we will have, in addition, all at the same amount as the pre-tax cash payment.

How big would the tax receivable be? Is it about 20, 25 million euro?

Yes, it's about 20, 25 million euro. And so the additional... Cash payments for 21, which we will have to provide, will be the same amount, 20, 25 million as well. So the whole impact on the cash flow statement regarding taxes will be roughly 15 million.

That is understood. Thank you. My second question is on this raw materials dynamic. My understanding is that Q1 has started quite strongly in profitability terms as well. and this is despite substantially higher spot prices across base oil groups. Why exactly would there be such a substantial lag between when raw material prices rise and when they bite in your P&L? That's my second question.

On the one side, the base oil pricing plays one role in our raw material. But the increased crude oil price plays a secondary role to the chemicals we are buying and to the additive packages. So there is a time delay, I would say, about three months to get it for those groups. So until we see it normally, it takes a good three months. And then we have also the running behind impact of three to six months. We have price escalation clauses with the large customers, the smaller customers. We are all out for price increases at the moment, which is quite a challenge because with some of them, we also appreciated pretty high margins last year. And our supply at the moment is also not seeming left because we have also shortages in some of our raw materials. So therefore, I say it's quite a challenge in the marketplace, but all other competitors have exactly the same phenomenon. So it's not a fruit phenomenon. They all face the same challenge at the moment, and therefore it is a dual challenge.

Thank you. And the final question from me, I'll keep it brief. The at-equity contribution... Now, my understanding is that the major part of this is Saudi plus Turkey with a bit of Vietnam and Africa. Would you expect this number to be up year on year for 2021, and what are the main drivers?

Well, in our equity, it's to a large extent. Over 80% is Turkey and Saudis. Vietnam is not at equity, because Vietnam we will consolidate it at 100%. We own 70%, so that's not at equity. But when you asked me for this year, let's go one step back. In the year 2020, we had a good start in Saudi Arabia, which deteriorated over the year due to their economy, their country. We had a rough start in Turkey, and they made a very nice turnaround during the year 2020. So I think Turkey is all okay this year, Saudi to be seen, but I would not see a major up or down to the Dagmar.

No, I would see it on the same level.

Very helpful. Thank you for taking my questions.

The next question is from Jean-Baptiste Roland, Bank of America. Your line is now open. Please go ahead.

Hi, and thank you for taking my questions. The first one is related to the cost savings and the raw materials that you had, that you benefited from this year on the profit. I'm trying to understand what is sustainable in this part of the cost savings, bearing in mind that volumes are picking up again, and so essentially you could be... pushing your need to hire a little bit more and maybe advertise a little bit more. And basically also if you could provide any sense of the raw materials benefit to ABIT. That's my first question. Thank you.

On the raw material, it is difficult to quantify, but if you look especially on Q3 and Q4, we had over our regular average margins and Now we have to see how successful we are with our price increases. We have done that numerous times, as you know, and I always say price volatility is much better than a slight price deflation over many years. So that's not all bad, but it always takes this interim period until you have caught it on with regard to our cost savings. We have a T&E saving at the moment, which will most likely go through this year again, to be seen how much we can travel. I don't anticipate that our T&E will come back to the old levels after the pandemic. So we will do some traveling, but not as much as we did before. With regard to the short time and furlough programs, that's not going to be repeated this year. I see some additional expenses this year from our supply interruptions where we have higher freight rates. We have some flying in materials to keep our customers going. So therefore, most or a lot of those things are not repeatable, but as you know, we are very cost conscious. We have taken down our investments again to a level of 80 million, and we are still very tight with regard to new hirings.

like savings and advertising and we will try to keep that somehow and some savings in leasing.

Got you. Thank you so much. Second question for me and that will be it. On the interruptions that you're seeing in relation to semiconductors, do you see this disruptions continuing through 2021? Or do you think that could potentially be shorter? I'm just wondering if this is something that you have baked in your guidance lasting for the entire year. Thank you.

I can only briefly answer before Dagmar elaborates more. With regard to our customers, they continue to run normal at the moment. But I anticipate more interruptions for them as well during this year because all the supply chains are interrupted, not only on the petrochemical side, but also many other markets. Therefore, if the semiconductors are okay again, there might be something else short. But I think our outlook was based on a hazy view we have got forward. As Dagmar said, I always say if a year ends bad, You can't anticipate that January is going to be a great month. Our year ended very, very well, so most likely the year started also well. But looking forward, we don't see where those interruptions are leading to. We see a rise in raw material costs, and we don't know what economic impact that whole lockdown business has. And all of that together, I think, led us also to our outlook, which is really you don't have any visibility. I continue my mode I have now since 12 months. I'm very happy for a good month, which is in the barn, you know, when you want to go to the farmer language. But, you know, all forward-looking statements at the moment are impossible.

Thank you so much. Thank you.

Next question is from Isha Sharma, Stifel Europe Bank. Your line is now open. Please go ahead.

Good afternoon, all three of you. Thank you for reading my questions. I have just two left. The first one would be, what led to the quarter-over-quarter sequential decline in America's margin in Q4 versus Q3? And the second one is more on your strategic updates. We know from your last CMB in 2019 that you have a mid-term margin target of 15%, and I do understand that these are right now some difficult years, but maybe if you could help us as to all your new acquisitions and in general your strategy, when do you expect to reach that level, assuming that 2022 is a more normal year? Would you then say that already in 2022, you see a significant improvement or given the current cost situation and in general the investment that you have made that it takes a little bit more time?

