Ladies and gentlemen, thank you for standing by. Welcome to the Covestro Investor Conference Call on the Fourth Quarter and Full Year Results 2019. 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 handover the conference to Ronald Koehler, please go ahead, sir.

Good afternoon and welcome to our fourth quarter conference call and also obviously, the full year conference call. And as usually, we have posted our presentation and as well the annual report on our web page and you can obviously download it. And we assume you have read our Safe Harbor statement. And with that, I would now like to turn it over to Markus.

Thanks Ronald, and also, very warm welcome from my side. 2019, was the year in which we saw as expected lower levels of financial performance in the year-on-year comparison. Still, we delivered every quarter on expectations and achieved all full year guidance despite, several headwinds from internal, as well as external factors. We achieved a solid core volume growth of 2.0%, on the back of the anticipated growth acceleration during the last two quarters of the year. Our EBITDA, decreased significantly year-on-year, thanks to a strong volume leverage and despite the pronounced negative pricing delta, we managed to reach an EBITDA level of €1.6 billion. On the cash side, the management actions taken to optimize working capital showed positive effects and delivered the intended catch up effect towards yearend. Thus, we could achieve a solid free operating cash flow of €473 million for the full year, despite increasing CapEx year-on-year. For our return on capital employed, we achieved 8.4% earning a premium or cost of capital even in a challenging year. We also intend to return further cash to our shareholders, by proposing a stable dividend of €2.40 per share at the next annual general meeting, on April the 17th. We now go to Page number 3. In 2019, we delivered on our promises and fully achieved all financial targets we set our self. These results were possible, thanks, to our agile organization, our reliable asset base and the extraordinary motivation and dedication of our employees. All these strengths, enabled us to react quickly in challenging situations. On Page number 4, you can see that APAC and especially China, continue to drive global core volume growth. Despite a negative volume development for automotive, we still achieved high single digit growth rates for China and Asia Pacific for the full year. In furniture and many other smaller customer industries like medical, we posted double digit growth rates in this region. In Europe, Middle East, Latin America, strong core volume growth in financial almost, counterbalance to pronounced weakness in automotive demand, a weakness which affected Germany, especially. NAFTA, and the U.S. in particular, also suffered from a weak automotive industry, as well as a sluggish demand in electronics in 2019. Unfortunately, an unplanned outage at our Baytown plant affecting TDI and polycarbonates further effective growth in Q4. Strong growth rates in construction, combined with positive growth in furniture and diverse other industries were almost able to counterbalance the weak spots. Globally, and for the year overall, we achieved a solid growth rate of 2%. Strong growth in furniture and in electronics, coupled with a solid growth in construction, more than compensated the high single digit decline in automotive. I now, hand over to Thomas, for the full set of financials.

Thank you, Markus, and also a warm welcome from my side to everybody on the call. I'm on Page 5 of the presentation, which shows you the sales bridge. And it shows you a year-on-year sales decline of 15.1% for the full year, in 2019. And as you can see, the main drivers were the deteriorating prices in MDI, TDI and PCS, which together reduced our sales by total of €2.5 billion. On the other hand, we were able to deliver a relatively small but visible positive volume growth contribution of €124 million. And FX effect added another €277 million, and that is mainly attributable to the U.S. dollar. On the right hand side, in the bullets, you can see that we have listed all the units that we acquired and that we sold over the course of the year, and we also listed the European PC sheets divestment, which will only have an effect in the reporting year 2020. And for 2019, the overall effect of these acquisitions and divestitures was a negative €70 million, which we have labeled as portfolio effect in the bridge. So with that, let's turn to Page number 6. As you can see, and as you know we have for the full year, achieved an EBITDA of €1.604 billion, and 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 more than a negative €2 billion overall. But on the other hand, the positive volume development translated into an EBITDA contribution of €73 million, thanks to volume leverage of 59%. And FX had a small positive effect too, which is depicted in the bridge. With respect to the other items, the main contributors were the lower bonus provisions and the positive effect of €131 million, linked to the adoption of IFRS 16, which we adopted in 2019. And obviously, the progress of the prospective cost cutting program could not fully compensate the higher cost driven, mainly by an increased number of employees for production and CapEx programs, as well as investments into digitalization. So, please turn the Page for the individual segments, and Markus will guide you through those.

Thanks, Thomas. Looking at our polyurethanes segment on chart number 7. Over the course of 2019, we recorded a solid core volume growth of 2.3%. Overall, industry utilization stays at a low level due to additional capacities added during the last 18 months. Industry demand growth is expected to remain solid at our predicted long-term trend of around 4% to 5%. In MDI, 2019, was characterized by few ramp ups but no new start-up, leading to a slightly lower average industry utilization. Due to the currently low visibility on demand, we stay cautious about the further development in the short-term. Midterm, we expect that current over capacities will be absorbed by growing market demand. For 2020, the only new MDI facility being added to the industry seems to be ours in Brunsbüttel, Germany. We are glad to confirm, that we started the plant in December, and that the ramp up of the 200,000 tons nameplate capacity has been going smoothly since January. In TDI, the simultaneous ramp ups of three world scale plants have increased supply pressure and continue to lower average industry utilization in 2019. From current margin levels, which are at historical trough, we see rather limited further downside risk as we believe, that high cost producers are currently operating at, or below cash breakeven levels. Potential upside would, for example, come from closures of high cost plants. Recently, we have already seen the temporary closure of some smaller plants in Asia with around 200,000 tons nameplate capacity. As announced and awaited for some time, one midscale plant is announced to close down in Eastern Germany, beginning of the second quarter 2020. Finally, margin in Polyurethanes continue to be below the long-term average. Overall, the EBITDA margin of 11.2% in PUR in full year 2019, was clearly, below last year's level, primarily driven by significantly lower MDI and TDI margins. Let's turn to Page number 8. In Polycarbonates, we have recorded a solid core volume growth of 2.7% for the full year 2019. The ongoing demand weakness in automotive was compensated by strong volume increase in construction, electronics, medical and other smaller industries. Thanks to our position 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. Let's say, it's decreased by 14.3% year-on-year, driven by further price declines. The EBITDA margin of 15.4% in full year of 2019, was clearly, below last year's level, primarily driven by the pronounced negative pricing delta. Taking a quarter-on-quarter perspective, the decrease reflects the continuing price pressure and seasonally lower volume leverage. Let us take a short look at the overall industry prospects. Due to the automotive weakness accounting for roughly 20% of the industry demand, we estimate that the overall polycarbonate market growth was relatively low at around 2% in 2019. On the other hand, we saw capacity additions of around 6% in the same period. Thus, capacity utilization came down from 87% in 2018, to 83% in 2019. More than 10% additional capacities have been announced for 2020. This is expected to lead to a further declining industry utilization. However, over a cycle, we are convinced that polycarbonates remain a highly profitable business for us, with an attractive growth profile. If you turn to Page number 9, you will see the Coatings, Adhesives and Specialty business development. The impact from globally weaker demand affected our coatings, adhesives and specialty segment during the whole year 2019. As expected, volumes declined in almost all customer industries, thus, we’ve recorded a negative core volume growth of minus 1.0%. Accordingly, net sales in euros were affected by minus 2.1% from the volume decline and by minus 1.1% from lower prices. This was compensated by positive effects from currency and the portfolio impact from the DCP acquisition. For the full year 2019, the sales development was kept stable. The EBITDA margin of 19.8% in full year 2019 was comparable to last year's level. EBITDA suffered from the negative volume leverage, and slightly negative pricing delta. Lower selling prices were not balanced out by decline in raw material prices and therefore, cut into margins. Decreasing costs and one-time gain from consolidated DCP, had a positive effect on EBITDA. Taking a quarter-on-quarter perspective, the decrease reflects the seasonally lower volume leverage. Observing the current macroeconomic environment, we do not expect a fast recovery of the coatings and adhesives markets. In addition, a tougher competitive environment could further increase the pressure on prices. Thomas, will now explain more financial details.

