Lanxess AG

XETRA:LXS

Earnings Call Transcript

[Operator]

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

[André Simon, Head of Investor Relations]

Yes. Thank you very much, Judith, and a warm welcome to everybody on the phone to our Q1 '21 conference call from my end as well. I have with me our CEO, Matthias Zachert; and our CFO, Michael Pontzen. Please take notice of our safe harbor statements. And with that, I'm happy to hand over to Matthias for a brief presentation. And afterwards, as always, the Q&A. Matthias, please go ahead.

[Matthias Zachert, CEO & Chairman of the Board of Management]

Thank you, André. And warm welcome from my side to Q1 '21 conference call for LANXESS. I start with a presentation on Slide #3, where we shift. A key attention to strategic highlights and financial highlights. As far as strategy is concerned, definitely, the acquisitions that we have embarked on beginning of the year with 2 bolt-ons in consumer protection and a larger one yet to be closed, Emerald Kalama, were definitely a clear sign that we are on track as far as external growth is concerned, and we will continue pursuing this direction, however, with focus and with discipline. Noteworthy also what we've communicated recently, the team up and partnership with Tinci, where we are going to start producing the electrolyte for Tinci for the European customer base -- for their European customer base from 2022 onwards. As far as financials are concerned, we clearly see that industries are rebounding. There's definitely restocking that is happening across the industry. But we also see production is moving upwards. In some cases, supply chains are extremely tight. And therefore, obviously, our volumes are needed. We also see quite drastic increase in raws across the value chains. There are some that are particularly hits also due to force majeures. And therefore, we have seen price increases in many of the raw material products that basically have not been seen in the last 10 years before. As far as EBITDA is concerned, we came out better compared to what we've stated in March. This is basically driven by March momentum, which was very strong. And therefore, we could catch up with profitability, even though I clearly have to stress that we took internal hit, so to say, due to the winter shutdowns in the U.S. -- United States. All of you know that we have substantial production assets in North America, in El Dorado, Memphis, but also in Charleston, et cetera. And our El Dorado wells where we extract chrome were frozen for 2 weeks. And believe it or not, even in Texas, I had never thought that this would be possible. But even in Texas, we had blizzards and water infrastructure leading to our sites were down. And because of that, we could basically not produce any more for round about 10 days, hitting the entire disinfectants value chain. This besides freight and energy costs and, of course, also escalation on prices in raws and the devaluation on the dollar were impacting Q1. So by and large, we closed Q1 on the level of 2020, which was, all in all, still an okay quarter with little impacts from corona. With this, I move to Page #4. ESG is dear to our heart, as you know, and I think we've accelerated here nicely. We were one of the most ambitious chemical companies in Europe communicating early on our aggressive CO2 reduction targets. And from that day onwards, we are benchmarking ourselves in absolute terms versus our previous year and step-by-step, we are able to reduce emissions nicely also for the year 2020. And as many of you have seen, I hope you have studied the AGM agenda. We have put a say-on-pay on the agenda of our coming AGM, and we link Board incentive schemes towards absolute CO2 reduction going forward, should shareholders of course, vote in favor for it. On the right-hand side of the slide, you see that we don't have to shy away from being benchmarked against German industry trajectory or European Green Deal industry commitments, which might even accelerate further. But even if this is being put legally into place, we are well ahead with our CO2 reduction targets.On Page 5, we conveyed to you that we also now go for new standards of ESG reporting. We see that SASB and TCFD are being internationally recognized. And in order to give more transparency on the sustainability reporting standards, we embark on them as well. And of course, we will try then to move into the leading slots for these respective standards depending on who is eventually going to be the global standards, which most likely will be decided in the years to come. Page #6, we shed some lights on our divisions and industry exposures. For Advanced Intermediates, I clearly would like to stress, we saw a hit on margins in Q1. This has to do with the raw material escalation. I indicated this already in March and gave prewarning on this. We have contractual clauses, which is an asset. And with this, we show that we have something that many of our peers don't have, so we can pass on raws. But this always happens with the quarterly delay. So you should