Lanxess Ag Ord

Good day and thank you for standing by. Welcome to the Lanxess Q2 2025 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, André Simon, Head of IR. Please go ahead.

Thank you very much, Sandra, and a warm welcome to everybody to our Q2 conference call from my end as well. Today, I have our CEO, Matthias Sachert, and our CFO, Oliver Stratmann, with me. Please take notice of our safe harbor statement. Matthias will start with a short presentation, and then we will open the floor for your questions. With that, I'm happy to hand over to Matthias. Please go ahead.

Thank you very much, Andrew, and welcome to everybody on the second quarter conference call from Linksys. I turn my attention to page number four in the distribution we have dispatched and start to comment on our key financials. Overall, it has to be said that Q2 was the expected tough quarter when we look into the and industries that have reported by now tough momentum in the automotive industry, tough momentum in capital goods, and, of course, chemicals have all faced tremendous pressure in the second quarter due to the high level of uncertainties in the global industry. And I think all of us and all of you know the reasons behind that. Demand has been depressed. High volatility, very, very short order pattern by our customers. And this sees the reflection in sales different to first quarter. Second quarter left its mark on volumes, nearly being down by 4 percentage points. And in some of our segments, notably intermediates, we clearly see increased pressure coming from China products, which no longer find their way to North America. and are more or less being dumped in the European area. Of course, urethane divestitures leaves its mark in second quarter as well. So, all in all, this business generated 50 million of EBITDA last year and, of course, also absorbed some central costs. And if you look into The second quarter, we do lack the sales and of course the EBITDA contribution. So EBITDA second quarter is down 150 versus 181 in last year. And the reasons are driven by volume price and portfolio effect. If we look at working capital, this might come as a positive surprise to you. We have kept working capital in the second quarter. pretty stable. Notably, our inventories didn't follow the normal pattern because we kept high attention on the inventory side. Q2 on the absolute inventory level is as low as Q4, so you see that we have room for improvement here, room to pick up when we see that demand moves up again. We see also at our customer level that they have cleaned up So all in all, by many of our industries, we see low levels of inventories, which normally is a positive thing. But it also reflects that everybody is pretty cautious and therefore keeps the balance sheets in order like we are doing. The decline on working capital is basically being driven by receivables reduction and here positive. If you look at our KPIs, like DSO, you see that we have improved here. So Oliver and his team were pretty fierce on receivables collection, thanks to the finance organization on this regard. And, of course, lower sales also leads to a receivables reduction. So working capital being down in Q2 and predominantly driven by receivables. On cash flow, I think all of you know that Q1, Q2 normally are quarters where we rather absorb cash, and this is something which we, due to tight working capital management, turned to the positives, so 31 of positive free cash flow in Q2, and this was 1. Of the reasons why net debt went down, the primary reason for the net debt reduction from 2.5 to roughly 2.1 is driven by the urethane sales. And I think in the hindsight, one can clearly say this was a strategic and financially excellent deal, which becomes visible now in the balance sheet. So let's turn to page number five. We have started already about six months ago a review on our overall production network and have looked very carefully on what can we further improve in order to improve the overall platform of our company. And I'm happy to say today that our teams worked hard to accelerate the hexane oxidation plant closure. Originally, we had stated that this would be closed by March 26. Now contracts with customers and contracts with supplier could successfully be renegotiated in the meantime. So today I can say that this is a fait accompli. We have closed the hexane oxidation by end of June. There will still be some remaining costs will be incurred in Q3, but from Q4 onwards, you will see first savings supporting the PML, Overall annual savings will of course be then visible next year in full, roughly 10 million euros of cash and profitability improvement. And by the way, hexane oxidation has a high CO2 footprint and this is therefore also contributing to overall sustainability targets. As far as Leverkusen is concerned, we looked at our agrochemical plants and have realized that further optimization can be done here on the efficiency side, so that also is being addressed and will be implemented in the month to come. Let's move on to We will close our small plant in Wittnes. The