Fuchs SE

Welcome to the analyst conference call for Fuchs Petrolab SE. At our customer's request, this conference is being recorded. As a reminder, all participants will be in listen-only mode. After the presentation, there will be an opportunity for analysts of Fuchs to ask questions. If any participant has difficulty hearing the conference, please press the star key followed by zero on your telephone keypad for operator assistance. May I now hand over to Lutz Ackermann, who will take you through the presentation.

Yeah, good afternoon, ladies and gentlemen. This is Lutz Ackermann speaking. On behalf of Fuchs Petrolub, I wish you a very warm welcome to today's conference call on the nine-month figures. All the relevant documents have been uploaded at 7 a.m. this morning, and you can find them on the IR section of our homepage. With me on the call today is Dagmar Steiner, CFO of Fuchs Petrolub. And as always, Dagmar will run you through the presentation, which is then followed by a Q&A session. Having said that, I would like to hand over to Dagmar. Dagmar, please go ahead.

Thank you, Lutz. And ladies and gentlemen, a warm welcome from my side. I would like to start with our highlights of the first nine months, 2022. and we report a strong third quarter. Despite the continued strong headwinds from high raw materials and inflation of other costs, we achieved with 100 million euro a strong EBIT in the third quarter 22. For the first nine months, our group sales reached 2.5 billion and that's 19% above last year. EBIT came in at 280 million euro. That's on previous year's level. Overall, the market environment remains challenging, and there are not really indications of improvement from the markets in the short term. We face increasing inflation, bottlenecks in our supply chains, and of course, we see sharp increase in energy prices, particularly in Europe. China continues with a zero COVID strategy, and overall, the global crisis situation remains a factor of uncertainty. Nevertheless, we remain optimistic about the last month of 22 and confirm our earnings forecast and increase the sales forecast due to inflation. On the next chart, number three, you see as always our quarterly sales development. And that reflects our sales price increases, what we've managed, what we've done the last years. So if you just look at the third quarter year on year, sales are up 184 million euro or 20%. If we adjust that for currency effect, it's still up by 13%. On the next chart, looking at our EBIT development quarter by quarter, you can see that with the third quarter, with an EBIT of 100 million euro, we are quite close to our record quarter, which was the fourth quarter 2020, and even close to the earnings of the first quarter 21. And what you can see as well is that we had a strong first half last year and a little bit weaker second half year. And in the running year, you can see the impact of our sales price adjustment. There, we made a big step forward. With that, I would like to turn to chart number five, our group sales. Our group sales. are price and currency driven up, and that's up by 19%. All our regions show a mainly price-driven organic growth. Of course, China is in a difficult market environment, and as a result of the continued euro-covid strategy, we see there a noticeable business decline. During the course of the year, we increased our organic growth. So just to remember you, in the first quarter, our organic growth was 12%. In the second quarter, it was 11%. And in the third quarter, it was 19%. And, of course, we have increasing tailwind from positive currency effects. So now I would like to turn to chart number six. OUR EARNING SUMMARY. AFTER NINE MONTHS, OUR GROSS PROFIT IS UP 9% OR 63 MILLION EURO. THIS INCREASE IS COMPARED TO SALES UNDERPROPORTIONAL AS WE SEE THERE THE SHARP RISE IN RAW MATERIAL PRICES AND THAT RESULTS AS WELL IN A LOWER GROSS MARGIN. THE GROSS MARGIN IS DOWN by 3.1 percentage points to 31.4%. Looking at the other function costs, they are up by 13% or €61 million. Personal, trade, and energy, just to mention a few, go up significantly. BUT THANKS TO A VERY GOOD THIRD QUARTER, WE ACHIEVED THE EARNINGS LEVEL OF THE PREVIOUS YEAR WITH A EBIT OF 280 MILLION EURO. CAPEX IS SLIGHTLY LOWER AND THE NET OPERATING WORKING CAPITAL SIGNIFICANT HIGHER. ON THAT, I WILL COMMENT LATER. COMING NOW TO THE REGION, STARTING WITH EUROPE, MIDDLE EAST AND AFRICA. There our sales are up 18% and that's mainly price driven. The majority of companies show a double digit growth rate. Above average is South Africa, Great Britain and Sweden. We have positive currency effects out of Great Britain, South Africa and Russia. and these offset negative effects from Poland and Sweden. Looking at the earnings, our EBIT is lower, 6% year-on-year, and that's due to a decline in earnings, mainly in Germany and Southern Europe. Coming to the region, Asia-Pacific. In