see prices on the rise, in Q2, in this big business unit called Advanced Industrial Intermediates. And this is the delay effect stemming from Q1. It will be passed on in Q2 as you've seen in many of the other years in the past. The only one thing which will burden us in this year are energy prices. We normally don't have energy price clauses. We are looking into the contracts now, and we discussed that with our customers because energy is, of course, on the rise for this year. And we have to see how much we can mitigate this because the end demand is strong. And therefore, we see what we can do. But at this point in time, we have to be a little bit more humble, therefore, on our Advanced Industrial Intermediates, even though the business is in full acceleration modus. As far as construction is concerned, basically hinting to our pigments business, construction will do well this year and next year. With all these governments stimuli, the one industry that does benefit is construction. So IPG should do well. Specialty Additives. We had the strongest quarter in Q1 last year. Therefore, we are not back to the same performance level. However, the end industries are rebounding, except aviation, still weak. But you should see from Q2 onwards that additives comes back into the performance range, again, outpacing the previous year performance.Consumer Protection, you all know that last year, this business did extremely well, increasing by more than 10%, 20% bottom line, expanding margins above 20%. So I know that some of you said, this is somewhat high level, tough base. Well, ladies and gentlemen, our expectation is Consumer Protection will continue to grow versus '21, even though this -- 2020, so '21 should be better than 2020 despite the high base, but we see that this business is on the rise. We took a hit in Q1 because Memphis was down, impacting the anti-disinfection chain. But Memphis is up and running again and capacities have been debottlenecked, so the Virkon capacity by end of the year, beginning of next year, will grow up nicely and therefore, we are quite optimistic on the entire division, Consumer Protection. And of course, with the acquisitions that we've done in INTACE, Theseo, they will contribute in the second half and once Emerald has closed, of course, depending on the antitrust approvals. But as United States is now approved, our expectation is that in the third quarter -- end of third quarter, we have clarity on the other jurisdictions. And then, of course, Consumer Protection will automatically also strengthen from this contribution.Engineering Materials, doing strong. We had issues here due to force majeures from a supplier side. So Pocan, which is pretty much needed in the entire automotive industry, but also electronics and in the capital goods industry, is tight. We saw how much this product is wanted. We are doing everything, even sourcing from Asia now the precursor in order to be back to operational level for our customers. And I think we've shown speed in replanning, rearranging our supply chain so that we will be earliest back to our customers with supply, I think, which will be recognized from the customer going forward. With this, I'll turn your attention to Page #7, LANXESS' guidance. Current economic environment, we see is rebounding everywhere. Restocking is visible, difficult to quantify because customers don't tell you how much they restock. But we see that customers move back production. In some cases, they're at 100% utilization. We see that even agro industry is rebounding. Construction, as I commented before, should be strong for this year and next year. Aviation, our assumption will improve in the second half and potentially go back to happy days next year again which would be earlier than we had originally assumed. Oil and gas is gradually improving. But of course, uncertainties are out there. We are living in volatile times, geopolitical uncertainties are also visible and therefore, we should all be humble, but nevertheless, optimistic. This is how we look at LANXESS. Second quarter, our range EUR 240 million, EUR 280 million. This is what we -- we're deciding in the management board when we prepared our numbers for the Street. I know that some of your questioning this is a rather wide range of the guidance. Well, it is our guidance for Q2. If you ask me specifically, I would be even comfortable to nail it down to EUR 250 million, EUR 260 million, but hey, let's look at the guidance provided here. But for your models, I try to be a little bit more sophisticated. We take a hit in Q2 on HPM, Pocan here due to the shutdown. We faced the U.S. dollar being weaker, which is protected somewhat by [ Oliver's smart ] hedging approach, but nevertheless, we take a hit here. And as far as full year is concerned, we are more optimistic than March and move up the guidance to EUR 950 million and EUR 1 billion. And that's basically the short summary on Q2 outlook for entire year '21. And with this, we accelerate to your questions and hopefully come up with good answers. Thank you. Please go ahead.

