Earnings Call: Q2 2020

Jul 23, 2020

Ladies and gentlemen, thank you for standing by. Welcome to the Covestro earnings call and the Q2 twenty twenty results. The company is represented by Marcus Stilemann, CEO Thomas Toppa, CFO and Ronald Kohler, Investor Relations. During the presentation all participants will be in a listen only mode. I would now like to turn over the conference to Ronald Cola. Please go ahead, sir. And welcome from my side for our second quarter conference call. And as usually for your information, we have posted all the documents financial report at our IR webpage. And I also assume you have read our Safe Harbor statement. With that, I would like to turn over to Marcus. Thanks, Ronald, and very warm welcome also from my side This is Marcus Dialerman speaking, CEO of Covestro. Good afternoon and good morning to our listeners from the United States. Before we go through the details of the second quarter, I would like to begin with really exciting and far reaching news. Our new vision, we will be fully circular. Climate change, growing world population, increasing urbanization. Global developments like these are enormous challenges. We at Covestro want to help overcome them with our multitude of innovative products and solutions. We strongly believe that the high quality polymers and their components that Covestro develops and produces are the key to a sustainable future. Our vision clearly states we are doing everything we can to realize the circular economy, which ultimately is a great social transformation project to make the world climate neutral and to protect its dwindling resources. Guided by this long term strategic vision, we will anchor the principle of the Circular Economy within the entire company in order to fully implement it. We are working on a comprehensive set of strategic and operational goals that will lead us toward this long term vision. We will pursue this path consistently and with commitment in the interest of our customers, suppliers employees and the capital markets to name a few of many important stakeholders. While striving to establish Circular in our value chains, we particularly focus on 4 areas: firstly, alternative raw materials. Secondly, energy efficient innovative recycling technologies. Thirdly, renewable energy. And last, Cross Industry Collaboration for joint solutions. On the next page, we provide examples for each of familiar with our breakthrough solution in polyurethanes to replace about 20% of fossil feedstock by carbon dioxide in polyols. Because we have already talked about this innovation, I'd like to highlight another marketed product from our coatings, adhesives and specialty segment. A bio based hardener for automotive coatings. The carbon basis of this product is up to 70% made from renewable raw materials, Through this, we enable manufacturers to optimize the carbon dioxide footprint of their products. Without any compromises with regards to protective functions and appearance, this final top code for cars requires considerably lower use of fossil raw materials than in conventional cyst We were able to prove this by collaborating with Automotive Group Audi and the Coating Experts of BASF Coatings. In the field of recycling, I'd like to highlight recycled polycarbonates. As consumers want sustainable products, we are helping manufacturers to meet this demand. Covestro developed new polycarbonate grades from post consumer recycled or in short PCR content such as water bottles, compact disc and automotive lighting. In a closed loop recycling system, the materials are collected sorted, shredded and cleaned. Reprocessed into granules, the recycled polycarbonate is then compounded with virgin resins to strengthen the properties. Finally, these PCR rates are used in the production of laptop covers, mobile phone chargers, printers, copiers, and other electronic components for a second life. As example of renewable energies, Covestro entered the, at the time, world's largest corporate supply contract for offshore wind energy with the Danish company, Danish company Ersted. Starting in 2025, Ursted will provide 100 megawatts of green electricity for 10 years, generated in a newly built wind farm in the North Sea. The Ursted Wind Farm will be implemented without public funding. This supply contract covers roughly 10% of Covestro's electricity consumption in Germany today. As example of Cross Industry collaboration, I'd like to highlight this pureesmart European Consortium launched in the beginning of 2019. This consortium is an end to end collaboration spending the entire polyurethane, reprocessing value chain and gathering 9 strong partners from 6 different countries coordinated by our Belgian customer, recticell. In this cross industry, cross country collaboration, we seek ways to transition from the current linear life cycle of polyurethane products to a Circular model. To summarize, our new vision is to be fully Circular. Our endeavor towards this vision has already begun. With the financial highlights on Page 4, I'd like to turn to the results of the second quarter 2020. Current times are marked by the global coronavirus pandemic and its consequences in all areas of our life. While we globally continued business operations in the second quarter, our daily focus was to take care about the safety of our employees and business partners. To ensure our ability to deliver to customers and to secure strong liquidity position. As expected, Our core volume declined significantly by 22.7 percent. We achieved an EBITDA of EUR 125,000,000 which was above market expectation. Despite the massively negative volume impact of the pandemic, we achieved a positive free operating cash flow of 1,000,000 in the second quarter of 2020. EPS came in negative at minus per share. Despite continued high uncertainties in our economic environment, we confirm our full year