Fuchs SE (FPE3) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the analyst and investors conference call of FUCHS PETROLUB SE. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Thomas Altmann, Head of Investor Relations, who will lead you through this conference. Please go ahead.

Thank you, Angela. Good afternoon, ladies and gentlemen. On behalf of FUCHS PETROLUB, I would like to welcome you to our conference call on the full year '19 results. On the call with me today is our CEO, Stefan Fuchs; and Dagmar Steinert, our CFO. As always, Stefan and Dagmar will take you through our presentation, which is then followed by a Q&A session. The presentation is available on our website at fuchs.com under the IR section. There, you can also find the fact sheet, which contains the key figures for Q1 to Q4 2019. With this, I would like to hand things over to Stefan.

Good afternoon to all of you. I think it's the first time since many, many, many years that we don't meet in person for our annual analyst conference. This is all related to the coronavirus. Therefore, I want to start with that topic a little bit. I think my appeal it's following our chance yesterday. I think the most important thing is to really slow down the virus spread. I mean the virus will spread, it will take time to have vaccination against it. But I think we really need to make sure that we slow down this whole process. I mean we have seen that in our subsidiaries starting in China and then in European countries, now in Germany and also in the United States. And I can only appeal on the discipline of all of us to really make sure we'll keep social context at a very, very minimum and to make sure we protect elder people and ill people. And I'm also convinced that an exit lock or curfew or however you call it will also come in Germany because the discipline is not so high with many people. And this -- it's a matter of time for weeks and months, but I'm sure we will also get that behind us. On behalf of FUCHS PETROLUB, for us, there are 2 things that are important: the one is the safety and health of our employees, and the other part is to keep the business operation going. With regard to the health of our employees, we have really done the most we can with regard to hygiene measures. I mean other than explaining all of us how we wash hands, don't shake hands, don't get in touch with door handles and things like this. We have also cleaning personnel twice a day. We have shut down canteens, and we have sent all the people who can to home office, and we have -- we've really been flexible with working hours. To keep the business up and running, I think it's very important for us to separate the plant and the office. We have already had an international travel ban since March 1. So we've been really early on that one. We have not planned any closures of our plants. We have a very diverse customer base. Our plants in China are up and running. Obviously, we see cancellations of orders from large OEM customers who all have announced to shut their plants for a period of time. As of today, we have not one employee known to be infected with the coronavirus. In the city of Mannheim and in the state of Baden-Württemberg, there is a public ban of all official meetings in public until the middle of June. So all our meeting and exhibition halls in Mannheim and Baden-Württemberg are officially closed till the middle of June. As you know, our bylaws have the whole that we do our annual meeting by the end of June. So we have only a 2 weeks window. Dagmar and I will appreciate to find some dates because there are other publicly listed companies in the region, but we assure you we'll get that done. That was also the reason for us to postpone the annual meeting, so we will not send out an invitation next week. That has got 2 immediate impacts: #1 is we need a resolution by the annual meeting to pay out the dividend. So no dividend will be paid until the annual meeting is over; and we will also have all the Supervisory Board member elections only during the next meeting, which will take place. So also there will be no change until then. I think this was it from our side with regard to the coronavirus. And Dagmar will then dive into the numbers, and we appreciate that we have been down in profits. That was clear all year long, with China, starting a little bit slower. China and Germany started slow out of the year. They both gained momentum during the year. The U.S. started very good and then lost momentum during the year. That was a little bit the picture. We had also a couple of one-off impacts, which will be explained in more detail by Dagmar, but I think the one thing we are really proud of is our free cash flow. One more time, we could pay for all of our capital expenditure, which was at a record high. Our smaller acquisitions and the dividends out of the bond year cash flow, and it just shows that we continue to be a cash-generating company. So far from my side. I hand over to Dagmar and look forward to her presentation.

