Lanxess AG (LNXSY) Q1 2026 Earnings Call Transcript

A very good morning, ladies and gentlemen, dear colleagues. My name is Klaus Semke. I would like to extend a cordial welcome to you on the occasion of the Q1 press conference call. So we have got Matthias Sacher, the CEO, and Oliver Stratmann, CFO, on site. And they will update you on the first quarter of 2026 and give you an overview, a guidance for the full year. But let me start by giving you some technical information. So we will have the press conference in German. It is translated into English. And for legal reasons, I have to point out that this call is broadcast live on the Internet, including your questions. So, Mr. Zachardt, the floor is yours. Thank you very much, Mr. Zimke. A cordial welcome to you, ladies and gentlemen, on the occasion of the Q1 telephone press conference. A cordial welcome here in Cologne, Leng Cess. I would like to start with slide three. We distributed the presentation beforehand summary. We came off to a weak start, particularly January and February, continued with sluggish market conditions, what we saw towards the end of 2025. But in the month of March, things changed, became more positive with a continuous increase in volumes. And this is also true of the second quarter. Now, let me talk about the specifics of Q1. We have sales and earnings down, unfortunately, and the conflict in the Middle East for the European chemical industry means that we have sort of more favorable market conditions. And we have to say that at the end of the day, we are faced with a global energy crisis, but the supply chains in Asia are more dependent on supplies from the Middle East in comparison to Europe and Germany. On the basis of the first quarter and the developments in the second quarter, we feel that we can confirm the guidance for full year 2026. Let me now talk about the KPIs of the group. So sales and EBITDA came down minus 14% and 29% respectively. At the same time, I would like to point out that the first quarter of 2025, we were not yet faced with the customs roller coaster and then the tariff discussions, and that depressed the mood. In the first quarter of 2026, we compared ourselves against a sort of normal quarter with no tariff struggle in 2025. Now, let me talk about consumer protection, weak demand, and a weak U.S. dollar. And that meant that sales came down as well. EBITDA declined by 15%. Similar trend, though with different impacts on sales in the additives segment. Specialty additives volumes were slightly up, but there was a lot of price pressure in the additives segment, very much dependent on what is happening in America. So, therefore, also a negative percentage figure sales, that is minus 4%, EBITDA minus 15%. Just like last year, the new year suffered most in intermediates. So, this is slide minus 17% sales, and we have got a lot of activities here in Germany, and this is the rationale. So both business units are first and foremost active here in Germany, and site conditions in Germany are still not competitive by global comparison, and we can see that in all the media outlets. And this, of course, is reflected in sales, minus 17%, very much driven by volumes pressure. And this means that EBITDA came down by a whopping 33%. Let me now briefly talk about the situation in the Middle East. We investigated and explored the situation from four different points of view. Let me start by talking about the supply chains, logistics, and here I do have to commend my organization. Where we could see difficulties, there was a fast response to remedy the situation. So from the logistics side and also from the raw material procurement side, we don't feel any direct impact on our production that would have hit us. At the same time, though, I do want to be very clear about the fact that the ships that left the Middle East shortly before the eruption of the crisis have only now made it to their points of destination. And in the next couple of weeks, we will have an idea how supply chains will be affected. And we feel that, globally speaking, in the next couple of weeks, two months or so, the situation will remain tense. And there will or might be additional distortions because of the situation in the Middle East and in the Strait of Hormuz. And at the end of the day, the Asian markets will be hit more because there is a greater degree of dependency from that part of the world. The markets, globally speaking, here we see that the number of events of force majeure that are reported have been very much on the up. And this, of course, is indicative of what I have said a minute ago. When it comes to volumes and prices and the next two issues I would like to discuss with you, as of March, we see a continuous strengthening of the demand, which is positive, of course, a revival in demand. And so the situation will improve after January and February 2026. And it is also a fact that supply reliability becomes ever more important also when we are discussing matters with our customers. So supply reliability is certainly the name of the game. And if we can demonstrate that we can assure reliability, this will come very much our way. We are all cognizant of the fact that prices go up and raw material prices go up, oil, gas and derivatives. And therefore, immediately after the start of the war in the Middle East, we started to increase our prices because it is our objective that increased logistics costs and raw material costs are passed on right away. Now, slide nine. This is the general economic framework. And here the clear statement, tensions are here to stay. And we see that reflected in worldwide reporting. And the uncertainties are here to stay because of the conflict in the Middle East. And I mean, we have seen that things change every couple of minutes, so to speak. And it is against this backdrop that we stay modest in our guidance and on our take of things.

