Earnings Call: Q1 2019

Apr 29, 2019

Welcome to the Convestro Investor Conference Call on the Q1 twenty nineteen results. The company is represented by Marcus Stileman, CEO Thomas Tepza, CFO and Ronald Kohler, Investor Relations. During the presentation, all participants will be in a listen only mode. The presentation will be followed by I'd now like to turn the conference over to Ronald Kohler, Please go ahead, sir. Good afternoon, and welcome to our Q1 2019 conference call. For your information, we have posted our interim statement and the conference call presentation on our website, and we assume you have read our Safe Harbor statement. I would like now to turn the conference over to Markus. Thanks Ronald. And good afternoon and good morning to our listeners from the United States. The first quarter was challenging, but developed in line with our expectations. The year on year comparison looks weak. However, compared to the fourth quarter of 2018 results have improved. We were able to limit a very weak automotive market and internal production limitations. Our EBITDA decreased significantly in a year on year comparison but improved nicely quarter on quarter. The free operating cash flow was, as expected, slightly negative in the first quarter, reflecting the usual seasonality and the higher CapEx for our growth initiatives. Based on this set of results, and despite continuously challenging economic conditions, we confirm our full year 2019 guidance. Let me provide you on Slide 1.8% year on year, primarily driven by the lower demand in automotive. We estimate as global auto production declined by minus 5%, destocking, especially in polycarbonates and limited availability of polyol. We were able to achieve positive to grow even in a difficult macroeconomic environment. Asia Pacific remained our best growth region. We achieved solid core volume growth of 3.3% despite declining auto production in Asia Pacific by minus 5% and in China by minus 12%. Growth in electronics, wood and furniture and several smaller customer industries was able to more than compensate the weak development and automotive construction. Core volume growth in Europe, Middle East and Latin America suffered from the planned maintenance shutdown of polyols. Based on our estimates, car production in EMLA declined by 6% year on year. This burdened all three segments. Destocking in the polycarbonates industry was an additional factor that diminished volumes. Auto Production in North America declined by 5% in the first quarter. This impacted our volume development in this region. Another driver was the high imports of mattresses from Asia due to fears of future tariffs, leading to a weak demand for TDI. Globally, we achieved solid growth rates in electronics, driven by Asia Pacific And North America. Positive growth was achieved in construction in Europe, Middle East, Latin America and North America. Another global growth driver for the first quarter was the wood and furniture industry, although with arbitrage effects between Asia Pacific and North America, as just explained. I'll now hand over to Thomas for a full set sales bridge, our net sales came in at EUR 3,200,000,000, and that's clearly below last year's level. The main driver, as you can see, was sharp decline of prices in MDI TDI and PCS reducing our sales by a total of 1,000,000, And what you also see in the bridge is that despite the declining volumes in kilotons, we were able to achieve a positive volume growth contribution of EUR 33,000,000 due to the product mix effects that we achieved. You also see FX effects added 1,000,000 stemming mainly from the U. S. Dollar and Chinese yen, and portfolio effects come from the divestment of our polycarbonate sheets business, which we completed last year. If you turn the page, you see the bridge for our EBITDA development. And as you can see, for the first quarter, we achieved an EBITDA of 1,000,000 absolutely in line with our guidance and also as forecasted the higher competitive pressure in polyurethanes and polycarbonate led to a severe decline in contribution margin so that the negative pricing delta amounted to a total of EUR 659,000,000. The volume leverage was positive and amounted to EUR 33,000,000 and all the other bridge item have a rather limited effect. Overall, it's fair to say that the macroeconomic environment has not improved compared to the fourth quarter of 2018. And sequentially, we experienced an even stronger price and margin pressure. However, the volumes improved slightly driven by the usual seasonality and the sequential EBITDA improvement from 1,000,000 in Q4 to 1,000,000 in this quarter is positive and it's mainly driven by a significant cost reduction. So with that, let's look at the sequential development for the group on Page 6. And as already stated, we faced a decline, both in core volumes and also in sales during the first quarter. And on the lower side of the page, you see our group EBITDA margin declined from 28.1 percent in Q1 2018 to 13 0.9% for the first quarter of 2019 triggered by the pronounced negative pricing delta in PUR and PCS that I already mentioned. If you look at it from a quarter on quarter perspective, you can see a solid rebound in EBITDA and the margin coming from 9% in Q4 to almost 14 for Q1 2019. So let's look at the same set of numbers for our 3 business units. I'm on page 7 where you see a polyurethanes. So in Q1, we achieved core volume core volumes, which were roughly on par with our previous year level, as solid core volume growth rates for NDI and TDI were compensated by a weaker polyols performance. So as expected, industry utilization decreased driven by the additional capacities that were added during the market through our competitors last year. And compared to previous year's levels, the net sales decreased in all regions because higher MDI and TDI volumes could not compensate for a significant decrease in prices. So let me talk a little bit more specific about our key products. For MDI, we saw some stabilization in demand and in pricing in the last weeks. Increasing demand and construction help to reach the usual mid single digit percentage demand growth that we usually predict. However, due to the current volatility in the industry, we stay somewhat cautious about the further development during the course of the year, However, to say very clearly midterm, we continue to expect that the current over capacities will be absorbed by the growing