LANXESS Aktiengesellschaft (LXS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the LANXESS Conference Call. I would like to turn the call now over to André Simon, Head of Investor Relations. Please go ahead.

Thank you very much, Angela. A warm welcome to everybody from Cologne, and many thanks for joining our Q4 and full year '19 call. As always, I have our CEO, Matthias Zachert; and our CFO, Michael Pontzen, with me. Please take notice of our safe harbor statement. And with that, I'm happy to hand over to Matthias. Please go ahead.

Yes, welcome to all of you, ladies and gentlemen. I will start the presentation on Page 4, addressing strategic highlights and financial highlights. Overall, if you look at 2019 achievements and what we did, it has to be mentioned that we further developed our portfolio, of course, through significant value creation through the divestiture of CURRENTA, the 40% shareholding that we had. This is going to be implemented in the coming months, i.e., in the first month of the second quarter, either April or May. And proceeds will then be in our bank accounts starting with these closing dates. We worked quite heavily on the chrome value chain, and we are successful here in the completion of divesting and closing sodium dichromate transaction and finding a partner for our chrome ore mining. Also 2 years ago, we communicated to you that we will find a solution to upgrade Organometallics and we clearly can confirm that the aluminum catalysts, aluminum Organometallics, will become core to our portfolio. The rest we have divested. Of course, for this, we incurred onetime charges, which were visible in the fourth quarter. The transformation is paying off in difficult times and 2019 was definitely a difficult year where the economy was not anymore that rosy and industry that has tended to be strong in the past, like automotive and agro industry, were weak. And despite that, 3 out of 4 segments were rock-solid and even improved the results with which we could then compensate the shortfalls of the business units that we are more exposed to the automotive industry. Battery technology, the concepts we worked upon in the last 12, 15 months. We gave you indication that we are in a very nice starting position for benefiting from battery technology being now introduced here into the European economy for the e-mobility sites. And we get prepared to, here, fully participate. We want to be in the prime starting position. Financial highlights. 2019 is a year where we decided on discontinued operations because, basically, we are here repositioning the Leather business. The chrome business line has been fixed. On the organic Leather side, we are working on 2 options. One is the divestiture, the remaining one would be the turnaround restructuring scenario where the site eventually would become negligible and the profitability, however, brought back to acceptable levels that LANXESS would like to achieve in any of its businesses. EBITDA, thus, increased to EUR 1.019 billion from the adjusted base EUR 986 million the year before. With or without Leather would not have meant any difference because eventually Leather did not contribute to EBITDA at all and reported full year numbers with 0. We have a strong platform to take action on any resource allocation we would like. So last year, when the markets were sending our share price down to EUR 40, we took respective actions and went out very decisively with the buyback program, and markets are similarly reacting due to the coronavirus, and we think at these levels where the company trades at an EBITDA level of 5 or 6, depending on what numbers you use. We also take corrective actions because we are in the wonderful position to have a rock-solid balance sheet that will be even more rockier-solid once the CURRENTA proceeds will be booked in our bank accounts. So that's -- with the balance sheet that we have, we are also prepared to further take action on internal and external growth as we see opportunities, but not on a hurry, we remain very focused, like you've seen in the past. I'm happy to say that in difficult times, we also reported now, for the first time, an EBITDA margin of 15%, never reported in our company history. Ladies and gentlemen, I turn my attention to Page #5 because effective 2020, we will now establish and develop the new business segments. Performance Chemicals, the days of Performance Chemicals are over. Leather will be reported as discontinued, so it moves out. And we will here change Inorganic Pigments to Advanced Intermediates. The business model of Inorganic Pigments fits pretty well to the Intermediates models. Intermediates are characterized by technology leadership, market leadership where, in many areas, we have market shares above 25%. This definitely holds true for Pigments as well where we are even higher. So cost leadership is another element next to technology and market leadership. And of course, here, we focus on, clearly, organically consolidating the industry platforms. And therefore, this segment will be a good contributor going forward. Specialty Additives will remain as is. I would like to note at this point in time, that 2019 was another year where we improved EBITDA and margins. So at the outset of Chemtura acquisition, we said we would bring this business from, at that point in time, 16% margin up to 20%. And with the 18% margin in 2019, I think we, another year in a row, continued this improvements. Consumer Protection will emerge new. We guided for this in our Capital Markets Day events, Consumer Protection will consist of the following 3 business units: material protection disinfect business, as we have explained in November last year; liquid purification technology follows the same regulatory trends that we also see in material protection. As far as IT was concerned, all of you know that we are here in the protection of food and eventually also in the protection of human skin with Saltidin, and so we contribute here in a massive way to the underlying health of the consumer and food protection of the consumer. So this would be a new segment. It will be from the characteristics: one, a segment that will post at the starting base EUR 1 billion sales with around about EUR 200 million EBITDA. So you see a business that has high margin and growth potential. We consider that all 3 businesses in the -- business units in this segment will contribute to growth, and it will be one of the most resilient ones in our portfolio. Engineering Materials will not change, it would stay as is. With this, ladies and gentlemen, I turn the page to Slide #6. And here, let's look at 2013. That was a year where automotive