Yes, let's please go to Page number 10, where we have the cash flow development. And as you can see the declining EBITDA, the higher CapEx, and a $350 million cash out for the 2018 bonus payment, were the main drivers for the free operating cash flow development in 2019. We managed to improve the free operating cash flow significantly during Q3 and Q4, after we had digested the negative phasing effect, which occurred in the first-half of 2019. And additionally, effective countermeasures reduced our working capital. At the beginning of 2019, we initiated working capital optimization program which brought the expected cash benefits. So that, for the full year 2019, we delivered €411 million positive contribution from changes in working capital to our free operating cash flow. So that, we were able to generate a positive, free operating cash flow of €473 million for the full year, which is at the upper end of our narrowed guidance that we have given. Please turn the Page to number 11, where you have the balance sheet. As you can see, overall on December 31, 2019, our total net debt level increased by €1.16 billion to around €2.95 billion. In combination with a lower EBITDA, these developments led to an increased ratio of our total net debt to EBITDA to 1.8 times at the end of December 2019, compared to 0.6 times at the end of 2018. However, of the increase, around €1.1 billion are triggered by accounting effects, and therefore, we continue to regard our balance sheet as being solid. So on the €1.1 billion, firstly, the new IFRS 16 accounting standard led to an increase of €575 million in net financial debt by the year end, and you can find that item in the bridge. And secondly, the pension provisions increased by €520 million over the course of the year, due to the decrease in the pension discount rates specifically in Germany. So, we continued in our tradition to return a high amount of cash to our shareholders and we paid out dividends in the total amount of €440 million over the course of 2019. With that, let's go to Page number 12, and the chart highlights the two major effects driving our EBITDA development. Firstly, the volume growth and secondly the pricing delta. Whereas the volume growth can be controlled by management action, unfortunately, the pricing delta is determined very much by the supply demand balance in the global industry. So, on average, we generate a strong volume leverage of around 50%. And based on our strong cash cost positions, we strive to grow above the global GDP. So, our current CapEx plans allow for a planned volume growth of 3% to 4% CAGR for the next years, because we need to invest around €3000 for adding one additional ton of capacity. And this said, we need around €0.5 billion, so roughly €500 million of growth CapEx per year, on top of the maintenance CapEx to support this growth. At this rate, we expect volume leverage to continuously contribute to EBITDA every year. And this also applies to 2020, even if the magnitude may be somewhat subdued in light of the current challenging environment. Now, outside of management control is very much the fluctuation of the pricing delta, which highly correlates with the global industry utilization. And Covestro was benefitting from a favorable pricing delta development between 2014 and midst 2018, due to strong demand and limited new capacities coming on stream. However, in 2019, as presented earlier, EBITDA decreased by more than €2 billion caused entirely by the pricing delta. Now applying the latest mark-to-market analysis, we assume a negative year-on-year pricing delta of around €0.6 billion to €0.7 billion for 2020. And if you take it all together, we expect that the cumulative volume growth contribution will be almost offset by the cumulative pricing delta contribution, if you take all the years that are depicted on the chart. So, based on this, I can tell you that we focus our management efforts to continuously grow, and at the same time, we're absolutely focused on increasing our efficiency of the company. So, therefore, if you turn to Page number 13, definitely, one key pillar to drive Covestro's efficiency is to reduce cost, and we presented the perspective program to you in 2018. And the savings program includes, around 900 planned headcount reductions, and a deep screening across all the areas of the group for possible savings. So that, by the yearend 2018, we were already slightly ahead of plan with additional €8 million. And in 2019, we even slightly further accelerated the pace of perspective, so that we realized cost savings of cumulated €150 million, €10 million more than the upgraded plan at the start of the year 2019. For 2020, as you can see also in the chart, we expect cost savings to reach an increased target of €250 million, which is €20 million more than originally, we had foreseen. And overall, we continue to target €350 million in overall savings by the end of 2021. Please turn to Page number 14. Obviously, in light of the situation where the economic situation is deteriorating, we have put even more focus on reducing costs in the short-term and reducing costs is closely linked to reducing headcount. And as a result of the perspective program, we already realized a decrease in FTEs of 8% in the marketing and general administration area in 2019. But on the other hand, as planned, FTEs increased at the same rate in the production to staff the expanded the production facilities, and to accompany the growth projects. Overall, including the R&D department, we recorded, therefore, a slight increase of FTEs of 2.7% in 2019. Now, as I told you, we are very much focused on this, so that, I can tell you that until the yearend 2020, we target to reduce our overall FTEs to the 2018 level, through further execution of our perspective program. And you have the full commitment that, by the end of 2018 [ph] [sic 2020], we want to be at around 16,800 employees, so the same level as in 2018. With that, let's turn to Page number 15, where you can see the EBITDA development, and our EBITDA suffered from a pronounced negative pricing delta in 2019, as I just said. This will continue into 2020, as we start the year on historical trough levels in most of our supply demand driven businesses. And as I already explained, we calculate a mark-to-market year-on-year pricing delta of a negative €600 million to €700 million in 2020. We, as the management team will do the utmost to mitigate this external pressure via cost reductions and a positive volume effect, and we are confident that we can achieve a low single digit core volume growth in 2020, by running our plants as reliably as possible, as well as on the back of additional kilotons from our new MDI plant in Brunsbüttel which came on stream as planned at the beginning of this year. So, this will translate into an EBITDA contribution of around positive €100 million in 2020. In addition, our EBITDA is expected to benefit from additional short-term cost savings of €200 million in 2020, half of the savings are driven by cost avoidance versus the original budget. For example, lower CapEx related operational expenses and the other half comes from various measures like, reduced consultancy costs, travel restrictions, and other expense cuts. So, overall, this leads us to guidance of one to €1 billion to €1.5 billion for the EBITDA 2020. And you of course, may consider this guidance range as rather wide. However, it just reflects a usual or the very volatile economic environment that we're currently facing. Now, we also give you some guidance in terms of mark-to-market, and based on our latest mark-to-market analysis, at average margins as of January 2020, the EBITDA would amount to €1.1 billion in 2020, if you multiply it out with our expected volumes. So, in order to achieve the midpoint of our EBITDA guidance, we need to see some price improvements over the course of the year. And with that, that leads me to the remaining items of our guidance which you can find on chart 16. As you can see, we assume a low single digit percentage core volume growth in 2020, declining EBITDA and a stable CapEx of around €900 million is expected to reduce our free operating cash flow in 2020, and we guide for a range of zero to €400 million, and we guide for ROCE after tax between 2% and 7%. For the first quarter of 2020, we're assuming EBITDA of between €200 million and €280 million. Now, this guidance includes the so far visible impact from the coronavirus on our business in China. And we assume that we will lose roughly 50% of our sales in China in February, due to the prolonged holiday season, and a lot of logistical challenges. And we expect a smaller, but, still visible effect in March. So, this said, we expect volumes should slightly decline on a year-on-year comparison in Q1 2020, and accordingly, our EBITDA guidance includes a direct impact from the coronavirus outbreak of around €60 million in Q1 2020. For the other quarter, so Q2 to Q4, our guidance is based on a normal business environment as the further development for us is not foreseeable. With that, let's turn the Page and look at the use of cash, and the main uses of cash remain unchanged. We are committed to our progressive dividend policy, where we target to increase the dividend per share every year or at least keep it stable also in difficult times, like now. We continue to invest in a focused way in our businesses by executing our CapEx program, since this is the most value creating use of cash, and we are disciplined, and we carefully weigh the right times. And therefore, we have postponed, as you've seen in our press release, our MDI world scale plant in Baytown, by 18 to 24 months. Opportunity base, we continue to screen the market for potential acquisition targets. And finally, in case of excess cash, we could kick off a new share buyback program with the necessary shareholder authorization in place. And we have put on the Page for you that, since our IPO, we think we do look back on an impressive track record in terms of the use of free cash. So, we paid €1.7 billion of dividends, including the proposed one for 2019. We did reduce our net debt and funded our pensions with roughly €2 billion, we invested a total of €2.6 billion in CapEx. And finally, we also bought back shares for €1.5 billion, as you can see on the right hand side. So with that, please go to the next Page, where you can see the dividends. Since our IPO, we have built a track record of increasing and stable dividends. We limited our dividend increases in the years 2017 and '18, taking into account our usual cyclicality. And the low payout ratio this year strengthened our balance sheet. And looking forward, we would be willing to also bridge a year with below mid cycle earnings and low cash flow generation to pay a stable dividend out of the balance sheet, while at the same time, maintaining a solid investment grade rating. So that for 2019, we propose a stable dividend of €2.40 per share, and this corresponds to a dividend yield of 6.1% based on the share price of €39.20, which was the closing price yesterday. So, please go to the next Page, where you have our CapEx program and our guidance with respect to CapEx. And we went through a thorough analysis of all projects in the last month, and we cut some plant investments and we reviewed certain timings. And we now plan to keep our capital expenditures stable over the next two years at around €900 million per year, which is a reduction versus the previous guidance by €500 million over the course of 2020 and 2021. And it does give us some more financial flexibility. We have shown or we are showing on this Page, that we have a maintenance CapEx budget of around €350 million per year. And I can also tell you that the top 10 projects on our list represent roughly one third of our total CapEx budget, and they include the new chlorine plant in Tarragona, and the new Aniline Plant in Antwerp. And this said, it's also true that we have today around 100 projects with CapEx of more than €10 million each with a spending divided by several years. And these projects should all generate a return on capital employed well above our cost of capital. So next, to our comprehensive MDI program. Another focus is our coatings, adhesives and specialty segments, where we are investing into a new co-extrusion production lines for high quality specialty films in Germany, in Thailand and in China. And the startup is planned for 2021. And in polycarbonate, we continue to debottleneck our existing production lines from Caojing in China, which is an opportunistic and therefore, optional approach. And we have optional expansion plans to increase the output to up to 600 kilotons in multiple steps until 2024. And with that, I would like to hand it back to Markus, who will give you the strategic outlook.

