Aug 10, 2017
Executives
Oliver Stratmann - Head of Treasury and Investor Relations Matthias Zachert - Chairman of the Management Board and Chief Executive Officer Michael Pontzen - Chief Financial Officer and Member of the Management Board
Analysts
Christian Faitz - Kepler Cheuvreux Andreas Heine - MainFirst Group James Richards - HSBC Georgina Iwamoto - Bank of America Merrill Lynch Patrick Rafaisz - UBS Markus Mayer - Baader-Helvea Equity Research Andrew Benson - Citigroup Peter Spengler - DZ Bank AG Oliver Schwarz - Warburg Research
Operator
Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator.
Welcome and thank you for joining the Q2 2017 results conference call. I would like to turn the conference over to Oliver Stratmann, Head of Treasury and Investor Relations.
Please go ahead.
Oliver Stratmann
Thank you very much, Emma, and warm welcome to everybody on the phone from my end as well. I'm very happy to have as always, our CEO, Matthias Zachert; and our CFO, Michael Pontzen with me.
And before I hand over, I just like to ask you to take notice of our Safe Harbor statement for the forward-looking statements. With that, I'm happy to hand over to Matthias Zachert for a brief presentation, and afterwards, as always, the Q&A.
Matthias, go ahead, please.
Matthias Zachert
Welcome to all of you. And I will start the presentation on Page 4 with operational highlights.
And of course, the overall theme that you see in second quarter is now we make very visible that the company is being structured differently than before. We open up, of course, the new segment called Specialty Additives and we integrate the business of Chemtura, which has left its - a clear strong mark in all the financials relating to turnover, to profitability, to balance sheets and we will explain all bits and pieces in course of this conference call.
What we can say also is that the operational underlying strength should also come very visibly out of the second quarter. We know still the remarks that some of you had on Q1, when the statement was old LANXESS performs well, i.e., rubber, whilst the new LANXESS was performing more softly.
In Q1, we indicated that second quarter, this will look exactly different and also this is something where we can show with our financials that exactly this holds true. Now, one by one, let's come to the overall highlights.
Integration of Chemtura is fully on track. And as far as the teams are concerned worldwide, they have been extremely active in the last three months.
We advanced well. We are I would say pretty focused and speedy.
And as far as synergies are concerned, we are implementing them as promised before. As far as operational performance on all the LANXESS businesses are concerned, we continued pushing prices through.
We are still at a higher raw material level compared to 2016 and despite the strong volume increase in Q1, where we alluded to pre-buying we come out with an increase, slight increase in volumes in Q2. If you go on, the year-to-date volume increase, we stand close to 6%, which I think for the chemical industry is overall pretty sound.
On the way up, Q1, we managed the volatility of raw materials. On the way down, in Q2, we also manage it and we had to take a very low double-digits impairment or inventory write-off in ARLANXEO in Q2.
And therefore, I think we manage now the big volatility in Q1, Q2. And with this, we assume that Q3, Q4 will not have the same kind of volatility elements anymore.
It's being addressed in the first two quarters. As far as agro is concerned, I would clearly like to look to the fact that here it's the only industry where we see softer trading pattern.
And if you follow the big agro chemical companies, I think it's something that you heard from them as well. So it's something that is set, but we manage that within the guidance we provided and we provide later on.
With this, ladies and gentlemen, I move to Page #5, on the financials. I would say strong punch on EBITDA with €367 million.
I think it shows you that we are reaching new heights in terms of profitability dimension. It's the strongest second quarter we have ever reported so far.
Despite many areas, which are still not great, I refer to agro industry. I refer to synergies not being implemented yet and of course ARLANXEO being still in a somewhat troughy environment.
EBITDA margin roundabout 14.5%, 14.6%, this is lower compared to last year, where we reported roundabout 15%. But please take note that a few hundred millions of raw materials have been passed on to the sales top-line.
While, of course, this was a one-to-one pass-through, no implications on bottom-line, on EBITDA and if you have higher sales and you manage the high volatility on raw materials, automatically the margin being a relative KPI, of course, is getting lower. We stressed that 2016 I think various times, and of course, we continue stressing this in 2017.
What you have seen however, in Q1 and Q2, we extremely well have managed the volatility on raws. If you blend out the one-time burdens that we took for the restructuring of our leather chemicals plants in Argentina, not the best country to produce chemicals in, we've took - taking the decision to unplug the plants, charges were high in this regard also due to clean up costs and demolishing it.
But I think it will be necessary to reposition the leather business in the future, as we have promised. Also, PPA is something of course that you take in the inventories when you have the step-up, so this is being absorbed in Q2 predominantly that lowers net income.
