Lanxess AG

XETRA:LXS

Earnings Call Transcript

[Operator]

Ladies and gentlemen, welcome to the telephone press conference of LANXESS, which is being recorded.

[Operator Instructions] Ingo Drechsler, the Head of External Relations, will start the conference now.

[Ingo Drechsler, executive]

Good morning, ladies and gentlemen, a cordial welcome to this telephone press conference on the first quarter of 2022, I'm glad to have our CEO, Mr. Zachert and our CFO, Mr. Pontzen with us. Mr. Zachert will guide us through the results of the first quarter first, and then comment on further developments of the group. Whereupon, as usual, you will have time to ask your questions. Mr. Zachert?

[Matthias Zachert, executive]

Thank you very much, Mr. Drechsler and a cordial welcome to all of you participating in this telephone press conference. I'm leading you through the presentation starting with Slide 3. A lot can be summarized by saying that LANXESS had a strong start into the year 2022. Sales and earnings were clearly, you could even say, significantly above the previous year. And we have growth in all segments and the sharp price in both raw material and energy costs were passed through, which led to a price increase of 31%. Ladies and gentlemen, throughout my career, I've never seen anything like that happen before. Of course, the war in Ukraine causes uncertainty, which is what we take into consideration. So for the second quarter, we are taking a qualitative view for the guidance of the full year.

Slide 4. Sales was increased by 44%, mainly attributable to price increases and the prices being passed on. EBITDA grew substantially to EUR 320 million, an increase of more than 30%. And also net income was increased by more than 50% to almost EUR 100 million. That is something that we can be proud of.

Slide 5. This illustrates how we handled the energy costs and gas prices increases. Last year, we did say that we had long-term contracts where no energy adjustment clauses were contained against the backdrop of which in the first quarter of 2021, we had to absorb the increasing prices and the journey continued escalating in the third quarter. You can see that in 2021, we really concentrated on this.

First, we were trailing behind. But then we caught up quite clearly. So in the third quarter and now in Q4 and now in the first quarter of 2022 in spite of the truly escalating energy prices, which have reached the highest worldwide in Europe, in Germany, comparing ourselves with the major industrial countries, which is not advantageous, and I'm really worried about it because it really burdens the competitiveness of the German industry in the long term. But based on the long -- strong portfolio that we had in the meantime in the old days, we couldn't have passed through the price increases. But now we can fully pass them on, and this has positively influenced our KPIs in the first quarter.

Let me also state that once we pass through prices, so clearly, we are right in the beginning of the value chain of the industry, which is the case in the chemical industry. If we pass on the prices in the chemical industry, it's 3 to 6 months later that the consumers have to also pay higher prices, which is what the general economy has to know and take into consideration. Slide 6, the segments, Advanced Intermediates clearly burdened by increasing raw material costs and escalating energy prices, but you see, again, a substantial increase of sales. Same is true for EBITDA, substantial increase. With the energy prices, we normally have a delay in time, i.e., the prices of the first quarter will be reflected in the P&L only in the second quarter. So most probably, in the second quarter, we will see a weaker performance, which will recover most probably in the third quarter. That is what we call the lag effect that we have in our contract in intermediates.

Normally, we must say, we coped very well with the markets. And the first quarter we had a very positive improvement. Slide 7 shows you the strong performance of additives, which we established some years ago. Additives is what really adds spice to our mill, and it references the products that are in additives, we are active in different industries. And in the second half of the year 2021 and the beginning of 2022, we also have seen the recovery of aviation and oil and gas industries. So -- this has had a positive effect on our KPIs. Sales rose by 41%, EBITDA by more than 80%. But let me highlight that we did have some carrying -- catching up to do from the fourth quarter, which was not so positive, and I had already said that in March that the first quarter thus would be exceptionally strong, the next quarters will be more normal than what you see on this slide.

