Good day, and thank you for standing by. Welcome to the LANXESS Q2 2025 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, André Simon, Head of IR.

Yes. Thank you very much, [ Sandra, ] and a warm welcome to everybody to our Q2 conference call from my end as well. Today, I have our CEO, Matthias Zachert; and our CFO, Oliver Stratmann with me. Please take notice of our safe harbor statement. Matthias will start with a short presentation, and then we will open the floor for your questions. With that, I'm happy to hand over to Matthias.

Thank you very much, André, and welcome to everybody on the second quarter conference call from LANXESS. I turn my attention to Page #4, in the distribution we have dispatched and start to comment on our key financials. Overall, it has to be said that Q2 was the expected tough quarter when we look into the end industries that have reported by now tough momentum in the automotive industry, tough momentum in capital goods and of course, chemicals have all faced tremendous pressure in the second quarter due to the high level of uncertainties in the global industry. And I think all of us and all of you know the reasons behind that. Demand has been depressed. High volatility, very, very short order pattern by our customers. And this is the reflection in sales different to first quarter. Second quarter left its mark on volumes nearly being down by 4 percentage points. And in some of our segments, notably intermediates, we clearly see increased pressure coming from China products, which no longer find their way to North America and are more or less being dumped in the European area. Of course, urethane divestitures leaves its mark in second quarter as well. So all-in-all, this business generated EUR 50 million of EBITDA last year and of course, also absorbed some central costs. And if you look into second quarter, we do lack the sales and of course, the EBITDA contribution. So EBITDA second quarter is down EUR 150 million versus EUR 181 million in last year. And the reasons are driven by volume, price and portfolio effect. If we look at working capital, this might come as a positive surprise to you. We have kept working capital in the second quarter pretty stable. Notably, our inventories didn't follow the normal pattern because we kept high attention on the inventory side. Q2 on the absolute inventory level is as low as Q4. So you see that we have room for improvement here, room to pick up when we see that demand moves up again. We see also at our customer level that they have cleaned up inventories. So all-in-all, by many of our industries, we see low levels of inventories, which normally is a positive thing. But it also reflects that everybody is pretty cautious and therefore, keeps the balance sheets in order like we are doing. The decline on working capital is basically being driven by receivables reduction [ and here ] positive. If you look at our KPIs like DSO, you see that we have improved here. So Oliver and his team were pretty fierce on receivables collection, thanks to the finance organization on this regard. And of course, lower sales also leads to a receivables reduction. So working capital being down in Q2 and predominantly driven by receivables. On cash flow, I think all of you know that Q1, Q2 normally are quarters where we rather absorb cash, and this is something which we -- due to tight working capital management turned to the positive. So EUR 31 million of positive free cash flow in Q2. And this was one of the reasons why net debt went down. The primary reason for the net debt reduction from EUR 2.5 billion to roughly EUR 2.1 billion, is driven by the urethane sales. And I think in the hindsight, one can clearly say this was a strategic and financially excellent deal, which becomes visible now in the balance sheet. Now let's turn to Page #5. We have started already around about 6 months ago a review on our overall production network and have looked very carefully on what can we further improve in order to improve the overall platform of our company. And I'm happy to say today that our teams worked hard to accelerate the Hexane oxidation plant closure. Originally, we had stated that this will be closed by March '26. Now contracts with customers and contracts with supplier could successfully be renegotiated in the meantime. So today, I can say that this is [ better ] complete. We have closed the Hexane oxidation by end of June. There will still be some remaining costs, will be incurred in Q3. But from Q4 onwards, you will see first savings supporting the P&L. The overall annual savings will, of course, be then visible next year in full, roughly EUR 10 million of cash and profitability improvement. And by the way, Hexane oxidation had a high CO2 footprint, and this is, therefore, also contributing to our overall sustainability targets. As far as Leverkusen is concerned, we looked at our agrochemical plants and have realized that further optimization can be done here on the efficiency side. So that also is being addressed and will be implemented in the months to come. Let's move on to U.K. We will close our small plant in Widnes. The products will be allocated to other