guidance for this year. Now let's move to Page 5. We introduced the volume chart on this page a quarter ago to illustrate the weekly regional impact of the coronavirus pandemic on our business. The key observation is exceptionally high volatility globally. While overall volumes sold in our core business fell by 22%, compared to the second quarter 2019, the monthly breakup showed significant dynamics, while we recorded strongest year on year monthly decline in April, with group volumes down by 32%. We observed a sequential improvement since mid of May, June call volumes came in at minus 8 percent year on year. We estimate that the pandemic impacted our global second quarter core volumes was minus 27% year on year. In our pre Corona budget, we assumed positive core volumes of around 4% in the 2nd quarter. Looking at the impact by region, China, we recorded the earliest volume impact followed by a so far strong recovery since May Monthly sold core volumes were above previous year, however, with high weekly volatility. In Europe, we recorded the strongest year on year decline in mid April, During the quarter, various European countries were hit by the pandemic in varying intensities and timings. Since May, our core volumes followed a relatively stable sequential upward trend. In the U S, we witnessed the latest volume impact by the pandemic. The recovery path has been lagging the other regions with a volatile upward trend since May. To illustrate what we mean with volatility, The depicted volume improvement towards end of June is the result of 1 weekly data point that includes one big customer order. Looking into July, we started the third quarter by continuing the volatile path of sequential recovery. Core volumes in July appear above June, but still somewhat below previous year. In a nutshell, the recorded pandemic impacts and subsequent recoveries followed exceptionally volatile dynamics. Along these lines, our visibility was and remains exceptionally low. Let's turn to Page 6. Page 6 summarizes how we manage the crisis. In response to the unprecedented negative impact on our business, we realized substantial cost savings established a solidarity pack for our global workforce and secured a strong liquidity position. Let me highlight three points. We entered a far reaching solidarity pack in May. This 6 months pack includes a temporary salary reduction of 6 0.7% for the non managerial workforce. The agreed salary reduction increases throughout the managerial staff to 15% for board and supervisory board members. While this pack was voluntary for all managerial employees, the acceptance was subsidiaries outside of Germany have implemented comparable country specific measures to reduce costs. I'm truly delighted by this level of solidarity to the company among the Covestro workforce. During the past weeks months, we continuously adjusted the utilization rates of our production assets according to the development of customer demand. Globally, as of July, asset utilization rates for MDI and TDI are almost back to normal rates. This is also true for polycarbonates in Asia Pacific. Utilization rates for all other products continue at reduced rates in line with demand. Importantly, our leading production and process technologies have proven their scalability in quickly adjusting operating rates and reliability in safe operations. On the cost side, we implemented short term cost savings in total of more than 1,000,000. In the second quarter, cost savings substantially contributed to earnings. While these cost savings are temporary by definition, we also further executed our structural cost and restructuring program perspectives. As announced with full year results in February, we had set a target of reducing global headcount by 400 to 16800 by year end. We can now report that we have achieved this global this goal 6 months earlier by endofJune. We are working on a further reduction of the global headcount by end of 2020. Now let's turn to Page 7. Here, I would like to highlight some volume development by region. And as a concession to the exceptional time also by industry in detailed numbers. The decline of global core volumes was strongly impacted by a half business with the automotive and transportation industry. Demand in Europe and North America were even worse in terms of year on year rates. Demand from auto in China ended the quarter on par with previous year. Demand from the furniture and wood industry in China also finished the quarter with positive double digit growth rates year on year, yet global volumes in the furniture industries were down approximately 30%. Global volumes to customers from the construction industry declined by approximately 15%. Here, Volumes for polyurethane based insulation were down by approximately 20%. Polycarbonates realized double digit volume growth driven by demand for resin used in pandemic related, productive gear and face shields. Volume sold into the electric Electronics And Appliance Industry partly benefited from extra demand from consumers who established their home offices with new IT equipment. Nonetheless, global volumes decreased also year by approximately 15%, while volumes in China were back to single digit growth. The positive highlight among the remaining diverse industries were attractive volume growth rates in global medical applications in both. The polycarbonates and coatings adhesive specialty segments. Here, volumes grew by approximately 25% year on year, for example, driven by high demand for housing of respirators. Looking at customer industries by region, we recorded low double digit declines in auto and Electro in Asia Pacific and single digit declines in furniture and construction. Please note that shown volume growth rates of minus 8 point 4 percent in Asia Pacific and at the same time, 5 0.5% in China imply declining volumes of 33.8% in the rest of