Fuchs Petrolub SE
Q4 2019 Earnings Call Transcript

Published: 19 Mar 2020

[Operator:]

Dear ladies and gentlemen, welcome to the Analysts and Investors Conference Call of Fuchs Petrolub SE. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Thomas Altmann, Head of Investor Relations, who will lead you through this conference. Please go ahead.

[Thomas Altmann:]

Thank you, Angela. Good afternoon, ladies and gentlemen. On behalf of Fuchs Petrolub, I would like to welcome you to our conference call on the Full Year 2019 Results. On the call with me today is our CEO, Stefan Fuchs; and Dagmar Steinert, our CFO. As always, Stefan and Dagmar will take you through the presentation which is then followed by Q&A session. The presentation is also available on our website at fuchs.com under the IR section. There, you can also find the fact sheet which contains the key figures for Q1 to Q4 2019. With this, I would like to hand things over to Stefan.

[Stefan Fuchs:]

Good afternoon to all of you. I think it's the first time since many, many, many years that we don't meet in person, you know, for our annual analysts conference; this is all related to the coronavirus. Therefore, I want to start with the topic a little bit, I think, you know, my appeal is following our chancellor yesterday; I think the most important thing is to really slow down to virus that -- I mean, the virus will spread, it will take time to have vaccination against it but I think you know, we really need to make sure that we slow down this whole process. I mean, we have seen that in our subsidiaries starting in China, and then in European companies, now in Germany, and also in the United States; and I can only appeal on the discipline of all of us to really make sure we'll keep social contacts at a very, very minimum length to make sure we protect elder people and then ill people. And, you know, I'm also convinced that an exit lock or curfew or whatever you call it will also come in Germany because the discipline is not so high with many people, and this is a matter of time for weeks and months but I'm sure we will also get that behind us. On behalf of Fuchs Petrolub, for us there are two things that are important. The one is the safety and health of our employees, and the other part is to keep the business operation going. With regard to the health of our employees, we have really done the most we can with regard to hygiene measures. I mean, other than explaining all of us how we wash hands, to don't shake hands, don't get in touch with door handles and things like this, we have also cleaning personnel twice a day, we have shut down canteens and have we sent all the people who came to home office, and we have really been flexible with working hours. To keep the business up and running, I think it's very important for us to separate the plant and the office. We have already had an international travel ban since March 1, so we've been really early on that one. We have not planned any closures of plants, we have a very diverse customer base; our plants in China are up and running. Obviously, we see cancellations of orders from large OEM customers who all have announced to shut their plants for a period of time. As of today, we have not one employee known to be infected with the coronavirus. In the City of Mannheim, and in the State of Baden-Württemberg there is a public ban of all official meetings in public till the middle of June. So all our meeting and exhibition halls in Mannheim and Baden-Württemberg are officially closed till the middle of June. As you know, our bylaws [ph] have to hold that we do our annual meeting by the end of June, so we have only two weeks window. Dagmar and I will be happy to find some dates because there are lot of publicly listed companies in the region, but we are sure we'll get that done. That was also the reason for us to postpone the annual meeting, so we will not send out an invitation next week. That has got two immediate impacts; the number one is, we need a resolution by the annual meeting to payout the dividends, so no dividend will be paid until the annual meeting is over. And we will also have all the Supervisory Board Member Elections only during the next meeting which will take place; so also there will be no change until then. I think this was it from our side with regard to the coronavirus, and Dagmar will dive into the numbers. We appreciated [ph], we have been down in profits, that was clear all year long; you know, with China starting a little bit slower -- China and Germany started slow out of the year, they both gained momentum during the year, the US started very good and then lost momentum during the year, that was little bit the picture. We had also a couple of [indiscernible] impacts which will be explained in more detail by Dagmar. But I think the one thing we are really proud of is our free cash flow; you know, one more time we could pay for all of our capital expenditures which was at a record high. Our smaller acquisitions and the dividends out of the one year cash flow just shows that we continue to be a cash-generating company. So far from my side. I hand over to Dagmar and look forward to her presentation.

