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Edited Transcript of LXS.DE earnings conference call or presentation 2-Aug-19 8:00am GMT

Q2 2019 LANXESS AG Earnings Press Conference

Leverkusen Aug 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Lanxess AG earnings conference call or presentation Friday, August 2, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Claus Zemke

LANXESS Deutschland GmbH - Head of Corporate Communications

* Matthias Zachert

LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO

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Conference Call Participants

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* Annette Becker

* Ludmilla Hauser

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to LANXESS Press Webcast. This conference is being recorded. (Operator Instructions)

Mr. Claus Zemke will now begin the conference.

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Claus Zemke, LANXESS Deutschland GmbH - Head of Corporate Communications [2]

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Good morning, colleagues. Welcome to our Q2 conference call with our CEO, Matthias Zachert; and our CFO, Michael Pontzen, who will be reporting to you on the past quarter and will give you guidance for the year as a whole.

So now I'd like to hand over to Mr. Zachert.

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

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Welcome here to LANXESS. I'm going to guide you through the presentation, starting right now on Page 3. On the whole, it is safe to say that we delivered as promised in the second quarter. Against the backdrop of a difficult market environment, we maintained our performance goals and achieved them.

We have our strategic realignment and we also have the group financials. We scored successes in various niche markets that were able to offset weaknesses in the automotive market. Earnings and sales were maintained at last year's level and we confirm our guidance for the full year. I have some remarks with respect to the share buyback program that we launched in March that has now been completed.

Now let's move on to the figures in detail. In the industry, it is being reported that sales and earnings are declining substantially. With respect to the second quarter, sales have been maintained nearly at the same -- at the level recorded a year earlier.

With respect to EBITDA, we only have a deviation of 1% and I think that, that must be seen in the current context, so that's quite good. Net income actually was increased slightly.

On Page 5, what we can show you is the earnings trend of our very strong segment, Advanced Intermediates. Here, in particular, we see the breakdown of the 2 business units in the field of agricultural chemicals. We have Saltigo that performed better than last year. And in particular, we have the Advanced Industrial Intermediates business unit, where investment projects were started 1 and 1.5 years ago. They are now paying off and they are contributing to a very encouraging rise in earnings. This proves that the measures that we took were absolutely spot on, given the current economic situation.

We have the Specialty Additives segment on Page 6, and that has also made an encouraging contribution to the earnings and sales trend. Here, also, we are set up better than we were in the past. And the fire protection area and the phosphorous additive business and the chrome business are all displaying very good development and are offsetting the poor business performance of Rhein Chemie. So given the current economic situation, we can refer you to a very good development.

Performance Chemicals is presented on Page 7. Last year, it had to act against a very difficult environment on the market. In 2019, both in the first quarter as well as in the second quarter, we were able to maintain a stable setup and here, we are affected by the automotive sector in particular, but the other areas were able to offset this and actually overcompensate for this.

And in this regard, I'd like to refer you to the strong regulatory chemicals business materials protection, which is set up very well. It was able to post gains. The same applies to our water chemicals, which fared very encouragingly. And therefore, in this segment, we posted a very stable setup.

The segment which in our business has the strongest exposure to the automotive segment or sector is Engineering Materials -- the Engineering Materials business or division. And here, you can see the situation as it currently plays out in the automotive sector. We have a considerable decline in sales. We have initiated some countermeasures, but you can see a clear decline in earnings compared to the very strong quarter recorded in 2018. This strong decline in earnings was compensated for by the other segments. And therefore, at the group level, we are stable and emerged from this weak market environment successfully.

The outlook for the full year can be confirmed unlike other companies, and this is on the basis of a stable first and second quarter. However, we also see quite clearly the macroeconomic risks are increasing. Consumer spending and spending in the industry has become more restrained, and we don't anticipate a recovery in the third or fourth quarter in the automotive sector.

The second quarter has demonstrated to you that we are right on track. However, we believe that the summer quarter will be weaker. It should fare slightly less well than the same quarter last year, but we should be able to offset that in the fourth quarter. Therefore, LANXESS should be steered through these difficult waters successfully for the full year.

So that was our presentation on the second quarter and the outlook. And now we'd be happy to answer any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Annette Becker from Börsen-Zeitung.

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Annette Becker, [2]

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I have 2 questions. First of all, I would like to ask something about leather chemicals. There have been some speculations about disposing of this business unit. Could you give us some up-to-date information on restructuring there? And then I'd also like to know why for Q4 you expect improved results? Is this because this was so weak in the past?

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

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Thank you very much for both of those questions, Ms. Becker. Yes. When it comes to the fourth quarter, we had a very weak fourth quarter. And against that backdrop and considering the fact that we have developed in the other segments, we assume that compared to Q4 of last year that we will do somewhat better. And that is exactly the reason why.

Now with regard to leather, here optimization measures have been initiated and that was in 2018. These have taken effect. So we closed down 1 of the plants in Latin America and this was shifted to South Africa, but the business remains difficult. So we are continuing to work on further improvement measures. This business has not become any easier. It's become more difficult. And when it comes to sales processes, this has been speculated on in the news. And here, we do not want to give any information on this as a matter of principle. So that is why I apologize for not being able to answer that question.

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Operator [4]

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As no further questions are in the queue right now -- (Operator Instructions)

The next question comes from Ludmilla Hauser from Rheinische Post.

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Ludmilla Hauser, [5]

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I have a question with respect to Saltigo, Mr. Zachert. You said that it performed better than in 2018. What were the reasons for this?

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Matthias Zachert, LANXESS Aktiengesellschaft - Chairman of the Board of Management & CEO [6]

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Ms. Hauser, 2018 was a very difficult year. Therefore, quite clearly, we focused on including additional products. In view of the excess capacity that we had at Saltigo, we went back into other fine chemicals segments and in these areas, we were able to win new products for Saltigo. So we set ourselves up in a little more diverse manner. What we saw was that through the chemicals acquired via Chemtura and through some of the raw materials that Chemtura bought on the market, we were able to deliver them from Saltigo and that resulted in a slightly better volume, although the agricultural market remains difficult and the agrochemicals market last year was an area in which we were able to sign further contracts and they are pouring more money into our coffers. And therefore, we believe that Saltigo in the second half of the year will perform better year on year. And this is a very encouraging and pleasing situation.

Are there any further questions?

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Operator [7]

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There are no further questions.

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

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Well, my dear colleagues, if there are no further questions, we would like to express our sincere gratitude and wish you a wonderful day, a great weekend. For those of you who are going to go into holidays, have a wonderful vacation, and everyone, have a wonderful summer, and goodbye.

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Operator [9]

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Thank you very much for participating. The conference call is now closed.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]