Ladies and gentlemen, thank you for standing by. Welcome to the Covestro Investor Conference Call on the Q3 2019 Results. The company is represented by Markus Steilemann, CEO; Thomas Toepfer, CFO; and Ronald Koehler, 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'd now like to turn the conference over to Ronald Koehler, please go ahead, sir.

Good afternoon and welcome to our third quarter conference call. For your information, we have posted our interim report and the conference call presentation on our website, and if we assume you have read our Safe Harbor statement. I would now like directly to turn it over to Markus.

Good afternoon to our European listeners, and good morning to all U.S. investors. Prior to presenting our third quarter results, I would like to share our highlights from the key fair which demonstrates very well, our long-term aspiration. Every third year, [indiscernible] trade show opens; it's the race for the top global trade show of the plastics industry. It took place just last week, three topics from the center of our booth; circular economy, digitalization and innovation. First, we commit to circular economy; mega trends such as climate protection and population growth required a fundamental rethink in lifestyle and consumer behavior, as well as in global production. We need a complete transition from a throwaway to a circular economy in order to handle limited resources more responsibly and protect the climate. Covestro is committed to establishing new material cycles throughout the entire process chain over the next years in decades. Second, digitalization; this is another driving force for the development of the economy and society in the coming years. Covestro when explored the resulting opportunities and is embedding digital technologies and processes from the supply chain through to production research and all interfaces to customers, and to the development of new business models. Third, the dedication of Covestro to innovation; the highlight exhibit fragment-tear [ph] concept for future mobility that Covestro developed together with partners along the automotive value chain. Trends such as autonomous driving, electric drive systems and car sharing turned the car into a multi-functional mobile, living and working space. The main features are newly designed surfaces than in our 5-key communication; the integration of ending [ph] light, the latest infotainment systems, and forward-looking seating concepts. Turning to Page number 3; the third quarter developed in line with our expectation. The year-on-year comparison continues to look weak; however, we delivered the predicted acceleration in core volume growth and a solid cash flow generation. We achieved a strong core volume growth of 5.3% this quarter; such growth demonstrates our capability to compensate declining automotive industry and withstand a weak macroeconomic environment. Our EBITDA decreased significantly year-on-year; however, with EUR425 million, it was fully in line with our guidance. On the cash side, the management actions taken to optimize working capital show positive effects, thus we could achieve the signage free [ph] operating cash flow of EUR223 million in Q3. With only November and December ahead of us, we are narrowing our full year 2019 guidance within the public ranges. If we now turn to Page number 4, let me provide some more insights into our core volumes development by regions and industry in the third quarter 2019. Overall, demand stay depressed and the economic environment continues to be characterized by several uncertainties such as the US-China trade conflict, tensions in Middle East, and Brexit. Still, based on better product availability and helped by easier comparables, we manage to grow core volumes in every region. Asia Pacific was the best growth region this quarter posting 9% core volume growth, with China even growing double-digit. Several industries also showed double-digit growth rates in Asia-Pacific like construction, electronics, wood furniture and medical; automotive demand remained depressed. Europe, Middle East, Latin America too, and especially, Germany, suffered from the continuous weak demand in automotive; double-digit volume growth rates in wood furniture and electronics more than compensated the development and enabled us to achieve a positive growth of 4%. NAFTA, and the US in particular, also suffered from the weak automotive industry and top sluggish demand in electronics. Strong growth rates in construction combined with solid in wood furniture and diverse other industries were able to counterbalance the weak spots. As a result, we achieved a positive growth of 2% for the quarter. Overall, we are satisfied to see that our diversification across industries and regions helps to counteract the current weakness in the automotive industry and allows us to manage a challenging demand environment. I now hand over to Thomas for the full set of financials.

Yes, thank you Markus, and also a very warm welcome from my side. If you please go to Page 5, you see the sales bridge for the quarter, and as you can see we posted a sales decline of 14.6% in Q3 and the main drivers were deteriorating prices in MDI, TDI and PCS, reducing our sales by a total of EUR686 million. On the other hand, we deliver a positive volume growth contribution of EUR80 million, and also you can see in the bridge that FX effect added EUR70 million, mainly attributable to the US dollar, and also to the Chinese Yuan. So with that let's turn to Page 6 for the EBITDA bridge; as you can see we achieved an EBITDA of EUR425 million for Q3, in line with our guidance. And also as forecasted, the higher competitive pressure in polyurethanes and polycarbonates led to a continued decline in contribution margin, so that the negative pricing delta amounted to a negative EUR537 million and you can find this also in the bridge. On the other hand, the positive volume development was translated into an EBITDA contribution of EUR42 million, thanks to a volume leverage of 53%, and FX also had a small positive effect as you can see in the bridge. Finally, with respect to the other items; the main contributors were the lower cost driven by lower bonus provisions and the progress that we made with our prospective cost-cutting program, and on top we benefited from a positive effect of EUR29 million which comes from the adoption of IFRS16, and the adoption of the accounting standards, and we have been pretty transparent about the effect that is recurring every quarter. So with that let's turn to Page 7; and the highlight of this chart is the strong volume growth of 5.3% which you can see on the upper half of the page. Overall, however, the macroeconomic environment has not improved, so strong price and margin pressure remains. However, we achieved a strong volume increase which we believe was a good result given the current demand weakness. If you look at the lower part of the page, you see that sequentially the EBITDA margin declined from 14.3% to 13.4% which we consider a solid development within the currently very difficult industry environment. And with that, I would like to hand it back to Markus for the segment details.