Thank you, Stefan. Good afternoon, and thank you for joining us. 2019 was a challenging year for FUCHS, and we had to manage significant macroeconomic headwinds. In 2019, sales of EUR 2.6 billion remained stable at the high level of previous year. Our earnings, EBIT decreases by 16% to EUR 321 million. On a comparable basis, excluding the one-off effect from the sale of the joint venture in Switzerland in 2018, EBIT is minus 13% or EUR 50 million below previous year. Investments rose to a record level of EUR 154 million. Having a brief look on our outlook 2020, as of March 4, we expect growth in sales up to 4%, and this is based both on organic volume growth and external growth due to our acquisition of Nye. The negative effect of the coronavirus on the global economy and the FUCHS Group cannot be estimated at present. However, they will at least temporary lead to significant declines in sales and earnings. So let us have a closer look at our performance and results 2019. We could not achieve our originally set targets for sales, EBIT and FUCHS value added. The forecast for free cash flow was exceeded. Our forecast given at the beginning of the year were regularly reviewed and, over the course of the year, adjusted or specified. At the end, our adjusted specified outlook, we exceeded. I'm coming now to Chart #4. Our quarterly sales development shows a weak start into the year 2019 with a really disappointing first half year. We saw a more stable third quarter and the fourth quarter slightly above previous year's level. Our quarterly EBIT development reflects our expected cost increase as well as the macroeconomic headwind everybody faced. In a year-on-year comparison, the second half of the year is slightly better than the first. On Chart #6, we can dive into the group sales. In the difficult economic environment, we achieved sales of EUR 2.6 billion but at the level of the previous year. The organic decrease of EUR 26 million or 1% was offset by external growth of EUR 18 million or 1% and some positive currency effects. All regions showed volume-related organic sales decline. Negative organic growth was strong in the region EMEA, with EUR 36 million or 2%. EMEA had a weak first half and recovered somehow in the second half of the year. The development of sales in Germany were strongly impacted by the crisis in the automotive market. In Asia Pacific, external growth compensate for an organic sales decline. We report a volume-related organic sales decline of EUR 9 million due to the crisis in the Chinese automotive market. The acquisition of NULON in Australia provided the region with external growth of EUR 17 million. Altogether, sales in the region moved up by 2%. In the region Americas, negative organic sales of minus EUR 3 million were offset by significant positive currency effects of EUR 11 million. In addition to that, the region benefited from small external growth. Having a look at our employees worldwide, in 2019, the number of employees increased by 181 people. This is mainly due to the acquisitions. And now we count about around 5,600 people. The number of employees in the region EMEA rose by 89, while Asia Pacific added 37 new employees. Without the acquisition of NULON, there would have been a decline in the region Asia Pacific. In Americas, the number of employees grew due to the acquisition of ZINMARK by 55. Let's now turn to our income statement and our results of operations. It's Chart #8. The minimal improvement in sales of EUR 5 million was offset by increased production costs, which resulted in a slight decline in gross profit of EUR 9 million. Other function costs increased by EUR 38 million or 7%. And this increase in both in production cost and other function costs was caused in addition to inflation related adjustments, mainly by higher depreciation resulting from our investment program as well as higher personnel expenses related to more people. Cost management was tightened and personnel was not hired as originally planned. The other function costs were additionally burned by a EUR 6 million goodwill impairment. The EBIT before equity was EUR 47 million or 13% down on previous year. In 2018, the income from at equity included the one-off income of EUR 12 million and on a comparable basis, the income from at equity fell by EUR 3 million. Our EBIT, therefore, is EUR 62 million or 16% below 2018, on a comparable basis, as already said, minus EUR 50 million or minus 13%. If you now have a brief look at the development in the regions, the regions where we see a significant