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.

Thank you. If you do wish to ask an audio question, please press star 1 on your telephone keypad. If you wish to restore your question at any point, you may do so by pressing star 2 again to cancel. Once again, that was star 1 on your telephone keypad to register for any questions. And our first question comes from the line of Jonathan Chung from Morgan Stanley. Please go ahead. Your line is open.

Hi. Morning, everyone. I've got two, please. The first one is on your pricing for specialty additives. I see the negative 10% decline. How much of that is driven by bromine prices, and how much of that is your active price concession to regain market share? And my second question is on your lithium brine project. Could you give us an update on the brine supply negotiation with Standard Lithium and when would we expect to see contribution from this agreement? Thanks.

Jonathan, thank you for your question and for your time on the call. First on bromine, I mean, bromine picked up last year, softened again in Q1 and is now picking up again. So it's not so much at this point in time a derivative of or driven by supply. It's more driven by demand. And here, I mean, bromine prices, you don't see contractual prices in Europe and North America. You only see the Chinese spot markets on brome. and this gives you the clear indication that the construction industry in China is still struggling. And therefore, as far as bromine prices are concerned, we need to see a pickup in construction in China before bromine prices start to rise to higher levels again. And this is not the case yet. So the Indicator you are looking at clearly confirms that the Chinese construction industry is still doing very soft and suffering, and that's a reflection of this. As far as ourselves is concerned, we are not here going for market share at this point in time, so we clearly focus on the value proposition. So, price reductions we currently see are reflection of either raw materials or in some areas the reflection of bromine where we sell bromine directly into the markets and that of course is also done at lower prices. Now, as far as lithium is concerned. I think there's no update at this point in time. It's fully in the hands of Standard Lithium. I think they flagged very clearly that as far as technicalities, et cetera, are concerned, they are either done or very far advanced, but the next decision they have to do is on basically getting the project capitalized, financed, and that is in their hands. And once they have completed this, I think it's in their hands to go forward. That's the status currently on Standard Lithium.

Thank you.

Most welcome. Next question, please.

Thank you. Our next question comes from the line of Sam Perry from UBS. Please go ahead. Your line is open.

Hi, thanks. Just one for me, please. With regards to your comments on sequential improvement in Q2 and Q3, so taking your Q1 EBITDA and the fact that your historic average level of sequential decline in Q4 has been about 20%, it would imply that to hit the midpoint of your guidance, you need to see around high 30s sequential EBITDA growth in Q2 and then again in Q3. Is that the right sort of trajectory of improvement you're seeing in your order book for Q2? And then what gives you confidence in another step up in earnings again in Q3, given the relatively recent comments surrounding low visibility? Thank you.

Yeah, let me take that question, Sam, over here. Well, you know, we've guided to a sequential improvement in earnings Q1 going into Q2 and then further moving on in Q3. The hint towards seasonality in Q4 does not imply that this is in any means a normal year. So the typical earnings distribution that you are alluding to we've seen in the past It simply has no basis in a year that we are going through right now. Matthias has pointed to already with regard to agrochemical customers to not only what our customers are saying, but even what they are printing on their websites and that they are expecting demand to pick up. in Q2 and Q3 even more. So that confirms what we are hearing when we talk to our customers. Then I can tell you that we are, of course, also ramping up our cost savings program forward. And as we go through the year, already last quarter, we have said that even though only moderately, we also expect expect more demand to come in from our construction industry customers. So that gives us in a summary the confidence that we will really see a pickup here sequentially over the quarters. And then we just have to bake in for some sequential lower number in Q4. You also asked how confident we are, and when I look into what the market is expecting right now, and I'm looking right into the face of Matthias as well, who smiles at me, we can live with the consensus number as it stands right now. So we are confident in this sequential improvement.

I'm always smiling at you, Oliver, but now particularly. I hope the question has been answered. Next question, please.

Thank you. Our next question comes from the line of Matthew Gates from Bank of America. Please go ahead. Your line is open.