Turning to Page number 8, looking at our polyurethanes segment on Chart number 8. In Q3, we recorded a strong core volume growth driven by all three product groups. Overall, industry utilization stays at a low level due to additional capacities added during the last 15 months. Based on most recent data, industry demand growth remains solid at our predicted long-term trend of around 4% to 5%. In MDI, the picture remains unchanged for this year; few selected ramp-ups but no new start-up leading to slightly lower average industry utilization estimated at around 87% in full year 2019 versus 88% in 2018. Due to the currently low visibility on-demand we stay cautious about the further development in the short-term; mid-term, we expect that current overcapacities will be absorbed by growing market demand. The recent cancellation of one new 400 kt U.S. project for 221 contributes to this view. For 220, the only announced startup is our MDI facility in Brunsbuettel, Germany with 200 kt nameplate capacity. In TDI, the latest ramp ups of three wells-scaled plants have increased supply pressure and continue to lower average industry utilization from a tight 85% in 2018 to around 76% in 2019. Of the roundabout one million tons of additional capacity expected between 2018 and 223,800,000 tons have already been started up, and partly our -- partly or fully ramped up. From current margin levels, we see limited further downside risk as we believe that high-cost producers are currently operating at/below cash breakeven levels. Potential upside would, for example, come from closure of high cost plants as seen in the past. Finally, margins in Polyurethanes continue to be below the long-term average. Overall the EBITDA margin of 13.3% in PUR in the third quarter 2019 was clearly below last year's level, primarily driven by significantly lower MDI and TDI margins. Taking a quarter on quarter perspective, the improvement reflects higher volumes and lower internal cost, thanks to undisturbed operations. Let's turn to Page number 9. In polycarbonates, we recorded a strong core volume growth of 9.3% in the third quarter. The ongoing demand weakness in automotive could be compensated by double-digit volume increases in construction, electronics, medical and other smaller industries. Thanks to our position as cash cost leader in the industry. We have some flexibility to switch sales from one application and industry to the other; thus helping us to counteract any short-term weakness in one industry. Prices were clearly below previous year after price declines continued in all regions, mainly in the commodity businesses. Consequently, net sales decreased by 13.2% year-on-year. The EBITDA margin came in significantly below previous year's level impacted by the negative pricing delta. In a quarter-on-quarter comparison, the segment margin decreased due to continuing price pressure. Let us take a short look at the overall industry prospects. Automotive represents more than 20% of the global polycarbonates demand and roughly one thirds of our volume. Given the declining, OEM production coupled with a massive destocking in the whole automotive value chain, the overall polycarbonate market growth will be relatively low this year. On the other hand, we expect capacity additions of around 5% to 6% this year, more than 10% additional capacities have been announced for next year; this is expected to lead to further declining industry utilization. We assume on ongoing mix deterioration, this said, we are preparing ourselves for several more quarters of declining earnings. However, as the clear market innovation and cost leader, we should be able to outperform the industry. Over the cycle, we are convinced that polycarbonate remains a highly profitable business for us with an attractive growth profile. Let's turn to Chart number 10; the impact from globally weaker demand continue to hit our coatings adhesives specialty segment. Core volumes declined in almost all customer industries. Thus, we recorded a negative core volume growth of 4.0% in the third quarter. In consequence, net sales declined by 3.0% year-on-year, positive effects from currency and the portfolio impact from the DCP acquisition could not fully compensate the volume loss and weaker pricing this quarter. EBITDA suffered from a negative volume leverage and margin pressure. In the first nine months, we reported a core volume decline of 2.7%. We assume that we will return to positive core volume growth during the fourth quarter 2019. However, it is unlikely that this can compensate the year-to-date weakness. Therefore, we now expect a low single-digit core volume decline for the full year 2019. We do not expect a fast recovery of the coatings and adhesives market over the next quarters. In addition, a tougher competitive environment could further increase the pressure on prices. Thomas will now explain more financial details.