products will be allocated to other plants. Wittnes was underutilized from the outset and has not become better, and that's the reason why we will reduce complexity, reduce costs, and improve profitability. El Dorado is one of our big sites and of course here we know that the end markets in flame retardants construction are tough and continue to be tough at least for the next 6 to potentially 12 months and for that reason we have analyzed in detail for quite some time now and will improve efficiencies here also on the process side. So that's the reason why also this, without adjusting capacities, will lead to process improvements, and we will implement that in course of 26. So further measures are being taken to counteract economic weakness. Let's now move on to the segments. and here, let's start with consumer protection. From what we see today, and I have to stress, this year is marked by high, high volatility, and it leads to the uncertainty, I think, everywhere, and all companies comment on that, not only in the chemical space, but also in the other process industry, so we are no different. So from what we know today, we give guidance on the segments. Consumer protection, our view is that profitability will be slightly above prior year. Additives by and large on the same level. Additives which rebounded nicely last year is facing Next to tough market environment on volumes in Europe, pressure, especially from China. So we do see that Chinese goods are impacting, especially the European and Latin American industries. When we look at our segment, intermediates is the most impacted. Additives is somewhat less. Average impacted consumer, the least impacted, but everywhere we see that Chinese goods are being dumped in Europe as they don't see respective entry routes into the United States. Now we got questions from investors and analysts. What about a pickup in the second half due to German government stimuli? My feedback to you is government stimuli we don't expect in the second half to occur. Nevertheless, we do face two tough quarters, Q2, Q3. Also, Q3 will be impacted by the uncertainty. All the volatility, uncertainty, tariff escalation, la, la, la, la, that occurred in Q2 spill over into Q3. Companies take adjustments on production and they are summer holidays in July, August, all of that we will, of course, see in Q3, even though we see that customers also start to prepare for Q4 in order to be prepared for volume pickup in 26. So this is something where we turn a little mildly, cautiously positive, for the fourth quarter, but let's face it, Q2 and Q3 see the terrible uncertainty impacting industries across the globe due to the escalation on tariffs and what have you. Now let's come to guidance, page number seven. So here, like many other companies in the industry and notably in chemicals, we adjust our earning projections for 2025. I think the macroeconomic in general, I don't need to comment further. That should be crystal clear to all of you. Let's come to lenses. Guidance be adjusted to 520 up to 580. Even though the chlorine force majeure by one of our suppliers here in Germany, most of you know who I'm talking about, has not been finalized in its assessments, we've tried to get our best understanding on all facts that are available. Within our guidance, we factor in a shortfall of 10 million. Noteworthy to know for your side, we are protected should that be higher because, of course, we have insurance and our self-deductible is at 25 million, and therefore the 10 million we consider as realistic for the current analysis that we have, and it's reflected in our assumptions. Consideration for Q3, take note of the fact that urethane is gone, so you need to adjust your models for the divestiture that is now happening also in Q2. And as far as Q3 is concerned, please understand it will be sequentially, due to the reasons I've mentioned, lower than second quarter. Let's finish the presentation before we open up for the questions you have with a glance on page 8. We are ready for demand picking up again. Our assumption is at least from the German a government stimulus program we should see following also many of your macroeconomic insights from your macroeconomic departments that Germany and the German economy will pick up in 26 again coming out of its draw and therefore having also a positive impact on the European economy We also assume that 26 will see more stabilization on the high tariff escalation debate that is currently leading to uncertainties. So our assumption is that 26 will have a demand pickup, and we are prepared for that. Our inventories are at low levels. Our portfolio is solid. We have obtained and gained through the transformation over the last few years, leading market positions in all of our business units. We have a good regional footprint, very lean improved cost structure. So if demand comes back, we are ready and of course are prepared for whatever comes along. Ladies and gentlemen, with this I would like to finish the presentation and Oliver and I are prepared to take all your questions. Please go ahead.