[Dagmar Steinert:]

Thank you, Stefan. Good afternoon, and thank you for joining us. 2019 was a challenging year for Fuchs, and we had to manage significant macroeconomic headwinds. In 2019 sales of €2.6 billion remains stable at the high level of previous year. Our earnings EBIT decreased by 16% to €321 million on a comparable basis, excluding the one-off effect from the sale of the joint venture in Switzerland in 2018. EBIT is minus 13% of €50 million below previous year. Investment rose to a record level of €154 million. Having a brief look on our outlook 2020, as of March 4, we expect growth in sales upto 4%, and this is based both, on organic volume growth and external growth due to our acquisition of Nye. The negative effects of the corona virus on the global economy and the Fuchs Group cannot be estimated at present. However, they will at least temporarily lead to significant declines in sales and earnings. So, let us have a closer look at our performance and results 2019. We could not achieve our originally set targets for sales, EBIT and Fuchs Value Added. The forecast for free cash flow was exceeded. Our forecasts given at the beginning of the year were regularly reviewed, and over the course of the year drafted [ph] or specified. At the end, our drafted specified outlook, we exceeded. I'm coming now to chart number 4. Our quarterly sales development shows a weak start into the year 2019 with really disappointing first half year. We saw a more stable third quarter and fourth quarter slightly above previous year's level. Our quarterly EBIT development reflects our expected cost increase, as well as the macroeconomic headwinds everybody faced. In a year-on-year comparison, the second half of the year is slightly better than the first. On chart number 6, we can dive into the group sales. In the difficult economic environment, we achieved sales of €2.6 billion, bought at the level of the previous year. The organic decrease of €26 million or 1% was offset by external growth of €18 million or 1%, and some positive currency effects. All regions showed volume related organic sales declines. Negative organic growth was strong in the region EMEA with €36 million or 2%. EMEA had a weak first half and recovered somehow in the second half of the year. The development of faith [ph] in Germany was strongly impacted by the crisis in the automotive market. In Asia Pacific, external growth compensate for an organic sales decline. We report world-related organic sales decline of €9 million due to the crisis in the Chinese automotive market. The acquisition of NULON in Australia provided the region with external growth of €17 million, altogether, sales in the region moved up by 2%. In the region Americas, negative organic sales of minus €3 million were offset by significant positive currency effects of €11 million. In addition to that, the region benefited from small external growth. Having a look at our employees worldwide, in 2019 the number of employees increased by 181 people. This is mainly due to the acquisitions, and now we count about around 5,600 people. The number of employees in the region EMEA rose by 89, while Asia Pacific added 37 new employees. Without the acquisition of NULON, there would have been a decline in the region Asia Pacific. In Americas, the number of employees grew due to the acquisition of ZIMMARK by 55. Let's now turn to our income statement and our results of operations at chart number 8. The minimal improvement in sales of €5 million was offset by increased production costs which resulted in a slight decline in gross profit of €9 million. Other function costs increased by €38 million or 7%. And this increase in both, in production costs and other function costs was caused in addition to inflation-related adjustment, mainly by higher depreciation resulting from our investment program, as well as higher personnel expenses related to more people. Cost management was tightened and personnel was not hired as originally planned. The other function costs were additionally burned by a €6 million goodwill impairment. The EBIT before equity was €47 million or 13% down on previous year. In 2018, the income from the equity included the one-off income of €12 million and on a comparable basis, the income from equity fell by €3 million. Our EBIT therefore is €62 million or 16% below 2018; on a comparable basis, as already said, minus €50 million or minus 13%. If we now have a brief look at the development in the regions, the regions -- there we see a significant decline of earnings in the region EMEA. The EBIT fell sharply by €44 million to €167 million. Even without the 2018 one-off effect, the EBIT is down by €32 million, but this includes the €6 million goodwill impairment. In Asia Pacific, the increased cost resulted in a minus €9 million or minus 9% EBIT decrease. Part of that decrease is due to the integration costs of NULON in Australia. In Americas, the EBIT fell sharply by minus €10 million or 17%. There we see besides higher cost, that the earnings are negatively affected by write-downs on receivables from a major North American customer who went chapter 11, as well as some acquisition-related costs from 9. Now I would like to turn your attention to chart number 9, the balance sheet. We have a solid and robust balance sheet. The increase in total assets is driven by our ongoing investment program, and our cash position increased by €24 million or 12%, and now we have a cash position of €219 million. Despite the increase in total assets, our equity ratio of 77% is unchanged, our equity increased by €105 million. The increase in pension provision is due to lower interest rates, the increase in financial liabilities reflect book-keeping or accounting, it's due to IFRS 16, this leasing standard. Having a look at chart number 10, our investment in the future. You'll see that our investment program continued. In 2019, we spent €154 million that is a [Technical Difficulty] which is 2.5 times of scattered depreciation, without the amortization of purchase price allocation. Our R&D expenses are as in previous years, on a high level. We continue to expand technological leadership in defined segments. I'm coming now to our development of our net operating working capital on Page 11. There you will see a significant reduction of NOWC. In 2019, we managed to reduce our NOWC, not only in absolute terms, but as well as a percentage of sales. Net operating working capital is now down to 21.8% of sales, and that's mainly due to the reduction of inventories. This represents an improvement in the average capital tie up period of five days to 80 days. With that, we have a look at our cash flow statement, it's page number 12. This cash flow statement shows despite lower earnings, a significant increase in cash flow from operating activities, the reduction of net operating working capital, of course, has a significant positive impact. And despite higher CapEx of €33 million to free cash flow before acquisitions increased from €147 million in 2018 to €175 million in 2019. On page number 13, you see our net liquidity, and that shows our net liquidity position, which is in absolute terms more or less unchanged. We start at €191 million and end at €193 million, but I would like to point out that we more than compensated for the negative leasing effect of €22 million which as a result from IFRS 16, these leasing standard. Now, I would like to jump to chart number 17 because we've got a summary for you to read up from page 14 to 16; and on page 17, you can see that our dividend proposal is to provide a 2% higher dividend compared with the previous year, and we want to increase our dividend by $0.02 for per share. As Stefan already told you, unfortunately, the payment of the dividend is a bit postponed until we have our annual meeting. With that, I would like to come to chart number 18, our outlook. Our outlook reflects the situation as of March 4, and we expect slightly growth in sales as well as in EBIT. This is based on organic volume growth and external growth due to the Nye acquisition. Our strict cost management will continue but the negative effect of corona as already mentioned, on the global economy, and on the Fuchs Group cannot be estimated at present. There will be at least temporary lead to significant decline in sales and earnings. At present, we expect our raw material prices to remain stable on group level. The significant reduction on crude oil prices is not seen to be passed through to base oil prices in the same amount. We expect a slow steady price reduction for base oil, in contrast we expect price increases for other raw materials. The normal market mechanism is overridden, and it is possible that refineries may stop production due to low demand resulting in a shortage of supply. Our investment program will continue despite the slowdown in the global economy, and we plan to invest €120 million. With that overview about our performance in 2019 and the outlook, I would like to hand over to Stefan again, who will give you insight in our strategic outlook.