Thanks, Thomas. And we’re going to Page number 20. Prior to the close of the presentation with our summary, allow me to highlight the main strategic pillars where we made further progress in 2019. We see healthy long-term demand for high tech plastics to enable a more sustainable development across a wide range of different key technologies. Therefore, besides the traditional expansion of our production network, we already spoke about, we are consistently gearing our business towards circular economy. In 2019, we launched a global strategic program to implement circular economy in all corporate divisions going forward. In particular, the company aims to use alternative raw materials and develop innovative recycling. Linked to this, and to increase the share of green electricity in production, we signed a 10 year corporate power purchase agreement with Ørsted in December 2019, to buy the output of 100 megawatts from the planned Borkum Riffgrund 3 offshore wind farm. With regard to our portfolio optimization, we divested several low growth and low margin business in 2019, amounting to around €600 million of sales. Finally, the dedication of Covestro to innovation remains unchanged. One highlight exhibit of the K fair was an interior concept for future mobility, that Covestro developed together with partners along the automotive value chain. The main features were newly designed services that allow 5G communication, the integration of ambient lighting, the latest infotainment systems and forward looking seating concepts. Allow me to now summarize, and flip to Page number 21, because this brings us to the end of the presentation. 2019, was marked by a number of geopolitical and macro-economic uncertainties. Nevertheless, demand for our materials remains intact, which confirms our view that plastics are more valuable for the future than ever. On the back of a more challenging economic environment, as well as less favorable industry balances, we delivered earnings below mid cycle levels. The management is clearly, not satisfied with that. However, we did our utmost to counterbalance the market driven price pressure with internal measures. Based on our global cost leadership, we're convinced, we will come out even stronger once the cycle turns. We thank you for listening and are happy to take your questions.

