Ladies and gentlemen, thank you for standing by. Welcome to the Covestro Earnings Call on the Q3 2021 Results. The company is represented by Dr. Markus Steilemann, CEO, Dr. Thomas Toepfer, CFO, and Ronald Köhler, Investor Relations. During the presentation, all participants will be in a listen-only mode. The presentation will be followed by question and answer session. If any participant has difficulty hearing the conference, please press the star key followed by zero on your telephone for operator assistance. I would now like to turn the conference over to Ronald Köhler. Please go ahead, sir.
Good afternoon and good morning to our American investors. Thank you for joining us for the Q3 conference call, 2021. We will have the report and the earnings call presentation at our website, and you can download it. I assume you have read our safe harbor statement. With that, I will directly turn it over to Markus.
Good morning and good day to everyone. Thanks, Ronald, also, and a very warm welcome from my side. We are now on page number two, which is the financial highlights for the Q3 2021. In the Q3 of 2021, our earnings performance was well above previous year. In the prior year quarter, as you know, we had already seen a strong volume rebound from the coronavirus pandemic. We also see a continued solid demand in key industries on a global scale. The strong earnings momentum continues to this day and also well into the Q4. The EBITDA of EUR 862 million came in at the upper end of our Q3 guidance of EUR 760 million-EUR 860 million.
At the same time, there's a solid free operating cash flow of EUR 381 million, and this is slightly above the prior year, only held back by valuation-driven increase of working capital. Year to date, the earnings per share are at EUR 6.80, up from EUR 0.80 at the first nine months in 2020. On July 1st, we also implemented our new segment and reporting structure, and we now have two segments with Performance Materials and Solutions & Specialties. Today, we also raised our earnings guidance for the full year 2021. Let's turn pages. The solid demand recovery that continues on a global basis. Year to date, we have seen a solid demand recovery from prior year impacted by the coronavirus pandemic.
There has been solid industry demand, and that applies globally as well as in our three key regions. The table shows the full year demand estimates for our key industries and respective important sub-industries. The expected demand growth in all key industries for the full year 2021 is well above the full year 2020 values. Please compare for this purpose the middle column with the left column on the chart. The industry data are largely consistent also with our customer feedback. With that, please turn to the next page. While the global demand development is positive, the growth potential of our core volumes was limited. Why? The level of unplanned constraint to product availability in 2021 is significantly higher than normal, and the chart lists some key single adverse effects in total limiting our core volume growth by around 6 percentage points this year.
Let me go through the four major points. First, refilling inventories, especially for polycarbonate products, to improve future availability. That is estimated to contribute a full year impact of approximately 3%. Second, making up pandemic-related delays of scheduled maintenance shutdowns, and that leads to above average maintenance activities in 2021. This contributes around approximately for the full year 1% of volume growth. Third, a large unplanned shutdown of MDI plant in Brunsbüttel is assessed to have an impact for the full year of approximately -1%. By the way, we have just lifted the force majeure on the MDI production in Brunsbüttel. Fourth, last but not least, the U.S. winter storm Uri that happened this year in February and its consequences on the U.S. supply chains has approximately an impact of 1% for the full year 2021.
To put this into perspective, four negative effects eat up 6% positive core volume growth from the acquired RFM business. In 2021, constraints are at the same time an opportunity to grow core volumes mid- to high-single-digit in the next year, 2022. Let's turn to page number five. As you can see on the chart, core volume growth of only 0.8% in Q3 2021 reflects two things, that a solid customer demand on the one hand meets a constrained product availability on the other hand. Let me guide you through the volume development by our key industries, ranking by kilotons sold. In furniture and wood, we have seen a decline of -17%. The solid demand was there, yet constrained by TDI and polyols supply and availability.
Secondly, on construction, we have seen -11%. Again, a solid demand situation, but constrained MDI and polycarbonate availability. Then auto and transportation, -6%, that still outperformed the global auto production decline of -16%, and that was driven by structural factors like, for example, the strong electric vehicle growth. Last but not least, E&E flat with 0% with a small growth opportunity here in Asia-Pacific. The volume development by the three regions and the key countries is comparable to the global picture that I have just provided. One positive exception, though, the higher core volume growth of +22.4% in Germany due to relatively low prior year base and highest relative contribution from the acquired RFM businesses compared to the United States as well as China. With that, I would like to hand over to Thomas, and we talk later.