We take it that effects of the German economic stimulus program could come to bear and probably only in the second half of the year, and we may only be able to see that more clearly in the first half of the next year. With respect to the dollar, I think the weakness of the exchange rate will prevail and the negative exchange rate effects will last throughout the year. Let's talk about Lanxys. We will confirm our guidance of 450 to 550 million EBITDA, and we continue to stick to our high-level and very pronounced cost discipline. For the second half, you will see a clear increase in the second quarter as compared to the first. I have already said that there are some signs for positive momentum, and we will see a continuing positive trend also for the second half year. And the price increases that we have communicated will take effect as of April and then the next wave as of May. And may that suffice as our explanations on the first quarter's result. and we are now more than happy to open the floor for questions. I hope you have some time. Thank you, Mr. Zacher. Dear colleagues, should you want to ask questions, please use the raise hand function in the menu reactions and do remember to unmute yourself. This is done by unmute button. And the first question is from Jonas Janssen, FHZ. Mr. Janssen, can you hear us? Yes, I hope you can also hear me.

Yes, we can.

Thank you very much for these interesting statements. I do have some questions, for example, on the point concerning the strengthening demand on intermediates. Could you give us some examples of what is higher in demand with you? and I would like to know how you can guarantee the supply reliability given the situation that we have and on the price increases, could you give us a ballpark of range by which you may increase this? Last time you said you could also speak about 50% increases, but does that depend on the product? I would like to have more details on that. Thank you, Mr. Janssen, for your valid questions. Let me go through them question by question. With the intermediates, last year we had pointed out that we felt a lot of pressure from China, which concerned different product groups that are faced with global competition and the The dumping approach of China on many European products that was also commented on by many of the competitors made the business units with the intermediates suffer. The situation has changed in March and April. We see that on the one hand, China is now confronted with increasing raw material prices. Let me explain that a little bit. Before the outbreak of the war on Ukraine, de facto we had a global price for oil. And there were differences of one to two dollars between the different regions that offered oil, but oil was a global good, and de facto, there was one global oil price and oil standard. The outbreak of the war on Ukraine and the sanctions introduced in the wake of it made the Russian oil clearly cheaper, and we're talking about price discounts between $20 to $30 per barrel. And this Russian oil, as you know, didn't predominantly go to Europe, but this cheaper oil went to the Asian region so that the chemical supply chains in Asia had cheaper oil products and could use these products and the derivatives to produce much cheaper. And in the last year, where China was dumping American products in Europe and also could go down with the raw materials and thus reduce the prices tremendously, that led to a situation where our supply and value chains were hard hit. And that is changing now. Most probably, China is faced with higher raw material costs now, or at least costs that are similar to the ones that we have to pay. And thus, there will be more pressure on their prices than we experience. And in China, the prices with the products that we produce with intermediates is increasing, so our position is strengthening. strengthening. That was a bit of a lengthy answer to your first question, but I hope I gave you some more macroeconomic backdrop. Now, reliable supplies. I can tell you that globally, looking at the logistics agreements, we always follow an approach of having 80 to 90% of our logistics under contract for the whole year. This is what we also did for this year. So we have very, very strict commitments, even if there are logistic chains that are under pressure or if the situations are under pressure, but we have agreements and contracts that make sure that we will get the supplies. And in spite of the distortions on the market, we have clear commitments of our partners who also confirmed their commitment in the past couple of years. So, logistically speaking, we are well braced. And on the raw material side, we do purchase products from Asia, but not necessarily products that have to go through the Strait of Hormuz or the Middle East. So, since we always have one to two additional suppliers registered with us, we can also guarantee reliable supplies on the raw material side. On the price range, I have to be quite clear and say that that is different from product group to product group, which has to do with the significance of the energy prices per product, raw material costs. They're also, depending on the product, we want to actually pass on the costs and products where we have to use more energy or oil derivatives, we have to increase prices more than with other products that don't have to suffer so much. We are confronted with price increases of 5% to 10% in some product groups, but there There are other product groups, as you pointed out, the price increases go up to 50% plus. So we try to do that with a measured approach and focus, but in a very disciplined way in order not to suffer any structural downsides in the quarters to come. I hope that answers your questions. Oh, yes, it does. Thank you very much. With pleasure, Mr. Janssen. Thank you very much. The next person is Gerd Frenthof from Handelsblatt. Good morning, Mr. Frenthof. Good morning to everyone. One question was already answered, namely the question of what will happen if force majeure will increase in Asia and what will that mean for the supply chains to Europe. Do I understand you correctly that you have no fears and that you're well braced? Could you confirm that? And now on the supply chain issue, if the Strait of Hormuz were to be opened in the days to come, will that mark the end of the problem very soon, including the advantages that you are experiencing or what is the time frame that you will expect until an old market condition could be back or the situation normalize?