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

Yes, thank you. Good afternoon gentlemen. Christian here, Kepler Cheuvreux. Couple of questions please. First of all, thanks for giving us a number for the coronavirus impact for Q1, it's very helpful. Could you qualitatively describe the situation in China that’s, what I mean is, how impacted is the logistics chain at present for the precursor material that you need? And how impacted do you see current end demand in China, and potentially, also affecting customer productions for China produced products geared to international markets? And then the second question, your reported tax rate has arisen two years in a row now. What would be a good tax rate assumption for 2020? That's it for now.

Christian, good speaking to you again. This is Marcus speaking. I cannot give you the complete picture that you are asking for. I have the slight suspicion that you asked me to explain the overall situation for all industries in this context. But I tried to do, let's say. my best to provide you with anecdotal evidence for the situation that we have. So, first and foremost, as usual over the Chinese New Year, we've had normal shifts in place, which were let's say, running our continuous processes in the major sites, that is not only at Caojing, but also sites for smaller production in South China. And some of them in the Eastern part of China, a little bit more North of Shanghai. And we were able to continue running almost all plants at reduced rates, for the entire time. And now we see, that some of the plants are going back to let's say, full operation in recent days. And that applies for our continuous process plants, but also for smaller system houses/compounding plants and film plants that we have. So overall, we are trying to get back as quickly as possible to normal operations, and we currently seem to be successful in that from all we hear from our Chinese colleagues. The logistics situation remains a true challenge. And that is sometimes very small items, like packaging, for example, barrels that we need to have, but also pellets that we need to have. And then another challenge is the drivers, actually the truck drivers. So, even if you're able to produce, even if you're able to package, then you need to have truck drivers, which are shipping stuff to the customer. And then some of the customers actually do not have resumed operation, that means, it's difficult to ship the material to them, because nobody is at the receiving end. So, there's lots of bits and pieces. So the overall supply situation will remain, at least, from our perspective, for some time quite fragile. And that describes a little bit the overall situation in China, and I do not assume that this situation is different in most of the industries that we are currently delivering to. And that's why I also - and we have done that, confident that the current estimate for the first quarter and the current guidance is reflecting the picture pretty well. However, to look beyond what will happen then, beginning of April for us today is simply impossible. And that's why this is also not included, by any means in the full year guidance, everything that goes beyond end of March. And that's from my perspective, the current situation, as good as I can describe it, but please feel free to ask any additional question. With that, I would like to hand over to Thomas to deal with the tax rate.

Yes, on taxes. I mean, we had a P&L tax rate of 26.8% in 2019. Our guidance for 2020, would be that, our ETR, so our P&L tax rate should be in the range between 24% and 26%. However, be aware, that our cash tax rate will be roughly 15 percentage points higher than that. But that is in line also roughly with the guidance that we had given for 2019 before, because the cash tax rate is expected to be above the ETR is simply because of phasing effects. So I think, fundamentally, no changes to what the ranges that we had given out for 2019, going forward.

Very helpful. Thanks, Markus. Thanks, Thomas.

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

Yes. Good afternoon gentlemen. I have two questions please. Firstly, on supply demand and price stabilization, if you see any - I mean, if we look through the coronavirus challenge. Do you see normalizing, stabilizing supply demand and stabilizing pricing already, or are prices still coming down as we speak? Could you just please go through the major product lines if possible? That's the first question. And the second question, and I'm sorry to come back on the dividend. I perfectly understand, that the dividend for 2020, should be safe. You have a strong balance sheet, that's not a problem. What I would like to understand is what would be the main criteria for you to consider changing your dividend policy going forward, if it should become necessary. Just, if you could share your thoughts on how do you look at your dividend guidance at the major criteria behind it. Thank you.

Thomas, thanks for the question. I am happy to take the, let's say, question on supply demand before Thomas then will talk further about the dividends. There is many factors that flow into what I'm about to say, and I do not want to bother you with too many details in this context. If you look at the current picture, as we look at it, despite let's say all the temporary shutdowns that we're seeing, availability of plants, coronavirus effect and so on and so forth. I think, bottom line is that for the three major products polycarbonates, MDI and TDI, we see that all are at or close to trough levels from today's perspective. So if you would like to sum it up, we see that prices are stabilizing on very low levels. And we see very limited opportunities for further decline in prices. And as a ray of hope, if there's any product where we could potentially see at some point in time, a potential upward trend that would be an MDI, because in TDI and polycarbonates, no matter what you take long mid or - sorry, short or mid-term effects, there, the market remains long, whereas for MDI days, at least with a normalization of demand, some opportunity that supply demand will balance out. So from that perspective, there might be some support for potential price increases. Though, it is very difficult to foresee when that might happen. With that, I would like to hand over to Thomas.

Yes, Thomas on the dividends. I mean, obviously, we are in a cyclical industry and we have set and I can just repeat it. We would be and will be prepared to bridge the dividends and pay it out of the balance sheet in the short-term if need be. But of course, in the medium to long-term, the company has to be in a position to earn the dividends, otherwise, we would lose our investment grade rating. And therefore, the management is putting in place all the actions that we have to put in place, so that, we make sure that in the medium to long-term the dividend is fully covered.