decline of earnings in the region, EMEA. The EBIT fell sharply by EUR 44 million to EUR 167 million. Even without the 2018 one-off effect, the EBIT is down by EUR 32 million, but this includes the EUR 6 million goodwill impairment. In Asia Pacific, the increased cost resulted in a minus EUR 9 million or minus 9% EBIT decrease. Part of that decrease is due to the integration cost of NULON in Australia. In Americas, the EBIT fell sharply by minus EUR 10 million or 17%. There we see besides higher costs that the earnings are negatively affected by write-downs on receivables from a major North American customer who went chapter 11 as well as some acquisition-related costs from NYE. Now I would like to turn your attention to Chart #9 on the balance sheet. We have a solid and robust balance sheet. The increase in total assets is driven by our ongoing investment program, and our cash position increased by EUR 24 million or 12%, and now we have a cash position of EUR 219 million. Despite the increase in total assets, our equity ratio of 77% is unchanged. Our equity increased by EUR 105 million. The increase in pension provisions is due to lower interest rates. The increase in financial liabilities reflect bookkeeping or accounting. It's due to IFRS 16, this leasing standard. Having a look at Chart #10, our investment in the future, you'll see that our investment program continued. In 2019, we spent EUR 154 million. That is a new peak, which is 2.5x of scheduled depreciation without the amortization of purchase price allocation. Our R&D expenses are, as in previous years, on a high level. We continue to expand technological leadership in different segments. I'm coming now to our development of our net operating working capital on Page 11. There you see a significant reduction of NOWC. In 2019, we managed to reduce our NOWC, not only in absolute terms but as well as a percentage of sales. Net operating working capital is now down to 21.8% of sales, and that's mainly due to the reduction of inventories. This represents an improvement in the average capital tie-7up period of 5 days to 80 days. With that, if we have a look at our cash flow statement, it's Page #12. This cash flow statement shows despite lower earnings, a significant increase in cash flow from operating activities. The reduction of net operating working capital, of course, had a significant positive impact. And despite higher CapEx of EUR 33 million, the free cash flow before acquisitions increased from EUR 147 million in 2018 to EUR 175 million in 2019. On Page #13, you see our net liquidity, and that shows our net liquidity position, which is, in absolute terms, more or less unchanged. We start at EUR 191 million and end at EUR 193 million. But I would like to point out that we more than compensated for the negative leasing effect of EUR 22 million, which is a result from IFRS 16 leasing standard. Now I would like to jump to Chart #17 because we've got a summary for you to read up from Page 14 to 16. And on Page 17, you can see that our dividend proposal is to provide a 2% higher dividend compared with the previous year, and we want to increase our dividend by EUR 0.02 for per share. As Stefan already told you, unfortunately, the payment of the dividend is a bit postponed until we have our annual meeting. With that, I would like to come to Chart #18, our outlook. Our outlook reflects the situation as of March 4, and we expect slightly growth in sales as well as in EBIT. This is based on organic volume growth and external growth due to the NYE acquisition. Our strict cost management will continue, but the negative effects of corona, as already mentioned, on the global economy and on the FUCHS Group cannot be estimated at present. There will be at least temporary lead to significant declines in sales and earnings. At present, we expect our raw material prices to remain stable on group level. The significant reduction in crude oil prices is not seen to be passed through to base oil prices in the same amount. We expect a slow steady price reduction for base oil in contrast, we expect prices increases for other raw materials. The normal market mechanism is overridden, and it is possible that refineries may stop production due to low demand, resulting in a shortage of supply. Our investment program will continue despite the slowdown in the global economy, and we plan to invest EUR 120 million. With that overview about our performance in 2019 and the outlook, I would like to hand over to Stefan again, who will give you insight in our strategic outlook.

