Earnings Call: Q2 2018

Jul 26, 2018

Good afternoon, and welcome to our Q2 twenty eighteen conference call. For your information, we have posted our half year financial report and the conference call presentation on our website. We assume you have read our Safe Harbor statement. I would now like to turn the conference over to Marcus. Good afternoon, everybody. We achieved another record quarter This excellent performance represents a solid foundation to deliver 4.4% in Q2. So we are well on track to reach our full year guidance of low to mid single digit growth. In continuing tight industries with high utilization rates, we further improved our earnings with a strong year on year EBITDA increase of 16% to EUR 9,000,000. This translated into a net income increase of 25% year on year. Additionally, helped by our ongoing share buyback program, we achieved an earnings per share of which represents 28% year on year increase. Our free operating cash flow improved by 14% year on year to 1,000,000. Net debt went slightly up to EUR 2,000,000,000 given the usual seasonal cash out for dividends and short term incentives. In addition, we bought back shares for more than 1,000,000 in Q2. Based on this excellent performance, we feel This follows the free operating cash flow guidance update we gave during our Capital Markets Day in London. I would like to provide Asia Pacific and especially China remains the region with the highest growth rates. We achieved double digit growth rates driven by many industries like sports and leisure, medical, wooden furniture and automotive and transport. Growth in Europe accelerated and we generated high single digit growth among others, automotive and double digit growth in medical and footwear. Volumes in NAFTA slightly declined especially due to a weak market development in construction and wooden furniture. We achieved a positive growth in automotive. Globally, we once again achieved a growth of 7% in automotive well above the original equipment manufacturer light vehicle production growth of 5%. In construction, we slightly underperformed the market driven by polycarbonates. On purpose, we allowed declining volumes in order to further upgrade Well, thank you, Marcus. And also from my side, a very warm welcome to everybody on the call. I would now like to go a little bit deeper into the numbers and I'm on page 4 of the presentation where you have the sales bridge for the quarter. So as you can see, our 2nd quarter sales posted a double digit growth of 10.4% and that was driven by a price and also volume increase. First of all, higher volumes had a positive sales effect of 4.9% and all segments contributed to that uplift. And the main driver of our top line growth were higher selling prices, mainly in polyurethanes and polycarbonates which accounted for 9.9% year on year, and that is the 1,000,000 that you see in the bridge on the slide. On the other hand, sent and that is the million that you see in the bridge. So please turn the page to number 5, where you have the EBITDA bridge So in Q2, we were able to increase our EBITDA again in a year on year comparison. And with that, we improved our EBITDA each quarter versus the respective prior year now over the last fourteen quarters in a row. So our year over year EBITDA increase of 16.2 percent that you see on the slide reflects the sound operational performance of our businesses and we recorded a positive pricing delta in all three segments, mainly driven by polyurethanes and polycarbonates. And the further improvement of our utilization rates was clear contributor as well, reflected by the high volume leverage of 58%, which is also stated in the bullets on the right hand side of the page. On the other hand, again, the FX headwind burned our EBITDA in Q2 also, although to a lesser extent than in the first quarter, And with respect to the other items in the EBITDA bridge, I would like to say that first, the prior year quarter benefit from 2 positive one times effect and insurance payment and also a book gain from an asset disposal. You have that also in the bullets on the right hand side. And if you take these out, you can see that the EBITDA would have increased by even 27% on a like for like basis instead of 16% if you, as I said, take these two items out and look at it from a like for like perspective. And second, we also faced higher operational costs which is reflected in the other items bucket on the one hand for intensified maintenance activities and on the other hand for logistics due to a higher rate of interregional shipments. So with that, please turn the page to number 6. In Q2, as you can see, we saw our path for profitable growth at Covestro confirmed again in all aspects, we increased our sales, our core volumes and also our earnings for the group on a year on year comparison. So specifically, the EBITDA margin improved from 24.2% to 25.5% in the 2nd quarter. And again, we would like to put this margin a little bit into perspective. That means if you exclude the TDI fly up, our margin would have been at around 22% in Q2 2018. And we do believe that this is a better reflection of this quarter's underlying performance. However, it still represents a progression and a margin uplift of 3 percentage points versus the prior year if you also strip out the TDI fly up from Q2 