Well, thank you, Markus, and also a very warm welcome from my side to everybody on the call. I'm on page six of the presentation, where you have the Q3 sales bridge. As you can see, the sales increased 55.9% year-over-year, obviously pushed by significantly higher prices, while the net volume effect in sales, and that is excluding RFM, was essentially zero because the growth in Solutions & Specialties was leveled out by a decline in Performance Materials. The reason behind this, just to remind you, is that the volume growth was limited by constrained product availability and not by the demand. I think this is very important.
As you can see in the bridge, the selling price has had a positive effect of 43.8% year-over-year, and that is the EUR 1.2 billion that you see in the bridge with the price effect mainly in Performance Materials. FX was positive, EUR 45 million or 1.6%, mainly reflecting the weakness of the Euro against the Chinese Renminbi. The portfolio effect was a positive 10.5% or the EUR 289 million in the bridge, and that is the effect of the consolidation of the acquired RFM business. The EUR 289 million is equivalent to the sales number of RFM. With that, let's turn the page to page number seven, where you have the EBITDA bridge.
As you can see, EBITDA is up 89% compared to prior year, and that is largely due to the highly positive pricing delta. You can see the pricing delta is EUR 576 million, mainly from Performance Materials. Actually, the volume effect in EBITDA is slightly positive, because while the net volume effect in sales is zero, the contribution margin of the volume growth in Solutions & Specialties exceeded the contribution margin of the volume declines in Performance Materials. So if you want, we have a positive mix effect between our two segments that has a positive impact on our EBITDA. FX contribution is like in sales, slightly positive. Like in the previous quarters, the other items include three main effects, which I would like to highlight here.
First of all, in the negative EUR 210 million, there is a negative EUR 145 million impact from the higher provisions for variable compensation. Secondly, there's a negative EUR 8 million one-time effect, which is related to the acquired RFM business and the integration of the business. Number three, there is a negative EUR 5 million one-time effect from our LEAP transformation program and some one-time costs that are associated with it. I think with that, I would directly hand it back over to Markus for some details on the group and the segments.
Yeah. Thanks a lot, Thomas, and let's go for the group first. On page eight, you see that in Q3 2021, we had the highest quarterly sales in Covestro history. Sequentially, the sales increase was driven by higher volume as well as price, and the EBITDA continues to be on a high level. It was the fourth consecutive quarter with an EBITDA margin around 20%, still well below historic peak of 28.1% in the Q1 of the year 2018. Sequentially, the EBITDA increased due to higher volume while pricing delta was slightly negative. Now let's turn to the Performance Materials segment. The Performance Materials core volume growth, as you can see on slide number nine, was at -11.6% year-on-year.
However, it is not reflective of demand, as Thomas also pointed out numerous times. The underlying global demand is solid in our key industries, and core volumes of standard products were constrained by product availability and shortages of feedstock. Most prominently, MDI in Europe was on force majeure during the Q3 after shutdown of our Brunsbüttel plant in Germany. Also, more internal allocation of available material to Solutions & Specialties was happening instead of external sales by Performance Materials. Compared to prior year, the EBITDA increased mainly due to a strong positive pricing delta compensating higher provisions for variable compensation. Sequentially, the EBITDA increased due to higher volume and positive pricing delta. Intersegment sales added to reported external sales. The Adjusted EBITDA margin of 25.6% would be there instead of reported 34.5%.
Let's turn to page number 10 and take a look at Solutions & Specialties. The Solutions & Specialties core volume growth was at 22.7% year-on-year, and included about 20 percentage points from the acquired RFM business. While volume effect on sales was negative in Performance Materials, this volume effect was with +6.9% on sales in Solutions & Specialties, both year-on-year and quarter-on-quarter. EBITDA, however, declined. Compared to prior year, the EBITDA decline mainly was due to negative pricing data and higher provisions for variable compensation. Sequentially, the EBITDA decrease was driven by negative pricing data, while volume growth contributed positively. We have seen a significant increase of feedstock prices in a relatively short period of time, and that could not be fully passed on. Now I would like to hand back to Thomas.
Yes. I'm on page 11 of the presentation where we have the cash flow for you. As you can see in the chart, we generated a free operating cash flow of EUR 1.1 billion for the first nine months of the year, and also EUR 381 million in Q3. Obviously the EUR 1.1 billion is significantly above previous year. The cash generation, both in Q3 and for the nine months of the year, was boosted by significantly higher earnings, but it was held back by negative cash contribution from higher working capital. You can see this easily in the table. Let me say that the working capital sales ratio stood at 21.3%. That is virtually unchanged versus the year end of the Q2 of this year.