Hey, everyone. Thanks for taking the questions. A couple, please. Firstly, I appreciate the extra detail you've put in the slides about the development through the course of the quarter and how that may have impacted receivables building collection. Now that you've given an EBITDA guidance for the year, can you also be a bit more specific on what you would expect for free cash flow generation this year? And then I wanted to come back on consumer protection, where essentially we've seen profits halve, which is somewhat surprising for what's supposed to be an asset-light business with quite resilient end markets. Clearly, peers and customers are experiencing the same phenomenon you are in ag. Is it possible to isolate how much ag or Sotigo contributed to that year-on-year profit decline? And just as an aside, when we see prices in the division reported minus 5%, does that reflect competitive behavior? Or is that more about the raw material deflation pass-through? Thank you.

Matthew, thank you for your questions. And I will take second and third question, and Oliver will take cash flow. And I might shift in here. So let's address consumer protection first. Your assessment is totally correct. The swing in profitability is nearly completely related to Saltigo, and I stress that before we had, like our customers, a peak year in Q1 23, and Saltigo had a peak year in Q1 23. Q1-24 is exactly the opposite. Please read the transcripts of our customers. They will clearly state that Q1-24 was a bleak year where they reduced as much as possible and orders did not come in. So that's the reflection and we make the statements but I clearly give you the sources where you can check that yourself. Now, as far as pass-through is concerned, or your third question is concerned, clearly this is a one-on-one relation as far as pass-through on raw materials is concerned in consumer protection. And that's basically from my side, and I'll hand over to Oliver.

Matthias, thank you and Matthew, thanks for the question. You asked about free cash flow guidance and you also mentioned receivables. Now Matthias has already made the connection to the nice portion or the nice part of this, which is that the driver was really the increased sequential sales number. When I looked into this, I also found that this is kind of a calendar item. The 29th of March was actually Car Friday here in Germany. So the collection of monies was not happening and we found money from the receivables coming in first week of April. So that certainly had some seasonal effect here as well, which we didn't see in the year before because then the Easter holiday was later in April. On free cash flow guidance, I'm very happy to try and build a little bridge for you. I must say with the caveat that I hope you appreciate that I really like to refrain from guiding work in capital developments. They heavily depend on the degree of business and demand pickup. Apart from that, if you start off a bridge with what I believe the consensus number around 570 in EBITDA is right now, we've guided up to 350 in CAPEX, which leads you down to 220. And then I believe on the last call, I already mentioned a number in the magnitude of 40 million that you can bake in for interest. We have guided to a cash out related to our forward program that is expected this year of another 50 million. And then as 570 isn't a huge EBITDA number, also the tax number should be limited to a ballpark of 40, which leaves you with still a triple digit million number that, if my math is correct, should remain open. So this is clearly not a free cash flow guidance because we see the demand picking up and normally when you increase sales, your receivables and also your inventory will show some traces of that. But I'd like to re-emphasize that we will have a very tight eye on our indebtedness and we have clearly heard and are acting according to this.

um to focus on bringing up down our indebtedness hope that answered your first question as well oliver sorry just so just quickly on on top of that 50 million for the forward program do i also need to include the below the line items on digital and it or is that already included in in the 50 million

No, no, that's not included. The 50 that I mentioned is purely the forward, and there may be payments that, exactly as you mentioned, for projects like our SAP, once in 15 to 20 years, implementation are coming on top.

Okay, thank you.

Welcome.

Thank you, Oliver. Next question, please.

Our next question comes from the line of Martin Ruediger from Kepler Shoebrook. Please go ahead. Your line is now open.