Asia-Pacific, our sales are up 11%, and that's mainly driven by currency effects. Of course, we have the sharp decline in China, which is the biggest supporter of the region, and they are affected by the difficult economic environment and the, I already named it, zero COVID strategy. On the other hand, we see organic growth in India, Southeast Asia, and Australia. We have positive currency effects and they increased over the course of the year. Our EBIT is 5% below previous year figures, and that's due to the lower contribution from China. On the other hand, we see earnings growth in India, Southeast Asia, and Australia. On the next chart in our region, North and South America, we have the strongest sales growth. Sales are up 40% year on year. And that's a strong organic growth. Of course, positive currency effects as well. Our organic growth in North America is overall in the region is price driven. But we see in North America as well, A REALLY PLEASING BUSINESS GROWTH. WITH THAT, YEAH, SIGNIFICANT SALES GROWTH, OUR EBIT IS UP 28%, PARTIALLY CURRENCY DRIVEN. OF COURSE, WE SEE QUITE SOME CURRENCY EFFECT AS WELL. WITH THAT, I WOULD LIKE TO COME TO CHART NUMBER 10. our net operating working capital. So if you look at the pure numbers, our net operating working capital and absolute numbers amounts to €965 million at the end of the third quarter. Compared with December 2020, we nearly doubled our net operating working capital. During that period of time, on the other hand, Raw material prices increased by roughly 70%, and our sales prices more than 40%. So these significant increases in raw material costs, which are offset by our sales price increases, that, of course, drive the increase of net operating working capital. And that explains the strong increase. On the next chart, number 11, our net liquidity bridge 22, there you can see that these massive increase in net operating working capital explains our free cash flow before acquisitions, which amounted to minus 31 million euro after nine months of the year. That's the most important figure. And if you go a little bit deeper into it on page number 12, there we compare, there we have a bridge from the deviation of our free cash flow before acquisition of the last year, the nine months 21 to the number today. As you can see, the earnings after tax are more or less unchanged previous year's levels. We have a little bit plus out of our depreciation amortization of the capex. And we have 88 million higher tied up capital, net operating working capital compared to previous year. And of course, that's something where we are working on the remaining month this year to bring that number down. So overall, page number 13, it's still a very uncertain environment, and there are high uncertainties regarding the business development. On the one hand, we have this war in Ukraine and sanctions against Russia, We see further increases in raw material prices. We have a significant cost inflation. There is an impact on potential reduction of gas supplies. And on the other hand, looking to Asia, China's zero-COVID strategy, which is still ongoing, even if there are no signs that they might open up likely again. And of course, last but not least, we have a very tight supply chain situation and ongoing difficulties with the availability of raw material. So looking a bit deeper into raw material price development on chart number 14, you'll see our graphs, as you know it from the previous slides, earnings call presentations. And as you can see, Group 1 prices are slightly softer. But anyhow, if you look at Group 3 prices, they remain firm. And they're based on healthy demand. And there is like a limited to no capacity extension foreseen. There still is a price difference between Asia and the rest of the world. And overall, we expect our basket of raw material prices there to somehow be flat or slightly increase. With that, I come to my last chart. our outlook for the full year, which reflects the uncertain environment, and we are confident regarding the remaining month of the year, and we confirm our earnings figure. We expect our EBIT unchanged to be on prior year's level, therefore on the lower end of the range of 360 to 390 million euro. On sales, we increased our expectations due to the inflation. We see there a number above 3.3 billion euro. And all the other expectations regarding books value added and free cash flow remain unchanged. And with that, the floor is yours, and I'm happy to take your question.

Thank you. If you wish to ask a question, please dial 01 on your telephone keypads now. Once your name is announced, you can ask your question. If you find your question is answered before it's your turn to speak, you can dial 02 to cancel. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. Our first question comes from the line of Martin Rodinger at Kepler-Chevreux. Please go ahead. Your line is open.

