Ladies and gentlemen, thank you for standing by. Welcome to the Covestro Investor Conference Call on the Q1 2019 Results. The Company is represented by Markus Steilemann, CEO; 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 a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Ronald Köhler. Please go ahead, sir. Ronald Köhler: Good afternoon and welcome to our Q1 2019 conference call. For your information, we have posted our interim statement and the conference call presentation on our website and we assume you have read our Safe Harbor statement. I would like now to turn the conference over to Markus.

Thanks Ronald, and good afternoon and good morning to all listeners from the United States. The first quarter was challenging, but developed in line with our expectations. The year-on-year comparison looks weak. However, compared to the fourth quarter of 2018 results have improved. We were able to limit our year-on-year volume declined to 1.8% despite a high comparison basis, a very weak automotive market and internal production limitations. Our EBITDA decreased significantly in the year-on-year comparison but improved slightly quarter-on-quarter. The free operating cash flow was as expected slightly negative in the first quarter reflecting the usual seasonality and the higher CapEx for our growth initiatives. Based on this set of results and despite continuously challenging economic conditions we confirm our full year 2019 guidance. Let me provide you on slide number three with some more details on the global core volumes that declined by 1.8% year-on-year primarily driven by the lower demand in automotive. We estimate that global auto production declined by minus 5%, destocking especially in polycarbonates and limited availability of polyols. We were able to achieve positive volume growth in TDI and MDI which demonstrates our ability to grow even in a difficult macroeconomic environment. Asia-pacific remained our best growth region. We achieved a solid core volume growth of 3.3% despite declining auto production in Asia-pacific by minus 5% and in China by minus 12%. Growth in electronics, wood and furniture and several smaller customer industries was able to more than compensate the weak development in automotive and construction. Core volume growth in Europe, Middle East and Latin America suffered from the plant maintenance shutdown of polyols. Based on our estimates, car production in EMLA declined by 6% year-on-year, this burdened all three segments. Destocking in the polycarbonates industry was an additional factor that diminished volumes. Auto production in North America declined by 5% in the first quarter. This impacted our volume development in this region. Another driver was the high import of mattresses from Asia due to fears of future tariff, leading to a weak for TDI. Globally, we achieved solid growth rate in electronics driven by Asia-Pacific and North America. Positive growth was achieved in construction in Europe Middle East, Latin America and North America. Another global growth driver for the first quarter was the wood and furniture industry, although with arbitrage effect between Asia-Pacific and North America, as just explained. I’ll now hand over to Thomas for the full set of financials.