Thank you very much.

Thank you. The next question comes from Laurence Alexander, calling from Jefferies. Please go ahead with your question.

Good afternoon. Two questions. First, can you characterize what level of year-over-year change in the bonus pool is embedded in the free cash flow bridge for 2020?

Yes, first question, it's roughly €300 million in the free cash flow, that is embedded in the cash flow statement, or in the cash flow assumption for 2020.

And then secondly on your movements towards the circular economy. How would you characterize current benchmarks for how much alternative feedstocks are as a percentage of your total input stream? And how much of your products are recyclable of the ones that can be, that are physical as or that are solid as opposed to liquid?

To be very clear, the circularity topic is a decade topic or a multiple decade topic. So why do I emphasize that so much, because, you have to start very early, which we're currently doing to do fundamental research, but also, have some of the major products being investigated for what level of recyclability to have with which methodology. So, this is a huge undertaking in terms of transforming the way how we are doing business. And that's why we are just at the very beginning of this undertaking. However, it will mean that we will have to take, as of today, some major steps and major decisions because otherwise we will not make any progress in that. Let me explain, what I’m heading at. If you, for example, would be willing to enter into a circular economy at one point in time, you must over time switch from oil, gas and coal based carbon feedstock that you need for the production of polymers into for example, carbon dioxide as a feedstock into for example, bio-based materials and into for example, recycled plastics as a feedstock. And that decision would require that you also work with industry partners on the supply side, and they have to switch the entire supply chain. On the recyclability, you have to talk to your customers, because, most of the high tech materials that we are producing and that they are producing and using in the applications cannot be as experts would say, mechanically be recycled. That means, you cannot just chop them, heat them and produce same quality of plastics with that. That means, you have to decompose them and use them in a different way. One of those ways is what we call chemical recycling, that means, you break it down to the molecular structure, sorry for being so detailed. But it would mean, that in the end of the day, you go down to molecular levels and then you can use this as a perfect drop in feedstock and produce exactly same quality plastics for same applications like they have been used before. That is just one of the aspects you have to consider. Long story short, this requires a lot of fundamental research. It requires collaboration across the entire value chain, including customers who return the materials at one point in time. And that also would require that you entirely manage to switch from a linear to a real circular model. So this is a many, many year undertaking. However, first steps you need to take today, where you say, you switch your R&D portfolio entire lead towards circular economy and circular economy applications. It would mean, that you build your entire electricity supply from today, coal and gas and whatever type of electricity towards renewable, which we already have undertaken. So today, we take the steps. Today we decide, on resource allocation that will benefit us in the next five, 10 or 15 or even only 20 years. What does that mean, in terms of your question? Today, there is only a fraction of our feedstock that means way below 1% not crude oil based, and today, there's only a fraction of the materials that we can make chemically recycling. However, we made very promising first attempts and have very promising first research results that say, that our materials can be entirely recycled by different means, for example, chemical recycling. But, the percentage of recycled grades that we are using based on our own products is also way below 1% in total. With that, I would like to give back to the operator. Yes.

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

Very good afternoon, gentlemen. The question remaining, first one on the free operating cash flow guidance for 2020. Can you help us understand what kind oil price or raw material cost movement, this also nets of capital potential reduction you’ve taken until the free operating cash flow guidance? That was my first question.

I think, we don't give out a specific guidance for the oil price. What I can tell you is that, we have obviously for the EBITDA assumed a negative pricing delta, which is roughly the €600 million to €700 million which we talked about, that contains a small positive relief from raw materials, roughly between €100 million and €200 million positive, and a negative pure price effect, which then altogether brings us to the €600 million to €700 million, which we gave you. And that obviously then also flows into free operating cash flow.

My second question is on polycarbonate again. It's quite a difficult question, but it looks like that those are part of the chopped price of polycarbonate, of course was, [Indiscernible] additions, but the other to the destocking the automotive industry. Do you have any kind of idea that inventory levels at your customers of the very standard polycarbonates that are already at a level where the customers can't destock further or is this the downside to the potential for destocking?

Markus, this is Markus speaking. It is very difficult to judge for the time being in very much detail. And I'm however, less concerned about the inventory levels on polycarbonates for the automotive industry. Why is that? Most of the grades we are selling to the automotive industry, are grades that we would consider to be more on the specialty side for polycarbonates. So, it's not the mass market that is normally served towards the automotive industry. So, it's not the big commodity grades, but rather specific rates. For example, for headlamps even that even though there's a clear polycarbonate grade that is something that is considered to be a specialty. And then if you go into the interior applications, most of the applications are considered to be specialties. What does that mean? They are particularly ordered to produce a very specific model and they are normally ordered when the demand is really there, and not put on stock that much. That means currently, what assumed that the stock level at the automotive industry is rather on a low level as there anyhow in many, many at any time the automotive industry is managing these type of folks rather well and they just order what they really need for production. What concerns me more though, is how do the stock levels for the automotive industry look like in terms of finished cars. And that is something which we consider also in our forecast, and which we also consider into our outlook, how we expect the automotive industry developing in 2020. Because once consumers are back and willing to buy new cars, from my perspective, there's still a lot of inventory sitting there in finished cars, which still needs to be sold. That means, whenever, consumers start buying again, there is definitely a time lag before all those cars have been sold off and that therefore might rise later up the value chain in terms of then creating demand on our side. We are well prepared, so whenever, the chain is starting again, we are very well prepared to immediately react. However, it might take some time and then we might see a very interesting thing, which is we see a very quick ramp up in demand, which is then peaking before it slows down again and then starting to normalize, because we have seen it at numerous times in the past as well.

Okay, thank you. Then my last question would basically again CapEx, particularly in 2021 and beyond. We have delayed this large project and of your CapEx plan for 2021, how many of the projects are basically already prelocked in and can't be changed? Can you quantify this maybe in percentage terms?

I mean, it's difficult to give an exact guidance, but I think we could always take out a couple of €100 million, if we took a decision today. I think directionally, this would be probably the number that you should have in mind.