If you adjust for that, the EPS improvement has been substantially strong. And that is something that we would like to even show further as we go ahead on an operational basis.
Net financial debt in our planning was performing better than originally anticipated, because underlying-wise I think we did great. Despite the fact that we saw substantial increase in networking capital compared to the previous year, i.e., raw material said to be digested, and I think we did that pretty well.
With this, I move to my good dear friend next to me, to our CFO, who will move you line by line through the financial highlights of Q2. Michael, go ahead.
Michael Pontzen
Thank you, Matthias. Hi, everybody, as well from my side.
Yeah, Q2 indeed a very strong quarter in an even more dynamic environment which we are facing. Still we posted nice increase in sales and EBITDA, pre - on the one hand side, obviously, driven by the first time consolidation of Chemtura.
But as well by the nice underlying development of our, let's say, former new LANXESS areas you will find on the next couple of pages that all four segments of new LANXESS contributed positively to that development. EPS pre, as said, rose by 75% to €1.54.
And net financial debt and net working capital both were heavily impacted by the first time consolidation and obviously the cash out of Chemtura in the second quarter. Turning to Page #7, you see the highlights of the first three segment of ours, starting with advanced intermediates, again, a very strong set of numbers, again, posting a very nice margin.
Besides the more weakening agro market which we were facing in higher energy and freight cost, we were alluding in the first quarter of this year that there should be a lag effect, when passing on the raw material prices and that is what came through in the second quarter while EBITDA was improving nicely. In our Specialty Additives segment, you see the majority of the change on top-line is coming obviously for the first time consolidation of Chemtura.
Keep in mind we're not posting a full quarter set of numbers, but basically only two months, because we are consolidating only starting April 21. The development is pretty much in line with our expectations, so the integration is running well.
The underlying business of former, let's say, LANXESS business posted a nice volume increase of 4% fewer as well, facing here higher energy and freight cost. And we are comparing ourself to a very strong quarter 2016.
If you recall at that point in time we were posting when these businesses still were in Performance Chemicals, the best quarter ever in Performance Chemicals and therefore don't get too frightened. Matthias was as well mentioning the margin developing, so there are basically the two effects, why you should not get concerned over it.
Turning to Performance Chemicals. Again, a continuously nice improvement in the financial set.
We saw some decline in volume and IPG, giving the price increases we push through in the first quarter, giving the rise in the raw material crisis. On the other hand, we have Chemours, which we as well did not have in the second quarter last year, which is contributing nicely to the developing and even a little bit more and better than we previously expected.
On the next page, Slide #8, we are first looking into our new Engineering Materials business. And here we have now the former urethanes business from Chemtura, which is contributing as well nicely to the development.
But especially our HPM business unit continues with an excellent performance, you see 6% volume increase, you see that we obviously we are able to pass prices through. And we are still having relatively high utilization rate, why you can imagine that good chunk of the improved in EBITDA is obviously coming from our HPM business unit.
Last but not least, in our portfolio, we still have ARLANXEO as well, for my reading positive good quarter giving the overall environment ARLANXEO is acting in. Matthias was mentioning the high volatility in our raw material, which led to low-double-digit write-off, because of the BD price decline.
But we are as well facing compared to second quarter last year, still it's essentially high raw material price environment, which we passed onto the customer with regards to the volume, we are still acting a market, which is underlying showing good demand. But please keep in mind, we have the pre-buying effect on the first quarter, where we recorded some 17% volume increase, and we have the plant turnaround in Belgium at our BTR site.
So all in all, I think, ARLANXEO giving the high uncertain and volatile environment did post some very solid numbers in the second quarter. Matthias?
Matthias Zachert
So with this ladies and gentlemen, I would like to turn your attention to Page #9. And here, we address full-year outlook and clearly despite some the macroeconomic and geopolitical risks, which I think we all are watching on tele and comments being made here, we have to live in the world of volatility.
We have to get use to of course strong statements by some politicians. But at the end of the day, we focus on our business and address the challenges that are there underlying momentum.
I'd say for all industries and businesses, it has not changed, we see it's positively. And we also see now that Q3 underlying volume momentum is good, of course, with the seasonal weaker pattern in the months of July, August, which is summer holiday driven, but not difference to years before.
And therefore the only weakness that we currently see stronger compared to previous good quarter is agro. And I think this is something that you referred from the agro chemical industry players as well.
As far as the regions are concerned, we see good momentum in Asia, we see better momentum in Latin America than previous year, and Europe and North America remain relatively stable, as we've seen also in Q1. And our assumption is that is going to continue for the next two quarters.
So all in all, business dynamics are solid. The only element that I want to reconfirm for the second half of the year, we posted strong growth rates notably through China in 2016.