Asia Pacific. In EMLA, volumes declined due to the pronounced weakness in auto and furniture. In electron construction, volumes declined at low double digit rate, Similarly in NAFTA, demand was weakest in automotive, all other industries declined low double digit. With this, I'll now hand over to Thomas for the full set of financials. Thomas, please. Yes, thank you, Marcus. And also hello to Edward on the call from my side. I'm on page 8 of the presentation where you have the sales bridge and you see a year on year decline of 32.9% for the second quarter of 2020, and the negative volume impact of the coronavirus pandemic led to a 22.3% year on year sales volume decrease and that is the EUR 712,000,000 that you see in the bridge. Moving to pricing, the lower selling prices mainly PUR and PCS negatively impacted the sales by 9% that is the 1,000,000 that you see. But it's important to note that while in 2019, it was mainly increased competitive pressure that resulted in declining selling prices, and the movements that you now see in 2020 are rather driven by a lower feedstock price environment. And I would also like to emphasize that sequentially, the selling prices only declined by 3%. Moving on to FX rates in the bridge. They were virtually unchanged, affecting sales by minus 0.1% year on year, driven by the weakness of some emerging market currencies, while on the other hand, sales were helped by a stronger U. S. Dollar. Last but not least, portfolio changes reduced our sales by 1.5% or 1,000,000 in Q2. And you have the details of that in the bullets on the right hand side of the page. An EBITDA of 1,000,000, which was above the market's expectations. Nonetheless, the decline of 72.8% compared to previous year was obviously very steep. So as a consequence of lower demand from certain customer industries, our product mix was affected unfavorably and this resulted in a relatively high negative volume leverage of 47% and you find also on the bullets on the upper right hand side of the page. Moving on lower selling prices. As commented before, we're only partly compensated by a relief of lower feedstock prices. And as a result, the year on year pricing delta was a negative EUR 100,000,000 FX effects to EBITDA were positive 1.6% year on year despite a slightly negative effect that we just reported in the sales bridge, and the difference in absolute numbers is very small and mainly linked to transactional defects. Last but not least, Elise, the line other items contributed positively with 1,000,000. And the key contributors were short term cost savings and lower provisions for short term bonuses, and currently these bonus provisions for 2020 run at 0. So I would just like to emphasize that excluding a prior year one time gain of 19,000,001,900,000, which we recorded in our CAS segment, the line other items would have even amounted to positive million. And that is obviously a function of the cost saving and efficiency measures that we implemented. So with that, let's move into the business units and segments. I'm on page 10. If you look at our polyurethane segment on this chart, we faced a core volume decline of 25.9% in Q2, and the polyols recorded the largest negative decline rate followed by TDI and MDI. And obviously, the key reason for the declines in all key industries was the global impact of the coronavirus pandemic. The Polyurethanes EBITDA, as you can see, turned negative in this quarter, but to give you historical reference, this segment had already experienced 1 quarter of negative earnings in Q12009, during the peak of the global economic crisis pricing delta compared to prior year, and especially polyol's earnings were burdened by lower volumes, the take or pay contract in place with our propylene oxide JV partner and competitive pressure. Let's move to polycarbonate on page 11, as you can see, core volumes declined by 14.4% compared to prior year. And in addition to the details that Marcus already presented, on the impact of the pandemic, I would like to highlight the double digit core volume growth in China that this segment recorded in Q2, and also smaller applications like our global business into the medical equipment as well as the European business with reusable 20 liter water bottles grew very nicely at double digit Thanks to shifts between customer industries and also new customer wins globally, the polycarbonates management team mitigated some of the adverse corona virus impact on this business. And compared to prior year, the EBITDA decreased due to lower volumes and negative pricing delta, to 96,000,000, as you can see. However, sequentially, a double digit EBITDA margin was maintained virtually unchanged at 14.8% and this development was supported by a positive sequential pricing delta. Let's move to Page 12 where you see the cost segment. As you can see, the segment posted a year on year volume decline of 20 5.3% affected by the coronavirus pandemic and the continued demand weakness from customers for automotive applications, And as the volume leverage of CAS is highest among all three segments, the lower volumes largely contributed to the strong EBITDA decline of 60%, again, corrected by the one time gain of 19,000,000 that I was mentioning earlier, which was included in prior year's EBITDA, the year on year decline would have been smaller, but still amount to 49%. So with that, let's move to the cash flow on highlights that are not so clearly shown in the table on the left hand side. So first of all, I think it's important to note that we recorded a positive free operating flow of EUR 24,000,000 despite the massively negative volume impact of the pandemic. And I think that's a good result. And secondly, The working capital contributed positively with 1,000,000 in Q2, and I also think this is a good result. So in this context, our working capital to sales ratio was 19.9%. And for