plants. Widnes was underutilized from the outset and has not become better. And that's the reason why we will reduce complexity, reduce costs and improve profitability. El Dorado is one of our big sites. And of course, here, we know that the end markets in flame retardants, construction are tough and continue to be tough at least for the next 6 to potentially 12 months. And for that reason, we have analyzed in detail for quite some time now and will improve efficiencies here also on the process side. So that's the reason why also this without adjusting capacities will lead to process improvements, and we will implement that in course of '26. So further measures are being taken to counteract economic weakness. Let's now move on to the segments. And here, let's start with Consumer Protection. From what we see today, and I have to stress this year is marked by high, high volatility and it leads to the uncertainty, I think, everywhere and all companies comment on that, not only in the chemical space, but also in the other process industry. So we are no different. So from what we know today, we give guidance on the segments. Consumer Protection, our view is that profitability will be slightly above prior year. Additives, by and large, on the same level. Additives, which rebounded nicely last year, is facing next to tough market environment on volumes in Europe, pressure especially from China. So we do see that Chinese goods are impacting, especially the European and Latin American industries. When we look at our segments, Intermediates is the most impacted. Additives is somewhat average impacted, consumer, the least impacted. But everywhere, we see that Chinese goods are being dumped in Europe as they don't see respective entry routes into the United States. Now we got questions from investors and analysts, what about a pickup in the second half due to German government stimulus? My feedback to you is government stimulus, we don't expect in the second half to occur. Nevertheless, we do face tough quarters, Q2, Q3. Also Q3 will be impacted by the uncertainty. So all the volatility, uncertainty, tariff escalation, la la la that occurred in Q2 spill over into Q3. Company take adjustments on production and their summer holidays in July, August, all of that we will, of course, see in Q3. Even though we see that customers also start to prepare for Q4 in order to be prepared for volume pickup in '26. So this is something where we turn a little mildly cautiously positive for the fourth quarter, but let's face it. Q2 and Q3 see the terrible uncertainty impacting industries across the globe due to the escalation on tariff and what have you. Now let's come to guidance, Page #7. So here, like many other companies in the industry and notably in chemicals, we adjust our earnings projections for '25. I think the macroeconomic, in general, I don't need to comment further. That should be crystal clear to all of you. Let's come to LANXESS. Guidance being adjusted to EUR 520 million up to EUR 580 million. Even though the chlorine force majeure by one of our suppliers here in Germany, most of you know who I'm talking about, has not been finalized in its assessments. We've tried to get our best understanding on all facts that are available. Within our guidance, we factor in a shortfall of EUR 10 million. Noteworthy to know for your side, we are protected should that be higher because, of course, we have insurance and our self- deductible is at EUR 25 million. And therefore, the EUR 10 million we consider as realistic for the current analysis that we have, and it's reflected in our assumptions. Consideration for -- take note of the fact that urethane is gone, so you need to adjust your models for the divestitures that is now happening also in Q2. And as far as Q3 is concerned, please understand it will be sequentially due to the reasons I've mentioned, lower than second quarter. Let's finish the presentation before we open up for the questions you have with a glance on Page 8. We are ready for demand picking up again. Our assumption is, at least from the German government stimulus program, we should see following also many of your macroeconomic insights from your macroeconomic departments that Germany and the German economy will pick up in '26 again, coming out of its draw and therefore, having also a positive impact on the European economy. We also assume that '26 will see more stabilization on the high tariff escalation debate that is currently leading to uncertainties. So our assumption is that '26 will have a demand pickup, and we are prepared for that. Our inventories are at low levels. Our portfolio is solid. We have obtained and gained through the transformation over the last few years, leading market positions in all of our business units. We have a [ good ] regional footprint, very lean improved cost structure. So if demand comes back, we are ready and of course, are prepared for whatever comes along. Ladies and gentlemen, with this, I would like to finish the presentation and Oliver and I are prepared to take all your questions.

[Operator Instructions] We will now take the first question from the line of Martin Roediger from Kepler Cheuvreux.