This is common theme in the chemical industry, everybody will face therefore most likely, but of course, I can speak only for LANXESS softer growth rates in Q2 - in Q3 versus Q3 last year, Q4 versus Q4 last year, which was extremely strong on the volume sides in Asia, but that's not change compared to Q1. On the basis of this, we will confirm - we are confirming the full year EBITDA guidance of €1.225 billion to €1.3 billion.
And we will make this guidance despite softer agro markets. And we will also be in line with this guidance even if the dollar stays at US$1.18.
I've heard some chatter on currencies that's the reason why you have a range in the guidance. There is no doubt that US$1.10 is better or US$1.07 is better than US$1.18.
We prefer a strong dollar, but we will make our numbers from everything that we know as of today. We will make our guidance, and so I think what you've seen over the last two to three years.
We will work hard to further change this company, and I think we are rock solid on cost. The second quarter should rather give you the proof of strength than a proof of weakness.
We feel very, very well on track with what we have done so far. And I think you're going to see exactly what we are referring to in the years to come.
And of course, we will shed some more light on this in September, when hopefully we will see all of you. We are already eagerly preparing for the days, so that you have with interesting day with the LANXESS team and with our people here.
We all feel energized to excite you in the years to come. With this, I finish the call - the presentation of the call, and would like to open up the Q&A.
Operator
Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] First question comes from the line of Christian Faitz of Kepler Cheuvreux.
Please go ahead.
Christian Faitz
Yes, good afternoon, gentlemen. Three questions if I may.
First of all, Mr. Zachert, you just talked about the - basically, summer lull, not speeding, over-pronounced.
But can you share with us some thoughts on what you see on the demands for your overall business? Which trends do you see recently and importantly on customer groups such as automotive and building and construction?
Second question, in your operating cash flow, can you please elucidate the transaction related cash-outs, which you mentioned in your statements. And then third question, in your agro exposure, what percentage of sales goes to your single biggest customer?
Thank you very much.
Matthias Zachert
Well, let me start with the summer lull. I mean, if - the summer is not over yet.
July is in the books and August, of course, we see. And of course, there is some softness in the summer in the quarter as we've seen over many years.
But there is no pronounced summer lull. So momentum, volume is good.
Of course, agro, we have indicated the second half of agro will not be positive volume-wise, because we have seen that there is still a lot of inventories, underlying demand is not strong by the farmers. And for that very reason, we see a clearly softness in 2017.
And we are clearly not considering that 2018 will be better. So therefore, that is something we absorbed in our guidance and it's the only industry where basically we change our tonality towards more negative.
But we will absorb that within our numbers that we have communicated beginning of the year. As far as auto is concerned, also here there is no fundamental change in pattern.
What we communicated in Q1 was basically that Asia car momentum is positive, better than originally anticipated last year due to tax tariffs being lowered, so we see ongoing - of course, with the volatility you always have in Asia and especially in China, we see ongoing growth on a higher level, therefore the growth rates have come down. But growth rates are clearly still visible.
The same holds true for the European markets at of course more moderate level. North America is no longer growing.
It's slightly decreasing. That's how we look in the automotive markets.
But there is no sudden fall in terms of volume. But the momentum auto in North America is softer compared to 2016.
So all in all, if I look at the summer, seasonally it will be volume-wise a more modest development like you always have in the summer time. But there is no pronounced summer lull, which you also sometimes see in the chemical industry.
So here, the overall momentum I would say is normal to positive. As far as agro is concerned - Michael will address the transaction costs - as far as the agro question is concerned, we don't communicate the percentage on one single customer.
So we basically say the top five big agro players that still exist, I think right now it's gone down to - or at the end of month it will come down to four. The European players are the biggest ones, and therefore, we are not singling out one customer here.
We've always said that a Swiss company is clearly the bigger one and that's the only communication we've made. But this is something we take note of, we will adjust operationally, internally we will address whatever it takes in order to keep business on track and to keep here sound profitability.
This is operational management. And the one thing that I would like to clearly stress, despite that we make - we will make our numbers, because our underlying businesses and as far as the synergy implementation is concerned on the acquired businesses is fully on track and we will make sure that with the big shift we have, we will mitigate shortfalls accordingly.
Michael, please address the transactional stuff.
Michael Pontzen
Hi, Christian. Thanks for the question.
Yeah, indeed, we were posting decline in operating cash flow of some €24 million. And we basically said that without this transactional cash-out, the operating cash flow would be higher than last year.
So you should assume that it's a number north of €24 million. And we're about to give more details and flesh to the bone when we will do our meet-the-management, the intention is then to come up with a full set of numbers and a full set of table with the expected synergies, cash-outs and so on with regards to the integration of Chemtura.
