Lanxess Ag Ord

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Lanxess Q3 results call. I would now like to turn over the conference to Eva Fröcke. Please go ahead.

Thank you, Sarah, and a warm welcome also from our side. Thanks for joining the Lanxess Q3 earnings call. As always, I would like to begin by asking you to take notice of our safe harbour statement. With me today is Oliver Stratmann, CFO at Lanxess. Our CEO, Matthias Sachat, unfortunately cannot be here today as he does not feel well. However, he does send his best regards. We are, however, also very happy that Oliver is here today and he is ready to start with a short presentation and we will then open the floor for your questions. I will now hand over to Oliver. Please go ahead.

Many thanks, Aoife, and welcome to everybody on the call and on the webcast. Let me now briefly run you through a few charts before we then switch to Q&A. Now, Q3 was a strong cash generation quarter despite continued low demand. You have seen by now the Q3 results of 119 million EBITDA being more or less in line with market expectations. And I'd like to shed the focus on the cash generation of the quarter. The strong free cash flow of $322 million was generated mainly due to our active working capital management reducing inventories volume wise. With that money, we have been enabled to address our net debt and bring it down by another $306 million sequentially down to 2.557 billion. We are experiencing a low demand environment here, which is why we're actively addressing what is in our hands. More to that on the next chart. Our program forward is on track and is being implemented as we speak. And additional measures are in execution. The total we've communicated before of 150 million savings will come. We aim to see the vast majority of expenses relating to this program still in Q4 of this year, and then we're looking forward to incur the forward savings of 90 million in 24 and 60 million in 25. Now we've added the information on the redundancies we unfortunately have to go through. And you have seen that around about 870 positions globally will fall away, 460 of those being in Germany. We've also announced additional measures. We have started, I think not surprisingly, Now, the process of the divestment of the business unit urethanes system as a strategic step that has been clear for quite a while. As you know, we've been reporting this business unit in our former reconciliation segment, now all other segments. And we have decided on board level to propose a reduction of the dividend for 2023 to 10 cents. Now, despite the challenging situation we are in, I'm happy to speak to you and report on our business. So let's move on to the next chart and have a quick look on group level. Volume decline here is the dominating topic. The active reduction of inventory has, of course, also burdened EBITDA, and we tried to somewhat balance between a necessary debt reduction and still making the EBITDA we wanted to make. What I can tell you further on is that customer destocking that we've seen for several quarters has been there in Q3, but has leveled off, except for those customers that we have in the agrochemicals industry. By and large, we're also done with sweating out the high-priced inventory. And with that, let's move on to the segments now. On consumer protection, at least comparably stable is what we saw in terms of results. Still without a doubt, not satisfying for us. And we now are confronted with evidence that agro-customers are starting a destocking. We've seen that also in announcements of other companies, and we expect to see that also in the fourth quarter and potentially thereafter. What will also be a burden here on Q4 is that we have currently a substantially reduced steam supply after a fire at a supplier's site in Botlik in the Netherlands. We are operational there with our flavors and fragrances business unit, which is now limited in what they can produce. So we're expecting around about a 10 million impact in the fourth quarter on EBITDA from this lack of steam supply, which is expected to last into 24. Now, let's move on to specialty additives. We're seeing a substantial decline in earnings here on B stocking. And let me be clear, roundabout two thirds of the sequential volume decline in our inventories was actually achieved in this segment. So that partly explains why we have a heavier burden of low sales volumes or lower volumes being reported and causing idle costs. Now, In advanced intermediates, the same themes are actually hitting. Mainly, reconstruction industry demand for inorganic pigments and for advanced industrial intermediates are the root causes here for lower volumes and lower EBITDA. Now, let me please shed a bit of light on the positive flip side of this inventory reduction that we have achieved. when we go to the next chart. First of all, our net working capital was sequentially reduced by around about 260 million, which led to a net debt reduction of around about 300 million, which means if we compare to year end, we have a 403 million net working capital cash inflow and a debt reduction that is north of 1.2 and close to 1.3 billion. I would also like to highlight on the de-risking side, since we've spoken a few times about refinancing necessities in May 2025, that these refinancing refinancing links of a bond have been secured by now already by bilateral bank loans. And a further topic that has been in discussion a few weeks and months ago with regard to gas prices, I'd like to drop two data points here. Firstly, in Germany, where we have the largest demand for gas, the German for gas, the storages are almost completely full already by now. On top of that, we had started to hedge our global gas price exposure and we're going into a fourth quarter where between 40 and 50% are hedged at prices that match the current level of 40 to 50 euros per megawatt hour. So I think the message should come across that we are deleveraging actively and that we are actively addressing the capital markets concerns. Let me move on to our guidance chart with that. Our view on the economic environment did not expect any uptick in underlying demand in the fourth quarter and now we are saying The underlying demand in Q4 is unfortunately even lower than it was formerly expected. I have already mentioned burdening effects that will come on top. So the persistent force majeure situation, which is now on chlorine, expected to end with the end of the month of November. And on top comes what I've explained for the steam limitation at our botleg sites in the Netherlands. In the fourth quarter, typically, there is a seasonal peak of capex. And we had reduced our guidance to 350 million capex this year. We stick to that guidance. But that implies a higher capex in the fourth quarter, which you should bear on your mind We stick to our networking capital ratio goal of 23%, and I hope you forgive us here, you know, standing at 22.2% that we leave it at 23. I personally think it would be academic to distinguish here between 22.2 and then 22.5. This all results to the updated guidance of 500 to 550 million. And with that, I'm very happy to get into the conversation and welcome your questions.