2017. So as I said like for like, it's a 3% uplift. And with that, I would like to hand it back to Marcus. Thanks Thomas. And we start on page number 7 now with the polyurethanes segment. In the second quarter, demand remains strong for polyurethanes. The industry broadly continued to operate at its limits, quickly absorbing fees. Still constrained by limited production availability, but helped by a lower comparison basis year on year, our core volumes increased by 3.9%. Globally, we experienced a strong volume growth in construction after a rather sluggish start to the year. Another major positive contributor for growth was solid volume increase in the automotive industry. In MDI, we see a robust demand in diverse end markets in all regions, driven by solid GDP growth and ongoing substitution of other materials. For the full year 2018, we continue to expect our average MBI margin to be flat versus the average MBI margin in 2017. From today's perspective, this seems conservative given that we achieved margins above the average of 2017 in the first half of 2018. For TDI, we again realized the contribution from prior margins of around 1000000 in Q2 due to a tight industry. In the first half of twenty eighteen, the TDI fly up contributed around 1,000,000 more than we had expected, with further capacities being added the industry should rebalance soon. TDI prices are currently normalizing, but less than expected. However, Therefore, we now assume a positive flyer margin in the third quarter as well. As a consequence, it seems that during 2018, we might lose only a little of the EUR 500,000,000 fly up recorded in 2017. However, we still assume that TDI margins will be back to a normalized level at year end. Finally, the margin in polyether polyols remains resilient, but slightly below the long term average as higher raw material prices were not fully compensated by price increases. We're now turning to Page number 8. In polycarbonates, we delivered a strong core volume growth of 5.3% in second quarter. Despite a major maintenance shutdown at our Shanghai site. The ongoing product mix improvement and the deemphasis of low margin businesses and are well reflected in the Q2 figures. A highlight was once again the development in automotive with a double digit increase. Electronics also contributed nicely with a high single digit increase. The EBITDA margin progressed from 21.6% in the second quarter 2017 to 27.0% in the second quarter of 2018. The margin increase was mainly driven by a strong pricing delta supported by a positive volume leverage and the ongoing product mix improvement. In Q2, higher raw material prices could again be more than compensated by increased selling prices. However, prices came slightly under pressure end of the quarter due to the ramp up of new capacities in China. Nevertheless, The start to third quarter was encouraging, supported by the launch of new products for diverse applications. Overall, the industry outlook for polycarbonates remains very attractive. We consider the industry supply and demand to remain balanced midterm. Turning to page number 9. As we indicated, coatings, adhesives and specialties returned to core volume end earning growth during second quarter. Core volumes increased by 5.8% and EBITDA by 14.9% year on year. The earnings improvement was driven by strong volume leverage. In Q2, the selling price increased increases could just compensate the impact is so called HMDA, a nylon 6.6 intermediate. This product is currently extremely short due to several force majeure incidents. Prices spiked during the second quarter. Please note that we source our raw materials usually based on monthly contract prices whereas we sell our products mainly on 6 to 12 months prices. We expect a significant negative earnings impact from higher raw material prices during the second half of twenty eighteen, most pronounced in the third quarter. Remember also that CAS tends to see lower earnings in the second half compared to the first half of the year, driven by the usual seasonality This year, the effect will be even more pronounced given the increasing raw material prices. That said, 3rd quarter EBITDA of CAS is expected to decline quarter on quarter and most likely also year on year. For the full year 2018, we expect to achieve a core volume growth rate in line with the group, which means low to mid single digit. Given the slow start in the first quarter, finishing at the upper end of the range is ambitious. However, as demand seems to be further improving, it is still possible. Long term, we strive for a growth of 3% to 4% slightly above GDP. In order to secure enough volumes, we will increase capital expenditure also in cash. However, CAS is an asset light business with much less CapEx needed compared to polyurethanes and polycarbonate. We are now moving to Page number 10. A good example is the recently announced CapEx of EUR 100,000,000 in specialty films between 2018 2020. The specialty films industry is growing by 6% to 7% per annum. We are, together with 3M, the industry and innovation leader. We believe this is a highly attractive investment that should allow us to grow at least in line with the industry. For more details about the different businesses of costs, I encourage you to look at the Cusp presentation at our Capital Markets