Thanks for taking my questions. Firstly, on urethanes, can you provide some indication what the sales and the APDA figure was in 2023 so that we know what will be missing going forward in case you have disposed that asset? Sorry to come back to the destocking in agro activity and within consumer prediction, it's not just only Saltigo, it's also some MPP and flavor and fragrance activities which have some exposure to agro. What can you do to overcome that massive destocking impact in agro? I mean beyond of waiting until the things are getting better. Can you get some compensation for example by using short time working allowances? and third question just um for interest are there any major maintenance shutdowns to occur in the in the course of this year in q2 q3 or eq4 thanks thank you martin and thanks for your for your time on the call i will basically take all of them um as far as

Eurothanes is concerned, please understand that we don't give numbers on selective business units. But it's a very, very good business and the good thing is we started here some changes that we implemented last year and they fully kick in. We had the best ever quarter in Eurothanes in Q1 and this will continue in the quarters going forward. And we fortunately also have filled the project pipeline with technology projects. So the business will continue to strengthen going forward. And of course, we are very well aware about this. So this is as far as urethane is concerned, now coming to agro. Your statement, I mean, you know the industry pretty well. Your statement is very accurate. Also, the other business units have some agro exposure, but definitely not as significant as Saltigo. So when we talk about the business that is really substantially exposed to agro, it's Saltigo. Around about 75% of sales are here committed to the crop protection sector of the agro industry. And with material protection and flavor and fragrances, it's a little portion. so we don't even mention that. The second business unit having more visible exposure to agro is advanced industrial intermediates. We've not flagged that here specifically because advanced industrial intermediates has normally a very broad diversified industry base and therefore you don't see any negative flags in advanced industrial intermediates because All the industries are currently kicking in and AI, as we abbreviate this business, is starting to show its competitiveness again. So the giant gains power and makes use of it in the marketplace. And through this overcompensates the agro exposure also advanced industrial intermediate has. So this is positive. And as far as short labor is concerned, we are not yet in a situation where we need to go for short labor in Zaltigo. You normally apply for short labor if you don't see for the next six to nine months demand picking up. Here, we did relatively well in Zaltigo basically until October, November last year. Then the volumes declined. But now in Q1, we already see that in Q2, there is some further orders coming in. So Q2, we don't expect to be as tough as Q1. And then more demand kicking in in Q3. So there is no reason for, at this point in time at least, to apply for short labor. And on shutdowns, I mean, we normally have our shutdowns, the bigger shutdown season in July, August, and then in December time. So the schedule has not changed. We normally flag shutdowns always when we had our big polymer machines in a shutdown. So we flagged the last biggest shutdown, I think, with the high-performance materials shutdowns. business, when our profitability was set by 20, 30 million because of the shutdown, these kind of shutdowns we will no longer have because the profile, the business profile has not changed. We are not protected against force majeure of suppliers, of course. This can lead to shutdowns. And this unfortunately happened in flavors and frequencies last year twice. And one is still putting pain on us as we speak. We think that in third quarter, latest fourth quarter is starting to improve in Rotterdam Botlek so that we have more steam supply available, which then should also support also that F&F performs better. But in the future, I don't think we will talk about major turnarounds or shutdowns anymore because the kind of chemistry that we had in the past is different today. I hope this clarifies all your questions, Martin.

Thanks a lot.

So next question, please.

Thank you. Our next question comes from the line of J.D. Pandiya from Onfield Research. Please go ahead. Your line is open.

Thanks. Yeah, firstly on AI advanced intermediate, you know, long-awaited recovery. So, well, good to hear a giant gain strength. From my memory, normally when raw materials go up, it takes you about one to one and a half quarter to pass them on And, you know, benzene and toluene have kicked up in Q1. So how is the price versus raw material dynamic here for this division as we progress through the year? The second question is, you know, sort of tagging on to Matthew's question on consumer protection. Curious to hear what is the progress for Emerald and IFF, because obviously there are a lot of moving parts these days. So we've sort of lost them. So Just have they also seen the level of D-Stock as the legacy lenses or they have actually fared better than your expectation? And then just one last question around factoring for receivables. Could you please confirm that you haven't really done any factoring recently or have you done any factoring recently? And then, sorry, but last question maybe for you, Matthias. you know, since you've joined as a chief operating officer, sorry, CEO of Lanxess, you know, there's been time and again restructuring programs. So how is the morale of the company given that, you know, we are now almost coming to a 10 year anniversary for you as a CEO. So, you know, a lot of restructuring has been attempted. So how is the morale for the forward program? Thanks a lot for taking my questions. Yeah,

Well, thank you, Jadip. Let me ask Oliver to take the factoring, and then I will take all the other remaining four questions. You just had five questions, my friend. And then I'll take the four questions in sequence.

