Earnings Call: Q2 2019

Jul 24, 2019

The conference is now being recorded. Ladies and gentlemen, thank you for standing by. Welcome to the Covestro Investor Conference Call on the Q2 twenty nineteen Results. The company is represented by Marcus Stalamand, CEO Thomas Topfuh, CFO, and Ronald Kohler, Investor Relations. During the presentation, all participants will be on a listen only mode. The presentation will be followed by a question and answer session. Please press the followed by the hash on your telephone for operator assistance. I'd now like to turn the conference over to Ronald Kohler. Please go ahead, sir. Good afternoon, and welcome to our 2nd quarter conference call. For your information, we have posted our half year financial report and the conference call presentation on our website. And we assume you have read our Safe Harbor statement. With that, I would now like to turn the conference over to Marcus. Good afternoon, everybody. The 2nd quarter developed in line with our expectations. The year on year comparison continues to look weak. However, we see stabilization of margins since Q4 2018 based on sequentially flat prices for the group overall. A strong achievement this quarter is certainly the positive core volume growth of 1.1%. It demonstrate our capability to compensate a very weak development of the automotive industry and even withstand weaker demand across industries overall. Our EBITDA decreased significantly in a year on year comparison, but stabilized nicely quarter on quarter. On the cash side, we took countermeasures to limit the seasonally higher working capital, thus we could achieve a solid operating cash flow under the given circumstances. Based on this set of results and despite continuously challenging economic conditions, we confirm our full year 2019 guidance. Now moving to Page 3. Let me provide somewhere inside into our core volumes development by Regions And Industries in the second quarter of 2019. NAFTA was the best growth region this quarter. We achieved a strong core volume growth of 6% despite declining auto production in the United States. Double digit growth in construction, wood and furniture, medical and other smaller customer industries was able to more than compensate the weak development in Automotive And Electronics. Asia Pacific suffered from the economic slowdown The weak demand led to negative core volume growth in automotive and construction. Still, strong volume growth rates in electronics and wood and furniture compensated the development and enabled us to post positive growth of 2%. Europe, Middle East, and Latin America suffered the most from the weak automotive industry. Additionally, a weaker industrial production in Germany led to volume declines across several industries. This negative volume development could not be compensated by volume growth in construction and wooden furniture. Overall, we are satisfied to see that our diversification across industries and regions helps us to contact the current weakness in the automotive industry and allows us to manage a challenging demand environment. I now hand over to Thomas for the full set of financials. Thank you, Marcus, and good afternoon also to my side. I'm on page 4 of the presentation where you have the sales bridge and, you see that we have posted a year on year decline of 16.9% in terms of sales. However, I think it's worth noting that sequentially, the sales increased by 1.1% relative to Q1 2019. If you look at the chart, you see that the main driver was the price effect with declining and deteriorating prices in MDITDA and also PCS. Reducing our sales by a total of 1,000,000. And you see that there was a positive volume growth contribution of 1,000,000, and the FX effect added from 1,000,000, and that's mainly attributable to the U. S. Dollar. Finally, you see that there is a portfolio effect of negative 1,000,000. And there's 2 things in this bucket. First of all, it reflects the negative effect from the divested U. S. Polycarbonate sheets business, which we sold in Q3 2018, and there's a positive effect included from the stake increase from 50% to 80% in the Japanese company, DIC Covestro Polymer Limited Limited in Q2 twenty nineteen, which we reported our CAS segment. So with that, let's turn the page to Page 5, where you see the EBITDA bridge. And as you can see on the right hand side, we achieved an EBITDA of EUR 459,000,000 for the second quarter. Which is in line with our guidance. Continued decline in contribution margin. And therefore, you see a negative pricing delta, which amounted to EUR 636,000,000 in this bridge. The volume effect is almost negligible and so is the FX effect. And if you look to the other items, you see a positive of 1,000,000. And the main contributors were the lower costs driven by lower bonus provisions, followed by a positive impact from the remeasurement gain of 1,000,000 in connection with the acquisition of DCP, which I just mentioned is in here. But we what we also had was a negative effect, from restructuring costs related to our perspective program, and that was in the same order of magnitude as the from 19,000,000 from DCP. So overall, the macroeconomic environment has not improved compared to the fourth quarter of 2018, The strong price and margin pressure remains. However, we achieved a slight