Earnings Call: Q2 2021

Aug 6, 2021

Ladies and gentlemen, thank you for standing by. Welcome to the Covestro Earnings Call on the Q2 2021 results. The company is represented by Doctor. Markus Steilemann, CEO Doctor. Thomas Tepper, CFO and Ronald Kohler, Investor Relations. During the presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. Now, I'd like to turn the conference over to Ronald Kuehler. Please go ahead, sir. Yes. Good afternoon from my side, and thank you for joining our Q2 earnings call. As usually, we have posted all the financial reports, the earnings call presentation on our Investor Relations website. And I want to make you aware of the Safe Harbor statement, which is inside of that. With that, I directly turn over to Markus. Thank you, Ronald, and a very warm welcome to everyone on the phone from my side. Good day and good morning. The Q2 2021 performance was well above previous year. Like in the Q1, The prior year impacted by the coronavirus pandemic, hence, we have a low basis for comparison. The trend Our dynamic demand recovery and increasing product margins that started in 2020 in the second half is, however, continuing. We see strong earnings momentum to this day and well into the Q3. In total, the 2nd quarter call volumes were 35% above previous year. The EBITDA of €870,000,000 is in line with the 2nd quarter guidance of €730,000,000 to €870,000,000 and as pre announced on July 12. We also have seen a very strong free operating cash flow of EUR 374,000,000 After closing of the RFM acquisition on April 1, this business is now fully consolidated for the first time in Covestro numbers. We also further raised our earnings guidance for full year 2021 as announced on July 12. With that, We turn to the next page. The core volumes increased strongly against an exceptionally weak prior year with Peak of pandemics impact in Europe, North America and parts of Asia. While demand rebound continued dynamically, The current quarter's growth potential was limited by constrained product availability. Let's take a look by the volume development by regions. No comparable figures, strong volume rebound of 48% year on year in Europe. The actual volume growth was limited by constrained polyols availability. We see a similar picture in North America, strong underlying demand growth of almost 38% year on year. The actual volume growth was also here limited by the constrained feedstock supply. The volume rebound in Asia Pacific came in at 22% year on year. In China, as you might remember, the Q1 2020 Had been a pandemic related trough, and the Q2 2020 had already seen a demand recovery. Now let's take a view on the volumes by an industry perspective. The ranking is by kilotons sold to specific industries. So we start with furniture, which was up 20% year on year, driven by demand in Europe and North America. Construction was up 13% year on year globally, driven by good demand in Europe as well as Asia Pacific, while North America growth was limited by supply constraints of MDI and polyols. In the Automotive and Transportation sector, we saw strong demand growth in all regions, plus 88% year on year. Diverse Industries. Here we also saw a strong increase of 55% year on year as the total RFM volumes have been allocated for first consolidation. Underlying volumes here grew at 14% year on year. With that, I would like to hand over to Thomas. Yes. Thank you, Markus. And also from my side, a very warm welcome to everybody on the call. I'm on Page 4 of the presentation, which shows you the sales bridge for the quarter. So as you can see, the sales increased 83.5% year over year, driven by higher prices and also higher volumes in all three segments. And obviously, that is comparing the numbers to an admittedly weak quarter 2 in 2020. Now the volume effect contributed 29%. That is the CHF626,000,000 that you see in the bridge, And that is excluding the effect from the RFM consolidation. Now remember, the core volume growth, excluding RFM, of approximately 25 That Marcus was just mentioning, that is the core volumes and the difference to the sales number is explained by a favorable Regional product mix compared to prior year. Higher selling prices drove our sales by 45.9%. That is the CHF 9 €89,000,000 that you see in the bridge and the price effect mainly came from PUR and PCS. FX is negative 5.4% year over year and that reflects the weakness of the U. S. Dollar, but also the Japanese yen, the Chinese renminbi and the Indian rupee against the euro. And then last but not least, you see the portfolio effect. So by consolidating the acquired RFM business, our portfolio increased our sales by 14%. And this number is equivalent to the CHF 301,000,000 sales from RFM. So with that, let's turn the page to Page number 5, which shows you the EBITDA bridge. Our EBITDA grew by a factor of more than 6 times compared to prior year to €817,000,000 And that number is fully in line with our quarterly guidance. As you can also see, the volume growth contributed strongly with an attractive volume leverage of 49%, and the pricing delta is also strongly positive with The plus €588,000,000 and the large majority of that number is contributed by PUR against. Now what I would like to specifically highlight is the other items bucket because it includes 3 main effects, which I would like to you to look at. So first of all, it includes a negative effect of CHF 122,000,000 which is the impact from higher provisions for variable compensation. Secondly, it