Slide 8. Consumer Protection. And here again, we were able to step up sales by 48%, EBITDA by more than 10%, which is really positive. And in particular, the businesses that we recently acquired Emerald Kalama chemicals, which we acquired last year, and their contribution is a very positive 1 to our results. And of course, they do support this segment which will be ever stronger as we go into the future.

Slide 9, Engineering Materials. You see significant price increases, driving sales upward by more than 50%, EBITDA, also an increase by 14%. And let me say that this segment relies very much on the automotive industry and the electronics industry -- both industries are still very solid. There's also a catching up effect on the consumer side, which is what you can hear and read from the media, there is a so-called backlog. And we take it that this will also have its effect in the next 1 or 2 quarters and only then will the situation stabilize a little bit. And then we'll have to wait and see what the demand of the customers will be like.

Let us proceed to Slide 10. We give you a short overview on our handling of the situation with the war in Ukraine. It was already in March that I did say, on the 24th we already had established a global task force. And every day and every week, we take a close look at the situation at the time, we analyze the supply chains, and also looked at different action plans and scenarios on the cost side, which we implemented very quickly. Looking at the financial approach that we are taking in times of crisis, what you need is liquidity. And we made sure that we could be guaranteeing the liquidity in March, and we implemented later and the safety reserve and liquidity was secured, EUR 600 million were issued in the bond markets at very favorable terms and conditions.

And now the raw material and energy analysis has advanced considerably as well. We started that on the third of March when we saw that there might be a gas embargo. Throughout the world, we analyze dependencies on gas and oil? And what the effect would be on individual products and which products are being used with which customers. And of course, we have done everything to reduce and replace gas consumption, go for different energy carriers, but here in North Rhine-Westphalian sites were certainly hit if there was a gas shortage.

On the positive side, I can share with you that we are done with our analysis. We have prepared a plan of how to implement measures. And if there was a gas embargo, everybody is in the know what to do in line with their roles. And we are prepared if and when this happened. I just hope that this is not going to happen because it would be a massive disruption of the German industry, value-adding chain would be paralyzed.

And as I said before, we, the chemical industry, are very much in the beginning of the chains. And if we stop operation, the entire industry stops operation.

Now Slide 11. This gives you an overview of how we use gas and coal. And if there was a gas embargo, we would very much impacted here at the lower Rhine region, that is difficult in Krefeld and Dormagen. And if you have a look at this slide here, you see the value-added chain. Coal and gas is being used to generate steam and electricity. It's not that much use as a raw material. So you see it's a process energy, which sees to the production of chemical products. Over the past 2 months, not on a global level, but also broken down to individual sites, we have understood that we have to understand the actual energy needs per plant, per facility site and what products are being produced. The energy intensity of each and every product, and then also analyzed the dependent customers and their profitability for us. And we have sort of mitigation measures that if there was a fully-fledged gas embargo from Russia, we would have an effect of EUR 80 million to EUR 120 million on the EBITDA. So that would be the loss.

And this is a direct impact. But of course, this is only 1 side of the coin in direct effects, must also be factored in. So that is whatever we have got in the intermediates in the precursor products. And that effect, of course, would be way higher than the direct effect. But of course, this cannot really be analyzed or quantified. And we want to be transparent to the extent that we can. And the products that will not be produced then will mean an entire full disruption of the downstream production and would hit the industry in a disastrous session.

Well, ladies and gentlemen, Slide 12, something more positive. As a CEO over the past couple of years, I did not very often have the opportunity to start a new facility here in Germany. And we did that last Thursday. We have got a high-performance plastics production line. So together with the Prime Minister of North Rhine-Westphalia Hendrik Josef Wust, initiated the start of the production line. So this is a product line for Scopeblue plastics, it's a brand of ours, and this is all referred to sustainably produced and sustainable products.