volume increase, which we believe was a good result, And overall, I would like to say at this point that, of course, we do pursue a price volume strategy that maximizes the absolute EBITDA of the company. So with that, let's turn the page to number 6 where you see the sequential development of the group results. And I think the highlight of this page is the stable EBITDA margin of around 14%, which you see on the lower part of the page for the last two quarters, Again, just as a reminder, the strong price decline, which has reduced our margins started in Q4 2018, with selling prices down by 9 point 3% year on year in Q4. And then in Q1 and Q2 2019, the selling prices declined by 18.3% 18.7%, respectively. However, sequentially, we saw only a minor selling price decline sir. Thank you, Thomas. We are now going to Chart number 7 and talking first about polyurethanes. In the second quarter, we recorded slightly increasing core volumes. Strong call volume growth in TDI compensated for weaker MDI performance, while polyols remained on prior year's level. The lower MDI volumes were driven by our limited availability due to a scheduled maintenance shutdown in China. In our view, the MDI market growth remained healthy. Overall, industry utilization stays at low level driven by the additional capacities adding during the last 12 months. For MDI, prices were moving up and down in the last month, reacting to short term effects like for example, several maintenance shutdowns in China end of April or destocking and restocking measures by customers. Due to the current volatility in the industry and the low visibility on demand development, we stay cautious about the further development during the course of the year. Mid term, we expect that the current over capacities will be absorbed by growing market demand. For TDI, the industry environment remains under pressure also in the second quarter. Margins did not move away from their low point as a consequence of significant capacity additions in the industry. On the positive side, we see limited further downside risk as we believe that high cost producers are currently operating at cash breakeven levels. Finally, margin polyether polyols continue to in quarter was clearly below last year's level, primarily driven by significantly lower MDI and TDI margins. Taking a quarter on quarter perspective, we see a slight improvement driven by higher MDI margins and higher TDI volumes. Now let's turn to Polycarbonates. In Polycarbonates, we recorded a solid core volume growth of 4.4% in the second quarter. The demand drop in automotive could be compensated by strong volume increases in construction, electronics, Medicare and other smaller industries. Prices were clearly below the level of previous year after continuous price drops in all regions. Mainly in the commodity businesses. Consequently, net sales decreased by 15% year on year. The EBITDA margin came in significantly below previous year's level, impacted by the negative pricing delta. In a quarter on quarter comparison, the segment margin slightly decreased due to continuing price pressure. Thanks to our position as cash cost lead and industry we have some flexibility to switch sales from one application and industry to the other, thus helping us to counteract short term weakness in one industry. Turning the page to colleagues, adhesives, and specialties on chart number 9. The impact from globally weaker demand became most visible in our coatings adhesive specialty segment. Core volumes declined in almost all customer industries, thus we recorded a negative core volume growth of 4.7% in the 2nd quarter. In consequence, net sales declined by 1.3% year on year, although prices stayed almost flat. Positive effects from currency and the portfolio impact from DCP could not fully compensate the volume loss. EBITDA increased by 7.9% versus second quarter 2018, mainly helped by the remeasurement effect of TCP. The underlying business suffered from the negative volume leverage. For the full year 2019, we confirm our guidance on core volume growth based on an assumed catch up in the second half. However, the risks are increasing given the weak start and through the year and the current macroeconomic uncertainties. The segment should continue to deliver an EBITDA margin of above 20% and a strong free cash flow. Thomas, we'll now explain more financial details. Yes. I'm on page 10 of the presentation where you see the details of the free operating cash flow development. And the first thing that I would like to state is if you look at the first half year, the numbers were characterized by 2 phasing effects related to fiscal year 2018. First of all, the cash 18 bonus payment. And secondly, roughly 1,000,000 for higher cash taxes compared to the P and L taxes, And in addition, let me remind you that the end of the first half is obviously the seasonal peak in terms of the working capital. However, talking about working capital, effective countermeasures reduce the working capital build up, and therefore, we were able to generate a positive operating cash flow of 1,000,000. So broadly speaking, and disregarding the mentioned 2 phasing effects, we were on a comparable 3 operating flow level as we had seen it in the first half of twenty sixteen. What I would also like to mention is that in our Q1 