[Stefan Fuchs:]

Thanks, Dagmar. I go either way to chart number 20 where you can see a couple of pictures of our investments we have done globally. Our cost initiative was called out in the year 2016, so 2020 is our year number five. And I think the upper picture, we are really proud of it, it's our new facility in Wuchang, China, which was a huge investment of €50 million but as you know, we got about €30 million in cash subsidies and help from our Chinese governments. But this is a state-of-the-art plant, out west of Shanghai in the Sucho [ph] area. Our Chinese colleagues have done a fantastic job to notice erected a plant in 12 months, the old plant is already knocked down, very old plant, both we still have our headquarter and our R&D center of Asia, and this we have a long-term planning permit, and we will increase in large both, the headquarters and the left DCM [ph]. Global FCC, our specialty site in Kaiserslautern; we have last year completed a project with doubling our warehouse space and then adding some more offices in 2020, the big poaching will be [indiscernible] cases are what we call non-liquid lubricants for their taking materials. And when you cook a case, it's a chemical reaction, we normally have a soap which we cook and then we signet [ph] with an oil, and the soaps we normally use in Europe and America are lithium soaps or aluminum soaps or calcium soaps. These Chinese colleagues and these Japanese community have -- since many years used polyurea, and especially now with e-mobility moving towards batteries, you need molythium, that material gets scarce and therefore we simply overestimated in the future to invest about €25 million in the site in Kaiserslautern for the European market. And later on we will also build a plant in China, and later on in the United States. You see our new plant in Beresfield, Australia; this is really up and going and we will integrate new loan now, we have some large mining volumes going through the time, we are very happy with that; and then you see the Harvey, Chicago site, where we also invest money on the specialty grease plant. I think most of you have seen that. The next page, page number 21, comes back to what Dagmar said the year 2019, it was our all-time record with over €150 million in CapEx; we are really happy that we could achieve all of that. At the same time, we have now locked down '20 and '21 to a combined CapEx of €200 million. So we will spend €120 million in 2020 and not more than €80 million in the year 2021. And that brings the CapEx back to the depreciation line, which is obviously higher. I mean, it used to be about €30 million, it's now going to go towards €80 million, those €80 million will always allow us to also invest something into projects as long as you don't build the plant for €40 million. But I think it's really good so we come back a year earlier than initially planned to the depreciation level. I go to slide number 22; I think we have discussed with Dagmar, NULON which we acquired on April 1 last year, it's a real retail business in Australia, and as you know, Australia is our fourth largest market but it's almost steamed after-life, you know, you don't have steel plant, you don't have car assembly, no car part manufacturing, for the whole country it's agriculture, mining and automotive business. Therefore, it's pretty interesting for us, we have rented their manufacturing facility for a couple of months, and now we move out and move into our facility in Melbourne and in Beresfield during 2020. ZIMMARK is a very small acquisition but for us very strategically interesting acquisition. Chemical process management means that we run the entire plant from a customer with regard to lubrication, and/or chemicals. So we do a lot of that in Europe, especially in Poland but also in the UK and in Germany, we also do it in China. In the United States about 20 years ago the system was a little bit abused [ph] and we stayed out, and we could now close the strategic gap in buying ZIMMARK. ZIMMARK was only active in the service components, so they bought lubricants. So plan number one is, take the existing contracts and substitute competitor products with ours. And then, also take the opportunity while two of our larger metalworking competitors merging to go after some of their business, and add some other large contracts. So therefore, ZIMMARK appears to be a little but it's very interesting. Nye, we announced that we will buy Nye in October last year. It took a little longer than we initially anticipated, that was the CPU support [ph], I'm sure you discussed that with Dagmar [indiscernible] committee for foreign investment in the United States. And since we are -- also we have a large US presence with many hundred employees we are still regarded as a German company, so we had to go through the full loop, and it all ended very good for us and we acquired Nye officially, then we closed the acquisition on January 24. And if you go to page number 23, you see a little overview of Nye on products before the facility. Nye doesn't move a lot of volume, they have a lot of clean rooms where they manufacture their products and they have all the customer pools and the small type manufacturing with a higher value creation, we don't want to clog our bigger plants, so it might even be that we put some of our other smaller stuff also into Fairhaven on the East Coast. It's a very nice acquisition, we are glad that we could buy it, it's a nice management team in place. They are mainly involved into -- when they say automotive, for them automotive is [indiscernible] but nothing to do with the power plane. So, all the material in automotive is mainly clichés for some rules for noise reduction, when you look at your turning light device or any other electrical component is really a minute