Ladies and gentlemen, thank you for standing by. Welcome to the Covestro Earnings 2020 Results. The company is represented by Markus Steilemann, CEO; Thomas Toepfer, CFO; and Ronald Köhler, Investor Relations. [Operator Instructions] I'd now like to turn the conference over to Ronald Köhler. Go ahead, sir. Ronald Köhler: Good afternoon, and welcome to our first quarter conference call. I just have to apologize a bit for the five minutes delay but there are so many participants waiting still to enter therefore we were waiting for you. And I hope this doesn't break it so to say. For your information, we have posted our interim statement and our conference call presentation on our website where you can find it and follow it. And we also assume you have read our Safe Harbor statement. And with that I would like to turn it over to Markus.

Thanks Ronald. Good afternoon and good morning to our listeners from the United States. Current times are extremely challenging for all of us, both on an individual, as well as on a professional level due to the coronavirus pandemic and its consequences in all areas of our life. The focus of quarter one 2020 was certainly to first take care about the safety of our employees, and then to find ways to secure our business in the best possible way. Let me start with the financial highlights of the first quarter. As expected, we faced a core volume decline of 4.1%. However, we reached our EBITDA target of €254 million within the guided range of €200 million to €280 million. In the first quarter the free operating cash flow was as expected negative. This reflected the usual seasonality. As you know, it was not possible to stick to our initially planned AGM date. We now found a new date and format. It will be held virtually on July the 30th, 2020. Finally our initial outlook for the year could not be upheld therefore we adjusted the group financial guidance for 2020 already with an ad hoc application on April the 15th. The chart on Page 3 shows you Covestro's core volume change year-on-year including the latest available data from April. In the first quarter of 2020 volume sold in the core business fell by 4.1% at group level compared with the same quarter of the previous year. This was due to coronavirus related weaker demand in China in February and March. We estimate the global impact on volumes at minus 8% year-on-year. Under regular conditions the underlying growth in core volumes would have been around 4% positive from the first quarter. The impact by region gives a better understanding on the global dynamics. Our figures show that mainly China was affected in the first quarter. As it was hit first the impact on our business was highest in February. In Europe volume impact varied by country, Italy and Spain were impacted first, automotive production stopped were decided late in the quarter. In April we faced the major year-on-year decline with a recent stabilization. In the United States, we witnessed the latest but hardest hit. The pandemic arrived late and the political actions affecting the economy were implemented one month later than in Europe. In a nutshell, we conclude that quarter two will be affected by many more countries while quarter one was mainly affected by China. Consequently, we expect the impact on core volumes to be significantly more severe in quarter two than in quarter one. After the regional analysis, let me show you on the next slide, our main customer industries, how they are affected. The chart focuses on automotive, wood and furniture, construction and electronics, all together accounting for around 65% of group sales. The data represents our current internal assumptions for different industries. For automotive, we observe that a 100% of the production plants reopened in China, on the other hand, all plants are currently closed in NAFTA and some plants reopened in Europe, Middle East Latin America, at reduced capacity. The current lockdown coupled with the lower - with the low consumer confidence is expected to severely hit this industry. Therefore, we assume an industry decline between as minus 15% and minus 27% for 2020. For the wood and furniture industry, we expect also that the global markets will decline between minus 12% and minus 17% in 2020. Construction seems to be not as bad as automotive or furniture. However, also here we see that the lockdown dampens activity is meaningful. It seems that the impact on this industry will be the highest in NAFTA. Our assumption for the Global yearly development is declined between minus 2% and minus 8%. For electronics, a major impact is assessed for the region Asia-Pacific. Since we faced a severe decline in this region in quarter one, we might have seen the worst already. We estimate that EE&A were declined by minus 4% to minus 12% this year. Let me now wrap up this picture on the next slide. In response to the global spread of the coronavirus pandemic, the Board of Management has taken early and decisive actions to adapt the company to the current conditions. In mid-March, we made Home Office mandatory for employees wherever possible. As of today we have thankfully recorded no casualties among our workforce. The second priority was to secure the utilization of our assets and to ensure the ability to deliver to customers. China was first hit by interruptions in February and reduced production rates. We returned to full production rates in the middle of March. However, as the pandemic spread into other Asian countries our export business from China into Asia Pacific suffered. Therefore we had to again lower rates in April. In Europe we see rates at around 70% for polyurethane and polycarbonates. Cost has been running at reduced rates as well since April. In the U.S. our beta on site was not hit in Q1 but has now for few weeks also been forced to reduce its output. In Q1 we recorded a negative impact on EBITDA of around €80 million slightly higher than the guided €60 million. On the back of this, another key priority for us was to review our cost savings and CapEx plans and to secure the strong liquidity position. Continued on Page 6, we further increased the target for short-term cost savings to now more than €300 million in full year 2020. Previously we planned to achieve €200 million of additional cost savings in 2020. Half of the savings are driven by cost avoidance versus original budget for example lower CapEx related operational expenses. The other half comes from various measures like reduced consultancy cost, travel restrictions and other expense cuts. In response to the coronavirus effects we identified more than €100 million of additional measures through lower OpEx in line with the reduced CapEx budget, less travel and lower supply chain costs. This comes in addition to the ongoing perspective restructuring program which is expected to contribute savings of €100 million this year. The savings program includes around 900 planed headcount reductions and a deep streaming across all areas of the group for possible sustainable savings. In total all measures are planned to yield more than €400 million of savings for the full year 2020. On Page 7, let me now go through our standard chart starting with the regional development. Global core volumes declined by 4.1% year-on-year. We observed the ongoing demand weakness in automotive in EMLA and NAFTA. This translated into a low double digit decline of core volumes in automotive. Volumes in global electronics also declined by a low double-digit rate entirely driven by Asia-Pacific. Positive volume growth in multiple other industries like medical and chemicals could not compensate the sharp declines. Asia-Pacific usually our best growth region was severely hit by the coronavirus in the first month of the year and recorded a double-digit volume decline mainly driven by China with volumes down by 29%. All customers industries were affected without exception. Core volume growth in EMLA was still slightly positive with 1.3%. Growth suffered from the pronounced weakness in automotive. However, strong growth in electronics and multiple smaller industries like packaging, textiles and others could compensate for it. Core volume growth in North America was even strongly positive posting 5.8% growth, drivers with strong growth rates in construction and wooden furniture. These industries counterbalance the ongoing weak automotive demand. I now hand over to Thomas for the full set of financials.

