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Edited Transcript of LXS.DE earnings conference call or presentation 2-Aug-19 6:30am GMT

Q2 2019 Lanxess AG Earnings Call

Leverkusen Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Lanxess AG earnings conference call or presentation Friday, August 2, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* André Simon

LANXESS Aktiengesellschaft - Head of IR

* Matthias Zachert

LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO

* Michael Pontzen

LANXESS Aktiengesellschaft - CFO & Member of the Board of Management

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Conference Call Participants

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* Chetan Udeshi

JP Morgan Chase & Co, Research Division - Research Analyst

* Georgina Iwamoto

Goldman Sachs Group Inc., Research Division - Associate

* Knud Hinkel

Pareto Securities, Research Division - Analyst

* Laurence Alexander

Jefferies LLC, Research Division - VP & Equity Research Analyst

* Martin John Evans

HSBC, Research Division - Analyst of Global Chemicals

* Patrick Rafaisz

UBS Investment Bank, Research Division - Director and Chemical Research Analyst

* Peter Spengler

DZ Bank AG, Research Division - Analyst

* Robin Draeger

Deutsche Bank AG, Research Division - Research Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the LANXESS conference call.

I would now like to turn the conference over to André Simon, Head of Investor Relations. Please go ahead.

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André Simon, LANXESS Aktiengesellschaft - Head of IR [2]

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Thank you very much, Ms. Baier. A wonderful good morning to everybody from Cologne, and many thanks for joining our Q2 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 for a brief presentation. Afterwards, as always, the Q&A. Matthias, please go ahead.

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [3]

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Good morning, everybody. I will start the presentation on Page 4 with highlights and challenges.

Highlights. Another quarter where you can see the strategic transformation of our portfolios paying off. We have 3 segments that could perform on par or better versus previous year, and this dynamic is visible in the second quarter. We will consider that this momentum will be maintained in the second half of the year. And with this, we compensated definitely the weak automotive sector. Group financials are, as far as half year figures are concerned, on par with the previous year level, which, I think, is a strong message as well. Share buyback program has been completed by now.

Challenges. Definitely automotive sector. Agro was weak in the first place. As far as automotive sector is concerned, we've seen that second quarter continued with a tough trading environment. And as expected, beginning of the year, we assume that the second half is not going to be better. Automotive, therefore, will be a very tough year 2019.

We also see that the general momentum on the clients side is clearly more cautious in its buying behavior, and this is, of course, not surprising if you look at the current sentiment in the market out there.

Now let's come to the figures, and I move to Page #5. If you look at half year numbers on the right-hand side and on the quarterly numbers on the left-hand side, one can basically say that as far as sales are concerned we are relatively stable. Of course, we face volume contraction, and that will also be a theme for the second half of the year. But basically, as far as synergies are concerned, implementation is on track. And as far as currency is concerned, we fortunately have, driven by the U.S. dollar, a positive momentum, which, bottom line, therefore, compensates the volume decline.

And with this, I would like to hand over to Michael who will address segments by segments. Michael?

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Michael Pontzen, LANXESS Aktiengesellschaft - CFO & Member of the Board of Management [4]

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Thank you, Matthias. Good morning from my side as well. Yes, as Matthias said earlier, we saw the same pattern in the second quarter like in the first quarter. We have 3 out of our 4 segments performing robust or better than previous year and one which was performing weaker, which proves the overall quality of our portfolio which we have in place as of today.

Jumping into Advanced Intermediates, you'll recognized that we proved a very strong performance as well in the second quarter despite the still weak ag market. Both EBITDA and margin improved nicely, thanks to improved volumes in both business units.

Looking at the first half, you'll recognize that EBITDA was up by more than 10%, and we are hitting a margin now of above 19%. And that is true and driven by both business unit. First, AII being rock-solid, thanks also to the debottlenecking, which we did in the past couple of years, and obviously the wide product range serving all kinds of industries. And secondly, the continuous recovery of Saltigo throughout the year as well driven by the contracts, which we secured end of last year.

