Mar 11, 2022
Operator
Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the LANXESS Conference Call.
I would now like to turn the conference over to André Simon, Head of Investor Relations. Please go ahead.
André Simon
Yes. Thank you very much, Orelia.
Welcome to everybody to our Q4 and full year ‘21 conference call from my end as well. As usual, I have today our CEO, Matthias Zachert and our CFO, Michael Pontzen, with me.
Please take notice of our Safe Harbor statement. And with that, I am happy to hand over to Matthias for a brief presentation and afterwards, as always, the Q&A.
Matthias, please go ahead.
Matthias Zachert
Thanks, André. Welcome from my side to everybody who is listening in.
A warm welcome from LANXESS, a warm welcome out of Cologne. The conference call today is focusing on Q4 and full year ‘21, but in light of the current situation, we would like to, first of all, start with the aggression war on Ukraine.
And here with – I would like to go to Page #4. Overall, I clearly would likely – I would clearly like to say that we are shocked by the aggression that is happening vis-à-vis the Ukraine.
And in this call, however, I would like to focus on the implications that we have assessed for our business and not dive into moral explanations, which are – which could be endless. So, let’s focus on the facts.
The overall exposure that LANXESS has to the markets in Russia is limited. Less than 1% of group sales we do have, in absolute terms, €60 million, 45 employees, all of them are in Russia; and in Ukraine, we have literally no sales and no employees.
We have assessed by now the supply situation and can say that from the raw material side, this is modest. On the Thursday morning, when the aggression took place, I instantly talked to my fellow board members.
We established a crisis team with business interactions and function interactions like procurement, logistics, treasury, etcetera in order to get transparency on all relevant topics like sales, assets, raw materials, contracts, you name it. I will address that in a moment.
And we have taken immediate decisions, no further investments will be done in Russia, new businesses, whenever possible is being stopped; existing business is being phased down, phase-out to the legal bare minimum. From the €60 million we have today, my assumption is that within a few weeks or a few months, it will go down to single-digit millions.
Let’s look at some details just to give you full transparency so that you see what kind of exposure we have. If you go for specific topics, specific risks, you see that on the employee side, it’s not a lot, it’s 45 people, direct sales, I made my comments.
Accounting, of course, went through the entire balance sheet implications. If we from today immediately unplug we would have an impairment in our balance sheet of €20 million.
Thereof around about single million exposure on receivables and do believe that we are doing now everything to collect our receivables. And if they are contractual legally binding sales that are still done, we only do this with prepayments.
Procurement, we went through the entire sourcing. We have not spotted here substantial shortages or issues going forward.
So, while this was higher on the radar, it has now turned to be lower on my radar. This is for specific risks are concerned.
Let’s touch on general risks. Energy, I mean we all see the energy volatility.
And of course, economic volume momentum, this is something that I think none of us can truly forecast at this point in time. So, we have no crystal ball on this.
The one thing I can state, the one thing you can be sure of, this is a management team that has gone through a few crises and managed crises in a determined and very swift way. It’s therefore a leadership team that is experienced.
And I think this is what it takes to manage crises of this nature. Now, let’s turn to ‘21 financials.
Ladies and gentlemen, overall, if I look back into 2021, as a CEO, I have to say that was a tough year. And I have in the last 7, 8 years, never really said something like this.
The year started with blizzards in the United States, even sites in Texas, where normally you have warm temperatures, humidity and barbecue, there was a blizzard and our menthol sites was not operational. And the same was true for the other big sites.
So February, blizzards, March force majeure with suppliers with our own force majeure in polyamides, then we have the logistic constraints worldwide whenever we wanted to ship from one region to the other. All of you have taken note from – of raw material price inflation.
Then we had this horrible flood in Northland Australia where our teams and employees even were impacted, I have not seen that before. And then we have this dreadful explosion on the Chempark and Leverkusen.
All of you have seen it on the television or read about it in newspapers. So, it was a tough year.
Despite that, I clearly would like to look at the highlights. With our portfolio, we were able to pass on the entire raw material price inflation, 1 to 1.
In our company history, we were rarely in a position to ever achieve something like this. Lastly, we did it.
Also proof that the portfolio right now is in it’s – in a position it has never been before. Second, in ‘21, we were running behind on energy prices.
We always had difficulties to truly pass it on. In Q4, we did it.
We basically established more and more of energy clauses throughout the year in contracts of importance. And in Q4, we went out in several business units also with a special price energy surcharge.