Yes, thank you. Let's go to page 11 where you see the free operating cash flow development. I think it's pretty clear that the lower EBITDA, the higher CapEx and EUR350 million cash out for our financial year 2018 bonus payment, continue to be the main influences of our free operating cash flow generation this year. However, as you can also see the free operating cash flow improved significantly during Q3 as we digested the negative phasing effects already in the first half of 2019. And additionally, effective countermeasures reduced our working capital. First, we were able to generate a positive free operating cash flow of EUR243 million in Q3, leading EUR143 million free operating cash flow for the first nine months of this year. So, beginning of this year, we initiated a working capital optimization program which yields the expected benefits and already during the first nine months of the year, we were able to limit the seasonal increase of the working capital so that for the full year 2019, we expect a triple-digit million euro positive contribution from changes in working capital to our free operating cash flow. So that overall we see ourselves on track to deliver a free operating cash flow within our guidance range and based on the narrowed EBITDA guidance, we're are also narrowing the free operating cash flow guidance to a range between EUR300 million and EUR500 million for the year. So with that let's turn the page to Page 12 where you can see the net debt development. As you can see our total net debt level increased to EUR3.4 billion at the end of September of this year. And the main increases are attributable to the payment of the dividends, as you can see in the chart, which we did end of April. As you see the adoption of IFRS16 accounting standards, which had an effect of 649 million and obviously, there was an increase in our pension provisions of 574 million that you all see these items in the bridge. The increase in pension provisions came because of the decrease of a discount rate in Germany. So in combination with a lower EBITDA these developments led to an increased ratio of total net debt to EBITDA of 2.1 times at the end of September. However, since the main deviations and total net debt has been triggered by accounting items, we continue to regard our balance sheet as being very solid. And with that let's come to the guidance, which you have on chart 13. So overall, let me say that, we confirm our guidance for 2019, but we narrowed the guidance for our key KPIs within the published ranges. Although we recorded a solid volume catch up in quarter three, we continue to face weak overall demand on the back of an uncertain macroeconomic environment and therefore we now assume a low single-digit core volume growth for the full year. As explained on the previous charts, we are also narrowing the initial free operating cash flow guidance expecting to deliver between EUR300 million and EUR500 million. And accordingly we also narrowed the range for the expected raw sheets to 8% to 10% for the full year. Furthermore, as you can see on the page, we expect an increase of D&A to around EUR770 million triggered by an additional EUR21 million impairment linked to the disposal of the European polycarbonates sheets business in Q3. We expect an improving financial result of minus EUR80 million to minus EUR100 million on the back of less negative hedging effects and we are increasing our guidance for the tax rate to between 26% and 28%. The main reason for this increase as a one-time taxation of an internal dividend payment from our Chinese legal entity, so that we assume that the previously guided tax range of between 24% and 26% is still a valid assumption for the coming years. So with respect to EBITDA, we also confirm the initial EBITDA guidance for the full year and we narrowed the expected range to EUR1.57 billion to EUR1.65 billion for 2019 and this full-year guidance implies an EBITDA range of between EUR244 million and EUR324 million for Q4 2019. So that compared to Q4 2018, we assume further price deterioration only partly being counterbalanced by lower raw material prices, strict cost discipline and some volume growth should allow us to mitigate the resulting negative pricing delta. So if we look ahead, we can say that during 2019, we suffered from continuing price declines for our products. But this is expected to give us a rather low starting point in December 2019 for the year 2020. So from today's perspective and based on a mark-to-market assessment, we would expect a low-triple-digit million euro burden from a negative pricing delta for 2020. And as a consequence, we are preparing for another challenging year next year, which will be ahead of us. So with that, back to Markus for the summary.

Yes, thanks, Thomas, and now we are switching to page number 14. The third quarter developed in line with our expectations. We achieved strong volume growth in a challenging economic environment. The diversification of our sales towards several customer industries and the capability to switch volumes rapidly from one industry to another, thanks to our cost leader position enabled us to counteract the automotive industry weakness. Our EBITDA came in as expected. Thanks to our strict cost discipline we faced only a slight further decline of earnings in Q3 compared to Q2. In Q3, we again demonstrated our capability to manage working capital, this compensated a negative cash phasing effects from first half and ensured that we could remain on track to deliver on the full-year guidance. In light of the first nine months results, we have narrowed our guidance for the full year within the published ranges. Overall, we currently operate in very challenging markets characterized by oversupply, due to increased capacities and simultaneously weakening demand. As a consequence, our earnings in 2019 remain significantly below mid cycle levels. Finally, we use the case here, last week to demonstrate our commitment to circular economy dedication to digitalization and continued efforts in innovation to drive growth. With that we would like to thank you for your attention and are happy to take your questions.

Thank you. [Operator Instructions] And the first question comes from Mr. Christian Faitz calling from Kepler Cheuvreux. Please go ahead with your question.

Good afternoon, thank you. Markus, Thomas & Ronald, couple of questions if I may. First of all standard question, can you talk about current demand trends, i.e., how is October started and what are your order books for your key industry suggesting at present? Second question, in last year's Q3 call, you told us about some of your customers relocating production outside of China to avoid trade tariffs. Is that a process which is concluded now and has this is actually been to your benefit? Thanks.