And we are very happy to have Krefeld here as a site. It actually costs us EUR 50 million and 25 new jobs created. And Mr. Wust and myself were able to talk to the heads of the shifts and overall great fun. EUR 130 million were invested, that is EUR 50 million to the polymers and EUR 80 million to the chemical production. And well, this is quite something and all that on the basis of the fact that increase sales of the past, let's say, 10 years, we have invested over EUR 900 million. So that is a commitment for the region. I am very happy to be able to say that over the past 4 or 5 years, North Rhine-Westphalia has resumed their activities. And I mean, we had the bureaucracy reduction program in the governmental areas and politicians and business leaders have pulled together. And that also means that in North Rhine-Westphalia, digitalization has improved very much and this could start-up companies in this field here in North Rhine-Westphalia, their number is certainly only up, and that will help the industry in North Rhine-Westphalia.

Now let me talk about the guidance, Slide 13. And you see the world continues to be fragile. We've got a war in Europe. COVID is still around. And you see in China, the business activities are burdened because of the tough lockdowns and you must not forget that and supply chains, they tend in tight and the energy and raw material costs will be a major burden for our activities and will, of course, have an effect on business activities and it is against this backdrop that we are very careful about our quarterly guidance.

We got a greater degree of precision now. So second quarter, quantitatively speaking, we want to be above prior year results, even in the second quarter. The very high energy costs starting in March will come in significantly, and we nevertheless presume that previous year's result, EUR 277 million, will be surpassed. We are set for that. So we gave the range between EUR 280 million and EUR 350 million, that is. And should we actually get to the higher end of the range, we produced the best result ever for the second quarter of the group. And that would be very encouraging and that with a different portfolio, no longer quantities, but qualities. And EBITDA forecast for the entire year of 2022, again, qualitatively speaking, is on the up and we will share that later. Closing of IFF is delayed because particular prerequisites have not been met by IFF. I mean we have now got the antitrust approval, which, of course, is positive. But the second thing that needs to be produced by IFF now is that they actually go for the outcome of that operation which has not yet happened.

And there were still a couple of things to be done in order to meet the requirements for this closing or the prerequisites for this closing. And this is my overview over first quarter, and we would now like to invite questions.

[Unknown Executive]

Thank you very much, Mr. Zachert. And we now would like to invite your questions. Ladies and gentlemen, let us start with your questions. [Operator Instructions]

[Operator]

The first question is from [indiscernible]

[Unknown Analyst]

I have 2 questions, 1 on the gas embargo. Could you briefly explain the breakdown of the effect just so that we can better understand whether you have to actually reduce production volume, reduce productivity? Or what is the main burden in chemical production probably with respect to steam? Then secondly, could you say something about China because Covestro had an extremely intense effect because of the COVID lockdowns. I didn't see so much in your explanations, are you not as much affected as other companies in the chemical industry?

[Matthias Zachert, executive]

Thank you very much, Mr. [ Jansen ] for your questions. Let's talk about the gas embargo. We have [ 53 ] sites in North Rhine-Westphalia. And -- so with respect to the gas intensity, North Rhine-Westphalia would be quite affected. We analyzed side by side. In a complete gas embargo or stock, we have to reduce production and then only gas from Norway or the Netherlands will come. And then there will be an energy terminal later on. We take it that there will be gas contingents and everybody will have to make their contribution and everybody will just be allocated certain amounts. And we can absorb 25% to 50% of the Russian gas supply. And we will first take out the operations and others will be reduced. The gas-intensive operations will be taken out.

And so side by side, we have come up with our working plan. And what was necessary next was that the technical feasibility needs to be discussed. After having conducted our analysis at group levels, we then looked at the technical side so we spoke about the heads of operations as to how to reduce the operations, and that was a lot of work in 2 months. And I have to praise the team and the feedback we get from external sources is that we are very well advanced.