Second, Specialty Additives. Specialty Additives proved a stable development in the second quarter. Volumes were down like in the first quarter, and again, for the same 2 reasons mainly. First, the termination of tolling agreements. And second, the very weak auto market, hitting primarily our business unit, Rhein Chemie.

On the other hand, we had a very good momentum in the bromine business and the flame retardant business and some support from currency and synergies, which mitigated the negative volume effects while EBITDA was stable in the second half and which was as well through for the second quarter. That is stable for the first half and stable in the second quarter.

Looking into chemicals. Performance Chemicals is taking further steps in the right direction to improve. EBITDA improved by some 3%, and margin was up also. We have to distinguish in this segment to the different business unit. On the one hand side, we have 2 very strong business unit acting in highly regulated markets, which are MPP and LPT, both with operational growth and nice EBITDA improvement. Then we have next to it, IPG, which is doing not too bad in a difficult market environment, also with a slight improvement on EBITDA.

The fourth business unit, though, is mitigated more or less all these positive effects, and that is Leather. On the one hand side, we are still having a difficult market environment in the organic leather chemical business as well driven by the slow demand in auto. But more pronounced, we saw the difficulties, which we have in our South African activities namely the chrome ore chemicals, but more pronounced the chrome ore activities in South Africa. We had to record again illegal strikes in our mine while EBITDA was dragged down in that business unit, which had the negative impact on the overall segment. Nevertheless, in the first half, we improved EBITDA by some 4%.

Last but not least, Engineering Materials. In Engineering Materials, you know HPM is the much-larger business unit, and we have that strong and high exposure to the auto industry in that segment. And keep in mind, we are still comparing to a very strong first half 2018. So volumes were down 11% and EBITDA was down by 20%. Still, margin levels are not too bad given that overall very weak environment, be it for the first half of the year or the second quarter of the year.

The good thing, though, for the next months to come, even though we do not really expect a change in market environment, is that comps will come down because, as we all know and recognized, the decline in auto and the weakness in China started somewhere in late summer last year.

That is from my side. Matthias, back to the guidance.

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [5]

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Yes. Thanks, Michael. So I move to Page #10. And here, as usual, first comments on macroeconomic outlook. Macro risks clearly are not lower but rather increasing, and I think this is visible in the capital markets as well as reflection through increased volatility. As far as industry is concerned, again, we see no recovery in automotive. Perhaps Q3 would be another tough quarter for the automotive sector whilst the comparable base in the fourth quarter should improve, and therefore, contraction rates that we have seen in the second quarter and should see also in the third quarter should be clearly different in the fourth quarter because the fourth quarter have been extremely tough already in last year's trading.

Agro, of course, is also a sector that we continue -- will continue on a quite trough-y level.

As far as LANXESS is concerned, we clearly stick to our guidance, EUR 1 billion to EUR 1.050 billion. We've, in the second quarter, clearly, discussed this intensively with our business, and therefore, we understand underlying trading and have, however, taken already some measures in order to safeguard the numbers that we have communicated to you. And therefore, cost containment is one element that is in place and will continue to support our underlying performance.

As past quarters are concerned, we look at still a very solid quarter last year with a bench of EUR 277 million. Our assumption is that the trading in July, August will be softer than last year. Therefore, we should come out slightly below previous year quarter. Whilst in fourth quarter, our look at the underlying trading is that we would be slightly above fourth quarter last year due to the internal measures that we are implementing but also because we assume that trading will not further deteriorate versus current trading in Q2.

With this, ladies and gentlemen, we move to the question-and-answer session, so please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question is from the line of Peter Spengler with DZ Bank.

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Peter Spengler, DZ Bank AG, Research Division - Analyst [2]

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I have 3 questions. On Performance Chemicals, first, the results were quite good but there are ongoing problems with the leather chemicals complex. So you said earlier that you are investigating several options for this business unit. How far away are you from a solution? And could you quantify the negative effect on the Leather business in Q2? And then you mentioned synergies from Chemtura. Can you indicate how high synergies and cost savings were in the first half? And what can we expect for the second half? And the last question, did you have significant inventory write-downs in the second quarter?

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [3]

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Yes, we will take the questions one by one. I will take the first one, and Michael will address the other two.