conference call, we guided for a significantly more negative free operating cash flow in the second quarter compared to Q1. However, thanks to the working capital improvement measures, we managed to come out better than expected. If you look at the chart, you see a negative 1,000,000. So working capital build up, which is significantly less than the buildup in the 1st 6 months of 2018. But more importantly, if you look at our quarterly report, you will see that in Q2 itself, we actually released working capital and generated positive effect from a reduction of working capital of EUR 159,000,000. So with those measures, working capital will stay ratio was reduced to 18.4 percent at the end of H1 and this is a lower level compared to the first quarter of 2019. And it is also lower level relative to the first half of twenty eighteen. So that for the full year of 2019, we assume that we can continue to reduce our working capital with a beneficial effect on free operating cash flow, and we expect to finish the year in the targeted working capital to sales range of 17% to 17%. Talking about the full year, obviously, lower EBITDA and higher CapEx will continue to influence our free operating cash flow. However, after having digested that I mentioned, which are related to 2018 in the first half, we should be able to generate a solid free operating flow in the second half of twenty nineteen. Flow between EUR 300,000,001,000,000. So with that, let's turn the page to Page 11, where you see the net debt development, on June 30, our total net debt level increased to 1,000,000,000 and you see the key effects in the bridge. 1st of all, the dividend payment of EUR 438,000,000 Secondly, the effect from the adoption of IFRS 16 with EUR 642,000,000. And finally, you see that the pension provision increased again by EUR 259,000,000, and that's mainly due to lower discount rates in Germany. So in combination with a lower EBITDA, these developments led to an increased ratio of total net debt to EBITDA to 1.6 times at the end of June 2019 compared to 0.6 times at the end of 2018. And in this context, I would briefly like to mention that on July 2nd, Moody's confirmed our BAA-one rating with a stable outlook And likewise ourselves, we do continue to regard our balance sheet as being very solid because the main increase in the total net debt has been triggered by accounting changes since the beginning of the year. So that leads me to our full year guidance on Page 12, We reiterate our guidance of a low to mid single digit percentage year on year increase in core volumes, In the first half of the year, we posted a small decline of negative 0.4%. We continue to assume a catch up in the next two quarters helped by a lower comparison basis and more available capacities after we have digested the peak of our maintenance shutdowns in the first half 2019. We confirmed the EBITDA expectation of between EUR 1,500,000,000 and EUR 2,000,000,000 for 2019. The mark to market analysis at current price levels indicates an EBITDA of 1000000000 to 1000000000, and the reduction compared to our last mark to market calculation of 1,000,000,000 is driven by both somewhat slightly lower margins and also slightly reduced volume assumptions for the full year. At this point, I would like to remind you that mark to market analysis is a snapshot at today's prices. It is not a specific guidance for the year. Which is our range of 1,000,000,000 to 1,000,000,000. As explained on the previous chart, we also confirmed the free operating cash flow guidance delivering between 1,000,001,000,000. And for Q3, twenty nineteen, we assume an EBITDA of around 1,000,000, that means that sequentially, we assume further declining margins, which cannot be fully, fully counterbalanced by somewhat higher volumes, And please note in this context that around implies a single digit percentage deviation, both potentially upward or downward. And with this back to Marcus for the summary. Thanks Thomas. So The second quarter developed in line with our expectations. We achieved positive volumes in a challenging economic environment, The diversification of our sales towards several customer industries and the capability to switch volumes rapidly from one industry to another, thanks to our cost leader position enabled us to counteract the automotive industry weakness. Our EBITDA stabilized quarter on quarter based on a broadly flat sledding price. We demonstrated in the 2nd quarter how we manage our working capital with efficient countermeasures to alleviate the seasonal peak and compensate the negative phasing effects. Our cost savings program perspective is fully on track. Additionally, our continuous focus on innovation and sustainability lays the foundation to defend our industry and cost leadership for the long term. In light of the first half year results, we fully confirm our guidance for the full year. It might be too early to call it the bottom of earnings now but at least earnings have stabilized quarter on quarter. We also expect only a slight further decline of earnings in Q3 compared to Q2, thanks to our strict cost discipline. Overall, we currently operate in very challenging markets characterized by oversupplied due to increased capacities and simultaneously weakened demand. As a consequence, Our earnings in 2019 remained