Others still have to do this job. After the 2 months of this terrific war of aggression of this mass murderer, we at LANXESS are well braced and we know exactly what we need to do. You mentioned China. There are other group companies that are hit harder, most certainly so. But maybe with LANXESS, we don't have so many assets in China as other group companies do. That was a very deliberate decision. If you don't have so many assets in China, there is not so much by way of negative implications on the value chains, raw materials when you import raw materials and export finished products. Of course, we are affected by the supply problems, but it's not as much as with other groups, we only have single-digit effect in the millions. And I have my weekly calls to China to understand the situation there and to see whether the situation is improving or not. This is clearly on our radar screen when we look at it as members of the Management Board, by way of risk management. But at the present point in time, it doesn't lead to substantial reduction of our business on net income as you saw in the first quarter.

[Operator]

Next question is from [indiscernible]

[Unknown Analyst]

Three questions. You mentioned the 31% price increase initially. Is that an average value for the entire product range in the group. And you said that you then will expect effects on the consumer side in 3 to 6 months. So will that lead to a reduction in demand on the consumer side? Is that what you expect later in the year? That was my first question. The second point, do you see inventories being stocked up with your customers because inventories were empty and some started to stock up later? Has there been some increase ever since April so that your customers can also continue to supply? And do you yourself also fill your inventories? And last question. Returning to the gas situation and the possible embargo or stop of supply and the significance of steam in the chemical industry, we learn more and more how it's all working. How important is steam for your production? Do you also want to install some mobile steam stations as, for example, your competitor Covestro.

[Matthias Zachert, executive]

Let's turn to your questions. The 31% is the average value across the entire group. In the 4 segments, we have seen different developments because each of the segments has a different energy and raw material consumption and profile, thus being subjected to different kind of -- kinds of fluctuations. Let me give you an example. With the Engineering Materials, these are the polymers and these -- their energy and raw material costs exploded much more strongly because this is very much relying on gas and oil, and we have a price increase of 50% even.

Well, you've got to take a deep breath there. And the raw material and energy prices to be passed through is not so easy. Intermediates, we also have another energy-intensive segment because the price increase there was at 36%. Consumer Protection, which is not so intensive with respect to energy and raw material there, the price increase was 18%. So this is a breakdown of the increase of the price increases. And you see the different portfolios. And the 31% are the average across the group. I hope that answers your first question.

Then the economic development and consumer side and drop in demand, that was your second question. We don't see that yet, Mr. [indiscernible], well, not yet. That's our assumption because the catching-up effect is quite pronounced. We have been through 2 years of people being rather cautious when it comes to taking business trips or making investments and the economic institutions have described this at length and so did your paper, and you have reported that the consumer actually made a lot of savings during the COVID pandemic. And so now they are more willing to spend. And this seems to last for a little longer. So we don't see a cut in demand on the consumer side. But of course, we all have to have that on our radar screen, anything else would be too naive. Then stocking up, third question.

This is the first time that in the wake of March and the second quarter, people can stock up again. That was not an option beforehand because the supply was not there. And people had to use whatever was available. So supply chains were not filled with sufficient products because of the disruptions we experienced and the supply chain difficulties. Now we see that there is this opportunity to stock up 1 in entries. And now your 2 follow-up questions, we take it that both on the consumer and customer side, this will be possible in the second quarter. We have already stocked up. So there will be some increase in inventories in March with a focused slight increase in stepping up inventories in areas where we expect the supply chains to remain tight. So we did likewise, and we expect that with the consumers in the second quarter as well.

Steam. Steam is a necessity in the chemical industry. And this, of course, is produced with oil and gas. And we need steam for the major processes to produce the products that we have on offer. We have the respective plans with the reactors and the facilities to produce steam and is part here and part of our assets, and you can remedy the situation slightly by using mobile facilities, but it means that the asset parks are in a vulnerable position. And technologically speaking, it is only very rarely possible to revert to coal. I mean, coal to gas is possible, but gas to coal is really difficult. And you would need new facilities for that? And if there was a gas embargo, substantial chains will come to a standstill and mobile units will not do the trick.