Day last month. You can find the file for downloading on our IR website. Back to Thomas. Thank you, Marcus. I'm on page 11 that shows you the cash flow development. As see in the right hand column of the page, we generated 1,000,000 for the first half year of twenty eighteen. And that was clearly above the 2017 level. So clearly, this development combined with our expectations for the rest of the year encouraged us to recently upgrade our free operating cash flow guidance for the full year and we're now expecting to see above 1,000,000,000 for 2018. Along with this, we also upgraded our free operating cash flow target for the period 2017 to 2019 to above 1,000,000,000. And so let's look into the number more specifically until the end of June, the strong free operating cash flow development was driven by a significant EBITDA increase and also reduce working capital needs and components that partially offset the improvement with the higher CapEx and also some higher tax payments. If you look at working capital, the sales ratio temporarily reached 19.1% in June, a similar level as in the first half year of 2017. However, for the full year 2018, we are confident that we will be back to our target range of 15 to 17% working capital as of sales ratio. The relatively low cash tax rate is the result of tax payment phasing. So for the full year 2018, we expect tax payments in line with the effective tax rate which we guided at 25% to 27%. So the rate should normalize. And with respect to CapEx, we also upgraded our guidance last month and we slightly increased the range by 1,000,000 to now 1000000 to 1000000 for the full year 2018 in order to secure our production reliability. And in terms of D And A, our updated number is that we're now expecting 620 to million for this year. So if you turn the page, you have the overview of our balance sheet as can see our total net debt level increased to around 1000000000 compared to the 1 point 47,000,000,000 at the year in 2017. And as a consequence, the ratio of total net debt to EBITDA slightly increased to 0.5 times If you look at the components, you can see that the high free operating cash flow overcompensated the cash outflow of 1000000 which we spent for the share buyback program. And on top, the million for dividend payment also took place in the second quarter. So that overall, we returned more than 1,000,000,000 of cash to our shareholders within the 1st 6 months of this year. The pension provisions increased partly due to slightly lower interest rates in Germany. However, that's an effect that took mainly place already in Q1. And just for your reference, as you can see in the bullet, our equity ratio also improved to 50% versus the year end of 2017. Now please turn the page to So first of all, our Q2 results do confirm that we're heading for new records in 2018, The core volume growth posted in Q2 confirmed our expectations of an acceleration of growth for the remainder of the year. And after a somewhat muted start in Q1, we we do expect the core volume growth rate to further improve in the course of the year provided that there are no significant production issues So we are confident that we will achieve our guidance of low to mid single digit percentage increase year on year for the full year of 2018. We also confirm our upgraded guidance of above EUR 2000000000 free operating cash flow for the full year 2018, which we have communicated in our Capital Markets Day, and we do expect a return on capital employed around previous years level. Now if you look at Q3 for Q3 2018, we guide for an EBITDA of around previous year's level. And please note that around implies a single digit percentage deviation to the up and potential potential also to the downside And now in terms of the components, the volume growth should positively contribute. And I would assume here a mid double digit number as a positive contribution. The pricing delta, which we expect should be slightly negative year over year, of course, specifically depending on the price development of TDI. Thirdly, we still budget increasing costs. So that means that the other line should be slightly negative. If we look at the full year 2018, we upgrade our EBITDA guidance range from around to above previous year's level, And I would like to point out that above in this context means from today's perspective, a single digit percentage year on year improvement And of course, let me just remind you at this point that our guidance is, of course, based on a normal GDP environment on a worldwide basis. So with that, I would like to turn it back to Marcus for some strategic highlights. Thanks again Thomas, and please follow me to Page 14. Let me close our session with strategic highlights. As detailed during our Capital Markets Day, demand growth remains favorable. We plan to grow in line with our industries so above GDP driven by innovation and sustainability trends. We estimate a core volume growth of 4% on average per annum to contribute to EBITDA for 3rd year or cumulative more than EUR 1,000,000,000 until 2022. This was well demonstrated by generating EUR 100,000,000 EBITDA volume contribution just in the second quarter 2018. A logical financial implication of our long term strategy is the need to invest more into our business by increasing CapEx. And with new world