Thanks, Dagmar. I go right away to Chart #20, where you can see a couple of pictures of our investments we have done globally. Our cost initiative was called out in the year 2016. So 2020 is our year #5. And I think the other picture we are really proud of is our new facility in Wujiang, China, which was a huge investment of EUR 50 million. But as you know, we got about EUR 30 million in cash subsidies and help from our Chinese government. But this is a state-of-the-art plant out West of Shanghai in the Suzhou area. Our Chinese colleagues have done a fantastic job in order -- erected a plant within 12 months. The old plant is already knocked down. Where the old plant was, we still have our headquarter and our R&D center of Asia. And this, we have a long-term planning permit. And we will increase or enlarge both the headquarters and the net this year. Lower left, you see our specialty side in Kaiserslautern. We have last year, completed a project with doubling our warehouse space and then adding some more offices. In 2020, the big project will be a polyurea grease plant. Greases are what we call nonliquid lubricants. So they are tacky materials, and when you cook a grease, it's a chemical reaction. We normally have a salt, which we cook and then we thicken it with an oil, and the soaps we normally use in Europe and America are lithium salts or aluminum salts or calcium salts. The Chinese colleagues -- the Japanese community has, since many years, used polyurea grease and especially now with e-mobility, moving towards batteries, you need more lithium. That material gets scarce. And therefore, we think polyurea is the way to go in the future. And we invest about EUR 25 million in the site in Kaiserslautern for the European market. And later on, we will also build a plant in China and later on, in the United States. You see our new plant in Beresfield, Australia. This is really up and going. And we integrate new land now. We have some larger mining volumes going through the plant. We are very happy with that. And then you see the Harvey in Chicago site where we also invest money on the specialty grease plant. I think most of you have seen that. The next page, Page #21, comes back to what Dagmar said in the year 2019 was our all-time record with 100 -- over EUR 150 million in CapEx. We are really happy that we could achieve all of that. At the same time, we have now locked down '20 and '21 to a combined CapEx of EUR 200 million. So we will spend EUR 120 million in 2020 and not more than EUR 80 million in the year 2021. And that brings the CapEx back to the depreciation line, which is obviously higher. I mean it used to be about EUR 30 million. It's now going to go towards EUR 80 million. Those EUR 80 million will always allow us to also invest something into projects as long as we don't build the plant for EUR 40 million. But I think it's really good. So we come back a year earlier than initially planned to the depreciation level. I go to Slide #22. I think you have discussed with Dagmar NULON, which we acquired on April 1 last year. It's a real retail business in Australia. And as you know, Australia is our fourth largest market, but it's almost deindustrialized. You don't have steel plants. You don't have car assembly, no car part manufacturing. So the whole country is agriculture, mining and automotive business. That was pretty interesting for us. We have rented their manufacturing facility for a couple of months. And now we move out and move into our facility in Melbourne and in Beresfield during 2020. ZINMARK is a very small acquisition, but for us, a very strategically interesting acquisition. Chemical process management means that we run the entire plant from a customer with regard to lubrication and/or chemicals. So we do a lot of that in Europe, especially in Poland but also in the U.K. and in Germany. We also do that in China. In the United States, about 20 years ago, the system was a little bit infused and we stayed out, and we could now close a strategic gap in buying ZINMARK. ZINMARK was only active in the service component, so they bought lubricants. So plan #1 is take the existing contracts and subsidy competitor products with ours. And then also take the opportunity while 2 of our larger metalworking competitors are merging to go after some of their business and add some other large contracts. So therefore, ZINMARK appears to be little, but it's very interesting. NYE, we announced that we will buy NYE in October last year. It took a little longer than we initially anticipated. There was the CFIUS approval. I'm sure you discussed it with Dagmar. That is the committee for foreign investment in the United States. And since we are also we have a large U.S. presence with many hundred employees. We are still regarded as a German company, so we had to go through the full loop. And it all ended very good for us. And we acquired NYE officially then or we closed the acquisition on January 24. And if you go to Page #23, you see a little overview of NYE on purpose we bought the facility. NYE doesn't move a lot of volume. They have a lot of clean rooms where they manufacture their products, and they have all the customer approvals. And the small-type manufacturing with a high-value creation. We don't want to clock our bigger plants. So it might even be that we put some of our other smaller stuff also into Fairhaven on the East Coast. It's a very nice acquisition. We are glad that we could buy. There's a nice management team in place. They are mainly involved into, when they say automotive, for them, automotive is first fill, but nothing to do with the powertrain. So all their material in automotive is mainly increases for some of -- for noise reduction when you look at your turning light device or any other electrical component is