includes a negative €35,000,000 effect, Onetime effects, which are related to the first time consolidation of the acquired RFM business. And thirdly, it contains a negative €10,000,000 onetime effect related to our LEAP transformation program. So what I would like to stress is that we continue our high Cost discipline and you can see that the negative other items are fully explained by onetime effects and that means that we are maintaining our fixed Cost discipline absolutely unchanged. And so with that, I would like to hand it back to Markus for the individual business unit results. Yes. Thank you, Thomas. Before we do so, let's just take a quick look once again at the group results. In the Q2 of 2021, Covestro posted the highest quarterly sales in its history. You can look from a sequential perspective that the increase And margins in this revenue was mainly driven by higher prices of €400,000,000 and the RFM contribution of €300,000,000 Operationally, we have seen increasing earnings momentum that already started in the second half of twenty twenty and continues beyond today well into the Q3. Sequentially, the EBITDA margin for the group declined. Main reason is the effect from first time consolidation of acquired RFM businesses. While RFM contributed to sales, the contribution to EBITDA was net positive but minor. We achieved an EBITDA margin of 20.7 percent in Q2 2021 and remained with this on an attractive level and still well below historic peak of 28.1 percent in the Q1 of 2018. Let's now turn on the next page and look at the first segment, polyurethanes. The core volume growth of 27.8% year on year was driven by dynamic rebound of demand from all key customer industries compared to a weak prior year. Based on preliminary industry data, MDI as well as TDI industry demand grew strongly, double digit rates in Q1 and Q2 Q2 versus prior year and single digit rates above pre pandemic levels of 2019. Of all Covestro segments, however, POR was most burdened by constrained product availability, mainly in the United States and Europe. Limited feedstock supply remained a key constraint for us to produce sufficient products to meet very strong underlying customer demand. In the U. S, we meanwhile lifted force majeure for polyols on June 1, for TDI on July 1, as well as for some MDI grades on July 14. For MDI in Europe, we declared force majeure on July 2 due to an unforeseen production issue beyond our control in Brunsbuttel, Germany. This is expected to last several weeks and to burden group core volume growth by several percentage points in the Q3. Compared to prior year, EBITDA increased mainly due to a strong positive pricing delta in all three product routes. EBITDA margins of 24.6 percent are still well below historic peaks of 32.7%, which happened in the Q1 of 2018. Now on the next page, let's turn to polycarbonates. Here, the core volume growth came in at 15.4% year on year. Key driver was strong demand recovery from automotive and transportation industry compared to very weak prior year. Globally, double digit volume growth rates in Automotive and Transportation and Electro and Electronics led to improving product mix and more sales in specialty high margin rates. Higher prices and higher volumes equally drove sales growth year on year. Positive pricing delta and higher volumes also drove year on year EBITDA growth, compensating higher provisions for variable compensation and defending high margins. EBITDA margin of 25 0.6% in the Q2 2021 are still well below historic peak of 30.3% in the Q3 of 2018. The industry trading conditions expected to remain very attractive in the Q3. Let's turn to Coatings, Adhesives and Specialties. Here on the next page, you see very high volume growth of 133 point 5% year on year, they are off 100 percentage points from first time consolidation on RFM. Likewise, Portfolio effect substantially drove up sales. Similar to PCS, underlying volume growth of CAS driven by strong demand recovery from automotive and transportation industry comparing to very weak prior year. Growth potential was limited, however, as our access to certain feedstock remained constrained. Regionally, most dynamic growth in Europe, driven by Automotive, Transport as well as Furniture and Wood Applications. Compared to prior year, EBITDA more than It's mainly due to higher volumes and a notable positive pricing delta compensating higher provisions for variable compensation. The EBITDA also includes negative one time effects of minus €35,000,000 related to RFM. Excluding effects from first time consolidation of RFM, EBITDA is at €169,000,000 and margins at 18.3%. The integration of the acquired RFM business is working smoothly since the closing date on April 1. The realization of synergies is developing ahead of plan. And now back to Thomas. Yes. Let's have a look at the cash flow, which you can see on Page 10 of the presentation. We generated CHF 374,000,000 free operating cash flow in Q2, and as you can see in the graph, CHF 692,000,000 in the first half of the year. And obviously, both values are well above the prior year. So the cash generation in the first half is driven by significantly higher earnings, which then more than compensated Negative cash effects from higher working capital, which you find in the table below the graph. So talking about the working capital. Our working capital to Sales ratio stood at 20.9%. That is virtually unchanged versus the end of Q1 2021. And there's 2 important factors which led