Christian Faitz
Okay. Thank you very much.
Matthias Zachert
Next question, please.
Operator
Your next question comes from the line of Andreas Heine of MainFirst. Please go ahead.
Andreas Heine
Yes, thank you for taking my question, a number of those. I would like to start with the cash flow again.
I still struggle to get the bridge from the EBITDA to the operating cash flow. So I know what you said about the year before, but the EBITDA was quite nicely up.
And maybe you can help me a little bit, because when you start your cash flow with the profit before tax there were quite some one-time effects and so if you could elucidate what are the outflow in the second quarter. It was maybe only temporary and will reverse in the second half and what was one-time cash-outs in that specific quarter.
Coming back to what you have already answered in the agro, so the more negative tonality in agro. Is that due to the underlying trends, or is it change of the customer structure?
And maybe then one word on the margin in Specialty Additives, at least, I have assumed higher margin here. Is what you consolidated from Chemtura affected by these two issues you mentioned freight rates and energy quite strongly in this specific quarter?
Or is it more underlying that we have to look at what we have seen in the same quarter some kind of normal? And maybe one word, as you have already said that you have baked in the change in the U.S.
dollar, euro exchange rate in your assumptions for the guidance. Would it be already possible to give kind of U.S.
dollar sensitivity with the new setup of the company? As far as, I know, you've always mentioned €9 million before hedges and two-third of that being in ARLANXEO.
So looking to the new group, so taking out ARLANXEO, which you deconsolidate as of next year? What would be the U.S.
dollar sensitivity we were should look at? Thanks.
Matthias Zachert
Thank you very much, Andreas. Michael will address the cash flow question.
I will address the other three. And therefore, let me start with the question, agro have we seen it is the - is it customer driven or general agro weakness.
Our customer structure has not changed. So here it is nothing that we can report, no concern.
I think, if you go around through the agro players and you look at the European one, everybody has been a quite modest here, and indicated that underlying demand. And inventories have basically led to lower momentum.
And - in this regard, of course, they order less with us, and therefore we see the implications coming from them as well. We saw that in the second quarter, but then again, I would like to hint at the strength of Advanced Intermediates.
We have a strong EBITDA increase of roundabout €10 million, compared to previous year. So as you see in Q2, we've managed the agro weakness pretty well.
We allude to the affect that agro is not getting better, and we see here Q3, Q4 really it's very troughy industry right now. And that's something we are addressing, we will mitigate that, but this is completely baked into our guidance.
So I think with this, I've addressed the agro chemical question. Now on Specialty Additives, listen guys, please looking to the EBITDA increase, the absolute EBITDA increase.
We moved, I think from somewhere €45 million to €75 million in this area. So we move absolute wise in EBITDA, quite significantly upwards.
If you look into the EBITDA that Chemtura had last year, and you somewhat take two months. You will come to an EBITDA increase of roundabout €40 million for the entire Chemtura group.
If you then slice that in four pieces organometallics, urethane and then the two other additives business units. And you see the big spike in the urethane in the engineering materials business, and some incremental EBITDA also coming from organometallics in Advanced Intermediates.
If you see that the absolute increase operationally and cost wise in Specialty Additives should be very sound, or is very sound. That there is a margin decline relates to the fact that we have passed on raw materials, and compared to previous year Q2 2016 raw materials brutally slumped all margins and all chemicals moved upwards.
Margins don't reflect cash flow, absolute EBITDA reflects cash flow in this we have strongly increased. And that is the focus on our company, we want to turn this company into a cash generation company.
That we now have to absorb in our cash flow statements, one-time cost change of control costs et cetera. It's part of restructuring of cost base.
We will have also in the next few quarters, one-time charges in order to structurally upgrade this company. And that is something we have done in the past, and we will do that in the future.
On FX sensitivity, I think, Michael and his team are working on giving sound details in our September event. So the details on FX sensitivity will be provided and more color on this will - therefore be given in September.
And Michael will address the question on one-timers in the cash flow, right now. Michael?
Michael Pontzen
Andreas, good question, because it's really hard to read. So the majority of the explanation is related to the exceptionals, which we booked, which does obviously affect the profit before taxes.
We - as you know, in total booked €153 million of exceptional. You find some obviously in the D&A line, so €13 million is D&A.
And the remainder, you find basically in the two lines, change in other assets and liabilities, and change in working capital. And if you add these expenses back, because these expenses were basically not cash-out, you come already to a different number, keeping in mind that we have transaction related cash out.
And then keeping in mind that the change in working capital is if you add back the €65 million step-up expense, which we took as an exceptional in the second quarter, you realize that the change in working capital in the second quarter 2017 is not positive, but negative. So therefore we have a cash-out for working capital, because we have an increase in our working capital from an operational basis, as mentioned earlier.