really a minute duplication with a huge impact. Very interesting for us because that one, we can immediately roll out in our global infrastructure. The other parts are very nice niche applications in electronics. In vacuum, which is mainly the semiconductor industry in aerospace and aeronautics and in the medical technology. So I think really it's, for me, it's a pearl on the high end of the specialty side. Now on Page 24, is something different. There's a little bit of hype between acquisitions and organic growth. For us, Africa is very interesting. It represents about 6% of the global lubricant market. We want to participate at the overproportionately higher speed the market is developing. We always had a nice facility in South Africa, where we generate about EUR 75 million in sales. We have started 2 joint ventures for last year, one in Tanzania and one in Egypt. Egypt is very interesting with regard to its industrial population in the northeast of the country. And then we have also closed in January what we announced end of last year, the acquisition of 50% in 3 companies, 1 each in Zimbabwe, Zambia and Mozambique. The 3 joint ventures employee, in total, 90 people and generate sales of around EUR 21 million per annum. So pretty interesting. And in our African countries, we have also licensed partners and distributors. So I think we'll have more and more a coherent approach on the African continent. If you go to Page #25, you see not a hybrid car but a full EV car. And you see all kind of additional new applications which come due to the EV applications. So yes, there is a potential risk of the entire engine oil going to be reduced in the future. On the other hand, engine oil is one of the most competitive parts. So for us, engine oil is still is not so big aftermarket. I still think we'll be there for many decades to come. When you talk about hybrids going forward, you have both. You have the combustion engine in and the EV. But when you look at the small EV segment, which is growing, there are a lot of additional duplication points and also new specifications for the products, which mainly deal with -- to avoid copper corrosion, heavy conductivity of the lubricants, so pretty very interesting stuff. The one part we also mentioned in the annual report is that we now supply the gear oil for one of the very prestigious German sports cars, which is a full EV car. CO2-neutral. We recognize that most of the CO2 balance of lubricant is either before our entrance gate or after our gate where the products are leaving the facility. However, in between our gates, we will be, in 2020, CO2-neutral. Those parts, which we are not yet able to avoid, we will invest into certified compensation projects, all related to climate protection and the expansion of renewable energies. But there's more behind when you talk to our larger OEM customers, the CO2 balance is a part of the specification. So it's really a whole game changer for our industry. And I think we are a frontrunner on that. One example, if you take the simple product based on the mineral oil, it has, from a raw material standpoint, a better CO2 balance than a high-end product, which is based on polyalphaolefin, so on group 3 base ones because there are more refining steps in the high-tech product. Therefore, from a raw material standpoint, CO2 balance is worse. Now our duty is to take a holistic approach and see that the high-tech product has a much bigger impact on the customer with longer oil train intervals and also a better performance at our customers' application. And when you get that one fully into place, then you have the holistic approach and you can improve those CO2 balances throughout the use of the product, I think it's very interesting. My second to the last slide is Page #27. FUCHS 2025 is a journey, which is, for us, still very important. I think too much on June 26, we have agreed on our Capital Market Day. And that's the day we want to roll out our strategy 2025 officially to you and then afterwards to the press. Unfortunately, due to Corona, we had to cancel our global management meeting in about 1.5 weeks' time, which would have been the official handover to all our employees. I think we will do something smart in that week because we have made a Microsoft live conference where all our -- almost 6,000 people can participate if they want, and we will have a much bigger audience. We deal with culture, culture and strategy. And to put it in one sentence, you can say we want to keep the local amount of ownership we have, with our 60 companies, 35 manufacturing plants, but we want to adhere to more global processing standards. Our strategy is to give you a flavor and will be -- one of the initiatives will be segmentation, which says we will segment our markets and we will have on the top segments of the highest priorities, a global approach. So there won't be a cherry-picking any more possible. So we will go after those global segments and the focus and in the global approach. We believe, and as you know, our market shares in China and the U.S. are significantly smaller than in Europe. We believe that there's a significant growth momentum for us in the next 5 to 10 or 15 years. So we look forward to that rollout. On Page 28, I think you know the chart, we have shown you the absolute number of the annual dividends. We are now at about EUR 134 million. But you also see that we have -- since we are in the stock exchange, we had no year with a loss, and we paid a dividend in each year. And in the last, I would say, 25 years, we have increased the dividends year-by-year. So I think that's a very good track record, and it just shows how solid your investment is. That was it from Dagmar and myself. And we are now all looking forward to your questions and our discussion.