Now on factoring, we want to be very transparent here. So, JD, whenever we change something materially here, we'll let you know. You can assume that the factoring has remained on a very comparable level, so there is no visible impact on the statements.

Then I take over on advanced industrial intermediates. Your question was on The pass-through of raw materials, I clearly confirm that the mechanism on passing through raw materials or energy costs has not changed. So, what we bought in the first quarter with higher prices on toluene and benzene will be rolled over in Q2. Now, as far as your second, third questions, I take them in combination. You alluded to Emeralds and IFF. If you look at Emeralds, I clearly stated last year, they have been hit hard by the false measures that we have seen and by the destocking in the entire industry. If you look at our businesses that we have contributed to F&F flavors and frequencies business units the same they have been hit by our business units have been hit by chlorine force measures and by destocking so the combination of our new business in both cases our length is all what we have acquired through Emerald was hit hard and unfortunately both by force measures and and of course through the product change by the stocking, as you've seen with a lot of other chemical players that are close to the consumer. And I think you know all of them, so I don't need to cite them again. So here, this was no different story. Now on IFF, as far as the business units, combination IFF with material protection is concerned. When we look into last year, we saw that also, especially China, biocides market has been extremely hard hit. Biocides goes also into paints. Biocides goes also, therefore, into construction. So here we've seen that the entire business was also hit hard. by industry demand softness, but also by destocking. We even saw that animal health-related products were going down because of soft markets, because of too high inventories. You saw that other companies in the animal feed sector posted the same messages. So it's not only us, it has been industry-wide phenomenon. Now if we look at the two business specifically, BioSites Lanxess and IFF BioSites, the IFF business did better than the Lanxess business because of the fact that the IFF about such business had a higher exposure to energy and gas which we never had. And energy and gas, as obviously you can assume, did well and therefore compensated a lot. But all in all, the biocides market in 23 was not good. This is something which we see now gradually improving because the stocking is gone. The market is not back to normal terms. So clearly going forward... We expect that market demand also on animal feed, animal disinfection. We'll see in the further year a further normalization, but at least in 2024, we see that de-stocking is no longer a theme, which will be well for our business. I hope with this I've extensively answered this question, and then I come to the last one, moral. I mean, let's put it like this. I think in none of the chemical companies in Europe, you will see that employees are in 2023 rejoicing how great the industry is doing. And this is also not the case with us. The good thing in length is I think last year we realized We have to make cuts in order to mitigate the current situation, also stemming from the energy crisis. You should have seen that at a speed of light, we executed the restructuring program. So we announced that to you in summer, and we basically had agreements with the workers' council and unions in October already. This is for the industry. records speeds and that shows you when we want to get something done we get it done restructuring is no fun for anybody but my clear speech to the team was let's get it done as quickly as possible it will be painful but once it's done we close the chapter and accelerate again And that's currently the view of the troops. And therefore, we are now prepared to rebound to show our strength. I hope that clarifies everything.

Great. Thanks a lot. Most welcome.

Next question, please.

Thank you. Our next question comes from a line of Georgina Fraser from Goldman Sachs. Please go ahead. Your line is open.

Hi, good afternoon, Matthias. Good afternoon, Oliver. Two questions left, or maybe three. I'll try for three. The first one is, we've had a response already to price versus ROS and advanced intermediates, but could you talk about the net pricing that you're seeing across the portfolio? That's something that seems to be particularly positive for a lot of your chemical peers, and it's not obvious to me that Lanxess is seeing those benefits yet. So maybe if you could just expand that question. The second is pretty simple one. You mentioned that you're seeing a bit of a recovery in utilization rates. Could you remind us where we're coming from and where we are today and what sort of utilization improvement is baked into the midpoint of your guidance? And then final question. It feels like we're talking a lot about the upside from a recovery in construction and ag. But if I look at your end market exposures, consumer is pretty material as well. And that seems to be a market where demand is already recovering quite strongly. Is there more upside to come for Lanxess in consumer? Or could you explain why you might not be seeing the same recovery that some peers are in the consumer space? Thank you.