Hi, Christian, this Markus Steilmann speaking. So looking at -- let's say, the Q4 order books/the October order books and we're almost through to October, I think we are with regard to the order books in line what we would expect was to given guidance, let's say, for the full year and so, that's how I would comment that. So we do not see anything that would significantly positively or negatively deviate in terms of the order books from what we have given as a guidance for the full year or what we would expect, let's say for the fourth quarter. With regard to the second question you ask, you spoke about companies relocating outside of China. Is this completed now? I would say, we just see these trends because we're talking about supply chains relocation of assets just continuing, because that is not something that is happening in months. Sometimes you can simply because companies are switching business, one company loses business other company is taking it up, but if companies really relocating, that is a longer-term process. And in that context, I would expect that this trend also mid to long-term would continue because currently we do not see any signs that the trade conflict between the US and China will be sorted out short term, maybe not even mid-term. And my personal opinion is also maybe not even long term. So I think this will be a continued trend. Do we benefit from it? I mean you can see that with the strong volume growth, which was not only based on the comparison quarter from last year, but also clearly due to our leading cost position has from our view benefited Covestro and whether this is related to the relocation of assets of our customers, I would say partially yes, because compared to some other competitors we have the ability to globally deliver and we have regionally well-established supply chains and so I would say without having any real hard data, that's specifically would target to that point, yes, we have benefited from it.

Okay, thanks very much, Markus.

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

Yes, hi there, thank you for taking my questions. I have three; firstly, on capacity utilization at Covestro, is it fair to assume that your capacity utilization was higher especially in polycarbonates and also in Polyurethanes, then the numbers you have provide us for the market globally. So that was the first question. The second question is on the margin development in polyurethanes compared to polycarbonates. You have said in your prepared remarks, you expect polycarbonates margin to further deteriorate. Historically polycarbonate was less profitable than Polyurethanes. However, it was vice versa the last couple of years, are we going back to the historic ranges where Polyurethanes are more profitable than polycarbonate? And lastly and the third question, on supply demand in polycarbonates, my question is, have you seen your competitors actively reducing capacity canceling a build-out plans or strategically delaying start updates and so on? Thank you.

Thomas, thanks for the question; this is Markus speaking. So on capacity utilization, very short and briefly, I would say we as Covestro should have better capacity utilization, then what you see on average of the industry and the main reason for that is not only, I think our very strong market access and customer centricity but particular the cost leadership in the commodity area and we outlined is earlier in our comments, given during the presentation, that this also enables us to still produce positive margin contribution when some of the high cost producers already getting cash negative when producing. So having said that, we clearly assume that we are having better utilization in the rest of the market, another evidence for that is we are fully loaded. So our capacities are fully loaded. We sell everything that we can sell in polycarbonates and polyurethanes, our assets are fully available. So we do not have any major planned or unplanned shutdowns and that also has helped us to achieve the strong volume growth in polycarbonate and in polyurethanes in the third quarter. On the second part of the margins with regard to profitability, I would say that the margins for polycarbonate would continue to remain under pressure simply due to the fact that we have had additional entrants and entries in the market in 2019. And we said that earlier between 5% and 6% additional capacity, while at the same time, one major outlet for polycarbonate which is the automotive industry. Let's say downturn with regard to overall demand and that shifts also volumes into the commodity segment which even further increase the pricing pressure and we do not expect that this pricing pressure in particular commodity segment will end soon simply due to the fact that first, there is no additional demand short term, maybe even midterm from the automotive industry foreseeable. And secondly, we see additional capacity announced for next year in the range of additional 10%, again announced that does not mean that it comes to fruition. That is what we see. On polyurethane, I think we have tried to explain that a little bit earlier that on TDI, we see limited further opportunities for price to decline and margins to get under even further pressure because some of the high cost producers already most likely cease production and cannot compete anymore. Similar is it with MDI and in this context, you also asked about how do we see the opportunity of polycarbonate profitability, maybe historically go back, let's say, below polyurethane profitability. It is very difficult to predict, but let me remind you of one fact, we have, since this has happened last time significantly moved the product mix strategically to products with higher margins and where the volatility of those margins is lower. That's number one. We have significantly worked on our cost position. And thirdly, the last time when you have seen margins deteriorating that much. We also were not fully loading our assets. So all these three factors from my perspective would possibly support, let's say, a margin development even under very difficult circumstances for polycarbonate. So on your last third question particularly, polycarbonate supply demand and competitors canceling capacities are delaying start-ups on purpose. We have not heard about major or smaller polycarbonate player announcing cancellation of capacities. However, we have seen already in recent months, so called strategic revenues including all options from some larger players, for example, a larger European player who has put all options on the plate for its German-based asset. And in addition, we also have seen delays of ramp up at least. But we don't know exactly for what reason from one Chinese compared to that end. If you look at the overall capacity addition in 2019, the announcement for overall capacity addition was very high at and what we have practically seen. I think it was a double the rate and if I’m not totally mistaken, if you would have taken all unconstrained announcement, it would have been 12% and we only have seen 5% to 6%. So that gives you maybe also complete the picture.

It does indeed. That was very helpful, thank you.