Well, I will take over your first question regarding the margin of America. The third quarter margin for the region America is not like... Yeah. a margin level which in general applies for that region. It was quite high due to product mix and it's just like three months. In the fourth quarter, of course, in America We've seen a recovery of overall more business in America and therefore even of lower margin business and therefore the margin came down. But please don't take the third quarter margin for America as the relevant margin for that region. And for your second question regarding FUCS 2025, I look at Stefan.

Well, with regard to the 15% EBIT margin, that's still our goal. But we always said, you know, we had also a sales target as a goal, and we always said we can quantify that once we know when the new normal is there again. And I can't really answer your question whether that's in 2022 or 2023. We just have to see, you know, when we come to a regular, normally running economy again. But definitely the goal is unchanged.

Thank you very much. And there are currently no further questions, so as a reminder, if you would like to ask a question, please press zero and one on your telephone keypad now. And the next question is from Oliver Schwarz, Robert Research. Your line is now open. Please go ahead.

Thank you for taking my questions. I have just a few ones, mostly for clarification purposes. You said that depreciation amortization is likely to come down to the level of CAG starting this year. Am I correct to assume that this is around about the 80 million level of 2020, so including the impact of purchase price allocation, or is that just the 65 million that is pure depreciation? investments into tangible and intangible.

The capex budget for 2020 is 80 million euro.

Okay, thank you.

And then... Sorry, for 2021.

Yeah, but I got that. Thank you. To the PP&A, how is that likely to develop over time in 2022 and beyond?

Okay, great.

And if you look at the overall CapEx level for investments and intangibles, how much would you like on the back of an envelope calculation say that is due to maintenance, so maintenance capex, and how much of that would be growth capex of the 80 million you just alluded to?

Very difficult to answer, but we still have projects we anticipate to execute also in 22, 23, and 24, but they should be catered by that amount, too. So those amounts would not include a 40 million plan but they would include like a 5 to 10 million euro pre-setting in China or somewhere else. And we have also made a geographic mid-term outlook and there you see that over time the investments in Europe will go down and in Asia they will go up and that's also where we see more of the business growth in the future.

Excellent. Thank you. When looking at the inventory levels not at yours as you stated that they might be a bit too low due to the current situation but at your customers how is there a feeling with Fuchs to say how much of the demand both in Q1 sorry in Q4 and also in Q1 2021 might be due to restocking of your customers and how much of that would be driven by underlying demand

You know, the lubricants normally are a consumer with our customers so that they don't have a lot of stocking impact. So we don't see stocking waves of up and down with our customers. They operate at the same level that we do. At the moment they take whatever they can get, the same with us. but we don't see any stocking cycle looking at our customers. What we see is that our customers confirm, you know, their volume outputs or outlooks they've given to us at the moment. But as we have seen in the crisis times, I refer to March and April of 2020 or in the year 2008 to November, December, they are also happy to cancel them overnight. Okay. At the moment, it all is firm.

Okay, and lastly, looking at your outlook, is there any FX impact baked into that, either tailwind or headwind?

Was it CapEx impact, or we didn't understand it?

No, the outlook, and the FX, so foreign exchange impact as currencies are fluctuating. Is there any negative or positive effect from that baked into your guidance or just saying, well, we assume that currencies will stay at the level of 31st of December of 2020 and that's our working assumption.

No, there's no ethics impact in our outlook. And we even calculated our budget with exchange rates and January, and there was no ethics impact seen. So it's all there.

Wonderful. Thank you so much.

And the next question is from Axel Herlinghaus, the FedBank. Your line is now open. Please go ahead.

Thank you very much. So hello to everyone, and at this stage, best wishes for all of your health. Thanks for taking my questions. I would have two questions. The first one revolves around the COVID special charges. So could you please give me an order of magnitude in terms of these pandemic-related extra costs in 2020 and perhaps what you expect for 2021? And the second I would pose afterwards.

We have no special costs for COVID. We have not calculated the masks we have given out to our people or the hygiene material, but All in all, I don't want to say that we hit any significant or material special costs in either 2020 or 2021.

Okay, thank you very much. And the second one would be part of your FOOX25 strategy. You're in the process of establishing a holistic market segment approach in order to be able to offer your customers a complete FOOX product portfolio relevant to them. Can you already see at this point in time that customers have adapted the purchasing behavior and demanded a wider range of Fuchs products? Or is it too early for that?

No, definitely. We can see that. And the market is very receptive to those solutions. So, you know, we have, I think, presented to you the six strategic pillars last year. And those six strategic pillars are supported by 10 strategic initiatives. They pay into those pillars. One initiative is called New Markets, where we deal with totally new markets for us. And when we talk to our customers, they are more than happy to get engaged. And the other part is Comprehensive Lubricant Solutions, where we talk about service offerings, including equipment. Also, to make it clear, we at Fuchs, we don't want to get engaged in manufacturing or maintaining equipment, but we offer it to our customers together with partners. We have made in-house computer programs with regard to our chemical process management sites. We have now with one large customer a metalworking fluid sensor out in the market, which measures 24 hours 7, three different recordings. We have also the tank telemetry. where we have sensors in the large tanks of our larger industrial customers or OEM customers where we get signals when the tank comes to an end. So those type of what we say the digital customer journey is for us very, very important moving forward and therefore we have also as a structural element appointed a chief digital officer underneath Dagmar with regard to their digital journey, especially out of a customer view. So therefore, yes, it's very important, and yes, the customers are very receptive to those ideas.

Okay, thank you very much.

And there are currently no further questions, so I'll hand back to Lutz Ackermann.

Yeah, thank you very much. With that, we have come to the end of today's conference call. Thank you very much for your participation. And if there are any further questions after the call, don't hesitate to contact the IR team. We are happy to be in contact with you. The next conference call will be on 29th of April, where we are going to present the Q1 numbers. Until then, stay healthy and speak soon. Bye-bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.