There's two factors leading to this. First of all, higher feedstock prices and also product prices push up the Euro value of our working capital. Secondly, there is still a mathematical effect from comparing a quarter end working capital based on very high prices with a 12-month sales run rate, which includes a relatively weaker second half of 2020. If you go further down in the table, you see our nine-month CapEx spending was EUR 472 million. That is absolutely on budget and is also in line with our full year guidance. You can see that the income tax paid for the first nine months of the year amounted to EUR 309 million.
Now the income tax paid in relation to the pre-tax income reflects the fact that there is a lower level of income in the previous year's quarters, and some tax authorities use those prior quarters to determine tax prepayment, and therefore there is a certain time lag between the cash tax and our P&L tax rate. Overall, for the full year of 2021, our expected cash tax is therefore somewhat below the P&L tax rate, which we have guided to be between 24%-26%. I would make a last comment on the last line item, other effects, that reflects higher provisions for variable compensation.
Again, everybody, the way it works is that we are building provisions every quarter for the bonus achievement in 2021, but the cash out for this bonus is only in the Q2 of 2022. The total amount that we're expecting to build in terms of provisions for this year will amount to roughly EUR 500 million. With that, let's turn the page and go to page 12, where you have the balance sheet. Quite obviously, our balance sheet remains strong, and you can see this in the ratios. The ratio of total net debt to EBITDA stands at 1.0x versus 2.9x a year ago. You can also see that the pension provisions decreased versus the year-end of 2020.
We have EUR 417 million less, and that is mainly due to the higher discount rates in Germany. A last point that I would like to mention, but you cannot obviously see it in the net debt numbers, is that we repaid early a EUR 500 million bond in July of this year, which we had placed into the market in 2016 and which would have matured in October of 2021. Again, obviously with no effect on the net debt numbers. With that, let's turn to page 13. Markus has mentioned that we have raised our EBITDA guidance for the full year to a corridor of EUR 3.0 billion-EUR 3.2 billion.
The key reason for the upgrade is the relatively stable industry margin development compared to previously expected margin declines that we had baked into our guidance. What you can also see in the chart is that the mark-to-market estimate stands at about EUR 3.2 billion if you base it on the September data, and that is on par with the upper end of our EBITDA guidance corridor. Therefore, obviously, the EBITDA guidance midpoint assumes a margin decline to happen during Q4 of this year. What you can also see in the chart is that we expect the EBITDA mid-cycle level to increase to EUR 2.8 billion by 2024, as we communicated it in our Virtual Investor Conference in September.
Based on the industry supply and demand forecast for the next years, the EBITDA should remain above mid-cycle. The full year 2021 guidance, just to be very clear, includes the following items. It includes the provisions for the variable compensation, and I said this is expected to be around EUR 500 million , as mentioned before. It also includes RFM, which has a positive net earnings contribution of EUR 60 million-EUR 70 million, including EUR 40 million integration costs and roughly EUR 25 million negative effect from an inventory step-up, as well as EUR 20 million positive cost synergies, which we realized. The guidance for the year also includes the effects of LEAP.
Here, we're talking about the negative one-time effects, where year-to-date we have posted a number of EUR 31 million, and we do assume another low- to mid-double-digit Euro million amount to be built in Q4. With that, let's turn the page to page 14. As I said, we raised our earnings outlook for 2021 in terms of the EBITDA. In terms of core volume growth, we're expecting 10%-12%, and that is including 6 percentage points from RFM. We lowered the corridor exclusively because of the constrained product availability and not because of lower demand, as Markus very clearly stated. I should only flag to you that obviously, the U.S. hurricane season still represents another risk on our ability to fully supply the demand which is out in the market.
We did lower the free operating cash flow outlook despite the improved earnings outlook, but that reflects only the higher expected level of funds which is tied in working capital because the feedstock and selling prices have increased. I think we explained this when we talked about the cash flow. The increased ROCE guidance reflects the higher EBITDA guidance, one to one. Then just for the sake of completeness, please also note that we have slightly adjusted our full year expectations for D&A as well as for the financial results. With that, I would like to hand it back to Markus.
Thanks a lot, Thomas. Please allow me, before I wrap up, the Q3, I would like to bring your attention to one highlight of sustainability-driven innovation on page 15. This is about a Circular Foam project that closes the material cycle for polyurethane rigid foams. You might now ask yourself, "Why is that relevant?" It is relevant because every one of you has a refrigerator at home, and you can assume that in almost every refrigerator, polyurethane rigid foam is the most effective and also very cost-effective solution for insulation purposes to make this device very energy efficient. On top of that, what works with a refrigerator works with entire houses, be it private homes or commercial buildings. Also here, millions of tons of rigid PU foam is used, and so far there is no real recycling solution available.