the full year 2020, we assume that we can again reduce our working capital and strive to end up within the targeted working capital to sales ratio corridor of 15% to 17%. Now changing to the year to date accumulated view of the first half of twenty twenty, as you can see, our free operating cash flow was at negative 1000000 to 1000000, and this is relatively stable, provided a simultaneous EBITDA decline of more than EUR 500,000,000, which we had to digest. As you can see, working capital was impacted by negative contributions from lower payables, reflecting lower feedstock prices and lower feedstock volumes in line with lower demand. On the other hand, we continued our very strict inventory management and even achieved a slight year on year reduction in stock levels if you measure it in kilotons. As you can also see in the table, CapEx came in at 1,000,000, and that is fully on track towards our full year guidance of around EUR 700,000,000. And you can see below that, we paid income taxes of EUR 100 and 1,000,000 despite a positive tax income income of 1,000,000, which we recorded in our P and L account, and that is obviously a consequence of a phasing in the payment structure. Last but not least, the last line item in the table shows you that there is a positive swing of more than EUR 300,000,000 in the others line, and that is mainly driven by significantly lower cash hold for bonus payments. So in 2020, we paid roughly EUR 40,000,000 for bonuses for 2019, while a year before. So in 2019, we paid about EUR 350,000,000 for the year 2018. And that is then the difference that I was just alluding to. And this effect, once again, demonstrates the kind of automatic stabilizer that is build in our bonus system to protect our cash and earnings in times of lower group profitability. Let's move to Page 14, as you can see, we maintained a strong balance sheet and liquidity position. The total net debt to EBITDA ratio increased to 2.9 at the end of Q2, and we maintained a rather stable equity ratio of 42%. You can also see that after the pension provisions had decreased by approximately EUR 500,000,000 at the end of Q1, they ended again close to the original levels by the end of Q2, and that is a function of the discount rate, obviously. I would also like to mention that you have probably noted that on June 2, Moody's lower to the company waiting from BAA1 to BAA2 with a negative outlook. But I would also clearly say that we continue to target a capital structure and financial ratios that support a solid investment grade rating also in the future. You can see in the graph that presently our balance sheet includes liquidity of around 1,000,000,000 in cash cash equivalents and current financial assets. This source of liquidity is complemented by an undrawn revolving credit facility of 2.5 1,000,000,000, which we concluded in Q1. And against the backdrop backdrop of high uncertainties, we currently prefer this very strong liquidity position as it was secured at very attractive rates during the course of this first half year. So as raising and partly retiring short term working capital lines as well as receiving a loan from the European Investment Bank, we issued 2 Euro bonds with a total amount of 1,000,000,000 in June. And the investor demand was exceptionally high with the order book being more than 10 times oversubscribed. And this transaction also allowed us to substantially extend the average time, the average maturity of our bonds. And last but not least, I would like to mention that the proposed dividend of per share plan to be paid out after the upcoming AGM in early August, and then obviously will impact the net financial debt development in Q3. So with that, let's move to Page 15, where we summarize the key drivers of our earnings development And first of all, let me reiterate that overall, we confirm our 2020 EBITDA guidance. On the upper right hand side, you have the bridge items. So regarding the year on year bridge between the actual 2019 and expected 2020 EBITDA, we assume the following key variables. First of all, we slightly adjusted pricing development from a negative 1000000000 to a negative 1000000000 based on the June margin going flat forward. And our assumptions for the exchange rates for exchange rates and the so called other lines are unchanged. Now obviously, the visibility on volume development remains very low and therefore, we continue to work with scenarios and the reported Q2 volume leverage on sales was a bit higher than anticipated due to product mix shifts within our core volumes and declining non core volumes as well. So looking forward, a volume leverage of around 50,000,000 per one percentage point of core volume change as it indicated in the in the slide, remains a reasonable assumption. However, this value may again vary in a given quarter depending on further product mix shift and the development of non core volumes. So now those are the bridge items. I would now give you a little bit of help when you fill your models, how to apply the same bridge logic to the EBITDA in Q3, twenty twenty. So the our base here is that we reported EBITDA of EUR 425,000,000 in Q3 last year. We would assume a mid to high double digit euro 1,000,000 burden from pricing delta based on June margins flat forward. And we would also assume a slightly positive impact from the others line and foreign exchange rates, if you take them together. So this leads to what I would call a reference EBITDA before any volume changes, which is somewhere in the mid million range. And now to this value in your spreadsheets, you may now apply the volume leverage of 1000000 to 1000000 per one percentage point year on year change in quarterly core volumes. And obviously, this number, I leave it up to you what you plug in into your models. So with that, I would like to move to Page 16, which lead which shows you the remaining