to this relatively high number. So first, higher feedstock and product prices, which obviously push up the euro values. And secondly, it's simply a mathematical effect if you compare a quarter end working capital, which is based on high prices with a 12 month Sales run rate, which includes a relatively weaker second half of twenty twenty. If you look further down in the table, you Find our CapEx of €289,000,000 for the first half of the year, which is on budget and also in line with our full year 20 21 guidance. And you can see that we paid income taxes of €176,000,000 Now obviously, there is some Time lag because the tax authorities usually use the prior quarter's earnings to determine the income taxes to be paid. And so for 2021, for the full year, we expect our cash tax rate to be somewhat below the P and L tax rate, which again we guided to be between 24% 26%. Last item in the table, the other effect That reflects higher provisions for variable compensation. So on this one, remember, we are building provisions Every quarter in our P and L, and therefore, you see them in the EBITDA, but the cash out will only occur in the Q2 of 2022 for the full year 2021. Now the impact Of that mechanism, on EBITDA this year will be around €500,000,000 negative and that of course also includes the RFM business. So with that, let's turn to the next page. That's Page 11, and you have the balance sheet details. I think my comment would be very simple. Our balance sheet remains strong also after the closing of the RFM acquisition. We transferred the purchasing price of €1,500,000,000 as Plan to DSM on closing day, which was April 1. Nevertheless, despite the payment, our balance sheet ratios remain Strong. You can see that the ratio of total net debt to EBITDA, and that is including our pensions pension liabilities, Stands at 1.2x at the end of this quarter compared to 2.9x a year ago. And you also note from the graph that our pension provisions decreased versus the year end of 2020 by €431,000,000 And that is mainly due to higher discount rates in Germany. So with that, let's go to Page 12, where you have the EBITDA history, so to speak. We raised our EBITDA guidance to a corridor of €2,700,000,000 to €3,100,000,000 on July 12. And obviously, we fully confirm that number today. Now the key reason for the update is the better than previously Expected margin outlook for the second half of the year. And with that, our EBITDA guidance now is well above the mid cycle earnings level, which we have Painted here with a dotted line. What we have also indicated with one little dot is the mark to market estimate, which remains at about €3,100,000,000 if you base it on June market data. And obviously, also now the upper end of the corridor It's now on par with that mark to market estimate. So that also means that our midpoint, which is then €2,900,000,000 assumes that margin will come down to some extent during the second half of the year. And what I would also like to mention here is that Our guidance includes a net earnings contribution from RFM that is expected to be slightly positive this year, including the integration costs and also the inventory step ups. And our current planning also assumes Some shifts of integration costs from 2021 into 2022. But what I would like To say at this point is that this does not mean that we are delaying the synergy realization. As Marcus already said, we are On plan, if not slightly ahead of plan with the synergy realization, but the occurrence of the cost in our P and L Will simply happen a little later. And last comment on that page would be that the full year outlook, So the corridor of 2.7% to 3.1% now also includes the expected negative one time effects in connection with the LEAP transformation program. So the first half of the year includes €26,000,000 negative in the EBITDA. And for the second half of this year, We also assume another double digit €1,000,000 amount. And as I said, this total negative LEAP effect is now included And our increased earnings guidance. So with that, let's go to page 13, Talking about guidance, as I said, we confirm our base earnings outlook for 2021 as published on July 12. If you look at the table, let's start with core volume growth. Core volume growth is guided to be between 10% 15 Including 6 percentage points from RFM. However, given the constraints that we have in some of our production sites, It is quite likely that we will end up in the lower half of the core volume growth guidance range. And on that topic, I can say that the force majeure for MDI and Brunsbuttel will cost us again several percentage points of growth in Q3. And therefore, we expect that the volumes, excluding RFM, will decline year on year in Q3. However, please note that Q3 2020 represents a relatively strong basis because we achieved in this quarter a positive growth rate compared to 20 'nineteen. And also on that topic, unfortunately, also the upcoming hurricane season in the U. S. Represents another risk for that guidance. So let's look at the guidance for our EBITDA in Q3. We have indicated A guidance range of €760,000,000 to €860,000,000 EBITDA for Q3 And the midpoint of that range of €810,000,000 for Q3 assumes a slightly deteriorating pricing delta compared to Q2, which should then be compensated by lower RFM related one offs and also a planned quarter on quarter volume growth. Last comment on this page is that the implicit sequential EBITDA decline For Q4, it's driven by the usual seasonality