market demands over time. Now for TDI, the industry environment remains very much under pressure. The margins steadily deteriorated during Q1. And this also implies a lower starting point for April, which most likely will then lead PDI. Overall, we assume that the additional capacities in the industry will keep prices at quite unhealthy low levels for the time being. But if you want to look at it from a positive side, we would say that there's limited further downside risk because we believe that the high cost producer are now really operating at a level where they are at best cash cost breakeven. So finally on polyether polyols, the product continues to be slightly below the long term average in terms of margins. So overall, if you look at the lower side of the page, you see that the EBITDA margin came out at 10.6% in Q1, which was clearly below the last year's level, primarily driven by the significant lower MDI and TDI margins. But again, if you take a quarter on quarter perspective, we see an improvement by almost four percentage points triggered and driven by lower costs. So let's turn to polycarbonates on Page 8, here we recorded a negative core volume growth of 6.3% in Q1. And that was due to continued destocking and the demand drop in the automotive industry, which represents roughly onethree of our sales in polycarbonates And those 2 things destocking automotive were the main reason, as I said, for the negative growth in terms of core volume. The prices were clearly below the level of previous year after continuous price drops in APAC as well as in Europe in the commodity space. And you have seen those price drops since the second half of last year. So consequently, the net sales decreased by 16.7% year over year. Due to the numerous capacity additions that are currently being announced, we stay cautious on predictions for the overall industry supply and demand outlook. Nevertheless, things like electric mobility, 5G and several other new applications could potentially accelerate the demand growth above our base case of 4%. For the entire industry and the industry outlook for polycarbonates therefore from our perspective remains attractive especially for the high end applications. Again, if you look at the lower side of the page, you see the EBITDA margin came in at 18%, significantly below previous year's level, impacted by both the lower volumes and also the negative pricing delta. Again, the quarter on quarter view shows you that we were able to improve the EBITDA margin by 4 percentage points to 18% due to the reduction in costs. So last but certainly not least, let's look at our Coatings Adhesives And Specialties segment. Here, we saw an overall positive picture in Q1, The core volumes were on previous year's level. And despite weak demand from the coatings industry, overall, average prices were slightly above the level of Q1 2018. And additionally, we received some support by FX, and therefore, the net sales in total progressed 6.1% year on year. Again, if you look at EBITDA, the number increased by 7.4% versus Q1 2018, mainly driven by higher higher selling prices and cost reductions. And again, the sequential development, as you can see from Q4 to Q1, is very positive. So with that, let's look at our cash flow development on Page 10. Obviously, the lower EBITDA level and the increasing CapEx significantly reduced our free operating cash flow in Q1 And in addition, we faced the phasing effect from taxes, and you can see the numbers in the table below the bar chart. So we realized a typical seasonal increase of working capital. As you can see in the working capital to sales ratio temporarily reached 19% which is a similar level which should then have a beneficial and positive effect on our free operating cash flow. So talking about the full year, most factors that I just described will continue to drive our cash flow development until year end. That means a lower EBITDA in the year on year comparison. Higher CapEx and also negative effects from phasing of tax payments will prevail over the year. On top, let me remind you, we will phase the cash out of around 1,000,000 for bonuses for the fiscal year 2018 in the second quarter of 2019. And therefore, we assume that our free operating cash flow will even be worse in Q2 relative to Q1. However, if you look at the full year, we will have then digested these cash phasing effects and we should be able to generate a solid free operating cash flow in the second half of the year twenty nineteen. So that overall, we continue to assume a free operating cash flow between EUR 300,000,001,000,000 for the full year 2019. With that, let's have a look at the balance sheet and specifically at our net debt development. As you can see at the end of Q1, our net financial debt level increased to EUR 1,059,000,000. That is the pink color part of the bar chart on Page 11. And the main reason for the increase came from the adoption of the IFRS 16 accounting standards and the corresponding increase of our lease liabilities and that represented alone a EUR 642,000,000 increase as you can see in the bridge. At the same time, and that refers to our pension provisions, those increased by 1,000,000 and that's due to the discount rates in Germany, which again fell to a lower level. So if you take those things together, and combine it with our lower EBITDA. And this leads to an increased ratio of total net debt to EBITDA of 1.1x at the end of Q1 compared to 0.6x at the end of 2018. And if you calculate the ratio with the midpoint of our guidance for 2019, the number will come out at 1.6 terms. However, since the main deviations or the main increases in debt are caused by accounting changes, we still consider that our balance sheet is very, very solid. So with that, let's turn to Page 12, where you have the full year guidance items. As expected, our core volume growth came in negative for the start of the year, but still we assume an acceleration and therefore a catch up in the next quarters that will lead us to a low to mid single digit percentage core volume growth in 2019 overall. And that is the statement that we're making in first line of the table that you see here. And also we're keeping the guidance for free operating cash flow and return on capital employed unchanged for the full year 2019 and confirm it. In terms of EBITDA, after hitting our guidance on EBITDA in the first quarter, we also confirmed the EBITDA expectation of 1 to