segment was -- or automotive industry was as weak as we've seen in 2019. And at that point in time, our automotive exposure was, of course, largely different than it is today. And even though the market environments in 2019 was somewhat tough as 2013, you see the profile of our company has changed completely. Not only that we kept the EBITDA stable and slightly increased it on a like-for-like basis, we are now 6 basis -- percentage points better than in 2013 when market dynamics were also rather [ idle ]. And this is, I mean, the nice results of the transformation that is paying off, and needless to say, the journey will continue. Based on this better platform that we have business-wise but also based on the solid financial balance sheet that we have, we recommend on Page 7, an increase to our shareholders in May in the AGM from EUR 0.90 to EUR 0.95 because we have said we feel well with our business platform, we feel well with our solid balance sheet, so we have the basis for this. Turning now the attention to Page #8. In the Management Board, we have decided a few days ago that we would like to go out with a buyback program with a volume of up to EUR 500 million. This is backed by the authorization that we have received from our shareholders in the AGM 2019. We structured this in a disciplined approach. So the volume of EUR 500 million would be executed in the first -- in 2 tranches. The first one will start as quickly as possible because, I reiterate, when our company trades at EBITDA multiples of 5 to 6, we think this is a very good time for acquiring our own shares, so to say. I would like to state here that, in the meantime, the Management Board decided also to buy stocks on their own accounts. If you look into directors dealing, you would see that we took respective acquisition actions today as well, not only the CFO and CEO were active. You also see that other people participated. Now let's turn our attention to Page #9. Let's talk about corona or COVID-19. At this point in time, I would clearly like to stress that based on current assumptions, the assumptions change every day, and this virus, of course, leads to new information on a daily basis. So we are preparing, of course, for this, and we are here very focused, but I would like to make it very clear. When we discussed our guidance, we debated internally, let's give a guidance with or without COVID. And we decided it's better to precise the numbers or to give a financial corridor because otherwise, you are left on the analyst side in the buy side or sell side with complete uncertainty. So based on today's assumption, this is our guidance to you. And I hope this is helpful for somewhat modeling the effects of corona. So on the left-hand side of the slide, you see our production sites, some of them were having a 1-week standstill, some of them had a prolonged standstill. By today, all production sites are back up and running. But I can confirm to you that China per se is not back to full utilization yet. So we see that in February and in March, we are gradually ramping up the production, not only our own sites but our clients, our competitors, et cetera. So this led to temporary shutdowns and led to disruption in the value chains. Our assumption is that second quarter will be fierce because in February, corona developed, and in March and April, we basically see now major logistical challenges. In February, for instance, around about 60% to 70% of the logistical capacities that could not really come on the markets, and therefore, products did not travel when they reached the harbor. And they were not able to be shipped to customers or reach production sites. So now, of course, there's a lot of pressure on the logistical value chain in China still. And this will be, therefore, definitely something that will lead to an issue in March and also April. We assume, therefore, that the Q2 impact will be more than the EUR 20 million that we flex. We assume that in Q3 and Q4, corona will gradually lift off or will be more relieved. Total impact we consider to be between EUR 50 million and EUR 100 million. But I, clearly, would like to reiterate, this is based on today's information, on today's knowledge. It does not include, for instance, should we be forced to a shutdown major production sites. So this is the impact that we consider corona will have on the volume side. With this, I turn to Page 10 and here to the guidance. Of course, ongoing geopolitical macroeconomic uncertainties exists. The biggest one for me is, of course, corona and how it will impact the world economy. When we started the year, we always -- as you have seen in the past 2 years, we always start the year looking at the markets, looking bottom-up on our financial outlook for the year. And we did that over the last several years. And as you have seen in the past, we have been always pretty spot-on with our guidance that we gave at the beginning of the year and, of course, developed then throughout the year. When we did our bottom-up forecasting in January, we basically saw a good start to the year in January trading, and we went through the markets, we still saw that auto and agro would be sluggish. But basically, we looked at the markets, similarly, like we have seen in 2019. So the numbers that then came in from our businesses were rock-solid on previous year financial levels. But then from February, mid-February onwards, we suddenly see that -- saw that China sales slumps versus our historic trading base, completely different. And of course, we are, therefore, seeing that corona has left its mark in the financial expense, we'll continue doing this going forward. So operationally, we see ourselves pretty stable. We know that corona will be somewhat a one-off, it will go through the regions, will impact, of course, the volumes and momentum, but corona is, for me, considered something that will level off. But of course, for 2020, it will impact worldwide economy. This is at least our view, and we want to shed light on this and want to give you our feedback on the impacts, which we consider EUR 50 million to EUR 100 million. And based on this, including corona impacts, we give you a guidance of EUR 900 million to EUR 100 million. Ladies and gentlemen, this is all for the presentation. So I just -- I think we have completed very successfully 2019 and proved this with our resilience and our financials. We're excited to act in a tough environment in 2020 because LANXESS has never had such a strong business platform and financial platform. And we want to use this in these days to further accelerate. Thank you very much. And with this, I open up the call for your questions, please.