[Operator]

[Operator Instructions] And the first question is from Andrew Stott, UBS.

[Andrew Gregory Stott, Managing Director and Research Analyst]

Just start with pricing and then I've got a separate question on the balance sheet, if that's okay? So pricing was minus 2% for the group, and that was due to AI and Consumer Protection specifically. Your peers -- your European peers did a range, and a wide one at that, of 0% to 5% on pricing in Q1, but obviously, none of them negative. So how would you respond to that point that you're really not displaying pricing power in an inflationary environment? And what do you think you can do going forward to address those 2 divisions? So that's the first question. The second question was around the balance sheet. So your definition of net debt means that you don't include noncurrent assets. The noncurrent assets have grown by about EUR 150 million, EUR 160 million, which sounds like a really boring point, but it's trying to explain that net debt delta. So the simple question is, why can you not include those noncurrent assets in your net debt definition? And when will you be able to? Is it just the maturity profile of what you've acquired on the money market?

[Matthias Zachert, CEO & Chairman of the Board of Management]

Andrew, good to hear your voice. Loud and clear and healthy. That's positive. So on price, I would take this. And Michael will address the balance sheet question. And so let me start with price. We entered last year 2020 on a relatively strong footing as far as prices were concerned. And therefore, we benchmark ourselves right now in Q1 versus previous year, with a relatively high pricing level that we still have to reach again, and this will most likely come in Q2. And as the inflationary environment right now accelerated in Q1, we are bound in AII basically to our quarterly contracts with [ pay or pick ] clauses, everything being spick and span, but we can only catch up on the prices in Q2, which will happen. I see that already now in April. Prices are on the rise again now in Q2. So we will, again roll that over in Q3. This is currently how I look at the market developments. But here on pricing, for Advanced Intermediates, you basically see this quarterly lag with a statement I've made at the beginning. We started on a 12-month basis with a relatively high price base already in Q1 last year. Versus peers, there would be the catch-up that we will do, and therefore, you should see that being neutralized going forward. Consumer Protection, this has to do with one contract in Saltigo, where we changed the pricing formula, and that led to a distortion. And then also to one other product where we had an underlying contract with a 12 months clause that was for reducing the prices on an agreed basis. However, this will vanish in course of the forthcoming quarters because pricing eventually in raw materials in Consumer Protection do not really matter. This business is a relatively resilient towards raws because raw materials are simply not name of the game in this value chain in this business profile. Michael will address balance sheet.

[Michael Pontzen, CFO & Member of the Board of Management]

Andrew, yes, we had the discussion about how to display the investment of EUR 150 million, which we did now in the first quarter, already in Q3 last year because we did the same kind of investment at that point in time. And the clear message in the feedback was it's not part of the way we should determine liquidity and therefore, net financial debt.So your observation is principally absolutely right, Andrew. We have the increase in reported net financial debt and the decrease in liquidity. And the majority or basically the vast majority is driven by the EUR 150 million investment, which will come back next month. So in Q2 reporting, you will again find the inflow in the cash flow statement, and therefore, the improvement in the liquidity coming from that investment.

[Operator]

The next question is from Thomas Wrigglesworth, Citi.

[Thomas P. Wrigglesworth, Director and Chemicals & Basic Materials Analyst]

Just with regards to the electrolytes, is the Tinci contract exclusive? How much capacity have you got available above and beyond that which you've already agreed? And can you give us some sense of the margin of this business relative to AII, I assume that it will be higher than the group? The second question is, clearly there was an ambition for Specialty Additives to get to a 20% margin. Obviously, the aviation situation is exogenous to LANXESS. But maybe taking account of that, noting that bromine markets and prices are back on track, can we now -- when should we think about you being able to hit this 20% margin ex aviation for Specialty Additives?

[Matthias Zachert, CEO & Chairman of the Board of Management]

Well, Thomas, good to hear you. And let me address the questions one by one. As far as electrolyte is concerned, I mean, first of all, we are happy to team up here with the worldwide leader in the electrolyte chemistry, Tinci, and I cannot be specific on our customer and his plans. I would just like to indicate they are following the requests on the OEM industry that I think you are well aware of that a lot of the big players in Asia are coming to Europe as far as battery cells are concerned. Again, these are the worldwide leaders. And they bring along their current suppliers, but these suppliers eventually need the raw materials. We stressed, we have the raw materials. And at this point in time, however, we use our high-technology base in Saltigo to already produce the electrolytes. So this is the first that comes, and now we have to see what else we are going to do with Tinci. This is definitely an exclusive contract with us. It's a bilateral long-term contract starting from 2022 onwards for the next few years. I cannot indicate capacities, et cetera. This is all under confidentiality agreements. But definitely, this would not suffice to satisfy the marked developments, which is going up like a rocket. We are talking here about 20%, 30% volume growth rates on a yearly basis. And now I think this is the first step. We have to see what other steps we are going to do. And this is yet to be sorted out. Now as far as your second question is concerned, 20% on Specialty Additives, I would like to make the following adjustments to this. The first one, you mentioned yourself, the high-margin aviation business is not yet back on track, point number one. Point number two, we transferred beginning of the year out of Advanced Intermediates into Specialty Additives, a business, the accelerators, antioxidants that reported around about EUR 300 million in sales and no EBITDA. So we transferred that, adjusted our segment reported reporting. And if you move EUR 300 million sales with no profitability, i.e., 0 EBITDA, of course, margins are not going up, but they are diluted. And you need to take this into consideration for the SA segment. Having said this, we moved the business over in order to derive synergies from the combination of Rhein Chemie and the antioxidants and accelerators because eventually, they have the same markets, the same customer base. And of course, we would like to achieve synergies going forward, but this business will dilute the Specialty Additives, which is, of course, negative. At the same time, the positive is when I look at the new configuration of Rhein Chemie, we now have it at -- in 2020 at a low. My personal belief is if we approach this business in a correct way, this business will at least double in profitability. My expectations are, however, that it's going to triple. If everything goes well, it's going to quadruple. What will happen then is a different story. I think then we have to see how further we can scale it up going forward. But this decision will be taken, I would say, in something like 2 to 3 years down the road. First of all, we are trying to extract as much profitability out of it going forward.