That's why Covestro has started and is coordinating an E.U. innovation project with 22 partners from nine European countries. You see just a simplified overview on chart number 15 about how that project works. Believe it or not, in reality, it's way more complicated, but we're not shying away from this. The project goals and benefits are establishing a coordinated waste management and suitable recycling processes. In other words, redesign the entire value chain. Secondly, developing an innovative chemical recycling process for rigid polyurethane foam. Last but not least, significant savings potential here in terms of waste, incineration costs, as well as carbon dioxide emissions for the entire value chain once the circular concept is established. What is Covestro in this consortium focusing on as an innovative recycling solution?
First, we enable the reuse of materials at end of a useful life where mechanical recycling is failing and therefore not a suitable option. We also develop new processes in chemolysis and also smart pyrolysis to attain polyols on the one hand, and amines as a circular raw material on the other hand, for production of fresh polyurethane rigid foams without loss in quality. Therefore, for Covestro, this project, Circular Foam, is another lighthouse project with which we are advancing the realization of a circular economy as part of our vision. Now, let's turn to page 16 for a quick wrap-up. We successfully implemented our new organizational structure as of 1st of July, as well as our new segment reporting. The volume growth were limited by product availability, but were on the other hand, helped by full consolidation of the acquired RFM businesses.
The EBITDA increase was driven by positive pricing data despite significantly higher raw material prices, and that also went along with solid cash generation based on high earnings compensating higher working capital. We also raised the 2021 earnings outlook reflecting relatively stable industry margins, and we are also confident that the transformation program, LEAP, is well on track and the new organizational setup has been successfully implemented, as already mentioned on July 1st, 2021. With that, we are now looking very much forward for your comments and questions, and I would like to hand back to the operator. Thank you very much.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press nine followed by the star on your telephone. If you wish to cancel your request, please press nine followed by the star again. Your questions will be answered in the order they are received. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Please stand by until we have received the first question. The first question comes from Mr. Christian Faitz from Kepler. Please go ahead with your question.
Yes, thank you very much. Good afternoon, Markus, Thomas, Ronald, and team. Two questions, if I may. First of all, any visibility into 2022 in terms of demand trends, particularly in those end customer industries that have supply issues at present. Second of all, when do you expect margins in Solutions & Specialties to improve? Would this go hand-in-hand with the margin decline in Performance Materials? I mean, just trying to get a grip on the new dynamics of the divisional setup. Thank you.
Hey, Christian, thanks a lot. Good hearing you again. This is Markus speaking. Looking into 2022, that is kind of a continuation of the trend that we have seen in the first half, that we also have seen in the Q3, and now continuing in the Q4. We actually estimate the demand to remain strong, and that we also could see a rebound in the auto market starting in the second half of 2021. There's a bit more of a detailed outlook on page three of the handout that we have provided for this call, where you see a little bit more of the numbers actually that we would expect for the year, let's say 2022, always in a year-to-year comparison.
For the benefit of those that do not have, let's say, that script or that presentation at hand. For example, we would see, and I think that's quite, let's say, also, maybe important detail. If you take a look at the automotive industry, we expect, given, let's say, the challenging situation in 2021, that we could see an even stronger rebound year-on-year in automotive with, for example, +10%. What was maybe even more telling is that the electric vehicles and battery electric vehicles would see a rise of almost 51%. Having said that, the niches where we are very well-positioned and where even more specific material consumption of our portfolio is happening are the ones that are growing the fastest within the given industry.
Look at the construction +3%, 2021-2022. Furniture also expected at about 3.5%-4%. Electrical and electronics as well as household appliances, talking about fridges again, at +5%. If we look, let's say, in the total year, I would say 2022, from our perspective is still solid demand growth to be expected, in particular for the product portfolio and sustainable solutions that we have. Coming back to the Q3 Solutions & Specialties margins, that was down as the internal intra-BE or transfer pricing caused a negative pricing delta.
In the Q4, the margin is expected to be even lower given the normal seasonality, let's say, that we are now entering into in the Q4. In 2022, based on, let's say, slightly, and I have to be very particular here, slightly lower Performance Materials prices, the margins should start to improve. Long term, there is more upside given a value pricing approach, volume leverage, as well as our transformational program LEAP. I hope that answers your questions.