scale investments long term. We are confident of delivering accumulative free operating cash flow of more than 1,000,000,000 between 20172019. With the continuously high cash generation and the strong balance sheet, we are looking more intensively into clever uses of excess cash. There is no preset priority between the use of cash for external growth or for returning it to shareholders. For every decision, it is the best value creation option that leads During the first half of twenty eighteen, we returned more than 1,000,000,000 through dividend payout and the buyback program, Up to now, we have bought back our own shares for a total amount of more than 1000000. We are fully on track to execute a 1,000,000,000 share buyback program by mid-twenty 19. Thanks for listening. And we are Your questions will be answered in you. And the first question comes from Mr. Patrick Lambert, who's calling from Raymond James. Please state your name and your company name followed by your question. Two questions, please. The first one regards on polycarbonate spreads evolution, quarter on year on year or sequentially, if we could get some more colors about the the geographical volume growth that you've seen in polycarbonates and the spread evolution by region. Just sticking what we can track and what we can see in terms of spread looking pretty good in Europe and in Asia, but still flattish in the U. S. That's what we can tell from data. So if you could put some colors on this evolution. That would be good. And the second is very specific to Automotive, good growth there, but could you comment also geography where it was and now the impact of EV inside of that electrical cars, which was a good driver I know it's a small business, it's part of a business, but fast growing. And if you could comment that on H1 trends? Thank you. Okay, Patrick. This is Marcus. Speaking. I'm ready to hear from you. Hi. So it was a quite far reaching question I have to say. So I tried to give you some flavor. Hope yours afterwards a bit satisfied about what we have. So if you look at polycarbonate development, actually in the second quarter. And this is a year on year perspective. We have seen that Polycarbonate has grown at around 5% growth rates. And there was a very strong growth in automotive, as we said, 10% globally, automotive growth. And we have in that context also significantly shifted the product mix, for example, deliberately away from the construction segment towards, for example, higher margin segments like the automotive, but also electrical electronics business. And this is part of the pricing development. If you now look more, let's say, in, to the respective, into the respective regions, you can definitely say that depending on the pattern in the region, that was not a pattern that was driven by regions, but by particular industries, because we don't have strong pricing differences within the region application by application, but rather the let me call it application mix in the respective region due to the maturity of the market is driving the pricing differences. And that is also why not a, let's say, clear picture about where the prices are going down or up that that would reflect maybe higher competitive pressure pressure. It's just a matter of the product mix that we normally have within the given regions. And that for sure is that's why you will see a slightly stronger price impact in the respective Asia Pacific region than you would, for example, see it in the North America region or in the European region just because of the matter of fact that you have still a slightly higher share of commoditized grades of polycarbonates in Asia Pacific, then you have it, for example, in the United States or here in particular in Germany. Just I hope that gives you a little bit of sense. So talking about e mobility, Patrick, you are absolutely right. It is still a rather small segment, yet it is very fast and very quickly growing. And that's why we still believe in our estimate that, electric vehicle, I mean, fully electrical vehicle for parts, vehicles or cars actually could up use up to 3 times the amount of our materials due to several reasons. And we still see that this is a very, very strong growing segment. To give you some flavor, the battery manufacturers in China from time to time just jumping in terms of technology immediately to the next level instead of going through what other producers, for example, of battery packaging have gone through. And that's why we see, for example, very nice growth in battery packaging, and we got a lot of requests Chinese manufacturers in terms of battery packaging, where they are using polycarbonate, not only for safety reasons, but also for design reasons, to make sure that they have the best cooling for the batteries that are surrounded by respective materials. So we see very nice growth we also see a lot of technology that is driven now originated and clearly only in China simply due to the fact that they're innovating for the Chinese market and that they're jumping over some technology developments that you normally would see in the other regions and that we have seen in the other chance. Just a quick follow-up. I have in my estimates or reading that the EV cars sales were up about 60% in Q2. Is that in line with what you're seeing also on