Aug 9, 2015
Executives
Oliver Stratmann - Head-Investor Relations Matthias Zachert - CEO Michael Pontzen - CFO
Analysts
Lutz Grüten - Commerzbank James Knight - Exane BNP Paribas Martin Roediger - Kepler Cheuvreux Markus Mayer - Baader Bank Stephan Kippe - Commerzbank Thomas Swoboda - Société Générale Andrew Benson - Citi John Klein - Berenberg Joe Dewhurst - UBS
Oliver Stratmann
Thank you very much, Emma. Ladies and gentlemen, welcome to our Second Quarter Conference Call.
As always, I'm very happy to have our CEO, Matthias Zachert, and our CFO, Michael Pontzen, with me. And before I hand over to those gentlemen to briefly go through a few charts of presentation, I would like to draw your attention to our Safe Harbor statement for legal reasons.
With that, I would like to hand over to Matthias for the first few charts and after the presentation, as always, we're available for your questions. Thank you, and Matthias, please go ahead, sir.
Matthias Zachert
Thank you, Oliver. I will start the presentation on page three.
Overall, I can clearly emphasize that second quarter was a nice quarter and a second good delivery in 2015, EBITDA before exceptionals being up 13%. It's is a nice over-proportional development versus sales growth.
And with this, I would also emphasize that for the first time in the last two to three quarters, we're back with volume momentum in basically two of our big segments. And of course, there are some base effects versus previous year that helps, but even underlying-wise we clearly saw good volume momentum in most of our business units.
The very favorable thing also is that all three segments have contributed to this performance with two stronger hits coming from the rubber division and from Advanced Intermediates, while Performance Chemicals was by and large relatively stable. Other elements that I would like to highlight are, of course, the fact that we have announced this morning that we will advance on Phase III with the carve-out of our entire rubber division.
We are doing that, of course, in order to prepare for the alliances. We are here more advanced of course, compared to last quarters.
We are still in discussions with a handful of parties, but in narrow, concrete, contractual discussions, we are now, of course, with a smaller amount of presence -- or with small amounts in discussions, which boils down to three parties. As far as CapEx is concerned, you can see that the big investment cycle that we had in the past, notably on rubber, has come to an end, with the completion of the two Asian sites.
And for that very reason, of course, we now come back to a more reasonable investment spending. On the back of this, both rating agencies have in the second quarter confirmed their investment-grade rating with stable outlook.
And I think they take note of the fact that the company has stabilized and is about to show improvements through the realignment project. I move to page number four, and here address the sales in more detail.
As far as pricing is concerned, of course, we still see that in 2015, we have price reductions as indicated, basically stemming from the raw material price decline. We saw some momentum in the second quarter on raw materials going upwards, which we saw also on our P&L in the third quarter.
However, we see that raw materials are stabilizing and even starting to decline again slightly. The positive statement I would like to make on volumes for the group, 5% up is something that we haven't shown quite some time.
And of course, like other companies, we benefit from notably the strength of the dollar, and I think this is something that you've seen in the European chemical industry quite often in the reporting season. Lower part of the slide, you see the EBITDA improvement on the price and raw materials.
It's by and large a wash, as far as volume momentum is concerned, this contributed nicely and in the position others we benefited from the restructuring program we initiated last year. However, the benefits were partly offset by the idle costs and notably the hedging losses we had to incur.
Page number five gives you a nice overview on sales momentum in all three segments going upwards, of course, here driven by volumes and by currencies. And on the right hand side of the slide, you see that two divisions had a nice punch P&L-wise, with profitability being up by 20% plus and polymers and even close to 35% in Performance Chemicals.
I think in Advanced Intermediates, you saw that we here were hard delivery segment in Q1, and therefore, we had some offsets on raw materials in Q2. All in all, I think this segment shows another quarter of high margin cash contribution and strength.
With this, ladies and gentlemen, I would like to hand over to Michael. Michael?
Michael Pontzen
Thank you, Matthias. Hi, everybody from my side as well.
On the next slide, when we come to the financial overview, the main and key position were discussed with Matthias already when it comes to sale EBITDA. The margin developed in line nicely to a level of roughly 13% for the group.