[Operator]

The next question is from Jaideep Pandya, On Field Research.

[Jaideep Mukesh Pandya, Analyst]

I just wanted to ask you on polyamide 6. So 66 is basically out right now. So what is really happening in nylon 6 in terms of your ability to sort of pass this crazy benzene move up? And then if you look a little bit more longer term, once polyamide 66 sort of improves in precursor supply next year and the year after next year, how do you see that as an impact on nylon 6, just in terms of as EVs ramp up and given both these polymers are so important for the auto industry? That's my first question. The second question is any update on Emerald Kalama, given the fact that the flavors and fragrance market is coming back, the pharma industry is doing well. So any update there would be appreciated. And the third question really is about bromine, and apologies for this, but Chinese bromine has hit new records and both your key close peers have talked up this business. So if you can just remind us, how should we think about your flame retardants business in terms of pricing versus whatever spot bromine we can track?

[Matthias Zachert, CEO & Chairman of the Board of Management]

Well, on polyamide, I agree. PA is tight on the 66 side, but also on the 6 side. I do assume PA 6 has, in Europe, the better position going forward due to the value chain being more robust than the 66 value chain. And as long as the market is tight, and it is very tight these days, we cannot produce as much as we want to. And if we see that the demand is on the rise and continues to go up, we have various customers like competitors that currently don't get volume. In some areas, we have to cancel some customers because we simply don't have the volumes anymore. And this is something happening in the entire market.So we have seen benzene going through the roof, going up by 200, 300 percentage points, unbelievable. This hits the [indiscernible], of course, as the next step, and we are now passing all of that on. Peers and ourselves are out with price increases, and this will be a theme going forward. And as long as demand is robust and not yet all industries are back in the order book. So the situation from my point of view is not going to soften at least in the next few quarters. It might even get tighter. And this is, therefore, a good time for the polyamide value chain. All in all, for 2021, and with all the e-mobility accelerating in '22, '23, I think that the polyamide value chain is going to be a -- after 2 tough years, '19, '20, should benefit going forward. So this is what I would like to say on PA 6. On Emerald, I agree. I think we bought Emerald at the right point in time. And of course, the business is not in our hands yet. We are doing all the filings, answering to all jurisdictions, antitrust authorities. But of course, whatever we can do and what is -- can be done from an integration standpoint, which is in line with legal prerequisites, legal laws, we are doing. We are preparing for day 1. We want to be ready with operational analysis, synergies, verification, et cetera, by end of June so that we are prepared for taking the business on board should approvals come. We like the team. We like the people, great people, energized, fitting very well to us. And yes, I think it was the right purchase at the right point in time where industries are quite robust, moving up forward in -- as you indicated. So I'm looking quite positively on the second biggest acquisition that we did, and it will catapult the Consumer Protection business in a different league. Emerald is a business where we've detected substantial savings on a business which is already around 20 percentage points. We see growth here, sales growth. We see of course, productivity gains. So I think this business going forward in the next 2 to 3 years, together with our Consumer Protection businesses will move this entire segment into a new league, which from the KPI standpoint is, of course, impressive. Now your third question, I know that Albemarle went out with good comments on bromine. I agree on prices. I mean the prices you see are Chinese prices, spot prices. We have not only Chinese prices, but also European and euros basis -- based pricing often with contracts in place. The Chinese prices are spot market prices. But if they're on the rise, it's good. And we are happy about it. Markets are tightening again in bromine business, definitely the case also on flame retardants. We had simply one big issue, Jaideep. We could not produce, we could not extract bromine. Our wells were frozen, El Dorado was basically for 2 weeks out of production. So we had demands and orders all over the place, we couldn't ship. And I think Albemarle made -- I looked at their comments in Q1, their Magnolia plant was impacted because it's 50 miles away from ours. They were also down and alluded to the fact that they will have volume impacts from the winter season, not only in Q1, but due to the lack of the production, they will also be short on volumes in Q2 and therefore, there is a lot of demand out there from flame retardants, construction industry, but 2 of the 3 big players had issues to get the volume for the customers. And that's the situation in the market. So I'm not negative on bromine, the opposite, as long as we can keep our production running, and we have to catch up with the volume, the demand coming from the end market, and the end market is strong. Stay tuned.