[Operator]

[Operator Instructions] Next question, [indiscernible]

[Unknown Analyst]

Thank you very much for the specific information you've shared with us. I would like to come back to what you said with respect to the following. Is there any possibility to make longer use of the coal-fired power plants in North Rhine-Westphalia, not to mothball them because at the end of the day, you are dependent on the big utilities, sorry, and is there some potential that you could still use as a kind of standby option? Another very valid question. I mean, we've got coal-fired power plants in Leverkusen and Krefeld, and we have planned, if you have a look at the documents from 2019, when we communicated our climate goals, that we said, we want to phase out from coal earlier than politically required. We want to stop our coal-fired activities. And we also talked to Currenta about that and put it all into on track. In order to ensure that a couple of years before there is a natural requirement, we would exit coal in order to reduce 200 to 250 tonnes of CO2 emissions. That was part of our climate strategy, and we are still having these coal-fired activities.

And of course, we would have to think about whether we want to extend these operations and we need to discuss matters with Currenta whether to continue this. I mean it would be painful for sure, because -- we said we must reduce CO2 emissions every single year. But is that was to mean that we'd be finished because we haven't got any energy supply any longer, then we can continue production any longer. And then of course, we would have to face unemployment. And I talk to [indiscernible] about that, and it is my hope that the energy prices will kind of go back to normal, not be that fluctuating that we then can switch over from coal to gas, again. But if the price situation continues like this 1 here, then we will, de facto, have to discuss with Currenta whether to continue coal and, well, really shift the plans to exit collectivities.

But have I understood it correctly that you have not yet taken the decision? So no, we have not yet taken the decision. So we've now seen 2 months of this war of aggression. And I'm not sure for how long this mass murderer is going to continue on that path. And decisions with a multiyear effect and effects on our assets. I mean, this is something we need to discuss, we need to be careful about. And over the next 12 to 24 months, we will certainly have to take decisions in this respect.

[Operator]

Next question, [ Patricia Weiß, Reuters ].

[Unknown Analyst]

Good morning. Many topics have already been broached that I'm interested as well. I would like to come up with a follow-on as far as the energy costs of the last year are concerned. I mean, last year, it was EUR 200 million extra on top of your plans. So can you give us your estimate for the year 2022? And price increases 31%.

Well, Mr. Zachert said that this is unprecedented in an increase. So for how long could you pass through your price increases for energy because sooner or later will come to the end of that target as well. And then I'd like to come back to the question concerning coal and CO2 emissions and the like. In a worst case scenario, would that, at the end of the day, impair your climate objectives, which you're quite ambitious in comparison to your competitors?

[Unknown Executive]

Can you repeat what you said in the end?

[Unknown Analyst]

Yes, I mean, I understand that your climate goals were more ambitious like those of, say BASF and the like. But if you have to continue burning coal, what does that mean?

[Matthias Zachert, executive]

Again, legitimate questions. Let me take them 1 after the other. Climate, I must say this is really very close to my heart and I feel also very important than prices and the like. So we will stick to our ambitious climate goals. And you are quite right. We are being much more ambitious than the average of the industry. I consider this really very important as we go for absolute not relative objectives because this is the only way that if you bring about absolute reductions that we can save the planet, and we've been doing that for a year now, particularly when it comes to also creating respective incentives for our management. And we have broken down these objectives to the global operations. We've got these objectives, and I want not to change that again, at least not sitting here and today, and we will have to find other ways wherever possible. And we must stick to the objectives and the absolute reduction abatement objectives is of paramount importance for the group.

And we won't roll that back. And if we were forced to do it, we had ensured that we've done everything possible, and I just hope that this will be the reality in the future.