I would like to highlight on this page the development on CapEx and net financial debt, because if you recall, usually Q2 is a quarter where we spend a lot of cash due to the fact that we have the payout for our variable component; that we have to payout for our dividend. Last year we had the payout for our high interest bond.
But still we managed, even though Q2 was a challenging quarter, we managed to keep control of our net financial debt position. It only enlarged by roughly 40 million in the course of the first half of the year.
And one factor was obviously CapEx, which is under control. We said in the past that the expectation for the full year is around 450.
My guess as of today that should be the very upper end of the limit which we expect for the year. Same is true for net working capital.
Here as well, a nice progress, like always, Q2, Q3 are usually from a seasonality pattern the quarters where we have the highest level of inventory, and then the cash is coming back at the end of Q3, but especially in Q4. If you look at the numbers, if you look in the balance sheet, you'll realize that inventory is controlled.
So, the increase in volume in inventory is rather limited. We obviously do have some FX effect, but inventories are controlled.
The enlargement of the net working capital is to a very large extent due to the enlargement of the receivables. On the next slide, when we go into the segments, you see that all segments contributed to the improvement of the group.
Starting with polymers, it was a good quarter. The operations went well.
The start-up ran well, so the new plants, the new assets are producing material. We are in contact with our customers for appropriation.
Utilization, as it was discussed one quarter ago, was relatively high. Therefore, idle cost for the new plants were relatively low in the second quarter.
They're expected to raise in Q3 again, because as discussed earlier, the utilization is going down in the third quarter for the new plants. Still, we had some idle costs in Q1, so therefore -- in Q2, sorry, that must be regarded as well.
But it's really nice to see that all in all, especially the volume, we're given into the market without really putting too much pressure on the margin because finally, the margin of 14% is a nice margin for Performance Polymers. The only thing is I don't want you to get too excited on the 9% volume increase, because we're starting from a low base from previous year Q2.
Turning to intermediates, the Advanced Intermediates segment as well nice development, 17% margin, it's a rock-solid margin, good set of numbers overall, nice volume development. One thing occurred which we were addressing and flagging in Q1 results to some extent, that the favorable Q1 tailwind which we had, it did not only vanish, it really turned a little bit into the other direction because we saw that our input costs were rising strongly, more strong than expected in the course of the second quarter.
Why? They were some margin depression, some little margin depression.
I must still say though, nevertheless, 17% for the Advanced Intermediate segment is a very strong number. Talking about strong numbers, turning to chemicals.
Chemicals, I don't want to say a perfect quarter, but it was at least the best quarter in history for this segment. With a margin of 20% and EBITDA of 110 million, it was really, really a good quarter.
There were three main drivers contributing to it. Obviously, lower raw materials, favorable currency, and savings from the LLA program.
And each of the three roughly contributed to one-third to this development. The volume decline 3% is okay.
It's a little bit in line what we saw in Q1. We deliberately let volume go, especially in our flagship business unit ADD, which we set up newly in course of LEA.
But as well, the other flagship business units, Inorganic Pigments, are very rock solid and very high contributing to the very good development of this segment. For the time being, we're pretty happy.
Of course, don't expect that the margin to remain at this level. We have the seasonality, but we are right on track to turn this chemical segment into an arena of rather 13% to 15% margin coming from an 11% to 13% margin in the past.
That were basically in a nutshell for me the overview over the segments and the numbers.
Matthias Zachert
Thank you, Michael. I will continue with the outlook for the year and turn your attention to page number 8.
I think most of you seen that tonality from automotive industry, tire industry, has been somewhat muted, especially relating to Latin America, and recently to China as well. We've looked into this, we've looked into the dynamics and I've spoken to our big business units recently, not only in the Performance Polymers camp, but also in Intermediates and Performance Chemicals.
We factor that into our guidance, so for those of you who question if the upgrade on the guidance has taken recent macroeconomic expectations into consideration, my clear statement is yes. We see some volume momentum, of course slowing in the second half as we have seen in 2014.
But in light of the fact that the beauty of our global asset base is that we do not only have sites in Asia, we benefit right now from the good European momentum volume-wise and here Europe is clearly on the right footing, not rising great in volumes, but stable with slight growth. And as we still have around about 50% of our sales in Europe, of course, we have here a very stable contribution on volumes.