and also a further deteriorating margin environment. However, I would like to emphasize that the visibility on the margins is still very limited, and our markets are benefiting From a very strong demand rebound and the effective industry utilization remains high. And therefore, The margins could also hold up for much longer than initially assumed. And with that statement, I would like to hand it back to Markus. Yes. Thanks a lot, Thomas. And let me just put together a few highlights before we then enter into the Q and A session. We have seen strong earnings momentum that started already in the second half of last year, so 2020, And that continues to date and well into the Q3. Let me highlight a few more details. The volume growth reflects on the one hand strong rebound And also on the other hand, first time consolidation of the acquired RFM business, however, was limited by constraint in product availability. At the same time, you can say that we saw a soaring EBITDA, mainly driven by positive pricing delta and for sure, to just mention volume growth with the continued momentum into the Q3 of 2021. At the same time, that came with a strong cash generation based on the high earnings as well as positive cash phasing effects that Thomas just alluded to a while ago. The raised 2021 earnings outlook can therefore be confirmed and is now well above mid cycle levels. And last but not least, the transformation program LEAP is very well on track with the new organizational setup already being implemented on July 1 as of this year. With that, thank you very much for your patience. And I'm now happy we are now happy to take your questions. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. And the first question comes from Christian Faitz from Kepler Cheuvreux. Over to you. Yes. Thank you very much. Good afternoon, Marcos, Thomas, Ronald and everybody else on the call. Congrats on the results. Two questions from my side as a start. First of all, can you please share with us some more details on the Brunsbitel Forsmacher? When could you envisage a restart there? And then second question, assuming that your cash flow generation continues as envisaged for the year and even beyond. Can you remind us on your priorities on your uses of cash? In that context, What is your current thinking around the MDI plant in the U. S? Thank you. So maybe Christian, this is Thomas. Let me start with the second question. So in terms of use of cash, our priorities have not changed. Remember, there's a chart where we indicate the 4 key pillars in terms of priorities from the left to the right. And number 1 is our CapEx Spending, and I'll share some more thoughts on that in just a minute. Number 2 is an attractive dividend to our shareholders. And you know that we have just Quite recently changed our dividend policy to a payout ratio of anything between 35% 55%, Which obviously in a good year could yield to a significantly higher dividend than also in the past. And we do think that It makes a lot of sense that in good years, our investors should participate in our strong cash generation, Leading to a very attractive yield also, cash yield on the shares. Number 3, we do think that Portfolio measures could be an option. I think the RFM transaction so far proves to run Quite successfully and also smoothly, and we're fully on track to generate the synergies. So if we should find further opportunities to also grow That would be definitely an option. But I should also say there's currently nothing concretely in the pipeline or On the plate or on our desk to be decided. But of course, it is something which is part of our strategy. And last but not least, Of course, if there's excess cash, we might also think about things like A share buyback, but currently, quite frankly, this is nothing which we would contemplate because In the future, we would only do this in a very opportunistic and anti cyclical way. And therefore, currently, I would say this is not in the cards. Now on your question on MDI, also nothing new to report. We will take a decision on that. As we always said in the second half of the year, we're currently in the second half. So you should expect the decision to be taken rather towards the end of this year. And we will then decide if and when to continue the MDI500 investment. So I think that would be My comments on the use of cash, Christian. And then maybe over to Markus for the Brunsbuttel question. Yes, Christian, this is Markus. Good to hear you. So on Brunsvedere, the restart actually has just happened. However, we have To realize that volumes will stay constrained simply due to the low inventory levels and also additionally planned and required maintenance shutdowns in August. Therefore, the loss of volumes will continue for some time compared to normal operations and will burden our Q3 In terms of volume growth compared to previous year's level, again, a very strong comparison basis by several percentage points on a group level. However, all in all, let's say, all these developments have been somewhat baked into the full year guidance. Thank you very much. You're welcome. The next question The session comes from Georgina Iwamoto from Goldman Sachs. The floor is yours. Hi. Good afternoon, Markus and Thomas. I've got so many questions. I'm trying to figure out which 2 to ask you. Okay. So the first one is there have been a lot of force measures this year. I was just wondering how much volume do you think you've missed out on? Or put another