[Operator Instructions] And we've received the first question. It is from Thomas Wrigglesworth of Citi.

Matthias, André. Two, if I may. Just going back to your outlook comments, obviously, ex corona, you would be forecasting growth. And obviously, you highlight auto recovery is limited. Could you just help me or refresh us on what -- on the underlying basis, across the divisions, you would see as the key growth drivers? I mean I think we're aware of the Virkon product and MPP, but what are the other ones that are on an underlying basis already coming through in 2020? Secondly, on lithium, you mentioned in your press release, the lithium projects. Just wondering if there have been any delineation around whether you would go for the in-series approach on CapEx or the in-parallel approach on CapEx. And just around that, is there anything in there in the CapEx guidance for 2020 on lithium?

Tom. Nice to hear your voice again. Let me address both of your questions. Ex corona, the business development by segment would have been comparable to last year. We did our budget for, of course, internal incentive reasons worldwide. And the forecast that we ended in January, beginning of February was, again, confirming the budget view out of November last year. So we saw the similar trend that we've seen in 2019, meaning that Intermediates would be stable, slightly up; Speciality Additives being stable, slightly up; and Performance Chemicals being up. So following the trends that 3 divisions with gradual improvement on EBITDA and thus compensating the shortfall that we would still see in the weak automotive sector because when we did our budget last year, and when we did our November reporting, we highlighted to you the production standstill in Hamburg. On top of that, beginning of the year, we have considered that automotive industry will again have a volume erosion between 2 and 5 percentage points. And therefore, we were, beginning of January, still negative to the automotive industry. And I think this is, as a matter of fact, also the view of the OEMs themselves. So that was the trends how we looked into the industries. Corona will definitely now also put strain on the other divisions, Intermediates and Specialty Additives because, for instance, in March, we see how difficult it is to get our containers from -- as far as bromine containers, for instance, is concerned, from our sources to the customers or to the production site. So that is something, just as an example, it will also hit Specialty Additives, it will also impact the Intermediates division. The one that will be the least impacted is the new division, Consumer Protection. But all other divisions will be, of course, impacted through the volume impacts coming from corona as well as from logistical issues that arrive. Now on the lithium project, the lithium project is advancing. And here, we have now finished -- the pilot plant is in place, the pilot plant has done January, February, the cold commissioning, i.e., you test the plant without chemistry. You tested only with water to see if pipes and vessels and whatever you have there is up and running. Now chemistry has entered, and the solvent has entered the plants. And now we will take basically March, April, May to see what kind of refined products we can get out of that. And then, of course, we will send these products for quality testing to customers who eventually would use this lithium. One of our biggest potential customers that has agreed to this, they would like to test it. And if the quality is reached that the customer needs, then we take the decision on where we go. Currently, the status is rather to do it sequentially. But of course, a lot will depend on the quality that we will reach. If we don't reach any quality, we will do nothing. If we reach good quality, we will do it in a sequential way. It would be still a likelihood that we do everything in parallel, but I'm not in preference for this at this stage. This would be the data -- if this would be decided, the data would have to be mouthwatering. And therefore, my assumption is if the proof of concept is confirmed, we will go for a sequential approach. But at this point in time, it's digital, it can be 0, it can be 1. The decision will come most likely in the second quarter.

The next question is from Georgina Iwamoto of Goldman Sachs.

Matthias, my first one is just on your guidance and what you've said on the coronavirus today. First of all, I just wanted to thank you so much for making an effort to give us some indication of what to expect. And I think it's been helpful to understand how you see the second quarter progressing. I wanted to know, should we be thinking about more towards the more cautious end of your guidance given that we're likely going to still see supply chain impacts in the second quarter that started in the first? And can we, therefore, think the same for Europe? And we haven't really seen much yet from the U.S. So I mean how convinced are you in terms of the potential for relief in the second half of this year? And then my second question is on M&A. I was just wondering if you could give us an idea of the kind of opportunities that you're seeing. And if the share buyback is any reflection of kind of fewer opportunities at this point in the market.