Thank you. Very helpful. Thanks, Markus.
The next question comes from Mr. Geoff Haire from UBS. Please go ahead with your question.
Oh, hello. I've got two questions. It's really if you could just go through your business and explain which parts of the business have seen the most sold out in terms of your capacity constraints. Then also just on the Solutions & Specialties business, is there a big difference between the timing of you having to take higher raw material prices and the ability for you to pass those on to your customers? If you could just talk a little bit about that would help.
Yeah, Geoff, good to hear you again. I maybe hand over here to Thomas for the first part of the question and then take the second one. Thomas.
I was, Geoff, I was not sure whether I got the first part right. Maybe that was all. Let me start with the second one. I think you asked about the timing of the. Then let's check whether we all got the question correct on the first one. The timing on Solutions & Specialties. Yes, there is a time lag. As Markus described, of course, prices were rising in Q3. That had a negative effect on Solutions & Specialties because they were not able to raise their prices as quickly. In Q4, we're even expecting that margins might become further under pressure simply because of the normal seasonality. That might ease then in 2022.
What is important is that for the first time, we have this full transparency about what is really the additional margin that the segment is generating. That in addition to the fact that, yes, we have to be more agile in terms of customer contract and adjusting, it gives us really the opportunity to start a value-based pricing discussion with our customers. Really sell the products to those customers where we have the biggest impact and where we get the biggest return for the value that we deliver. That transparency, I think, has been, or is now greatly improved with the fact that we do see the margins for our Solutions & Specialties on top of what the input factors are.
I would expect, as I said, in Q4, maybe even a slight further decline, some improvement over the course of 2022. Then, as Markus said, with the measures that we will focus on in terms of value-based pricing and focus on the right customer segments, there should be further upside in the years to come. As you know, we set ourselves a target of 17%, which we think is really achievable for Solutions & Specialties. Now maybe to the first question, I'm looking around here whether we. Geoff, could you repeat the question?
Yeah, sure. It was a fairly straightforward question. Within your business, what parts are most sold out? Where have you got the biggest capacity constraints?
Geoff, this is Markus speaking, and I take it you see we're still, let's say, so excited that we are still struggling who should go first to answer all those questions. Let me start with MDI. We believe that the MDI market is overall very strong. Why do we believe that? Well, in 2020, according to the data we see, there has been a downturn of only around 1.5%. The industry is expected to increase, on the other hand, already by 10% in the full year 2021. That means we will be then, for the full year, well above 2019 levels already.
PCS is also strong, however, but just back on 2020 global market levels. Here we still need some time to be really well above pre-crisis levels. We also increased in this industry our global market share. TDI is still below 2020 levels as furniture and bedding did not fully recover. However, we are actually sold out in all our product categories. If you look now at supply-demand, I think what is important to understand, the difference between nameplate capacity, where you normally calculate the overall industry utilization and available capacity. Here we have seen in our three, let's say, major products group, quite, let's say, different pictures.
MDI, I talked about, there's not so much of a big difference, even though there is still some impact from the Uri winter storm that happened back in February in the United States. However, in TDI, actually, the nameplate capacity would still be this year around 74%. The available capacity is significantly lower, let's say, or has been significantly lower. Therefore, based on that perspective, the industry utilization on available capacity is much higher. Since BASF has actually brought back its TDI plant in Ludwigshafen after a major, let's say, additional turnaround, we have seen that already, margins in Europe have actually come down.
That's why I would not expect at current overall margin levels that we will see, let's say, significant further, let's say, pressure on the spreads that we are currently seeing in the TDI business. Therefore, there should be limited further downside risks from today's perspective. Let me now switch to polycarbonates to give you additional flavor. Also here, a major difference between nameplate capacity utilization versus available capacity utilization because a key topic here is still the tight BPA availability, and here, particularly in the Chinese market. Here that it has a particularly large effect because all major capacity, if not all capacity that came on stream in the last 1.5 years, two years, was actually coming from China, in China.
Therefore, the current, let's say, equivalent of around 400,000 tons of nameplate capacity is currently mothballed. Therefore, if you now take BPA capacities that have been announced into consideration, the BPA market is partially to be expected to normalize in 2022. Long story short, there might be some, let's say, margin pressure on, let's say the polycarbonate market. However, that market is still very nicely growing with only 6% capacity addition increase in 2021 and 11% increase in 2022. Let's see how that figures out. It's a long answer. It's a quite complicated picture, honestly speaking. Currently, and we have, I think, indicated that we see still good opportunities in those markets, also with reasonable margins going forward.