Georgina, Oliver will take the first two, I will take the third one.

Georgina, net pricing across the portfolio. If you know the pattern on pricing here is that we pass on our prices indeed with a quarter delay, sometimes two quarters with the majority of our contracts containing for raw materials and energy clauses. for those prices to be passed through. What we are indeed doing now if we look at Q1 versus Q1 23 is that we compare one quarter in 23 where we still passed on high prices of the fourth quarter 22 when raw material and energies escalated with a quarter where prices have already substantially come down. So I think it makes a lot of sense for the first quarter to really look sequentially. And here we very openly said we had nice volume growth and a price decline of 1%. So year over year, I think the view is a bit distorted. And we've proven that in the last four or six quarters, we have always managed to to pass on never more is the relief we have received on the cost end. And when prices were rising after a short delay, we have passed that on to our customers as well. And the second question in terms of utilization, indeed, we have seen somewhat of an improvement here. And we've told you that end of last year, for the whole year, we were at a utilization that was just short of 60% in the 50s. We are recovering from that. But I would not like to start a new trend now and basically on a quarterly basis, update precisely on utilization rates. We will do that on a full year basis, and I think by pointing to a moderate pickup here, which I also want to make that clear, is still by no far and by no means in a magnitude that we appreciate that we like, but it goes into the right direction.

Thanks, Oliver. And now on consumer. You might not see in Q1 that consumer is picking up too because it's overshadowed by the ARK decline. And I stressed last quarter in March when I commented on Q4 that we have customers that don't order anything, which always ordered normally on a quarterly basis. So this is what we currently see in the agro crop protection space. And if you look at the volume decline in consumer protection, this is high and large coming from Zaltego. And therefore, that gives you the indication that this is wiping out clearly improvements coming from other areas. And I'm confident, what is the right word? I assume, and I'm even confident that you will see in consumer protection that the trend that you've alluded to will be confirmed in our second quarter numbers.

That's great to hear. Thank you both.

Thank you, Georgina.

Thank you. Our next question comes from the line of Andreas Heine from Spiegel. Please go ahead. Your line is open.

Yeah, thanks for the slot. Three questions from my end, please. The first is on the monthly trend in volume. You have shown February over January, March higher than February. Has that continued in that way in April and what you can see so far from May? That's the first question. Secondly, you have in length elucidated on the expected increase from Saltego in the second half, the end of the supply issues in Bodleck, and progressive cost savings. At your midpoint in the guidance, have you included much of a macro recovery to get, especially to Q3? So you have already highlighted that you are fine with the consensus in Q2, but then obviously a very strong, pick up has to be, has to come in Q3. And I'd like to understand whether this is what you anyhow have in your hands. So the bottleneck part, the cyclical part and the cost savings, or whether that needs also stronger incoming orders from what you see right now. And the last question is more midterm. In the case of recovery, I would still assume that Europe is not the area of strongest growth and the energy situation is structurally different than it has been a couple of years ago, so that more of your earnings should come from the US, where basically all your acquisitions were made, which has a significantly lower tax rate. So the question is whether, from the tax perspective, mid-term, your tax rate might come down by a couple of percentage points.

Thanks. Andreas, thank you for your questions. Great ones. and I will hand them all over to Oliver.