below mid cycle levels, but still meaningful above about above our cost of capital. We continue to assume that under mid cycle conditions, we generated return on capital employed after tax of 15%. In between, we will work on all internal levers to counterbalance the market given circumstances. Creating long term shareholder value remains at the core of any decision especially with regards to the use of cash. With that, We would like to Ladies and gentlemen, at this time, we will begin the question and answer 9 followed by the star Your questions will be answered in the order they are received. Please ensure that the mute function on your telephone is switched off And the first question comes from Mr. Christian Faitz calling from Kepler Cheuvreux. Yes. Good afternoon, gentlemen. Couple of questions from my side, please. I am fully there, and I'm glad that you don't run your business on a quarterly basis. Still, what is behind the observation that cusp has seen the weakest growth in Europe ever since your market listing in Q2. That is question number 1. And then second, it seems to be a long way from your H1 free cash flow generation as good as it might have been on a comparable basis, to your fiscal year and target of 1,000,000. Can you give us a sort of bridge how to get there in the second half? Yes. Christian, this is Markus speaking. I give it a shot on the first question. The so called historical weak water that you have mentioned for our coatings Adhesives And Specialty business is primarily driven by the demand patterns that we see on a broad based industrial weakness and here in particular, the coatings market and here in particular, the exposure to the automotive business. If you take, for example, PPG, which reported minus 5% and always volume based on business development. And if you also take, take Axo, as another industry player here with a minus 7, I think, with our cloud volume development in the coatings, adhesives and specialty business, we are somewhere in the middle, let's say, of the quarterly development in the respective industries. And that's why I would see this more, let's say in line with what the broader industry development shows rather than a very specific topic for our business only. Again, as I said, basically driven by general industry demand. And here, particularly, automotive in through demand. For the second, question on, let's say, H1 cash flow, I would like to hand over to Thomas. Yes, Tristan, I think, I mean, 2 things that I would mention. First of all, the phasing effects, obviously, for the second half of it will fall away. As I said, 315,000,000 bonus payments for 2018, which don't belong into 2019 and also 100,000,000 cash payment above the, the P and L tax rate, obviously, will not repeat themselves in the second half of the year. And secondly, the working capital will be a contributor to our cash flow. Let me just remind you in the second half of twenty 18, we had working capital savings or a positive contribution from working capital of more than 1,000,000. We're assuming less than that in the second half 2019, but still a, let's say, sizeable positive effect. And if you take those things together, we feel comfortable that we will achieve the range of 300 to 700. The next question comes from Thomas Swoboda calling from Societe Generale. Please go ahead with your question. Yes, good afternoon, gentlemen. I have two questions, if I may please. Firstly, on the potential draw in Europe this year, again, do you see a risk the 2 phase, the low Rhine water levels this year again? And if so, is there anything you can do to put there? And the second question is on CapEx. I mean, you have quite a sizable CapEx program going forward. It does not seem that the economy is bouncing back again very soon. My question is what would make you reconsider the speed or and the amount of the CapEx you want to spend over the next over the next 3 years. Thank you. On your first question, and also growth patterns in Europe. And here, particularly, Rhine River levels, If you look at our growth rates in Europe in the first half of the year, we still think that this overall situation will not significantly change in the second half but that is also included in our guidance that we have given. If you now particularly look at the Rhine River levels as of last year, in Q4, you could say that in 2018, we had an effect in terms of EBITDA roughly 50,000,000 plus minus. And, for sure, we have taken the experience of last year into consideration. What does that mean? You have 4 major modes of transportation. 