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

Yes, good afternoon. And then three questions from my side as well. And coming back on the order book visibility, has the visibility changed in your order backlog or is it still as long as it has been during the last months that would be my first question. And my second question is you have already indicated on the EBITDA guidance for next year, or at least on the pricing delta, if you could do for your operating cash flow bridge net working capital inflow as opposed should be UV a lower in 2020 but CapEx spending is higher. And also, earnings at least from this pressing indicate lower, so it is fair to assume that the 2020 free operating cash flow should be most likely lower year-over-year. And then the last level is an inventories at your customers do you have any feeling, any idea, a clue where the levels are compared to the start of this automotive weakness? Thank you so much.

Mark, this is Markus speaking. Thanks for your questions, I'll provide you with an answer on the first one and Thomas definitely on the second one and the third one, we're still sorting it off. No, joke aside, that will also be done by Thomas. So on the first one, I think the order book visibility in principle is as usual we have limited visibility about six weeks to eight weeks, but we have to let's say we take into consideration some special effects. So as I said, general direction there is no significant difference however, there small orders coming in. So customers really ordering hand to mouth, just what they need on short notice in some areas. The other topic is that we, for example in polycarbonates slightly shifted the portfolio due to technical reasons and to load our assets a little bit more into the commodity area and there you have normally different buying patterns, compared to the more specialized areas. So these reasons lead to a slightly different order book visibility, but not if you really compare apples to apples then more or less, it has stayed the same. With that, I would like to hand over to Thomas.

Yes, I think your question was how is free operating cash flow developing. So let me maybe start with EBITDA first and give a little bit more structure to the building blocks that I think you guys would consider. However, I would also clearly say this is not a guidance. This is way too early for this, but just to give a little bit more structural clarity on some of the building blocks that we currently see. So first of all we indicated to you that in terms of EBITDA. We do see a negative pricing delta and we said it could be a low-triple-digit number that you should plug in here. On the other hand, we always said that on the volume side, we would expect a positive effect on EBITDA from the volume, and again I would attach a low-triple-digit positive number to this. FX, difficult to say, but I think to take something like a neutral effect would be probably not totally wrong. And then on the other bucket, I would probably attach a negative number to this simply because driven by our higher CapEx, we also facing higher costs in order to get this CapEx into the ground. So I think that, if you take this together again too early to give a guidance, but two negatives, one positive, nobody should totally exclude the case that the EBITDA might be below the 2019 number next year. From that into cash flow, I think you name some of the buckets. I would say CapEx we're expecting a higher number. The working capital positive contribution is probably lower simply because we have a very significantly or will have improved our level this year. On the other hand, there will be some relief from the bonus payment where we had to digest 350 million from 2018 as a cash out this year and the same is true for the tax where we had some higher cash tax payment this year was obviously not reoccur next year. Again to positive to negative on the back of a potentially lower EBITDA, nobody should be surprised if the cash flow in 2020 could also be a lower number. Again, I'm repeating myself. This is not a guidance, this is more what are the structures of the building blocks that you guys would consider.

Okay, understood.

So maybe on your last question, in terms of customer inventories levels in particular I assume or no, I've record you, you were very referring to automotive. Destocking, from our perspective might continue into the fourth quarter. However, we expect that it will be a little bit better in Q1, but they're still very, very high uncertainties, the [indiscernible] inventories. Also given the chemical nature of the respective raw materials in MDI and TDI are normal there might be still slightly higher volumes in polycarbonates but also here, handle it with care, because some of the grades are highly specific particularly also in the automotive industry and you might have some sitting on stocks, but you cannot use them for any other purposes. So even though there might be inventory system might need to order special grades. Where as in the commodity area, we do not assume that there is high inventory is actually on stock or that for example trade as carry a lot of those inventories that should be through meanwhile. Hope that helps?

Yes, definitely. Thank you so much.

The next question comes from Sebastian Bray. He is calling from Berenberg Bank. Please go ahead with your question.

Good afternoon, and thank you for taking my questions. I would have two please. The First is on, we assume negative pricing delta of a low digit million euro sum at EBITDA. Could you please give an indication of how this is split between cash and polycarbonates? And in particular, an overview of capacity utilization or at least the competitive outlook in cash. I know we don't usually talk about utilization for this segment. But is the competitive situation becoming tougher. That's my first question. And my second question is on the impacts of higher pension provisions on the P&L for next year. It looks as if by the end of the year, you have EUR600 million, EUR700 million of pension liability, could you please remind us of the implied additional P&L cost that you have to foot as a result of this? Thank you.

Yes. With respect to the first one; so again we said, we are expecting a negative but low-triple digits negative pricing delta for 2020 relative to 2019. If you take what we expect as the starting point in terms of prices, end of this year. Now, your question was how to split this, I would say it will mainly come from PCS and to some extent also from costs. But the major portion is PCS, which is reflected in here. And then, your second question, yes we have higher pension provisions on the balance sheet, because of the lower discount rate. The impact on our P&L for next year is negligible. I would say, and I would also remind you that the cash effect of this is negligible. We are paying a very constant cash out and pensions of roughly 25 million every year, and that is pretty much independent at least in the short term of how big the provision on the balance sheet is, so I would say on both end no major effects to be expected next year.