lubrication with a huge impact; very interesting for us because that one we can immediately rollout in our global infrastructure. The other parts, very nice niche applications in electronics, in vacuum which is mainly the semiconductor industry, in aerospace and aeronautics, and in the medical technology. So I think, really, it's for me to pearl on the high-end of the specialty side. Now on page 24, it's something different; there is a little bit of hybrid between ex-efficient and organic growth. For us, Africa is very interesting, it is representable of 6% of the global lubricant market. We want to participate at the over proportionately higher speed the market is developing. We always had a nice facility in South Africa where we generate about €75 million in sales. We have started two joint ventures last year, one in Tanzania and one in Egypt; you know, Egypt is very interesting with regard to it's industrial population in the northeast of the company. And then, we have also closed in January what we announced end of last year, the acquisition of 50% in three companies; one each in Zimbabwe, Zambia and Mozambique, to see joint ventures employee in total 90 people and generate sales of around €21 million per annum; so pretty interesting. And in other African countries we have also licensed partners and distributors, I think we have more and more a coherent approach on the African continent. If you go page number 25, you see not a hybrid car but a fully EV car. And you see all kinds of additional new applications which come through to the EV application. So, yes, there is a potential risk of the entire engine oil going to be reduced in the future; on the other hand, engine oil is one of the most competitive parts, so for us engine oil fulfill is not so big aftermarket, I still think it will be there for many decades to come. When you talk about hybrids going forward, you have both, you have the combustion engine in MDEV [ph], but when you look at the small EV segment which is growing, there are a lot of additional lubrication points, and also new specifications for the products which mainly deal with -- to avoid [indiscernible] hefty conductivity of the lubricants; so pretty interesting stuff. The one part we also mentioned in the annual report is that we now supply the gear oil for one of the very prestigious German sports cars, which is a full EV car cO2 neutral, and we recognize that most of the CO2 balance of lubricant is either before our entrance gate or after our gate for the products leaving the facility. However, in between our gates we will be in 2020 CO2 neutral. Those parts which we are not yet able to avoid, we will invest into certified compensation projects, all related to climate protection, and the expansion of renewable energies. But there is more behind you know, when you talk to our large OEM customers, the CO2 balance is a part of the specification; so it's really a whole game changer for our industry. And I think we can are a frontrunner on that. One example, if you take a simple product based on the mineral oil, it has some raw material standpoint, a better feel to balance than a high-end product which is based on polyultra olefins that includes free base oils because there are more refining sets in the high-tech product; therefore from a raw material standpoint, CO2 balance is this. Now our duty is to take a holistic approach and see that the high-tech product has a much bigger impact on the customer with longer olefin [ph] intervals, and also a better performance at our customers application. And then you get that one fully into place that has the holistic approach, and you can pull those CO2 balances throughout, the use of the product I think is very interesting. My second last slide is page number 27; Fuchs 2025 is a journey which is for us still very important. I think too much on June 26, we have approved on our capital market day and that's the day we want to hold out our strategy 2025 officially to you, and then afterwards to the to the price [ph]. Unfortunately, due to corona we had to cancel our global management meeting in about one of the half weeks' time which would have been the official handover to all our employees. I think we do something smart in that week because we have made a Microsoft live conference where all our -- almost 6000 people can participate if they want, and we will have a much bigger audience. And we deal with culture, structure and strategy, and to put it in one sentence you can say we want to keep the local entrepreneurship we have because of 60 companies, certified manufacturing plants, but want to adhere to more global policies and standards. Our strategy is to give you a flavor will be -- one of the initiatives with the segmentation which says, we will segment our markets and we will have on the top segments of the highest priorities, a global approach; so there won't be a cherry-picking any more possible, so we will go after those global segments in the focus. And in the global approach, we believe and as you know, our market shares in China and the US are significantly smaller than in Europe. We believe that there is a significant growth momentum for us in the next 5 to 10 or 15 years. So we look forward to the whole life [ph]. On page 28, I think you know that chart. We have shown you the absolute number of the annual dividends, we are now at about €134 million. But you also see that we have -- since we are on the stock exchange, we had no year with loss, and we paid a dividend in each year. And in the last, I would say 25 years we have increased the dividends year-by-year. So I think that's a very good track record, and it just shows how solid your investment is. That was it from Dagmar and myself, and we are now all looking forward to your questions and our discussion.