Thanks. Could I just follow up with a question on the first topic about the value-based pricing? Why did it take splitting the divisions like this to enable you to do that? Could you not have done it under the old divisional structure?
Well, I had the chance actually to work in two of those larger former business units, and the key question was always exactly that mixture, between fully integrated margins for what we call today Solutions & Specialties versus, let's say, the pure commodity product. Long story short, following a textbook approach, these are really different businesses in terms of how market dynamics work, what is important to customers. If you have the same people, selling that stuff, if you have the same people doing research and development in one business unit, if you have the same people going out there, to the respective markets and trying to, on the one hand, increase prices mainly driven by supply-demand, with very, very quick reaction times.
Being, let's say, in a situation where you have to go for respective highly innovative products, which should be sold by value and not by a cost-based approach, that really pushes most of the people to their limits. They always have to change hats within one talk towards the customer, honestly speaking. Separating those business by the entire nature of how they are run, on the one hand, big commodities, quick reaction times, supply-demand driven, and then reliability is key versus high complexity management, high innovation pressure, but also entirely different pricing approaches.
That actually has pushed the organization and individuals simply to their limits, and that's why we believe this is the right setup to exactly reflect those, let's say, entirely new business, these entirely different business characteristics. That is exactly what you currently also see. What we see in terms of the segment, let's say, profitability and growth patterns is textbook-like. Yeah. That is exactly what we would have expected if you split the businesses, and now we have the opportunity to really individually in those segments address all the challenges that we have.
Okay, thank you.
The next question comes from Mr. Markus Mayer from Baader Bank. Please go ahead with your question.
Good afternoon, gentlemen. Two questions from my side. The first one is on the EBITDA and FX sensitivity, including RFM. Could you give us some hints for 2022? Also in this regard, what are potential parts of potential 2022 EBITDA and free operating cash flow bridge, as far as you know? Or in other words, what are potential pluses and minuses for 2022, really, leveraged on TDI and MDI and potential polycarbonate margins? But what are other parts for free operating cash flow and EBITDA? Then the last question would be on this BASF TDI ramp up of the Ludwigshafen plant. Is this reduced margin already part of your September mark-to-market indication, or is this basically not included in this mark-to-market indication?
Yeah. Let me maybe start with the sensitivity and the outlook, Markus. I mean, first of all, you've got the sensitivities indicated on page 13 of the presentation. I would say this is essentially unchanged, or it will not change with in 2022 when RFM is with us for 12 months and not just for nine months. The sensitivity is roughly 1 percentage point change is EUR ± 8 million for the Chinese RMB-Euro relationship, and 1 percentage point in the relationship to the dollar is roughly EUR 4 million. I would say this is essentially unchanged also going forward with RFM being with us, sorry, being with us for 12 months.
On the outlook, I would say the most important item, of course, is the core volume growth. We have indicated that for every percentage point of core volume growth, we would expect an EBITDA impact of roughly EUR 60 million. If we assume that we get over the constraints that we've seen in 2021, I do think there's an opportunity for a mid- to even high single-digit growth number in 2022. Again, that you can multiply it out with EUR 60 million per percentage point. I think the second item that I would give you is the others bucket. First of all, if you strip out the bonus, we would expect it to be mid- to high double-digit negative.
Remember, we said there will be a cost rebound in 2021. That I do expect it will be smaller than what we had originally expected because some of the rebound will only occur in 2022, and that is then reflected in this mid- to high double-digit number that I expected. On the positive side, you should have the fact that the bonus accrual will be lower. Remember, this year we have roughly EUR 500 million, but that is for 250% bonus achievement. If you assume 100% bonus achievement for next year, that gives you definitely some positive effect of roughly EUR 200 million, some EUR 250 million on this one.
Therefore, the last item, of course, is the pricing delta, which of course is the big question mark. I'm not gonna comment on that, but the comment that I would give you, and then you can backward engineer our expectations is that the current consensus of EUR 2.7 billion for the EBITDA next year, I think is quite realistic, and we feel not uncomfortable with it. So obviously that implies a negative or a conservative development on the pricing side.
Okay.
I think that would be my comments on 2022, and then maybe the rest we will give you when we come out with our full year financials.
Yeah.