Well, thank you, Markus, and also warm welcome from my side to everybody on the call. As we can see a page where you have the net sales bridge, our net sales came in at €3.2 billion and that's clearly below last year's level. The main driver as you can see was the sharp decline of prices in MDI, TDI and PCS reducing our sales by a total of €690 million and what you also see in the bridge is that despite the decline in volumes in kilotons we were able to achieve a positive volume growth contribution of €33 million due to the product mix affects that we achieved. You also see FX effect, added €90 million coming mainly from the U.S. dollar and Chinese yen and portfolio effects come from the divestment of polycarbonates sheets business which we completed last year. If you turn the page, you see the bridge for our EBITDA development, and as you can see for the first quarter we achieved an EBITDA of €442 million absolutely in line with our guidance. And also as forecasted the higher competitive pressure in polyurethane for polycarbonate led to a severe decline in contribution margin, so that the negative pricing delta amounted to a total of €659 million. The volume leverage was positive and amounted to €33 million and all the other bridge item have a rather limited effect. Overall, its fair to said to say that the macroeconomic environment has not improved compared to the fourth quarter of 2018 and sequentially we experienced an even stronger price and margin pressure. However, the volumes improved slightly driven by the usual seasonality and the sequentially EBITDA improvement from €293 million in Q4 to €442 million in this quarter is positive and it’s mainly driven by a significant cost reduction. So with that look – let’s look at the sequential development for the group on page six, and as already stated, we faced a decline both in core volumes and also in sales during the first quarter. And on the lower side of the page you see our group EBITDA margin decline from 28.1% in Q1 2018 to 13.9% for the first quarter of 2019 triggered by the pronounced negative pricing delta in PUR and PCS that I already mentioned. But if you look at it from a quarter-on-quarter perspectives you can see a solid rebound in EBITDA and the margin coming from 9% in Q4 to almost 14% for Q1 2019. So let’s look at the same set of numbers for all three business units. I'm on page seven where you see polyurethanes. So, in Q1 we achieve core volumes which were vastly on par with our previous year level. Solid core volume growth rate for MDI and TDI were compensated by a weak polyols performance. So as expected industry utilization decreased driven by the additional capacities that were added during the market through our competitive last year and compared to previous years levels the net sales decreased in all regions, because high MDI and TDI volumes could not compensate for significant decrease in prices. So let me talk a little more specific about our key products. For MDI, we saw some stabilization in demand and in pricing in the last week. Increasing in construction help to reach the usual mid-single digit percentage demand growth that we usually predict. However, due to the current volatility in the industry we stay somewhat cautious about the further development during the course of the year. However to say, we're still in midterm, we continue to expect that the current over capacities will be absorbed by the growing market demands over time. Now for TDI, the industry environment remains very much under pressure. The margins steadily deteriorated into one and this also implies a lower starting point for April which most likely will then lead to a sequentially lower EBITDA contribution in Q2 for TDI. Overall we assume that the additional capacities in the industry will keep prices at quite unhealthy low levels for the time being, but if you want to look at it from the positive side we would say that is limited further downside risk because we believe that the high cost producer are now really operating at a level where they are at best cash cost breakeven. So, finally on polyether polyols, the product continues to be slightly below the long-term average in terms of margins. So overall if you look at the lower side of the page you’ll see that the EBITDA margin came out at 10.6% in Q1 which was clearly below the last year's level primarily driven by the significant lower MDI and TDI margins, but again if you take a quarter-on-quarter perspective we’ve seen improvement by almost our percentage points triggered and driven by lower costs. So, let's turn to polycarbonate on page eight, and here we recorded a negative core volume growth of 6.3% in Q1, and that was due to continued destocking and the demand drop in the automotive industry which represents roughly one-third of our sales in polycarbonates and those two things destocking automotive were the main reason as I said for the negative growth in terms of core volume. The prices were clearly below the level of previous year after continuous price drops in APAC as well as in Europe in the commodity space, and you have seen those prices drop since the second half of last year. So consequently the net sales decreased by 16.7% year-over-year. Due to the numerous capacity additions that are currently being announced we stay cautious on predictions for the overall industry supply and demand outlooks. Nevertheless things like electric mobility, 5G and several other new applications could potentially accelerate the demand growth above all base case for 4% for the entire industry and the industry outlook for polycarbonates therefore from our perspective remains attractive especially for the high-end applications. Again, if you look at the lower side of the page you’ll see the EBITDA margin came in at 18%, significantly below previous year's level impacted by both the lower volumes and also the negative pricing delta. Again, the quarter-on-quarter view shows you that we were able to improve the EBITDA margin by four percentage points to 18% due to the reduction in cost. So last but certainly not least let's look at our coatings, adhesive, specialties segments and here we saw an overall positive picture in Q1. The core volumes were on previous year’s level and despite weak demand from the coatings industry overall average prices were slightly above the level of Q1 2018 and additionally we received some support by FX and therefore the net in total progressed 6.1% year-on-year. Again if you look at EBITDA, the number increased by 7.4% versus Q1 2018 mainly driven by a higher selling prices and cost reduction, and again the sequential development as you can see from Q4 to Q1 is very positive. So with that, let's look at our cash flow development on page 10. Obviously, the lower EBITDA level and the increasing CapEx significantly reduce our free operating cash flow in Q1 and in addition we face the phasing effect from taxes. As you can see the numbers in the table below the bar chart. So we realized a typical seasonal increase of working capital. As you can see in the working capital sales ratio temporarily reached 19% which is a similar level as in Q1 of last year. Now for the year end working capital position we assume that we can significantly reduce our working capital which will then have a beneficial and positive effect on our free operating cash flow. So talking about the full year and most factors that I just described will continue to drive our cash flow development until year end, that means, a lower EBITDA in the year-on-year comparison, higher CapEx and also negative effects from phasing of tax payment will prevail over the year. On top, let me remind you, we will face the cash out of around €350 million for bonuses for the fiscal year 2018 in the second quarter of 2019 and therefore we assume that our free operating cash flow will even be worth in Q2 relative to Q1. However, and if you look at the full year, we will have then digested these cash phasing effects, and we should be able to generate a solid free operating cash flow in the second half of the year 2019, so that overall we continue to assume a free operating cash flow between €300 million and €700 million for the full year 2019. With that, let's have a look at the balance sheet and specifically at our net debt development. As you can see at the end of Q1 our net financial debt level increased to €1.59 billion that is the pink color part of the bar chart on page 11. And the main reason for the increase came from the adoption of the IFRS 16 accounting standards and the corresponding increase of all these liabilities and that represented alone a €642 million increase as you can see in the bridge. At the same time and that refers to our pension provisions, those increased by €222 million and that’s due to the discount rates in Germany which again fell to a lower level. So if you take those things together and combined it with our lower EBITDA and this leads to an increased ratio of total net debt to EBITDA of 1.1 times at the end of Q1 compared to 0.6 times at the end of 2018. And if you calculate the ratio with the midpoint of our guidance for 2019, the number will come out at 1.6 times. However, since the main deviation or the main increases in debt are caused by accounting changes. We still consider that all balance sheet is very very solid. So, with that let's turn to page 12, where you have the full year guidance items. As expected our core volume growth came in negative for the start of the year, but still we assume an acceleration and therefore a catch-up in the next quarter that would lead us to a low to mid single-digit percentage core volume growth in 2019 overall and that is the statement that we’re making of the first line of the table that you see here. And also we’re keeping the guidance for free operating cash flow and return of capital employed unchanged for the full year 2019 and confirm it. In terms of EBITDA after hitting our guidance on EBITDA in the first quarter we also confirm the EBITDA expectation of €1.5 billion to €2.0 billion for 2019. And if you look at the mark-to-market assessments that number also stays broadly unchanged at €1.8 billion for the entire year 2019, if you base it on the margins that we achieved in the single month of March. So unchanged to our statements that we made earlier this year, and we think that the expected deterioration of the TDI margin was compensated by an improved margin in MDI. Now, if you look at our EBITDA guidance for Q2, you see in the table that we assume an EBITDA which is around the level of Q1 2019. We expect sequentially growing volumes. However we also assume a slight sequential cost increase which should counterbalance the positive volume beverage and the market developed in general remain volatile with a lower than usual visibility and therefore please be reminded that around our nomenclature means a single digit percentage deviation to both sides obviously. I should also say that the basic underlying assumptions of our guidance as announced in our full year conference call remain unchanged and our guidance for 2019 continues to include the changes driven by the adoption IFRS 16. We have now, after Q1 more visibility on the numbers and for the full year we assume a benefit of around €120 million for EBITDA and free operating cash flow, and given the decreasing D&A, the effect on EBIT is expected to be rather limited. Interest expenses will be burdened by a low double digit euro amount. And for convenience, all of this is also stated in a backup slide that is contained as an appendix to this presentation where you have all the details for the first quarter and you can derive the full-year numbers mostly by simply multiplying it with four. So, with that I would like to hand it back to Marcus for the summer.