With pleasure, Mr. Frontof. On the supply chains, first question. We proceed on the assumption that we will have distortions over the next four to six weeks. Who is going to be hit in Asia remains to be seen. But we think that countries like China, India, Korea and Japan will be impacted because there's a great degree of dependence there. And when it comes to the products from the Middle East, be it gas, be it oil, and here I'm particularly referring to the next stage concerning NAFTA, a chain product. So this is a precursor of very many chemical products. And here we've got a great degree of dependence in the Asian countries. The raw material supply is coming from the Middle East. So if and when the ships can no longer enter over the next two to four weeks that are needed for the global trade, And these countries will go back to their raw material reserves, and there are great differences here. China enjoys much higher reserves than other countries, and then they will have to start allocations. And then it remains to be seen who will still be in a position to produce. And the number of events of force majeure in Asia going to increase and not going to flatten. And I have given you the reasons for that. And then you mentioned the time framework. We actually analyzed various scenarios and simulated them and discussed matters with large representatives of the logistics industry. And we say even if the straight-up formals is going to open the next one or two weeks, it's going to take three to six months before the situation will have stabilized again. And therefore, we feel that there will be a great degree of uncertainty in the markets for the global economy, and energy prices are going to stay tense over the next probably two quarters, and then we will have to have a look at how these things pan out politically. So this is certainly not a short-term matter, but something that is on our plate for the next couple of months. Does that answer your question, Mr. Freundhoff? It does indeed. Next question, Torsten Waldhof from Kölner Stadtanzeiger. Hello, Mr. Zachard. A brief question, what about the reduction of jobs, particularly here in Germany? Well, we mentioned that at the press conference concerning the financial statements at the beginning of the year, We are in a phase of implementing it all. It's going to take two to three quarters, but the program has started, and we are doing things in line with the timeline. Thank you. Next question. Patricia Weiss, Thomson Reuters. Hello, Ms. Weiss.

Can you hear me?