So Q4, all-in-all, was a good one. If you look at entire financial year ‘21, we had a sound momentum on volumes.
10% growth is good. Despite all these supply chain constraints, it could have been better even.
EBITDA went up again above €1 billion. Challenges, clearly, I mean, margin turned softer, because when you arithmetically add something like €750 million, €800 million to the top line, which is strong when you pass on all raw materials and then of course arithmetically your margin declines.
The challenge definitely also time lag on passing on the entire energy price increase of 2021. We did the lion’s share, but of course, could not address all of them.
And due to the negative one-time effects I alluded to earlier, we took it on the profitability as well. I will not repeat the one-timers I mentioned before.
I turn to Page 7, input costs. That was a topic that was a difficult subject in 2021.
We had an increase in energy costs, which was significant. I said very clearly at the outset of the year, this is something we have not experienced.
And therefore, in first quarter last year, I said we will address that. If we can address more than 20%, 30%, I was humbled at that point in time.
By now, I can say – and if I look back in 2021, I can say that on all relevant and major contracts, we have now addressed them and could agree with our customers to include energy clauses and therefore we could mitigate that. Nevertheless, we had a substantial increase in absolute energy costs from 300 to 500.
And this is the entire energy bill. If you look at natural gas, it’s of course not the same number, it’s rather in the area of €200 million.
Our target, ladies and gentlemen, for the year perhaps is to further increase our contract clauses with energy passed to clauses to 60% or 80%. But of course, this is a target we have to make it happen and we are working on it.
On the right hand side of Slide #7, you see logistic costs. That’s also a biggie.
It needs to be further addressed, because I don’t see the tensions on the logistics side are going to ease. They will be still tough in 2022.
And most likely, only in ‘23, capacities will be adjusted and value chains, logistic chains will be a bit smoother. That’s at least how we look at it at this point in time.
Now, when costs go up, you need to work on price. So, I turn my attention to Page #8.
2020, as you know, was a deflationary environment, because volumes went down, markets were soft, pandemic was hitting sentiment and economy. But ‘21, the situation changed basically in Q4, Q1 and from Q1 onwards, when prices really strongly moved up, you saw that we acted accordingly.
We had to – we have a lag effect normally in our contracts and we needed to get, of course, further contracts adjusted. But as you can see from the sequential diagram here, we were making quarter-on-quarter we caught up and of course, in fourth quarter had a substantial price increase if you compare quarter versus year before.
In my professional time here in LANXESS, I have never had seen a price increase like this, so we work on that. And fortunately, the portfolio is strong.
I turn my attention to Page #9, because 2021 was operationally a tough year. We did a lot, we addressed a lot, but also from a strategic side despite pandemic not being over, we further worked on the strategic direction, shaping our company portfolio.
So, we did successful portfolio management. In February, we went out and announced the Emerald Kalama acquisition, which was completed in August.
We grouped to weather all our Flavor & Fragrances business and have now one of the leaders in this very industry. And it’s doing well.
I like the business a lot. I have taken personal charge of this business unit.
All of you know that in August, we announced the intended microbial control acquisition of IFF, purchase agreement is signed, but of course, the transaction yet has to be closed. We did two bolt-on acquisitions in case of the sale, also in consumer protection, also in the field of disinfection and animal care.
But we also divested businesses like Organic Leather. I think this was a good move.
And eventually, we sold also our chrome mine in South Africa. That was the project.
On top of that, we announced that we – in November, that we are going to carve out our polyamide business units or in brief, High Performance Materials. This went through the press.
This went over the ticker. I read many analysts’ reports.
I will not contribute to speculation, but the one thing I would like to be very blunt and direct about is the likelihood is high that lead – that this can lead to cash-ins, because I stress that very clearly what the company direction will be in 2022 and I made that clear in November last year. The likelihood is low that this will lead to cash-outs clearer, I cannot be.
Operationally, we also like the moves into battery chemistry. We talked a lot in the past about this, but eventually now, it’s coming.
This year, we will start to produce more than 10,000 tons of electrolytes for one of the biggest electrolyte producers in the world, Tinci in Chinese, Tinci. And this will be done in Leverkusen, in the heart of Germany, in the heart of the process industry.
We will produce the electrolyte at ultra purification grades that comply to 100% standards – quality standards of BMW’s, Daimler, Tesla’s and the like. Eventually, it took some time.