items of our guidance as explained, we assume core volumes in 2020 below 2019. Our free operating cash flow guidance remains unchanged in line with our unchanged EBITDA guidance and apart from a slightly more negative financial results, which we now expect -1,000,000 versus originally 105, all other guidance items remain unchanged. And with that, I would like to hand it back to Marcus for the summary. Thank you very much, Thomas. Let me summarize on Page Number 17, the highlights of this quarter's result. The global coronavirus pandemic drove down our call volumes. We recorded the strongest impact in April and the sequential improvement since mid May 2nd quarter earnings were above market expectations at time of prerelease due to better than expected cost management. We responded quickly and decisively to the crisis and manage it for Covance in the best possible way by implementing a broad based set of measures. This included executing short term cost savings, entering a solidarity pact with all Covestro employees and securing a strong liquidity position. We confirm our full year guidance despite a highly uncertain economic environment. We proposed a dividend of per share to the annual general meeting, which is scheduled to take place next week on July 30, for the first time as a virtual event. We thank you for Thank Your questions will The first question is coming from Christian Faitz from Kepler Cheuvreux. Yes. Thank you. Hope you can hear me well. Good afternoon, gentlemen. Just two questions, if I may please. First of all, can you please share us or share with us the current Q3 trends in the polyols market as this was the major drag for the polyurethanes business in Q2? And then, according to Chart 5, the volume recovery in the U. S. In the last couple of weeks in Q2 seems to have been quite remarkable of out that one customer orders you will refer to. Can you share with us the trend that has continued if that trend has continued into Q3? Or have renewed lockdowns in the U. S. And the entire political situation, they are putting into the volume revival in the meantime. Thank you. Okay. Let me first, let me take the last question. So First of all, I think we obviously provided a lot of details during the month week of the corona crisis just to give you a little bit transparency. I think it would now be a little too early to say, okay, let's talk about July on a region by region basis with the months not even having ended. I think our overall message is that the good momentum that we've seen in June have continued into July. We think that sequentially, we will look at an improvement, maybe year on year still a slight decline. And I think the general trend is also true for all regions. So it's not that things have in a certain region completely collapsed after that. So I think let me maybe leave it at this degree of precision because the month is not even over. Next question comes from Daniel Chung of Redburn. Hi there. 2 questions from me. So first is on the Polycarbon division, it's pretty impressive how margins have remained robust there. So could you elaborate on what are the main dry was it primarily the volume share gains as high cost producers reduce their output or are there other factors to consider here? And secondly, is on the price raw mat delta. So Given the raw material deflation lag impact and potentially a sustained demand coming through in Q3, Is there any further upside to your assumption of the minus 1,000,000 for the full year? Yes. Daniel, thanks for your question. The first one on polycarbonate it is a mixture of different effects. 1st and foremost, I think, we have over the last 10 years, very consequently shifted our product mix in the polycarbonates area, not only with regard to the product, but also with a broader industry experience, just to bring everybody up to speed. If you look 15 years back, There was one product that was representing more than 1 third of the global markets for polycarbonates that was compact discs. And since then, as we were seeing that this one trick pony would not last very long, we were constantly shifting and moving the entire polycarbonate portfolio to a highly, let's say, degree towards smaller niche applications. And that strategy is now in this crisis, I think, paying off. The second topic is, we have continuously worked on our cost position also for what I would call the base grades, which are partially highly commoditized. That means leading cost positions have been built further. And in that context, we were able not only to compensate partially for the massive decline in the automotive industry, by, for example, shifting volumes into the electrical electronics and also medical segment, but also were able to shift significant quantities that we could not sell in the specialty area towards the commodity area due to our leading cost position. So overall, we maintained I think above industry utilization rates for the majority of our plants. And at the same time, we're able to compensate shifting high margin grades from the automotive industry into other high margin grades from the electronics sector but also towards the medical sector. And all these effects that I have just pointed out leads to the, from my perspective, quite a nice margin profile that we currently see for the entire businesses. For the next question, I would like to hand over to Thomas. Yes, I think staying on to your question. I think currently, obviously, there's quite a bit of movement in the raw material prices. I would say our best estimate is that we're confident that we can keep to talk sequentially that we can keep the margins flat, but that would exactly indicate if you look at it year on year for Q3, a kind of mid to high double digit burden still, as I've indicated in my little little bridge item speech. So quite frankly, I think for the time being, this is our best