Okay, perfect. Thank you.

Thank you. The next question comes from Mr. Charlie Webb, who's calling from Morgan Stanley. Please go ahead with your question.

Thank you very much, and afternoon gentlemen. Just a couple. First off, just can you help us, given all the moving parts and where we ended up at the end of FY '19. Can you give us your kind of view on what you see as mid cycle as well as what you see as kind of trough EBITDA for Covestro today? I mean, you alluded to the fact that spreads across many of your commodity verticals are close to trough levels. So perhaps, can you just help us, is €1 billion the right kind of trough EBITDA number, or do you see a number that’s a little bit lower than that, excluding the one-off effects like coronavirus, et cetera? And then, also mid cycle as well relating to that. And then secondly, just in terms of demand in terms of what you've seen so far this year outside of China, clearly, China is a focused and again there thank you for sharing what you think that it looks like from February and March. But, how have you seen demand evolving in Europe, and in the U.S. through the end of the year, and in the early part of this year, that would also be very helpful?

Yes, this is Thomas speaking. Let me start with the first question. I think what I can tell you is for all of our three big products, namely MDI, TDI and PCS commodity grades, we are currently at or close to historical trough margins. So, take this as an indication that the company as a whole, I would also assume we are at or at least very close to historical trough. Now you can always, of course, construct a scenario and you named Corona, et cetera, which stands out of the normal development. But I think taking normal conditions, this is how we would see it. And then in terms of mid cycle, obviously, this is a somewhat, there’s little bit of a judgment call, but I think we have depicted on Page 15, in the dotted line where we roughly see it and I think this would be a number which is around €2 billion EBITDA for the company.

Charlie, on your second part on the demand, how we look at it, I think we had a good start into January globally, without giving you too much detailed flavors on individual industries. In February, we've seen a slowdown in China that went beyond the normal seasonality that you see, with regard to Chinese New Year exactly, because of the reasons that have now been widely discussed. So China is weak in that sense. The rest, United States and also Europe is okay. I would even say a little bit more than okay, because we see that global supply chains seem to continue to adjust to what some people would call the new normal. We have to trade tariffs, as you know, that have already led to some shifts in the global supply chains. And on top of that, I would say, that now the coronavirus also has led to some additional shifts and rearrangements of global supply chains. It is not a large extent, but I would guess, that some of the developments in Europe as well in North America, also are the result of people trying to desperately shift supply chains. So, that might lead to a little bit of a compensation of the slowdown in China by Europe and the United States. How material it is, difficult to say.

That's very helpful. Thank you very much.

Thank you. The next question comes from Jaideep Pandya, who's calling from Millennium. Please go ahead.

Oh, well, thank you. If you don't mind, I will have three questions. Firstly on polycarbonate. Can you just tell us with regards to Bisphenol A, if ban of this material, if there is going to be a ban in Europe is going to have an impact on you guys. And the second question I have on polycarbonate, is basically. If I look through, 2014 to 2019, this business, back in the day and troughs used to make sort of 4%, 5% EBITDA. Now, I know that you had a CD business back then. There's a lot of capacity still being added, recently a very big oil company has announced a big project. So, you're making about 11% margin. How do we think that this is trough if there's still new capital coming into this product? And then just the final question, really on leverage. I take your point on stable dividend, but at what point in terms of leverage are you comfortable when you define that you want to be investment grade rating? Thank you.

Jaideep, thanks for the question and for giving us a different spin. The Bisphenol A topic in Europe, for me is a topic that is very well managed by the entire industry. Bisphenol A is a very widely used chemical substance, maybe one of the best research substances that we have in the entire chemical industry, with research going back more than 50 years, and also studies that actually cover entire lives of people in this context. So, from that regard, I think and that has also been confirmed by many institutions, for example, the EPA, but also the FDA in the United States, Bisphenol A is absolutely safe for all its intended uses. And the few restrictions that we have seen, for example, on thermal paper printing devices do not have any major impact on the size of the respective industry. So, from my perspective, for me, I have a very hard time to imagine why there would be a potential ban on Bisphenol A, that would have a major impact on our business to be very clear. To add on that, some of the applications have already been deselected that were of some concerns from consumer perspective, for example, baby bottles, many, many years ago. So, there is not one single kilogram of sales going into this application from our perspective anymore. And also from that perspective, I think I would not see any impact from today's perspective. You asked on polycarbonates. And let's say, in tough times, 4% to 5% EBITDA margins, if I understood you correctly. I think we need to rethink how we look at polycarbonates from a cholesterol perspective and how much impact we really have from additional capacity additions. Why is that? Looking back 2005, where 30% of the global demand was just optical data storage and where the majority of capacity was just selling primary products into the market, the Covestro portfolio has over the last 15 years significantly moved on and moved forward into more specialized products. So that, as of today, our portfolio consists to the majority, of those specialized products which gives us support on less volatile margin business on the one hand. Secondly, we have developed over the years a leading cost position and managing more efficiently and effectively a much larger business than at that time. So, that means in terms of overhead compared to what are we actually selling in terms of absolute volume. So, from that perspective, the threat of additional capacity stations by high cost producers into the low margin area has over time, become lower and lower for the Covestro portfolio, because we are moving at let's say, disproportionate speed, away from those commodity grades more into higher specialty grades. At the same time, we are significantly increasing our leading costs position. One last example is here, this mother of all polycarbonates plant which currently sits in China, with a very large capacity of 400,000 tons being now expand to 500,000 in which the optionality to expand it to 600,000 tons. And it also gives an entirely different position than we have seen it from a historical perspective.

Just to ask you differently, Shell's moved into this industry or into this product with 250 kt capacity announcement, with the so called different technology in inverted commas doesn't concern you. That's what I was trying to ask you.

We're looking at a competitive as our customer side and not just that one single plant of one new entry into the markets. And from that perspective, I would not say, that one single plant really worries me.

Okay. Thank you.

Thank you. The next question comes from Jean-Baptiste Rolland, who’s calling from Bank of America. Please go ahead. Jean-Baptiste Rolland: Good afternoon, gentlemen. Thank you for taking my questions. I just wanted to get some clarity on the phasing of the €200 million cost savings that you have planned for this year. And also if you have any expectations in terms of the phasing as well from the raw materials relief? Thank you.