Understood. Thank you.

The next question comes from Jean-Baptiste Rolland. He is calling from Bank of America Merrill Lynch. Please go ahead with your question. Jean-Baptiste Rolland: Good afternoon Marcus, Thomas, and Ronald. Thank you for taking my question. I have one, please. You mentioned capacity additions of 10% next year in polycarbonates. I'm just wondering how much do you bake in terms of capacity additions for the years beyond, how much do you also expect for growth in polycarbonates demand in 2020? And second question to that is, how, when you say that you believe that the mid-term outlook for polycarbonates remains sound. What sort -- how long do you think mid-term is really? Thank you.

Jean, this is Markus speaking; so thanks for your question. So talking about capacity an addition of 10%, again, that is announced capacity. Please always handle this with care, because you have seen already this year. As outlined earlier added announced capacity addition and real capacity addition must not necessarily be the same number normally, they are a little bit lower. However, 10% is what we take as a planning assumption and if you now would, let's say, move ahead in the next couple of years and currently what has been announced, is for 221, 11% and for 222 something around 14% and to put this into perspective, all of those capacity additions are currently announced for China and all of those capacity additions coming from Chinese players. And in this context it is always important to understand that this has been encouraged by the respective government as this was one of the strategic polymers that the Chinese government wanted to see local self-sufficiency that we also have to be clear in this context that this encouragement and respective policies have been withdrawn meanwhile. So also, this is part of the overall picture in this context. Mid-term remain sound for PCS, how long will this be you asked, we normally plan for five years. So, and if we talk about five years between 4% and 5% growth of polycarbonate is what we assume. I hope that helps? Jean-Baptiste Rolland: Yes, it does. Thank you very much.

The next question comes from Georgina Iwamoto calling from Goldman Sachs. Over to you.

Hi, good afternoon. And Thomas and Markus, thanks for taking my question. I've got two. The first one is on kind of the volume outlook for next year. You've got a clear strategy to fully utilize your plan as far as possible. I just wanted and see if you could confirm what kind of capacity you expect to have to grow into for 2020? And then my second question is on polycarbonates you set out some helpful expectations for further weakening of mix over the next few quarters and you previously disclosed about 60% of sales in polycarbonates is resilient. Can you give us an idea of where that figure is today and where you see that heading to in the next few quarters? Thanks.

Hi, Georgina this is Markus speaking. Thanks for your question. So the volume outlook should be around 4%. Also, let's say, on the average that we plan for and for example 200,000 tons of capacity in MDI coming on stream next year. And so if we also assume for the rest of the portfolio, also due to a different turnaround pattern and things like that because many of the larger turnarounds have happened actually within this year, particularly in the first half and we would think that we have enough for 4% growth. If there will be no outages of our plants. So, considering this 4% is what we would think would be achievable with the next year. Now coming to the second question polycarbonates; we still intend strategically to grow the share of the resilient portfolio. And yes, it was around 60%. However, this year it is clear, also due to the short-term tactics to load our assets and to compensate for the losses in the automotive industry and that we would lose parts of this share tactically within this year. And if things are continuing that also might lead in the next quarters to further tactical losses and the shift therefore after respective parts that are resilient versus the parts that are commodity or non-resilient. Mid-term however, there is a few trends that would continue to help, recovery after automotive industry, 5G, medical application sort of as a couple of things that we have on our plate. While we believe that once we are through this very challenging environment and things are either recovering or coming through in terms of growth and significant growth and volume contribution to the portfolio that we will go back to the 60% plus and beyond for the polycarbonates portfolio. I hope that helps

Yes, it does help. But I do have one follow-up on that. And if you do you have kind of auto recovery, would you expect those auto OEM related volumes to come back in, at the same margin as we've seen in 2018. Or, are they auto OEM customers likely to negotiate a bit harder this time?

What is clear and we have to try to outline that there is some, some relationship. Let's say about overall lengths of the non-differentiated or commoditized market margins and prices somehow into the more resilient part of the business. However, the resilient part of the business has much less volatility and also, on average, definitely higher margins. So would we go exactly back to the level of 2018, once we see a first recovery no, are those margins totally out of reach mid to long-term also no, I mean that is the true picture because we currently are in a situation where we have land markets where we see also for the next quarters that there is more pressure coming on the polycarbonates, commodity area and that will also have some impact on the specialized rates but midterm again once things are back to normal. I think we can also see very healthy margins in the automotive segment again.

Okay, great. Thank you so much.

The next question comes from Isha Sharma, he's calling from MainFirst. Please go ahead with your question.

Hi, thank you for taking my questions. I have three please. You mentioned that the high Group volumes were ahead by better availability. Is it also the case for polycarbonates with such a sharp increase that we have seen in Q3 or do you see just a stronger end market trends compared to the first half? That would be the first. Secondly, could you please put some more color on the volume decline that we have seen at CAS, which end markets show weakness and how should we think of this going into 2020? The last one would be again the pricing guidance please for 2020. You mentioned that you will see increased pressure in polycarbonates as well as CAS, but how should be imagine this for polyurethanes, do you expect a significant recovery or more like a flattish development? Thank you.