We also signed an agreement with Standard Lithium. You know that we have been working on the pilot plant for quite some time.
And this pilot plant is a big one. It has been now operational for several months eventually after pandemic and borders were closed.
You know how much delay this costs. But eventually, we have made an agreement with Standard Lithium based on which from our personal point of view, I look into the eyes of Michael, our CFO.
We conclude that this can only yield upsides and no real entrepreneurial downsides. We can decide once the feasibility study is completed.
So, this will be true engineering work and this will take most likely something like 12 months to get it completed, then you see exactly how full, real, extraction units is engineered, how much it costs and investments and what the economic business plan looks like. So, you have really everything worked out with massive engineering work.
And then we have the optionality to decide if we co-invest. And if we want to stay on the sideline, which would be likely in light of the cash flow commitment we’ve given to you, we can take the offtake from the volume of lithium carbonates and have a market discount which can reach up to 20%.
I think this is a good direction we take. No upside – sorry, no downside, only upside.
On Page 10, I comment on the targets we’ve provided in 2017, hey, that was a different economic environment. I think the KPIs reflect at that point in time, margins, 14% to 18% through the cycle, low volatility on margins, cash conversion, 60%.
Let’s look at that. I think we made very good progress in the first 3 years, making upgrades on the margins year-on-year.
My assumption is if we would have continued in a normal economic environment, you would have seen something like 50, 100 basis points continuation in the years afterwards. This did not happen.
We fell from 15 to 14 in 2020, so low volatility. But due to the massive price and fleet inflation that we faced in ‘21 which we fortunately could pass on, of course, margin eroded in 2021.
If we take the average, however, 14.2 over the last 5 years, we reached. Volatility, I think, speaks for itself.
In 2013, our volatility was around about 500 basis points. So the 0.9 you’ve seen in 2020, I think, speaks for itself.
Cash conversion, I think we made our comments and we take them very seriously. So this will be addressed.
Page 11 shows you our DB. So based on ‘21 financial performance.
Management Board and Supervisory Board will propose to our shareholders and our Annual General Meeting to increase the dividend to €1.05 per share. This is a sign of positive expectations on the company development going forward.
On Page 12, we would like to address sustainability. I’m a father of four children, I take that seriously as a father but I equally take that very seriously as a company’s CEO.
I think the fast you are on emissions, the better it is also for your P&L because this is a business case. So we take that very seriously.
And you see that year-on-year, we made improvements from the day we announced it in 2018 to until today. 2020, of course, we saw a drastic decline more than the around about 5 percentage points we normally had, because in 2020, we had a volume collapse due to pandemic crisis of more than 10%.
‘21, we did four acquisitions, and we increased our volumes drastically. And despite that, we were basically on par – nearly on par with 2020 emissions.
Noteworthy that we are a company that have, based on shareholder approval in our last AGM, linked our variable pay also to absolute CO2 reduction. And this is what I take very seriously.
Only absolute CO2 reductions are needed. Relative CO2 reductions, if we produce tons of volumes, we might increase our absolute CO2 emissions.
Therefore, I consider it as very important that in remunerations, absolute targets are being fixed. Now to guidance.
The start of the year was strong. We’re good January.
We had a good February. And the order books for March, I went through that basically 2 days ago.
together with Michael and he was, of course, doing even further granular work. I personally spoke to our biggest business units, just to be crystal clear on current trading, order books look good.
We had in our annual report also, of course, a guidance prognosis for the full year, which we here also reiterate. But in all clarity, I would like to say, I have no crystal ball.
I see the volatility out there. So what I would clearly like to say, we are firm on Q1.
We guide for €280 million up to €320 million. With €320 million, everything needs to go right.
With €280 million, we feel good. And if it’s in the middle of the corridor, we would be heavy.
That would be a substantial increase versus Q1 last year. And on this year, on this Q1, we guide hard.
As far as 2022 full year is concerned, we think – we thought a few weeks ago that we will be substantially above previous year without IFF that shows you that momentum in the business overall is good. But of course, I need to make clear that the implications on the Russia, Ukraine war are unpredictable at this point in time.
And this is a big statement I make because if I would say anything else, it would truly be unserious. The one thing you should be sure of, however, we, the LANXESS management team, our crisis experienced.
We’ve managed a few crisis already. We will steer this company through the volatility.
That’s our job. That’s what we are paid for.
Thank you so much. And with this, I open up the floor for questions.
