Lanxess Ag Ord

Thank you for joining our LENX's Q1 results 2026 conference call. If you would like to ask a question, you will need to press star nine and the pound key on your telephone and wait for your name to be announced later. First, we will hand over to Ifa Hussmann, Head of Investor Relations for opening remarks.

Yeah, thank you and welcome to our Q1 call. Before we start, please take note of our safe harbour statements. And as always, we have our CEO, Matthias Sachardt here, as well as Oliver Stratmann, our CFO. Matthias, we'll start with a quick presentation before we answer your questions.

Matthias, go ahead. Thank you, Eva, and welcome all of you to our conference call on first quarter 26. I start the presentation straight on page four, where we comment on the key financial indicators. So as far as Q1 is concerned, we guided in March already that it will be a soft start to the year. We've seen lower volumes, especially in January, February, a positive tone on March where business started to improve from the volume side and was clearly a difference compared to the previous months and also towards the fourth quarter. Please take note of the fact that In the comparison base last year, we have a relatively strong dollar and still the contribution from our urethane business units both has changed. In first quarter this year, urethane is no longer consolidated and the dollar has visibly weakened. We put a lot of attention on cash flow and financial balance sheet strength is something reinforced over the last few quarters, and you can clearly see that also in Q1. Cash flows still negative, but that's the normal seasonality. We start off with negative cash normally in first and second quarter and then improve afterwards. And as far as net working capital is concerned, we clearly manage that pretty tightly. So compared to previous year, it's lower. I do expect a gradual increase now in Q2. also driven by the fact that the precursors and energy will move up, but nevertheless, we will continue running it tightly. Net debt, beginning of the year, normally sees an increase of 1 to 200 million, and in light of the good cash management, you see that we, by and large, keep net debt at comparable levels. Now let's turn the attention to Middle East. escalation or conflicts has swiftly changed market conditions we clearly see that value chains are under pressure we clearly see that customers have concern on delivery security and therefore let me give you the following color on what we would like to shed light on And here I clearly would like to stress that the conflict that we have seen, the war that we have seen in the Ukraine area, in the Ukraine situation, massively impacted Europe and definitely led to a disadvantage as far as the European chemical industry is concerned. The Iran conflict is different. Whilst through Ukraine, Russian gas and oil was reduced in Europe, the Iranian gas and oil is primarily being a supply source to Asia. So while we were suffering in Europe through the Ukraine war implications, in the current Middle East conflicts, We clearly stress it will put pressure on the worldwide economy, definitely, as far as energy price inflation is concerned. But the region that suffers most is going to be Asia, according to our analysis. Now, logistical chains are definitely under pressure as well, but here I can give you comfort. We have agreed contracts in place on ocean freight, on other logistical chains that are needed and for that very reason we had until now no negative impacts through supply that was being shipped to us or to our customers. Of course, we took note of the fact that prices were on the rise as far as chemical precursors and energy costs are concerned. So we saw the reaction on the oil markets, gas markets beginning of March. And that was the reason why we swiftly analyzed our market situation. And I think we were one of the first chemical companies that went out with a series of price increases in order to at least mitigate the current input cost inflation. On working capital, I alluded to the fact that we expect an increase in Q2, but it will be tightly managed. You can bet on this. Now let's turn the attention to page six. What we try to do here is simply to give you some effects on hand so that you can better understand how we look into our segments. into current trading vis-a-vis Q1 and the last two quarters of 2025. When we look at the current conflicts in Middle East, our assumption is that the consumer protection segment will by and large not be really affected. There will be some precursors on the rise, but the consumer protection segment is not so much impacted through oil derivatives. Here, basically, consumer demand is central, and we do have some precursors coming here from China, so that is a watch out. But all in all, don't expect that this will change the current trading vis-a-vis the past two to three quarters. On additives, we see a moderate upside potential. Of course, you need to take into consideration that flame retardants or bromine, for instance, is also coming and is shipped from Middle East. We don't depend on that primarily. We have sources in El Dorado, which is not affected at all. So here we do see upside potential in trading. But the strongest momentum we clearly see in advanced intermediates. This segment and here notably the business unit AII was suffering through competition coming from China and of course we had a substantial amount of pressure on some of the value chains here. This should change. Here customers are clearly looking for delivery security one and seconds We've seen over the last four to six weeks that even the chemical pricing on these products in China have been on the rise. And guess what? They are on the rise in our business as well. So this should give you some qualitative color on how you should look at the segments compared to the last three quarters. So let's see if you can then better model second quarter and it's up to you how you look into 26 in total. What we would like to give you comfort for or comfort on is our full year guidance. The world is in quite a turmoil for various reasons that are all known to you. We clearly see positive momentum for Q2 so we try to here give you a quantitative corridor of 130, 150, which would be a strong sequential improvement versus Q1, which we clearly see, either driven through volume or through pricing, in some cases driven by both in respective business units. But we don't change our yearly guidance in light of the turmoil that we see in the world. Due to momentum continues, of course, that could give further comforts to potentially go into the upper range of the guidance, but please take note of the fact that escalation in the Middle East could accelerate again, and then we potentially look at demand crush, and then we look into the lower ends of the guidance. We give you a broad range where you slot in yourself is in your hands, but we want to give you comfort on the full year guidance and definite comfort that second quarter will come out sequentially clearly stronger than the first one. And here we see that the business is moving accordingly. This is what we would like to give you as entry presentation on Q1. And we now open up the floor for your questions.