[Operator]

Next question is from Andreas Heine, Stifel.

[Andreas Heine, Managing Director]

Two, I have. One is on Rhein Chemie. You said about -- you were talking about your ambitions to double, triple or quadruple your earnings growth. It's easy if you start very, very low. Going to what the margin might be after having done the homework, can it be north of 10% or, let's say, in the range of as the group margins? Or is that so tiny right now that this quadrupling is even not getting Rhein Chemie to that point. And the second question is the sequential improvement from Q1 to Q2. If I just take what you mentioned about Advanced Intermediates rolling over prices, which we were not able to do in Q1, have done in Q2. And taking the U.S. weather-related impact, then I would basically get to the midpoint of what you have given as guidance. So is the second quarter in general, more or less the same? And these 2 negatives in Q1 are not existing anymore in Q2. Is that the right reading on the sequential trends?

[Matthias Zachert, CEO & Chairman of the Board of Management]

Well, let me address the margin question first. I mean margins are -- if you take 0 EBITDA on EUR 300 million in sales, the margin is not there. Of course, this was the case for the accelerators and antioxidants, they were badly hit. And the Rhein Chemie business, I would say, the former Rhein Chemie business, the [indiscernible] was a business last year in the high single digit, low teens margin. So simply unacceptable. And therefore, this business, we've changed the management team. It's a good one. I'm looking at this now carefully. They take the right steps, and I'm impressed by the analysis that we now put in action. And therefore, this business has to definitely -- this is a double-digit margin business in the new configuration periods. If it will not achieve the group margin standards and the margin standards for me are not where they used to be 5 or 6 years ago. We are bringing this business, our group, to different margin levels, either this business moves there or moves out. But the first thing that I want to see is that in absolute terms, this business goes up strongly. And as long as it goes up strongly, they have the right to be under the LANXESS roof. If they long term can then keep a low asset base with high double-digit margins, I will revisit. But this is something the business yet needs to be proven, and this is the strategic plan we discussed. And now we put it into place. Now as far as Q2 is concerned, the one thing that is clearly visible is strong volume momentum and that we catch up on prices. The one thing that, of course, is negatively impacting us is the force majeure. It is the energy prices and it is the USD, which last year was something like $0.10, $0.11 better in our direction. Now it's the opposite. Oliver is mitigating this to some extent. But of course, the delta is still something like $0.06, $0.07 points, so it does hurt. But all in all, Q2 should be a sequential further improvement versus the Q1 numbers you have seen. And that's what I've indicated earlier on also in terms of narrowing the guidance range somewhat on an operational basis, but still the guided number for the street to be absolutely certain, it's EUR 240 million, EUR 280 million.

[Operator]

The next question is from Markus Mayer, Baader Bank.

[Markus Mayer, Lead Analyst of Chemicals]

Two questions remaining. First one is on the Engineering Materials business. We've heard from several companies more anecdotal evidence, but I think you have better views maybe that there was double sourcing, in particular, the automotive customers. Do you see this as a risk for the second half? Or do you think that this is -- was only as I said anecdotal evidence? And secondly, on the Specialty Additives business, this EUR 10 million one-off winter impact. And I do understand this was basically mainly in the Specialty Additives line, and particular in the bromine line?

[Matthias Zachert, CEO & Chairman of the Board of Management]

Can you repeat the second question, please? I did not catch it.

[Markus Mayer, Lead Analyst of Chemicals]

Yes. You lined out that you had a EUR 10 million negative one-off effect from the harsh U.S. winter. And my question was if this effect was mainly then in Specialty Additives or even solely? And if so, if this was basically then attributed to your bromine business, as you said, your well was off over 2 weeks?