Thank you, Markus, and also good afternoon and good morning from me as well to everybody on the call. I'm on Page 8 of the presentation, and the sales bridge that you see shows a year-on-year sales decline of 12.3% for the first quarter 2020, and the main drivers were deteriorating prices in MDI, TDI and PCS which reduced our sales by a total of €219 million as you can see in the bridge. And on the other hand lower volumes triggered by the coronavirus pandemic reduced our sales by €89 million. FX was positive and added €27 million mainly attributable to the U.S. dollar and finally our portfolio changes reduced our sales by €14 million in Q1 and you have the details of that effect in the bullets on the right hand side of the chart. So let's turn the page - on Page 9 you see that in Q1 which generated an EBITDA of €254 million which was in line with our guided range of €200 million to €280 million. The higher competitive pressure in polyurethanes and polycarbonates led to a decline in contribution margin however due to a relief on prices of raw materials the negative pricing delta was slightly less pronounced than we had expected and amounted to €150 million. The negative volume development translated into an EBITDA impact of €54 million and the line item, other items contributed positively with €12 million. The main contributors being short-term cost savings which were partly counterbalanced by provisions for the restructuring book program which we built and FX had a very small effect as well. So with that let me turn in to our segments and I'm on Page 10. If you look at our polyurethane segment on chart - on this chart we faced a core volume decline of 3.6% in Q1. Overall the industry utilization stayed at a low level due to additional capacities added during the last 18 months on the supply side, and also due to softer demand triggered by the coronavirus crisis. Overall our EBITDA margin is at 3.9% in Q1 which was clearly below last year's level driven by lower volumes and significantly lower MDI and TDI margins. However if you take a quarter-on-quarter perspective, we also see a decline triggered by the missing seasonal volume rebound and by continuing margin pressure. Please turn the page to number 11, and here you see that in polycarbonates the core volume declined by 4.9% with the EMLA and NAFTA still showing increases in core volume development, the negative driver was clearly the double-digit decrease which we recorded in APAC as a result of the coronavirus pandemic. All key industries showed volume declines except in the construction activities in NAFTA and EMLA. If you look at the EBITDA development you see that the EBITDA margin of 14.9% was clearly below last year's level, primarily driven by the pronounced negative pricing delta and lower volumes, and despite the sequential volume decline, we improved the EBITDA margin by three percentage points quarter-over-quarter. So this margin improvement was driven by lower cost and a positive pricing delta. Please go to Page 12, on this chart you see that the impact from globally weaker demand also affected our car segments during the whole year 2019, and in Q1 2020 the seasonal rebound in volumes did not materialize as macroeconomic conditions worsened. So volumes decline in all customer industries and we recorded a negative car volume growth of minus 5.2%. Nevertheless we could defend the high margin level of last year's quarter with 22.7% in Q1 2020. So with that let's turn to Page 13, and let's look at the cash flow. As you can see our free operating cash flow in Q1 came in as expected with a negative value, mainly driven by our lower EBITDA and we saw a typical seasonal increase in our working capital, so that the working capital sales ratio stood at 18.7%, which represents a slight reduction year-on-year. As we counterbalance the lower demand with adequate production cuts and therefore the inventories, if you measure them in kilotons slightly declined year-on-year. You will also notice the high payout for income taxes. This is a phasing effect and it will material - and it will normalize over the course of the year. Please go to Page 14 where you have the balance sheet and as you can see, we've maintained a very strong balance sheet and have significant sources of liquidity. And presently these include about €1.2 billion in cash or cash equivalents as well as our undrawn revolving credit facility of €2.5 billion. We secured the liquidity at favorable rates in the course of the quarter and we raised a short-term working capital line of €500 million as well as a loan from the European Investment Bank in the amount of €225 million which is devoted for research and development activities in Europe. And the focus here is particularly on the topic of sustainability and circular economy within the European Union. On March 31, of this year our net financial debt increased to €1.29 billion and the main reason for that was obviously the negative free operating cash flow at the same time our pension provisions decreased by €530 million mainly due to the higher discount rate in Germany and the discount rate that is used to calculate the pension provisions are based on corporate bond rates which increased during Q1 2020. So in combination with a lower EBITDA, these developments led to a slightly increased ratio of total debt to EBITDA of 1.9 times at the end of Q1 2020 compared to 1.8 times a quarter ago, and our equity ratio remains very solid at 47% also as of the end of March 2020. So with that let's go to Page 15, and this slide brings us to the updated guidance for the full year. Many companies currently refuse to provide a guidance given the unprecedented circumstances. And we also consider this option, but we felt it would be more useful to provide a new range and in addition to explain how we developed this forecast. So as you know our usual EBITDA bridge stood on four key pillars, which are the volumes, the pricing delta, FX, and number four the fixed costs which are the main driver of the pillar of us. Now unfortunately as the management team we currently only have one out of those four pillars under our firm control and that is namely cost. Usually we cope with significant swings and pricing deltas whereas the volumes most of the time steadily are growing. Today however we are facing significant volatilities in selling prices. raw materials. and also in volumes, so making a close prediction very difficult. Nevertheless we forecast an EBITDA corridor of between €700 million and €1.2 billion for the full year, and we assume a relatively stable cash margin for the remainder of the year compared to the margin level as of March 2020. Of course this is an assumption and given the volatility and raw material costs and selling prices also this might vary, however at least over the past six months the cash margins remains relatively stable. So the most difficult part to forecast is the volume development and a wide range appears imaginable as an outcome for the full year 2020. And therefore we would like to provide you with a volume sensitivity. So please be aware that one percentage point change in core volumes effects our EBITDA by around €50 million for the full year. So, let me translate this into our guidance range and you have the bullets on the upper right hand side of the chart. Our EBITDA corridor is mainly determined by the assumed volume development, but also include some margin movements. At the upper end, we assume a mid-single digit volume decline coupled with a slightly improving margin compared to the March 2020 level. And at the lower end, we assume a low-double digit volume decline coupled with a slightly deteriorating margin. So our guidance is based on the assumptions of a very weak Q2, but then some sequential improvement in Q3 and more in normal quarter in Q4. And unfortunately due to the very high and due to the highly volatile current economic environment, we restrained from giving a more detailed quantitative guidance within the usual range for the second quarter. And we hope that these explanations are helpful for your models, which of course you will have to build on your own volume and margin assumptions. So with this and let's go to the next page which gives you the remaining items of our guidance on Chart 16. As explained, we assume core volumes in 2020 to be below 2019 and the lower EBITDA guidance also lowers our free operating cash flow expectations. CapEx has been further reduced to around €700 million and the free operating cash flows expected to come in between minus €200 million and positive €300 million in 2020. Consequently we guide for a ROCE after tax between minus 1% and plus 4%. And with that, I would like hand it back to Markus for the summary.