Matthias, thank you. Very, very happy to take even those questions. On a monthly trend, Andreas, we were of the opinion that including a chart that shows January, February and March makes a lot of sense because we knew people would be looking at our free cash flow which you could say was impacted by the rise in receivables. And we thought the visibly strong pickup in sales, specifically in March, so the collection most likely hasn't happened yet, was taking place. You know that before, in quarters, I can only recollect one time where Matthias was pointing to a certain month-over-month relation that I believe he quoted his son was asking him for but I wouldn't like to go back to this methodology and hence not now talk about the first days in May or the how April trading was because we have provided the guidance that the second quarter is sequentially expected to pick up as we expect to send sequential improvement in the third quarter. Now, you were asking on the midpoint of our guidance and how much that would include a macro recovery and whether the pickup Q2 versus Q3 then or Q3 versus Q2 would be in our hands. First of all, I want to make clear that my confirmation of the confidence that we have was not only related to where consensus stands in Q2, but expressively also to where the consensus stands in full year. We can live with both numbers. Now, indeed, I'm very grateful for the question how much is in our hands. um because the pickup q3 should not only be on the back of a business recovery that we have quoted coming in ag very mildly also in construction we also said that our savings from forward should be ramping up and last year the second half was also impacted still by a chlorine outage. And then you remember we had this explosion on our bottleneck side. Both are not expected to reoccur. So indeed, a nice chunk of that is in our hands and not only reliant on the business pickup. Then your last question was on taxes based on the fact that indeed we have grown our foothold of business and respective earnings coming from the U.S. And when you look into our statements with the acquisitions, we have adjusted our tax guidance and we had guided to a mid-term tax rate there of 26%. which is around about two percentage points lower than what we've shown in the past and one lower compared to the guidance we are providing short term. So indeed, don't expect wonders there. The world is rather moving into a direction where everybody wants their share of the cake in terms of taxes, but we will also improve here due to our regional footprint.

Thanks a lot.

Thank you, Andreas. Next one, please.

Our next question comes from the line of Rikin Patel from B&P Exxon. Please go ahead. Your line is open.

Hi, good afternoon. Thanks for taking my questions. I just had one follow-up left on the ad company stocking. Can you maybe elaborate which regions you are seeing the most weakness in? And also, once your customers do start to restock their raw materials, should we start to see pricing react in the Sortigo business and maybe headwinds start to materialize early on in 2025? Thank you.

Well, Rick, as far as regions are concerned, please understand that we are shipping to the agrochemical companies themselves. So we don't supply directly to the regions. They normally use our active, further formulate it, and then ship it out. So basically, significant chunks of... Our products are being sold here in Europe Whilst we know that the products that our AG customers are selling then of course goes to the respective regions Now on pricing we normally have in our contracts formula prices with determined margins and then also driven by capacities So therefore, as far as pricing is concerned, this is normally a reflection then of our contractual formula prices and has to do with raw materials, energy, logistics, etc. I hope that clarifies the point. If we have new contracts coming in and new blockbuster contracts coming in, Then you can see margin expansions and change and also pricing differences that kick in. And, of course, here we clearly work on that all the time. This is the custom manufacturing business model. And then you see clearly a jump starting and pricing. But that's the name of the game for this Altigo business model. Okay. Thank you, Matthias. Thank you. Next question.

Our next question comes from the line of Tristan Lamont from Deutsche Bank. Please go ahead. Your line is open.

Thanks. Two questions, please. The first is on Invalio. So it looks like you have around minus 50 million in income from investments for Q1, which I think is slightly worse than Q4. I'm conscious there are some other items in there. So I was wondering if the JV is still struggling in Q1. or whether there have been some signs of improvement sequentially, and what would you expect as the run rate for this year? And then the second question is on flame retardants. So I was wondering if you could comment on potential regulation in Europe for flame retardants, and with a bromine-leaning flame retardant portfolio, does that put you at a disadvantage against peers who are more geared towards phosphorus? And are there some of your bromine-based flame retardants which are facing regulatory or structural pressure from a move towards more ESG-friendly flame retardants? Thank you.