Well, I mean, on the phasing of the €200 million cost savings, I think you can assume for your models an equal distribution across the quarters, give or take. So there will be no major ramp up for that to be needed. And the raw material, again, I would rather think in terms of pricing delta, which is the €600 million to €700 million and in that sense, it's also evenly distributed. Jean-Baptiste Rolland: Thank you.

Thank you. The next question comes from Geoff Haire, who's calling from UBS. Please go ahead with your question.

Hello, and thank you for the opportunity to ask some questions. I just have one left from my point of view. I just wanted - if you could help us with your thoughts around capital allocation, you've clearly said that you can't borrow to pay the dividend indefinitely. The CapEx obviously remains high relative to maintenance CapEx in a low point in the cycle. How do you think about is investing in new capacity more important than the dividend or how would you think about that?

Geoff, thank you for the question. Unfortunately, those things are difficult to reduce to a single statement. So obviously, we're trying to manage the magic triangle here. The CapEx is a - we have a seven year CapEx horizon. So we cannot cut CapEx short-term. But we're absolutely convinced, as you correctly said, that investing into our capacities and maintaining the 4% of long-term growth rate is value creating to our shareholders. We're obviously making short-term adjustments in the CapEx as much as this is sensible, but we have to also manage the friction cost that an up and down on CapEx spending would introduce. At the same time, as I said, we are committed to a solid investment grade rating, which we think is important for the company. And we think, we will be able to pay a stable, ideally rising dividend and we will be prepared to finance this out of the balance sheet in the short-term. So quite frankly, I cannot give you exact priority. We're managing all the three priorities and we think in the mid of the cycle where the company is earning the €2 billion of EBITDA, we can fulfill all targets that we're managing.

But if it took us, let's say four or five years to get to mid-cycle of €2 billion, we could be, two, three years of having to borrow. You're saying that you're happy to do that to pay the dividend?

No, what I said is we can bridge the dividend in the short-term, short-term is definitely not four years, short-term is maybe one to two years.

Okay. Thank you.

Thank you. The next question for today comes from Chetan Udeshi, who’s calling from JP Morgan. Please go ahead with your question.

Just firstly on €200 million of additional savings. Can you help us understand how certainly €200 million have come through? I mean, it seems a big number as such, even if it's - given that is a short-term savings. And can you clarify whether €200 million is just net or a gross number? In other words, should we be adding €200 million total to our bridge? That's number one question. Number two, your free operating cash flow definition, which you probably are using to juxtapose your dividend payment besides it, but I don't know whether that free operating cash flow definition is necessarily the right free cash flow definition, given that you have some of the lease liabilities or lease payments of €130 million have been moved from operating cash flow to financing cash flow and you still have some interest charges. So, is free operating cash flow a right definition to use or you think maybe one should be adjusting it for the below the line payments? And last question, sorry, is having volume growth as a key KPI, maybe just help us understand why not the absolute earnings rather than just volume growth, because clearly, one of the key moving parts for Covestro's earnings is pricing. So, to some extent how best can you optimize the absolute earnings is probably more important than just volume growth? So, just some thoughts on that. Thank you.

Okay, let me take the first question and then come to the more fundamental ones that you've raised. So, on the €200 million cost savings, I mean, I have a long list in front of me and I think it would probably be too much for this call to read them all out. What I can give you in terms of rough cut, is that we're looking at three buckets of one third each. The first one is cost savings, simply because, we have cut our CapEx program. And less CapEx also means savings on the OpEx side. So, this roughly is one third of those savings. Secondly, the next third is various cost saving items. So, those are the usual suspects and smaller things like consultancy costs, travel, training, catering, et cetera, et cetera and marketing we can always take a break. And then the third bucket which again caters for a third of it, is that simply we have reduced our budgets for some of the growth initiatives where we wanted to spend more money, this is in part digitalization, this is in part IT, where we think we can for a year also live with less growth in our costs. So, those are the three buckets. If you ask what of that is cost avoidance versus real cut versus 2019. It's a 50-50 split. So, 50% is cost avoidance versus a higher budget and 50% is real cost reduction relative to 2019.

And then I think on your other questions, I mean, I think we've been very, I mean, Chetan, this is something we can obviously debate, but I think we've been very open about what is the effect of IFRS 16. And I think we're obviously very mindful that below free operating cash flow, there's still a dividend to be paid and interest to be paid and that includes the interest for the leaders. So, I think something that we will take into consideration. And on the volume growth side, I mean, I can assure you that we are not pursuing volume growth per se as a KPI, but we think that out of our value creating or value focused strategy to invest into new capacities that have a return above our weighted cost of capital, that should lead into growth for the company. And since we are in an industry where we have cost inflation every year, growth is a necessary condition so that we can cover those costs inflation. So, it's for us not, I would say, a single minded road, where we say, we have to achieve growth at all costs, but it's a balanced approach between growth, the profitability and the efficiency, which is reflected all ROCE number. And we think, in that sense to have it as one KPI which is equally weighted with the others. It is a sensible way to look at our business.

Understood. Thank you.

Thank you. The next question comes from Georgina Iwamoto, who's calling from Goldman Sachs. Please go ahead.

Thank you. Hi, Markus, hi, Thomas. I'm sorry for keeping you on the line so long this evening. I've got two questions left. So, the first is to Thomas on the dividend. I just wanted to understand the rationale for not rebasing the dividend in the current environment. And does it signal that you think that earnings are going to rebound next year? And you've been very clear, Thomas, about not funding the dividend from debt in the medium-term. What do you need to see to have confidence that the medium-term looks good? And then also kind of on that topic, can you maybe elaborate on your preference for a high dividend over a share buyback, which potentially offers more flexibility, and could arguably be seen as attractive. And if you think that FY '20 is the trough? And then one question for Markus, aside from M&A, are there any in house technologies that you think you can develop or grow organically to diversify your product or end market exposure? I appreciate the color that you gave us on projects and circularity and recycling. But, do you think the product or end market diversification is also possible? Thank you.