Hello. Good day. This is Martin Rodinger from Kepler-Chevreux. Yeah, I have three questions, and I would like to ask them one by one. The first is on chart 14 about the raw materials. Thanks for that. Can you please talk about the dynamics between the regions, Europe, US and Asia? Is the energy cost item the main reason or the only reason for the high level in Europe? And besides the base oil prices you show, can you also talk about the additive prices in their evolution?

Well, Martin, thank you for your question. regarding the different raw material price development in the regions. Of course, in Europe, it's harder due to high energy costs and the difficulties within the supply. But anyhow, as we just showed, here graphs for base oil. I would just like to remind you that additives make up roughly 50% plus of our total raw material cost or basket, and therefore, and their prices are tending to be higher, but there are no graphs or charts available. And looking at the price development of the base oils, of course, that's something which we are able to show, which is available. But that's just a portion of our raw material basket. And Group 1 base oils are overall for the group maybe between 20% and 25% in our raw material basket. So for us, if you look at our development of raw material prices, it's not only based on or in the majority based on the Group 1 development. And regarding the availability of raw materials, It's still difficult worldwide. We have worldwide shortages and pricing, of course, is a bit different due to local availability, local demand and, of course, currency exchange rates.

Thank you. The second question is about inflation of salaries and wages. In the U.S., unemployment rates are rather low, which means salaries are rising, and you may have eventually a higher fluctuation rate there. In Germany, there is now a new agreement with the EGPCE union with 6.5% higher salaries split over two years. Also, in other countries, salaries are rising. Among those things, what is the biggest headache for you and how you think you can compensate for these higher costs?

Well, the biggest headache is how much do we have to increase our sales prices to adjust for these inflation costs. And yes, you are absolutely right. In North America, we see close to full employment. We have a higher fluctuation. And of course, if you look into our numbers, the first nine months, compared with previous year, we already see, looking at personal expenses, they are up 10, 11%. And that doesn't reflect all the wage increases, of course, which we'll have 1st of January. And in Germany, there with the unions, there's an agreement it's for two years. Each year, wages go up by 3.25%, and they are one-time payments of 1,500 euros each year. So that, regarding the inflation rate, seems to be quite reasonable. But today, I can't give you an indication about the whole figure for the group. What we expect as wages and salary increase, we are close to finish our budget.

Thanks. The third question is regarding your guidance for free cash flow before acquisitions, which is significantly below the 220 million euros level. Based on what you expect for earnings in this year, and net working capital release in Q4 due to seasonal patterns. What is your best guess for free cash flow this year? I recall that you mentioned last time a figure of around 110, 120, 130 million. Is that still the case?

Well, we report a negative free cash flow before acquisitions after nine months due to this ongoing inflation. And that's more than we expected. Therefore, on the sales side, we increased our expectations for the full year. On the other hand, of course, that means that there will be some more impact on net operating working capital. And of course, by the end, the absolute number usually is a bit less. And now it's a negative free cash flow. It will be definitely positive by year end. But I can't give you today an indication about the number.

Okay. Thanks a lot.

Thank you. Our next question comes from the line of Marcus Mayer at Barter Bank, please go ahead. Your line is open.

Good afternoon. Three questions from my side as well. I also asked one as Martin did. First of all, I'm interested in the business environment in October. We've heard different kind of indications. Some companies, they see a significantly slowing of the business environment, other not. Your order book is not that long, but maybe you can shed some light how October was so far.

Well, I would comment more on the third quarter than just on October because you always have like a better month and then a month which is not as good and then a better month again. So the view on the third quarter is more reasonable than just looking at one single month. And let me start with the region Asia-Pacific. As already mentioned, of course, China is difficult. There we've seen a little bit weaker demand from the automotive business. On the other hand, our specialty business, And, for instance, wind had a really nice solid development. Australia has a really strong demand in mining and agriculture. In mining, for instance, that's a positive effect out of the Ukraine-Russian crisis due to the sanctions because there is... supply from Russia missing. Agriculture is doing really well due to the weather. And on the other hand, what is challenging there, it's still logistics, which is not such an easy situation. Looking at the U.S., where we had really strong performance. There, overall, our demand is fine, it's working. And, I mean, it's already mentioned, what is more concerned is the inflation and the tight labor market. Coming to Europe, there we see a slightly lower demand in Germany from the automotive industry as well in Germany and we have still solid demand for our speciality business and yeah southern Europe is a bit weaker as well, and Eastern Europe is a little bit stronger. But of course, in Europe, we have quite an impact to strong rising energy costs. And looking at steel or agriculture in Europe, there, our demand is still intact. I hope that answers your question.