Thank you. So if you would like to ask a question, please press star 9 and the pound key on your telephone and wait for your name to be announced. And we have the first question from Thomas Riddleworth from Morgan Stanley. The floor is yours.

Thank you very much for the presentation. A couple of questions, if I may. Just focusing on, thank you for the guidance range that you've given for 2Q. That's very helpful. But how much visibility do you actually have into your order books? Do you have to make this solely on what you're seeing in April and make a best guess for the next two months? and any sense of how you think those volumes will continue through the quarter. Second question, if I may, just coming on to, so one of the things that we've seen, and it's in the context of Saltigo, has been a significant spike in glyphosate, and one assumes glyphosate as well, which would suggest that maybe some of the generics from Asia are going to have less market presence for crop protection chemicals. I appreciate that Saltico makes the API, but maybe this will see, could we possibly see a rotation from customers away from generics given supply chain risk back towards more branded products, which probably have more Lanxess orientated

product embedded in them so just kind of keen to get the the crop protection picture both from the disruption and actually if you have any color around the seasonality that would be helpful as well thank you Tom very valid questions indeed let me take them one by one as far as visibility is concerned we have clearly April strong clarity as far as volumes pricing is concerned so sales are known to us and we have a good order book for May so very reasonable visibility and of course a softer but already a reasonable indication for the month of June we see in April that the momentum from March continued of course we know when our price price increases will more and more contributes to quarterly supports. Of course, we are still in the rollout of the announced price increases of March. So once you do price increase, you afterwards go to your customers. In some cases, you have contractual agreements that you cannot change on a quarterly basis, but you then go for the spot markets and afterwards you adjust for the quarterly contracts in the following quarter. So this is an ongoing process, but we know definitely that volume are at the same momentum that we've seen in March with a slight uptick for April and May. And then of course we know ourselves what price initiatives are ending up in the P&L and when this is going to occur. So as far as visibility is concerned, I think we have for the next quarter a reasonable good indication. Now your question on Xaltigo is operationally very focused and smart. In the last 12 months, we have seen in the crop protection space, and here I'm not alluding to glyphosate, but to crop protection specifically. that the commodity products in crop protection were under severe generic pressure from India and China. And I think that was being mentioned by the big agro company themselves. They all alluded to pricing pressure, and that was definitely not on the innovative products, but on the commodity grades. Now, with China facing substantial freight issues and cost explosion on freight, and some areas also a pressure in their supply chain. We definitely have to monitor the markets. We don't see an immediate reaction here in Europe, but that is likely to come in the weeks and months to go. And that could change, of course, the competitive landscape for the European crop protection companies, which we don't see at this point in time, but normally we would see that three to six months later. So this is something high on our radar, and I'm very impressed that you have spotted that as well.

Okay. Thank you very much, Sirs.

Appreciate the answers. Welcome, Tom. Let's move on.

Thank you. So the next question comes from Christian Bell from UBS. The floor is yours.

And thanks again for allowing us to ask questions and for the really useful presentation. So I just have a couple. My first one, I guess, picks up following the discussion in the previous question on April customer demand dynamics. Are you able to just please give a sense of how much of the volumes that came through in April were at the higher prices that were implemented in mid to late March? I'm just trying to understand you know, how much of those volumes that have come through are getting ahead of prices or whether they are, what percentage is actually effective at the new pricing. And then my second question would be just to help us bridge to your EBITDA guidance. At the midpoint, your second quarter guide is roughly 7% below last year, which implies you need to do about 20% growth in the second half to reach the midpoint of the full year guidance, which is quite an acceleration. So just what do you think underpins that acceleration? Is it largely price, cost, normalization? And then if possible, if you could sort of speak to any potential demand deterioration that you're thinking about that may offset some of that margin improvement. Thank you.