So these are basically the two, three major arguments, on the one hand side, the different exceptionals, which were not cash-out. The increase in working capital or the cash-out in working capital and the transaction related cash-out.
If you deduct all these numbers, you see that the operational cash-out or the operating cash flow before changes in working capital is even better than you might see at first glance. But we can come back in detail afterwards and can go with you through all the lines and details.
Andreas Heine
Thank you very much. Very helpful.
Matthias Zachert
Next question, please?
Operator
Your next question comes from the line of James Richards of HSBC. Please go ahead.
James Richards
Hi, can I ask three questions, please. Can you just confirm?
I think, I understood the Chemtura EBITDA was broadly flat year-on-year. Can you confirm that, I'm right in thinking that?
Similar to Andreas' question, but the - can you just remind me what the transaction FX exposure is, and how much is hedged into future years? And the third question is you raised €1.5 billion of bonds to pay for Chemtura.
Can you just clarify to me, how much, if any of that's being swapped into U.S. dollars?
Matthias Zachert
Hi, James?
James Richards
Hi.
Matthias Zachert
Michael will take question two and three. As far as your first question is concerned, I think, I try to explain that clearly.
If you look at this €367 million we've reported and you look at our base in 2016 with €298 million, you see an increase in EBITDA of roughly €70 million. As I indicated to you before, if you convert the profitability of Chemtura last year into euro, and you slice that's roundabout simply mathematical linear, which is not reality, but let's take an assumption, into three pieces, you come to roundabout €40 million EBITDA.
So we are not guiding on one single business unit. We are not guiding on single business units of Chemtura within our business units.
But my blunt answer to you, you cannot come to the conclusion at all if Chemtura is up, down or flat. We have an increase of roundabout €70 million versus previous year.
We should have, if we simply take linear assumptions, an increase of roundabout €35 million, €37 million on an organic basis, which would reflect more than 11% operational improvement. And therefore, you clearly see in the second quarter that we incorporate acquired EBITDA, and we incorporate also further organic EBITDA improvements coming from one or the other business through cost-cutting whatsoever.
And that I think shows you the underlying good second quarter. We will not slice this to further pieces.
James Richards
Okay.
Michael Pontzen
James, with regards to the FX exposure, Matthias was mentioning we will be given an update on the numbers when we will do our meet-the-management early September. With regards to the bonds, yes, we issued them in euro.
That is what we do, what we did in the past, because we're granting them here from the level of LANXESS AG. We then grant the money into the U.S.
through intercompany loans or through an equity increase back in the U.S. legal entity, and then we hedge them, why you find changes or, let's say, movements in the change in other assets and liabilities, again in the cash flow statement I'm referring to on a regular basis as well.
But from a denomination perspective, all bonds are in euro denominated to finance the Chemtura transaction.
James Richards
Thank you.
Operator
You next question comes from the line of Georgina Iwamoto of Bank of America Merrill Lynch. Please go ahead.
Georgina Iwamoto
Hi, there. This is Georgina Iwamoto from Bank of America.
If I can have two questions. The first one is about Specialty Additives again.
If I just look at the implied margin from Chemtura I'm getting something around 15%, 16% EBITDA margin. And if we look at what the components, that we've included in Specialty Additives did from Chemtura last year, it's a significant decrease.
And I'm wondering if you could maybe give some color on what has driven this decrease year on year. I can't reconcile it just looking at oil and gas prices in terms of freight and energy costs and also factoring in the mechanical decrease from the increased raw materials.
That's number one. Number two is on ARLANXEO.
We've got new guidance that it's going to be slightly up year on year. I was just wondering if you could possibly give an indication of what you expect the split to be over the year.
Is it going to be around the sort of historical 60/40, half on half? Thank you very much.
Matthias Zachert
Georgina, welcome to LANXESS. I understand this is the first conference call you are on covering our company.
So welcome and we will all make sure that we will bring all details to you, so that you can further understand all underlying drivers for our company. Let's address the questions one-by-one.
So as far as Specialty Additives is concerned, I would like to repeat my point on absolute EBITDA. If you take certain assumptions on urethanes, which is a high-margin business and therefore also, of course, generates nice absolute EBITDA, you see a nice increase coming from that in our HPM or former HPM Engineering Materials business.
If you take some millions out for Organometallics and the former Chemtura structure and you add that to Advanced Industrial Intermediates, the absolute EBITDA increase for Specialty Additives should be fully in line with your expectations, potentially even positively surprised. As far as relative turns - relative margins are concerned, we saw a decrease.