And this also holds true with like more momentum to the North American market. So therefore, I think all in all, what we see macroeconomic-wise from today's perspective, we take a reasonable approach on what we expect in the second half of 2015 and this is embedded in our guidance.
The second point is we keep the U.S. dollar at $1.10, the same rate that we had in Q1 communicated.
So, we confirm on the basis of this macroeconomic view and on the same cross rate for the U.S. dollar, we confirm basically the EBITDA and slightly upgrade our EBITDA for the full year to now a corridor of 840 million to 880 million.
And we see this also supported by the fact that we advance nicely on our efficiency measures. And we will detail further when we see us mostly likely face to face in the course of November for our Capital Markets Day event.
Ladies and gentlemen, this is all we would like to say on the summary for the quarter and outlook for 2015. And I would like now to open the call for your questions.
Thank you.
Operator
Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] First question comes from the line of Lutz Grüten of Commerzbank.
Please go ahead.
Lutz Grüten
Yes, thank you, and good afternoon. Taking my two questions.
One is regarding Advanced Intermediates. You've mentioned that there was an unplanned maintenance shutdown causing higher idle costs.
Could you please quantify that effect? And the second question is regarding the carve-out.
Could you give us further details regarding the timing? Can this be done already in Q3, or is there something lasting into H2?
What are the costs related? And any accounting or taxation issues we should be aware of in regard to that carve-out.
Thank you.
Matthias Zachert
Thank you for your questions. Let me address Advanced Intermediates here.
We have incurred some incremental -- or we will incur in the coming quarters incremental idle costs, which is single digit. It's more the sales that we lose and therefore bottom-line that remains in the single digit impact P&L-wise.
In Q2, however, we already took a depreciation on one reactor, which is in the area of 4 million, so that increased a little bit the depreciation in second quarter. And the negative impact on the P&L sales-wise, bottom-line wise, also to idle costs in the neighborhood of single-digit million we will have in the third quarter.
This happens; it was not planned. Unfortunately it came up in the second quarter, and of course now we do everything in order to accelerate the improvement, the fixing of the plant and this is expected to be then back on stream in course of fourth quarter.
As far as carve-out costs are concerned on cost accounting text, I think this is something that we will address once we finalize this, and potentially then move into the alliance or joint venture. And then of course, we will give you full color on all respective accounting texts and further implications.
Lutz Grüten
And the timing for that will be in the second half? It's confirmed yet?
Matthias Zachert
Well, we have I think -- here my indication would be that if everything goes well, we would be finished by December. But I cannot rule out that this will also take us into the first half of 2016.
So here again, we've started, we're preparing it, we're executing it. Normally carve-outs take between six, longest 12 months.
We rather assume six to nine months is realistic. And please take note of the fact we are not doing it for the very first time.
We've done that a few times already. And if there's one company who is knowledgeable about big industrial carve-outs, please take note of the fact that the people who are doing that in 2004 are still part of the organization.
So, I think we will try to be fast, but of course, thorough, with high quality.
Lutz Grüten
Thank you very much.
Operator
Next question comes from the line of James Knight of Exane BNP. Please go ahead sir.
James Knight
Afternoon. Three questions from me.
Firstly, in terms of the FX hedging costs, if rates stay at these levels, what hedging expenses should we use for 2016? So how much of that 125 million disappears next year?
Second, on the concrete rubber concept, I think you've indicated this morning, perhaps before, that you were willing to take a minority partnership. Could you indicate just how minor that stake could be?
I mean could it be something close or even a full exit? And thirdly, I think you confirmed this, but the Phase II cost-cutting announcement; will we have to wait until the Capital Markets Day in November to get full detail on those?
Thank you.
Matthias Zachert
Well, I think there's nobody more qualified than Michael to speak about your question on hedging. I will address the rubber question in Phase II.
So, let me address the question on the rubber partnership. This morning in the press conference call, we got a question on would we go into minority or majority.
And I hadn't been in this regard explicit. As indicated to you, we've entered with three different partners into contractual negotiations.
Of course, not everybody has the same kind of requests and some are focusing on more the strategic elements, some are focusing more on financial elements. And therefore, we have to make, of course, as a publicly-listed company; we have to follow an approach which fits all stakeholders.
Strategy rationale is very important. But, of course, strategy rationale is not the only thing.