[Operator:]

Thank you very much. And we will now begin our question-and-answer session. [Operator Instructions] And we've received the first question. It is from [indiscernible]. Please go ahead. Your line is now open.

[Stefan Fuchs:]

We can't hear anything. Maybe we take the second person, and then Martin comes later, I don't know what -- hello?

[Operator:]

Okay. Now we should be able to listen to the questions of Mr. Rudegar [ph] if you please could ask your question again.

[Dagmar Steinert:]

We don't hear anything.

[Unidentified Analyst:]

Okay. Sorry.

[Dagmar Steinert:]

No, no. Now we are able to hear him.

[Unidentified Analyst:]

Really?

[Dagmar Steinert:]

Yes.

[Unidentified Analyst:]

Okay. I apologize for the technical problems. And so my first question is for Mr. Fuchs. Regarding the coronavirus, you have some experience with the crisis i.e. in 2008. Do you see the current situation being worse or less worse than at that point in time? And in connection with that, at that point in time you acted rigorously and cut costs, i.e. have reduced workforce at that point in time to adapt to the crisis. Would you be prepared and willing to do the same this year? And what would be the trigger for that? The second question is for Mrs. Steinert, regarding your statement about the raw materials. And I would like to dig in deeper here, you mentioned somewhat of -- some -- more or less stable basal prices and some slightly higher additive prices. Can you elaborate on that in the context of the current decrease in the oil price? And also, can you remind us what is your -- let's say the time lag between raw materials and selling prices based also on your price variation clauses? I remember it is three to four months. Thanks.

[Dagmar Steinert:]

Thank you, Mr. Rudiger [ph] for your questions. I will start regarding your questions with raw materials. At the present, we expect raw materials to stay like stay before the whole group, and -- like today, we don't see a decrease in base oil prices following the decrease in crude oil prices. And the question is, if the market as to -- or the market mechanism is still working as it used to work in the past, and our time lag to pass through raw material price increases or as we usually pass through raw material price decreases is unchanged between three to six months, not three to four months.