Three questions. The first question is on the Agro business. In Q1, you provided some slight optimism about agro, as you mentioned, positive volumes and higher earnings versus a weak prior year, especially in Consumer Protection where Saltigo sits. I hope that the challenging agro environment, which affected already Q1, but is in place for several quarters already, would fade at some point in time. Now in Q2, you reiterate the persistently challenging agro environment in Consumer Protection. What is going on in agro that this trough last so many quarters? Is the low demand linked to the fact that there are not many launches of innovations at your customers or b, that a key customer of you is now sourcing more and more volumes from other suppliers? My second question is about the intended closure of your site in Widnes, U.K., where you produce aroma chemicals for the flavors and fragrance industry, but also for cosmetics and consumer care. I understand that the demand is low while competition is tough. I wonder whether the recent approach by your competitor, Croda in U.K., which is buying market share via big price concessions has been the tipping point for your decision to give up that plant? Or is it primarily linked to rising Chinese competition? And my third question is for Oliver. Sorry to bother you with the same question I asked you at the Q1 conference call. It is again about energy costs. In your handout, you mentioned four times that energy costs are a burden at group level and also at all three operation segments. At the conference call of Q1, you said that for a longer period of time, you are able to pass on energy costs where they really matter and that deviations are possible on a quarterly basis. Do you think that you can catch up in the second half? Or should we wait until next year?

Okay. So let us go through all three questions. Thank you for raising them. And I'll take the first two, Oliver will take energy. On agro, I mean, we stay tuned. We, of course, follow the communication done by our agro clients, and most of them are listed, so you can follow their transcripts and presentations as well. We are happy to see that there's a more tonality on the positive by some of the agro companies. Normally, this should with a time lag also be visible in our order book. But at this point in time, they are still modest in ordering. So that's the reason why on the order book side, we keep patience and can, therefore, at this point in time, not confirm that our order book and volume are increasing. And that's basically the communication we see in -- on agro. We do see a high activity on innovation in the agro companies. And I can tell you that in many of these innovations, we are participating. So for the mid and long term, we are not negative. We are positive, but agro industry is a cyclical industry. I know this now for more than 20 years. And it takes some time to rebound. When it rebounds, it normally rebounds reasonably strong. On Widnes, I have to adjust your assumptions. This has nothing to do with Croda or whatever. When we made our announcement on the Emerald Kalama acquisition, and if you -- I think it was '22 or '21 when we made the announcement on Emerald Kalama, you might find in this transcript of that communication day that I highlighted already at that point in time that we acquired three plants and one plant is subscale, which might lead to an adjustment going forward. I was conditional at that point in time, but Widnes was clearly compared to our remaining four sites subscale. The other four sites are -- have the broad product portfolio. And I think this is the time now when you take tough measures. The plant was always low in the utilization, around about 50%, 60%. We tried to fill it up with other chemicals. But at the end of the day, this never led to a utilization that we aspire in our plants of 70, 80, 90 percentage points. And when we now reviewed our entire production network and have made sure that we can respecify the products that are being produced in Widnes. In our other sites, we took the decision to reduce complexity, reduce costs while keeping the product portfolio alive. And that's the prime reason for closing Widnes. And now I pass on my -- the ball to my partner, Oliver. Go along.

Matthias, I'm picking up the ball and Martin, thanks for the question. Look, indeed, energy costs are a burden in terms of competitiveness. If you look at the -- let's take as a proxy, the natural gas costs, if you compare the U.S. to what we have to pay here in euros, specifically in Germany, we are comparing on an apples-to-apples basis. So in euros to megawatt hours, prices that are around EUR 7 or EUR 10 in the U.S., and you can track the gas price here, which is in the magnitude of, let's say, EUR 30 to EUR 40 recently EUR 35. So there is a competitive disadvantage. But you're also right that indeed, we have, after the energy crisis, implemented contracts wherever energy in the production played a major role for the product to pass those burdens through to our customers. But Matthias, I think, in a lot of detail has outlined how competitive the situation is right now. So in such a situation, every competitively disadvantaged cost burden is worth mentioning, and this is why we put it out. Just as a little final example, only in the first half compared to the first half of last year, we had energy costs that were higher by EUR 30 million. And of course, we are pushing that through. Whether it will be possible by year-end to no longer point to these energy costs, we'll have to see.