As public-listed company you have to consider also financial parameters, and also as a company we're committed to our employees and other stakeholders. And for that reason, my feedback was in the negotiations we have right now, we've finalized negotiations and once signature is signed, then we would be concrete on is it majority, minority and how the overall setup is going to look like.
So, please let me come back to the statement that in course of second half, we will be precise on what strategic solutions we are finally deciding for in our management Board. And this is all I would like to say at this point in time.
But we've clearly not made any statement, is it 50 plus, is it 50 minus? All of that will be answered in due course.
As far as Phase II is concerned, it's clearly our ambition to give you a further update on Phase II. We are currently working on further sites as indicated in the March/May timeframe.
So, we have gone through further site analysis and we'll do that until the end of the year. And once we have further actions to be communicated, we'll definitely do that like we have done this morning with Phase III, we will in November give further update on Phase II.
And with this, I would like to pass on the FX question to Michael.
Michael Pontzen
James, like in the past, as of today we don't really give a guidance on the hedge result for the next year. We give the guidance for this year and that should be enough of the time being.
James Knight
Okay. Thank you very much.
Matthias Zachert
That was crisp, Michael. Next question, please?
Operator
Next question comes from the line of Martin Roediger of Kepler Cheuvreux. Please go ahead.
Martin Roediger
Yes, thanks for taking three questions. First, on your guidance on depreciation and amortization still at 420 to 440.
I understand that there are some special items in the D&A charge in the first half. So, my clarification question is how do you come to that guidance of 420 to 440?
Because when I take the reported D&A charge and multiply that by two, then I get to 468 in the full year. So, do you refer to an underlying D&A excluding any one-offs?
That would be my first question. The second is on the tax rate in Q2 which was relatively high.
Can you tell me what was the underlying tax rate excluding the disposal gain you have recorded? And the third question is on volumes by regions in the second quarter.
You highlighted that Europe and North America were quite good. Could you give us a bit more hint, was that double-digit for Europe, high single-digit for North America and negative for Asia?
Or is that too harsh?
Matthias Zachert
Well, I take immediately question number three, and Michael will address number one and two. The proposal you have just made is definitely not confirmed in Q2.
Here clearly feedback is Asia was rock solid, North America and Europe were good, and as far as Latin America is concerned, basically that was not looking good. So here, negative momentum, I would confirm for Latin America, if you look into rubber and the 9% volume growth, we've seen in some regions double-digits on volumes.
But basically what you saw in the entire Group, that Asia nicely contributed over proportionally, and Europe and North America did reasonably well. Now what we have done in our guidance, and that was basically what I alluded to earlier on, in our guidance we have to factor in the softening in Asia, which we have done.
But of course, we also see right now in the third quarter, we still see reasonably good momentum, also in Asia, but we look into the news that is coming out from our end industry. And therefore it would not be wise if we take some caution into the guidance on the volume side for Asia and also through the planned maintenance or production run down that we have guided to you in second quarter for the third quarter as far as our two new facilities are concerned.
So, this is something you should take into consideration. It's not addressed in Q2; it's rather addressing the second half of this year.
And with this, my -- I turn the attention to Michael.
Michael Pontzen
Thank you, Matthias. So Martin, with regards to D&A rate.
I think the underlying D&A rate is still in the ballpark 420 to 440, probably more at the upper end, obviously. It does have obviously some effect as well with the strong U.S.
dollar, so therefore the upper end. And you still have every quarter some 4 to 5, and if you look into the exceptionals, D&A in the first half, we had 10.
Then Matthias was referring to the D&A which we recorded in Q2 for the maleic anhydride in the U.S. reactor.
So, all in all, probably the number 460 for the year total in your model should be the right one, but I would say the underlying regular D&A should be at the upper end of the given guidance. With regards to tax rate, Q2 I think is pretty much the underlying tax rate, which we record.
It's different than the ones we target, that is obviously still due to the fact that we're still not having the full effect which we intend to have when rubber is coming back and creating earnings in areas where we have a lower tax rate than we have here in the Western Hemisphere.
Matthias Zachert
I would like to make some additional slight remarks, if I may. The tax rates that we have in the second quarter is in the upper 20s.