Isha, thanks for the questions; this is Markus speaking. So looking into your first question, the story is similar actually for polycarbonates. So, also in polycarbonates the availability was the main driver. It was not the demand as we outlined the demand in particular for polycarbonate in the automotive industry and also the exposure towards the automotive industry in polycarbonates is higher than in the rest of the portfolio. So that means it's not demand driven, but simply our own supply capabilities that have improved due to the major turnarounds, planned turnarounds have been finished in the first half and since Q3, we were able to continue, let's say, to fully push volumes out of the plants, which we then did and that also helped us, let's say, to fully utilize and get the respective volume leverage. On your second question that was the volume decline in the coatings adhesives and specialties arena. For the markets, we're talking about this particularly automotive but also the industrial coatings area. These are the two major end users, where we saw a decline in the respective applications and we do currently not see that this trend will be short-term turned around, because we do not see any strong signals or even weak signals that would indicate that this would short-term recover and that may also be true for some more quarters as far as we look at the coatings adhesives specialty areas, and the good thing about the specialty is business is that it is special, and the bad thing about is that is a special business. So it is very difficult to switch from one application and push one materials into others likely for example do it for polycarbonates. So on the pricing guidance, I would like to hand over to Thomas.

Yes, Isha and I mean just to be a very clear what we said is, if we take the expected pricing level for December, which we expect, as of today, and then do a mark-to-market into 2020, we said this would then probably be a low-triple-digit negative pricing delta that this would generate in 2020 relative to 2019 taking the expected starting point of -- end of December of this year and that negative pricing delta will mainly come or mainly concerned PCS to some extent costs and to a lesser extent [indiscernible].

Thank you very much.

The next question comes from Geoffrey Haire, he is calling from UBS. Please go ahead with your question.

Hi, Markus and Thomas and Ronald. Thank you for to be able to ask the question, I just got one left. Can you just help us understand, would you have any start-up costs relating to the principal plant in either Q4 or the first few quarters of next year. And if you do, could you just maybe give us some guidance as to what those would be?

I would say, I mean we are expecting better to start up at the beginning of next year. If everything goes well, but I would say there is no specific high cost attached to the start-up into the ramp up or at least not to the degree that you would kind of be able to track and trace them in our overall group numbers. And therefore I would say this is existing but definitely a minor item overall.

Okay, thank you.

The next question comes from Thomas Wrigglesworth calling from Citi. Please go ahead with your question.

Thanks very much, Markus and Thomas; two questions from me. Firstly, on Polyurethanes polycarbonates; when we look at that volume, is that all market share or is actually the market share? Taking that you've executed larger the map because you're, these end market has actually declined. So I wanted to get a sense of how much net market share you taken in those three businesses. Second question is, I think we've been talking now for two quarters about MDI prices being into the cost curve. It is surprising you how long it's taking competitors to adjust production. Do you think something has changed in the competitive landscape with -- in this cycle versus previous cycles? And any comments on that would be very helpful.

Maybe start with the second question. So I would say the answer is no, we're not surprised, I think what we've been saying is and we cited some industry journals, which said that in MDI and also TDI we were moving into the unhealthy space so that the high cost producers were probably losing cash with every ton that they produce. We think this is true. And this has led to at least what we see a stabilization in the MDI and TDI prices. So it looks like we have reached more or less the bottom here. But on the other hand, I think what we also said is this does not change the picture of from how long does it take the market to really grow into the capacity before prices start again. And also, we know that it takes a longer time before competitors finally drop out of the market all completely. And therefore I would say the development that we have seen is in line with our expectations, which is a kind of sideways movement in terms of prices for those two products

Yes, Jeff, this is Markus speaking. So, on your second question in terms of market share. If you really look at the numbers for the first nine months and is always very difficult quarter on quarter. You know, inventory levels or turnarounds unplanned shutdowns, whatever. So there is a lot of, let's say, additional complexity in this while quarter-on-quarter comparisons are really difficult if not misleading. So let's take the first nine months as an indication, we still see that the Polyurethanes market is growing quite well and that is also reflected in some stabilization in the respective prices and we still again observing additional capacity from last year, which makes progress. So the market is growing at 4% to 5% and I would say, for the first nine months in POR, we even slightly grew below in the market, if you look at the growth rates for polyurethane. And for our polycarbonates there is still 2% to 3% market growth, which means that we are more or less at or slightly above market in terms of polycarbonate. So, this is the picture how we look at it. So again, I would say we are developing within the market range. Right. So, does it help?

Thank you, helpful. Thank you.

The next question comes from Chetan Udeshi calling from JPMorgan. Please go ahead with your question.