Next question please?

We will now take the next question from the line of Andres Castanos-Mollor from Berenberg.

I would like more clarity on the Consumer Protection results. Firstly, it seems like the majority of the pricing reductions of the group concentrated in this division. I wanted to ask why? And understand to what extent this, which is the most valuable business division, is insulated from Chinese competition. And also on this division results, I would like more comment on the mix improvement that you mentioned. Also the adjustments that apply here, I assume they are related to the closure of the Widnes plant, but would love to hear. And finally, on the insurance adjustment, is the third quarter, if I'm not mistaken, that you have received a payment. What is -- is there more to expect in this front? Is this related specifically to the chlorine force majeure? Or is this about some other event?

Well, great questions. Oliver and I will share that. I will address Consumer Protection. Well, if you look into Consumer Protection, let's address business units. Here, we do have a material protection in the water purification business. Of course, here and there, we have competition from China as well. But we are in many of our product grades in a higher, more specified and data protected or registered specifications. And of course, here, the pressure by competitors is lower. And therefore, here, the profitability of these two business units are clearly more resilient. If you go to Saltigo, this is the one that is impacted the most right now because of agro weakness. We are not really directly impacted in Saltigo on the molecule side, on the competition side in the molecules we sell, but we, of course, do see that our end customers are facing pricing pressure and in some cases, volume pressure. And thus, they either hand over the volume reduction to us into the order book or sweat out inventories and of course, are very fierce in the pricing negotiation. So therefore, in Saltigo, we see that our customers are impacted on the competition side. And that's the comment on Consumer Protection. So all-in-all, this segment is less impacted by Chinese competition, which is, I think, the natural conclusion you would also have. But in return, our Intermediates are eye-to-eye competing with Chinese competition. I hope this clarifies your Consumer Protection question. And on the exceptionals for Consumer Protection, this is basically Widnes. But Oliver will give more color on this in absolute numbers and will address insurance as well. Oliver?

Yes, Matthias. On insurance, you may remember that we had an incident -- actually, we didn't have the incident, but in the bottling side of our business unit, Flavors & Fragrances, the steam provider, AVR had an incident, couldn't supply us. And this is in the aftermath a payment. And I remember, we received the question also on Q1, whether there is more to be expected. And here, the point is simply that the process that you run through with an insurer doesn't give you clarity on what will qualify as a covered impact. So I was not in a position in May to signal that. Now looking forward, there could be tiny payments, which will not [ drop ] the needle to the extent that we've seen a high single-digit amount here. And indeed, with regard to exceptionals, the Widnes side, and I think you see that in our quarterly report also quite neatly with the EUR 60 million, EUR 61 million value is for the closure of the Widnes side, as Matthias has mentioned.

We will now take the next question from the line of Peter Spengler from DZ Bank.

I have three. First is you reported positive free cash flow in the second quarter. Could you provide an outlook on the expected free cash flow development in the second half? And on your production network, you have already taken steps to optimize your production network, obviously. What are further opportunities? Do you see, let's say, more levers that you can pull actually to increase efficiency further? And then last question, what do you expect from German government and EU Commission to improve your situation in Germany and in Europe competitive-wise?