What in the second quarter we incurred were basically next to some one-offs due to the asset disposals, also simply some follow-up provisioning for fiscal, one or two fiscal topics that we had in two countries where we simply provisioned for respective transactions that we had in the past. And therefore, if you blank that out, you would come to a tax rate in the 20s, and that's simply for clarity, that we are not a tax rate in the 30s but operationally underlying-wise in the higher 20s at this point in time.
I hope this clarifies the tax question. And with this we should come to the next question.
Martin Roediger
Thank you.
Operator
Next question comes from the line of Markus Mayer of Baader-Helvea. Please go ahead.
Markus Mayer
Good afternoon, gentlemen. Three questions as well.
Firstly on -- one on the competition side, it's said that due to the sharp -- the price decline at low quality SPR rubbers in China and also the still relatively high spot put at end prices that the Chinese competition might suffer, what proportionally do you expect that these competitors, not in China direct competitors, but maybe indirect, that this may trigger then a consolidation in this market if this stays longer? That's the first question.
And second question is on your strong volume growth. Is this just the base effect, or is this also a kind of a new trend that maybe the replacement tire demand sees a recovery due to the higher mileage driven?
Or should we expect there's more to come in 2016? And then lastly, maybe a kind of an update from your side from more the competitive landscape.
Beside you and Lanxess, are there other players which are planning to close down capacities?
Matthias Zachert
Let me address one by one. So, the consolidation that you start to see notably in Asia and here specifically in China, I've seen some reports on this over the last four to six weeks have been very clearly addressing the tire factory consolidation, which we alluded to around about three to four months ago.
So, this is happening now, it's surfacing and visible to the streets. Please take note of the fact that in China you have a variety of very, very small to medium-sized tire producers.
And of course, you have all the big multinationals present in China too with factories. We've alluded to the fact that we consider that in the next one to two years; there will be a very significant consolidation on the small to mid-sized tire producers.
And the benefit of this is that you will also see that the small to mid-sized synthetic rubber producers will most likely be consolidated as well, because when their customers vanish, they will have difficulty to keep in the market as well. So, this is a -- whilst it is short-term, for the next one to two years of course painful, it is something that would clean the industry from our point of view mid-term.
And therefore that is something that we consider as good. As far as your second question is concerned and I would like to answer here, with the data of the tire manufacturers.
You see in the big tire manufacturers that replacement tires in basically all the regions except Latin America was on the rise, not strong, but in some cases between 4%, 5%, and 6%, depending also on the region. This is not great.
But it's of course better than the contraction you've seen over the last several quarters. And therefore, replacement momentum was good.
It was better than OEM momentum, but it was not outrageous. And therefore, I would like to leave it like this.
If you look at our 9% volumes, of course you should expect, as Michael has indicated, we had last year a strike in Antwerp, so we were two months off. And therefore we had a better volume momentum.
And the second point, of course, is that as announced in Q1 in second quarter, we produced another two new facilities. Now, we will continue with the appropriation process with our customers, so third quarter the two facilities will rather be idle.
And then we further go for the appropriation. And from fourth quarter -- first quarter onwards, we ramp up the sites again, so automatically we'll see less volume in third quarter.
And as far as your third question is concerned, I would like to say the capacity reduction is not only done by ourselves, by now there's been a few companies that have announced capacity reductions, plant rationalizations. And on top of that we have seen a few companies delaying their announced capacities of the last few years that we announced in the years before.
So, either production closures or delaying of plants being built by around one to two years. And I think the details of that I've given in the last conference call.
And I think Oliver and his team can give you all the precise names with nameplate capacity, et cetera, if you just give them the call. Next question, please.
Operator
Next question comes from the line of Stephan Kippe of Commerzbank. Please go ahead.
Stephan Kippe
Yes, three questions, if I may. Thank you very much.
First of all, talking about the rubber business and the three parties that you are currently in negotiations in. There has been an increased amount of worry about global growth, especially emerging market and Chinese growth.
Is that a factor that is making these negotiations more difficult? That is the first question.
Or are these negotiations more focusing seeing through the site and more focusing on the medium to long-term stability? Second of all, do you have any changes to the previously communicated sizing and timing of the restructuring one-offs, both in P&L and also in cash impact?
And third question, the strong margin performance that you had in Performance Chemicals. If I understood you correctly, you receive a lot of support from low raw material prices that you did not have to pass on to your customers so far.
Is that something that increased pricing power? Is that something that is going to remain?