EUR 2,000,000,000 for 2019. And if you look at the mark to market assessment, that number also stays broadly unchanged at EUR 1,800,000,000 for the entire year 2019 if you base it on the margins that we achieved in the single month of March. So unchanged to our statements that we made earlier this year. And we think that the expected deterioration of the TDI margin was compensated by an improved margin in MDI. Now if you look at our EBITDA guidance for Q2, you see in the table that we assume an EBITDA, which is around the level of Q1 2019. We expect sequentially growing volumes. However, we also assume a slight sequential cost increase, which counterbalance the positive volume leverage and the market developed in general remains volatile with a lower than usual visibility and therefore, please, be reminded that a round in our nomenclature means a single digit percentage deviation to both sides, obviously. I should also say that the basic underlying assumptions of our guidance as announced in our full year conference call remain unchanged and our guidance for 2019 continues to include the changes driven by the adoption of IFRS 16. We have now after Q1 more visibility on the numbers. And for the full year, we assume a benefit of around 1,000,000 for EBITDA and free operating cash flow. And given the decreasing D and A, the effect on EBIT is expected to be rather limited, interest expenses will be burdened by a low double digit euro amount. And for convenience, all of this is also stated in a backup slide that is contained as an attendance to this presentation where you have all the details for the first quarter. And you can derive the full year numbers mostly by simply multiplying it with 4. So with that, I would like to hand it back to Marcus for the summary. Yes, thanks Thomas. The first quarter developed in line with our expectations. Highlights in a year on year comparison were limited, but let me still name a few. First, the achievement of stable volumes in polyurethanes and cast segments was a positive considering the multiple headwinds that we faced. 2nd, our EBITDA improved nicely quarter on quarter mainly based on lower costs. 3rd, we Cash demonstrated in Q1 how resilient and highly profitable the business remains, even in more turbulent times. Core volumes remained stable and pricing delta was positive. 4th, our CapEx program is on track. Despite the short term impact this has on our free operating cash flow, it fuels our growth initiatives and thus lays the foundation for our long term success. Finally, we expect to deliver as well as less favorable industry balances this year. Despite that, we are able to confirm our full year 2019 guidance thanks to our strict cost discipline and stabilizing margins. With that, we would like to thank you for your attention and are glad to take your questions. Thank you. Please press 9 followed by the star again. Please ensure that the mute function on your telephone is switched off Please stand by until we've received the first question. The first question comes from Mr. Charlie Webb. From Morgan Stanley. Please go ahead with your question. Good afternoon, gentlemen. Just a few from me First up on the volumes, just as we think about that sequentially into Q2, there's no Chinese New Year you'd imagine if you could understand the outage you currently have in Dormagen relative to the polyols outage you had in Q1. What should we expect sequentially basically Q2 on Q1? That's the first question on the volumes. Second question, just on raw material, we didn't see a huge amount of raw material relief in Q1. Is there a lag effect that should be up to see that come through more in Q2. Was that driven by the polyol outage, was that having an effect on that or should we expect some more unwinding of the raw materials in the second quarter? And then finally, just on that comment around the billion currently mark to market or mark to March, margins for the full year. Is it fair to say that MDI spreads have improved since the end of March. And then TBI now is starting to see a fine improvement off the bottom in March, at least in Asia, in April, sorry, in Asia, just to check that comment was relating to margins as of March, not as of April, end of April? Charlie, this is Marcus. I would like at least to take the first two questions. If you compare volumes sequentially for our second quarter, what should we accept without outages? Well, we would expect that we see slightly higher volumes. However, those volumes would be more towards a low single digit. And, yes, that's the simple answer sir, on raw materials, well, we would expect for the second quarter, slight relief However, we expect them a little bit higher to be in Q3. That is simply due to the fact that we would have most likely 2 to 3 months lack, let's say, from purchase to production, cycle and also with regard to the inventories, but I would not affect, let's say, any major effects from the just two mentioned, from the 2 mentioned topics. And, with regards to the 3rd question, I would like to hand over quickly to Thomas. Well, Charlie, it's a general comment. I mean, what we thought over the course of the entire Q1 is that TDI further decreased, while MDI was stabilizing, especially over the course, let's say, since the middle of the quarter, that essentially has I mean, in terms of directionally continued into April, and the 2 effects are balancing off each other. And this is why, yes, MDI was directionally getting a little bit better TDI directionally a little bit worse. The total effect therefore, in terms of the mark to market remained changed, but yes, it is fair to assume that we think and you can, I mean, there's also some press comments out there? We think TDI is probably approaching unhealthy levels. So as I said also in my speech, if you want to take a positive thing out of it, we don't expected to decline much further from current from the current standpoint. I'm just following up, what is the issue Dormagen leading the force majeure and have you got any, I guess, you haven't got any cited to when that will be back online? Well, we had a technical incident or you could also call it an accident, where a third party company had an accident with a crane and that will have a low double digit EBITDA impact negative in Q2, but it will be resolved shortly. So I wouldn't call it a major incident, but it was an accident that we had in some repair work going on, which we will fix shortly. And then as I said, low double digit negative effect in terms of EBITDA to be good. The next question comes from Mr. Markus Mayer calling from Baader Bank. Please go ahead. Good afternoon, gentlemen. 