that application? Sorry, can you just repeat that the 60% are referring to what? Well, evicar, battery electrical cars sales in the quarter growth about 60%. Groupity? Well, that sounds to be in a reasonable range, yes. Thank you. And the next question comes from Mr. Christian Faitz. Who's calling from Kepler Cheuvreux. Please state your name company name followed by your question. Yes, good afternoon gentlemen. Christian Faitz from Kepler Cheuvreux. Two questions for now if I may. First of all, you mentioned interregional shipments in the presentation part of the conference call. Can you please elucidate this a bit? And then second of all, can you give us an indication of how your pricemix and the grades moved in Q2? Thank you very much. Well, first of all, with respect to the inter regional shipments, I think the the quick and easy answer is that this almost does not play a role for our business. It's a de minimis amount because As a general rule, we are producing our products in the regions where we sell them to our customers. We're truly global with our world scale plans in the United States, in Europe and also in China. So I think as a rule of thumb these inter regional shipments to play a minor role. However, they were slightly increased in Q2, and that had a minor effect on our other cost line item. But you look at it from a, let's say, tariff and tax perspective and the question is, would taxes and trade barriers temporarily. The answer to that is no. Okay. So nothing going on structurally there. So nothing structurally going the wrong way. Okay. Yes. And I mean, part of it was simply we had some maintenance shutdown in Q2. So specifically in Q2, we had to cater maybe one region a little bit more from another one, but structurally, as you correctly said, it does not play a role. And then, Mark, do you want to answer the pricemix? Yes, Christian, also, one regards from my side here to you, I think if you look at the polymeric MDI prices, we have seen in the last couple of months that those prices, at least in two regions, were coming down, that was not unexpected is exactly how we have guided the market so far, and that is exactly also how we have come to the conclusion that we would expect the average MDI margins in 2017 to reflect the average MDI margins in 2018. And we also have been quite clear also in the in this call already beforehand, that currently we are even a little bit above the average 2017 levels. So we regard, let's say, the current overall MDI margin and also price situation to more on conservative side if you look for the full year 2018. So polymeric MDI is coming down, but not beyond our expectations Monomeric MDI is still in very high demand and is still also in terms of pricing, very stable. So from that perspective, that may give you a rough reflection about where we are in terms of pricemix and also in terms of where the different, let's say, the rough types of MDI are going. Not to forget that MDI in total has more than 100 grades that we are selling And that is also exactly why you see parts of the MDI portfolio in our view to be considered to be differentiated and more resilient in terms of cyclicality than others. Thank you. And the next question comes from Thomas Swaboda calling from Societe Generale. Please state your name, company name. Go ahead with your question. Yes. Hello, gentlemen. This is Thomas Frode from Societe Generale. I will try two questions, please. Firstly, on the negative volume development in the U. S. And NAFTA overall, it looks like it's it's polyurethanes and polycarbonates. Could you just describe what were the drivers behind this decline And secondly, a financial question, I think that that goes to the CFO. You it seems you have changed the way you are treating your trade accounts payables I understand this change is supportive to your free cash flow generation. In the long term. And the question I have is how much does the change in the accounting brings you in terms of free cash, from, yeah, from now on. Per quarter or per year, however you like. This is Marcus speaking. And, if you don't mind, I would like to answer the first question in terms of the drivers behind the volume development in the United States. So if you look at this, especially we have had some, decline in or significant decline in the construction industry that, in particular, in the polyurethane segment, but also in the polycarbonate segment, however, due to slightly different reasons. The polyurethane industry, it was that we saw some decline in demand. So there was really a slightly weaker construction activity going on so that we sold less of our polyurethane insulating foams into the respective industry or the raw materials for the insulating foams whereas for polycarbonates, it was a deliberate decision because we wanted to shift high demand, in the higher value and less cyclical business like automotive, but also electroelectronics, from the industry, which is normally much more cyclical and also much lower price than we normally can achieve. So we, deliberately shifted the product mix towards higher value applications in automotive, in electro, in electronics in the United States and took away this share, and actively took it away from the construction segment. So you have similar consequences that the construction segment