Well, our Chief Cash Flow Officer, Oliver, will address your question on this one. Let me take network and German government. I mean you see that we ongoingly address productivity where we find it. On the production network, we basically started end of last year, beginning of this year and now come to a conclusion. We reviewed also site-by-site everything in Germany and have at least seen here that there is no plant that we need to address at this point in time, but we accelerated the hexane oxidization. So you see that we really review site-by-site. And we will, of course, do that on an ongoing basis. That is operational optimization work that you should do, and we are doing it. And of course, I mean, in such an environment, my clear ambition is in tough times, you have to take always the opportunity for sizing opportunities. So you should not assume that with the actions we have announced today, we stop going for further opportunities. Technologies are evolving. We see a lot of new technologies through especially artificial intelligence that is more and more entering our industry. Of course, if you work on AI, you need to get the algorithms to work, feed with data and then see what opportunities arise out of that. So we've done the forward cost reduction in SG&A. We are now addressing network opportunity. And you can be assured that if we find further opportunities, we will make them happen. Now on the German government, I mean, I'm extremely happy that they don't only talk and make big statements like we have seen before or make further laws and rules that nobody needs like we've seen before. They take action. Of course, in the media and press, there's always in Germany, a lot of criticism. In Germany, you always have criticism on everything. But from an economic standpoint, it's the first time that we see that actions are happening. We also see that this is now entering into the doings. So the new government has announced their plan. They are now implementing their plan. They have passed respective approvals. And now we see that they are pushing hard to get that into the industry. Of course, that takes some time, but the infrastructure projects right now are being started. Of course, before that ends in the order book, it would still take 1 to 2 or 3 quarters. But we see that the government is clearly here on the acceleration path. And therefore, I'm, first of all, very happy that Germany is taking actions again. I think you guys in Europe, in London, Paris, Switzerland, wherever you sit, you suddenly see that our German Chancellor is again doing something and not hiding himself. So he is active. He wants to contribute. He wants to solve problems, turn them into solutions. And the same we see from the industry side, things are happening. Of course, it takes always some time until actions leads to reactions and momentum. But the positive thing is we see that here, fortunately, things are moving in the right direction. And with this, again, I pass the ball to Oliver.

Matthias, thank you. Peter, I'd like to emphasize two or three points here with regard to free cash flow and specifically your question on the development in the second half. I think in the second quarter, it was pretty apparent and Matthias has mentioned that in the beginning that we are indeed putting a lot of focus and a lot of effort into tightly managing the cash flow here. You could see that with regard to our collections, with regard to the volume management in our inventories. I cannot, however, close my eyes when I look at the fact what the operational environment is currently. And if I compare it to last year, also seasonality has to be taken into consideration. So if you look back in the numbers, we had a negative free cash flow in the first half last year as well, ended last year with a positive free cash flow of [ EUR 188 million ] and had a huge seasonal inflow in the fourth quarter. We'll be working with a lot of energy into the direction of showcasing a positive free cash flow here. But with the uncertainty that is out there, I hope for your understanding that I cannot give you a precise guidance.

Peter, looking forward to do road show with you in Frankfurt, so you see us next week. Next question please.

We will now take the next question from the line of Chetan Udeshi from JPMorgan.

I was listening, Matthias, to your commentary, and it seems you highlighted the competition point from China, imports, et cetera, to a different degree across all your divisions. I'm just curious, you talk about demand weakness, and this is not just relevant for LANXESS but probably for the whole sector. How much of the weakness we see in the sector is a function of just higher competition rather than just maybe not as bad a demand? And if that's the case, why would that change next year?

Well, I think, I made the statement that, first, customers no longer order on a 2 to 3 months approach like they have done for decades with a few exceptions, financial crisis, Southern European debt crisis and pandemic, but all of them lasted basically 1, 2 quarters. What we see right now is that -- and this is obvious when you have tariffs of 145%, 50%, what have you, you basically don't order, you wait for better tariffs to come. And therefore, orders and order books have moved from 2 to 3 months pattern to daily, weekly patterns. I followed my colleagues in other industries in their reporting season. I followed some of my peers in the chemical space and talked to a few guys here and there. This is pretty much the same everywhere. So we see that from the customer side, people are reluctant and are very conservative. They don't buy more, they buy rather less. It's being bought on short notice. Second, I've stated that inventories are being reduced nearly everywhere. So people produce less in uncertain times and also consumers buy less in uncertain times. We see that saving rates in many countries are on the high side and not on the low side. So of course, it needs positivism. It needs certainty, et cetera, to ignite against spendings. Spending levels are low in the consumer side, on the industry side. And that's the reason why we clearly consider that this current order pattern is not the new normal and that it's going to improve in the years going forward, but we need to have a little bit more positivism, and that's the name of the game. I hope that clarifies your question. Next question please.

We will now take the next question from the line of Christian Bell from UBS.

Can you hear me okay?

I hear you loud and clearly, Mr. Bell.