Georgina, let me address your questions one by one. The guidance that we've given out today is -- I mean, we've never given, at this point in time as early in the year a guidance, we always did it in a qualitative way, and then confirm numbers in May. But in light of the uncertainty that I see in the markets, of course, neither investors nor analysts have a clarity on business momentum, order books, procurement, everything that we are currently going through. And based on this, we decided we have more facts, we have more data points for our company. We see how things are working operationally. And based on this, we decided in times of uncertainty it makes sense to give the best precision that you can have. And therefore, that was the approach we took. But of course, assumptions at this point in time are changing on a daily stage. We do not know if this virus will be leveling off due to seasonality when it becomes warmer. Some say, yes; some of the virologists say, yes; some say, no. So our view right now is we have seen the impact in China. China is the biggest chemical market of the world. And we've seen the impact, at least in our P&L, which we quantify was round about EUR 20 million. We assume that the virus will now go region by region. But of course, then it will level off. As far as Europe is concerned, we are a European chemical company. As such, we have 50% of our market in Europe, and therefore, if it hits Europe, there would be the same kind of issues that we have seen in China. And therefore, our assumption is, based on this, that second quarter will be harder. But again, the virus will come. It will also go. And based on everything, what we know, what people are saying, it should -- it's assumed to level off in Q3, Q4. This might come, this might not come. And for this, we give the 2 indications, and that's it, more we cannot give. On M&A, I mean, M&A, we are still having room for maneuvering. We are not with EUR 500 million -- we're not doing the EUR 500 million within this year. We've given clearance or clarity that it would take 24 months for this. And therefore, it's not going to limit us in M&A activity, we are pursuing M&A activity also in the next 12 months because we think that there are opportunities arising. And we will also, of course, look at our Capex, what kind of CapEx projects in our guidance that we have given to you today need to be reflected because potentially, some of the volumes are shifted rather to '21 or '22 instead of coming -- or are needed according to our original plan. So Capex, we are having -- we have provided a guidance for CapEx. This one, however, we will review if need exists, but we will pursue all directions, organic, inorganic and also share buyback.

Okay, Matthias. If I could just have one very short follow-up not just from your position at LANXESS but from your kind of other Board seats. Can you give a sense if there's any particular supply chain that is of concern in Europe specifically?

No, it's not -- nothing specific. I talked to the colleagues in other corporates and other companies, the logistical constraints are not only specific to us. I just mentioned them because everybody talks about there's disruption in supply chains. As a matter of fact, a lot of the disruption has to do with logistical issues. If you go to China, China ring-fenced basically province by province, and the traveling of products between the provinces was, therefore, disrupted. It's a logistical issue. The transportation to and from harbor when products were delivered was disrupted. Containers stood there, no new containers could be shipped and this has to get back in order. And so therefore, it's not a specific issue to us. We just try to, in this conference call, give you more specifics so that you understand the situation. China is very professional in addressing this, so they would bring the ship back to order. I'm clearly convinced because I see the measures that governments and provinces are taking and therefore, I'm confident that China will rebound and then, of course, catch up. But at this point in time, they are still addressing the issues that have started in February.

The next question is from Markus Mayer of Baader Bank.

A question from my side as well. The first one would be, again, on COVID, basically, that is more on the potential, I would not say a positive side but more the volume impact you would have had to have the Material Protection product side. Maybe you can shed some light how this business was positively affected by COVID. My second question will be on the EUR 38 million D&A one-off effect in Q4, which was the exceptional line. Could you then explain that this is from -- was this solely from the Leather discontinued operations, so unaffected there? And then lastly, on new materials, could you quantify how much of your capital capacity is meanwhile sold to the merchant market?

Well, I would take the first and the third one, and Michael would take the second one. So we are talking here about Virkon. Virkon, of course, here, not the disinfect Virkon for animal disinfect, but the human Virkon, which is called Rely+On Virkon. This is a powder spray that needs to be liquefied. And when you've seen on telly, when people were spraying hospitals or spraying airports, et cetera, Virkon was used. So this is a product that is now worldwide asked for. The problem is, however, we are already running at capacity limitations. In this formulation plants, we are not as big as in the animal disinfect formulation plants. So therefore, the capacities are already at its limits. You will, therefore, not see a huge amount of sales being incremental. For this Rely+On Virkon, there will be moves, but this is in the small millions and not in the 10s or 20 or hundred millions. We currently do everything with Rely+On Virkon to make it accessible to all markets that are of needs. At this point in time, we maximize the shift workers to get out of the existing capacity as much as possible, but more we cannot do. And with this, I hand over to Michael, and then I would take the capro.

Thank you, Matthias. Markus, warm welcome from my side as well. Thanks for your question. Yes, you were referring to the D&A exceptionals, which we booked in the fourth quarter. As you saw, we booked a total of EUR 75 million in the fourth quarter, which was, to a large extent, driven by the transaction at the OMS business. In total, OMS exceptionals amounted to roughly EUR 50 million. And in that EUR 50 million, you have the respective EUR 38 million you were referring to and we guided at an earlier stage that on the tin-based Organometallic you should expect some exceptionals of around 20, 20-plus. And the same, obviously, then hold true for the gallium-based Organometallic business.