Operator
And the first question is from Matthew Yates, Bank of America. Your line is open.
Please go ahead.
Matthew Yates
Hi, good afternoon, gentlemen. One very short-term question and one perhaps a much more longer term question.
I’ll do the short-term one first. On the Additives division, given the logistical constraints you had in Q4, does that mean that there is a material amount of business that you weren’t able to book and that has slipped into Q1?
I’m just trying to reconcile what was a slightly depressed quarter in Q4 versus a fairly upbeat guide for Q1, and whether there is a timing or a transitory issue that explains some of the additives performance? And then the second question, the more long-term in nature.
And I wanted to ask about your polyamide business, and how you see the impact of electrification in autos because there seems to be a number of applications in nylon for under the hood parts, which are perhaps at risk. And when Celanese recently announced their acquisition of the DuPont business, they put in a slide arguing that the content in an EV would be roughly similar as some new products emerge.
I wondered if you could share your perspective on whether you see EVs a risk or an opportunity for the LANXESS polyamide business? Thank you.
Matthias Zachert
Matthew, very valid questions. So let me address short and midterm.
Your first question on additives, I will not be now specific on EBITDA numbers for Q1. I think we do this for always for the group.
We did that for the group. But you are – you’re on the right track.
So expectation – your expectation for Q1 and Specialty Additives can be sound. And therefore, if you look at the entire year 2021 for additives, that’s my first request.
I think you will come to the conclusion it was a good year. And Q4 was not a star.
But if in Q1, they can catch up for that, please give them forgiveness. I think additives is on the right track.
Now on polyamide, I know your report, and I clearly would like to stress to you, we made the detailed assessment. We even spent money and not hundred thousands, but we made a very profound sound analysis with customer discussions, etcetera, etcetera.
And we came to the conclusion that electrification is a clear positive for our nylon business. And this would be an opportunity.
There was, I think, yesterday or 2 days ago, a report in a German Economic journal that lack the new innovation that we are currently bringing to the markets. And that is basically replacing the housing of the entire battery with replacing the steel aluminum with polyamides.
I mean this is a lot. And therefore, we conclude that with all the other opportunities that will come there will rather be more volumes and less volumes.
And this we also get confirmed through the projects that we have with our OEMs, Tier 1 suppliers, that are basically now kicking into our order book. So I think this is clearly stated it’s an opportunity and not a risk and what Celanese has communicated in their slides, which, of course, I looked at, good presentation.
We have no different view on it. I hope this answers the two questions, Matthew.
Matthew Yates
Thank you, Matthias.
Matthias Zachert
And I’m looking forward to see you next week on roads and physical form, hey, eventually, we get there.
Operator
The next question is from Rikin Patel BNP Pariba Exane. Your line is now open.
Please go ahead.
Rikin Patel
Hi, thanks for taking my questions. Just firstly, on your comments on the good start to the year and the strong order book.
Going into Q2, can you maybe give us an indication of what the order book is looking like? And have you seen any I guess, initial impacts from customers in light of the situation in Ukraine?
And then, I guess, in relation to that, just more generally speaking, how do you assess the demand environment right now in terms of, I guess, customers restocking versus underlying demand? And then thirdly, just on the guidance for 2022, I think you pointed towards €100 million of exceptional items.
Can you just remind us what is included in that number? That would be helpful.
Thanks.
Matthias Zachert
Yes. Thank you for your question, Rikin.
Michael will address exceptions I will take the first two. Well, we have now provided feedback on current months.
I will not now start to giving color on month in second quarter. I think – the focus is clearly on Q4 and Q1, and we are one of the few companies that give confirmation on Q1.
So I think that should suffice at this point in time. Demand environment stocking, destocking, we basically rather went into a year with a normal order book.
We saw soft – no soft, sorry. We saw no strong balance sheet cleaning by our customers in Q4.
So people ending the year, but also beginning the year with rather making sure that supply is there because everybody around the globe, not only in Europe but also in Asia and North America, suffering from the logistical capacity constraints. So I think people are basically ordering exactly what they need, some even are in the process of stocking up.
This change in the automotive industry when the ship – with the semiconductor shortage led to production shortages, so no restocking, but rather buying what you need for production occurred. And this is how I look at the situation at this point in time.
And exceptionals, hey, Michael, you are the expert.
Michael Pontzen
Hi, everybody, as well from my side. Yes.