Yes. Thanks Thomas. The first quarter developed in line with our expectations. Highlight in a year-on-year comparisons were limited, but let me still name a few. First, the achievement of stable volumes in polyurethanes and CAS segments was a positive considering the multiple headwinds that we faced. Second, our EBITDA improved nicely quarter-on-quarter mainly based on the lower costs. Third, CAS demonstrated in Q1, how resilient and highly profitable the business remains even in more turbulent times. Core volumes remain stable and pricing data was positive. Fourth, our CapEx program is on track. Despite the short-term impact this has on our free operating cash flow, it fuels our growth initiatives and thus laid the foundation for our long-term success. Finally, we expect to deliver earnings below mid-cycle levels on the back of a more challenging economic environment as well as less favorable industry balances this year. Despite that, we are able to confirm our full year 2019 guidance. Thanks to our strict cost discipline and stabilizing margins. With that, we would like to thank you for your attention and are glad to take your questions.

Thank you. [Operator Instructions]. The first question comes from Mr. Charlie Webb from Morgan Stanley. Please go ahead with your question.

Just a few for me. First up on the volumes, just are we think about that sequentially in the Q2, there’s no Chinese New Year, you’d imagine – you could understand the outage you currently have in Dormagen relative to the polyols outage you had in Q1. What should we expect sequentially, basically Q2 and Q1? That's the first question on the volumes. Second question, just on raw material, we didn't see a huge amount of raw material release in the Q1. Is there lack effect to that? Should we start to see that come through more in Q2? Was that driven by the polyol outage? Was that having an effect on that? Or should we expect some more unwinding of the raw materials in second quarter? And then finally, just comment around the €1.8 billion currently mark-to-market or marked to March margin for the full year. Is it fair to say that MDI spreads have improved since the end of March and then TDI now is now is starting to slight improvement off the bottom in March, at least in Asia -- in April, sorry in Asia. Just to tell that comments was relating to margins as of March not as of April -- end of April?

Charlie, this is Markus. I would like at least to take the first two questions. If you compare volumes sequentially for second quarter what should we accept without outages? While we would expect that we see slightly higher volumes. However those volumes would be more towards a low single-digit. And yes, that's the simple answer. On raw materials, well, we would expect for the second quarter slight relief. However we expect them a little bit higher to be in Q3, that is simply due to the fact that we would have most likely two to three months lack, let's say from purchase to production cycle and also with regard to the inventories. But I would not affect let's say any major effects from just two mentioned -- from the two mentioned topics. And with regards to the third question I would like to hand over quickly to Thomas.

Look Charlie, as a general comment, I mean what we thought over the course of the entire Q1 is that TDI further decreased while MDI was stabilizing especially over the course, let's say since the middle of the quarter. And that essentially has -- I mean, in terms of directionally continued into April and the two effects are balancing off each other. And this is why, yes, MDI was directionally getting a little bit better, TDI directionally a little bit worse. The total effect therefore in terms of the mark-to-market remained unchanged. But yes it is fair to assume that we think and you can -- I mean there’s also some press comments out there. We think TDI is probably approaching unhealthy levels. So as I said also in my speech, if you want to take a positive thing out of it we don't expect it to decline much further from the current standpoint.

And just following up, what is the issue Dormagen [Indiscernible]. Have you got any -- I mean, I guess you haven't going to be excited [ph] to when that will be essentially back online?