[Matthias Zachert, CEO & Chairman of the Board of Management]

Okay. Very clear. So on your first question, you're totally right. Automotive industry is normally going for double source, sometimes even triple source. But the big guys are double sourcing. But hey, in this case, both suppliers of the PBT business, the both -- the 2 big players in the European camp, both were on force majeure because it was not us who had the issue; it was the biggest raw material supplier who was supplying our competitor and ourselves. And therefore, the next step of the value chain was reporting as well the force majeure, leading to tightness in the capital goods industry, E&E industry and automotive industry. By now, we have sourced from Asia, so we are liquid, and we will go back on stream already earlier than anybody else, most likely, Friday this week. We run extra shifts, and we are the first to supply customers again. And we will go out to customers telling that we are now internationally sourcing so that this situation will not occur again. So we are doing everything in order to be speedier and help our customers to regain lost production as quickly as possible. So I'm not concerned that in the second half, we will face an issue. Rather the opposite, I think customers will give us credit for our speed and agility we are showing in this particular case. Now with the second question, you're right. The biggest hits on the EUR 10 million was in bromine because El Dorado is definitely our biggest site in the North America. We were also hit in that because with the Chemtura acquisition, quite a few sites of lubricants are North America, too. And a little bit went on Memphis. It was in the millions, low millions. But we were basically hit in all big production sites. But the biggest chunk, definitely out of the EUR 10 million was in El Dorado and -- with net, of course, the significant chunk was Specialty Additives, where we were incurring the idle cost and the idle costs are seen in EUR 10 million, but we lost volume as well. So this really -- this was really bad.

[Operator]

The next question is from Rob Hales, Morningstar.

[Rob Hales, Equity Analyst]

On Saltigo, I was wondering, given the ag market, I know your business is project-based, but are you seeing an increase in potential projects discussing with your customers? Or is there more in the pipeline, I guess? And then you have some comments maybe on your view on raw material inflation for the full year. I'm just wondering if your guidance implies kind of an easing in the second half? And what are your thoughts around that?

[Matthias Zachert, CEO & Chairman of the Board of Management]

Two good questions on Saltigo. Momentum is clearly better. We were, despite troughy ag industry, doing reasonably well in the last 2 to 3 years because of innovative products and projects. So we did well in the last 2 to 3 years. Last year, we achieved the best result in Saltigo ever since. But now the agro market comes back, and this, of course, gives you a different negotiation power going forward. And my personal belief is Saltigo will be on the rise also for the years to come. I mean now we start with electrolytes. It's a different industry, which will somewhat diversify the setting of Saltigo.But all in all, I'm looking optimistically towards the Saltigo business. This will not move up every year in the double digits, but it will move up in the millions and in the high millions. And therefore, I'm optimistic on this year's performance of Saltigo, but also for the years to come. Now on raws, I mean, this is potentially one of the most difficult questions to be answered right now. Macro indicators, at this point in time are alluding towards a softening of by and large raw materials in the second half. I'm saying to my guys, don't plan for that. I mean let's do the bottom-up work and analysis and forecasting based on raw materials that potentially might be a bit softer. But operationally, you should all -- that's what I'm saying to my teams, you should all be prepared that even in the second half, we would see a further rise in raw materials, and if this is happening, we have to go out with further price increases. So the situation right now is one that is -- that's where I think you have to simply be flexible, agile, speed is everything. And you cannot make predictions like you have done potentially 5 or 10 years ago.

[Operator]

The next question is from Rikin Patel, Exane BNP.

[Rikin Patel, Research Analyst]

Just firstly on Consumer Protection in Q1. Of the 10% volume growth you printed, how much was underlying volumes versus the IFRS 15 impact you mentioned? And then secondly, on Q2 guidance, could you possibly strip out the raw material headwinds that you're receiving in that range?

[Michael Pontzen, CFO & Member of the Board of Management]

Let me take both questions. So with regards to Consumer Protection in the first quarter, we are not detailing out the exact effects. There are some part of it, but not the majority. The underlying business is like Matthias said earlier, growing nicely and Saltigo, especially with regards to the overall environment in the ag industry. And second, we were as well displaying that the acquisitions, which we did a couple of years ago with regards to MPP, are contributing nicely as well to the overall growth of the volume. So therefore, it's a part of it, but it's clearly not the majority. With regards to Q2 raw material headwind, I think if you read the newspapers, if you look into the markets, there are a few of our raw materials, which are benzene, toluene, which are keep on skyrocketing. We saw further increases now in course of the second quarter. And therefore, it is of utmost importance that we keep on rising prices has now. Matthias was mentioning the price forward escalation clauses. But clearly, then on a sequential basis, we will further see pressure from the raw material and the pressure must be forwarded to our customer through price increases.

[Matthias Zachert, CEO & Chairman of the Board of Management]

On the spot, Michael, very good.

[Operator]

The next question is from Martin Roediger, Kepler Cheuvreux.