3 questions from my side. First one on polycarbonate. Can you update us on the phasing of the announced polycarbonate capacity additions of your competitors? What do you see in particular on potential delays? 2nd question is on this positive product mix effect. You have seen on the top line as well on the margin side. Maybe some more words on this would be helpful. And then lastly, how you see demand now going in Q2. You said, volume should be somewhat better than in Q1. Is there any kind of specific area where you see improvement, for example, automotive or is this more on a broad based picture? Yes, Marcus, thanks for the questions. Markus speaking. On polycarbonate, what we have seen from the, annual report from Wanhua, particularly is that they have now publicly stated that they will actually delay their line number 2 and 3 additions. And if you put this into the context for 2019 capacity additions for the entire polycarbonate market that would bring down the number from currently expected 11% capacity addition this year down to 8% capacity addition, assuming that there would come up end of the year And, yeah, that's, that's what we currently know As you know, there's other players currently trying to, build polycarbonate capacity And as we have always stated also in the past, there's always, some likelihood and therefore possibility that there will be further delays with other us, that always has to be taken into consideration. However, has not yet been factored in into the 8% after the one who announcement. With regards to your product mix effect I would like to hand over to Thomas. Well, Marcus, quite frankly, we cannot, I mean, there's not much more to say. It is as simple as that. It's a mix effect, while in kilograms, we declined slightly by minus 1 Profitable products declined less or even increased. Plus, I mean, one is just core volumes, plus we also have some non core volumes that flow into our P and L. And sometimes, especially if you have in absolute terms relatively small numbers, those things can fall apart in terms of the positive negative. Therefore, there is nothing really special to it. In terms of the expectation for Q2, I would say, I mean, you've seen a negative pricing delta of this 65,000,000 in Q1. It will be slightly less negative in Q2. So expect the number between 56,001,000,000 and all the other bridge items on a year to year comparison. So FX, others, etcetera, etcetera should be relatively minor. So the big driver is the pricing delta that will determine the Q2 EBITDA. Yes. And if I may add that Marcus, on the last topic that you raised on the demand, let's say in terms of Q2 volumes, We maybe have 2 effects here. Number 1 is, as we stated earlier, we have better availability, from our own assets and that drives also the volume growth opportunities that we have. And we also see simply due to seasonal changes, in particular in the construction industry, some opportunities, to drive our volume growth in the order of magnitude that I just mentioned earlier. Which means on a low single digit area, And, yeah, you referred if I don't, recall it wrongly on the automotive, I would say, we do not see extremely positive sides. The opposite side is true that we compare in 2nd quarter to an extremely strong quarter 2018, that means it will be a challenge in terms of, let's say, seeing here really significant improvement in particular compared to the last strong quarter. So we have here, particularly not only a demand issue this year, but also baseline topic still continuing from last year. The next question comes from Neil Tyler, who's calling from Redburn. Over to you. Good afternoon. Couple from me, please, perhaps, starting with a follow-up to the question on mix. Wonder if you are able to help us understand in which divisions that positive mix was most apparent. Second question, you mentioned, Asia volumes, and clearly, your comments on the automotive end market are no great surprise, but could you discuss in a little bit more detail the bright spots that offset that weakness in automotive production. And then the third question, When we think about the comments you made at the full year around your resilient business and the EBITDA contribution from those resilient businesses. Can you give us some sense of how in the first quarter, the year on year, profit of those of that proportion has changed. Neil, let me start with your second question, referring to Asia specific volume topics. Again, to just put things into perspective, we have seen in Asia Pacific, a minus 5% decline in automotive production passenger vehicles in, China, we have seen minus 12% alone on the passenger vehicle output, not a dealer sales and units, but really production output. So putting this into perspective, that was the situation we faced in automotive. So how do we still manage to get a 3.3% plus on core volumes, in Asia Pacific and 5% plus in China. Basic reason for that was that we could overcompensate this, by the wooden furniture sales, referring to one of the topics we discussed in the context of the week after sales on mattresses because there was a lot of exports going out. Secondly, electronics sector was positively, really nicely and positively developing. And, in some parts, also the construction industry provided some positive growth momentum. So That was how we were, as you referred to, able to leverage some of the brighter spots, against the strong backdrop in automotive. I hope that helps a little bit. With that, I would like to hand over to Thomas. Well, I mean, again, I don't want to overemphasize this mix effect, but if you look at the deviation between core volume growth and sales volume growth, it mainly comes from PUR and PCS and the percentage deviation according month to my memory is approximately the same. So, therefore, it's those 2 segments they make obviously over 75% of our total business. So it's not a specific effect in any one segment, but 2 big segments are both affected by this effect. Thank you. We're ready to move on to the next question. Okay. Then the next question comes from Lawrence Alexander, who's calling from Jefferies. Please go ahead. Hello. Could you give a little bit more detail on the trends in the CAC segment, the strength of