Maybe Markus, I just jump in on the TDI question. There was this particular question on BASF TDI ramp up, whether this is fully included already into the, let's say mark-to-market. What we have seen that since that ramp up of the plant, European spreads have declined already. But as I said, Asian spreads are already on relatively low levels at the same time. That's what I would say that we see currently a slight rebound in That's why I say very generally speaking, that is already included in the mark-to-market numbers.
Okay. Thank you so much.
The next question comes from Miss Georgina Fraser from Goldman Sachs. Please go ahead with your question.
Oh, yeah, thank you for taking my question. I was just wondering if we could talk a little bit about capital allocation. You've already set out recently the sustainability kind of investor conference, your CapEx plans. I was wondering how you were thinking about the remainder of the balance sheet capacity and how you were thinking about the value creation opportunities between M&A and buybacks. Just wondering which of those you think would be more value creative at this point. Thanks.
Yes, Georgina. Thank you very much first for the question. Yes, let me refer back to a little bit to what we said in our Virtual Investor Conference, where we said CapEx is our most important priority, because we do think it is the basis for our future profitable growth. Therefore, you've seen and heard that we are again putting on the table our MDI expansion project. We're evaluating what is the right region, whether the United States or China. Definitely, that is our key focus because we do think there is very healthy demand in all the markets. Markus alluded to MDI and TDI, and we feel that we should at least grow in line with the market demand. Secondly, we wanna pay an attractive dividend.
We have therefore our dividend policy of 35%-55% payout. I also indicated in the Virtual Investor Conference that 2021 will be a good year, but I would not consider it an absolute peak year, and therefore, I would not assume that we will be at the very, very low end of that range. Even if we're only in the lower half of the range, that would still mean that our dividend for 2021 will at least double relative to the dividend that we paid a year ago. That just underlines that we wanna be very attractive to our investors.
We do think that M&A should be part of our strategy, and RFM, I can only say, has been very successful so far, both in terms of the operational performance of the business as well as the integration that goes very well, and also the synergy achievement, where we are ahead of our internal plan with the achievement.
Now to your question, share buybacks, I would only characterize that as something that we would do opportunistically, because we feel our dividend policy gives us sufficient leeway to manage the balance sheet such that we are not running into an inefficient situation and we can be very attractive to our shareholders. Therefore, a share buyback, in our view, currently is not really in the cards, and we would only do this in the future if it would make a lot of sense from an opportunistic perspective and also from an anti-cyclical perspective. I think this is how I would characterize it, Georgina.
Okay. Very clear. Thanks, Thomas.
The next question comes from Mr. Thomas Swoboda from Société Générale. Please go ahead with your question.
Yes. Good afternoon, everybody. I have one question, please. First, thank you for providing the detail on the challenges you had on your volumes on page four. I have a question on the rebuilding of inventory, which you say has taken up around about 3% of your capacity. The question is twofold. Firstly, could you comment when this rebuilding of inventory happened? Was there a particular quarter that allowed you to rebuild inventory? Could you just comment how it developed? Secondly, could you describe where you see the year-end inventories for your main product groups? That would be very helpful. Thank you.
Thomas, on the inventory buildup. First of all, we're doing this for two reasons. One is we do think that the supply chains will still be under stress also in the first half of 2022, and we therefore wanna be prepared with respect to our customers and be a reliable supplier. On top of that, what is important to know is that in Q1 next year, we do have a peak maintenance quarter with significantly higher maintenance shutdowns than we would usually have in the Q1 of the year. To prepare for that is why we're building the inventories. There's nothing else behind it.
We started to do so already over the summer, and therefore you've seen the effect to a minor effect in Q2 and now to a bigger effect in Q3. That will slightly continue until the end of the year. The real value, of course, that you will see in our balance sheet then depends on the valuation. Again, if you weigh the two factors, valuation versus KT, then still the valuation has the much bigger effect on our inventories. In terms of kilotons, we're really only going back to a healthy level plus a little bit of reserve for the higher maintenance shutdown. We're not doing crazy things here, but really just bringing it back to normal.
This is helpful. Thank you.
The next question comes from Mr. Chetan Udeshi from JP Morgan. Please go ahead with your question.
Yeah. Hi, thanks. Two questions. First, a simple one. You know, do you see any change in the mark to market from September to November? And if so, any color on any material change in any of the product spreads and net margin would be useful. The second question was thank you for that slide on page four, which shows the impact from different factors and how that has impacted the volumes for Covestro. I was just wondering if you had any sense of how that number might look for the industry as a whole across your divisions in terms of how much volumes might have been lost due to similar factors at your competitors too. Thank you.