As far as Performance Chemicals is concerned, we basically guided last year already that 2018 was a very tough year, and therefore, 2019 should be on par because further deterioration is partly possible. I think in the first and second quarter, you see that. Now specifically on the second quarter, Leather, quite honestly, was a near disaster. Here, with the strike -- illegal strike leading to complete idle costs and no profits but rather losses that were visible here. The entire business unit was dragged down, and therefore, as far as third and fourth quarter is concerned, it cannot get worse. It can only get better.

As far as solutions are concerned, I've clearly indicated this is something that we are working on. And once we have found a solution, we will give a communication on this. Further specifications will not come on this call.

With this, Michael, please, the other two.

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Michael Pontzen, LANXESS Aktiengesellschaft - CFO & Member of the Board of Management [4]

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First, with regards to the synergies, we guided that we expect for the full year 2019 some EUR 20 million to be recorded throughout the year. As you know, we are not guiding now on a quarterly basis, but this EUR 20 million for the whole year still holds true. And with regards to your question on inventories, there were no inventory write-downs in the second quarter.

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [5]

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And on this, I would like to drill a little further. The times of inventory write-offs where we had double-digit implications on a quarterly basis quite regularly are over. That was the time when we had rubber in our P&L, and this is history.

As far as other businesses are concerned, look at businesses in Saltigo, look at our biocides business, the regulated chemistry, raw materials simply don't matter in this area. And for that very reason, despite volatility in second quarter on some raws, there was no need for any inventory correction. I hope that also underlines that portfolio has simply changed.

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Operator [6]

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And the next question is from the line of Laurence Alexander with Jefferies.

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Laurence Alexander, Jefferies LLC, Research Division - VP & Equity Research Analyst [7]

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Two questions. Could you give a little bit of a sense for what you're seeing in construction markets around the world and specifically for the bromine business, the trends that you're seeing in terms of the ability to capture in your business lines, the rising prices in elemental bromine? Are you getting squeezed by that, capturing it, seeing some margin expansion because you can piggyback on it? Can you give us a flavor for how that works?

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [8]

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Of course, we will. As far as construction is concerned, it's not great but it's not a disaster either. So it's -- we have looked moderately on the construction business. And as far as bromine is concerned, I think we addressed that in our financial statements. Bromine is doing well, and the business has developed nicely. Pricing is good. We see from the supply side in the flame retardants that competition is benign. And for that very reason, I think all of the comments that we can convey on the second quarter, the flame retardants business, by and large, not only for bromine but also for the phosphorus business, contributed nicely. And therefore, we are assuming also for the second half that this favorable trend is going to continue.

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Operator [9]

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And the next question is from the line of Martin Evans with HSBC.

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Martin John Evans, HSBC, Research Division - Analyst of Global Chemicals [10]

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Just with reference to cost savings and restructuring and so on, I noticed there's a useful decrease in the exceptionals due to lower restructuring costs. Do you feel that you've now sort of broken the back of what you wanted to do in terms of realignments and cost initiatives because there seems to be less reference to it in this particular release? Or are you still very much at the relatively early stages of realigning the portfolio and looking at the efficiencies of every operation and so on?

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [11]

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Well, definitely, Martin, restructuring versus -- cash-out versus previous year are lower, but we had last year a substantial amount that was -- had to be digested. But very clear statements. In the current environment, I think it's the best time for going through line-by-line, P&L-by-P&L, side-by-side, function-by-function in order to address efficiency. If you don't do this now, I think you are not operationally oriented.

In tougher times, you should always use tougher times for optimizing structures further. And there are still a few elements outstanding. I think earlier on, Jefferies indicated or made reference -- or stated a reference to Leather. Leather, we will address. Organometallics is due to be addressed still in this year. We basically made comments on this. And that, of course, should improve profitability, improve margins. And therefore, you should assume that on cost-efficiency measures, we will continue or potentially accelerate.

As far as portfolio is concerned, I think you have seen that we work on the portfolio consistently in order to upgrade, and that is the theme we continuously work on. And therefore, you will see that also in the month, quarters, years to come.

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Operator [12]

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The next question is from the line of Patrick Rafaisz with UBS.