Okay. Understand. Perfect. So -- then on capro, we would always have merchant market exposure but different to, I don't know, 5 years ago, where we had something like 50%, 60% merchant market exposure, it's now around about 10 percentage points.

Next question is from Matthew Yates of Bank of America.

A couple of questions, please. The first one is just around your Pigments business, which you're moving over into the Intermediates division. Can you just update us generally what the strategy is for that asset, whether this is a temporary home or what options you're looking at? The second question is around the balance sheet, which I think you described as rock-solid earlier in the call. I just would like to ask around the pension and how you factor that into your thinking around leverage levels, how much firepower you might have for buybacks, M&A, anything else, because I would imagine when we next see a balance sheet at the end of March, presumably, that deficit is going to be bigger when you mark-to-market the yield. So how does the pension fit into the financial framework and the amount of capital you have to recycle?

Yes. Let me take them one by one. Michael will step in on pensions. On Inorganic Pigments, we like businesses in our company, which has a technology advantage, pigments has, through the Laux process, the best industrial cost curve. So per se, the technology is great. We like market leadership, i.e., that you are #1, 2 or 3 in the global markets, and we are #1 in inorganic pigments. You must have, of course, products that are needed in the respective regions. And eventually, we like global businesses. Inorganic Pigments fits to all of that and per se, therefore, it is a business that we consider as core and where we consider also that through organic investments, we will be able to further consolidate the market because in the past, we basically achieved that more and more Western Hemisphere competitors left this business, leading to a stronger market share on our sites. On balance sheet and pensions, the only word I would like to say, if you look into the pensions year-end, you have seen that we went down from discount rates in Germany, for instance, from 2% to 1.3%. So there is not such a lot of room for further pension stress coming out of this, but Michael will go in detail.

Yes, Matthew, thanks for the question. Indeed, we saw in Germany, a decline of the interest rate, which does impact, obviously, the accrual, but not at all the cash flow, which we have to spend on pension. And we still have a rather high sensitivity to the pension accrual. So give and take, 100 basis points changes does mean a change in the accrual of EUR 250 million to EUR 300 million. We are now today at 1.3%, which is like very low in historic terms. With regards to how do we see pensions, with regards to our debt, basically, the answer is we see it like the rating agencies because at the end of the day, we, and you know that, strive for being an investment-grade rated company and the pension are regarded as debt. But what do the rating agencies do? They not only take the pension accrual as a whole, they have a look as well at the cash flow impact, which means you also have to, and should, put into your model the deferred tax assets, which we display with around EUR 300 million which lowers, let's say, the net impact of the pensions. Next to that, we have an asset which we booked in the asset part of the balance sheet with regard and related to pensions, which we are not able to net over the accruals, which is as well in the ballpark of EUR 70 million to EUR 80 million. So all in all, the pension accrual is not the only element you should -- or let's see, the rating agencies put into their models when it comes to debt relation to pensions.

So that was a pretty complete question, I think. Now I'll come back to your final question on financial flexibility. We have always taken a conservative financial approach. Michael stated investment grade is important. I confirm this. And therefore, when you look at the buyback, we have structured the buyback in a disciplined approach, not in one tranche but in 2 tranches. So the first one, with EUR 250 million we are starting now. And then we can see in the next 3 to 6 months, while this program will run, where markets will go, where corona will go. And that is a disciplined approach to make good focused decision also on financials. This has been a theme in our company in the past, and it will be a theme of our company in the future. But of course, eventually, we want to go for value in all areas, if it is buybacks, if it's acquisition, if it is organic investments, innovation. But we are taking here focused analysis, and then we go where we think the pocket are the deepest and the value the greatest.

The next question is from Robin Draeger of Deutsche Bank.

Just really 2 follow-ons, the topics you guys touched upon before. First one on, actually, the buyback you just mentioned. Could you just perhaps explain, maybe there's an easy explanation for this, why you guys decided to come forward with this yesterday already, and you guys just didn't decide to actually answer today? And the second one is on consumer protection. Just looking at the assets you're pooling into that new division, can you may be shed some lights on the margin profile you're looking for by grouping those 3 businesses as it stands together?