Chetan, let me maybe take the first question. So mark-to-market number, I would say some up and downs in some products, but if you take it as a whole for Covestro, as far as we can see, there is almost no change over the course of October. I think November is still a little bit early to tell, but I think the message is it's not an outdated number, but it is still pretty much what we sense is reasonable in the market. Again, with some up and down by product, by region, but broadly speaking, stable over the last five weeks since the end of September. On the other question, I think the-
What we've seen is the things that we report, so the winter storm, of course, that is also affecting other companies. We have some, I would say, Covestro specifics. One is our unplanned shutdown in Brunsbüttel, and the other one is our inventory buildup that I just explained. Therefore, I would say to some extent, we're a little bit harder hit than others for some Covestro specific factors, which will then either represent an opportunity even for 2022 or they are very sensible because they help us to also deliver a successful Q1 of next year. I think there's a positive flip side to the fact that we might be affected a little bit harder than some others.
Thank you.
The next question comes from Mr. Sebastian Bray from Berenberg. Please go ahead with your question.
Hello, good afternoon, and thank you for taking my questions. My first one is on the new segment structure. What is the reason for, on a historical basis, roughly EUR 110 million-EUR 120 million expansion in the negative line of the other EBITDA? Has there been some reallocation of costs from segments to other? And if so, does this affect more of the specialty segments or the Performance Materials? My second question is the bonus. There's a cash out next year guided for about EUR 500 million. If Covestro were to do a identical EBITDA in 2022 to the one it did in 2021, would it pay out another EUR 500 million or would it be less? Thank you.
Yeah, Sebastian, let me take those two questions. First of all, the others item, we simply took the opportunity to be very strict in allocating all the costs that are not under the control of the segments into this other bucket to also give some more transparency. What are the central costs that our management holding has? That is the only reason before we had a little bit of a mixture, and now this is simply the much more clear-cut picture, what is happening in the BEs versus what is happening in central functions that cannot be influenced by the BEs. We do think this is a better approach than what we have historically done.
To your second question, so if we deliver an EBITDA result in 2022, which is comparable to the one that we're expecting in 2021, the PSP would be lower, so the payout would be lower than the EUR 500 million, and the target achievement rate would be lower than the 250% that we have provisioned for this year, simply because this year, target achievement is very much driven by the high core volume growth. That comes from the rebound relative to the very low year 2020. That is the first reason.
The second one is, you know that we have a three-year period that the KPIs for our PSP program are defined for, and the next three-year period starts next year. Well, obviously, we will set ourselves again more ambitious goals, and that is the second factor why I would expect if you take the same base number for EBITDA, the bonus achievement relative to that would be lower.
That is helpful. Thank you. Just to follow up, if I take a-. How to put this? You guided earlier to a high double-digit EUR million underlying figure for the other line in 2022. If does this include the bonus that you would expect to pay out or not pay out, but provision for, yet if the consensus of EUR 2.7 billion EBITDA turns out to be right, or would the figure be slightly higher?
No, sorry. The number that I gave you, that was excluding the bonus. That goes back to our statements. We wanna, until 2023, keep fixed costs flat, excluding fluctuations that come from bonus achievement. Therefore, we said that, relative to that number, so excluding bonus, we would expect a bounce back in costs of EUR 100-200 million this year. We will be lower than that, but some of it will come in 2022, and that is the number that I was referring to.
If I were to say that everything goes according to plan next year, the other line is EUR -150 million, does that give you a strong feeling either way?
Say that again.
If I were to say that if everything goes according to plan next year and the consensus is right, is the other line EUR -150 million at EBITDA, is that right?
Excluding bonus? Yes.
Excluding bonus, EUR -150 million. Okay. Understood. Thank you.
No, no, sorry. I said, if excluding bonus, the other line next year should be a mid to high double-digit amount. It would be anything between EUR 50 million and whatever EUR 90 million would be our expectation. Yeah?
Okay. That's helpful. Thank you.
Thank you.
Mr. Köhler, there are no further questions at this time. Please continue with any other points you wish to raise.
No, thank you very much. I think that concludes the call exactly on time, and therefore, I think it's a good timing now to do that. Thank you for all of your questions and your interest. We hopefully see each other, perhaps, live going forward. I mean, right now, we start a bit of activities also going out, still limited, I have to say. Yes, things hopefully will further normalize also with our relations activities. As I said, thank you for your interest and see you hopefully soon. Bye.
Ladies and gentlemen, this concludes the earnings call of Covestro. Thank you for participating. You may now disconnect.