So I just have a couple of questions. If I could ask the first one and then maybe come back to me for the second one, that would be great. So firstly, it would be good to get a clearer picture of your outlook for the second half, particularly by segment based on the midpoint of full year guidance of EUR 550 million and frankly applying the commentary by segment, I think that implies for the second half. And Intermediates weakness is anticipated to persist through the second half, which I can understand. But then in Additives, that's expected to show improvement or at least remain flat. And then in Consumer Protection, there's a notable slowdown from the first half. So firstly, like I said, could you sort of confirm or correct me if I'm wrong? And in either case, provide your thinking on the assumptions for the second half, particularly for Additives and Consumer Protection. And if you can break that into third and sort of fourth quarter, that would be even better.

Well, Mr. Bell, thank you very much for your question on volumes momentum by segment and by quarter. We don't do that in general. We've given a company guidance on the entire group. I don't guide by segments on pricing and volume, these communication details. We always provide for the quarter. I've given you qualitative guidance by segment how we see profitability. I think that should give you as much color as possible. And so please look into the presentation and reassess again how we qualitative-wise have commented on Consumer Protection, Additives and Intermediates and how we addressed our full year. And I think with this, you have the best information we provide at group level at this point in time.

Okay. Another way to ask that, I guess, are you sort of -- so I guess you called out auto, agro and construction as being the sort of the most impacted end markets through the first half. What are you sort of expecting from those in the second half? Is it sort of -- some sort of recovery or largely sort of a continuation of what the current environment is? And then outside of those segments, are you -- what are you kind of expecting there?

Well, I come back to what I stated earlier on, we do assume that Q3 will be another very tough quarter driven by normal seasonality you have in the industry. Third quarter is always one where you have due to the holiday season in July and especially August, less momentum because many of our end industries like car industries go for production shutdowns in course of August. And therefore, you have always a little more milder activity -- production activity in the third quarter. And I've stressed very clearly that the tariff escalation that basically occurred within Q2 still leaves its mark in the order pattern of the third quarter. I alluded to the fact that in the fourth quarter, we should not see government stimulus coming from Germany. But we see that already one and the other customer are starting to prepare for an order pickup in '26. And therefore, we do assume that there will be an order uptick in the fourth quarter in some of the industries that will benefit from what is being decided at this point in time. That's the communication I've made earlier in this conference call.

Okay, great. And then my second question sort of relates to the margin decline in Additives and Intermediates in the second quarter there. So are you able to sort of explain what a typical EBITDA drop-through would be for -- like what a typical EBITDA drop- through would be on incremental sales that would potentially help, give a sense of how much of the fall in EBITDA was due to operating leverage versus other impacts such as in energy costs?

Oliver, do you want to take this?

Yes. Unfortunately, that is also a question where I prefer not to provide a drop-through to EBITDA rule of thumb here by segment. I'm referring to what Matthias has already stressed. We're happy to take that up in the aftermath with you trying to build a bridge to help you model your expectations, but we won't get to the point where I guide you to a segment or a business drop-through on EBITDA.

We will now take the next question from the line of Tristan Lamotte from Deutsche Bank.

First one is there's a peer who reported yesterday that July was a bit better than June. I'm just wondering, is that something that you're echoing? And is there a potential that Q2 saw some destocking, which therefore, might not continue into Q3? And the second question is, I was wondering about the outlook for Envalior. I'm just wondering how much we should read across from the weak forward- looking outlook Celanese gave, if you could comment on that.

Tristan, thank you for both questions. I will take them one by one, and Oliver will step in if he has something to add. I will not be specific now on month trading, how was July or the first week of August. My feedback to you is, as we have guided Q3, we communicated it will be weaker than Q2, and I've given the reasons behind that. We might have seen some preordering in March, Q1 on the -- which burdened potentially a little Q2 at the beginning. But by and large, we do see that Q2 and Q3 are the tough quarters for the industry. So if there are different, one exception making different comments, so be it. But our view on the industry is Q3 is going to be another tough quarter for the industry. I think this is the reason why most chems and automotive companies, capital goods companies have adjusted their guidance for the full year. If all of them would have seen that suddenly strong momentum is there, I think most of the companies would not have taken down their guidance. But the opposite is the case. I think most of our end industries see Q2, Q3 are tough quarters. And that led to the fact that across industries and specifically in chems most of the companies took down their yearly outlook, and we are no different. Envalior, if you look at the year-to-date numbers that we have reported, and I here can only allude to the equity consolidation line in our P&L. We posted last year a negative number of EUR 73 million. And if you look at the first half '25, it's a negative EUR 59 million. So from that number, you should conclude that Envalior has improved. I back test that with the analyst reports of 3 rating agencies that have all communicated Envalior is going into the improved profitability direction in course '25. So if I look into my financial numbers in what we have reported to you, this is pretty much confirmed. I hope that clarifies your question on Envalior. If there's anything else, please let us know. Next question please.