Or will you be forced to give something away with pricing in future quarters? Thank you.
Matthias Zachert
Well, on your first question, with regard to the negotiations, I will not enter into any content of negotiations. But let us take a step back.
You always have volatility from one quarter to the other. And what we're seeing in rubber, even in the next quarter or the fourth quarter, you always have some volatility by one region to the other.
We now see more momentum in Europe and North America, while we see less momentum in Asia. But Asia, let's put things into perspective.
We consider Asia for the entire year and also for the next years to come as a growth market. Of course, growth will be more modest.
But we still consider clearly that the growth in the chemical industry, not only in this year, but in the next year will come from Asia, more moderate, but it will still be a growth country. And I think the partners that we are discussing with right now, they see the benefit that we have not only one regional footprint, where you are exposed to more volatility.
We're a global company; we're based in all four regions and through this of course you have a diversification, not only at product level, at currency level, but also from a regional standpoint. And this diversification I think is next to the technology leadership and the global reach that we have, and the broadest customer base compared to any other competitor is a major asset.
And this is seen, I think, by all parties involved in the process. On Performance Chemicals, let's be realistic.
We've not guided, and Michael has not guided for a 20% margin here. I think here the indication from our side is the improvement that you see is one-third currencies, one-third raw materials, which we of course, try to defend.
Always you have to give in here and there as well. But one-third is coming from self-help and this should stay, whilst the other two elements are, of course, more volatile, and therefore you should not take that into your model as given.
And on question number two, I would like to hand over the word to Michael.
Michael Pontzen
Stefan, there are no changes to the given numbers at this point in time. We said we're working hard to accelerate the self-help measures which gives us the comfort as well and connection with the good first half to tick up the guidance.
But at this point in time, no change in the given number.
Stephan Kippe
Okay, very detailed. Thank you very much.
Matthias Zachert
Next question, please?
Operator
Next question comes from the line of Thomas Swoboda, Société Générale. Please go ahead.
Thomas Swoboda
Yes, good afternoon, gentlemen. I will risk three questions as well, if I may.
Firstly on the volume development during the quarter, could you give us more flavor how that developed month over month? The second question is on the high performance tires.
You -- Transeo or yesterday indicated that that volume growth in high performance tires was mid to high teens. Is it fair to assume that you saw a similar volume growth for your Nd-PBR halobutyl and SSBR?
And the third question is on chemicals. Pigments and Additives seem to be at least for the second quarter kind of a star area we see in your portfolio.
Your competitors BASF and Clariant have announced -- just announced to curve-out those businesses and they might be seeing some restructuring potential. It would be helpful if you could put that into the context.
I know this is not exactly the same businesses I am comparing. But you might be able to highlight some differences, and whether you might be interested in the mid-term into the consolidation, further consolidation in this area.
Thank you.
Matthias Zachert
Valid questions one by one, let me take them one by one. We will not guide for monthly volumes.
So, we also do not comment on monthly pricing and anything else. So, I think the comments on third and fourth quarter you should take from the guidance that we have given and leave it like that.
So, if you look into second quarter, I think I've indicated in the last conference call that we had a very, very good month of April. And the other two months did not do that badly either.
Either we would not have been able to post a 5% sales growth some month. So, the overall performance in second quarter was a healthy one, posting these results.
And as far as the next few months and quarters are concerned, we will give further color and update in our next conference call. As for the second quarter -- sorry, as far as your second question is concerned, Nd, definitely Nd has posted among the performance butadiene rubbers the strongest growth rates.
So, I can confirm the same that Transeo had indicated, we have the same kind of momentum, strongest growth and the high performance grade rubbers, which is also driven by the fact that more and more tire companies are preparing for the labor change next year. And therefore high performance tires in general have simply better growth momentum than standard tires, which is fostered also by the CO2 discussions that we currently have, not only in Europe, but which is also starting in North America and China with a focus and more rigor in the implementation.
As far as your third question is concerned, pigments and additives, of course, these divisions do reasonably well, as Michael has indicated in the segment review. But I would like to give you context.
The pigment business that Clariant and BASF is in are different pigments. We are the market leader worldwide in the Inorganic Pigments and this is something that Clariant and BASF are not operating in.