way, how much should volumes go next year if you think You've got better capacity availability. And on the back of that, have you been able to carry out as much maintenance as you'd planned this year? Or is that something that we should be thinking about for 2022 as well? And then my second question is on pricing in CASK, a huge ramp up, 13% in the second quarter. Is that a positive surprise to you? Are you aggressively Seguing pricing actions and is it sustainable? Thanks. Georgina, this is Thomas. So maybe on your first question in terms of what is the impact of the force Yes. Admittedly, it we had to cope with some more technical Challenges than we had anticipated, some of which were really externally driven like the winter storm Yuri, but also like Technical issues at our suppliers, etcetera, etcetera. So yes, I think it's fair to say that in terms of the core volume growth, We had originally planned with a higher number. And if I should quantify that, I think This leads you back to the core volume growth range, which I had just given you. So the 10% to 15% is Still valid. Deduct the 6 percentage points from RFM, which we think will fully come through. And then the Vestas organic and our indication would be that we would rather end up in the lower half, If not at the lower end of that range, and that just gives you the indication that we lost several percentage points Due to those unplanned outages, as I said, some of which happened at our site, some of which happened at other sites. What I can reconfirm is there's no shift. So but I should also say, and you're right, this is, of course, a potential for next year in terms of growth because it should not Happened to the same extent. And secondly, we have not shifted any maintenance plans, and 2021 was A normal year in terms of maintenance shutdowns. So this is year over year, not a special effect that I would expect. And with that, maybe over to Markus for the CASK question. Yes. Thanks a lot, Georgina, for the question. Also very warm welcome from my side. If you look at CASK, this is a result of hard work and that hard work has already started end of last year with the clear targeting and also Aiming for higher prices and starting very tough negotiations also here with our customers. They have then over time led To new contracts and have then also led to the results that you see with prices being, let's say, I would say, significantly And customers now paying higher prices for our products. And that's why I would say, will that last? I'm quite confident that it will last The next negotiations, but then we have to for sure also look how the overall market condition is developing in that context. For now, Those prices have been, let's say, fixed. Those prices have been agreed by the respective contractual situation and obligation. And we were in that context not only able to say pass on in some of the more commoditized product groups, Let's say increasing raw material prices, but also overcompensate those respective prices. So that's why I'm also overall quite confident that we will, Let's say see those prices to last a little bit longer. That's great. Thank you. And now we're coming to the next questioner. It is Daniel Chung from Redburn. Over to you. Thanks. Hi, Marcus, Thomas Ronald. Just a couple from my end. So the first It'd be great to get your views on what you're seeing at your customers in terms of their inventory levels. And maybe you can touch on your assumptions on whether we're expecting potentially a big phase of customer restocking for the end of the year or maybe this might roll into the next? And then secondly, could you comment or even quantify the type of lead times your customers are experiencing And how that's developed? Maybe you can translate that to your order books going into this coming quarter. Thanks. Well, Daniel, thanks for the question. I would like to take the first one and maybe then Thomas takes the second one. So overall, we see since mid of last year actually this growing momentum of customer demand And was also with that all the developments that we have just outlined to you a couple of minutes ago. That means, yes, we See that there is customers who try to maybe order more, some customers even panicking and try to stock material. However, they simply do not get their hands on the material. So given that some customers try to do that, given that they have not made so many, let's say, positive experiences or were not simply Able to get their hands around material, we think that current demand patterns are really reflecting the true demand that is out there or To put it better, we are still not able to supply all the demand that is out there. And that is Also, let's say, continuing well into the Q3 as we have outlined because that is the main driver For the current momentum, there's very strong demand across all of our industries and also across regions. So having said that, We do not see that restocking or stock building plays a major role in the Current overall trading environment, whether this will change actually towards year end, big question mark, because at least from our perspective And from today's perspective, as far as we can, let's say, see through our order books, the demand is still strong. The supply is still subdued. And from that perspective, it is very difficult to judge what will happen towards year end. The only region where we see, let's say, a little bit more normalization in terms of supply and demand is in