Yeah, to some extent, but to summarize, would it be fair to say that so far the demand trend you have seen in Q3 has not significantly changed so far in Q4? Is this fair?

Yeah, that's fair.

Okay. And also from the price level, if I did the math correctly, then you had 20% price effect in the third quarter. Here, the price level is also looks like that this has not yet changed really into Q4. So basically, with this high price level, you're also going into fourth quarter. Is this also correct?

Yeah, that's correct.

Well done. Sorry?

Well done. Your calculations.

Okay. Not that complicated. And then the last question, I've seen that the inventories went up 42% year-over-year, which is in line with the trend we've seen the quarters before. Given this high inventory level, which was mainly triggered by higher price levels in particular, Do you see a risk of inventory devaluation in the fourth quarter? And what are you doing in the fourth quarter to mitigate this risk?

Well, of course, there's always a risk of prices are very volatile that you might have to write off some inventories, especially on the raw material side. But of course, we have... programs in place to reduce our inventories and they will work by year end and of course looking at our finished products they have to be our people have to bring them down and looking at the raw materials Of course, we will remain some effect due to these difficult supply chain because it's better to have some raw materials in stock where we know we need it in the first quarter next year instead of not taking it and then having a shortage again. So there will be some, compared with normal years, some little bit higher inventories But on the other hand, there are a lot of programs in place to reduce our inventories.

Okay. Thank you so much. And as I guess this was the last call as a CFO at Fuchs, good luck in your new position.

Thank you.

Thank you. Our next question comes from the line of Rio Kidacha at Bank of America. Please go ahead. Your line is open.

Hi, good morning. Thanks for taking my questions. I have a couple, please, and I'll take them one by one. So my first one is, how should we think about the run rate of earnings going forward? Now, you deliver a strong third quarter EBIT of about $100 million. So simplistically, if you annualize that, that's about sort of $400 already. Now, of course, the fourth quarter is going to be seasonally weaker, and you might have some weakness or softness on the volume side, but presumably your price increases should be relatively sticky, and then you seem to have capacity ramping up, and perhaps you get some relief on the raw materials into the first half of 2023. So I'm just wondering about your thoughts in sort of sustaining this earnings momentum going forward.

Well, talking about the run rate, I can't give you any statements about 2023 by now. That will be done as usual when we publish our annual report. And looking at our high inventories and the question of how to develop raw material prices. Of course, if raw material prices come down, it's good news. for our margin. On the other hand, you face write-offs, and it's a difficult environment. And I mean, as I said before, I'm confident that we bring down our inventories by year-end, and that, of course, will help us. Our fourth quarter is usually... And, I mean, what you see looking at the quarterly sales development is the strong sales price adjustments we managed. And, of course, there's more to come.

Okay, thanks. And my second question is, you mentioned that you have some pleasing business growth in North America. Can you please give some more color about this? It sounds like you're winning some new business here. And am I right in estimating that you achieved double-digit volume growth in this division for the third quarter?

Well, in North America, we had a weaker period in the previous year. Therefore, of course, the increase of sales by 40% is great, but looks maybe a little bit more positive than it actually is. But we have our core business and Nye is making really good progress and we have good development of business in both areas, in automotive and industrial business. specialities as well. And it's, yeah, it's across all industries, everything, and there's nothing really outstanding. And North America comprises, of course, Mexico and Canada, and Mexico is developing very good, but they're the same, yeah, applies what I said to North America as a whole. It's, of course, all industries, automotive and industrial. So looking at that region, it's a nice development this year.