Well, we had a technical incident or you could also call it an accident where a third-party company had an accident with a claim, and that will have a low double-digit EBITDA impact negative in Q2, but it will be resolved shortly. So, I wouldn't call it a major incident, but it was an accident that we had and some repair work going on. This we would fix shortly and then as I said low double-digit negative effect in terms of EBITDA to be expected.

Okay. Thank you very much.

The next question comes from Mr. Markus Mayer calling from Baader Bank. Please go ahead with your questions.

Yes. Good afternoon gentlemen. Three questions for my side. First one is on polycarbonate. Can you update us on the phasing of the announced polycarbonate capacity additions of the competitors what you see in particular on potential delays? Second question is on this positive product mix effect you have seen on the top line as well on the margin side. Maybe some more words on this would be helpful? And then lastly, how do you see demand now going in Q2. You said volumes should be somewhat better than in Q1. Is there any kind of issue in the specific area where we’ll see improvement, for example automotive or is this more on the broad based picture?

Hey, Markus, thanks for a questions. It’s Markus speaking. On polycarbonate what we have seen from the annual report from Wanhua particularly is, that they have now publicly stated that they will actually delay their line number two and three additions. And if you put this into the context for 2019 capacity additions for the entire polycarbonate market that would bring down the number from currently expected 11% capacity addition this year down to 8% capacity addition, assuming that they would come up end of the year and yes, that's what we currently know. As you know there is other players currently trying to build polycarbonate capacity and as we have always stated also in the past there's always some likelihood and therefore possibility that there will be further delays with other players that always has to be taken into consideration. However has not yet been factored in into the 8% after the Wanhua announcement. With regards to your product mix effect I would like to hand over to Thomas.

Well, Markus. Thank you. We cannot – there’s not so much more to say. It is as simple as that, it's a mixed effect while in kilograms we declined slightly by minus one profitable products declined less or even increase. Plus, I mean one is just core volumes, plus we also have some non-core volumes that flow into our P&L; and sometimes especially if you have in absolute terms relatively small numbers those things can fall apart in terms of the positive/negative. Therefore there is nothing really special to it. In terms of the expectation for Q2, I would say, I mean you've seen a negative pricing delta of the €659 million in Q1. It will be slightly less negative in Q2, so expect the number between 500 million and 600 million. And all the other bridge items on a year-to-year comparison, so FX others et etcetera should be relatively minor. So the big driver is the pricing delta that will determine the Q2 EBITDA.

Yes. And if I may add there Markus on the last topic that you raised on demand, let's say in terms of Q2 volumes, we maybe have two effects here. Number one is as we stated earlier we have better availability from our own assets and that drives also the volume growth opportunities that we have. And we also see simply due to seasonal changes in particular in the construction industry some opportunities to drive our volume growth in the order of magnitude that I just mentioned earlier which means on a low single-digit area and yes, you referred if I don't recall it wrongly on the automotive I would say we do not see extremely positive sides. The opposite side is true that we compare in second quarter to an extremely strong quarter of 2018, that means, it will be a challenge in terms of let's say seeing here really significant improvement in particular compared to the last strong quarters we have here particularly not only a demand issue this year but also baseline topics as continuing from last year.

Okay. Very clear. Thank you so much.

The next question comes from Neil Tyler. He’s calling from Redburn.

Good often. And coupled from me please, perhaps starting with a follow-up to the question on mix. And I wonder if you are able to help us, understand in which divisions that positive mix was most apparent? And second question, you mentioned an Asia volumes and clearly your comments on the automotive end market are no great surprise, but could you discuss in a little bit more detail the bright spots that offset that weakness in automotive production? And then the third question, when we think about the comments you made it full year around your resilient business and the EBITDA contribution from those resilient businesses. Can you give us some sense of how in the first quarter, the year-on-year profit of those -- of that proportion has changed? Thank you.

Neil, let me start with your second question referring to Asia specific volume topics. Again to just put things into perspective we have seen in Asia Pacific, minus 5% decline in automotive production passenger vehicles. In China we have seen minus 12% alone on the passenger vehicle output not dealer sales and units but really production output. So putting this into perspective there was the situation we faced in automotive. So how do we still manage to get a 3.3% plus on core volumes in Asia-Pacific and 5% plus in China. Basic reason for that was that they could over compensate this by the wooden furniture sales referring to one of the topics we discuss in the context of the weak NAFTA sales on mattresses because there was a lot of exports going out. Secondly, electronics sector was positively, really nicely and positively developing. And in some parts of the construction industry provided some positive growth momentum. So, that was how we were as you refer to able to leverage some of the brighter spots against the strong backdrop in automotive. I hope that helps a little bit.

Yes. That helps a little bit.

With that I would like to hand over to Thomas.

Well, I mean, again I don't want to overemphasize this mixed effect, but if you look at the deviation between core volume growth and sales volume growth it mainly comes from PUR and PCs and the percentage deviation according to my memory is approximately the same. So and therefore it's those two segments they make obviously over 75% of our total business, so it's not a specific effect in any one segment but two big segments are both affected by this effect.