These are the organic pigments and that's basically what I would like to highlight. The Organic -- the Inorganic Pigments business in our hands went through a restructuring a few years ago, led to a consolidation in the industry, and is still going through industry consolidation as far as China is concerned.
In the Western world, the number one player is Lanxess. And therefore, I think here the industry consolidation is far more advanced in inorganics.
And in the organics industry, potentially there will be some further consolidation. And how this is going to proceed, you should ask the companies that you have named before.
But as far as Lanxess is concerned, I think we're having fun with our Inorganic Pigments in Europe and worldwide. Next question, please?
Operator
Next question comes from the line of Andrew Benson of Citigroup. Please go ahead sir.
Andrew Benson
Thanks very much, good afternoon. With the business moving towards potentially significant change, and I was wondering if you could just focus a little bit on the -- what will become the core businesses, and what, if you like, the division is going to be for those, given it could be as easily as little as a few months before those become effectively your new core.
And perhaps on a more minor note, I just wanted to confirm that the idle costs you were talking about at Capital Markets Day last year, that that still holds? There's no change there?
And lastly, obviously you've noted a lot of slowdown in your market, but then upgraded your guidance slightly. I guess FX may be a help in restructuring.
But just wanted to -- perhaps just put a bit more flesh on the impact of the slower markets that you've been talking about? Thanks very much.
Matthias Zachert
Thank you, Andrew. I think as far as your first question is concerned, this is a very valid and strategic question, but my feedback to you is today everything is core.
And therefore what we're working on is, of course, to make, to build in rubber, to build together with a partner a global powerhouse. And as far as the Lanxess -- remaining Lanxess portfolio is concerned, what we will do here in the next years to come, I think is something that we should convey in -- at a time when we have taken the first step, which is the first strategic element that we have addressed this morning on Performance Polymers.
And therefore for the time being, the full focus of the organization is on Phase I, Phase II, Phase III. And what we do beyond these three phases, I think we will communicate to the public at a later stage, if this is going to be this year or next year, we will see.
But basically, first of all, the entire focus of the company is on implementation of Phase 1, Phase II, Phase III, and there's enough work on that that needs to be implemented. As far as question two is concerned on the idle cost of the statement that we gave in March this year or November last year still holds true.
But of course, the implications through the intended mall closure is one that has mitigated the idle costs for 2016 onwards and here, that is something to be taken into consideration. And as far as your third question is concerned, the impact from slower market development, we factored that into our guidance, Andrew.
So, again, if you look into volume momentum that we currently see in third quarter, we see that this momentum is softening, but there's no deep, dramatic decline that we see. And for that reason, the softening in the Asian region we have factored in; the softening in Latin America, we already factored in our last guidance.
So, therefore, you can assume that on the volume side, in our new guidance that we have given, we take care of the recent weeks and therefore feel comfortable with what we've announced this morning.
Andrew Benson
No, I appreciate -- on the last point, I appreciate, I understand that fully, but I wondering -- just perhaps a bit of flesh on the mitigating or the other factors that obviously are going a bit better that allow a combination of that tougher market but upgrade to estimates?
Matthias Zachert
Well, I think we allude to the fact that also our self-help is advancing nicely, and this is the -- of course, the efficiencies measures that we have started to implement last year and we will continue doing that of course this year. And that is one of the drivers.
It's not the entire drivers, it's also a slight improvement for instance in the European market, which we saw with slight better volume momentum than we saw in three months ago. And therefore it's a blend of operational elements, being self-help, but also momentum into other regions that are quite important for our overall sales development as well.
Andrew Benson
Okay. All right.
Thanks very much.
Matthias Zachert
You're most welcome.
Operator
Next question comes from the line of John Klein of Berenberg. Please go ahead.
John Klein
Yes, hi, good morning. Thanks for taking my three questions.
The first one is on agrochemicals as an end market. You sound quite cautious on your outlook on H2.
I just wondered that is based on a general assumption of a slower Latin American ag season, or if it's based on your customers actually indicating that, yes, their volumes would go down. Second question is on pigments.
And we've heard some relatively toned-down comments already from a couple of the paint names in the market. You sound more supportive on volumes and pigments.
And I just wondered whether that includes Asia and whether you're gaining market share potential in Asia? What your view is there.