[Operator Instructions] And we've received the first question, it is from Martin Roediger of Kepler Cheuvreux.

We can't hear anything. Maybe we take the second person and then Martin comes later, I don't know, but. Hello?

Okay. Now we should be able to listen to the question of Mr. Roediger. If you please could ask your question again?

We don't hear anything.

Okay. Sorry.

Now. Now.

Now we are able to hear him.

Really?

Yes. Yes, we are.

Okay. I apologize for the technical problems. So my first question is for Mr. Fuchs regarding the coronavirus. You have some experience with the crisis, i.e., in 2008. Do you see the current situation being worse or less worse than at that point in time? And in connection with that, at that point in time, you have acted rigorously and cut costs, i.e., you have reduced workforce at that point in time to adapt to the crisis. Would you be prepared and willing to do the same this year? And what would be the trigger for that? The second question is for Mrs. Steinert regarding your statement about the raw materials, and I would like to dig in deeper here. You mentioned a number of some -- yes, more or less, yes, stable diesel prices and some slightly higher additive prices. Can you elaborate on that in the context of the current decrease in the oil price? And also can you remind us what is your, let's say, the time lag between raw materials and selling prices based also on your very -- price variation clauses? I remember it is 3 to 4 months.

Thank you, Mr. Roediger, for your questions. I will start regarding your questions with raw materials. At the present, we expect raw materials to stay like stable for the whole group. And like today, we don't see a decrease in base oil prices following the decrease in crude oil prices. And the question is, if the markets are still -- or the market mechanism is still working as it used to work in the past. And our time lag to pass-through raw material price increases or as we usually pass-through raw material price decreases is unchanged between 3 to 6 months, not 3 to 4 months.

I come back to your question with 2008. I don't know whether it's worse or less worse. The only thing I remember about 2008, 2009 that it was a sharp [ wave ] going sharply down and then going sharply up, so nobody knows how long that will be in place. I think when you look at the statistics behind the spreading of the virus, I mean we only have to hope that we can slow it down, that the medical systems don't break down. But otherwise, I can't tell you anything. As of today, we don't want to fire people and you can't do that every 10 years. We have already done a lot of financial things in 2019. We have not employed the people we budgeted for. We -- all our people had to fly economy in 2020. We are very rigorous with new employments. We are making sure we clean up wherever we can clean up. We have no team. We have a flight ban in place since March 1, with not a single exception. We have no more meetings. That alone will save cost. We are checking within the countries where this is available, the short-time work policies. That part we have not thrown in 2008 and 2009. We said we continue to pay all our existing core staff. And then we have retrenched about 10% of our global workforce. This time, we want to see how it goes, and we would rather go that short-time work.

Now we go to the next question, that is from Markus Mayer of Baader Bank.

Mrs. Steinert and Mr. Fuchs and to Thomas, and I have several housekeeping question regarding your guidance. Could you help me to understand what was the ForEx assumptions you had for the guidance and what kind of ForEx impact you're assuming for the top line and the EBIT guidance? And then also on the external growth effect, is my calculation right that you should roughly have baked in 2% external growth effect to the revenue guidance? Most likely not a significant effect on the earnings guidance due to integration costs and higher PPA. And then lastly, a question on the force majeure Lubrizol headwind you're still having in Europe, do you see any additive shortages there? And how severe do you think this kind of shortage might be for you?

Yes. Thank you, Markus Mayer, for your question. And I will start with the ForEx guidance or the ForEx, including in the guidance. There is no major impact on that as well as in top line and EBIT. It doesn't really play a role as far as we can see it today. And you are right, around 2% should be external growth effect in 2020. Regarding force majeure of Lubrizol, yes, it is still in place. And there, we don't have a significant additive shortage but of course, we work to like adjust one or the other formulation, and it's still like a day-to-day business, what delivery do we get and what we don't get. But there is no major negative impact out of that so far.

The next question we've received is from Sebastian Bray of Berenberg Bank.

I will have 3, please. So the first is a follow-up for Markus' earlier question on FX. If I look at what [ happened to the ] South African rand, the Russian ruble and the Brazilian real is doing at the moment.

Sorry. Sorry.

Can you hear me?

We don't understand your -- I mean we hear you, but it's a very disturbed connection.

Sorry. Hang on. I'm going to go to the other room. Can you hear me now?

Yes.

Okay. Apologies for the technical issue. I have 3. The first was a follow-up to Markus' question on the FX. If I look at what has happened to the BRL, the South African rand and the Russian ruble, it looks quite negative year-on-year. Could you please let me know if, at the group level, there is a negative FX impact? Because I know the dollar looks quite helpful. But if spot rates were to be maintained, would this be an overall headwind year-on-year? The second question is simply on the interplay between pricing and volume in the year as a whole. How has pricing behaved thus far at FUCHS? Can you remind us of how quickly it is reset so that if we do have a demand shock, as it looks like is the case, how quickly is price pushed down? And a cheeky third one on the electric vehicle angle. In the past, FUCHS has shied away from saying electric vehicle is more or less valuable, a pure electric vehicle than an internal combustion engine. Perhaps using the example of the sports car that you mentioned, are you making more or less of the same sales versus an internal combustion engine typically for this?