1 is pipeline and we're talking about railway. We're talking about trucks and we're talking about ships and Rhine River level for sure affected the ship transportation. So for this year, we prepare ourselves as good as we can to compensate as much as we can potential impacts of, lower Rhine lever River Rhine River levels However, we could never ever fully compensate if all ships would not be able to be to ship the Rhine River and if this would take on for longer. However, we have opportunities here in the pipeline, in trucks, and also in railway cars, to partially compensate that, in particular, if it's just a short term topic. And also on very short term, we could also do something on let's say inventory levels on the raw material side and also on the finished goods side, but that is also limited in terms of how long we can do that. And that is actually what we are preparing for. We currently do not have, as anyone, any idea how the Rhine River levels will develop, However, if it gets as worse as last year, we, I think, will be better prepared. With that, I would like to hand over to Thomas for your second question. Yes, Thomas. With respect to CapEx, I mean, let me say a little bit bluntly. Of course, we're not stuck or not just stick to our CapEx numbers without looking left and right, what is happening in the economy. We monitor this very closely, and therefore, we have a very I would say, clear review of all the CapEx projects and check whether they make sense strategically and whether they add value and we do this review in ultimate connection also with the business planning. However, on the other hand, I think it's fair to say we do have 7 year CapEx cycle. So it's, we cannot steer the business on a short term notice for those kind of projects. Therefore, in terms of flexibility, I would say the EUR 900,000,000 that we've indicated for this year are pretty much fixed in the outer years course, we do have flexibility and I think we've proven this in the past that it's really, we should face a prolonged and steep recession we can, of course, stretch projects or take projects out, especially in the in the outer years. But again, think we have to balance the strategic ambition because the CapEx is the foundation for future growth. And in the long term, we do see that the markets that we serve, especially with with MDI, but also with the other products have a solid and secular growth rate above GDP. And therefore, that justifies also a CapEx program. The next question comes from Mr. Neil Tyler calling from Redburn. A few from me, please. Firstly, within the restructuring or in the topic of restructuring, you mentioned that the additional costs year on year broadly offset the revaluation gains around about GBP 19,000,000. Can you talk through what you saw as the year on year benefit of savings achieved in the second quarter and also how you expect both of those figures to develop in the second half of this year. That's the first one. And secondly, probably more briefly, I think I missed your earlier comments on the contribution margin and why that remains very low. So I wonder if you could help me with that, please. And then the final question, in your mark to market, I think you said that you assume lower volume assumptions, but you also mentioned that you assume a volume catch up in the second half. So I guess my question there is, within the guidance of the post the mark to market. If volumes don't recover, can you still achieve the low end of that guidance? Yes, let me maybe start with the prospective program. So I mean, to put it into context, we said we want to with perspective, we want to save 1,000,000, cumulated cost savings up until the year 2021. And we're in a good track to achieve cumulated savings of 1,000,000 in 2019. Which is 92 more than what we had in 2018. And on the restructuring cost side, we're expecting roughly 1,000,000 for perspective to be incurred into 2019. Now in terms of what is the ramp up of the 92 that I just mentioned, it's somewhat back end loaded because a lot of it is related to personnel. And we're releasing personnel, but it takes a little while before it really flows through as a full year effect in our P and L. But in terms of the trajectory, I would say we're fully on track to deliver the numbers that I just cited. Okay. And is it fair to say that the cost is more front end loaded, therefore? Yes, okay. Can you repeat your second question? We're just scratching our heads a little bit. Can you say that again? Yes, sorry. It was a simple one. In terms of the contribution margin, the drop through into EBITDA from the volumes seemed to be relatively low. I think you made some comments as to why that was. I apologize. I think I missed it. Yes. Well, I mean, I think of, I mean, in general, we say that we have a relatively a clear volume drop through of some 40% in terms of EBITDA. Now what we're looking at here is very small numbers. So, and I think it's a little bit erratic because of these small number effects, the number in Q1, our EBITDA effect was 100% of the volume. And this time, it's a bit lower simply because there's a mix effect playing into it. Certainly, it is really due to the low of the small absolute numbers. In general, our drop through is unchanged from what we've seen last year. To market and also that we have clearly said that our volume assumptions still within the guidance are a bit lower. So But if you take everything, let's say, as we, as we look at it today, we would need something like 6% volume growth in the second half year on year, but please consider in this context, that we have also a lower starting base, in particular, looking at the fourth quarter of last year. So the basis that we really compare. And let's say for the midpoint, again, to reiterate that, in terms of the guidance that we have given 6% is what we have assumed. So if you then go now and that was what your question was about, would touch under these assumptions, let's say the low point of the guidance, we would talk about 3% volume growth, but again, based on the mark