[Stefan Fuchs:]

I come back to your question with 2008. I don't know whether it's worth or less, the only thing I remember about 2008-2009, that it was a sharp wheel, you know, falling sharply down and then going sharply up, so nobody knows how long that will be in place. I think when you look at the statistics behind the styling of the vials [ph], I mean all we have to hope that we can slow it down, that the medical systems won't break down but otherwise I can't tell you anything. As of today, we don't want to fire people, I mean you can't do that every 10 years. And we have already done a lot of financial things in 2019, we have not employed the people we didn't budget for, all our people had to fly economy in 2020, we are very rigorous with new employment, we are making sure we clean up wherever we can clean up, we have no [indiscernible], we have a flight ban in place in smart one [ph], there is not a single exception, we have no more meetings that alone will save cost, we are checking within the countries where this is available, the short-time work policies that partly have not thrown in two-eight and two-nine, you know, we said we continue to pay all our existing core staff, and then we have retrenched about 10% of our global workforce. This time we want to see how it goes and we would have a go at short time.

[Unidentified Analyst:]

Thanks.

[Operator:]

Thank you very much. Now we go to the next question. It is from Markus Mayer of Baader-Helvea. Please go ahead. Your line is now open.

[Markus Mayer:]

Good afternoon. Mr. Fuchs and Thomas, I have several housekeeping question regarding your guidance. Could you help me to understand what was the Forex assumptions you had for the guidance? And what kind of Forex impact you are assuming for the top line and the EBIT guidance? And then also on the external gross effect, is my calculation right that you should roughly have picked in 2% external gross effect to the revenue guidance, most likely, not a significant effect on the earnings guidance towards integration costs and higher PPA? And then lastly, a question on the force majeure; Lubrizol had or still having in Europe? Do you see any additive shortages there? And how severe do you think this kind of shortage might be for you? Thank you.

[Dagmar Steinert:]

Yes, thank you, Markus Mayer for your question. And I will start with the false guidance or the false including in the guidance. There is no major impact on that, as well as in top line and EBIT, it doesn't really play a role as far as we can see it today. And you are right around 2% should be external growth effect in 2020. Regarding force majeure of Lubrizol; yes it is still in place and there we don't have a significant additive shortage. But of course, we work to like adjust one or the other formulation, and it's still like a day to day business; what delivery do we get and what we don't get. But there is no major negative impact out of that so far.

[Markus Mayer:]

Okay. Perfect. Thank you.

[Operator:]

Thank you. The next question we've received is from [indiscernible]. Please go ahead. Your line is now open.

[Unidentified Analyst:]

Good morning and good afternoon, I should say, and practically same questions. I was [indiscernible]. So, first is a follow-up for Markus's earlier question on FX. If I look at what leads the African rand, the Russian rubble and the Brazilian real building at the moment?

[Stefan Fuchs:]

Sorry, we don't understand your -- I mean, we hear you but it's very disturbed connection.

[Unidentified Analyst:]

Sorry, hang on. I'm going to go to find a room. Can you hear me now?

[Stefan Fuchs:]

Yes.

[Unidentified Analyst:]

Okay. Thank you for taking my questions, apologies for the technical issue. I have three. The first was a follow-up to Markus's question on the FX. If I look at what has happened to the BRL, the South African Rand and the Russian rubble, it looks quite negative year-on-year. Could you please let me know -- could you please let me know, if at the group level there is a negative FX impact because I know the dollar looks quite helpful. But if spotlights were to be maintained, would this be an overall headwind year-on-year? The second question is simply on the interplay between pricing and volume and the year as a whole. How has pricing behaved thus far? Fuchs, can you remind us of how quickly it is reset so that if we do have a demand shock, as it looks like is the case; how quickly is price pushed down? And a cheeky third one on the electric vehicle angle; in the past Fuchs have shied away from saying electric vehicle is more or less valuable a pure electric vehicle than an internal combustion engine. Perhaps using the example of a sports car that you mentioned, are you making more, less or the same fails thus as an internal combustion engine typically hold this [ph]? Thank you

[Dagmar Steinert:]

I will start with your question about foreign exchange rates and Russian ruble, Brazilian real. Of course we've got within our group different effects from different currencies in different regions but for the whole group, it's more or less offset. And for our -- like outlook 2020 or planning the budget, like the same count as counts for like 2019 where we've got only the smallest -- higher impact from the US dollar in region North America. And regarding Russia, there -- we always -- we've got our local production, our local supply, as well as in Brazil. And therefore, overall from a group point of view, it doesn't play at that time a material role.