China. And therefore, we expect that in China, let's say, this tight situation at one point in time will normalize. So I hope that helps. And with that, I would like to hand over to Thomas. Yes. Maybe Daniel, to your second question, If I got it correctly, it was about the lead times of our customers. So the lead times that we're seeing on average across all the products is about 6 2 to 8 weeks. And that is also the visibility that we have in terms of our sales and EBITDA development. Now that number is pretty much unchanged or has been unchanged over the last quarters. And therefore, Nothing really big has changed also in terms of our visibility. The only thing that is maybe worth highlighting is the automotive industry, where I We can clearly see and say that we are sold out until the end both for Europe and also for the U. S. Fantastic. That's super helpful, guys. Before we come to the next questioner, I would like to remind you, if you would like to ask a question, please press 9 and star on your telephone And with this, we come to the next questioner. It is Charlie Webb from Morgan Stanley. Over to you. Afternoon, gentlemen. Thank you very much for taking the time. 2 for me. So first off, just on polycarbonates. Obviously, we were talking about And risk normalization as some backward integrated new plants come on stream. So just any update in terms of what you see in polycarbonate As you had another fairly robust quarter in Q2, just help us understand how we should be thinking about the second half and into next year For the margins as that new capacity comes into the market? And then just secondly, just one on demand In terms of what you're seeing on the ground in China, obviously, you say the supply and demand across commodities is maybe a bit more balanced than you see elsewhere in the world. But just How is demand in China right now? Are things softening off the highs? Or are you still seeing very strong activity? Yes, Charlie, this is Markus speaking. Very good to hear you. So on the first question on polycarbonates, 3 new plants have been announced. However, according to, let's say, market sources and publicly available information, only one so far Did start up, but is experiencing significant quality problems. And the 2 others are still, let's say, announced And expected, but could also be delayed. It is always and we try to reiterate that call by call. One thing is announcing. The other thing is getting it built. And the third thing is operating it successfully. And the fourth thing is then operating it, Let's say, under economically viable conditions, which currently is a challenge simply given the fact that one of the key raw materials, bisphenol A, It's still in short supply and we produce bisphenol A on our own and use it almost entirely captively, Whereas most of the or at least a large extent of the newly built polycarbonate capacity Was not backwards integrated into Bisphenol A, which led to the fact that we had capacity for polycarbonates. However, There was limited bisphenol A supply and that situation seems to continue for a while even though bisphenol A Plants are not that technically demanding compared to a polycarbonate MDI or TDI plant. It is still it still takes time To build the respective capacity. So long story short, next to the announcement, we have not yet seen all the capacity on paper Really showing up in reality. And the one that has shown up is still, let's say, dealing with technical challenges means quality problems towards the customer. On the second bit, on the China demand and supply, It is the region with most excess capacities that's clear, but also strong long term demand growth. That means from time to time short term We can have respective over capacities. And today, given all the challenges that I just described and the demand as well as available supply, I would assume that currently the market in China is roughly balanced. However, we have still tight markets, for example, in polycarbonates And oversupply markets are, let's say, observable more in the TDI product groups. So that's how I would currently look at the trading situation there. That's helpful. Thank you very much. Welcome. The next question The next question comes from Thomas Swoboda from Societe Generale. I will ask Three questions, please. Firstly, a follow-up on CASK. Could you just update us, if you can, on the Average length of the new contracts, that would be very helpful. Secondly, on LEAP, You target EUR 200,000,000 cost savings over the next 2 years. I can imagine it is getting tougher Get those cost savings in the current environment. So just a question, are you still sticking to the €200,000,000 And if you could give us a hint on phasing, if possible. And thirdly, can I pick your brain on MDI? I On one of the previous calls, you said if Baytown should come from Covestro, it would be based on renewable Raw materials. I know you don't want to talk about the possible investment yet. It's still the question, Is it feasible over the next 5 years, let's say, to have enough renewable raw materials Are available in this region to run a worldscape plants? Thank you. Thomas, this is Thomas. Let me maybe start with your second question on LEAP. So first of all, the most important thing about LEAP, of course, is the new organizational structure that we have given ourselves, And that is now fully in effect since July 1. And we will then also report in that new structure for the first time With our Q3 results and the