Well, that’s helpful. Thank you.

Thank you. And are we ready to move on to the next question. Okay. Then the next question comes from Lawrence Alexander. She's calling from Jefferies. Please go ahead.

Hello. Could you give a little bit more detail on the trends in the CAS segment? The strength of results compared to what we saw in the downstream markets? Now you concerned this all about inventory destocking by your customers in Q2?

Okay. So the main driver, I mean, a long story short without going into too many details is that we have seen definitely industry volumes going down at most of the very large players in this industry, yet we simply gain market share.

Can you give some sense on what drove that, I mean, what in terms of, is it – is it a lag in pricing that on the behalf of competitors? Or can give some detail on exactly how sustainable that should be?

One of the key drivers was definitely the limited availability of one of the key raw materials. Not to bore you with that but HMDA availability was a challenge and I think here we really could outperform in one of the other sense. If you really look at the overall development by industry you could say that let's say that overall stable demand was unequally distributed, so we saw some negative growth in automotive transportation, wood and furniture, as well as construction. And then there was a very broad range in terms of diversified applications which would let's say standalone or even worth to be mentioned, but in the sum of the parts, there was plus 3% in this very broad and diverse range of applications be it specialty firms for example. And there were also some quite innovative products that we brought into the market for example in terms of renewable hardener for automotive coatings and things like that. So that also definitely helped. And that's then I would say partially at least those gains in market share should be sustainable.

Okay, great. Thanks.

In the double meaning of the word sustainable, by the way.

Understood.

The next question comes from Ms. Georgina Iwamoto calling from Goldman Sachs. Ms. Iwamoto, you might be on mute?

Hi there. Hi, Markus, hi, Thomas, thank you very much for taking my question. Markus, I've got a bit of a longer term focused question. Now that you've been in official capacities or this year, I think today you've given the market some assurance that there's limited downside risk to the guidance that you've given. But also seems unclear that there is much upside outside of large-scale outage. And therefore any earnings upside seem somewhat out of your control. So as you head out onto the road to the investors after results, what is the kind of three to five year equity story that you'll be presenting? How do you plan to deliver value for shareholders from here? Which businesses are you excited about and especially in light of your ongoing strong balance sheet? Thanks.

Hi, Georgina. Good hearing you again. Well, if you look into this, the upside for 2019 might be mainly the market prices. So if you look at this short term within the year. Mid-term for sure you see that we're driving at full steam in many different areas. One of the areas is definitely did we continue to believe in the strength of the high market demand for our core products that we already have in our portfolio. Let me give you a few examples. One of the examples is that and you see that each and every day everywhere the concerns about climate change that means the world needs to move towards sustainable energy. The world needs to move towards less energy consumption despite the fact that there is a lot of conversations about full electrification of a lot of the value chains that we're going to that we're going to transform. That means highly effective insulation materials will be in high demand. Just on Friday the Mayor of New York announced that he would like to start a strong initiative on more energy effective or zero emission buildings and if he wants to get rid of all those steel and glass palaces as he called it. So if you take this just as a small sign, as an anecdote, but indicative sign about more energy effective buildings now really taking round in the market. That is one of the key drivers I think for our MDI business. If you look into our polycarbonates business we're going through a significant transformation and the transportation and also mobility sector away from combustion engine to hybrid vehicles and fully electrified vehicles, that drives the demand for our polycarbonate sector. If you look into safety issues; if you look into temperature management for batteries, if you're open to loading stations and so on and so forth. Just to name mobility in a broader sense that means 5G technologies, that means you need every 100 meters at least one of those transmitting stations and that would also again and we have successful examples for that already. Housing materials made out of polycarbonate due to different effects and so on and so forth, so if you look at the real needs that are currently crystallizing from societal changes and also for deeply needed changes in the overall growth and how we understand how a sustainable economy should look like that is exactly I think where Covestro with its current portfolios are already very well positioned. And for sure that fuels the creativity also in terms of M&A. And let's not forget about our innovation pipeline. There is a lot of small contributions but they're all summing up to I think quite nice future growth opportunities. I hope that gives you some flavor about what we see in the next couple of years to come within the given portfolio but also a little bit of fantasy on the potential in organic growth opportunities

So, if you think about the next three to five years volume outlook, would you say that that might even be more attractive than the previous three to five years or continuing on the same level?

I think we have always communicated that we see core volume growth in the next five years around 4% per year and that is already significantly above the expected GDP growth and that is already reflecting how the portfolio is outgrowing the overall economy and for the time being I would like to leave it with that.

Okay. Thank you very much.

The next question comes from Geoff Haire calling from UBS. Please go ahead with your questions.