Thank you, Christian, for these thoughtful questions. I would take them in the same sequence as you asked them. So as far as April is concerned, we basically see same to slightly modestly higher volume pattern compared to March. So this is positive because April is, if you look into holiday seasonality, that was a main impact here as far as Europe is concerned. And April, Easter holiday season, la la la. So as far as underlying trading, volume wise is concerned, slight uptake versus March on pricing. I said before we made the announcements in March and cause of March and then afterwards you wherever you spot contracts or spot pricing you can then adjust customer by customer this takes normally something like four to six weeks depending on the customer base depending on of course the sensitivity, elasticity they have, and then you change the pricing one by one. On the contract, established quarterly contract pricing, you basically can take that only with a certain delay, but that follows afterwards. So on pricing generally you should assume that this will ramp up first steps in April, then I would say two-thirds will be reached in May, and then the full effect you will see or should see in June. Of course, we have to monitor what implications that has on the volume side, but from the pure pricing side, there will be a gradual buildup cost of Q2 and then of course if momentum remains healthy the contracts the quarterly contract pricing would then be also a driver for Q3 going onwards. All this having this assumption that the underlying momentum on volumes will not change and with all questions on geopolitical tensions. So that should hopefully answer your first question. On second quarter, I think my answer on the volume and pricing side will give you also some color on Q2. If you look into second half of this year, of course our cost savings that we initiated will gradually ramp up as well and that should give you the indication that we are still not falling in euphoria for the second half. We are clearly very, very straightforward and not modest, but we take the current geopolitical tension very seriously and therefore we keep here our assumptions in a normal environment and not into a gradually improving environment With this, I think you have the best basis for modeling the full year implications for our company.

Thank you very much, Matthias. If I could just quickly follow up on that last point. Given second half cost savings are important to the four-year guidance, are you able to Tell us what the net cost saving you are expecting in the second half will be from your cost saving programs, given that there should be a relatively, I guess, concrete level of foresight over that.

Yeah, we've given you the yearly number, and I think this should suffice with the comments that I've made that this will gradually build up. And therefore, please take this as basis.

Okay, great. Thank you.

You're most welcome. Who's next?

The next question comes from Anil Chenoy from Barclays. The floor is yours.

Good afternoon, everyone, and thank you so much for taking my questions. Just the two, please. The first one is a little difficult question on your unconditional put on Nvalior in 2028. So you have mentioned that the put obligation sits at the Holco level and not Advent. And I know you have a confidentiality agreement and so you cannot give a lot of details, but just theoretically, what are the funding pathways that the Holco will have in 2028? From what I understand, it's either refinancing from Advent or taking on external debt or dividends upstream from Nvalior. Would that be the right way to think about it? And finally, on a sort of pessimistic note, what happens if the whole code declares bankruptcy? I mean, in that case, does Lanxess end up becoming an unsecured creditor? In other words, basically what I'm asking is, is there a risk to this unconditional put in 2028?

Yeah, let's take it step by step. First question is... question I cannot answer due to confidentiality reasons and I stick to that 100%. Your second question, I've read your report, this basically shattered 100% concern on our company and completely one-sided. I was very much surprised about this and therefore let me simply come on a higher level you said it's a theoretical question so I give you a theoretical answer in insolvencies or bankruptcy the party going insolvent loses everything everything is gone it is normally by somebody who runs the insolvency afterwards, any possible areas where you can get proceeds is going to the lenders. So if there is a company holding shares, they lose everything. 100% loss. This is the consequence. Taking such a hit for any investors who might have a major investment is a complete disaster next to this the company theoretically that goes into bankruptcy loses its global reputation that might be even a bigger damage and therefore that's my answer on your theoretical question with a theoretical answer food for thought next question please

The next question comes from from JP Morgan. The floor is yours.

Hi, thanks. Hi, thanks for taking my questions. My first question was, you said you've already seen April sales. And I was just curious, you talked about volume versus March. But are you able to provide some clarity on when we think about year on year, how are we tracking in terms of volumes? Is it now up? you know, 5%, 6%, 7%, any sort of color in terms of how you see the volume momentum building on a year-on-year basis, that would be helpful. The second question was, you know, Lanxess was one of the companies that was more active, I would say, over the last 18 months in pushing the European Union to, you know, to do more of these NT dumping investigations, some of these investigation actually went into your favor last year with adipic acid, phosphorus additives, and all those stuff. But I'm just curious, have you seen any benefit from these anti-dumping investigations in your numbers, given that some of those were already decided and ruled into your favor in second half of last year? And the last question I have is, you mentioned about customers coming to Lanxess for security of supply? Is that because you actually, based on your conversation with these customers, do you actually see that your Asian competitors are not able to supply right now? So in other words, some of your Chinese or Indian competitors, are they having supply issues or are customers coming to Lanxess just to make the supply chain more resilient rather than not necessarily driven by short-term supply shortages. Thank you very much.