I will start with your question about foreign exchange rates and Russian ruble, Brazilian real. Of course, we've got within our group, different effects from different currencies in different regions. But for the whole group, it's more or less offset. And for our like outlook 2020 or the planning the budget, unlike the same count as account for like 2019 where we got only this more or less higher impact from the U.S. dollar in the region, North America. And regarding Russia, there, we always -- we've got our local production and our local supply as well as in Brazil. And therefore, overall, from a group point of view, it doesn't play, at that time, a material role.

When you look at your EV question, normally, you can say that around 10% to 15% per car, there might be less revenue. But if you look at our market share, we are a high-tech company. So for us, I think the margin generation and we look at how lucrative such a business is, there are much fewer competitors on those EV applications and therefore, I do not think that our businesses will be impacted by minus EUR 15 million. We rather see a chance. With regard to the pricing, I think the ones of you who know us longer, there's a standing rule where we say if prices are falling, we normally have a little bit a windfall for some months, which we have to pay back once the prices are rising again. So we can't tell you exactly for which business. This is 1 month, 2 months or 3 months. But obviously, in times of falling raw material prices, we have always some tailwind. But as Dagmar already explained, our refinery offtakes are not linked to the group, so we have not seen a half or 50% off in our raw material pricing. And some of our larger contracts are all based on raw material price escalators. So we also have to hand over on quite sizable part of our business, the pricing. Our concern at the moment is, as I always told you, more the availability part. We need to make sure that we are not cut off by a refiner, switching off the continuous process of a refinery if the prices will take longer. That's all I can tell you with that.

Okay. If this has answered your questions, we go to the next one. It is from Knud Hinkel of Pareto Securities.

Yes. You said already some pieces on your value change. Maybe you can give us a little bit more full picture. Your value change, with regards to your suppliers, are still intact. I heard -- and maybe you can say something on that. And on top of that, we hear that some OEMs closed down already their plants. Maybe you can also say something with regard to your customers? How do you rate the state of the supply change or the change -- any change in regard to your customer? That would be my first question. Second question. You stick to your dividend announcement, I understand. Will you stick to that in case the crisis will get really tough, will persist throughout, let's say, the next 6 months or so? And the third question is on -- smaller one on net working capital. Can you remind me why inventories have been down at the end of 2019? Was it mainly price-driven? Or was it a volume effect?

On the NOWC, as you know, since we made the Pentosin acquisition and the new plant project in China, we had some excess inventory available, and our Chinese and German colleagues have done a really good job to bring that down, so that was pretty good. Once the product is fully localized with the customer approval, I think we should go back to more closer to our targets, what Dagmar announced to you. So I think that that's really a hard work done during last year and mission accomplished. With regard to suppliers' value chains, they are a side of this Lubrizol fire. They are all in place. So so far, we have no cancellation or nothing. The customers, I mean if you look into China, our plants are up and running again. We have supplied customers all-time long. So we always had some staff in our plants because if you have continuous processes or mining or steel industries you have to supply. Now our 2 plants are up and running again, and the demand is going up slightly again. In Europe, we see the announcement as you see them. So our -- for example, until last Friday, our Italian plant was at full throttle. Now we see, from some larger OEM customers, cancellations of orders because they are down. We also subsequently see the Tier 1 down. I mean first, you have the BMWs and the Volkswagens, then you have the [indiscernible] the -- all those [ shift class ] Audi, Porsche, and all those types of customers. But there is no guidance I can give you what our impact is, how long it will take. It's too early to say.

And your question regarding our dividend announcement, where we stick to our dividend, my answer is we walk the talk. We have a stable dividend policy. We always said we don't look at the payout ratio, and that's why I showed as well the balance sheet in the presentation to make you aware of our solid and robust balance sheet. And yes, that's it.

The next question is from Isha Sharma of MainFirst Bank AG.

