Lanxess Ag Ord

I would like to welcome all of you heartfully, warmly. Reference made is to our safe harbor statements, and Michael and myself will lead you through the conference call. I start with the presentation on page four, and of course, key highlights strategically, financially are addressed on this page. First of all, the transaction on Inval Europe closed, so the joint venture had a strong starts emotionally bringing two leaders together and we alluded for the last six or twelve months that this will be happening and it happens now to the business q2 was a very tough quarter we saw that the business declined further compared to q1 and we saw that some industries really were hard hit especially construction so we are significantly below prior year and but also driven through the fact that we followed your requests and heard you loud and clearly to focus on cash, and we've threaded our working capital, especially on the inventory side, as you could see. Earnings margins were burdened by weak demands and lower utilization, and we operated, as a matter of fact, slightly below 60% utilization. definitely something that is extremely painful. A few years ago, when we were still in the polymers, our break-even was at 75%. I'm happy now to say that with 60% or even 58% utilization, we are still reporting EBITDA, but of course, this is something which is extraordinarily low and is not our normalized levels, because Last year, we were still operating at utilizations between 75, close to 80. Cash control is clearly on the radar. Networking capital further improved. We are now down to 23.8. But of course, this hurts as far as the P&L is concerned. Net debt is promised significantly reduced to 2.8 billion, thanks to the transfers of proceeds from the invaluable transaction. And despite really bad operational performance, despite paying out the bonus, despite paying the dividends, we basically kept that stable versus Q1 on a performer basis. We started the program forward in order to mitigate the current horrible demand situation that everybody in the industry is confronted with. We see industries that used to be stable over the last decades that face volume declines, even in the consumer end area. We see contractions because people are cautious on spending due to the inflationary environment. So we started forward and here basically we explained that on page five with short-term measures And there is, first of all, the category which are measures taken without OTC. These are ad hoc measures, reducing costs wherever they are variable. Of course, clearly addressing projects and nice-to-haves that will be cut. And, of course, on CapEx, we look at all CapEx that we are having and projects being planned. being delayed or being cut. These measures are short term. They help 23 on costs and on cash. But of course, they are only focusing and they are ending at 23. Until the end of 23, we want to finish our structural measures. Structural measures mean we look at our sites worldwide. We look at our SG&A structure. After 10 years, I mean, it's also time for that. And therefore, this is something that where project work starts, of course, we will negotiate then with the respective unions and workers council. And we want them to start the implementation end of Q4. Midterm, we definitely look at our, now that the portfolio has been found, we also need to see that this portfolio, which is strong in its nature, needs to have fully the processes, the people, and the energy to take the right market approach so that the strength of the portfolio is fully reflected. And of course, in a downturn, you have to prepare for the upturn. And if you Do the work in the downturn, you come out strong in the upturn. That's what we intend. Let's now come to the details on page six as far as program forward is concerned. So ad hoc measures, we have in the region that has impacted most Europe a clear hiring freeze. strict cost control, capex control. Of course, there will be significant reduction in variable compensation to the managerial grades when EBITDA is where it is. And as far as management board is concerned, when you want to start with structural measures, our view and my view is you lead by example. So then you should Start with your own salaries, and it was anonymous, decided by the management board that we cut our fixed salary by 25%, and bonus-wise, on this level, there would be no bonus. We have here hard hurdles in place. On the ad hoc measures 23, we should come out with cost savings in the neighborhood of 50. CapEx would be down by 50, so cash-wise optimized by 100. Structural measures should lead us to 150 million of savings. They would be predominantly achieved in corporate structures and also admin structures in the businesses. And as I stated already, we will prepare for them in course of this year, should finish in Q4, and then we will see how much of the 100 million of OTC are going to be booked in Q4 for 24 and 25. Energy-intensive plants are under review. We have a few other plants globally that are not significant, i.e., More complexity than big and complexity on small plants can be revised as well when you do this. But in Germany, we look at energy-intensive plants, the two we will flag and explain to you today. Majority of savings will come from SG&A and the 100 million of respirants. The split up when what will be achieved you will have on this slide on the right lower end. Let's come to Germany. So here we reviewed our plans. We flagged last year two plans that are critical in nature as far as energy intensity is concerned, one of which is likely to be closed. We have not taken the final decision yet, but we'll do that in course of the next few months. The hexane oxidation plant is part of the business unit advanced industrial intermediate. The operation is extremely energy intensive. The plant is not competitive due to the high energy intensity and due to the lagging demand, it is hit twice. The CO2 footprint, which in the future is not going to get better, financially, because CO2 certificates are price-wise rising, it's not falling, we consider this plant long-term as not viable. There are 61 good employees that will be impacted. That's hard, because when you close a plant in Germany, it's closed for good. So these are tough decisions. Implementation latest by first quarter 26, because we still have some contractual obligations, and should they end earlier, the plant would be closed earlier, should we go for such a decision. Second plant is chromium oxides. This falls in the area of inorganic pigments. Here the process, the production process, is not that energy intensive, but The majority of chrome oxides goes to construction and ceramics industry. Many of our customers are here in Europe. And as you can imagine... Oliver, your time will come. So as far as construction and ceramics customers are concerned, these are little customers. You will