results compared to what you saw in the downstream markets? And are you concerned as well about inventory destocking by your customers in Q2? Okay. So the main driver, I mean, long story short without going into too many details is that we have seen definitely industry volumes going down, at most of the very large players in this industry, yet we simply gain market share. Can you give some sense on what drove that? I mean, in terms of is it you know, is it a lag in pricing that on the behalf of competitors or Can you give some detail on exactly how sustainable that should be? One of the key drivers was definitely the limited availability of one of the key raw materials not to bore you with that, but HMDA availability was a challenge. And I think here, we really, could, could outperform in one of the other sense. If you really look at the overall development by industry, you could say that, let's say that overall stable demand was, unequally distributed. So we saw some negative growth in automotive transportation, wood and furniture as well as construction. And then there was a very broad range in terms of diversified applications, which would, let's say, stand alone, not even worth to be mentioned, but in the sum of the parts, there was plus 3% in this very broad and diverse range, of applications, be it specialty firms, for example. And there were some quite innovative products that we brought into the market, for example, in terms of renewable hard enough for, for automotive coatings and things like that. So that also definitely helped. And that's why I would say partially at least those gains in market share should be sustainable. Okay, great. Thanks. In the double meaning of the word sustainable, by the way. Understood. The next question comes from Ms. Georgina Iwamoto calling from Goldman Sachs. Missy Lamoto, you might be on mute. We can't hear you. Hi, there. Hi, Marcus. Hi, Thomas. Thank you very much for taking my question. Marcus, I've got a bit of a longer term focused question. Now that you've been in official capacity as CEO for a year. I think today you've given the market some assurance that there's limited downside risk to the guidance that you've given, but also seems unclear that there's much upside outside of large scale outage. And therefore, any earnings upside seem somewhat out of your control. So as you head out onto the road to meet investors after results, what is the kind of 3 to 5 year story that you'll be presenting. How do you plan to deliver value for shareholders from here? Which businesses are you excited about? And especially in light of your ongoing strong balance sheet? Thanks. Hi, Georgina. Good hearing you again. Well, if you look into this the upside for 2019 might be mainly the market prices. So if you look at this short term within the year, mid term, for sure, you see that we're driving at full steam in many different areas. One of the areas is definitely that we continue to believe in the strength of the high market demand for our core products that we already have in our portfolio. Let me give you a few examples. One of the examples is that, and you see that each and every day, everywhere, the concerns about climate change, that means the world needs to move towards sustainable energy. The world needs to move towards less energy consumption despite the fact that there's a lot of conversations about full electrification of a lot of the value chains that we're going to, that, that we're going to transform. That means highly effective insulation materials will be in high demand. Just on Friday, the mayor of New York announced that he would like to start a strong initiative on more energy effective or 0 emission buildings and if he wants to get rid of all those steel and glass palaces as he called it. So if you take this just as a small time, as an anecdote, but indicative sign about more energy effective buildings now really taking ground in the market. That is one of the key drivers, I think, for our MDI business. If you look into our polycarbonates business, we're going through a significant transformation in the transportation and also mobility sector away from combustion engine to hybrid vehicles and fully electrified vehicles. That drives, the demand for our polycarbonate sector, if you look into safety issues, if you look at the temperature management for batteries, if you look into loading stations and so on and so forth. Just to name, mobility in a broader sense, that means 5g Technologies That means you need every hundred meters at least, one of those transmitting stations, and that would also Again, and we have successful examples for that already. Housing materials made out of polycarbonate due to different effects and so on and so forth. So If you look at the real needs that are currently crystallizing from societal changes, and also for deeply needed changes in the overall, growth and how we understand how a sustainable economic, economy should look like. That is exactly, I think, where COVesto with its current portfolios are already very well positioned and for sure that fuels, the, the creativity also in terms of M and A And let's not forget about, our innovation pipeline. There is a lot of small contributions, but they're all summing up to, I think, quite nice future growth opportunities. I hope that gives you some flavor about what we see in the next couple of years to come within the given portfolio, but also a little bit of fantasy, on the potential inorganic growth opportunities. So if you think about the next 3 to 5 years volume outlook, would you say that that might even be more attractive than the previous 3 to 5 years or continuing on the same level? 