Lanxess Ag Ord

Hello and welcome to the Lanxess Q1 2024 results investor relations call. Throughout the call, all participants will be in a listen-only mode and afterwards there will be a question and answer session. Please note that this call is being recorded. Today I'm pleased to present André Simon, Head of Investor Relations. Please begin your meeting.

Thank you very much, Sarah, and a warm welcome to everybody to our Q1 2024 conference call from my end as well. As always, we begin by asking you to take notice of our safe harbor statement. And with me today is our CEO, Matthias Sachert, and our CFO, Oliver Stratmann. Matthias will start with a short presentation, and then we will open the floor for your questions. With that, I'm happy to take over to Matthias. Please go ahead.

Thank you, André, and welcome everybody on this conference call for Q124. I start with slide four. The presentation has been dispatched. On slide four, we show that as far as year-on-year performance is concerned, we clearly acknowledge a very tough comparison. Q1 23 was our last somewhat okay quarter, and it was the best quarter in 23. So the comparative base is definitely here the toughest for the running year. And this is the case for sales, but also for profitability. So if we make the year-on-year comparison, no doubt, tough quarter. We would like to shed light, however, on what we see in the markets and here in Q1 versus Q4, but as a matter of fact, also versus Q3. Q3 and Q2 last year, we see in many of our industries that volumes are picking up. Exception, clearly, agro. Agro started destocking later than other industries, and this accelerated in the second half last year. Turned out to be tough in Q4 last year, but now quite severe in Q1. still severe in Q2, and from the indications we are getting from our customers, improving in the second half. So for the other industries, we clearly see also in Europe that destocking has come to an end. Customers are starting with regular quarterly orders like they used to do in the past. at lower levels though, but they start to confirm orderly commitments. This is a change to 23 when all customers basically just wanted to destock. So we see that sales rebound to 1.6 versus Q4 1.4, and this of course led to a positive, which is increase in the receivables. If you look into our balance sheet, 200 million increase in receivables, and as you know from our turning rate, this turns into cash normally within around about 45 days. So, while its networking capital increased, it increased on one area that we like, which is receivables. Turning to EBITDA, same storyline, we acknowledge the year-on-year comparison being Very tough. But here also, the same statements hold true. We see sequential improvements. Even though the base improvement versus Q4 is soft, we clearly have to stress in Q4 last year, we had no bonus accruals because we paid no bonus for profitability-connected incentive schemes. We had further one-time relief accruals All in all, this is not operational and the 101 million that we now report, we fully report on an operational basis. Despite Zaltigo being really and very, very tough turns due to the fact that some of the customers have simply ordered nothing. This we assume to improve modestly in Q2. and then continue further improvement along the lines that I've just said. Further support will definitely come from our forward initiative. The implementation of cost savings is fully on track. You also see that when you look at the headcount reporting we've done in Q1, in Q4, versus the remaining quarters in 23, you clearly see that we are clearly accelerating here and are fully on track to get what we wanted to achieve. As far as the urethane divestment process is concerned, also here I can confirm this is fully on track. The first round is about to be finalized. We started here with high single-digit numbers. In the second round, you normally tighten the process. because you cannot continue with so many interested parties. So we will tighten the process and we'll take roundabout a handful into the next rounds. And then eventually more information is shared. And the final phase is then the negotiation phase that you normally do with two to three interested parties. So also here, I think we do what we want to do. With this, I turn your attention to page number five. We give you here an overview on the sequential development of our segments. Clearly, on consumer protection, that was a tough quarter because Zaltigo fell out completely. And as you have heard from the agro companies, please look at their transcripts, they've all confirmed that Q123 was a peak year or a peak quarter. and therefore also Zaltigo had peak volumes and peak profitability. This drops out completely, and therefore Q1 was hit hard consumer protection-wise, notably by agro-destocking. Again, I would like to make my comments that the agro industry by and large also sees Q2 as tough, but not as tough as Q1. When you look at the transcripts of the big companies, I mean, it's on the internet. I cannot comment on customer feedback, but I can give you the statements of Corteva, who says, we expect to see market growth in the second half of 24. That's what they clearly confirm, and I understand why. fmc for instance makes the statement that market conditions expected to improve as year progresses so as they publicly state that you can assume that they do this on data and as far as our feedback is concerned we see that in the agro industry that the feedback from our customers clearly confirms this statement. So from the agro side, we assume that Q3 and Q4, but notably Q3, Q4 normally is seasonally weaker, should show further improvements, and that's reflected also in our guidance. Speciality additives, well, also here you clearly see the rebound in the end industry. However, please take note of the fact that construction is clearly soft. remains soft in china and is soft in europe we assume that here from q3 onwards more momentum will come in not a booster but a gradual improvement at least this is the indication we are getting from the client side so also here a sequential improvement q1 versus q4 we expect a further improvements in Q2, and another sequential improvement in Q3. Advanced intermediates definitely, I mean, it's from the product side, not as resilient as the other two segments, but this is a business where the 23 results were extremely hard hits. These are two market leaders worldwide, and they come back. We have sweated out the inventories last year, sweated out inventories that were produced at extremely high prices from 2022. So this job has been done for basically around about nine, 12 months. We now start from a clean basis, and we now start producing with low energy costs. Now this division turns competitive, and we will take the market back. So here, please expect that this division will see a stronger rebound, profitability-wise, than the others, because the base is also lower. Now let's come to the guidance, full-year guidance. Economic environments, I think, are known to you. Let's look at length of specific guidance. We would like to grow EBITDA by 10 to 20%. There should be this further sequential improvement versus Q1 and Q2, and then continuing in Q3. The reasons for this I have explained, and then somewhat a softer Q4 due to seasonality. Focus is clearly on cash generation. We take a balanced approach on working capital. I mean, we like receivables, but we will collect them for sure. And as far as inventories, you see that we kept inventories tight so far. As we see momentum strengthening further in our end industries, we will of course also hear in a focused approach builds inventories if need be, because if the market grows, we will supply and then we will collect cash. On capex, clear discipline will be there and you will notice in the quarters going forward, but we will not uninvest. There's no reason for under investing, we have a strong asset base, but we don't need to spend growth investments at this point in time when utilities or utilization is not at 90, 100%. So this status has not been reached yet. We are improving on utilization and we will further improve on utilization going forward, but we have enough spare capacity at this point in time to be disciplined on maintenance capex and not on growth. Ladies and gentlemen, this is it for the presentation, and Oliver and I will take your questions right away.