Hi. Good afternoon and thank you for the opportunity to ask some questions. I want to ask the shorter term questions. There’s two numbers that stand out in terms of this aspects of sustainability in the future quarters for this year. First of all, the 100% drop through in volume because of the mix and also the margins that you managed to get in the polycarbonate business? I wonder if you can just comment on what you expect as we go through the next few quarters. And also we've seen some headlines about water levels again in the Rhine River, is that something we need to be aware of for the second quarter? Thank you.

So, let me take the first question. I mean, the volume dropped through of close to 100%, obviously it's not a sustainable number. It's also due to some I would say low number base effects. In the future I would expect a drop through number that is very similar to what we've seen in the past where we are talking about ratios of 40 maybe slightly up above 40%, so this is something that I would expect. And I think that unchanged relative to our communication in the past. So please don't take the drop through numbers that you've seen in Q1 and extrapolate that for future volume growth.

On your second questions Geoff on the Rhine River levels; well, we haven't seen any impact in first quarter on Rhine river levels that was a majorly affect in the fourth quarter. We haven't seen any effect in first quarter and we do not expect to see any effect in the second quarter. If you're referring to let's say some of the media hype, let's say in terms of a draw that we might expect and also therefore lower Rhine River levels in Q3 or even Q4 of this year, this is even beyond speculation I would say, because of weather forecasts that goes, let's say longer than six weeks it's from my perspective simply not a serious analysis. And that is also what all the serious weather forecast institutions tell you. They have no idea how the summer will look like whether it will be dry whether it will be rainy or something in between. There's a lot of media hype around this, but there is no further let's say insights into which direction the weather will develop for the summer. For sure we have taken the experience of last year into consideration to further improve our emergency response in case something like this would happen again. And from that perspective those mitigation levels effects would definitely include more trucks, it would also include that we book in advance more ships, and yes that would also come with higher costs. And we also have to be clear we would not be able to fully compensate no matter how good we prepare simply due to the limited available capacity and trucks and ships but also if you look at the traffic on the streets and also on the capacity of the railway. So overall, we preparing. I think we would be much better prepared, but we would not be able to fully compensate it. However, there is currently no indication that something like this would happen.

Okay. And so, could just comment on the sustainability of the margins you saw in PCS into Q1?

You mean, generally with the margin that we saw of PCS in Q1?

Yes.

We think that is -- I mean, there will always be some fluctuation, but I think it will be broadly stable going forward.

Okay. Thank you.

The next question comes from Mr. Christian Faitz. He is calling from Kepler Cheuvreux. Please go ahead.

Thanks. Good afternoon, gentlemen. Just one remaining small question please, CFO question. Just for modeling purposes, on the rather low SG&A unit cost of below, €100 million in the quarter, a reflection of successful restructuring or is that one of low number?

I would say it's neither the one nor the other. Remember that we have our PSP bonus scheme where we said that this is kind of an automatic measurement to improve the results when times are getting more difficult and we said that the total bonus for 2018 is some €350 million. So if the bonus achievement that we have to accrue for goes down in 2019, that is obviously reflected off from our SG&A costs which then in that sense benefit from it. So I would I would say it's not a restructuring effect, yet remember we have some also headcount cuts in our respective programs, but those to the majority are yet to come and are not yet reflected in Q1 nor is it a one-time effect, it is sustainable because it's driven by our bonus scheme that is helping us to cut costs in less good times.

Okay, great. Many thank Thomas.

Thank you. [Operator Instructions] The next question is from Mr. Chris Counihan from Credit Suisse. Over to you.

Good afternoon gents. So, I just had a quick question on the working capital development and specifically inventories up 11%, that's despite pricing down 18%. I would have thought we would see some relief throughout this quarter. Could you maybe comment on that specifically?

First of all, I mean, yes, in general there's a working capital built up in Q1, that is a seasonal effect. Now the question is how is that evolving relative to last year and relative to last year. I would say our inventory buildup is absolutely in line and therefore I would say it's what you see is actual seasonal effect. If you look at the working capital build-up in total it's some 287 million less buildups than what we had in Q1 2018 and therefore it also reflects a lower pricing level. And sorry, I just -- I should mention one more thing. We had to in terms with inventories the effect is less positive because we had to prepare some maintenance shutdowns in the first half of the year. Remember that in 2019 the majority of the maintenance shutdowns happened in the first half year, while in 2018 it was just the other way around. So this is another sign why inventories did not decrease or let's say increase less as you might expect in terms of what you see from the prices.

Okay. Thank you.

The next question comes from Thomas Swoboda. He's calling from Societe Generale. Over to you.

Yes. Good afternoon gentlemen. I have one rather strategic question and it's about the old price. It looks like that Mr. Trump has started to heat up to pay the old price with sanctions on Iran. My question to you is in the current supply, is supply demand development and assuming that the old price goes towards the $100 per barrel towards year end. What would this to your earnings? Thank you.