We will now take the next question from the line of. Thomas Wrigglesworth from Morgan Stanley.

Thomas P. Wrigglesworth: Two questions, if I may. Firstly, just on clarification around the guidance and the free cash flow commentary. It sounds like there is some optimism for '26, and therefore, the business will be positioned for growth for '26. So you're not going to run aggressively hard on inventories into year-end because you want to pick up that '26. Is that the message that I've received? The second one is just -- sorry, there's an alarm going off in the background. The second one is on credit rating agencies. Could you just give us an update as to the discussions you're having with credit rating agencies? How -- what are they looking at? Are they giving you any leniency for the uncertainty, which is obviously unprecedented in the market today in terms of how they look at the cash flow potential of the business?

So Tom, wow, on working capital, you are raising a very operational and to some extent, also operational strategic and resource allocation question. That's exactly the discussion you internally have to deal with and to discuss. Our view is, and we get signals from customers that some of them are preparing for more momentum in '26. So exactly this discussion we are going to have internally if we are prepared for supplying this in a speedy way. And then, of course, you have to be humble on further reduction on inventories. If you see that the momentum remains depressed, you can clean up the balance sheet at year-end. So this is exactly the discussion we are going to have with our business, I would say, starting in 6 to 8 weeks from now because then we take the call on with what kind of inventory levels will we end fiscal 2025. And I think you've heard our saying on how we look at Q3 and Q4 and how we look into '26. So exactly on battery side, this decision is going to be discussed or prepared and then finalized in around about October this year. Then on credits and credit rating, rating agencies, I mean, who is the best expert in the room, Oliver, go on.

Matthias, thank you. Tom, look, we do have a very close exchange and frequent exchange with the two rating agencies, Moody's and Scope covering us. The way it normally works is that you have quarterly discussions and then you have like a longer, more in-depth discussion typically over the summertime, which we have already had. I think when you look at the Scope rating, you have seen a change in that rating just a week ago. They have withdrawn our negative outlook and upped our rating. And I think the fact that the -- there is free access or at least payable access to the research also from Moody's. And when you read that, you can conclude that they recognize and appreciate the improvements that we've achieved in our portfolio, in our cost structure, and they also see the efforts and success with regard to cash flow. So the fact that we have been provided with the negative outlook with the typical grace period and the agencies are apparently looking at us and are appreciating the improvement speaks for itself. So that's as much as I would like to answer that question.

Thank you, Tom, and see you in London soon. Next question please.

[Operator Instructions] We will now take the next question from the line of Oliver Schwarz from Warburg Research.

Two questions. First one is on regional sales distribution. A couple of your peers recorded on a bit different regional pattern than you did. They said, and it also showed in the numbers that business in Asia was holding up, wouldn't say pretty well, but wasn't as affected as other regions by the downturn. That doesn't seem to be the case in -- when it comes to LANXESS' especially when looking at Q2 results. Can you fill me in what's the reason for that? Is that due to the divestment of the Urethane system? Is that product specific? And in general, what's your outlook on your Asian business, please? Second question would be about the outlook. I appreciate that the uncertainty has been mounting up during the year. And hence, with 7 months in, the spread in the brackets of your new guidance has become even a bit larger than at the beginning of the year. However, could you fill me in what bring you to the upper end of the guidance versus the lower end of the guidance range?