I have actually one -- just one because the others are answered already. Could you please help us interpret your guidance of significant temporary decline in sales and earnings? Is it fair to assume a magnitude of a double-digit decrease in the coming months? And also do you assume the current situation as it is or a worsening end market development for that statement?

I think any answer would not be a responsible manner from us. I think, technically, you have to understand. And if you look at the annual report, we prepared the annual accounts on March 4. So the signature was done from the Executive Board underneath our balance sheet on March 4. At that day, we also had the Audit Committee and also our auditor signed off. But so this is the outlook, which is part of the preparation of the annual account. So we cannot provide any other outlook without reopening our annual report, which we didn't want to do. Obviously, and if you look at other outlook from other companies, every outlook at the moment is crystal ball-ready. I can't tell you anything else, how much it will impact us, therefore, we made this strong sentence into our press release.

Thank you. At the moment, there are no further questions. [Operator Instructions] And we've received another question. It is from Robin Draeger of Deutsche Bank.

The last one, it seems. Just a quick follow-on to what you said before. Have you considered at some point stepping back from the remainder of the CapEx or investment program? And also is there still a certain degree of flexibility left for you to perhaps step back from some of the CapEx that you've now told us about for this year and next?

Good question. We will not step back from our current CapEx projects. We have a couple of large projects in Mannheim, in Sweden, in Russia and in the United States, also in China. And to now step back would cost significant money to pick it up again. I mean we have an extremely robust balance sheet. I am personally convinced corona will be a temporary impact. But nobody means -- or knows what the definition means or what the definition is. It's temporary for weeks, for months, how big will be the impact. But life will continue. I think we have a good strategy, which we will present to you in the future. So we are positive in our future. We are extremely robust in our balance sheet. I think you have pounded us for many years now in what we do with our cash. I think it's pretty good that we are in this situation now. And we have no large -- or we have no construction sold in the company. We don't have any plants to shut down or people to [ let go ]. So I think we are in an excellent position to go into that crisis, and we will face it like everybody else.

And the next question we've received is a follow-up question of Sebastian Bray of Berenberg Bank.

Apologies for dropping off the line earlier. I had one final question on your CapEx. If from memory, back when the last CapEx graph was shown with the multiyear overview at your Capital Markets Day in mid-2019, the CapEx didn't return to EUR 80 million to EUR 85 million levels before 2022. Has anything changed? Or have I just misread or misunderstood this? Because from memory, I thought the CapEx was due to be elevated in 2021 for next year as well.

We had a board meeting in February already when this whole corona came up in China. And our initial budget for 2020, which was approved by the Supervisory Board and with the overlap from 2019 would have been rather around EUR 150 million. And we have taken the opportunity to shorten the way back to the presentation acquired 1 year. And you are right. So far, we said in 2022, we go back to the depreciation. And now we agreed on the Board because we didn't want to stop the large projects going on. We said EUR 200 million for the 2 years, EUR 120 million for this year and then EUR 80 million as of next year. I'm glad that we used the opportunity to put a lid on it again because I really think we are now at a level where we have changed our landscape in the company.

And apologies again for the bad reception. But I didn't -- Mr. Fuchs, I didn't catch your comments earlier about the difference in value between an internal combustion car and electric vehicle. Was there anything -- did you provide any quantitative guidance on this? Or did you...

If you take a one-to-one approach -- I mean thanks to you because we can hear you much clearer, but if you take a one-to-one approach in the market, we say the lubricant revenue is about 10% to 15% less on a pure e-vehicle compared to a combustion engine. For us, we see it rather as an opportunity because we don't have so-high market shares in the general passenger car engine oil first fill situation, et cetera. But those EV applications are much more technically advanced, and you have significantly fewer competitors who can do that. And therefore, all in all, we see that EV development is an opportunity for us. And we also see the issue when you look around, there will be more hybrid cars and pure EV cars. I believe also in the next decade to come. So therefore, we don't see an impact on our automotive business of 10% to 15%.

Thank you very much. As there are no further questions, I would like to hand back to you.

Thank you, Angela. Thank you all for joining us today. We wish you all the best for the upcoming weeks. If you have any further questions, please don't hesitate to contact me by phone or by e-mail. We will hear us next time with the Q1 results at April 30.

Stay healthy, and thanks for your participation.

Thank you.

Bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.