Okay, Van. And I have another question about China. Can you please speak a little bit on the path to recovery? Now, when I look at what auto OEMs say and some other chemical companies, they actually speak positively on this end market. So I'm just wondering why it's different for you. Is it to do with sort of your mix in auto? Do you have a higher exposure to the aftermarket here versus the OEM field?

In China, we have, in general, a higher exposure to automotive lubricants compared with industrial lubricants or specialities. That's a little bit smaller portion of our business. And, yeah, I mean, we've seen weaker demand from the automotive side. And I suppose it's aftermarket as well as the OEM business. But China is a difficult situation with the COVID strategy and all these partial lockdowns which appear.

Yeah, yeah. No, I get that. But say, for example, Volkswagen and even, you know, BASF a couple of days ago are mentioning that sort of volume growth or the rebound has been quite sharp in terms of new production. So is it more on sort of securing the raw materials that you're not able to fulfill Or is it sort of just broad-based demand weakness? Just trying to understand why there's a dichotomy in the views there.

Yeah, well, I mean, there are months or weeks when China seems to pick up again, and then it's like cut due to lockdowns again. And of course, we compare This year was a very strong development of the last two or three years in China, where they always had double-dated growth rates.

Right. Okay, thanks. And just a quick follow-up question. Did you mention that you expect to implement further price increases? And to that point, sort of how far along? do you think we are in terms of putting all the price increases through? Like are we sort of 75% of the way there or closer to 90%? Thanks.

Well, if you look at our performance, as our increase in sales is price driven,

Apologies, we seem to be having a technical issue. Bear with me one moment.

Can you hear us, sorry?

Yes, we can hear you now.

So we may continue now, okay? So hopefully we're back now. Yep, we're having it. Okay, sure. We can continue now, okay.

Okay, so I'm not sure. Did you get my last answer or do I have to repeat?

Sorry, if you don't mind repeating, please.

Yeah, maybe you can repeat the question once again. Sorry, we just dropped off. Maybe you can repeat the last question then we can answer it.

Yeah, sure. It was about price increases. I said, was I right in hearing that you still are going to implement more price increases? And to that point, sort of how far along are we? Are we sort of 75% of the way there or more like 90% in terms of that coming through? Thanks.

Yeah, well, I just said, if you look at our sales growth which is price and currency. And that means, on the other hand, that our volume is not growing. And with that, reporting an EBIT on previous years bigger or level means we manage in absolute numbers to cover all increases in prices we faced. But of course, we have to increase our prices again and more because on 1st of January a lot of other function costs will increase personal costs more or less everything so to cover that we have to act now and that's why I said there will be more price increases and we already are across all countries across all regions out with the announcements

Okay. Thank you very much. And Dagmar, all the best for the new role. Thanks. Thank you. Thank you.

Thank you. Our next question comes from the line of Sebastian Bray at Berenberg. Please go ahead. Your line is open.

Hello. Good morning, and thank you for taking my questions. I'd have two, please. The first is on the working capital. The receivables balance has been going up at Fuchs for a while now, and I'm wondering if Are you cutting your customers some slack in Q3 and Q2 of this year, or is this all raw materials related? And should we effectively be thinking about getting this money back in 2023, or are you focusing a little more on growth in the balance between growth and cash flow? My second question is on the... The progress in the electric vehicle market since we started... Okay, sorry, I'm just going to wait for that helicopter to go and then I'll continue. The second question is on the growth in the electric vehicle market at Fuchs, in particular EV-related sales. Since you gave the update at the Capital Market Day in June, has Fuchs actually signed any genuinely new contracts with electric vehicle makers or battery makers? Not so much the magnitude, but the existence. And the third one is on operating leverage. By the end of the year, you're going to be a 3.3 billion euro sales company, roughly. A one percentage point increase in volume gives you 33 million euro of sales. But how much EBIT would that give you? Historically, Fuchs has talked about a 15% margin on new business. But I imagine given that utilization is low, it could be a bit higher. Maybe, let's say, 25-ish percent drop through. Is that right? Thank you.