5 years, around 4% per year. And that is already significantly above the expected GDP growth, and that is already reflecting how the portfolio is outgrowing the overall economy. And for the time being, I would like to leave it with that. The next question comes from Jeff Hair calling from UBS. Please go ahead. Hi, good afternoon and thank you for the opportunity to ask some questions. I want to ask you the shorter term questions. There's 2 numbers that stand out in terms of aspects of sustainability in the future quarters for this year. First of all, the 100% drop through on volume because of the mix and also the margins that you managed to get in the polycarbonate business. I wonder if you could just comment and what you expect as we go through the next few quarters? And also, we've seen some headlines about water levels again in the Rhine River. Is that something we need to be aware of for the second quarter? So let me take the first question. I mean, this, the volume drop through of close to 100% obviously, it's not a sustainable number. It's also due to some, I would say, low number base effect in the future, I would expect a drop through number that is very similar to what we've seen in the past where we are talking about ratios of 40, maybe slightly up above 40%. So this is something that I would expect. And I think that's unchanged relative to our communication in the past. So please don't take the drop through numbers that you've seen in Q1 and extrapolate that for future volume growth. On your second question, Geoff, on the Rhine River level. Well, we haven't seen any impact in the first quarter on Rhine River levels that was a majorly effect in the fourth quarter. We haven't seen any effect in first quarter, and we do not expect to see any, effect in the 2nd quarter. If you're referring to, let's say, some of the media hype, let's say in terms of a draw that we might expect and also therefore lower Rhine River levels in Q3 or even Q4 of this year. This is even beyond speculation, I would say, because of weather forecast that goes, let's say, longer than 6 weeks, it's from my perspective, simply not a serious analysis. And that is also what all, the serious, what are forecast institutions tell you They have no idea how the summer will look like, whether it will be dry, whether it will be rainy or something in between. There's a lot of media hype around this. But there's no further, let's say, insights into which direction to weather will develop for the summer. For sure, we have taken the experience of last year into consideration, to further improve our emerging response in case something like this would happen again. And, from that perspective, those mitigation levels, effect would definitely include more trucks. It would also include that we book in advance more ships. And yes, that would also come with higher costs And we also have to be clear, we would not be able to fully compensate no matter how good we prepare simply due to the limited available capacity and trucks in ships but also, in and if you look at the traffic on the streets and also on the, capacity of the railway, So overall, we preparing, I think we would be much better prepared, but we would not be able to fully compensate it. However, there's currently no indication that something like this would happen. Okay. And so could you just comment on the sustainability of the margins you saw on PCS in Q1? You mean the I mean, generally, the EBITDA margin that we saw of PCS in Q1? Yes. We think that is I mean, there will always be some fluctuation, but I think it will be broadly stable going forward. The next question comes from Mr. Christian Faitz, who's calling from Kepler Cheuvreux. Please go ahead. Thanks. Good afternoon, gentlemen. Just one remaining small question, please, CFO question. Just for modeling purposes, are there rather low G and A costs of below EUR 100,000,000 in the quarter, a reflection of successful restructuring, or is that a one off low number? I would say it's neither the one or the other. Remember that we have our PSP bonus scheme, where we said that this is kind of an automatic measurement to to improve the results in when times are getting more difficult. And we said that the total bonus for 20 18 is some SEK 350,000,000. So if the bonus achievement that we have to accrue for goes down in 2019, that is obviously reflected, also in our SG and A costs, which then in that sense benefit from it. So I would say it's it's not a restructuring effect yet. Remember, we have some also headcount cuts in our prospective programs, but those to the majority are yet to come and are not yet reflected in Q1 nor is it a one time effect. It is sustainable because it's driven by our bonus scheme that is helping us to cut costs in less good times. Okay, great. Many thanks Thomas. Please ensure the meet function on your telephone is switched off. To allow your signal to reach our equipment. Who's calling from Credit Suisse. Over to you. Good afternoon, gents. I just had a quick question on the working capital development. And specifically inventories up 11%. That's despite pricing down 18%. I would have thought we would see some relief throughout this quarter. Could you maybe comment on that specifically? Well, 1st of all, I mean, yes, the in general, there's a working capital buildup in Q1. That is a seasonal effect. Now the question is, how is that, evolving relative to last year and relative to last year, I would say our inventory buildup is absolutely in line And therefore, I would say it's what you see is a pure seasonal effect. If you look at the working capital build up in total, it's some 1,000,000 less build up than what we had in Q1 twenty eighteen. And therefore, it also reflects a lower pricing level. And sorry, I just I should mention one more thing. We had to in terms of inventories, the effect is less positive. Because we had to prepare some maintenance shutdowns in the first half of the year. Remember that in 2019, the majority of the maintenance shutdowns happened in the first half year, while in 2018, it was just the other way around. So this is another driver why inventories did not decrease or let's say increase less as you might expect in terms of what you see from the prices. Okay. Thank you. The next question comes from Thomas Swoboda who's calling from Societe Generale. Over to you. Yes. Good afternoon, gentlemen. I have one rather strategic question. And it's about the oil price. It looks like that Mr. Trump has started to heat up the oil price with functions on Iran. My question to you is in the current supply is supply demand development and assuming that the oil price goes to towards the $100 per barrel towards year end. What would this do to your to your earnings? Thank you. Hi Thomas, this is Marcus speaking. Yes, that's a real glass ball question, a crystal ball question. So, in very short terms, we always look at the oil price to be not in, please don't get me wrong, debt relevant for our business because we're looking into supply demand situations for our key products. That means whenever raw materials increase, they increase normally for everyone in the market. For as input factors, for example, for benzene, that then goes into