not see and hear about them in the press, but... the ceramics and construction process is very, very energy intensive. And they are collapsing right now. So here the mom and pop shops are closing. And when your end customers and end industries collapsing, there is no need for keeping your production alive. And for that very reason, we see that this business might be sold to other players in the market that have a better setup as far as value chains are concerned. They produce the precursors. They produce the derivative products. And therefore, we are looking into the possible divestiture. But here, we will give this a certain period of time. If this doesn't work out and is too complex, we will most likely take the decision to close this plant as well. The test currently is significant underutilization. and therefore it's not a money printing machine. Also here, 52 employees will be impacted should we take such a decision. Decision time is 23. Implementation one way or the other will follow 24. Now on page eight, we come to the invaluable transaction. Books are a little bit distorted. This is accounting. On the one hand, and real life, on the other hand, real life is we got a significant amount of cash that was wired and is booked in the bank. And now on the technical implication, we've announced last year that the enterprise value of HPM is 2.5 billion. This continued operations shows roundabout 1 billion that was now moved to Enval Europe. And the net gain, I mean, this is extraordinary, is around about 1.5 billion. So you see a huge net income that we report. But of course, let's face it, we will take net losses of Invalio for the next few years into our P&L because for good reason, Invalio has taken their decisions on purchase price accounting, which is significant. So this will hurt our proportional equity line respectively. It's a big amount for any private equity transaction, of course, interest rates burden as well. And as on top of that, trading environment is not that great. Last year was a good year, but this year is also hard for Invalior. The profitability currently is also not at the normalized level where this business will be at. So there will be a net loss and the net loss we will proportionally consolidate. As far as the quarterly hit is concerned, it will of course be reported under at equity. It will be a non-cash event and it will be around the 50 million euros and that is something you should take into consideration on a quarterly basis. The tricky thing is any loss that we will report reduces the book value. And should the book value that we have for in value should be reduced, but then at a certain point in time we sell it at the agreed contractual terms, there might be a big capital gain that we will see at the time of the exit. But now clearly the focus is on improving the profitability through synergies and a better trading. We'll also kick in at some point in time, and that will then move to a reduction in net losses at net income level of Invalio. I hope this was not too detailed, but I think that with this I could clarify all questions that came this morning to the industry relations team. Now, ladies and gentlemen, let's take a look at page nine, Langston's group. And the first I would like to say is two negative drivers. Demand is horrific. I mean, Europe is soft. China is very concerning. I've never seen construction in my professional life as bad as it is right now. E&E, obviously all of you have bought whatever mobile devices your children and you need during the pandemic time. But we also see that E&E, despite product innovations, is hard hit. So demand across the regions is tough, especially China, especially Europe. US still holds up reasonably well, not great, but we don't see here the same demand disaster as we see in Europe and China. So next to demand, of course, we reduce our working capital and have advanced nicely, not only in Q1, but also in Q2. And of course, this hits utilization and impacts profitability as well. Page 10, we show you the segments. Intermediates, hard hits. Editors, which still did well or reasonably well in Q1, hard hit. That for us was also a surprise and led to the profit warning in June because construction fell like a knife after April onwards. And it's not back yet. So we saw a sudden shock in demand in construction, and this across the regions. And of course, with this, prices are under pressure as well. Consumer protection holds up reasonably well, and this should be the case with the portfolio transformation we've done. But now we see also, and this was coming through in April, May as well, that agri-softens. So here's some alerts for the segment going forward. Let's come on page 11 to networking capital. So you see where we stood end of the year 22. We started here to clearly sweat inventories out and be more aggressive on receivables collection. That works out well and therefore we are coming closer and closer to our announced number that I gave you with Q1 numbers of 23 to sales. If we would go there, we have basically sweated out 4% of working capital to sales, which is tough work. And of course, this is something that we still keep following as we go forward into 2024. Ladies and gentlemen, with this, I would like to finish with the guidance which is now at 600, 650. We don't expect a recovery in the second half. We still have, unfortunately, on chlorine supply in Erdingen, a false measure. And we basically don't see that this is improving at least as far as volumes we are getting until November this year. Based on the above, our guidance is dated 600, 650. We should have lower cost base in second half. Focus clearly is indicated on cash generation and CapEx new guidance is 350. So, ladies and gentlemen, with this, I would like to turn the page and open the call for your questions. Please go ahead.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask the question may press star 11 on their touch phone telephone. If you wish to remove yourself from the question queue, you may press star 11 again. One moment for the first question please. Our first question comes from Christian Fates from Kepler-Chevreux. Please go ahead, sir.

Yes, good afternoon. Christian, you're sitting in for Martin. Good afternoon, Eva, Matthias, Michael, and obviously Oliver, who's in the room trudging from his spilled coffee. Two questions, if I may. As you are reviewing the energy-intensive plans in Germany as part of your forward program, Can you please elucidate how energy costs have actually evolved to date, obviously, versus the cost shocks of last year? And then, Matthias, you just mentioned the agricultural business. Saltigo, can you give us an indication how much volumes were down in Q2 year-on-year as some of your key customers were plagued by weather-induced channel inventories? And would you see this coming back in the second half slash going into 24? Thank you very much.