Well, Sebastian, I will start with your first question, the working capital and the development of our receivables, yes, which increased. But that's just normal course of business, nothing special. And, of course, we are working on improving our free cash flow, and that means not only to bring inventories down, but anyhow it's always a question of mix because different customers have different terms, and we don't see there any risk. The progress in the electric vehicle market – I mean, what we are able to tell you, what we already did regarding, for instance, batteries, is that we acquired the share of Eli that's making progress. We are ramping up the production in Kaiserslautern to be able to scale that. And I think that's an important and big step into these overall projects electric market and regarding electric vehicle market or e-mobility in special I'm not aware that we signed a new bigger contract but of course that's something which is for us a medium long-term strategy and not a quick win. And of course, it's definitely a big net opportunity. And our margin for new business, the 50% EBIT margin you referred to, which we, yeah, where we stick to, but where we set We don't know when we will be there again due to inflation, so first we have to overcome that. We work on improving our margin and every additional volume, every additional business. Of course, you have some variable costs for that, but with our structure and everything, we are So for every additional business, you have, of course, additional variable costs, but you don't really need to increase significantly your fixed costs, and therefore a significant portion of profit from additional business will show up.

Sorry, Sebastian, I had to mute your line. There was a bit of background noise, and if you had any response, I've just unmuted you now.

I was just going to say, well, sorry about the background noise, and Dagmar, all the best for your new role. Thank you for taking my question.

Thank you. Thank you, Sebastian.

Thank you. Our next question comes from the line of Andrew Stott at UBS. Please go ahead. Your line is open.

Yeah, good morning. Thanks for taking my two questions. So firstly, just on the energy package that the German government have put forward, and I know it's not signed off yet, but on the assumption it is, would Fuchs be taking those subsidized energy rates or not? There's some discussion, obviously, the context here is there's some discussion that if you do as a company, you may have to hold back on other things, for example, dividends. So that's the first question.

May I answer your first question immediately? Sure. Make it easier. Well, as we have like only roughly 1% of sales as energy costs within the whole group, we don't get or we won't get any benefits from the government, either in Europe or in Germany, for increasing energy costs, and therefore there will be no issue regarding anything else.

Okay, so you just won't apply for the subsidies?

Yeah, but we won't, but it's not worthwhile doing it. I mean, if you look at our energy costs, that's hardly nothing compared with other industries.

Yeah, no, no, I understand that. But at the same time, you could get cheaper energy. So I'm guessing you're thinking about the flip side of this, which is what you might have to change from a capital allocation standpoint. Is that right?

Yeah, but I think I'm not sure. I'm not aware about the rules of the packet, but we don't intend to apply for. And I'm not even sure if we would be able to apply because we don't have high energy costs.

Yeah. Okay. I got it. Thank you very much. Okay. Second question was on pricing, the 21% that you're booking in Q3. I mean, how much of that is negotiated prices and how much of it is surcharge, if any? So I'm just trying to think of what you retain as we go forward and as and when raw material costs come down.

Well, what we benefit from the adjustment of our selling prices, that's all negotiated, what you see in our figures, and that's sustainable.

Okay, perfectly clear, and also best wishes for your next move.

Thank you.

Thank you. Our next question comes from the line of Michael Schaefer at OdoBHS. Please go ahead. Your line is open.

Yeah, thanks for taking my two questions. I'll ask them one by one. So I'd like to come back on Q3 reporting and looking at the at the various regions, it strikes me basically that Europe has been the only region which we're not showing even margin improvement sequentially. So I wonder whether you can talk us through the key challenges you have there in Europe, whether this is the slowest region to pass on prices and how we should, or higher costs, and how we should think of, let's say, this kind of acceleration, which you nevertheless have shown in terms of organic sales growth in the region, how this basically should evolve heading into 23. So this would be my first question.

Yeah, thank you, Michael, for your question. Looking at Europe, of course, it's for us the most complex region with the highest numbers of countries and therefore companies as well. And we see a different development. We see like weaker Germany and Southern Europe development and little bit more solid development in Eastern Europe. So that's just regional differences due to the market environment and of course, I mean, Europe with these high energy prices, with the The Ukraine and Russia conflict with the sanctions and everything has the highest impact compared with other regions, what they face as a result of these conflicts. And that makes it somehow a bit, I wouldn't say difficult, it's just challenging. And, of course, we increase our prices. We are on a really good way. We see, as I mentioned, regarding our specialty business, a solid business, and even increasing demand, automotive aftermarket. that's something which is somehow weaker in Europe.