aniline. So the entire value chain, and then we're looking more into supply demand balances for IP products and not into feedstock costs, or even, cost of a barrel of oil. For sure, there is some short term effects in terms of lagging. That means, if we are in an upward trend, it might take us some time to push prices through in the market. And, that's why sometimes when the prices go up We have a little bit of lagging before we can push this through. If prices go down, we sometimes benefit a little bit from holding on longer to the respective prices and then see we then we see the spreads for our products, in terms of margins going up. But generally, this is a pass through for most of our businesses And there might be some effects on the resilient businesses where it is more difficult to really then increase prices. So that's, That's all with a little bit lengthy, explain what effect that might have. This is just perfectly fine. Thank you so much. Okay. We have a follow-up questions from Mr. Neil Kala who's calling from Redburn. Over to you. Yes. Hi, again, sorry. I just want to come back to the question I asked earlier regarding, whether you can give us any, perspective on the what you described as your resilient businesses, across the various divisions and how those are shaping up where they stand in EBITDA terms, Q1 versus Q1 last year, I. E, how resilient have they been? Thanks. Well, I mean, 1st of all, let's let's just, I would like to remind everybody, what do we classify as resilient? We say our CAS business is part of the resilient part. And we say roughly 60% of PCS belongs into that bucket and we classify our polyols business as being resilient. And a very small portion, let's say, 25% of the MDI business. So if you go through those components, we would say that the contribution from CAS is maybe slightly up. We think that PCS is slightly down because the commodity prices are down and the commodity price level has a certain spillover effect also in the more differentiated space of the product. And the polio business slightly down and MDI relative to mid cycle levels also slightly down. But overall, We're still in the normal range. So again, if you look at the components, CAS up the other slightly down, but overall still in the broad range of what we always see. The next question comes from Mr. Sebastian Bray, who's calling from Berenberg Bank. Please go ahead. Good afternoon, and thank you for taking my questions. I would just have one please. It's a more strategic question. Can I ask, is Covestro a net buyer or fishery of carbon credits in Europe? Deep advantage over the next 2 to 3 years, given the prices are up quite substantially. And if you could give an idea of magnitude is this something that is not likely to be substantial on the cost line or something that could become quite big at current carbon prices? Yes. Sebastian, thanks a lot for picking up German day to day politics. And, actually we pre bought carbon credits for almost 10 years. That's why we feel kind of safe for quite a while. And, that's the current status because nobody knows when a carbon price will come, to what extent it will be, getting to the entire energy incentive, and therefore, also carbon dioxide heavy industry and, also how high this price at one point in time really will be. And, We also must not forget that there is already 1st technologies, going on and, around also to a very limited extent that used carbon dioxide already as a chemical feedstock. It will not save us. However, I think it sends a very positive signal about how proactively we address this topic, not only in terms of pre buying carbon credits, but also making sure that we close the loop towards a circular economy which is something that we strategically aim for. Can I perhaps ask 2 follow ups on that? The first would be if you didn't have carbon credits, what would your annual cost be or in what sort of magnitude? And secondly, when do these credits expire as a whole? Is it 2026? Or whether it expire, but until when do you have them? Well, that would be highly speculative because as I said, we don't know to what extent it come at what prices will come, what would be, let's say, taken into consideration. So I think, I would say as of today, I would see myself be unable to give you any concrete number that would go beyond speculation. All right. Thank you. Sorry. The next question comes from isha Sharma who's calling from MainFirst Bank. Please go ahead. Hi, thank you for taking my question. I have one please Could you please help us with the segment wise development and earnings for Q2 and also the second half of the year especially for polycarbonate as we see really low volumes for Q1. How should we see this for Q2 because the prices are still falling? Polyurethanes. Is it fair to assume that the situation remains more or less where it was for Q1? So more or less stable EBITDA? Just a little bit of color on that please. Thank you. Well, Nishai would say, I mean, I said the main driver for the year on year bridge for Q2 is the negative pricing delta of what I said between 56,001,000,000 And I would say, three quarters of that pricing delta comes from the polyurethanes segment. While the CAS segment is broadly stable, and 1 quarter is negative to the PCS segment. All the other building blocks are not very meaningful in terms of size. So I think that gives you an impression of where the seconds should go. The next question comes from Charlie Webb calling from Morgan Stanley. Please go ahead. Thank you guys. Just one quick follow-up. Just relating to the environmental enforcement in China, following the unfortunate explosion saw earlier, I guess, in the quarter, Q1, as we look at it, do you see any increase scrutiny from the Chinese regulators around chem Parks, do you expect it could have or will have any implication for feedstocks in terms of your businesses as we look ahead into the rest of the year? Charlie, thanks for the question. How we currently look at it. We definitely see that the, and I mean that very positively, the Chinese government and authorities are significantly stepping up, not only the legislation, but also the implementation and oversight of execution of improved safety and environmental standards across the board. So we also see that those are no longer let's say specifically applied to particular industry players, but they are really applied to all players, be it local be it multinationals