in terms of volume went down, but you have different reasons why that actually has happened We saw a decline in the demand for polyurethane raw materials on the one hand. And on the other hand, we deliberately moved away from the construction segment in the polycarbonates, yes, in the polycarbonates area. And that both has led in total to decline in the volumes that we have sold in North America. However, in total, for sure, due to the active product mix shift, we earn more money with it. I hope that answers your question. And then Thomas with respect to your question in terms of cash flow, I hope that I understood your question correctly. So first of all, And what we have in our accounts is we have reflected the effects from IFRS 15 and also IFRS 9. What we have not yet reflected is IFRS 16. As you can see in our report, I think it's Page 32, in fact, it has also an impact on our accounts payable and receive both of some 1000000 and 1000000, respectively. However, in the cash flow statement, it does not have an effect because also the previous year's numbers have been restated. So the IFRS 15 application does not have an impact on our free operating cash flow. What will have an impact is next year when we will apply IFRS 16 lease accounting because then the leases that will be on balance sheet will have, we will split those into an interest portion and also a expense portion. So this will positively impact the nominal amount of free operating cash flow and we will give you a reconciliation at this point in time But, I think currently, I can say that there's no impact on our free operating cash flow, but I'm happy, of course, to take this question off line. Is should you have meant some other effects that I was not correctly capturing here? No, I think that that's fair enough. I wasn't clear about the base that was that was cleaned as well. Thank you. And the next question comes from Georgina Evamoto, who's calling from Goldman Sachs. Please state your name, company name followed by your question. Hi, yeah, this is Georgina from Goldman Sachs here. Hi, Marcus. Hi, Thomas. I've just got one question. So thank you for the confirmation that your MDI margin is potentially flat if not even higher year over year in 2018. I remember in the past you've talked about a through cycle EBITDA margin for MDI of around 20%. I was just wondering how you're thinking about the MDI margin or contribution for 2019. So given your expectations for supply and demand, would you expect a similar contribution in 2019 or are there reasons it could be higher or lower? Thanks. Hi, Georgina. This is Marcus. Thank you for your question. Very clearly and shortly stated, we believe it will be flat compared to 2017 2018. Okay. And the next question comes from isha Sharma, who's calling from MainFirst. Hi. This is Lisa Sharma from MainFirst. I have two quick questions, please. So we see that there is a high EBITDA volume leverage this time. Could you please explain that? And if it is sustainable and should we consider it as a as going forward to be the norm. And the other question is that in the other items, there are higher maintenance and logistics costs to the tune of EUR 100,000,000, are these also recurring? Should we consider them also for the second half and twenty nineteen going forward? Thank you. Well, isha, first of all, with respect to the volume leverage, yes, we do think we will have a significant volume going forward. I think as we stated in the Capital Markets Day, based on the growth rate that we're expecting of 4% that should translate into an EBITDA number of 1000000 to 1000000 uplift per year. And as Marcus also said, if you accumulate that, yet that We're looking at over 1,000,000,000 over the next 5 years. So yes, the answer is that this will be sustainable. And then I think your questions on the other line items. So as I said, it will be slightly negative also in Q3. So yes, we will face some cost increases, albeit to lower extent than what we have seen in the first half of the year. All right. Thank you so much. Thank you. And we have a follow-up question from Patrick Lambert He's calling from Raymond James. Over to you. Hi, Patrick number, Tremontje. Two quick ones. Just Could you update us on the before tomorrow's BASF numbers, the your your impression on their ramp up and the impact on TDI, which doesn't seem to be very big. But, yes, if you can, you can help us there. And second, update us also on the on your, your De Bottlenecking program. I think we were targeting some some 150 kiloton altogether available in 2018. If you could comment where we are also if you have started to use your swaps, in the first half? Yeah. Obviously, some people are very happy that you asked the second question, Patrick. So I try to answer the first one. So, we have similar information like you have, that's the only information we also have available. So I would suggest that you use the opportunity in tomorrow's BASF call to raise the question again. And now I'm handing over to Thomas. With respect to our debottlenecking, I think I can just confirm that all the projects that we have stated are fully on track. I mean, specifically, we said there is an expansion of TDI of 20 KT in Dormang that is coming along. We have the MDI expansion of to 40 KT in Sao Jing and the 50 KT in terms