With regards to our exceptionals comparing to the €150 million, which we reported now in ‘21, we see the reduction of, as of today, €50 million. And the majority of the reduction will come from the pockets of, let’s say, M&A and digitization.
If you should take a look into the backup of the presentation, you’ll find the three elements in which we’re reporting in, strategic realignment and restructuring, we reported some 38 in 21; M&A digitization others around 81 and strategic IT projects, which is namely the implementation of our SAP S/4HANA, another €31 million. As you know and we told you guys before, we will go live here in Germany in the course of the next couple of months.
That means we have a lot of things on the table. We are training hundreds of people a week.
All in all, we have to train some 7,000 people. So that is consuming a lot of money.
So therefore, you should not expect a relief with regards to that. With regard to strategic realignment and restructuring, kind of the same story, we are still working on some topics.
Obviously, the integration of Emerald Kalama is picking up. So that number should be pretty comparable as well why you should see the decline in the M&A in digitization.
And we said in earlier times, especially with regards to M&A, when you did – when you do a lot of M&A transaction, namely in the U.S., namely on the buy side, you spend a lot of money, and that is what you should not expect for ‘22.
Rikin Patel
Okay, thanks.
Matthias Zachert
Next question, please.
Operator
Next question comes from Martin Roediger, Kepler Cheuvreux. Your line is now open.
Please go ahead.
Martin Roediger
Good afternoon. I have three questions.
Firstly, on energy costs and passing them on – you say in your presentation that around half of your relevant major sales contracts now include energy clause. Just a clarification question on that, what means relevant here?
Are there any relevant sales, i.e., business with small customers? And if so, can you provide a hint how your business is pipettes with large clients and sales with small clients?
Second question, you have a big production hub in Germany. And as you know, Germany is highly dependent from imports of gas from Russia.
Assuming there is no import of Russian gas anymore for whatever reason in that country from 1 day to another, what would happen to your production? Do you have any backup supply for natural gas?
And the third question is on your guidance for Q1 2022. Is it fair to assume that based on this feedback you got good order intake, good business, good demand so far and your explicit guidance for EBITDA in Q1 that you have been able to manage well the inflation of energy costs, logistic costs and raw material costs so far in Q1?
Thanks.
Matthias Zachert
Yes. Martin Roediger, welcome to the call and all good questions, so let’s address them one-by-one.
Relevant, what does that mean, of course, it needs to be business where we have large tickets with large implications. If we have a contract with – if we have no contracts, for instance, because we only sell €1 million or €2 million, it’s of course, leading to sales, but it’s simply not relevant.
So, everything that is on the radar, it means there is a large customer behind it, and it’s not only a large customer, the energy ticket is visible. And this – for these sales, we normally have contracts, and these are the contracts we need to address.
I think I have given in the road shows in the last two quarters, three quarters, indications or implications for one of our big businesses, advanced industrial intermediates. This is a business that is energy intensive.
Advanced industrial intermediates will most likely have something like, I don’t know, I speak out of our estimation. The business unit will most likely have something like 200, 300, 400 contracts.
But I always very clearly said, only 20 to 30 are relevant. If these contracts are all addressed, you basically are hedged.
And that is what we tried to explain with relevance. So, it needs to be a big ticket, first, second, it needs to have energy implications.
If you are a big ticket without energy-intensive production, it’s not a relevant contract. So, this question number one, I hope that is full clarity.
Now your question number two it’s – well, this is a hypothetical question. And therefore, I don’t want to be in complete speculation here.
At this point in time, we are, of course, in context with ministries and with , also with Berlin. We see that the German government is doing everything to open up alternative sources.
Of course, the German industry is dependent, like the consumer is dependent on energy, also on Russian gas. I have given you the indication that out of the €500 million energy costs, €200 million are gas relevant.
So, it’s not the entire €500 million bucket, but only €200 million. And if you go to Germany and the industry, the public statements are by the industry that half of 40%, 50% of gas in Germany being consumed is going to the consumer and to the industry.
So, that’s I think the indication you can have. And of course, the European ministers are doing everything to open up alternative forces.
Now Q4 and Q1, I think we have been very transparent on what we did on passing on ROR and energy in Q4. I have given you a headline number for EBITDA for Q1.
And therefore, I will look into Q1 results once I have them in March, see exactly the ROR spend, the energy spend, logistics spends, if this is matching one-to-one. But I think the numbers tell you a clear story with – if we meet the €280 million to €320 million, we will have a rock solid Q1 in a volatile environments.