Hi, Thomas, this is Markus speaking. Yes, that's a real glass ball question, a crystal ball question. So in very short terms we always look at the oil price to be not, and please don't get me wrong, that relevant for our business because we're looking into supply demand situations for our key product that means whenever raw materials increase they increase normally for everyone in the market for as input factors for example for benzene that then goes into aniline so the entire value chain and then we're looking more into supply demand balancer for key product and not into feedstock costs or even cost of a barrel of oil. For sure there is some short term effects in terms of legging, that means, if we are in an upward trend it might take us some time to push prices through in the market and that's why sometimes when the prices go up we have a little bit of legging before we can push this through. If prices go down we sometimes benefit a little bit from holding on longer to the respective sizes and then see -- then we see this spread for our products in terms of margins going up. But generally this is a pass-through for most of our businesses and there might be some effect on the resilient businesses where it is more difficult to really then increase prices. So that's a little bit a little bit lengthy explain what effect that might have.

This is just perfectly fine. Thank you so much.

Okay. We have a follow-up question from Mr. Neil Tyler who's calling from Redburn. Over to you.

Yes. Hi, again. So, I just want to come back to the question I asked earlier regarding whether you can give us any perspective on the -- what you describe is your resilient businesses across the various divisions? And how those are shaping up or where they stand in EBITDA term Q1 versus Q 1 last year i.e. how resilient have they been? Thanks.

I mean, first of all let's just I would like to remind everybody what do we classify as resilient. We say our CAS business is part of the resilient part and we say roughly 60% of PCS belongs into that bucket and we classify our polyols business as being resilient, and a very small portion let's say 25% of the MDI business. So if you go through those components, we would say that the contribution from CAS is maybe slightly up. We think that PCS is slightly down because the commodity prices are down and the commodity price level has a certain spillover effect also in the more differentiated space of the product. And the Polyol business slightly down and MDI relative to mid cycle level also slightly down. But overall we're still in the normal range. So again if you look at the components CAS up, the other slightly down, but overall still in the broad range of what we always see.

Okay. Thank you. That's helpful.

The next question comes from Mr. Sebastian Bray. He's calling from Berenberg Bank. Please go ahead.

Good afternoon and thank you for taking my questions. And we just have one piece. It’s a more strategic question. Can I ask, is Covestro a net buyer or beneficiary of carbon credits in Europe? And is this likely to increase as a headwind or has a competitive advantage over the next two to three years given the prices are up quite substantially? And if you could give an idea of magnitude, is this something that is not likely to be substantial on the cost line or something that could become quite big at current carbon prices? Thank you.

Yes, Sebastian. Thanks a lot for picking up German day-to-day politics. And actually we pre-bought carbon credits for almost ten years. That's why we feel kind of safe for quite a while and that's the current state is because nobody knows when the carbon price will come to what extent it will be getting to the entire energy incentive and therefore also carbon dioxide heavy industry and also how high this price at one point in time really will be. And we also must not forget that there's already first technologies going on and around also to a very limited extent that use carbon dioxide already is a chemical feedstock. It will not save us. However I think it sends a very positive signal about how proactively we address this topic not only in terms of pre-buying carbon credits, but also making sure that we close the loop towards a circular economy which is something that we strategically aim for.

But I perhaps ask two follow-ups on that. The first would be if you didn't have carbon credits what would your annual cost be or in what sort of magnitude? And secondly, when do these credits expire as a whole? Is it 2026 or whether expire, but until when do you have them?

Well, that would be highly speculating because as I’ve said, we don't know to what extend it will come, at what price it will come, what would be let’s say, taking into consideration. So I think I would say as of today I would see myself be unable to give you any concrete number that would go beyond speculation.

All right. Thank you.

The next question comes from Isha Sharma. She is calling from MainFirst Bank. Please go ahead.

Hi. Thank you for taking my question. I have one please. Could you please help us with the segment wise development in earnings for Q2 and also the second half of the year, especially for polycarbonate as we see really low volumes for Q1? How should we see this for Q2 because the prices are still falling, polyurethanes, is it fair to assume that the situation remains more or less where it was for Q1, so more or less stable EBITDA? Just a little bit of color on that please? Thank you.

I mean, I said the main driver for the year-on-year bridge for Q2 is the negative pricing delta of what I said between 500 million and 600 million. And I would say three quarters of the pricing delta comes from the polyurethanes segment while the CAS segment is broadly stable and one quarter is negative to the PCS segment. All the other building blocks are not very meaningful in terms of size, so I think that gives you an impression of where the segment should go.

Hi. Thanks a lot.

The next question comes from Charlie Webb calling from Morgan Stanley. Please go ahead.

Thank you, guys. Just one quick follow-up, and just relating to the environmental enforcement in China following the unfortunate explosion we saw earlier, I guess, in the quarter Q1, as we look at it, do you see any increased scrutiny from the Chinese regulators around chem parks? Do you expect it could have or will have any implication for feedstocks in terms of your business as we look ahead in to the rest of the year?