And here, the answer that we are providing is the majority is coming from raws. If you pass on all raw material-related cost increases one to one to your customer, sales go up, whilst gross margin or EBITDA remains the same in absolute terms.
Consequences, you have a margin contraction, nothing has changed, nothing turned worse, whilst absolute EBITDA has increased, that is what I would like to highlight. Of course, we had to absorb also increase in freight costs.
I think you have heard that around the globe, freights have increased. And of course, that is something that we had to take and we took it.
And the same holds true with energy costs, which are normally difficult to pass on. It's something we absorbed as well.
And therefore, all in all, we would like to make here clear statements, margins are nice, but more important for us in terms of improvement is always the absolute EBITDA. As far as ARLANXEO is concerned, the seasonality that you have seen in the past, in the second half compared to Q1, this pattern hasn't changed.
It's still a business that is strongly exposed to the tire and automotive industry that normally has a softer month of August and extremely weak December. And therefore, the assumptions that you've taken for rubber in the past are the same assumptions that hold true for future years.
Georgina Iwamoto
Okay, great. Thank you very much.
Matthias Zachert
Thanks, Georgina. Next question, please?
Operator
Next question comes from the line of Patrick Rafaisz of UBS. Please go ahead.
Patrick Rafaisz
Thank you. Good afternoon.
Also three questions from my side. The first is on Inorganic Pigments, where you were talking about lower volumes but higher prices.
Can you talk a little bit about what was happening there from an industry dynamic point of view, why the lower volumes? And then on restructuring at Leather, can you update us on the timeline and maybe also give us a guidance for exceptionals for the group and for the remainder of this year in H2?
And lastly, and I hate to come back to Ag, but one of your peers was recently talking about increased orders from European crop protection companies for Q4 and Q1 2018 now. So do you think we are here at close to an inflection point or at the trough?
Do you see that as well? Thank you.
Matthias Zachert
Thank you, Patrick. I will take them in chronological order.
As far as IPG is concerned, industry dynamics were the following. We saw, of course, all in the Q1 the steep increase in raw materials.
So what we did in IPG was to post price increases to absorb and to manage the raw material increase, to announce price increases going forward, of course, also from second quarter onwards. And so what happened, and we alluded to this, of course, as well, we saw more purchase orders in Q1 and now the correction in Q2, whilst, pricing went up in Q2, which was still as far as IPG is concerned lagging behind in Q1.
So that's the normal effect. Overall, IPG is on track.
It's, of course, going up and down with construction industry. But here, that were the mechanics behind the second quarter volume drop.
Patrick Rafaisz
Do you think that we will see in the third quarter again a negative volume effect still from that? Or is it now fully absorbed?
Matthias Zachert
Well, we comment on this, of course, in the third quarter. We will not start now commenting business units by quarter development volume-wise.
What I would simply like to say, net-net price volume is positive. So the price increase basically outperformed the volume decline.
So all in all, as far as absolute EBITDA is concerned that is something, that is positive. And that's, at the end of the day, what counts.
As far as Leather is concerned, so here, the timeline, as you have questioned, the timeline is to basically take the plant off by end of December. So then there will be a few people left to take care of the demolition and cleanup.
But basically in Q4, the plant is completely off-stream. And currently, everybody is working hard to get that fully implemented.
The one-time costs, however, we have taken fully in the second quarter as communicated, I think, in May or June, when we made this communication. We took all of that into our books now in the second quarter.
And Michael, of course, will in September give further clarity on one-time costs, where we stand also vis-à-vis Chemtura. We will give an update here on, of course, how we progress synergy-wise, one-time cost-wise.
And therefore, this question will be answered in September. As far as Ag is concerned, agrochemicals, I am not sure who you have talked to for volume uptick in Q4 2017, Q1 2018.
Our comments are we clearly expect agro in the second half to be weaker. It's always weaker compared to first half.
That's the normal pattern in the Ag industry. But the clear statement we would like to make is we have so many of our customers, who are alluding to inventory channels still being pretty full, underlying demand being weak-ish.
And therefore, there is no reason to give here a positive color. We factor in a weaker scenario than Q1.
And we will mitigate that respectively. That's the communication and no change compared to what I've said before.
Patrick Rafaisz
Thank you very much.
Matthias Zachert
Most welcome, Patrick. Next question, please?
Operator
Next question is from the line of Markus Mayer of Baader Helvea. Please go ahead.
Markus Mayer
Hi, good afternoon, gentlemen. Only two questions remaining.
First, on Engineered Materials, and in particular on the polyamide business, you had some very strong margins there now for quite a while. And recently the polyamide price in Europe came down for the first time.