to market snapshot, so to say anything that would be positive on prices, would then give also further, let's say, room to maneuver on the volume side. So mark to market based on July prices, 3% would be more a point towards the low point. And again, even that would be still covered by the 1,000,000,000 to 2,000,000,000 range, to be very clear. Thank you. The next question comes from Jeffrey Hair calling from UBS London. Please go ahead with your question. Hi, it's Geoff here. Just wanted to ask a couple of questions. I'm just on the volume drop through in the bridge, It fell to 15% in the quarter. I appreciate it's small numbers, but does that imply that you were selling a lot more commodity product than a specialty product through the quarter. Is that the reason for the low volume drop through? And secondly, just I don't know if you could comment on how you left the second quarter from a volume or demand point of view to enter the Q3. And then finally, just on the cash flow, if the free cash flow you generate is below, the dividend payments, can you borrow to pay the dividend? Yes, let me tell you, I mean, first question, your question was, did we sell somewhat lower or more commodity type products? And I think the answer is yes because, what is happening obviously is that, especially in PCS, the automotive industry is weak, and we're shifting volumes into other industries and automotive, we have highly specialized products co engineered with, with, the, the OEMs, etcetera. Will be at very nice prices and also very resilient margins, but obviously the volume is going down. And we're shifting this to some extent into, let's say, lower margin applications and that is also what you see in the volume bridge here. Maybe just as Markus speaking on your second question, can you just repeat it? Because I think we had somehow difficulties aligns. We're not sure whether we fully caught what you tried to express. Sorry, it's probably my accent. Just on the key, I just wonder how you'd entered Q3 leaving from Q2 from a demand point of view, was it higher or lower than you started Q2? Well, generally speaking flat. So, that's, that's what you could see. There's some slight nuances here and there. But I would say generally speaking, we started flat, but let me let me also, maybe help you to build a bridge in terms of, the volume demand also in Q3, we were in our businesses sold out in 2nd quarter And if we're now entering into 3rd quarter, what gives us the additional push is, not that we see an increase in demand but we are able to deliver more because we have less shutdowns because the first half of the year and also second quarter were still this what can be still described by maintenance shutdowns. So we have higher availability of volumes, and that's why we also are positive about that we can sell more because the demand side for us in the second quarter was not the limitation, but the supply side And that's why we are with more supply availability on our side, also given our positions in the market with customers we believe that we also can sell more, and that is from our perspective also helping us in the third quarter. And then to your last question, in terms of the relation between free operating cash flow and dividend, what I would say is we have made a very clear commitment that we want to keep our dividend least stable. And, if you look at the fee operating cash flow, I'd say the midpoint of our guidance should therefore also fully cover a a respective dividend payment. But, even if that was not exactly the case, then I would say would not have spent the fee operating cash flow in the way of our dividend commitment, especially as in 2019, driven by several onetime effects that I mentioned, which belonged to 2018. So we will probably, in one way or the other bridge that gap. Okay. Thank you. The next question comes from chetan Udeshi calling from JP Morgan. Please go ahead with your question. Thanks. Just a couple of questions. Just on Q3 guidance, can you maybe you know, maybe give some color by the 3 key product segments or maybe even CAS if you want to. So PD MBI, polycarbonate gas? How do you see the development there for each of those businesses? And then I had a question on the comment made previously during the opening remarks that the climate is challenging and you guys will take whatever it needs to improve the business. And frankly, when I look at the pricing development, it's only been weak, across the board, or been incrementally weakening since end of last year. Now we are talking about volume growth slowing down. So I'm just wondering what is sort of internal strategy to cope with this current environment because you also said at the same time that you don't want to change something on CapEx in the short run as well? Yes, let me maybe take your first question to Dan. So I mean, just roughly speaking, I would say, if you go through the segments in CAS, obviously, you have strip out the 19,000,000 revaluation effect, which will not repeat itself, if you project a cost into Q3. Otherwise, I think it's a pretty stable development in terms of EBITDA. And then I would say, our PUR segment also, we expect it to be broadly stable and maybe a slight decline in PCS due to ongoing pricing pressure that we see, especially in Asia, This is broadly speaking