Well, Tristan, very good questions. And let me take them one by one. As far as the value is concerned, I mean, I will be fully in line here with my legal obligations and constraints, but clearly what I can say is if you look into rating agencies' reports, there are clear expectations that this year is going to improve 24 versus 23. Three rating agencies have published their reports, and I think it's commented in the nets respectively and now I take a therefore a further step up I look at the polymer industry which we have very detailed insights into the polymer industry is improving so definitely the polymer industry was hit hard 23 and the polymer industry in most of the cases if they go to automotive if they go to electronics is rebounding it will not be a record year but it will be a clearly better year than 2023 and therefore my assumption is that this will also be a better environment for the enviro business and also in Invalio has clearly communicated to go for synergies. This is now the first year after creation of Invalio, so synergies should kick in. And again, the precise number of synergies has been communicated by the rating agencies, which can also be looked up. And then I think the storyline should be very clear in what direction this powerful joint venture is going to go. Now on your second question, flame retardants, I would like to be very clear. Brominated and phospho-flaminated flame retardants don't really compete with each other. If you go for brominated flame retardants, you basically talk about marrying them with one specific polymer. Phosphor flame retardants you marry with another different polymer. One loves the polyurethanes, the other one loves polystyrene. Both are used for insulating or isolating, I'm not sure what the right word is, housing and making sure that everything is being properly secured so that energy is not dispersed from rental homes, housing homes, etc. But both flame retardants have different Polymers that they are attached to they don't really compete with each other or let's put it like this the majority Does not compete with each other So therefore it's if you have both products in your in your in your in your baskets your better positions to basically supply in its entirety the customer industry. So this is the first part of flame retardants, now the second part. Juri alluded to phosphor chemicals being regulated by the European Union. I think it was 2019 where we all in our Capital Markets Day event, I think, I'm not 100% sure, it might have been also the Capital Markets Day event before. But we have a specific presentation on exactly this element. Regulation of flame retardants in the European Union. We are not worried about that. So currently in flame retardants, in phosphor flame retardants, we are currently selling the first generation. And the first generation might come under scrutiny. If you have not the second generation, you have a problem. We have the second generation already developed. Please take note of the fact that in phosphor flame retardants, Langsys is one of the leading giants in the industry. We are on both products' guns, one of the top three, and phosphor, we are notably strong. worldwide leader in phosphor flame retardants, you can assume that we have the second generation. As a matter of fact, we even have the third generation in place. The second generation we could sell to our customers already today, but it's for them two expenses. I mean, it's unique, it's sophisticated, and therefore it's innovation, and therefore it has a higher price. but as it is four times more expensive than the first gen, the first gen is currently being used. The third generation, which we also have, is more expensive than the second gen, but it's top-notch quality. Unfortunately, we are selling it only in grams and kilograms, so this does not suffice. But the clear statement to you is regulation kicking in might not be a risk. It might be a real advantage. And as a market leader, we are prepared for regulation. I hope that clarifies it one by one.

Great. Thank you.

Thank you. Our next question comes from the line of Sebastian Satz from Citi. Please go ahead. Your line is open.

Yeah, thank you very much for taking my question. I just have a follow-up on raw bean pricing again. I appreciate your comments on weak volumes and construction. But if I remember correctly, past your contract prices were lagging the spot price by something like two quarters. And given what spot prices are, that would actually suggest another lag down incrementally from where we are today. So I'm just wondering whether this is already factored into your guidance or whether something has changed in your logic and your pricing contracts, please. Thank you very much.

Sebastian, thank you. Oliver here. Let me take that one. On bromine pricing, we've been confronted all the way with the one available price that is out there, which is a Chinese spot market price indeed. And we've never spoken to the best of my knowledge about our contracts and how prices for our bromine derivatives is really agreed upon with customers. What we've said is that from a trend perspective, if the bromine spot price that you can see on the ticker is moving downward and it has moved in the past sharply downward, then you can take that as a trend indication that is reflective at least of the part of the business where we sell elemental bromine. The derivatives that we produce are not necessarily following this price one by one. And maybe against this backdrop comes the perception that there is a certain time lag. But there is no time lag really compared to the Chinese spot market price. And I hope that answers your question.