And then the third question is, when you started, one of your first measures was that you were trying to get back customers in Performance Polymers on contractual structures and get away a bit from spot sales into the market. I just wondered if you could give us a bit of an update where we are in that process compared to 12 months ago.
Thank you.
Matthias Zachert
Let me address one by one. As far as agro slowdown is concerned, the comment that we make here is basically on the industry.
And that is not directed towards specifically our business units. I think generally you see in the industry that you have to distinguish the four, five big players.
Some of these players show growth. Others have more moderate development in volumes.
Positively statement from our side is we are very much leveraged towards or geared towards the fungicides. You see more weakness in the seeds and herbicides.
So, the fungicides all in all are doing well. Saltigo is pretty much in the fungicides and also here Saltigo is in products that have by and large a very good volume momentum.
And therefore we are moderate in our tonality on agro industry, but we are not really humble on what we have to communicate on Saltigo itself. As far as the second question is concerned, paints, the industry outlook that we do, we indicate that here the momentum is softer in the second half.
We also see that in sector they're in, but in pigments, if you look at the underlying development that we've seen this year so far, we come to the conclusion that we take market share as well. And for that reason, the strength in our pigments business -- in our Inorganic Pigments division, as Michael has indicated, is rock solid.
Now as far as third question is concerned, spot contracts by and large, we have only modestly in some cases taken some contractual agreements if it was attractive for both sides. If it's not attractive for both sides and simply on pricing, pricing, pricing, where they're not taking the win-win situation into consideration, we stay on spot markets.
And therefore this has gradually changed. But so far, clearly it's not the time for making our long-term contracts with their prices.
This is something that should be accelerated once the situation in the markets as far as supply demand is concerned has improved. And I think with this, all three questions are answered.
John Klein
Perfect. Thank you very much.
Matthias Zachert
You're most welcome.
Operator
Next question comes from the line of Joe Dewhurst of UBS. Please go ahead.
Joe Dewhurst
Good afternoon, everyone. I've just -- I've got three questions.
Just very briefly on the input costs versus pricing, clearly broadly in line in the second quarter, but it was slightly behind on the recovery from input costs versus pricing. Is that fair to assume that that's largely due to the Advanced Intermediates kind of correction on the actual pricing coming more in line with oil?
And then just on the guidance range, just some thoughts on what you assume regarding sort of how you come up with the lower and the upper end of the range, is it very much around volumes or anything else? And then just finally on the pickup on the receivables, is it fair to read into that that this is a good lead indicator of the improving health of the end markets?
Thank you.
Matthias Zachert
So, on the raw materials question, I think the biggest single swing you have seen in AII, which is relating to the contracts that we have, which are rather on the three months' basis, on the pass on and therefore here, of course, it was more visible. Like you see in Q1, we've seen the biggest swing in margins upward in AII.
And then, of course, now the adjustment in second quarter and for the polymers it was relatively limited. So, your statement on first question is correct.
As far as your second question is concerned, I would not so much allude towards guidance being upgraded for the entire year because of we see now a change in volume momentum for the second half. We came in better in the second quarter on volumes and that, of course, made the quarter better on Q2.
For the second half we are volume-wise not changing our guidance. But we've eluded to the fact that here overall I think the company is in more stable waters, also for self-help and regional volume momentum mitigates someone each other.
And for that reason, we lifted up our guidance basically not for volumes, but for the fact that we have had to put momentum in the first six months and are well on track on the remaining six months. And for the third question, I would like to pass on the word to Michael.
Michael Pontzen
Thanks, Matthias. Yes, Joe, you're absolutely right.
So, the pickup in receivables is basically driven by the pickup of end markets. Still obviously, we do have a little FX effect in it, but that is only a minor extent.
So, yes, it's pickup in end markets.
Joe Dewhurst
Okay. Thanks very much.
Oliver Stratmann
Thank you, everybody. I would like to thank you guys for participating here.
We will now close the call and start with our Road Show. So, we're very much looking forward to be seeing one or the other during the next few days when we're travelling.
And with that, I would like to again leave the last words to Matthias.
Matthias Zachert
Well, thank you for your patience on today's call and your contribution, your time. Looking forward to seeing you on the roads, both of us do, Michael and myself and Oliver.
And looking forward to seeing you again next time face-to-face, most likely with our Q3 results. All the best to you.
Thank you and bye, bye.