Charlie, thanks for the question. We currently look at it. We definitely see that the -- and I mean it very positively. The Chinese government and authorities are significantly stepping up not only the legislation but also the implementation and oversight of execution of improved safety and environmental standards across the board. So we also see that those are no longer let’s say specifically applied to particular industry players, but they are really applied to all players be it local or be it multinationals or be it joint ventures, and it also has led to a significant shutdown of chemical operations, of chemical parks, of chemical plants across the country. And it is very clear and obvious that the strategy of concentrating chemical operations within clearly reassign chemical parks is certainly follow trends in China. So from that perspective we see that the efforts are being now really implemented, being really stepped up and equally applied to almost all participants in the market. Does that affect us? It affect us in a sense that also we face sometimes also unannounced inspections in terms of safety and with that also we face if you would like to say higher scrutiny in terms of how we live up to environmental standards. But I would say if you look into our operations we always had globally unified very high safety standards and very high environmental standards that we've always adhered or sometimes even exceeded legally required limits, exceeded in the sense off we were, let’s say, for example, emitting less than actually was allowed. So from a perspective I think we see that. We very much welcome those efforts and it also creates a more playing level fields that we feel extremely well prepared already as of today with the current measures we have in place since years.

And just to be clear, is that comment kind of based on continued theme? Or is that – do you see an acceleration post the unfortunate event earlier in the year?

Well, I would say, both. I mean, that was the topic that was always on the agenda. If you look into the recent five years plan, safety of chemical operations was always somewhere in there and the increase of this, also an increase in the environmental standards and a more sustainable economy by all means, and yes, for sure respective recent accidence had only accelerated this speed. So from that perspective it is nothing that we – that was unexpected. Yes. And that’s currently – just that’s currently what we see. It also applies for example, to permit that you need chemical operations. Here we definitely could see that some of the approval processes slow down. They do not currently affect us in terms of execution of investments, but there is also something that we clearly observe that the procedures for permits have slow down.

Okay. Thank you very much.

The last question for today comes from Chetan Udeshi from JP Morgan. Please go ahead.

Thanks. Couple of questions. Firstly on MDI, we’ve seen a big increase in China over the last three months. Can you maybe from your experience so far, can you talk about how do you see this emptiness of those price increases as you’ve seen in China? That’s number one. Number two is, also in TDI it seems at least two of your competitors have announced increases in TDI prices in the U.S. from end of the April or May. Is that something you see as well? And the last question is on the other line of the EBITDA bridge. Just from memory, I think you mentioned on full year results called to the – like low triple digits million euros positive. It seems at least in first half it is flat to even negative. So is the phasing of that positive number primarily second half? Thank you.

Okay. Chetan, let me take the first two questions. On MDI prices, I think we have commented already how we look at the current price development and the MDI prices that was just announced yesterday, if I’m remember that correctly by the largest player in China on the MDI prices, an increase by roughly RMB600 per ton which would reflect something like around three to four percentage point. We still have to wait and see how this develops in the market. The second topic is, let’s say on the seasonal rebound on construction that might help and support a little bit to stabilization or maybe even very, very slight uptake for MDI prices. We may also see that some of the plans, maintenance showdowns, even though inventories have been build, might help a little bit, but then there’s also again risk one those capacities come back that those prices increases vanish. So, I would rather say on average we would currently face balance market and that’s why I would not see significant opportunities from today’s perspective of real uptick in MDI prices. If we look now into MDI – sorry, in to TDI, sorry, MDI, again, one more flavor you ask, market close in MDI, we expect to be around 6% to 8% that also would mean that we would need more capacities there and currently we still have a net import market for the U.S. in terms of MDI demand. So that’s the current situation on MDI. If we look at TDI in terms of price increase I think Thomas mentioned that earlier. For TDI we would currently see that we’re hitting levels where some of the incumbent smaller producers and incompetitive producers hit may be exactly their cash cost zero point and there might even the cash burning already. So from that perspective that might explain while some try to increase the prices, would that really be something that would go through in the market, we have to wait and see. Currently, I do, yes, that’s all I have to say, because it’s quite sensitive let’s say to talk about price development in this context here.

Well, then Chetan, on your question on the distribution of the others. So, yes, I would do confirm the statement that we have made for the full year was a low triple digit amount that we’re expecting and therefore yes, as we only expect maybe slight positive effect in Q2, but I said it will not be a major effect. The distribution is mainly into the second half of the year and that’s what we’re expecting also from our perspective program where some of the measures simply take some time and are back-end loaded before they show their full impact on the P&L. So, the answer in short is yes.

Thank you.

Mr. Köhler, there are no further questions at this time. Please go ahead with any other points you wish to raise. Ronald Köhler: Thank you all for participating in the lively discussion. If you have follow-up, don’t hesitate to call the IR department, otherwise we might see you at the next week at sell-side dinner in Frankfurt. Everyone obviously can join either from Frankfurt or from London. And obviously, the buy side, we are happy to see you on various other locations, be it conferences or roadshow. Thank you all for listening and see you. Bye-bye.

Ladies and gentlemen, this concludes the investor call of Covestro. Thank you for your participating. You may now disconnect.