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Patrick Rafaisz, UBS Investment Bank, Research Division - Director and Chemical Research Analyst [13]

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Three questions, please. The first is on Advanced Industrial Intermediates. You mentioned volume growth here, so can you add some more color what was driving the volumes in AII? And then secondly, the cash flow and net working capital that proves to help a bit in the second quarter. What should we expect in the second half for your working capital? And the last question is a follow-up on the previous one, on the cost and cost containment you mentioned. Is there a number you can put on that? What kind of cost takeouts are you targeting for this year?

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [14]

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Well, as far as -- Patrick, as far as AII is concerned, I think we've announced over the last 12, 15 months, a variety of projects and has even communicated on them in our respective quarterly announcements. And we communicated at the same point in time that these capacity increases are being done through debottlenecking, which is favorable because you normally have a better margin once you bring these volumes to the market.

We also said that most of these debottleneckings being done in AII are already contractually agreed, and that is predominantly driving the volume increase and it also helps on the margin, as you can see. AII was a strong contributor in Q1. It has been again a strong contributor in Q2, and will be a solid ship also in the second half of this year.

What is further on improving is, of course, the Saltigo business. Also here, we referenced towards incremental contracts that we have. And we, fortunately, also took the decision, deliberate decision last year to get into Saltigo other fine chemicals outside of the agro sector. Chemtura offered us also the possibility to basically use the Saltigo platform to in-source raw materials that Chemtura had to buy from the open market.

Saltigo has a very broad technology base, and therefore, we simply try to somewhat diversify the end markets of Saltigo. This is not huge, but 5 to 10 percentage points change do help in a trough-y agro environment.

Michael will take the cash flow question, and I will come back on the cost containment.

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Michael Pontzen, LANXESS Aktiengesellschaft - CFO & Member of the Board of Management [15]

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Patrick, with regards to your cash flow question, allow me 2, 3 answers to it. One, with regards to the net working capital development, we told you in the first quarter call that we started the year and throughout the first quarter, we were at relatively high inventories level, and we have a usual seasonality throughout the year that we see an uptick or a volume increase in the first half and usually a volume decline in the inventory in the second half.

Still, we said in the first -- Q1 call that we want to not allow the volume increase to happen like it did in the last year, and that is what we managed that you'll find as well in the cash flow statement. So the cash-out for inventories was much lower than in Q1 -- Q2 last year. For the remainder of the year, as said, the usual seasonality for the whole working capital is that you should see a cash-in from changes in net working capital.

Second, with regards to operating cash flow, you will as well probably recognize there is a relatively high tax payment in the second quarter. I always say it's hard to really predict when payments are done with regards to the tax. On a yearly basis, you should find the same number like you find in the P&L. But within -- or in that EUR 75 million, there is an extra payment of some EUR 30 million, EUR 35 million which is related to the ARLANXEO transaction. If you recall, we told you August last year that there will be an extraordinary cash tax payment at some point in time in 2019, and that some point in time was due early April this year.

And the third element, which is hitting Q2 every year is the bonus payment, which you find in the other changes in the operating cash flow. And these 2 elements are kind of extra things, which are hitting, obviously, the operating cash flow in the second quarter.

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [16]

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Thanks, Michael. So in short, the operational cash flow in Q2 improved. If you add back the -- around about EUR 35 million of extra taxation due to capital gains that we achieved through the ARLANXEO divestiture, clearly, operational cash flow would be nicely up.

And expectation that we have, third quarter and fourth quarter, you will see a stronger momentum on cash flow versus previous year.

With this, to the third question, cost containment. A company of our size, I mean we are around about EUR 7 billion in size and we have a cost structure where, without restructuring measures on the non-personnel costs, you can clearly address the organization and basically say, "Okay, guys, let's buckle-up a little bit." We will continue with our focus on the business, but definitely the message in the organization has been conveyed, "Ladies and gentlemen, let's buckle-up. It will be rougher, and we want to deliver full stop."

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Operator [17]

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And the next question is from Georgina Iwamoto with Goldman Sachs.