[Stefan Fuchs:]

When you look at your EV question; normally you can say that around 10% to 15% per car there might be less revenue. But if you look at our market share, we are high-tech company, so for us I think the margin generation and how lucrative such a business is, there are much fewer competitors on those EV applications. And therefore, I do not think that our business will be impacted by in 15-year we have you see a chance. With regard to the pricing, I think the ones of who know as longer there is a standing rule where we say, if prices are falling, we normally have a little bit windfall for some months, which we have to pay back once supplies are rising again. So we can't tell you exactly for which business this is one month, two months or three months; but obviously in times of falling raw materialize prices, we had always found some tailwind. But as Dagmar already explained, our refinery off-takes are not linked to the coop [ph], so we have not seen a half or 50% off in our raw material pricing. And some of our larger contracts are all based on raw material price estimator, so we also have to hand over on quite sizeable part of our business, the pricing. All of our concern at the moment is, as I've always told you more the availability part; we need to make sure that we are not cut off by a refiner switching off the continuous process of a refinery if the prices would take longer. That's all I can tell you with that.

[Operator:]

Okay, if this has answered your questions, we'll go to the next one in line. It is Knud Hinkel of Pareto Securities. Please go ahead, your line is now open.

[Knud Hinkel:]

Thanks. Good afternoon to everybody. Thanks for taking my question. I've set already some pieces on the revenue change, maybe if you can give us a little bit more full picture on your value change with regard to your suppliers are still intact. I heard -- maybe you can say something on that? And then on top of that, we hear that some OEMs closed down already their plants; then you can also say something with regard to your customers where -- how do you rate the state of the supply chain or the only change when you got to your customer? That would be my first question. Second question; you stick to your dividends announcement, I understand. Will you stick to that in case the crisis will get really tough? Will process throughout, let's say, the next six months or so? And the third question is on -- smaller one, on networking capital. Can you remind me why inventories have been down at the end of 2019? Was it mainly price driven or was it a volume effect? Thanks.

[Stefan Fuchs:]

On the NOWC, if you noticed, since we made dependency in acquisitions and the new plant project in China, we had some excess inventory available and our Chinese and German colleagues have done a really good job to bring it down, so that was pretty good. Once the product is fully localized, we feel the customer -- I think we should go back to more closer to our targets, what Dagmar announced to you, so I think that was really a hard work done during last year and mission accomplished. And with regard to suppliers value chains, there are aside of this Lubrizol fire, you know, they are all in place; so far we have no cancellation, no nothing. The customers, I mean if you look into China, our plants are up and running again, we have supplied customers all time long. So, we always had some stuff in our plants because if you have continuous processes or mining or steel industries, you have to supply. Now our two plants are up and running again, and the demand is going up slightly. Again, in Europe we see the announcement as you see them. So our -- for example, until last Friday, our Italian plant was at full throttle. Now we see from some large OEM customers cancellations of orders because they are down, you also subsequently see the Tier 1 style. I mean, first you have to be in Ws, the Volkswagens, then you have to see if the -- all those [indiscernible], all those type of customers, but there is no guidance I can give you what our impact is, how long it will take, you know, it's too early to say.

[Dagmar Steinert:]

And the question regarding our dividend announcement, where we stick to our dividend; my answer is we walked the talk, we have to stay with dividend policy. We always said, we don't look at a payout ratio, and that's why I showed as well the balance sheet in the presentation to make you aware of our solid and robust balance sheet. And -- yes, that's it.

[Knud Hinkel:]

Thank you.

[Operator:]

Thank you. The next question is from Isha Sharma of MainFirst Bank AG. Please go ahead. Your line is now open.

[Isha Sharma:]

Hi, good afternoon. Thank you for taking my questions. I have actually just one because the others are answered already. Could you please help us interpret your guidance of significant temporary decline in sales and earnings? Is it fair to assume a magnitude of double-digit decrease in the coming months? And also do you assume the current situation as it is or a worsening end-market development for that statement?