of PCS expansion also this year. I think the next major thing that is see in the pipeline is our activities in Brunsbuttel, where we are essentially doubling the capacity of the plant from 200 KT to 400 KT and the timing is largely unchanged. So the technical installation be ready by the end of the year of this year, so that beginning 2019, this expansion will then also be put in place practically. So I think fully in line and on track with the statements that we have made on Audi bottlenecking. In the swaps? We are currently still let's say, net in swaddler. So the current net out swaddler does not has not yet started. So we still have opportunities from that perspective. Thank you. Thank And the next question comes from Chatham Udashi, who's calling from JP Morgan. Please state your name, company name followed by your question. Yeah, hi, Chethan from JPMorgan. Just a couple of questions. I'm sorry, I joined late. So apologies if this was already answered previously, but just reading some press reports, of course, the famous Isis over the last maybe few months have been more talks about MDI being substituted by some other material in construction and other end markets. Is that something you see much more prominently or now given that you've seen some moderation in MDI prices, is that sort of reversing? And the second question was on polycarbonate. You've been talking about increasing mix of resilient products. Is there a way for you to give us a sense of, if say, polycarbonate commodity polycarbonate pricing has moved, say, maybe 30%, forty percent? How has the pricing development been in the, say, more resilient part? I mean, just trying to assess if we've seen the same sort of margin uplift or pricing uplift in those specialty grades of polycarbonate? Thank you. So on the MDI, MDI substitution, I think it is true that some, industries which are, for example, doing insulation for buildings, trying to move to other technologies that are available. However, that has, happened to a very limited extent simply also due to the fact that that would mean investment into line. So you cannot just easily switch from A to B. That is a more long term shift And we must not forget that MDI and MDI raw materials are still producing the most effective insulation material that is currently let's say at a similar price range and other insulating materials available in the market. So that's why long term, we do not see that this will become a trend. It's just a short term measure that people try to shift due to limited availability. But mid to long term, we do not see that this is really going into a direction of substitution or full replacement. So to your second question in terms of polycarbonate, We have seen that there is actually an ever increasing total higher price level in recent quarters, but it also means that the high resilient that you actually mentioned, selling prices, move down and up slower. So that is exactly the nature of resilience does not necessarily mean that the overall price level will go significantly up at given point in time, like now, But it means that if, overall, let's say the market demand, for example, dropping a little bit or the market demand is increasing. Then we have a similar pattern like in the coatings adhesives and specialty business where we see just more stable margins, more stable pricing overall materials. So from that perspective, if you look at the current price range, We have had grades that we sell for per kilogram. And at the same time, our specialty grades going up to per kilogram of polycarbonate. So that gives you a flavor. And these days, the lower end of the polycarbonate highly commoditized grades is still sold for a price at a little bit above, And the higher, I mean, highly specialized grades are still sold at So what we try to achieve here is to upgrade the overall margin and pricing quality of the entire product mix that we are having in the polycarbonates portfolio that is a path that we are continuously and successfully pushing forward. Thank you. Maybe can I follow-up on the auto market? Maybe I'm not sure has been asked, but we've seen over these recent days in the auto companies warning on raw materials and how they plan to sort of queen to suppliers more in the future. Is that something you noticed in your conversations with your customers in autos given the price increases they seem to be facing at this point? I think the majority of the price increases stems from the different raw materials in terms of steel, maybe also aluminum. And they have not yet focused, for example, on materials that we are producing. So we have not yet been approached by any of them in terms of those discussions. Actually, as we have stated also earlier, we continue to replace other materials mid to long term in the passenger vehicles in particular because our materials are lightweight materials. Our materials are upgrading the customer experience in terms of quality and how materials are also used, to replace, in a new propulsion system that means electric propulsion systems, other incumbent materials like metals because of higher design freedom, but also about contributing to the lightweight of the car and also in terms of the safety, for example, of car batteries. Thank you. And the next question comes from Laura Lopez from Baader