Yes. Well, Mr. Zachert, you wanted many questions, so you will get a few from my side. And I'd also like to talk about the positive momentum from the month of March. And this is something you don't hear that often. So can you give me more details? Are people building up inventories? So what is it exactly that is happening? and maybe you can give me examples for intermediates just like Mr. Janssen asked for me to get a better idea of what is involved and then you also said there is a revival of the business not to be expected over the second half of the year so is that still true? And then I'd ask for your rating at Moody's drunk level and what are your ideas and the income from the value transaction, what are your activities there? Thank you very much for your question, Ms. Weiss. I will take the first two questions and the CFO the last. So the revival in the month of March. Well, indeed, over the past couple of months, We have seen that after the so-called Liberation Day, 2nd of April 2025, over the ensuing weeks, months, quarters, down to the beginning of 2026, reduced demand and that there was a lot of price pressure because of all the goods and merchandise being imported into European markets. And that was a major burden on our industry. In March, we could see that after the first difficult months and the difficult months before, business activities picked up again. And this was not a sudden event, a sudden peak, but a gradual increase day by day. So from our point of view, we can say that the demand levels have kind of normalized, but we have also seen that the price pressure from China came down a little bit, which is a positive development. If you had a strong peak on a one- or two-day basis, it would mean people are squirrelling stuff away and precautionary measures in inventories, but this is not what we have seen. So we saw a gradual increase coupled with less of a price pressure from Asia, which is encouraging. This is a healthy development. Now let me talk about the second half of the year. I am firmly convinced that the investment package that was issued and will be issued by the federal government will now take roots in the industry, in the economy. And we had hoped that in the second half, the building and construction industry would pick up again. But we don't see it in the order books yet. There are more permits applied for new construction projects and for restoration projects, which is good. But as I said before, it is not yet leaving traces on the order books. And therefore, we proceed on the assumption that there will be a positive effect, but not before the second half. And when it comes to rating, Mr. Stratman, why don't you take that question? Good morning, Ms. Weiss, and thank you for your question. Right from the beginning, we wanted to be an investment-grade company, and we are very, very solidly funded. So when it comes to the rating, we want to come up with KPIs that give us an investment grade. And now you're asked what kind of measures have been taken to ensure that. And Mr. Zachert has mentioned that already. We are actually working on a cost-saving project or program. And then we have a look at the capital tied up in the working capital. And ultimately, you see that the adaptation, adjustment of our selling prices are increased because of our higher purchasing prices. And then it is also that we want to reduce our leverage, our debt, and that will save money. Does that answer your question? Yes, it does indeed. Before we come to the next question, for those who dialed in later, if and when you have a question, you have to initiate the raise hand function.

Annette Becker from Börsenzeitung. Good morning, Ms. Becker. Good morning, everyone. I hope I can be heard. Yes. I also have three questions. One focuses on the topic of increased demand when it comes to intermediates. What does that mean for your capacity utilization? Because with intermediates, the earnings dropped twice as fast as sales, which is probably also due to utilization of capacity. What about the future thereof? And you do say that from building and construction you will see effect at the earliest in the second half year. But the geopolitical conflict will have some effect on the global economy, thus on the demand in the global economy. What's your take on that? Because at the end of the day, that could have a negative effect. And if you, in inverted commas, benefit from the situation, why is it that the share price is at a 9% minus today? Capacity utilization is still tense, clearly speaking, also with intermediates. We can say that we are still in a difficult situation. Utilization is weak, but on the increase. And in the next quarter, it will continue to increase, but we haven't reached a normal level yet, which would be above 80% in the industry. Last year, we ended with 65%, i.e. below 70% for the year. And we take it that in the second quarter, we will see clearer increases, which will help utilization. And because of the volumes that will increase, it will reduce the fixed costs that could otherwise not be compensated for. And then that should lead to earnings and better margins for the group. and we will see that most pronouncedly with the intermediates because they need higher volumes than the other two segments. We gave our feedback on what we expect for Germany and as we have pointed out, in Germany there are some positive indicators that become visible, that will also be seen like that by the macroeconomic institutes. And, of course, should we experience further escalations in the Middle East and should interest rates increase considerably and consumer trust drop to the seller, then the building and construction industry will not be the only one to suffer. It will be other industries as well. We see that and we say in our guidance that the Middle Eastern conflict lets us be very careful. And here we have to clearly take into consideration the volatilities. We are living with a lot of uncertainties worldwide. against the backdrop of which we cannot be absolutely euphoric because the second quarter is better than the first. In our guidance for the second half of the year, we remained modest. The macroeconomic situation is something that no one can foresee. The share price suffered. That's always an effect in reporting that the shares are suffering, so they also is down by 9%. I don't think that the market expected that we could announce a firework of positive future guidances. And I say quite clearly, if there are no bombs in Europe, that cannot increase expectations. And you have known us for 21 years. We don't do that. We stay at a moderate level, and we try to focus on what we are good at, namely at being transparent with respect to operating figures and work. Thank you very much Ms Becker. The next question Andrew Nowell. Good morning to London.