Do you expect that these margins or this ready for high margin level is sustainable also in the second half? Or is there a certain change in this area?
And secondly, sorry to come back on the guidance range and also on the ForEx sensitivity. But on the one hand, you said that different kinds of ForEx scenarios are baked in your guidance.
On the other hand, you gave then this assumption of US$1.1 U.S. dollar/euro exchange rate.
Does this mean that lower end of guidance bakes in already a certain higher euro exchange rate and upper end then this US$1.1? Or how should we understand this?
Thanks.
Matthias Zachert
Well, on the polyamide question, [indiscernible], the two comments I'd like to, first of all, make on engineering plastics. I mean, the test developed very, very nicely.
As Michael has said, strong contribution from our HPM business, which is the polyamide full chain with the engineering compounds. So here, the operational performance was strong and it has substantially improved over the last two years.
But at the end of the day, margins are margins. The urethane business is a higher-margin business.
As we always said, this is not the MDI or the TDI. We are in a very, very little niche segment.
It's the urethane solutions, where we have a very strong position in hot casts. These are really considered as pure specialty products which, of course, are technology-driven.
And technology-driven products that offer solutions to customers tend to have very, very mouthwatering margins. And that, of course, positively impacted also the Engineering Materials division.
But needless to say, polyamides is the bigger ship. It operationally performed very strongly.
A lot of what we plan to do over the last two years we've executed. And therefore, absolute EBITDA went up.
But also it's a very robust overall market at this point in time. And therefore, we are happy about the absolute EBITDA increase.
The margins go sometimes with currencies and raw materials. As far as the dollar question is concerned, I mean, I always prefer stronger dollar rates because strong dollar is positive bottom line for us.
And therefore, the stronger the dollar is, the better for us, better the overall strength, of course, in profitability. But what I would like to strengthen, if the dollar substantially gets stronger, you will see that reflected in the guidance.
If the dollar is now at US$1.18 and we make a forecast based on US$1.10, of course, this is not super. But what I would like to stress to you, fundamentally we are very strong on track.
And therefore, we will manage that. But for that very recent volatility of cross-rates, we have always given ranges.
Where we end at the end of the year with our range, we will report in a few months from now. But we feel operationally so strong that even US$1.18, we are able to mitigate in the range of our guidance.
That's our communication.
Markus Mayer
Okay. Thank you.
Operator
The next question comes from the line of Andrew Benson of Citi. Please go ahead.
Mr.\ Benson, your line is open. Please go ahead.
Andrew Benson
Sorry, sorry, about that. Yeah, sorry about that, I was just - kept cell-phone on mute.
Afternoon, everyone. I think a couple of questions.
In your financials line, there is a dividend from Currenta, which I guess is the old Bayer sort of services business that you've got a 40% share in. Is that likely to be a recurrent dividend?
Or is it just a one-off? And secondly, is there any value at that - I mean, its financial value, especially since business is getting more global and a lower proportion of the asset is based in a traditional Bayer historic sites?
Could that be monetized at some point as part of the development of the business? You mentioned that the Chemours acquisition was doing well.
I wondered if you could just give us a bit of a detail. And I know you're going to probably give us a lot of information on the synergies.
But can you just give us just a flavor of how you're going about in integrating the new additives division now? Thanks.
Matthias Zachert
Two very valid questions, Andrew. So as far as Currenta is concerned, Currenta reported a positive net income.
And it was stronger than in the years before. There are some technical reasons behind that, which are related to pension accounting.
But there are also operational reasons related to that because Chemtura - not Chemtura, Currenta, the service company for basically Bayer, LANXESS and Covestro also trimmed their cost base. And therefore, bottom line, this was positive as well.
And that drove the incremental dividends on top of the pension technicalities. So that's basically the dividends stream that you've seen in the financial results, which was of course nice and dividends from Currenta normally always come depending on when they close their books either Q1 or Q2.
So that was basically the first one. As far as Chemtura is concerned, the communication that we did in September 2016, and that we reported and confirmed ever since, has not changed.
We stated that in our negotiation we always stressed that we saw Chemtura in 2016 at a very strong performance. And they also were benefiting from the decline on raw materials.
Chemtura had an increase in margin 2016 versus 2015 and in the negotiation we had with Chemtura, we stressed these are positive effects coming from low raw materials and Chemtura stressed this is evergreen. This will continue for many, many years to come.
And that was the reason why we debated and negotiated over several months, because we basically clearly stated we have to confirm our purchase price. We cannot increase it further.
We can only pay the 33.5 and nothing more. That was the first statement.
And the second statement was that the profitability of 2016 is a profitability we will be able to maintain or improve through synergies. And that's basically, what we are doing and that's basically, what we are going to execute in the next few years.