Bank. Please state your name, your company name followed by your question. Good afternoon, Laura Lopez from Barahirbea. I only have one remaining question. So it's more like in a macro view. So we've heard also not only from the automotive industry, but also from electronics and in many industrial companies that are becoming more cautious with cycle and with demand also in Asia in the second half of the year. So how good is your visibility? How do you actually see at least until now how the construction is developing and also electronics and how can that maybe impact or put at risk what you're expecting for the remaining of the year? So more in a macro view? How do you see industries developing? And how big can the risk before you in the 3rd fourth quarter this year? Thank you. The way I would look at this is, you've seen our volumes grew 4.5% essentially in Q2. We see good momentum also going forward for the rest of the year. So as we stated, for the full year, we want to achieve low to mid single digit growth rate numbers. I think we're less concerned because we have a very broad base customer spectrum, we're essentially serving all the industries. And within the industries, we're specifically serving segments, which are highly innovative. As Marcus said, our focus is to do joint innovations and application development with our customers. So our materials cannot so easily being replaced to the country. They're actually replacing other materials. And therefore, our overall view is that unless there should be a major and massive decline in the economic activity worldwide, we're very confident that we have a solid Thank you. And we have a question now from Thomas Wrigglesworth, who's calling from Citi. Please state your name, your company name, followed by your question. Good afternoon, Marcus and Thomas. It's Tom Reguswehr from Citi. 2 questions, please. The first one is, on your co products, like caustic soda and the styrene monomer that you're producing, Could you just remind me how much of a contribution that's making to, say, 1st half results for 2018, I think that starting, one of my margins have been very strong. As of caustic soda prices, quite interested to know what your stats given your numbers. And then secondly, just on, I was wondering if you have felt the effects in the U. S. In the MDI market, forgive me if you've made this comment already. Given that there's a significant competitor outage that's going on at the moment. And any comments around the Chinese environmental constraints and whether you feel day of they're actually coming to a, but they're still having an impact or if they're actually beginning to ease? Well, maybe with respect to the intermediate, I mean, just to give you a rough impression, I would say the contribution in terms of the EBIT that we're generating with those materials is a mid to high double digit EBIT numbers. And they are then attributed to the respective segments so that you don't find them all in the other segments in the reconciliation. And that, of course, that number that I was just giving you, that's on a yearly basis, just as a ballpark number. Okay. Thank you. So talking about, obviously, the unplanned shutdown of one of the plants in the U. S. Of a major player. We have, witnessed that there is some let's say, nervousness in the market, just due to, let's say, the mere fact, but we have not witnessed any impact in terms of people approaching us or any impact in terms of price movements or things like that for the time being. Okay. And in China, I think, is your sense that the Chinese constraints still in place? Or is, or is there a sign that actually that they're going to abate their impact on MDIN and polycarbonate? Currently, we don't see any constraints. So, if you would like to elaborate a bit further, what this let's say statement or assumption is based on? We can we'll take this offline, I thought, but that we were seeing that environmental constraints limiting people's ability to produce? No. Understood. Thank you very much. Thank you. And the next question comes from Geoff Hair calling from UBS London. Just on the buyback, at the rates you're going, you probably will be finished the buyback, could be finished the buyback by the end of this year. Is that a reasonable assumption to make? And what can we expect once that's done? If you do get it done quicker than the mid-twenty 19 target? Well, on the buyback, I think you're you've seen that we're well underway. We will very soon finish the second tranche of the buyback And then I think nobody should be surprised if relatively quickly we then embark on a third tranche of the buyback. However, that does not change the overall frame and that is we want to do up to 1,000,000,000 or 10 percent, whatever is reached earlier. And the timeframe of that is up to middle of 2019. So I think that does not change. Thank you. As a reminder, please ensure the mute function Mr. Kohler, there are no further questions at this time. Please continue with any other points you today. Thank you very much. Thank you all for your questions. I hope we have answered everything. If you have more questions, don't hesitate to call the IR department. And otherwise, we will talk latest with our Q3 conference call then in October. See you all in between, perhaps see you. Bye bye.