estimate. Obviously, H2 is highly uncertain. There's always opportunities in risk, but if you want our best estimate, we would say, sequentially, we would keep the margins flat and that would then fly year on year that there would be this further deterioration, which we have baked into the EUR 350,000,000, which we have given you. Great. Very helpful guys. And the next question comes from Thomas Spoboda from Societe Generale. Yes. Good afternoon. Good afternoon, everybody. I have two questions, please. Firstly, kind of a follow-up on polycarbonate. I mean, congrats on the performance in Q2. That looks very good, but my worry is a little bit around this capacity overhang. We're still seeing, especially in China. And my question is, do you think Q2 could have been already the trough for this business despite the capacities coming to the market. Or is there a relevant fear or should we have a relevant fear that profitability could deteriorate from the currently very, very good level. The second question is on polyols and on the EBITDA bridge you have given for Q3. This is very helpful. I was just missing the effect from polyols Do you expect the headwind from polyols to start to wane already in Q3? Or should we expect this to be a little bit longer lasting? Any indication you could give on the phasing of the negative effect of from polyols, would be helpful. Thomas, thanks for the question. Good hearing to you, hearing you again. This is Marcus speaking. Let me, let's say, give you some flavor on how we look at polycarbonates. We have a capacity overhang and that was already there in the second quarter. And I have to say that was despite the fact, or I really under the impression of additional capacity that was coming up and, capacity does not equal capacity. What do I try to indicate we see still a steep cost curve for the base grades of polycarbonates. That means the highly commoditized grades And from our assessment, almost all capacity was coming in and you might, let's say, wonder, but even though it is new capacity, it comes due to several reasons more in on the higher cost side and cost producer side rather than on the lower cost producer side where we have positioned ourselves very successfully since many years. And that's why I believe that on the commoditized polycarbonates grade site, we have already seen trough levels and approach trough levels in the second quarter. And at the same time, coming back to what I said earlier, we have constantly rebuild the entire product mix over the last decade for polycarbonates. And that gives us now 2, actually, opportunities to play on the one hand, to continue to play and shift on the highly specialized grade side and on the other hand to fully leverage our cost advantage by fully loading wherever possible our, low cost, base rate polycarbonate plants. So from that perspective, I would not expect despite the fact that there might come additional capacity on stream that we would, let's say, let's say see lower trough levels in that sense. The only large impact that could happen is if you would see a significant drop in volumes in the overall demand in the market, that would then in the end also affect us. But I think we have also answered that a little bit earlier in a different context. Currently, We see since mid of May, a continued trend across the globe in all regions, let's say, of sequentially increasing demand and here, especially in polycarbonates. And I hope that helps you a little bit to see the dynamics here. And for the polyols question, I would like to hand over to Thomas. Yes, Thomas. I think on the polyols, our assumption would be that, the burden will be eased in Q3 simply because there will be omni work. Expecting a pickup in volumes relative to the trough that we've seen in Q2. And that obviously will lead to at least that the take or pay clause will not be affected or effective. So that will give us a saving here. Plus, I think it could also improve the margins a little bit. So that overall, and that's baked in into the assumptions that we've given you, we would expect a nice rebound in PUR in Q3 relative to Q2. The next question is coming from Jean Baptiste Holland from Bank of America. Good afternoon, gentlemen, and thank you for taking my questions. I would have 3, please. The first one is You have mentioned, ex headcount reduction on top of the 400 that you have already achieved are, as of end of June. Could you quantify how many additional headcount production you're intending to achieve this year, please? Second question, on the topic of polycarbonate, how much new, polycarbonate capacity do you see the industry bringing online in the coming quarters? And last one, have you seen any particular shutdowns in MDI PDI or polycarbonate, whether there are accidental or strategic decisions. Thank you. Jean Baptiste, this is Marcus speaking. Thank you very much for the questions. Of the global headcount by another, let's say, low triple digit FTE number. And, so that's currently best guidance on that one that we could give. So if you look at the so called additional capacities that we would back in 2020. That is for the full year, for the full year, a number of 11%. But please keep in mind, 2 things. Number one is that, the announced capacity and the capacity that really comes on stream differs in some years significantly. In particular, in years like that, there's always delays that is partially driven by different outlooks of competitors towards the market. So it is not that they're swiftly building and ending the projects that happen sometime. We have historical evidence for that. The second topic is, the pandemic actually also has a strong impact on the construction simply of the site due to availability of workers and that is a major undertaking that it could also slow down significantly, the buildup of new capacity. And the 3rd topic is If