Yes, Georgina, let me start with the dividend question, and I hope that I can cover the scope that you alluded to. So, first of all, I mean, our rationale is, if you look at this company in the midpoint of the cycle and I mean, you can always debate what is exactly the EBITDA number that is midpoint but just give and take, if it was a €2 billion EBITDA, then we just think the dividend payments of €2.40 that we currently have, is at least in line with a mid-cycle point in order to have our shareholders participate in the success of the company. And we only pay €2.20 when the earnings were much higher, and we think now that we're approaching trough levels, we should maintain the dividend payment. Therefore, it is somewhat geared to a reasonable payment given the midpoint of the cycle that we assume for this company. And yes, you said it, I think we can find it out of the balance sheet in the short-term, short-term being one or two years, but not in the medium to long-term. But, medium to long-term we have to take the right efficiency measures and I can tell you we're laser focused on implementing exactly those savings that we try to describe in this call. On the rationale of a share buyback, I think the feedbacks that we've gotten so far is that a reasonable dividend payment is the preference of many shareholders. But I think we've shown some flexibility in the past, where we embarked on a share buyback, and we've also received the authorization to embark on another one. If we should be in a position where our balance sheet is becoming inefficient, I think currently, this is nothing that is immediate in the cards. But I think we've shown our commitment to return excess cash to our shareholders in the past, and we will stick to that commitment should the situation arise again.

Yes, Georgina, this is Markus speaking. And to you again, yes, it's a quite challenging question in terms of innovation, I have to say, simply because of the fact that our development cycles also in with regard to new technologies, but also new products take a while, I would say. And in particular in our end markets when we only talk about chemical products, there's smaller contributions because, at least as of today, so called blockbusters that you see in other industries are difficult to find here. However, if you would like to have some flavor on what we do in a circular economy, one thing is where we believe big opportunity also to increase competitiveness in the market, if you provide solutions that help to for example, recycle some of the products that we bring into the market. And here we're talking about opportunities in terms of chemical recycling. We talk about technologies that are not necessarily chemical product related, but that are related towards online process optimization with our customers. So, we tell our customers online how they could optimize the mixtures that they are using to abuse. For example, less scrap, when they are going for richer for manufacturers and things like that. There is other opportunities that we have to provide products to our customers, that are more environmentally friendly. And one of the fastest growing segments, for example, in the coatings, adhesives, specialties area, is all our water bond for the urethane dispersion systems, which still are very much like our customers and show several other benefits, not only benefits in terms of a greenification of the production and so on and so forth. So, the entire topic of circular economy goes across the board, from recycling technologies, through solvent free systems, through nonfossil-based raw materials, and they go even beyond. Just to give you another example, if you think about products that have been produced with green energy, that means the higher your usage of green electricity is, I think, the better your position with some of the customer segments that we have are. So only looking at the product view, only looking at the chemicals that you sell to customers may fall short a little bit, you have to look at this from an overall lifecycle assessment perspective. And I think that is exactly the journey that Covestro currently is embarking into. And that provides technologies, that provides better footprint in terms of CO2 emissions, but it also provides better solutions in terms of applied technology and methodologies of recycling, just to give you some flavor.

Thanks both, very much.

Thank you. And the last question for today comes from Isha Sharma, who's calling from MainFirst.

Hi, thank you for taking my questions. First one would be, what is the magnitude of price increases from the current levels that you would need to achieve the midpoint of your guidance? And then related to that, how likely is it that high cost producers who burn cash in the situation and are doing shutdowns because of which the prices should improve, would start producing again, once the prices are, again, at an attractive level? This would be the first one. And the second one would be, if we assume that there's a little bit of recovery in prices during the year and a pickup in business activity, would you still prioritize the short-term savings of €200 million? Thanks.

Isha, this is Markus speaking. We're just debating here in the background, a little bit to be a little bit more transparent about what we are doing by being so quiet here on the other end of the line. Because, I think we've been quite clear about how we see the current mark-to-market situation. And Thomas alluded on that quite nicely, that he said, this is about €1.1 billion. If you would translate that now in terms of sales, and would say that everything comes through which we sell more in terms of pricing, and about 1% to 2% of additional sales would maybe lead to about €120 million additional EBITDA. And you can now choose to what extent you would like to distribute that to which product portfolio, because I think we also made it very clear, that in the polycarbonates, as well as TDI business, we would not see quick recovery in prices. So, the only remaining larger commodity segment would be MDI, and then you would need to just make your own math about how much additional price increase you would need on MDI. Let's say, in terms of generating additional €120 million EBITDA, if you would increase our sales by 1% to 2% just to keep in mind, MDI is 20% of our portfolio. It would maybe lead to a 10% price increase on a year-on-year basis, I mean, full year-on-year basis. And that gives you some indication, so, where you would need to end up. Is this unusual? Have we seen that historically? Yes, we have. So it is not unusual. Would we see it for the full year? Would we see it from which point in time? Very difficult to say frankly speaking. So, that also leads me to the second part of the question, where you said, well, when will those high cost producers enter. We have to take into consideration that some of the high cost producers have small plants. And it is very difficult to say when they will restart and what will be the effect. Just to keep in mind, there is significant capacity currently not producing. That also means that if the market prices would recover, there will definitely be a few producers lining up to immediately restart and resume production again. And that will also subdue price movements in TDI but also polycarbonate only on a commodity segment for polycarbonate for quite some time. And that's why it's very difficult to say where exactly would be the price from which high cost producers will immediately end up. On TDI, if you just take the cash cost curve is very steep. So, low cost producer to high cost producer 50% difference. On MDI, we assume it's 30% difference. So I would assume whenever, let's say, the prices will increase by 1%, 2% there will be a first one in line who would immediately produce but then it would be a staggered approach. It is very difficult to judge frankly speaking.

Okay. Thanks.

The last one.

Mr. Koehler, there are no further questions at this time. A - Markus Steilemann: Maybe we forgot one question to be answered. Would we still give priority to short-term savings? Sorry for that. In case of a pickup of profitability, I think the clear answer is, yes, for sure. Q - Isha Sharma: Perfect. Thank you so much. End of Q&A:

Good. And thank you all for participating and for your questions. If you have additional questions, don't hesitate and just call the IR department and we will try to help you. We will be obviously, having some conferences and road show after the quarter. So happy to see you then on the street as well. Thank you. Bye.

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