As far as now the integration is concerned, we have corporate group-wise, country-wise integration teams established. They all are working on implementing what we have planned.
And of course, the divisions that are focusing on the operational integration is in Advanced Intermediates where it's running pretty well. In Specialty Additives, the teams have formed and they are focusing on now the customers.
Customer by customer has been allocated now in the sales force. Sales force is established globally.
And of course, the remainder is the urethanes business. Here, we have taken the decision to establish a global business unit.
So, that this business unit is no longer an orphan child, but has the potential to accelerate in the future. And of course, here we will further learn this business and try to find improvements cost-wise, volume-wise, market-wise, and therefore that's currently where we stand in the integration.
Overall, things are on track and we would like to provide more color on this in September to you.
Andrew Benson
Okay. Can I just come back to the first point on the Currenta, is it feasible or possible to - you might consider monetizing that asset?
Or is that just highly unlikely?
Matthias Zachert
It could be monetized. That's definitely something that could be done.
The question is if you want to monetize this. We consider - and there might be different view by other shareholders on this.
We consider that the infrastructure, many of the services that Currenta provides extremely core to the production of our products. And that is something we should rather have in our hands in order to run the plants as efficient as possible.
There are other industry parks, where the same model is used. In Evonik, you have it with one full shareholder.
In former Hüls, for instance, you have many shareholders. But none of these industrial parks have so far, at least in Germany, as I understand from the big chemical companies, have been spun off elsewhere, even though we see that there are interested companies who would like to take that onboard.
So monetization could be possible. I personally think that strategically this is potentially not a good, sustainable move.
It might be a short term financing mean. But long term, I think you lose your competitiveness.
But monetization is definitely something that could be done if you wanted to do it.
Michael Pontzen
We have now time for one or two more questions.
Operator
The next question comes from the line of Peter Spengler of DZ Bank. Please go ahead.
Peter Spengler
Yeah, good afternoon. Thank you.
Actually, I have one question left. It is on the addition - housekeeping item, so is it fair to say that the change in the housekeeping items like CapEx D&A, is based on the combined numbers LANXESS plus Chemtura, and that there are no major changes, except in the reconciliation, which is €20 million more negative?
So, I guess, it's because of the Chemtura corporate costs or so. Or is it more hedging, additional hedging?
That was my question. Thanks.
Michael Pontzen
Peter, you're absolutely right. All deviations are basically because of the Chemtura, which we now have in our accounts.
Peter Spengler
Okay. So the recon is also more negative because of Chemtura corporate charges?
Michael Pontzen
Yes, to the very large extent.
Peter Spengler
Okay. Thank you.
Oliver Stratmann
Final question, please.
Operator
Final question comes from the line of Oliver Schwarz of Warburg. Please go ahead.
Oliver Schwarz
Yeah, thank you for taking my question. A quick one on tax rate, could you quickly elaborate on the impact of the acquisition and the related one-off on your tax rate, whether that is something we might see also in the next quarters to come?
And secondly, connected to that, could you please quickly comment on the bridge between the EPS reported and EPS adjusted? Because it seems that there seems to be no netbacks of tax benefits in that gap between the reported and the adjusted number.
Thank you.
Michael Pontzen
Thank you, Oliver, for your question. First question, with regards to the tax rate, like always, when we book exceptional and especially restructuring exceptionals, you have to see whether there are any tax loss carry-forwards to be booked.
We booked in Argentina, as we were mentioning earlier, some €60 million. There are no taxes which we can or which are being offset, which would lower that number.
So if you exclude the basically €60 million from our earnings before taxes, you would recognize that the tax rate would be again in the ballpark of €40 million. With Chemtura, the overall tax rate, which we expect midterm for new LANXESS would not change and the overall new LANXESS tax rate is still in the ballpark of 30% to 35%.
With regards to the EPS calculation, indeed, there is a tax effect to it because, on the one hand side you have our net income, then you have the exceptionals, then you have the amortization of the intangible assets, and then you have an effect from taxes and that equals then to that number of €1.54 million. You can get the numbers out of the report we are providing or from the IR department.
Oliver Schwarz
Great. Thank you.
Oliver Stratmann
Thank you very much. I'd like to hand over to Matthias again for the very final word.
Matthias Zachert
Well, thank you for participating to today's conference call. We feel all energized and we are looking forward to seeing you all on the road in the next few days and we welcome to - we welcome everybody with great heart and with strong emotions in September.
Hopefully, you can make it to our meet-the-management. And until then, take good care and all the best.
Thanks for following us. Bye-bye.
Operator
Ladies and gentlemen, this concludes the LANXESS conference call. Thank you for joining and have a pleasant day.
Good-bye.