you look at the current, let's say, shutdowns, there is publicly available information that would indicate that we have between 2 300,000 tons of capacity that is temporarily in a shutdown and has been not taken out of the market, but is not producing. What does that mean? That means between 4% 5% of nameplate capacity in the market is currently not on stream. And with regards to last topic on TDI MDI capacity, if I'm not totally mistaken, I understand that we have in TDI roughly 200,000 to 300,000 tons of nameplate capacity currently not producing And that represents at current market size, roughly, 10% of nameplate capacity being temporarily taken out And on MDI, I just, currently do not have any, indication due from public sources that really MDI capacity has been taken out even on the temporarily note, that's, that's all we have for the time being. And the next question is coming from Markus Mayer from Baader Bank. Good afternoon, gentlemen. Two questions from my side as well, if I may. The first one is again coming to the demand you expect this year pronounced some alone, has been again automotive customers might shut down the production? Or do more or more expect a restocking of your customers into the summer? That would be my first question. And my second question is, have you seen any change behavior of your competitors due to dynamic crisis or in other words, as there are no volumes, I guess that your competitors have not undercut prices. To expect more price war when demand comes back to full capacity? Marcus, this is Marcus speaking. So, on your first question, the automotive picture for us is that for the entire year, we still expect that the automotive segment will be affected most likely to the largest extent in our entire portfolio. And we see a very different is developing recently with respect to end consumer demand and also with regards to stock levels. So whereas in China, we see currently that what end consumers are buying and here demand is really picking up quite swiftly. And quickly, is really also then translated into real production and not served out of stocks. We have a different picture for Europe and also quite comparable in the United States, where still a lot of cars are sitting, so to say, on the inventory that has been brought to the car dealers that have been produced and that's sitting still in the inventories. That means whenever consumers are buying there, that does not directly translate into the real demand that would normally, under normal, let's say, inventory levels being created So what does that mean? Even though we see slight recovery in the automotive industry demand for our products and here for sure, particularly in the polycarbonate segment. First thing is that demand is maybe not directly related to what the current, let's say, buying rate of end consumers. And secondly, we must also not underestimate that due to the specific situation in particular in Europe and also the U. S. That demand will be highly volatile on our side and continue to be highly volatile in the next couple of weeks and also months to come. So on your second question, given that, let's say, the low margins in the market that we have seen, high cost producers normally do not react by, let's say, continue to be very aggressive on prices, but what they do is they start to shut down temporarily, capacities. And I have alluded to that a little bit earlier what currently we see from publicly available sources on polycarbonates as well as on TDI. And so from that perspective, for me, there is a limited risk for further deterioration. Okay. Thank you. And the next question comes from Nicola Tang from Exane. Hi, everyone. Thanks for taking my questions. The first one is actually on CAS. As a bit prefers to see that the volumes in CAS in the quarter were down as in polyurethanes, because I know you've got some exposure to specialty applications. And, some of the coatings companies have been talking about decent demand on the decorative paint side. Perhaps it's because you've got more industrials and Deco exposure. But could you talk a little bit about the end market dynamics on in cash between proteins and adhesives, and how you expect demand to develop going forward there. And then the second question was a sort of like longer term question. One of your peers in polyurethanes Dow reported this morning as well, and I saw that and CEO was saying that they don't expect to return to pre COVID levels in terms of volumes and margins for the next few years. I was wondering whether you kind of share that outlook. Nicolas, thank you very much for the questions. So on the first one, we do not actually deliver in a decorative coatings So that might help you also to, let's say, see where we are present in the respective and consumer markets and where not on the performance coatings at EXO that was roughly down by 23% and also ACTO actually in addition reported an inventory adjustment which actually was a burden for us, despite all the effects that I just brought forward, we had, as had, let's say, volume reductions to, let's say, similar extent in this order of magnitude. And that I think shows a little bit how much our exposure is slash how much we are actually trying to also shift from 1 end consumer or 1, let's say, application market into the other. However, in the CAS area, as this is so specific and so specialized, it is rather difficult to short term that say mimic the same trick, like we have done it in the polycarbonates area, where we have still a huge commodity area where we could also shift some of the grades and really, really compensate at least partially some of the volume losses that we had in the highly specialized area. And, if July might still be down year on year slightly, if the today's trend would continue in August, it might be up year on year. However, there's still high uncertainty