[Stefan Fuchs:]

I think any answer would not be responsible manner from us. I think technically you have to understand and if you look at the annual report, we prepared the annual accounts on March 4, so the signature was done from the Executive Board underneath our balance sheet on March 4. At that day we also had the audit committee, and also our auditor signed off. So this is the outlook which is part of the preparation of the annual account flow, we cannot provide any other outlook without reopening our annual report which we didn't want to do, obviously. And if you look at other outlooks of other companies, every outlook at the moment is crystal ball ready. I can't tell you anything else, how much it will impact us, therefore we made these strong sense [ph] into our press release.

[Isha Sharma:]

Thank you.

[Operator:]

Thank you. At the moment, there are no further questions. [Operator Instructions] And we've received another question. It is from Robin [ph] of Deutsche Bank. Please go ahead. Your line is now open.

[Unidentified Analyst:]

Thanks for taking my question. The last one, it seems. And just a quick follow on to what you said before. Have you considered at some points stepping back from the remainder of your CapEx or investment program? And also, is there still a certain degree of flexibility left for you to perhaps step back from some of the CapEx that you've now told us about for this year or next? Thanks very much.

[Stefan Fuchs:]

Good question. We will not step back from our current CapEx projects. We have a couple of large projects in Mannheim, in Sweden, in Russia, and in the United States or the China; and to now step back it would cost significantly money to pick it up again. I mean, we have an extremely robust balance sheet. I am personally convinced corona will be a temporary impact, but nobody means or knows what the definition means or what the definition is, is temporary for weeks, for months, you know, how big will be the impact. But life will continue, I think we have a good strategy which we will present to you in the future. So we are positive in our future, we are extremely robust in our balance sheet. I think you have pounded us for many years now on what we do with our cash, I think it's pretty good that we are in this situation now. And we have no large or we have no construction thrown in the company, we don't have any plans to shut down or people [indiscernible]. So I think we are in an excellent position to go into the crisis and we will face it like everybody else.

[Unidentified Analyst:]

All right, thank you.

[Operator:]

Thank you. And the next question we have received is a follow-up question of [indiscernible]. Your line is now open, please go ahead.

[Unidentified Analyst:]

Hello, again, apologies for dropping off the line earlier. I had one final question on your CapEx. Is for memory back when the last CapEx graph was shown with the multi-year overview, your capital markets today in mid-2019, the CapEx didn't return to €80 million to €85 million levels before 2022. Has anything changed or have I just misread or misunderstood this because from memory, I thought that CapEx was due to be elevated in 2021 for next year as well.

[Stefan Fuchs:]

We had a board meeting in February already, when this whole corona came up in China. And our initial budget for 2020 which was approved by the supervisory board and with the overlap from 2019 would have been rather around €150 million. And we have taken the opportunity to shorten the way back to the depreciation by one year; and you are right, so far we've said in 2022 we go back to the depreciation. And now we agreed on board because we didn't want to stop the large projects going on, we said €200 million for the two years, €120 million for this year, and then AD as of next year. I'm glad that we used the opportunity to put a lid on it again, because I really think we are now at a level where we have changed our landscape in the company.

[Unidentified Analyst:]

And apologies again for the bad reception, but I didn't -- Mr.Fuchs, I didn't catch your comments earlier about the difference in value between an internal combustion car and an electric vehicle. Was there anything -- did you provide any quantitative guidance on this or did you…

[Stefan Fuchs:]

If you take a one-to-one approach -- I mean, thanks to you because we can hear you much clearer. But if you take a one-to-one approach in the market, we say the lubricant revenue is about 10% to 15% less on a pure EV car compared to a combustion engine. For us, we see it rather as an opportunity because we don't have so high market shares in the general passenger car engine oil, first fuel situation, etcetera. But those EV applications much more technically advanced, and you have significantly fewer competitors who can do that. And therefore, all in all, we see that EV development as an opportunity for us. And we also see the issue, you know, when you look around there will be more hybrid cars than pure EV cars. I believe although the next decade is to come, so therefore we don't see impact on our automotive business of 10% to 15%.

[Unidentified Analyst:]

Understood. Thank you very much.

[Operator:]

Thank you very much. As there are no further questions, I would like to hand back to you.

[Thomas Altmann:]

Thank you, Angela. Thank you all for joining us today. We wish you all the best for the upcoming weeks. If you have any further questions, please don't hesitate to contact me by phone or by email. We will hear us next time with the Q1 results at April 30.

[Stefan Fuchs:]

Stay healthy, and thanks for your participation.

[Dagmar Steinert:]

Thank you.

[Thomas Altmann:]

Bye.

[Operator:]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.