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Georgina Iwamoto, Goldman Sachs Group Inc., Research Division - Associate [18]

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I've got 3 questions. The first is on the margin in Specialty Additives. I would have thought that with kind of supportive booming pricing, Chemtura synergy extraction and the roll-off of those tolling agreements, the lower-margin business that their margin would have been a bit higher for the division overall. So can you maybe talk through why that wasn't the case year-on-year?

And then if you can also maybe talk us through the 11% volume decline in Engineering Materials and how you see that going forward for the second half of the year. And with the kind of still relatively high margin for the division, do you think that, that's stable at the kind of 17%, 18% level? And then finally, if you could maybe give us an update on the progress in your lithium project.

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [19]

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Hello, Georgina, thank you for attending the call and going through all our respective segments. I will address them one by one. Taking a ceteris paribus assumption, all things being equal, your statement on Specialty Additives margin is completely correct. But things are different quarter-on-quarter, and it's not like-for-like. So what we've seen in the second quarter in Specialty Additives is definitely that our Rhein Chemie business was suffering due to automotive industry. We had clearly more idle costs, and we had some implications negatively also on our lube add business where we had also margin contraction. Bromine offset that or was at the same level, profitable level as previous year, and that, of course, mitigated the improvement in margin. But overall, I think we kept the same kind of, in absolute terms, EBITDA level that -- as previous year. And that is also something that should be visible in this segment in the third and fourth quarter.

On Engineering Materials. We guided in Engineering Materials especially for auto sector to be very tough. And let's face it, second quarter in the automotive sector was a disaster. And we assume that this weak trading is going to be maintained in the third and fourth quarter whilst comparable base in the fourth quarter is definitely easier to catch.

So if I look into the automotive sector, specifically, we said -- we saw in Europe a double-digit contraction. We have seen softening, of course, in China. We have seen kind of stability in North America. But Europe was badly hit in the second quarter, and this is our base case assumption also for the third quarter.

The good thing about Engineering Materials in the fourth quarter is, if you look specifically in the comments we made in 2018 when we made reference towards Q4, we stated that urethanes did badly because we had the lack of supply on the monomer, MDI specifically. This will be different in Q4. And therefore, urethanes in the segment, we clearly expect a better performance than previous year.

And as far as our HPM business is concerned, in absolute EBITDA terms not in terms of margin, absolute EBITDA terms, from what we see, will also be an okay performance. And that is basically what we embed in our full year guidance.

Now on lithium, I mean let's stay cool, let's be humble. We are working on it. We are progressing on putting together the different modular elements for the pilot plants. Things are on track. And I think in the fourth quarter, we will then see when the pilot plant is assumed to be ready. We will look at what comes out of it. But at this point in time, project continues, things are on track, people are busy and try to complete according to plan.

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Georgina Iwamoto, Goldman Sachs Group Inc., Research Division - Associate [20]

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Thanks, Matthias. That was really helpful in the divisions.

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Operator [21]

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Next question is from Chetan Udeshi with JPMorgan.

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Chetan Udeshi, JP Morgan Chase & Co, Research Division - Research Analyst [22]

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A couple of questions. Firstly, on the impact from -- firstly, can you clarify whether the strike in South African mine, is that over now? That's number one. Number two is related to that. What was the earnings impact in the second quarter, if you could quantify the number?

And the second question was just more looking into the sort of a midterm outlook. If there is no auto volume growth, which seems to be more of, for me, scarce at the moment, how would LANXESS offset that environment in terms of growing earnings even without no underlying growth in the auto volumes?

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [23]

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Yes. Thank you for your 2 questions. On Leather, I confirm this was the mine that is basically delivering chrome ore, and therefore, this definitely impacted second quarter. You raised the question what's the earnings level. Udeshi, we had no earnings, as simple as this. And therefore, I again would like to make the statement, this was disaster, second quarter, Leather.

Now on the automotive sector, please take into consideration that around about only 20% of our portfolio is exposed to the automotive industry. So we have 80% that is in different industries, and one of them is, of course, agrochemicals that have been weak for the last 3 to 4 years. And at some point in time, it will come out of the trough sector.