Thank you, Chetan. We will take them one by one, and Oliver will start on price and volume, and I take the other two questions. So, Oliver.

Yeah, many thanks, Chetan. Actually, I'm thinking about what I could add because Matthias has already been pretty diligent here in outlining how volumes have picked up in March and what we have seen in April. And to be absolutely frank here, I wouldn't like to go into a monthly reporting now. I would just like to remind you that there is an awful lot of uncertainty out there. And I think the commentary that you've received so far is a positive one with regard to going into Q1 and going to Q2 and the volume development. And beyond that, we really need to see how things evolve, but the positive impetus is there. Back to Matthias.

So thanks, Oliver. Then on European dumping, I think being very clear at the outset when we mentioned it, that this is taking time. And we said that this normally lasts 12 to 18 months, so this is the normal duration of an anti-dumping case or anti-dumping file. You mentioned adipic acid, so that was one that was decided in, I think it was August last year, summertime. What you need to take into consideration is that the anti-dumping, once it's declared, is of course positive for any supplier operating in this market like us. But in the first anti-dumping cases, like on adipic assets, we have seen that China was loading up the value chains before the anti-dumping declaration was imposed. So China was loading this value chain by around about six to nine months with capacity. And only once this capacity is absorbed, you truly see volume momentum rising and pricing rising. For a diptych asset, this is now happening. So we've seen the declaration on anti-dumping last summer. The value chains and stocks were loaded. immediately before the declaration became effective. I have to say fortunately the European Commission has realized this practice in many other similar cases and have now basically put the volume built up under scrutiny as well. So this would be retroactive impacted by price adjustment or anti-dumping cases as well, which is a positive move. So this gives you the color and I do expect that further anti-dumping cases will be decided in course of this year. I know that many chemical companies have cases that are filed in the European Commission. We keep a close eye on this and I do support that one and the other products could positively be impacted by us as well, which will help us going forward in areas where we see dumping being practiced. So that should address your second question. On the third question, there are basically two drivers. First, European customers want to protect their supply chain. They want to have security. They are concerned that similar disruptions could happen that they've seen in Corona times. So we've seen over the last six to nine months that customers went to China because of pricing, pricing, pricing benefits. We had a very tough economic situation here in Europe. So pricing was essential, but now for many customers supply security. is higher in the priority and some of the customers that left for China in the last nine months are coming back into our order book. We also see completely new customers, which is a positive sign. Second point is, I think also China and Chinese companies have realized that the pricing level of last year has also ruined the pricing level in China itself. which is not liked by the administration. And of course, long term, no company can generate losses. So we also see that the pricing level now in China is moving upwards, which is a clear difference to the last 12 months. And when the pricing level in China moves upwards, you can assume that then of course pricing in the European area is also being positively impacted by that. So you have two perspectives on this, and I think this answers your third question.

That's clear. Thank you.

The next question comes from Tristan Lammert from Deutsche Bank. The floor is yours.

Hi. Two questions, please. The first one is coming back to your comments that you made on pricing timings. I'm just wondering kind of high level, do you generally see net pricing as likely to be a positive or kind of how do you expect the phasing to be there? Is it, for example, negative net pricing in Q2 and then positive in Q3 if all current conditions stay the same? And then second question is, Could you maybe elaborate a bit on the current dynamics in bromine? Because I think there was a price spike and the China price has fallen back. And obviously, appreciate that you don't necessarily have direct exposure to the China price. But what kind of underlying dynamics are going on there? And has the demand fallen off? That is what it was.