Okay. Thanks for this. My second and last question would be on China. Again, coming back to what you elaborated earlier on, that China is, let's say, preparing for, well, let's say, is easing pressure and there are some signs of improvement. So, Can you just provide us some more evidence there, what you're seeing, how things are progressing sequentially? I mean, Q2 obviously has been a disaster quarter. Q3 looked better from what you reported there. But what are you seeing there heading into the fourth quarter? Are things turning to the better?

Well, it's just what we hear from our people in China. For instance, now they approved Western vaccinations, but I'm not sure if they are really going to use it. I mean, it's very difficult for a big country like China who stick to a zero COVID strategy for two years and then somehow to open up again. But it seems to be getting better. I mean, the days of quarantine are shortened if you want to go there. And so it seems to somehow open up a little bit. But that's what our people tell us.

Okay. Appreciate it. Thank you very much. And also from my end, all the best for your future career. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Lars von Cliff of Deutsche Bank. Please go ahead. Your line is open.

Thank you very much. Good afternoon. Two quick questions, if I may. Looking at the 14% organic growth for the first sales growth for the first nine months, would you be able to split that into the price and the volume effect? We understood that the majority is a price effect, but was volume still positive or maybe even negative?

Well, volume is negative, and we don't report... our volume figures because we believe it would be misleading without explanation if you compare volume figures over some periods of time because the overall lubricant market volume figures is flat or shrinking in decades. But year on year, the first nine months, our volume is slightly down in a lower single-digit percentage.

Okay, perfect. Understood. And then your financial result in the third quarter was, it seems, interest-expensive rose compared to earlier quarters. I assume this is mainly triggered by your higher short-term debt, which you need to fund the networking capital. Or is there any specific reason for the increase?

No, there's no specific reason for the increase. Yes, you're right. We had to take a little bit more net debt on our balance sheet due to finance the net operating working capital. But looking at our financial position, even if our net debt, now it's net debt and not net cash anymore, is 100 million. Our equity ratio is over 70% and we can sleep well.

No, absolutely. Not worry. It was only rather for my model. That covers my question. Finally, also from my side, many thanks for your cooperation and support so far and all the best for your restart at Rheinmetall.

Thanks, Lars.

Thank you. And we have one final question in the queue. That's from the line of Rhea Katacha at Bank of America. Please go ahead. Your line is open.

Hi. I had a follow-up question on the E-light JV. Now, I saw a press release about a month ago on the production ramp-up saying that you will produce several thousand tons of electrolyte this year and then ramp-up further than that for 2023. And I'm just wondering, is that going to auto OEMs or maybe the battery industry in terms of EVs, or is it more, say, energy storage? And to that point, does it give you an indication of what the pricing, what the margins can be relative to your sort of autos, lubricants business today?

Thanks. Well, that is done for like all high technical batteries who need to be charged or recharged very, very fast. That means you have a lot of applications. It's not only electric cars. It's everywhere where you need or where you have the need that a battery... is very fast recharged. And looking at the expected margins out of that business, they are very nice.

Okay, thank you. Just the last one, if I could squeeze it in. So I know you have about a 28%, 27% stake, and you can build this up. to either say 51% JV or acquire 100% of the company. And is there sort of a timeline on this that you need to make this decision by?

There's a timeline on it. It's between two and three years, something like that. It's midterm. Because first, of course, we want to develop, commercialize the business and... We already, like, agreed on the mechanism of pricing, so it's then up to us how we decide if we want to increase our share and to fully consolidate that company or not. Okay, thanks very much.

Thank you. And as there are no further questions in the queue at this time, I'll hand the floor back to our speakers for the closing comments.

Yeah, I think with this we have come to the end of today's conference call. So thank you very much for your participation. And if there's anything we can do for you after this call or over the next days, just give me a call and we will come back to you. Thank you and bye-bye.

And I would like to say thank you as well to all of you. And as I'm not retiring, I hope we will meet again on one or the other conference. And I wish you all the best. Thank you and goodbye.

Thank you. Thank you for your attendance, ladies and gentlemen. This call is now being concluded. You may disconnect.