[Martin Roediger, Equity Research Analyst]

Actually, it's 2 questions on the same topic. On antioxidants and accelerators, according to the restatement, we can calculate that the sales of that activity last year was EUR 237 million and EBITDA was actually negative by minus EUR 6 million. So I wonder about your EUR 300 million sales figure, is there any other retroactive change in the Specialty Additives and advance in the new years we should be aware of? And staying on antioxidants and accelerators, you shift that business from Advanced Intermediates to Specialty Additives actually back to your Rhein Chemie unit where it was some years ago. My question here is, what went wrong in the past under the Advanced Industrial umbrella? And from your experience, how often did it happen that a low-margin business or negative margin business has caught up to a level where it did not aim more dilute the group margin?And finally, you say the profitability will rise due to synergies because it has the same customer industries as Rhein Chemie. But what is really different today compared to the past when it was part of Rhein Chemie? Did the customer industries change in the meantime?

[Matthias Zachert, CEO & Chairman of the Board of Management]

Martin, good questions. And by the way, my son who is 13 years old, hears the Martin song currently all the time. I thought about you when I heard that first at home. So let me come to your questions. The EUR 300 million with 0 EBITDA, it's basically not the guidance on where true numbers 2020 are. But basically, what's the configuration of this business, how has this business behaved in the past, in a troughy economic environment. And in 2020 and in past cyclical downturns, this was somewhat the sales and the bottom line contribution. The precise numbers you have mentioned are the ones that we have given in the adjustments overview that we, I think, issued in March. So here, you have the precise numbers, I think, for '20, but also for 2019. And with this, I would like to answer then the second question. This business, when we integrated it in Advanced Industrial Intermediates, way back in 2014 or '15, it was, I think, continuously on the rise. We went from basically 0 after the last crisis 2013. We went from 0 to around about EUR 30 million in profitability. And then '19, the automotive crisis came and then 2020, corona. This business will go back in normal times to EUR 30 million and with the synergies we can achieve in the Rhein Chemie business on the sales muscle, on logistics, warehousing, you name it. My personal expectations are that this business will even go further than EUR 30 million. If you then add the bottom line contribution from Rhein Chemie, with respect to synergies on top of this, you will understand that my expectation on this business versus 2020 is that this should not go up by double times, definitely rather triple times. And if everything goes back, and they are really doing well, quadruple times. And that's how I look at this business. I hope that you understand the rationale, but also that we successfully repositioned the business under the Advanced Industrial Intermediates umbrella.Any further question, Martin?

[Martin Roediger, Equity Research Analyst]

No.

[Operator]

So the next question is then from Matthew Yates, Bank of America.

[Matthew John Peter Yates]

Two questions maybe. The first one, just around the cash flow and the sizable swing in tax payments. Not that I want to overanalyze and dwell on a given quarter. But can you just talk a little bit about what happened there, whether that was anything structural or that's purely a bit of randomness around quarterly timing? The second question, perhaps more of a midterm one. But it's around R&D for the group. It looks to me like you're only spending perhaps half of what some of your diversified peers in Europe do on a percentage of sales basis. I appreciate it could be an issue with definition or asset mix. But I just wondered what the approach was towards R&D as you continue this journey to becoming a more specialty company, whether you're investing enough right now or whether you need to use some of your stronger financial flexibility to ramp that up over the coming years?

[Matthias Zachert, CEO & Chairman of the Board of Management]

Yes. 2 valid questions. Taxes, that's difficult matter that only Michael will be able to really shed light on. So I pass it on. Before that, I address R&D. Well, in R&D, you have to look specifically where we report what kind of R&D. I've looked into this with other companies who made the assessment. In our company, we are doing R&D in 3 areas that other companies combine. We don't. The process R&D we do on technology, like when we now do R&D in order to reduce CO2 emissions. We are one of the leader in NOx, that is, in German, Lachgas, laughing gas. We are one of the innovators here in Europe as far as this CO2 technology is concerned. We developed it in a catalytic, but also thermal reduction way. We have patents, et cetera. And with this, we have improved our own CO2 emissions drastically in Leverkusen, but are in process of reducing this in 100,000 tons in Belgium in 2 steps. But this is not reported under R&D. It's -- even though we have patents and stuff like this, we report that in cost of goods sold because it's process technology, thus production related. Second, I know that some peers are reporting technical application that is not on a yearly but 2 to 3 years basis in R&D. We post that in marketing and sales. We basically did that right from the beginning, and we stuck with this ever since. And the CFO that followed the first CFO in this company was not bold enough to change it, and therefore, we are still adding it in sales and marketing. Now the rest staying in R&D is the -- is the normal R&D stuff. This will automatically go up over the years because Consumer Protection, of course, here, automatically, we post more R&D in this area. But therefore, if you solely look at our own reporting, you could [ beave ] it up. We don't do it, but we know what kind of R&D we are doing. I hope that gives a little bit of more clarity to your R&D question.Now we come to the real sophisticated stuff. And with this, I pass on the word to Michael.