Thanks. Thank you, Tristan. Let's take that also step by step. So on your first question on pricing, I would like to give you the indication on a sequential basis. So not vis-a-vis previous year, but versus Q1. What we should see in second quarter that prices versus Q1 should be up. The tendency, if the momentum continues like I've explained, and you assume that there is no insanity happening in geopolitics anymore or no further escalation and current trading continues, you should also see a sequential price increase in Q3 vis-à-vis Q2. But with all the nonsense that is happening on the geopolitical side, I take that of course with a pinch of cautiousness. And I hope you understand the rationale for this. Now on bromine, I would like to allude again Or come back to the stated seasonality we see in China on the spot markets we always have a Seasonal price increase in bromine prices notably in q4 and q1 because of the bromine extraction methodology, i.e., water vaporization. So therefore, in the colder months, Q4, Q1, you normally see that bromine prices are on the rise, and they go down again Q2, Q3. If you now look at the last six months, that was exactly what happened. Bromine prices went up. They went up to a high level of 60,000, 70,000, and are now moving down to around about 38,000, 39,000, 40,000. This is the normal seasonal pattern, but overall the pricing level is clearly still in the healthy territory. 40,000 is 100% up compared to one year ago. or two years ago when the prices were more depressed. So now the pricing level, despite having fallen on the last four weeks, is still at a reasonably high level. I hope that clarifies the points on bromine, Tristan.

Thanks. And maybe just to follow up on the pricing question, I understood your comments on the kind of price rises timing. How does that align to the cost increases, i.e. what kind of net impact should we think about modeling? Or is that just too many moving parts to comment on?

No, no. This is a smart one, Tristan. I think we've always stated that a lot of our input costs are basically set up in a way that, like in Q1, when you have a rise in input costs, you adjust in the core afterwards. So you've seen the increase in precursors on raw materials, on oil derivatives, on energy. You've basically seen that already in March with no real implication on our on our P&L, because we clearly stressed that in March we rather had a positive momentum, profitability-wise, turnover-wise. And this was volume-driven, but not because input costs have been fallen. They have rather been on the rise, but not impacting the first quarter P&L. The implications of the higher input costs will be visible in second quarter. That's the reason why we've given you the financial guidance. So we basically, in our guidance of 130, 150 million, we absorb the rising costs that we have now seen in March, which will roll into our P&L in the second quarter. So that's the reason why we tried to give you a good heart lending so that you understand that we are sequentially clearly managing the situation and manage the input cost increases. Very helpful, thanks a lot.

Thank you. And the last question comes from Georgina Frase from Goldman Sachs. The floor is yours.

Hi there. Thank you very much for taking my question. Given the situation, I was wondering how your relationship with your distributors might be evolving. Are you kind of selling through the same distribution channels as historically, or are you seeing more direct to customer sales? Thank you.

May I understand more of the background to this question, Georgina?

Well, I wanted to understand if every single chemical company is discussing the fact that security of supply is number one. And the question is, are customers seeing the manufacturers as the most likely source of secure supply? Or are distributors being seen as being able to source from lots of different places? Does that make sense?

Yeah, that makes sense. I mean the distributor world in chemicals is very broad. In parts you have niche distributors, then you have specialized distributors in certain chemical value chains, then you have the bigger distributors that have the broad reach. You have some that only pack and ship. service like finishing like analytics etc so the the world and chemical distribution is very very broad so giving a general answer that solves everything is I think not possible but I would like to give you the following in the in our interaction We use distributors basically globally. Wherever we see that the size of the order level is simply too small for us or the customer is too distant away for us. So we use distributors but companies like ourselves of course are more and more reinforcing the direct contact to customers as well. So this is a trend on our side and I cannot speak for the industry, but what we are doing, we use distributors, but also we would like to have a better market transparency, market dynamics, customer trends, etc. on our end and therefore we strengthen the relationship also to the next level of manufacturing and therefore of course also question if we do need a distributor or not. So that is the one thing I can say for our group. Then for customers, we do see customers that want to have the direct access to the manufacturer in order to have clarity and also preferred treatments. When we are selling to a distributor, There are some that are very, very close to us, but some that we simply use to pack and ship. If a customer is ordering from a distributor, he does not get the same preferred treatments that direct customers often have. Therefore, on the customer side, we also see that for very important precursors and chemicals, they also tend to establish more direct relationships. But I say again, this is an answer that does not apply to this huge distribution network that you have in the chemical space. There are different kinds of distributors with different business models. So the specific answer I have given will not be an answer for the general industry. I hope that clarifies the point.

It does. That was very insightful. Thank you, Matthias.

You're welcome. Any further questions?

Thank you. So there are no further questions. And I will now hand back to Matthias Sachardt for closing remarks.

Well, thank you so much for orchestrating this conference call. And thank you to everybody who listened in. I hope this was giving you enough color on current markets and trading environments. We will be now heading on the road to speak to investors and looking forward to the exchange. And if you have follow-up questions, please don't hesitate to torture my investor relations team. And they would be very happy to take any questions and provide answers. Thank you so much. Take care and bye-bye.