Yes. So on the buyback, well, of course, here, we looked at -- we look at all instruments all the time. And the lower the share price, the higher the level of interests to buy back stocks. And as I said before, when a company is trading at the 5 or 6x, I think this is always when you should go for value creation, which we see because corona one day will go off. Why we went out yesterday, we had yesterday our Supervisory Board meeting. So here, we -- if you make such a big amount of share buybacks, it's something that you can decide on your own as a Board, but we wanted to consult with our Advisory Board. This is what you should normally adhere to. We have a strong commitment to good corporate governance. And therefore, we took the decision only after we consulted our Supervisory Board. And then in order to be completely correct with the German law, we went out instantly with an ad hoc release yesterday. By law, you are bound to do this, and we do everything according to law. Today, we went out as Board members and bought stocks because we can only buy stocks when all material information on the company is conveyed. And this morning, we conveyed everything. We conveyed the segment Consumer Protection to you, that Leather is being discontinued. We reported all numbers, gave an update on all strategic projects, and that's the reason why we were tempted to buy stocks before, but we were only in the position to buy stocks today. That's basically the rationale behind. Now on your second question for targets. This division and the businesses and sites are heading margins above 20% or have the potential to be a high-teen margin or 20% margin businesses. So Saltigo is not there yet, but it has the potential to move up in this category in the next 2 years. And the other 2 businesses are at 20% or above. We are looking for M&A targets that fit to this area. But we are also willing to onboard businesses, which are lower. For instance, the business that we bought in our biocides business in the fourth quarter in Latin America is not at the margins where we are right now. They are rather in the low teens. But we know that the business can be developed into a high-margin business in the next 2 to 3 years. And therefore, acquisition targets can be at the same margin level. They can also be lower. But if they are lower, it means that they have to have the characteristics to be high-margin fitting into the segment, and that's the way how we look at acquisitions.

The next question is from Martin Roediger of Kepler Cheuvreux.

Sorry to come back to the coronavirus impact. Thanks for providing us with so much information on that. You say the EUR 50 million effect is if the situation improved significantly until summer and the EUR 100 million in case of a longer disturbance of the whole economy. Can you explain how did you get to these numbers? You've mentioned low volumes and logistics issues are the parameters. But did you calculate the figure? Or is it a rough guess? And in case of a calculation, does that include some idle costs? The second question is on Performance Chemicals. I saw that IPG has stabilized in Q4, and I understand this -- and this refers to volumes and probably in a year-over-year comparison because Q4 is seasonally anyway weak. I just wanted to understand what happened with the volumes in the other 2 activities, especially in Material Protection Products. Material Protection Products and LPT were the drivers for volume growth, but it seems to be that the one growth in MPP was rather modest, despite the fact that we know that you have been quite bullish at your Capital Markets Day on the prospects, especially in disinfectant products against African swine fever. So maybe you can elaborate on MPP volume development in Q4. And the third question is on your battery technology concept. Did you receive already any orders from Tesla for their new plant in Brandenburg? Or do you have any other orders on hand, making you confident on that battery technology concept?

Yes, thank you for 3 questions. I will address the first and the third one, and Michael will address the second one. So as indicated to you, we are making our assumptions, and we are discussing that. We have discussed it with our business line by line. And of course, we have our corporate analysis when we give a guidance. And therefore, based on the information that we had as of yesterday or the week before, we concluded on this guidance. If you -- what we assume, of course, is we assume that the impacts in Q1 that we already see in February and which we see in our order book is one that can be used for confirming the underlying trading, the momentum and the issues that are arising through corona. And of course, we see here currently -- currently, I state very clearly -- that China is stabilizing, also the Wuhan area is stabilizing. We see what drastic measures are being taken in the other cities. China takes drastic measures. And just to give you an indication in the other cities, when you want to go out to restaurants, et cetera, you're being tested, if you have temperature, what location you came from. So China is very, very disciplined and rigorous working on this. And so this stabilization -- certain stabilization, at this point in time, has been reached. So our assumption is that, of course, in any region, focused measures will be taken, which will impact businesses, therefore, reduce volumes. And as such, we have assumed that second quarter will be hit more than Q1. But if then the virus has gone from region to region, it would then also level off. That is the assumption we have taken. And based on this, we've made our calculation of EUR 50 million to EUR 100 million. But I say it again, very clearly, based on everything what we know today, we tried to give you clarity on the facts that we have today, but facts can change in a week from now. This is a new topic and new virus and you need to learn what it means, what the effects will be and they can change. And based on this, I simply -- we simply wanted to provide as much clarity as we can, but with the annotation we are looking at this on a daily basis. Michael takes the second question. I will take the battery one.

Yes, Martin. Yes, with regards to Performance Chemicals, the same holds true with regards then as well to clarity because we told you guys for the whole year that MPP and LPT are doing very well, IPG stabilizing and the overall segment is being dragged down by Leather. Now without Leather, you see the improvements, be it top line, be it bottom line, EBITDA growth by 23% year-on-year and in the fourth quarter, 45%. And the drivers here, clearly, especially when it comes to the top line, are MPP and LPT because we state that IPG stabilized. And as we all know, IPG is, when it comes to revenues, the largest business unit in that segment. So if the overall segment is reporting a growth of 2% and the largest business unit is quoted or indicated as stable, by definition, MPP and LPT must show a rather attractive growth rate in the fourth quarter, which holds as well true for the overall year where we saw a 4% volume growth. Matthias?