And more, we will communicate in May when we report Q1 numbers. I hope this satisfies your information requests.
Martin Roediger
Thank you.
Operator
Next question is from Jaideep Pandya, On Field Investment Research. Your line is now open.
Please go ahead.
Jaideep Pandya
Thanks. The first question is on the consumer protection business for volume growth of 8%.
So, I mean you have been obviously doing very well in this business and you have been tied on capacity. So, just curious where did you see volume growth and sort of what are the trends also in relation to Enbrel?
And then the second question is sort of linked, and I fully appreciate you still don’t have the IFF microbial business under yourselves, but oil and gas is a very important market for that. You have exposure through Clear Brine Fluids in the shale industry.
So, what do you see there, which sort of excites you versus when you bought the business? That’s my second question.
And then the third question really is around advanced intermediates and very well done on passing the price increases. So, do you think that this business comes back to its traditional 18% to 20% margin range in the first half this year or it’s going to take a little bit more longer time because of the energy cost volatility?
Thanks a lot.
Matthias Zachert
Jaideep, very valid questions. Let me address them one-by-one.
So, on consumer protection volume growth, I have to be somewhat business unit specific. So, let me address them one-by-one.
Saltigo, we see volume momentum. You know that the agro cycle, which we are exposed to, especially on crop protection and here, fungicides.
The market has improved from the trough that we saw over 3 years, 4 years. So, that was the situation in ‘21.
And now let’s see if ‘22 continues in that direction. If it does, you will see ongoing good momentum on the volume side.
On the newly created F&F business units, we do see volume growth from the – definitely from the F&Fs and other personal care applications, which we also acquired. The constraint is capacity.
I mean private equities normally don’t like using CapEx, so they were humble on investments. And that is something we are now starting to do, despite the CapEx commitment we have given.
So, we will be very restrictive, but we will do debottlenecking in this business. And we will implement projects this year, next year and then you would see that growth is kicking in, especially on the on the sodium benzoates – on oxygen benzoates.
It’s a good business. It’s fun looking at the numbers there.
So here, F&F will rather see pricing than volume growth, even though if we had capacities that would be tandem of these elements. Now if we go to the material protection business, I flagged in the press conference this morning, but also to investors, obviously, over the last six months, we made two investments in our disinfection products, prevent tool, fantastic products, but also in our Wilcon value chain.
These capacities will come on stream in the next 12 months, 18 months. So, the biocides business, obviously, is set for growth, not only the biocides and disinfection space, but also in the beverage technology where we have also upgraded our capacity.
So, in this segment, you should see volume momentum going forward. The constraint here is definitely logistics.
Last year, we suffered quite a bit because the value chain from Memphis to – from Memphis to Germany, was not growth, but extremely tough. Many of the tonnages that we produced in Memphis on the intermediates could simply not be delivered in due time or delivered to the customers.
So, this was really a major headache in this business. And also from Europe to China, we went that far to – if you believe it or not, to rent an entire cargo plane because our products could not be delivered through shipments and containers to China.
So, we eventually wanted to keep delivery change and tax and customers were asking for our wonderful disinfection products. Last but not least, our liquid purification technology.
You will see pricing here that is more pronounced than volume because our capacities are tight. We are debottlenecking currently our purification technology products in Leverkusen and Jhagadia, but that will only come on stream in ‘23 and ‘24, then you will also see more volume momentum.
With this, I think you have got no segmental data but business data, I think that should be lots of transparency. IFF and microbial control, I will not comment.
First of all, we need to get the closing done, then I will start commenting on business. Everything else would not be serious.
At advanced industrial intermediates margin, I mean here, if you are in a – don’t please Jaideep look at the margin in an inflationary environment where you have soaring energy and raw material costs, I would not like to focus solely on the margin, but on the EBITDA. This business was solid despite storing energy prices in ‘21.
Look at the absolute EBITDA of this business. It performed well despite being here exposed to a brutal inflationary environments.
And the business should be a very stable the former also going forward. So, I hope that clarifies all questions.
Jaideep Pandya
Thanks a lot. And well done on cash as well.
Matthias Zachert
Well, we take it serious.
Operator
Your next question is from Samuel Weber. Your line is now open.
Please go ahead.
Samuel Weber
Yes. Hello.
Can you hear me?
Matthias Zachert
Loud and clear.