So we have 2 sectors in our P&L that basically are at really bearish levels. Therefore, volume momentum has been very, very modest. But on agro, our assumption is that -- it's a question of time when it comes back. People continue to at eat, at least at home. I see that every day. And therefore, our assumption is very clearly -- our assumption is very clearly that auto could be a tough business for the next quarters, but potentially even for 2020. But as far as our portfolio is concerned, 60% to 80% have room for underlying growth that should be positive for our company performance. I hope this answers your questions.

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Operator [24]

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Sir, the next question is from Robin Draeger with Deutsche Bank.

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Robin Draeger, Deutsche Bank AG, Research Division - Research Associate [25]

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I think you kind of already alluded to it, actually. I was just wondering, given the commentary you made around Q3 and Q4 and the weaker comps as well, how come you're not revisiting your guidance in particular at the top end?

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [26]

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Well, you see in Q2 that we have -- I mean you've seen that the guidance we gave -- I'll start differently. In Q1, we delivered exactly as communicated in March. In Q2, we exactly delivered according to what we indicated with Q1 numbers. So I think as far as underlying business analysis is concerned, customer interaction, we have a good process and connectivity to our business, and therefore, we -- on the basis of this, we provide a guidance.

Now if you look at the range, EUR 1 billion to EUR 1.050 billion, we've guided, basically throughout the last 2 quarters, that this is the range, but we consider midpoint of this range to be the one that we are working on. And if there are changes in underlying trading, we try to -- and this is operational performance or operational excellence, we try to mitigate through cost containment or adjustment on some projects. This is operational management, and we are fully enthused and excited here at LANXESS to be fully on track and to execute on improving the company, improving profitability, improving market presence. And this is what we like. This is what is energizing us. And I think you've seen that over the last few quarters, years and could even see that when we run and sweat. I hope this answers the question.

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Operator [27]

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And the next question is from the line of Knud Hinkel with Pareto Securities.

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Knud Hinkel, Pareto Securities, Research Division - Analyst [28]

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Two -- I have two. Just very broadly regarding your numbers. It seems that auto volumes decreased. Prices held up quite well in Q2. Do you expect increasing price pressure in the coming quarters, so that there are -- with coming delay? Or do you consider your portfolio robust enough to withstand respective requests from the customers? And second question's on Rhine water levels. Other chemicals, which are also located in the original set, that's no problem so far. Maybe you can share your perspective on that with us, too.

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [29]

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Well, first of all, I am very happy that you have realized that pricing in Q2 has been relatively stable. I think this is something that is clearly showing we are no longer a rubber company. We are a company where we are in small, mid-sized markets with a different portfolio, different set of products, and therefore, we were able to basically keep pricing at a reasonable level.

Having said this, well, in tough environments, you are confronted with customers that want to have price decreases. But even in a good environment, you have customers that always debate your pricing. So what we would like to offer as a company is a win-win situation for our customers but also for ourselves. And therefore, when raw materials go up, we have a portfolio where we would like to roll over pricing. When raw materials go down, of course, through contracted contracts, but also customer interaction, we adjust pricing respectively.

On the volume side, we do assume that volumes will contract further predominantly driven by automotive sector also in Q3 and Q4. And please take note of the fact the tolling contracts that we terminated will also have an impact on volumes, which would then level off in Q1 next year.

As far as Rhine water is concerned, I'm pretty sure that all companies that had issues last year are working on -- have worked on this matter. We had no hiccup on Rhine water last year. I stated even though that we will address that further so that we avoid any Rhine water statements in the quarters to come.

I would like to send clear signals that the level of the River Rhine, the water level, is nice. It's at 2 meters, so don't worry, point one. Point two, we have looked into our procurement and basically have already adjusted critical raw materials for different sources so that we also -- in a same situation of last year, we'll have more flexibility. And that gives us a level of comfort to stress to you that we don't expect to report any issue on water in the River Rhine. It's a wonderful river.

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Operator [30]

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At this moment, we have no further questions.

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [31]

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Lovely. We then thank you all for the attendance to our conference call. We wish you a wonderful summer, and we are looking forward to seeing you on the street or speak to you in due course, latest with Q3 numbers on LANXESS.

Thank you very much. Bye-bye.

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Operator [32]

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