the development that leads you from the result in Q2 to the around 410 that we indicated for Q3. Yeah. And, Chitung, maybe on your second part, I hope that I, hit the nail here on the hat because I was not absolutely clear what you're referring to short or mid term. Topics on, let's say climate challenging. I think what we have observed and what we were, what we're currently, striving for is in the third quarter, we are able to deliver more, particularly because we have more volume available. Secondly, you could say that we somehow see first signs of things bottoming out, as we also stated earlier in our presentation, as some of the high cost producers are now really, reaching the point where they would burn cash if they would continue so that it's also helping a little bit. And that is slightly differently pronounced in different product groups. So let me also give you here some ideas on MDI, I think we could, observe that we are kind of bottoming out in terms of pricing. On TDI, yes, there is still some room that prices might be lowered a little bit, but here, what again reiterate that we have a leading cost position and many producers are really hitting now, the point of whether it would be cash negative. And on the polycarbonate, we see still that prices might further decline, but also here, some producers are hitting our already cash costs. So from that perspective, also here, limited downturn. And if you look at our product portfolio, we have taken a quite strong hit, on the higher specialized rates And but we were still able to shift you to our cost leadership, volume growth towards the higher monetize arenas and areas. So that is, is currently the overall situation. So bottom line is we feel very well prepared, to deal with this challenging climate. And we also feel very well prepared to deliver volume goals. And this has also delivered the best option of volume and price to deliver absolute EBITDA, and that is exactly what they're striving for. And here, I believe that we are better positioned than many other players due to the strong and broad geographical footprint but also industry footprint that As The next question comes from Tom Wrigglesworth calling from Citi. Please go ahead with your question. Couple of questions, if I may, small ones hopefully. Just, just with regards to the comments, just following up there on your comments by product, Can we take it that your sense is that tons are now leaving the market in the 3 major product classes? And I guess in that context, you obviously gave Capital Markets Day a kind of supply outlook. Have you seen any major project deferrals across any of the major three products, just the supply response, any color there would be helpful. And the second question on CAS small one. I think you called out HDMA outages as a challenge in the first quarter. Is that now behind us? And we're looking at CAS margins and top line without any HDMA, but HDMA back in under normal conditions? Tom, this is Markus speaking. On your first question, can at least assume because we have strong, let's say, hints that there is a lower utilization rate, as earlier stated, by high cost producers as they are now hitting really their cash cost margins. We have no signs of any complete shutdown neither temporarily or forever. You might, however, have seen that there was an announcement by, for example, Transo that they would do a complete review considering all strategic options of their polycarbonates plant here in Europe. And, also another sign is that different from, from past years China, has taken off polycarbonates of their so called incentive list of materials that they encourage industry to invest in and we also see a slower ramp up of new capacities. So The initial estimate based on announcement of 11% may be now down to only 5% just to give you a hint here also on polycarbonate. So there is a lot of things going on. But there's definitely no signs of, of, of complete shutdowns in the respective industry. So Sorry, Marcus. The Yeah. The 11% sorry. Just for clarity, the the 11% to the 5 number, that's the supply growth for 2019. Is that Global supply growth in 2019 for polycarbonates, correct. Okay. Thank you. But again, it's rough numbers because it is extremely difficult to really judge on that, but all we have in terms of market intelligence indicates more towards the 5% rather than towards the announced 11%. As you know, there's always some challenges, you know, bringing, things up on stream, running the plants, technically, delivering in spec and so on and so forth. On your second question, Yes, a bit more, complicated. Try to make it as simple as possible. Less auto demand means less demand on 966. That means there is due to that less demand on 966 more HMDA available. However, there will be a bigger maintenance shutdown from a company called Buta in, Shini, butler chemistry, a maintenance shutdown in September, and that is absolutely critical because that could lead to an additional shortage in the market. So, keep fingers crossed that this works well. But currently, the overall short term situation is less stressed than it looked at the beginning of the year. Okay. Great. Thank you very much. The next question comes from Sebastian Bray calling from Berenberg. Please go ahead with your question. Hello. Thank you for