[Michael Pontzen, CFO & Member of the Board of Management]

So thankful, Matthias. And I'm so happy that I'm not the CFO who followed the first CFO of this company, to remind everybody on the call.

[Matthias Zachert, CEO & Chairman of the Board of Management]

I forgot about it. Dark times.

[Michael Pontzen, CFO & Member of the Board of Management]

Yes. With regards to the cash flow statement, Matthew, rightly said, so there is no quarterly timing and there is no -- like in the P&L, quarterly right quote in tax payments. They come -- I don't want to say totally randomly, but there are clearly timing issues. Over time, you should recognize that the P&L quote of 28% will as well become true in the cash flow statement, but there are quarterly changes, which means in some quarters, we have cash ins because we have down payments to the tax authorities, which in Germany, carry a positive interest rate of 6% in case we finally receive money back because our down payments were higher than the final cash payments we have to do. And in Q1 last year, that was the case. We received money back from the tax authorities, including a nice interest payment as well. But not only that, last year, in the first quarter, we were as well receiving some VAT payments which were due in different countries, that amount was in the neighborhood of EUR 20 million. And these 2 tax elements were basically the reason why our cash flow was impacted last year versus this year. For the next quarters to come, again, it's hard to predict the tax cash payments. But as we paid more in the first quarter now than our P&L reported, you should, over time, expect maybe a smaller cash out than the P&L expense.

[Matthias Zachert, CEO & Chairman of the Board of Management]

Thank you, Michael. I'm glad that you have your tight hands on it.

[Operator]

The next question is from Georgina Iwamoto, GS.

[Georgina Iwamoto, Associate]

I've got 2 questions. The first one, I think we've been anticipating by the midpoint of the year an announcement on your standard lithium partnership. Just wondering if you could update us on that? And then the second question is kind of a follow-up. If that ends up being a go-ahead and we've had this nice announcement of the electrolyte production with Tinci, how are you thinking about the portfolio in the medium-term with all of the kind of growth that you are seeing in electric vehicles? You've done a lot of work in the auto exposure of LANXESS from 40% to about 20%. I mean, how high are you comfortable going for auto exposure as a percent of group sales?

[Matthias Zachert, CEO & Chairman of the Board of Management]

Well, thank you on your questions, let me address them one by one. Step-by-step, we make further strides on lithium, of course, in the current environment, not as fast as we would like to, and all of you know about this. Now what we can say at this point in time, the pilot process and technology indeed brings up or brings out, that's the better English most likely, brings out lithium carbonates. So we are able, it seems to convert -- to, first of all, extract lithium out of the wells. Second, to then convert lithium chloride into lithium carbonates with a relatively high purifications of 99.85%, which is battery-grade quality. And this is what we now see. However, the process, the new process on this extraction is not fully there where we would like it to be. We have still 2 areas where we will need to optimize from an engineering perspective, the process in terms of content of extraction and purification or waste reduction, better to say. And here our engineers need to work. How long this takes in order to get our entire process data in an area where we can then go full-scale, I cannot tell you yet here and it's simply my engineers to do the work, the ground work. But that's where we stand on lithium. So all in all, another step in the right direction. But technology and production processes, especially when they are new one, simply need groundwork and great chemical engineers to put their heads together and to come up with solutions where today we don't have a solution yet. We know where the problem is, but the solution yet needs to be engineered. So this is as far as lithium was concerned. Now on the electromobility growth. It's a big market. And first of all, you see that we're looking at this big market. We can because we have the knowledge to do this. We have the precursors to do this. And if we see here a big value pocket with a controllable risk, we will decide on going into it. If we then team up with a partner or if we do that on our own, we have to see. But first of all, let us understand and analyze how big the value pocket is. And what kind of risk profile we would take on our shoulders, and then we decide how we are going to enter into it. But I think the positive thing I'd take for my personal self of -- for me as a CEO of this company, it's nice that we have many options in our company. If it relates to this, if it relates to Tinci, if it relates to lithium, if it relates to CheMondis, et cetera. The good thing is we have a strong platform, and we have options. And now let's see what kind of options are coming through. I see no further questions on the call. And with this, I would then like to thank you for your participation. We will open up the doors or the video cameras and tablets for digital road showing. And I hope that in the second half of this year, when we are all vaccinated all over the planet or at least in most of the cities, we are going to have face-to-face meetings again. We are energized and look forward to seeing you then. Take care. All the best for 2021.

[Operator]

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