prevailing, and that's so to say the best guess and best information that I can give on the numbers of the other company that you have just said. We do, at the current point in time, not provide any guidance the years 2021, 2022. Nonetheless, in very general terms, if you look at the overall economic data, if you look at the overall industry exposure that we have and look to the numbers that those industries are actually currently providing. For example, the furniture industries, let's say mattresses, upholstery. For example, the car industry and here just to mention some automotive seating, automotive non seating businesses. But if you also look into the construction industry, which is currently not that much affected, but I think there will some effects coming. I would not totally disagree with what maybe Jim Fitterling has said during his call. And the next question is coming from Jeff Hair from UBS. Good afternoon and thank you very much. Most of my questions have been asked. I just got one small question left. The million of temporary cost savings, I think you described it. I was wondering if you could highlight how much of that's related to the volume reduction And so when volumes start to recover, how much of that will be lost? Yes. Josh, first of all, when we when we talk about the measures that we're taking, So let's come back to this $130,000,000 in perspective. And then we said $300,000,000 of short term cost savings. Those generally speaking are not volume related. Yes, those are just things that are driven by the solidarity pack. Those are driven by less maintenance costs that we're incurring less consultants, less marketing, travel entertainment, all the I mean, all the things that where you can just take a break on spending for a while. So it's nothing that has any direct link to the volume development nevertheless, I will of course agree with you that, they will come back eventually in 2021. And if you want to attack a rough number to that. I my best guess would be 50% at least will come back next year and because we you cannot stop traveling forever. So that's how I look at it, but it's nothing where you would where you should expect short term in Q3 that driven by a recovery in volumes, those savings should go away. And the next question is from Mr. Mobasha Chadduri from Citibank. Hi, thank you for taking my questions. Just two quick ones, please. There's been some reports of recovery. I think we just lost you. So maybe the operator, could you try to handle that? Yes. We've just lost the man asking the question. Can we take the next question? Okay. The next question is from Mr. Chetan Udeshi from JP Morgan. Chills, maybe I missed this, but can you inform us of what is the utilization of your asset right now in different businesses? And second question is, what is the status of the 200,000 tons MDI expansion that you had planned in Germany this year? And with the new CapEx framework, can you remind us of what are the key new capacities that you will have online next year? For 2021 in different businesses? Thank you. Okay, Chita. This is Markus speaking. Thanks a lot for the questions. So if you would refer to slide number 6, of our presentation. There on the bottom left, you would see some indications about where we are in terms of in terms of capacity utilization for our plants. In Europe, for PUR, we are back to high rates and PCS and costs are still at reduced rates. North America, MDI is back to high rates all other products are running currently at reduced rates. And for Asia Pacific, the POR as well as PCS is back to high rates and generally, the utilization rates adjusted in line with the respective demand. If you ask about the status of the MDI plant in another part of Germany in Brunspittle to be very precise, runs at full, let's say, nameplate capacity as intended. And the last question is about how much additional capacity would we see for the next year? And here, I hand over to Thomas. Yes, Peter, maybe let's put it this way. I mean, the 200 KT MBI in Brunsborough, they are up and running. But of course, with the market development, as Marcus said, we're not fully utilizing our assets on a year basis. Therefore, I would what I would say is there is nothing major as the 200 KT coming stream next year. It's smaller things like a compounding, addition, which we have in North America's failure, and small other things in the space of cus, but nothing major in terms of MDI or TDI, which is not a problem because I think as we just discussed, it will take maybe a year or 2 before the market comes back to the pre corona levels and with the expansion Bruns portal that we have put in place, I think we're absolutely well placed to, even without big additions next year, fully capture the market growth and maybe even more than that. So, to your question very precisely, nothing major coming on stream, but not a problem. We have enough capacity to grow at least in line with the market. Mr. Kala, there no further questions at this time. Please continue with any other points you wish to raise. You very much for your questions. And with that, actually, we are absolutely on time with our call to close it here. So thank you for your participation. If you have further questions, don't hesitate to call the IR department and then potentially we will see you or speak you soon, seeing it's obviously a bit more difficult these times, but we nevertheless plan to participate on some virtual events, but actually rather geared towards September. So I guess, from our perspective, we can wish you a nice holiday even if you have to stay a little bit with the offers, but with August, obviously, it's holiday times and after day. We will be back of seeing you then there. Thank you and good bye. Ladies and gentlemen, this concludes the earnings call of Covestro. Thank you for participating. You may now disconnect.