Thank you for taking my questions. I've got two please. The first one is on if I could ask you about the mindset of your customers and maybe they're buying local in Europe now but do you think as soon as the situation returns they'll just go back to the cheapest option i'm just wondering if you could tie in with longer term contracts or or is there any way of is there any sign that they will longer term be a bit more loyal to to europe is the first one and the second question is for oliver um you know you know you made the point that um lanxus is well funded can i ask about the next priorities for refinancing and the options available and, you know, whether if the window opened, you had some possible disposals in mind. Thank you.

Thank you, Andrew. Coming to your first question on customer mindsets here, we see the current customer mindset, the customer mindset right now, especially as far as European, but also Asian customers are concerned. so we should not only look at Europe. Generally, we see that delivery security is currently very intensely debated in the customer base. And they clearly interact with us on delivery security. So, this is more a priority point in customer discussions today than it has been over the last three to nine months. In the last three to nine months, due to the global pressure on competitiveness, on profitability, the name of the game was price, price, price. Delivery security was not the theme in the past few quarters. this is changing and it does change here in europe and it does change also in parts of asia if this is going to be a theme now for midterm or long term i would say the jury is out but i think customers have realized that being completely dependent on asia leads you and it can lead you two in a situation where you are completely stuck, and my assumption is that one or the other customer is going to reflect about that with their global procurement policy. And then I hand over the word to our CFO.

Thank you, Matthias, and thank you, Andrew, for the question. You asked about the priorities for refinancing, and first of all, you rightfully so mentioned that we are indeed very well financed there is a maturity in october of this year a benchmark one 500 million and first of all i'd like to mention that this maturity is quasi pre-financed we don't only have north of 400 million in cash on balance but we have around about 1.3 billion of completely unused credit facilities. And on top of that, the markets are open. So for refinancing purposes, together with the Treasury Department, I'm monitoring the markets and we're going to use instruments and windows basically as we find them attractive. All clear, Andrew?

Yes, thank you very much. Good, schönen Dank.

Fine, thank you very much. The next question also goes to the English-speaking room, Mr. Erguni from Reuters.

Hello, can you hear me? Yes, we can. Good morning.

Good morning. Thank you very much for having my questions. I know that you partly explained it and answered that question, but I would really appreciate it if you could give us more details about the middle eastern conflicts impacts on long-says and chemical industry that would be the first question of mine and the second question of mine would be how much is your uh price assumptions for oil uh in the coming weeks and how much does this conflict cost cost you so far and what are your expectations in the coming months thank you very much um well valid question on Middle East

I hope that I had explained the impact of the Middle East conflict earlier in the presentation when I talked about the implications on page 8 where I basically stressed that value chains delivery security is intact that we do see that on the energy and oil price sides we basically are confronted with rising input costs but third our focus is very clearly on rolling that over to our customer base so that we don't get the margin squeeze and hit from rising raw material and energy costs. So that is my feedback to you on the Middle East's impact for us and for the chemical industry. And I would like to add another point. the European chemical industry was hit hard in the last 12 months because of the tariff escalation that we had and the capacities that China in many value chains dumped on the European market. We had generally a situation here in Europe where our energy prices were higher than in Asia and that situation is about to change. The Ukraine war was toxic for the European chemical industry. The Near East conflict is a global problem because of rise in energy prices, oil prices, etc. But the Middle East conflict has a stronger negative impact on Asia than in Europe. and this is important to distinguish. For that very reason, there are many chemical companies that say the conflict is a disaster globally but changes the competitiveness of Europe potentially for a certain period of time to the better. Now to your second question, oil. Our clear focus on oil is it will be high, most likely in the $100, $110 area for the next several months. Of course, this can change should there be a stronger tendency to peace. It can change to the worse if the escalation on a military side comes through again. So nevertheless, despite having a high oil price, Our clear target is to roll that over through product price increases, which we have flagged on our Internet over the last two to four weeks. I hope that answers your question.

Yeah, it does. Thank you very much, Mr. Saad. Thank you very much. You're very welcome.

Good. Schönen Dank, liebe Kolleginnen and Kollegen.

Thank you very much, dear colleagues. I think we are done with the questions. So, I would like to ask you whether there is anybody else who would like to ask a question. This does not seem to be the case, so thank you very much for joining and stay safe. Greetings from Cologne and we'll see you or hear you next time.