or be it joint ventures. And it also has led to a significant shutdown of, chemical operations of chemical parks, of chemical plants across the country. And it is very clear and obvious that the strategy of concentrating chemical operations within, clearly assigned chemical parts is clearly follow trend in China. So from that perspective, We see that the efforts are being now really implemented, being really stepped up and equally applied to almost all participants in the market. Does that affect us? It affects us in a sense that also we face sometimes also unannounced inspections in terms of safety, that also we face, if you would like to say, higher scrutiny in terms of how we live up to environmental standards. But I would say If you look into our operations, we always had, globally unified, very high safety standards and very high environmental standards that we've always adhered or sometimes even exceeded, legally required limits exceeded in the sense of, we were, let's say, for example, emitting less than actually was allowed. So from that perspective, I think we see that. We very much welcome those efforts, and it also creates a more plain level field. And we feel extremely well prepared already as of today with the current measures we have in place since years. And just to be clear, is that comment kind of based on continued theme or is that do you see an acceleration post the unfortunate event earlier in the year? What I would say both mean, that was a topic that was always on the agenda. If you look into the recent 5 years plans, safety of chemical operations was always somewhere in there and the increase of this also increase in environmental standards and a more sustainable economy by all means. And yes, for sure, respective recent incidents have only accelerated the speed. So from that perspective, it is nothing that we that was unexpected yeah, and that's currently just that, that's currently what we see. That also applies, for example, two permits that you need for chemical operations. Here, we definitely could see that some of the approval processes, slow down. They do not currently affect us in terms of execution of investments, but that is also something that we clearly observe, that the procedures for permits has slowed down. The last question for today comes from chetan Udeshi from JP Morgan. Please go ahead. Thanks. A couple of questions. Firstly, on MDI, we've seen a big increase in China over the last 3 months. Can you maybe from your experience so far? Can you talk about how do you see the stickiness of that or those price increases that we've seen in China. That's number 1. Number 2 is also on TDI, it seems least 2 of your competitors have announced increases in TDI prices in the U. S. From the end of April or may is that something you you see as well? And then last question, sorry, is on the other line of the EBITDA bridge. Just from memory, I think you mentioned on full year results call that would be like low triple digit €1,000,000 positive. It seems at least in first half, it is flat to even negative. So is the phasing of that positive number of primarily second half? Thank you. Okay, Chetan. Let me take the first two questions. On NDI prices, I think we have commented already how we look at the current price development, and, the MDI prices, just announced yesterday, if I remember that correctly, by the largest player in China, on the MDI prices and increased by roughly, 600. Rmb per ton, which would reflect something like, around 3 to 4 percentage point. We still have to wait and see how this develops in the market. The second topic is, let's say, on the, seasonal rebound on construction that might help and support a little bit the stabilization or maybe even very, very slight uptake for MDI prices. We, may also see that, some of the plant maintenance shutdowns even though inventories have been built might help a little bit, but then there's also again a risk once those capacities come back that those price increases vanish. So I would rather say on average, we would currently face balanced could, and that's why I would not see significant opportunities from today's perspective of a real uptick in MDI prices. If we look now into MDI, sorry, into TDI, sorry, MDI, again, 11 more flavor U. S. Market growth in MDI, we expect to be around 6% to 8%. That also would mean that we would need more capacities there and currently, we still have a net import market, for the for, for the U. S. In terms of MDI demand. So that's the current situation on MDI. If we just, look at TDI in terms of price increases, I think Thomas mentioned that earlier, for TDI, we would currently see that we are hitting levels where some of the, incumbent smaller producers and in competitive producers hit maybe exactly their cash costs, 0 point, and there might even be cash burning already. So from that perspective, that might pain while some try to increase the prices, would that really be something that would, that would, go through in the market, we have to wait and see. Currently, I do, yes, that's all I have to say because it's quite sensitive, let's say, to talk about price development in this context here. Well, then, Tina, on your question on the distribution of the others. So, yes, I would still confirm the statement that we have made for full year, which is a low triple digit amount that we're expecting. And therefore, yes, as we only expect a maybe slight positive effect in Q2, but I said it will not be a major effect. The distribution is mainly into the second half of the year, and that still appears expecting also from our perspective program where some of the measures simply take some time at the back end loaded before they show their full impact on the P and L. So, the Anthem shortage, yes. Mr. Kermer, there are no further questions at this time. Please go ahead with any other points you wish to raise. Good. Thank you all for participating on the lively discussion. If you have follow-up, don't hesitate to call the IR department. Otherwise, we might see you actually next week at the Southside dinner in Frankfurt, everyone is obviously, can join either from Frankfurt or from London. And also, obviously, the buy side, we are happy to see on various other locations, be it conferences or road show. Thank you all for listening and see you. Bye bye. Ladies and gentlemen, this concludes the investor call of Covestro. Thank you for your participation. You may now disconnect.