entire purpose of this is really to structure the company such that more commoditized materials that have Totally different market and customer dynamics are grouped together, while the solutions and specialties that have different success factors and different Ways to operate, especially in the supply chains, are also grouped together so that those businesses are steered in the most entrepreneurial way and that we gain Customer accessibility and proximity through that structure. But also we said, because we do this, because we're giving ourselves an optimal The setup that should also help us to keep our fixed costs flat relative to the 2020 level All the way until 2023. And just a couple of comments on that, keep fixed costs flat. So first of all, remember, 2020 was a very low level because with our cost saving and contingency program, we saved €360,000,000 €220,000,000 of that was, hard savings against 2019 and the rest was Cost avoidance, but the absolute fixed cost in 2020 was significantly lower than in 2019. So that is the starting point. And what we've guided is that there might be some cost increase this year between €100,000,000 200,000,000 Simply because of some of the measures, which were short term in nature would have to be relaxed. And we will then compensate that with, again, savings in the years 2022 and 2023 that will again then bring us to the 2020 Fixed cost level. I would say so far we're tracking pretty successfully in terms of cost development you've seen in the EBITDA bridge that The only other items were one off costs. And therefore, we might be doing even slightly better than The €100,000,000 to €200,000,000 increase this year. So let's see at the end of this year where we end up. But that is With respect to LEAP, I think we're well on track. And yes, the target remains unchanged to keep fixed costs flat all the way until 2023. So with that, maybe over to Markus. Yes. Thanks, Thomas, and Welcome also from my side. Thanks for your questions. So back to the Coatings and Adhesives and Specialty business. If you look at the contracts, you can say that normally they last for 3 months, most of them for 6 months, but we also have some Let's go for example over a period of 3 years just to highlight one here in the Specialty Films unit. And having said that, It is very difficult to say what the real average is in terms of revenue versus individual contract versus volume. But just to give you a flavor, that business is normally the business with the longest contracts in our entire portfolio amongst those three segments. Now switching gears towards your statement around, let's say, this assumed NDI 500 investment. I don't know where actually you have caught, let's say, that statement. But it's very important to look at the MDI investment from a very general perspective what opportunities do we have in very general terms and that is not only related to the MDI investment. We have already the opportunity to partially get access to renewable raw materials in the market. It could be used As a complete drop in for and when I mean complete, I mean in terms of specification, a complete drop in For petrochemical based raw materials. However, the availability of those raw materials is still rather limited. So we're talking about a very, very low, let's say, below 1% range that we would be able to currently actually get access to In the raw materials market. However, that availability is increasing. At least we're expecting this availability to increase over the next years. And that would be then regardless of we would build if we would build a new plant on MDI or we would just use it as a drop in solution Of sustainable raw materials for our existing plants to be clear on that one. And the second bit is, the second, Let's say the different side of the same coin on renewable raw materials is renewable energy and we need also renewable energy supply to make our overall operations more sustainable. And here we're looking currently into each and every opportunity in different regions with the different, Let's say, characteristics of the respective energy supply markets. And I have to tell you, it is not easy. It's not necessarily only matter of supply, but also in terms of risk exposure and so on and so forth. So long story short, on renewable raw materials, No, it is not that in case we would invest and once again Thomas alluded to that in MDI this is not 100% based on renewable materials And we have still the opportunity to go for renewable materials in existing plants. However, the availability is still the limiting factor. And the second bit is we're also looking into renewable energy for our entire operations, but that is also a plan that we're very diligently currently working on. But so far, no large update on that one. It's very helpful. Thank you so much. You're welcome. Ladies and gentlemen, last chance for your questions. There are no further questions. And with this, I hand back to Ronald Kohler. Please continue with any other points you wish to raise. Yes. Thank you for joining the conference call, and thank you for all the questions. You will have a further opportunity to ask us more questions on our virtual investor conference, which we will undertake at 28th September. And I'm happy to see you there virtually, obviously, and to continue our discussion. And thank you for today, and goodbye. Ladies and gentlemen, this concludes the earnings call of Covestro, thank you for participating. You may now disconnect.