Samuel Weber
Okay. And so first of all, I mean your pricing power is really, really impressive, and it speaks to the strength of your company.
It’s very – I am very happy to see that. I wanted to ask you as an outside for me, it’s difficult to understand in the case of an oil embargo or if for another reason, Russian gas gets cut off.
Could you help me understand what the operational implications would be for your big production base in Germany. Is a partial shutdown possible?
Which segment would be most affected? I know it’s speculative, but just to help me understand how such a big production base would react to such a scenario, which is quite difficult for me to grasp.
And the second question would be for the cash flow. Am I right in my assumption that given the high material cost increases, etcetera, that this impact on working capital probably will still exist in this year regarding cash flows?
Thank you very much.
Matthias Zachert
Well, of course, thank you for your questions. The first one, it’s indeed hypothetical.
And it’s not the situation of today, currently, gas is being supplied. If gas would not be supplied, the question is, do we have enough in our tanks in our storage in Germany, or have we opened up enough alternative sources?
This is currently being worked upon by the European Union and by the Berlin governments. If there is a shortage on gas, then the government, of course, will start the allocation process within Germany, within the European Union.
We are not there yet. If you want to have an answer on this, you basically would have to most likely raise the question on the address of Brussels, Berlin.
You can be sure that companies of our size are in constant dialogue with with Berlin, but this is what can be set at this point in time. As far as cash flow is concerned, if we have – if we continue having an inflationary environment, so if – and I cannot tell you if we are going to have the same inflationary environment as last year.
I have seen now in the last two weeks, I monitor on a daily basis, raw material spots. I see some raw materials that go up 100% one day, and then they imploded 80% the next day.
So, my assumption is right now that inflation will be a theme also in 2022. And if inflation will be seen on raw materials, obviously, we will also have to stock up our working capital.
You have seen that for the entire industry happening in ‘21. If this is the base thesis that you have, you will also see that in ‘22.
Samuel Weber
Thank you.
Matthias Zachert
Most welcome. Next question please.
Operator
The next question is from Chetan Udeshi, JPMorgan. Your line is now open.
Please go ahead.
Chetan Udeshi
Yes. Hi.
Thank you for letting me ask a couple of questions. I think the first question I had was just following up on the previous comment you made on the energy price and raw material price volatility.
Can I kind of check if the Q1 numbers already include any impact from that, or just because of lag, it’s more a question of Q2, how you manage or how the company managed that environment, or should we assume some of that is already being captured in the Q1 numbers and guidance in terms of further inflation, both on energy and raw materials. And second question was, there was this recent article in the German press about what LANXESS may or may not do in terms of the SBM business and possibly interest in some other assets out in the market for sale.
Can you clarify what is the current thinking of the company in terms of SBM, strategic alternatives? Any color there would be useful.
Thank you.
Matthias Zachert
Thank you for your questions, Chetan. On Q1, I come back to what I have said before.
We have given you a corridor on EBITDA. This is more than other companies have provided for.
What is now embedded and not embedded, etcetera, I mean I will not go there. I think giving you a heads up on the numbers is a very clear transparency commitment from our side.
Despite these volatile times, we did everything, double-check business momentum. But now giving arithmetic or financial details, do we have €1 million, €10 million, €5 million included, yes or no.
That’s our job to do that in May when we comment on our Q1 results. Please have the understanding that we still want to have some information left so that you lock into the conference call in Q1.
Now on M&A, there is only one thing that we from the company perspective flagged in November, and that was we carve out our high performance materials business to be more agile and to have strategic flexibility. And I think this has it all.
And what is now specifically means we will comment on that once we have something to say until then, we do our job. I hope this clarifies everything.
Chetan Udeshi
Thank you very much.
Matthias Zachert
You’re welcome Chetan.
Operator
And we don’t have any further questions at this time. So, I will hand back to Matthias Zachert for closing comments.
Matthias Zachert
Well, thank you very much, organizer for moderating this conference call. I would like to thank all investors dialing in and listening in.
And I am happy to say that the first time the Investor Relations team, Michael and myself start doing real physical road shows again. Well, that’s nice to be back in contact with investors and therefore, my best regards to all of you, looking forward to seeing or speaking to you going forward.
Take care until then, stay healthy, and all the best to you. Bye-bye.
Operator
Ladies and gentlemen, this concludes the LANXESS conference call. Thank you for joining, and have a pleasant day.
Goodbye.