Now CO2, I mean, 2021, you mentioned EUR 200 million. That was the cost for gas, raw material worldwide. EUR 500 million was the energy cost in total for 2021 for the entire group, gas, 40% round about ish and a fraction they're all also here in Germany because we've got these big plants here. So we've got energy prices of around about EUR 500 million if the energy prices stay where there are at the moment, that is the level of the first quarter, would be for the entire year, talking about an amount of around about EUR 1 billion. And this goes to show that energy costs, I mean, if you have a look at our annual report, we get into a ballpark of personnel costs. And this, again, is unprecedented in the industry. And this, of course, is something where we have to say the energy prices have gone up so significantly in Germany. Then it comes to our macroeconomic environment. I mean, I'm doing it all at the group level, but then, of course, the North Rhine-Westphalian government, but also the Federal German government would have to have a look at whether that is going to jeopardize Germany as a production site. I mean this is nothing that will call for decision, say, over the next 3, 6 or 9 months.

But of course, we will have to have a long-term plan, say, for the next 5 years and beyond. And -- how will we survive then? And that, of course, makes the question of ancillary costs here in Germany that is on the basis of certificates when it comes to carrying fees for the grids and networks. And I mean, we've got this renewable energy levy that the companies have to pay and other levies as well. So it is my appeal to the Federal State government, to the government of the Federation, be careful what you're doing here. Because otherwise, we repeat the era or the mistake that we committed over the past couple of years that we've come dependent on a single source of energy. And I mean, I approached that topic again and again over the past months and years and that it was entirely naive to reduce nuclear power and coal-fired power or production of energy.

And this is why we are in a situation where we find ourselves in. And, I mean, energy price topic and the distortion of competition, if we don't tackle that, then in the period of 3 to 5 years, we will be sorry afterwards. So this is what I want to share with you on 2021 and now 2022, you are commenting price developments and how to part them through. And I mean we have no option. There's nothing else we can do because otherwise, we will go belly up.

And fortunately, over the past couple of years, we set up a portfolio, which is very robust and has got very differentiated products. And therefore, we are in a position to pass on cost.

I take you that many companies in the small and medium-sized range, can't make it, and it is actually the small and medium-sized companies that are very important, that's also very concerning. In the second half of the year, we will see where the consumers will start to save. And I can't really tell you now, but we have to have that on our radar screen at the moment. We see that passing through the prices has not led to a drastic decline in volumes sold because the volume sales are still quite good in the market. I hope I have answered all your 3 questions sufficiently. I had to deliberate a little longer, but I hope that was helpful.

[Operator]

Next question from [indiscernible].

[Unknown Analyst]

I have an additional question briefly because you mentioned, Currenta several times, after the explosion last year, the situation hasn't returned to where it was before the explosion that affects you being a customer of Currenta?

[Unknown Executive]

Most certainly so. This is a partnership that has been established some time ago. And to dispose of residual material is part of the value chain and the process and the complexity is immense that we are experiencing now when it comes to handling our waste management, it's a logistic. And they have, of course, some magnitude, and we do hope that the situation will be remedied very soon given all we understand the technical requirements have been improved to such an extent that all the licenses should be given. So we hope that in partial steps and with certain statutory regulations, the waste incineration plant and [indiscernible] will start again.

[Operator]

The next question is from [indiscernible].

[Unknown Analyst]

I would also like to add 1 question. Looking at gas which you spoke about and the dependency on gas. Before the outbreak of the war, gas was considered the bridge into green energy supply. Do you believe that now we have to rethink this topic?

[Matthias Zachert, executive]

Ms. [indiscernible], what a valid point. I believe that the politicians without being dogmatic and without just concentrating on 1 aspect, will have to look at the energy politics of the past 10 to 15 years and revisit what has been done and see what they can do now. Looking at the present time, and I must pay my respect to the Federal Minister of Economic Affairs, Mr. Habeck, they do whatever they possibly can do to make sure that energy supply can be secured and to be prepared at the same time to be effective by the politics of a brutal mass murderer and to make sure that we don't depend on this mass murderer. And I really must say we have to be consistent with what we say and what we do. But this is problem fixing right now for something that went a miss in the past 10 to 15 years, if you ask me, and was handled in an amateur way.