Understood. Thank you very much.

Of course. Next question, please.

Thank you. And our next question comes from the line of Rico de Constantin from Bar de Javier. Please go ahead. Your line is now open.

Yeah. Hi, gentlemen. Thanks for taking my questions as well. Maybe if I may start again with a clarification on the impact of the forced mergers that we've seen last year and this year. If I remember correctly, bot lag from basically first quarter on, I think, should be covered by insurance, if that's correct. And so I think the impact from the Chlora and force majeure was about 20 million last year with, I think, 8 million in the first quarter. So our question would be, should we have a net positive effect then potentially from those two force majeures of about 4 million for the next two quarters? And then I think in the fourth quarter last year, bottleneck was about 10 million, some potentially a gap of 14 million. Then in the fourth quarter that, uh, would that be correct? Uh, maybe second question also on, on the segment. Um, if you could remind me, I'm, I'm just not, uh, sure anymore, whether you ever produced or still producing, uh, neo nicotine, it's in the saltivo business. And if yes, how, how that has maybe impacted your, utilization in the first quarter this year as well and if I may squeeze in a follow-up question on the pricing that that you have touched on I think you said you you never passed on more than the raw material prices so I was just wondering if you could clarify how that fits into your strategy that you basically gave us in the in the fourth quarter results called

um that you were more aggressively pricing now to try and regain uh volume wise market shares so yeah that would be it for now i think thanks fantastic uh constantine thank you very much um i would say uh maybe matthias you'd like to take over the satigo question on new new whatever new nicotine and um the more technical questions maybe on uh the several force majeures, unfortunately, that you mentioned, which actually reminds me of this miserable year we've had behind us, hearing you talk about all of the negative impacts. But indeed, Konstantin, you are right. And I think I mentioned that in the full year call as well, the bridge that I built also included roundabout 40 million, including the botleg outage, the chlorine outage, both of them not expected to reoccur. And I would not like to dig even deeper because every year you do have some instances where in the beginning of the year, sometimes for one week, sometimes for two weeks, Plants get frozen in the wintertime in the US. So indeed, there is a relief that you can bake in from one year to the other. On raw material pricing, I'd like to give some clarification as well. The contracts that we have, not only on raw materials, but starting with the energy crisis in 2022, also with regard to energies, um were included for those contracts that really where really energy and raw materials mattered and our guidance has always been please perceive any fluctuation in raw material and energy as a pass-through to our customers and you should continue perceiving it that way The question is totally valid that you posted, though, because indeed in advanced intermediates, partly also inorganic pigments, we are in a fierce competition and we are prepared here to be more flexible on pricing, which of course is not a thing that will be there for good, but a temporary item. Therefore, I'm always saying please don't look only at one quarter year over year to another quarter. Take a longer timeframe and you will see that the price movements that we have are covered by raw material, energy and logistic pieces where indeed we aim to not pass on more on the way down than we get as a relief. Should they start to rise again when demand picks up, it will of course be our ambition to at least pass on what we have to carry. With that, I'm looking at Matthias for the Zaltigo and the Neonicotinoid question.

Well, Nicos as they are called. Very clearly, I mean, we've never stressed this anywhere in our calls as a big item, and clearly I can here confirm this is simply not relevant for us.

Okay, perfect.

Thank you. Most welcome. Next question, please.

Thank you. We currently have no more questions registered, so I'll hand back to our speakers.

Well, ladies and gentlemen, it's the first time in the last few quarters that we see that momentum is coming back and this feels good. It has been one of the longest severe downturns that I've seen in this industry for the last 20 years and it's a great industry and I think we have everything it takes to participate and to turn out to show our strength going forward. 24 is not a normal year, so we need to take it step by step, but we clearly want to see and want to focus on 24 so that we show that this company can accelerate. Thank you for participating, seeing you all on the roadshow. Bye-bye from Cologne.

This now concludes our presentation. Thank you all for attending. You may now disconnect.