So battery, Tesla will never be a direct customer because they are engaging with the electrolyte producer, hence, with the supplier of LiPF6. Tesla is not producing today. They want to build the plant, but they are interacting with the respective next supplier in the value chain. And with this next supplier in the value chain, we are talking, too. And therefore, indirectly we talk to Tesla, but indirectly, we talk to other OEMs at the same point in time because I say it again, our [ Friedrich ] assets -- our [ Friedrich ] floor assets is unique in its capacity in Europe. We have the biggest world-scale plant in Europe for the merchant markets. It's world-class. And therefore, we have here a trump asset in our hands. The same holds true for phosphorus chlorides, which you also need. And here, we have 2 plants in Europe, one in Leverkusen, and one in Trafford. And therefore, we are also very well prepared to -- at the second molecule -- chemical molecule for the electrolyte. And if we are lucky, touch wood, touch head, wood, we will have a third one, but this is, of course, with the testing that we will do in second quarter.

The next question is from Peter Spengler from DZ Bank.

I have 3 questions. First is on COVID-19 again. After the low Rhine water levels, you and other chemical companies reacted with higher storage capacities and other means. Do you plan to maintain larger stocks in the future due to the situation at the moment? Or do you think of other things you could do to prevent such a grave situation in the future. Then the second perhaps is on the low oil price, how important is this still for you? And the third one is on the regional car end markets, car units are expected to go down this year. So maybe you can elaborate a bit on how you are affected from this, this year? And a question connected to this, when do you expect first significant contributions from electric mobility? So you already have contributions definitely from electric mobility, but when do you expect something really significant?

Okay. Thanks for your questions, let me address them one by one. And Michael might step in on oil price. So stocks, are we considering building stocks? Let's put it like this, we are assessing this. We have not taken a deliberate decision on this, but we are assessing this. At this point in time, we, first of all, need to replenish our stocks in sites in China. This is not big, but we have to do this. So far, our supply chain on the procurement side has worked, and we got everything that we needed. But we're assessing that certain raw materials need to be stocked up just to be prepared. As far as oil price is concerned, rubber is no longer part of our portfolio and therefore, oil price is one that I'm not looking at anymore. Of course, there are some derivatives of oil, but they do not always correlate with oil price direction. They have different cycles that sometimes has to do with regional supply outages and quality constraints in terms of specification. So therefore, oil is one I'm no longer looking at. Michael might comment. If you're still looking at it, there might be some derivatives that also fall now, but oil price, we no longer use as an indicator. On car, I've communicated earlier that at the beginning of the year when corona was not the topic #1 in the midyear, at the beginning of the year, we considered that the automotive market will still shrink like it has done in 2019. So we saw the same kind of momentum. My personal assumption is that this will now be fierce through corona, and that is what we have figured out in our overall guidance. On e-mobility, the battery plants that will come onstream in Germany, in Eastern Germany but also north of Germany, are considered to come onstream on 2023, 2024. At the beginning, our assumption is that these companies will test electrolytes still being produced in China as -- however, this is pretty expensive, but travel is everything. They will test with -- do the trial runs with their used suppliers and then switch to the factories that are being built in the next 3 years for the electrolytes here in Europe. And then, of course, we come into play. So you might see the first sales on battery chemicals, '23, '24. Michael, anything on the oil price?

Not at all, Matthias.

Good.

The next question is from Andreas Heine of MainFirst.

Let me begin with rather short questions. The first is do you see any impact on the coronavirus already in Europe? Or is it exclusively in China what you see right now? And the second, CapEx was EUR 500 million last year. The guidance for this year is EUR 500 million as well. Looking on the plans you have, with the battery material and the leasing project, is that the level you can live this? Or might that go up in the years to come? And maybe one word within the Engineering Materials on how the polyurethane business did in '19 and what you expect then to run -- to show trends in 2020. That's my...

Yes, let me take them one by one, and Michael, please step in on CapEx, I would just make a top comment on this. So in the corona implications, of course, as far as second quarter is concerned, the comment that we made, that we should see more impact in the second quarter as coming from Europe. As far as Q1 is concerned, the EUR 20 million, this is by and large, China, and the products that we could not really ship to our customers in China because they basically stopped production. So there are implications out of China from production sites, but also lost sales that we had from Europe not going to China. So that's on the corona. Now on CapEx, I mean, lithium you're totally correct. If we would do lithium in parallel, so we would build 3 extraction units, I think the number on the EUR 500 million on the guidance will change. At this point in time, I think somewhat that we can do a sequential approach within these EUR 500 million that we have, potentially a little more to EUR 550 million, but it should be -- we are trying to have a CapEx envelope that is disciplined and this is clearly what we would like to keep in the future. When substantial opportunities arise, of course, we will revisit, like we have communicated in our CMD, but this is the approach we take. And on Urethanes, Urethanes improved in 2019 versus 2018. And of course, we would like to develop this business further excluding corona. Michael, anything further on CapEx?

No.

The next question is from Patrick Rafaisz of UBS.