If I were to concentrate my entire group on the supply of 1 supplier only, I should be thrown out of my job before there would be a brutal crash. What's happening in Germany right now, there is almost a total crash right now. The gas prices are exploding and the consumer, i.e., the citizen, has to pay for it. So my clear expectation is that our politicians do whatever they can in the short term to make sure that we can secure the ability to produce and supply, but that will continue to lead to exploding costs. And then in the long term, you have to come up with the right strategic decisions and look at all the energy carriers and have a look at what can be done with the renewable energies. If we want to accelerate the renewable energies, we have to look at approval procedures and licensing procedures, a point which we've been mentioning for years. It takes far too long in Germany to receive a license and approval for plants and talking about 3 to 6 months in Western Europe, when we have decisions on approval. And look at Belgium, there are terms for the authorities who have to approve within a certain time or else something is deemed approved.

And in Germany, you wait for ages and then the market is gone. And so looking at the energy carriers, we have to tackle the bureaucratic hurdles, the licensing and approval procedures, and we have to have long-term analysis and then come up with strategic decisions. So it's quite clear what needs to be done in the short, medium and long term. And I do hope that now the political approach will be that of a rational approach of looking and taking the consequences and not just wait and see as well as the political approach in the past couple of years.

[Operator]

Let us now proceed with the English questions. Just a moment, please. The next question is from [ Tom Brown of ICIS ].

[Unknown Analyst]

Congratulations on the strong results. I was just curious about -- you mentioned about how the current issues with pricing are likely to go down to the consumer level in the next few months. Do you see -- is there any of your business that you're watching the impact of that particularly strongly, anywhere where you're particularly consumer exposed? And also, do you think that the current -- the sanctions and the supply chain disruption is driving a more regional global economy and actually away from globalization?

[Matthias Zachert, executive]

Thank you for your question, Mr. [ Brown ]. I am asked to answer in German. I will refer to both your questions. Let me start with the product. There is no such thing as 1 product class affected. We see in all the different industries, be it the building and construction industry, the automotive industry, electronics industry, pharmaceuticals, agriculture, no matter where we look and we look at everything because we produced intermediates and active ingredients for all those industries. And of course, I keep close track of what my customers are saying. I speak to them, of course, with the major customers, and they are customers of different industries. And I do know that all customers are far from happy when the prices keep rising, but they do understand why, and they give feedback to us that wherever possible, they will also pass on the price increases to their customers. So it's the entire chain that's affected. And of course, this hits some products harder, especially those that are very energy intensive, automatically their prices will increase more pronouncedly.

And the others will see a more modest price increase, but nevertheless, a price as a rule. So wherever we see that the prices rise, we also see that our customers are in the process of passing on their price increases as well. And this leads me to the following statements. Once we pass on price increases, at least this is what we've seen in the past. This ends up with the consumer with a delay of 3 to 6 months depending on the consumer and depending on the products. So I take it that the consumer in Germany, but also in Europe, will most certainly be confronted with increasing prices in the summer and autumn of this year. This is hopefully answering your first question.

Now your second question, sanctions. I can only speak on behalf of our company. We go over and above the sanctions. Product supplies with the exception of 1 or 2 products been reduced entirely. So we see that turnover to -- with Russia has reduced by 90% to 95%, and we are continuing on that path. So we are doing more than we would have to in accordance with the sanctions other companies are doing, the self-same thing, and I consider this the right thing to do. Because as I've said a couple of times before, everything needs to be done in order to fight this mass murderer in order to close our ranks. And if we manage closing our ranks, then we have got something to oppose this brutality. And this fascist activities and nip it in the bud, and I just hope that we are going to manage exactly that.

[Operator]

As there are no further questions, I hand back to the speaker.

[Matthias Zachert, executive]

Well, dear colleagues, if there are no more questions, we have come to the end of our press conference. So thank you very much for joining us. Enjoy the remainder of the day and good bye. Thank you for your participation. This is the end of [ presentation ].

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