Well, let me take them one by one. I think we -- our comments have been on the regional sites for the group. Already at the March reporting or in May reporting that if you look into the regions, we used to have a good momentum in the United States. We had a weak demand in Europe, and we had a weak demand, especially in '24 and '25 in Asia, while Asia modestly stabilized and then modestly improved. I think that was the tonality we had. And this all-in-all has only changed for the United States. Here, we see softening. It's still positive, but softening. Europe remaining weak. In Asia, the picture is different in terms of countries. We see good momentum in India, good growth. Whilst in China, we see pricing erosion. So please take note of the fact our local production in China is very humble. We export to China. For the exporting to China, look at, for instance, our flame retardant business. We don't produce locally. We sell to China. And of course, here from the United States, you had a lot of turbulences on tariffs. If margins erode when you export to China, you are more humble in your distribution. And therefore, all-in-all, if you look into Asia, we see that there is market-wise, a very modest improvement if you look at entire Asia. If you look at specifically into Asia, into the two great countries, you clearly see the positive momentum in India, and we have here reasonable local production. And as regards to China, I think, I made my comments. As regards to the guidance, upper or lower end, I would look to Oliver and let him comment on this.

Well, typically, with the uncertainty, the general answer would be, the earlier we get stability in the tariffs dispute, the more it would help us because it would probably fuel some demand. If there is a further escalation in any of the geopolitical tensions or there are new negative ideas that are being discussed in the tariffs, it would rather burden us and bring us to the lower end. Should the European Union decide to speed up antidumping processes, for example, against Chinese products, it would help us. So there are many factors that we can talk about that would bring us to the upper and lower end. And the fact that we've decided to expand the bandwidth just gives you a feeling for the uncertainty that indeed we're feeling here. So many factors, Oliver.

We will now take the next question from the line of from Reuben Scherzer from AMG TimesSquare Capital.

Can you hear me?

Yes, Reuben, we can hear you.

Okay. My question is, what's been the overall group capacity volume reduction from the period before the forward cost saving program was put into motion and what it will be after the cost saving program announced today will be complete? If you could ballpark, and I'm sure like down to the exact percent is unreasonable, but is it like a 25% volume reduction? Is it less, more?

Well, let's be specific. Forward was predominantly an SG&A exercise. So with forward, I think I've stressed that at that point in time -- we clearly stressed that forward is not reducing our capacities worldwide, but it's improving our productivity and is reducing our admin costs, which was visible in the P&L in the functional line administration. With forward, of course, we announced two potential site closures. One was hexane oxidation and the other one was chrome oxide. On chrome oxides, we said this might be divested or closed. Eventually, we decided last year to keep it running because we basically reduced our entire admin costs in this business by 20 percentage points. So this was a severe cost cutting we did in that area. And on top of that, we renegotiated a supplier contract of a big raw material, sodium dichromate by a substantial amount of money and the business which was completely underwater turned into good profitability and is contributing now on. So chrome oxide capacity was not adjusted. The business was not sold but kept. And with hexane oxidation, we've now announced that this will be closed. Hexane oxidation is a capacity of around about 30, 35 kilotons. So in the overall picture of Advanced Industrial Intermediates, this is not a big number. For the business itself, we basically destroy a business that had no cash returns that was, by and large, EBITDA zero or even slightly negative. And therefore, we improved profitability, we reduced cash absorption, but we don't significantly change the capacity. As far as Widnes is concerned, which is now announced for closure, I've stated that this plant was underutilized in the past. We reduced the capacity in the market, but still take the products in our remaining sites. So it does not reduce our structural profitability level. El Dorado and Agrochems are efficiency gains, but not capacity adjustments. I hope that clarifies your question. Any questions left?

There are no further questions on the phone. Please continue.

Well, if there are no further questions, then I thank you for your participation. We are, of course, there for you. I know it's in most of the cities summertime. So enjoy your summer break. Oliver and I are ready to take your calls. Investor Relations is there. I will be on roadshow next week. So if there's any further follow-up and need for discussion, we are prepared to answer all your questions. Thank you for your attention. Bye-bye. See you on the roads until next time. Thank you from LANXESS.

This concludes today's conference call. Thank you for participating. You may now [Audio Gap].