Two questions, first on just midterm CapEx which I'm assuming hasn't been changed. So can you maybe help us understand the bridge from the 350 million or so of maintenance CapEx that you have per year to over 1 billion CapEx that you guys have talked about in the past for 2020 and beyond like, what are the different buckets that you are spending the money and it would be useful to know how much is going into different buckets as well? The second question was, and I'm just reminding myself what the key KPIs that you guys had presented for short-term incentive planning, if I'm not wrong, the two out of the three KPIs were one on free cash flow over 400, the other was grossly about lack by 8% to get to 100%. Now clearly this year, based on your guidance those two and probably even the volume part might not be achieved next year, you are not ruling out a potential of decline in volume. So, like what do you see like flexibility here to change any of these parameters, or is it going to be the case that at some point this short-term incentive program will be changed to reflect the challenging environment? So some extent reduce the thresholds, is that going to be the next sort of outcome?

Chetan, let me start with your last question. First of all, maybe this is a misunderstanding here, we didn't say that we were expecting volumes to decline next year. To the contrary, I said you guys would expect a positive volume effect in your EBITDA bridge what we said is there might be a negative pricing delta in the EBITDA bridge, if you take the expected starting point December 2019 and kind of use this as a mark-to-market into 2020. So again, just to be crystal clear, we're expecting volumes to be up and we also expecting that this should have a positive effect on our EBITDA. Now with respect to your question, our bonus system usually is set up for three years. You just said it in order to achieve 100% the threshold are 4% core volume growth, 800 million free operating cash flow and 8 percentage points over WACC. And I think currently there is no intention to change that system.

So I think your first question with respect to CapEx. Yes, I mean our guidance for 2020 is 1 billion to 1.1 billion. Maintenance CapEx, We always said 300 million to 400 million, the major projects in there is our MDI 500 in the U.S, which is slowly getting costly because we are moving into the planning phase and especially the European activities in terms of our chlorine factory, our Aniline factory in Antwerp. And the related projects to this one. So I think Spain and Antwerp are the major projects that you find in the 2020 number.

Are you saying 2020 already includes a sizable CapEx from MDI in the U.S?

No, it's not a sizeable CapEx because most of it, I mean -- so I mean, let me just correct myself, 2020 already includes costs for MDI 500, but you will find them in the OpEx line. Mostly, not in the CapEx line because we cannot yet expense it, because we have not yet received the relevant milestone. In terms of the pure CapEx which is capitalized the major numbers in 2020 will come from the European activities that I just made.

Thank you.

The last question for today comes from Jaideep Pandya calling from Millennium. Please go ahead with your question.

Hi, thank you. Just on the U.S. MDI market, could you just explain me in very simple terms. Why the profitability in the US, remains to be very high compared to the other regions. And what is the sustainability of this when we think of the next two, three, four years when pretty much everyone wants to increase capacity in the U.S. And then the second question really is on China or other, what you're seeing in China where capacity increases, as you point out of being pushed out into 2021, 2022. So do you think really here that even the big players are suffering and therefore doing this or is it just the balancing act between volumes as you were saying, they need to grow into an utilization? Thank you.

Maybe on the first question you ask, first and foremost days run numbers quoted by some consultants to be very clear because we do currently not see significant capacity additions in particular on the next two to three years. And you might have seen that even one major announcement has been that there is at least a withdrawal of a planned investment and a major investments. So -- and in particular the U.S MDI prices here really wrongly quoted by some consultant. So that is very important that there is an indication, maybe on some trends, but the absolute levels are in most cases, simply not correct. So that is I think very important to keep this into consideration. And then the -- there is also some cost issues, if you look for example on tariffs for some of the raw material goods. Take Aniline that you need to import from China into the U.S; there have been additional tariffs on these. So from that perspective, you might also consider that some of the supply chains that have been built and have been calculated into respective investments may simply lead to different calculations after the tariffs have been imposed and may not make the overall investments including other factors that you have to consider as profitable looking at before. But that is speculation, because for sure. We have no idea, let's say, how the cost calculation look like, but it's just an assumption that I would make and therefore the cancellation of the respective MDI capacities from our perspective are not demand driven, but more driven by the respective cost developments. Does that help?

Yes. So in a nutshell, current U.S profitability is better than the other regions, is that right? That's what I was trying to understand really, to be honest.

You could say so but -- it's not a major topic, so they are slightly better really slightly better. So to be very clear. For sure, you have an advanced and advantage when you're sitting in the country because the cost to serve, cost to deliver lower than for local producers. But in general terms, I would say there is still important in the U.S. or however, they have reason to decline, also due to the tariffs that have been imposed. So yes, there is some margins, but again the whole picture is short-term and there is no -- short to mid-term there is no significant supply addition in the U.S foreseeable also due to the fact that somebody else was drawn. And again the margins even if you would like to say take the published numbers are only slightly higher than in other regions, also due to the fact that some of the MDI prices are simply misstated.

Okay, thank you so much.

Mr. Kohler there are no further questions at this time, please continue with any other points that you wish to raise.

Thank you very much for listening and all your interesting questions. If you have additional questions, don't hesitate and call the IR department or we will see you during the quarter with our activities. See you then. Bye-bye.

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