taking my questions. I just have a quick factual one. Could you please give us a reminder of the relative auto exposure across CAS, polycarbonates and polyurethanes? Thank you. Well, I mean, just briefly, it's the auto exposure for the entire group is just below 20% of our sales. And for PCS, it's 1 third of their sales. And I think the others, and Casa's, I would say, with improved average so that PUR is a little less. And the last question for today comes from Isha Sharma calling from MainFirst. Please go ahead. Hi, thank you for taking my questions. Quickly, please correct me if I'm wrong, but you said that you have seen a higher margins in MDI. Quarter over quarter, I'm guessing? And could you please put some color as to why that is? Is it because of the shutdowns, that you have seen and therefore limited availability for just a quarter? Or is it something that you see as a trend going forward? Also, if you could please talk about the end market trends, it's reason wise, especially for North America, if you see any weakness there or otherwise still speaking. Lisa, maybe, on your first question. So the, if you took the full quarter view, We had higher MDI prices in April and here in particular in China, and that was also somehow coming together with what we would call the peak of the maintenance shutdown and therefore also some restocking Now prices came down again. So that was just a short peak and that was predominantly what has driven the quarterly, let's say, the margins higher than we have seen them in our first quarter. So from that perspective, we would not see this as a long term trend now already, but rather a peak in the second quarter. And now, let's say we are back to the levels that we model as I see in the beginning. So having said that, I would like to turn to the Second question. So, what was very strong actually, in the quarter to date. We have seen strong construction in North America at development. We have seen strong wooden furniture. Whereas automotive as globally, you had seen the picture was a negative. Just to give you an indication, in construction, double digit growth, and for wooden furnace, a double digit growth, and in automotive and transportation from our perspective, a higher single digit negative growth just to put some flavor on that. And we do currently not see to those numbers and significant change moving forward into the third quarter. Thank you very much and sorry about the background noise. And we have one more question from Sebastian Zats, who's calling from Barclays. Please go ahead. Hi, good afternoon. And so just two quick ones, both on volumes actually. In polycarbonates, you saw a big swing in terms of the volume growth. It was minus in the first quarter, but then plus 4 in the second, even though I don't think the end markets have changed a great deal. So could you just elaborate please what happened there? And the second question is a follow-up. Did I understand you correctly that you need to deliver 6% core volume growth to come out at 6 $15,000,000 EBITDA for the full year? And if so, could you just give us a little bit of an idea what gives you confidence you can achieve that because I don't think you have to deliver that kind of growth over the past 2 years. Thank you. Okay. Maybe on your first question, it is simply not always so easy to immediately shift, let's say, between different industries when you are reacting, to respective drop in demand. And that's why it took us a little bit of time, to shift from, significant decline in the automotive industry to industries like construction, or industries like electronics, which in the end of the day have more than compensated the decline in the automotive industry. It just takes a little bit of transition time and that is exactly what you have seen in the first quarter to shift significant volumes from the automotive industry, into the respective other industries. But in the end of the day, We managed this successfully. And so far, we do not have any indication that we will not continue, to manage this successfully. And on the second question, I will hand over to Thomas. Yep. Sebastian, maybe just to put the numbers into perspective. So the 6% purely as a pure mathematical exercise if you take 6% for the second half of the year, that brings roughly 3% for the entire year. And we've just named this number because 3% would be the mid range or the midpoint of our guidance that we have given for core volume growth, which is low to mid single digit, And therefore, that is the only reference, how it is related. It's not directly related to the to the guidance of the EBITDA and it's not directly related to the mark to market that we've given. Okay, thank you. I'm not sure I fully had it, but I can follow-up on that. Thank you. Mr. Kohler, there are no further questions at this time. Please continue with any other points you wish to raise. Good. Thank you very much for your participation and for your all your interesting questions. As usually, the IR team is ready for any more questions you might have. And then we are happy to talk to you later with the Q3 results. See you then. Bye bye. Ladies and gentlemen, this concludes the investor conference call of Covestro. Thank you for your participation. You may now disconnect. The conference is no longer being recorded.