Two follow-ups, please. The first one is on cash flow and inventory. And you already talked a bit about inventory management. But the inflow in the fourth quarter was quite significant as we've seen across the industry. How much do you expect this to reverse in 2020? And the second question is around earlier comments about CapEx and how volumes could shift into 2021. How do you think about volumes then for the full year 2020?

Yes. I'm -- thank you, Patrick. I will address the second question. Michael will take the first one on Q4 and overall cash flow. So on the second one, I expect that many businesses will, on a quarterly or 2 quarterly basis, they'll see less volumes because when you look at what is happening out there that productions are shut down, you have -- I give you feedback on Shanghai, I talk to our country heads nearly on a daily basis how the situation is. And Shanghai is a very populated area. And there was no -- literally, this is a little bit overstretched, but literally streets were empty. People were not shopping anymore. And this is something that will go through the chain. By now, this is, again, changing. But for 2, 3 weeks, you have seen that's simply shopping activity. So it starts with the consumer. If the consumer doesn't buy, the goods will be less produced, and that goes through the chain. And I think these temporary effects when corona really will go through region by region, it will have an impact on volume demand. And therefore, in many areas, I think volumes will be negatively impacted. Now you need to run scenario models. I've seen different scenario models that go from impact on the global GDP by 50 basis points to impact on the global GDP by 200 to 250 basis points. So you have to take your assumptions. We have taken our assumptions, and we adjust them whenever we get new information. I think this is the feedback on the volume side of your question. Michael will address cash flow.

Yes, Patrick. If you recall what we said throughout the year 2019, and reviewing what we did then in the fourth quarter, you will recognize that we, as well, on the working capital delivered what we told you guys. There is a seasonality within the year. We all know that. So an increase in working capital in the first half, stabilization through the third quarter and then usually a cash-in from the decline of net working capital. That holds true as well in the fourth quarter of 2019, and we told you as well early in '19 that we started the year with a relatively high level of inventories and that by -- and through the year, and by year-end, we will bring that number down because we want to, let's say, start 2020 from a kind of clean sheet because even without corona, times weren't that great in '19 and were not to be expected given the high uncertainty. Now it's way too early to give a guidance, especially on the cash flow on a working capital basis. But what we told you as well is that usually, in terms of percentage of sales, net working capital should be around 20%. It can be a percentage point up, it can be a percentage point down, but give and take, it should be around 20%. For the full year 2019, we were below 20%, yes. So we did our homework, does that mean it will go back to 20%? Too early to say. But clearly, we manage our cash flow to improve further on our cash flow.

And the last question is from Chetan Udeshi of JPMorgan.

My question was just around the Engineering Materials margin in Q4, which was up nicely versus Q4 previous year. I know there was some trading volumes which depressed the margin in Q4 '18, but at the same time, and maybe you can correct us here, we do get some pricing data on polyamide 6, which we all plug into our models, try to do some spreads over benzene. And at least that mathematical spread has been sort of coming down through second half of last year, but clearly, we've not seen much impact on margin from that. So do you think that approach of using polyamide versus benzene spread is wrong? Or is there some lag in the pricing? Any clarification there is always useful.

Yes, Chetan, let me step in here. If we look at Q4, Engineering Materials, the one thing that we flexed in 2018 was that we had severe issues with the Urethanes business, a, because the monomer MDI was strongly tight and the price strongly up. And therefore, we had very low profitability in the Urethanes business in Q4 '18. Urethanes was doing very well in Q4 '19, and the polyamide business, the bigger business units had simply a very low comparable base. And I communicated that the volumes, Q4 '19 will be better than Q4 '18. And that has led to the margin increase in fourth quarter 2019 in this division. Now on polyamides, my recommendation to you is, a, you need to distinguish with between PA 66 and PA 6. PA 66 has been [ pricely ] strongly affected and PA 6 as well because end demand is lower, but the price erosion in PA 6 is less harmful because the price never went up that much. Then you need to differentiate the raw materials. PA 66 has different raw materials largely than PA 6. We have seen in -- definitely in January, a rise in benzene. But now we have seen in February, end of February and in March, a decline in benzene. So here, I would not look on a monthly basis, I would basically look at an average basis what our input cost is. In January, you might have followed when benzene went up, we went out with a price increase on the -- on our polyamide products. And now the raw material price, which starts with benzene, is going down again. And therefore, I would always advise, look at average costs don't look at monthly spreads. Well, ladies and gentlemen, on the basis of your question, I hope you can assess the business well. We wish you all the best. And keep an eye on LANXESS. We are energized. And in good and in tough times, we don't lose the passion for our business. And we are very strongly committed to advance further in 2020 and '21. And looking forward to see some of you on the road. We will start with road showing as of this evening onwards. And I wish you all the best and stay healthy. Bye-bye.

Ladies and gentlemen, this concludes the LANXESS conference call. Thank you for joining, and have a pleasant day. Goodbye.