Thanks Thomas. This leads to the remaining items for our guidance on Chart 16. As explained, we assume core volumes - as explained we assume core volumes in 2020 below - sorry, that was wrong. This brings us to the end of the presentation, I'm very sorry I just flipped pages. In the first quarter despairing coronavirus pandemic drove down our core volumes mainly in China. However, we achieved our EBITDA target despite a higher than expected impact from the lockdowns. In the second quarter the impact from the pandemic is expected to be even more severe given the deteriorating economic environment and the increased uncertainties we felt obliged to update our initial full year guidance. We have done and are still doing our utmost to manage the crisis in the best possible way. First, we took the necessary measures for the safety of our employees and our business partners. Second, we decided up on a whole set of measures to counterbalance the financial impacts. We thank you for listening and we are happy to take your questions.

[Operator Instructions] And the first question for today comes from Mr. Markus Mayer, who is calling from Bader Bank. Over to you, Mr. Mayer.

Good afternoon, gentlemen. Thank you for the presentation. First of all I have a question on the dividend, the AGM was delayed. Have you any comments on the dividend for 2019? That's my first question. And then - and the second question is on the business development, you’re still too far polycarbonate somewhat stronger than I expected. So you said that was basically also positive tailwind effect from raw materials, and what else as you’re also seeing some positive effects for our polycarbonate yields from us or something like this, any kind of demand update from this side would really help. Thank you.

Markus, let me - this is Thomas speaking, let me start with your question on the dividend. So, obviously there was a proposal for the dividend for our AGM which was originally planned for April 17th which had to be postponed, and we now have this new date on July 30. So currently there is no new decision taken on the dividend.

Markus, I’ll take the second question. This is Markus speaking. We have for polycarbonate a stronger pricing delta than we actually expected full prices even up not only the raw materials we’re helping so to say and however the raw materials delayed impact is about let's say two months so you can also see even though we have seen some of the spot prices for example for benzene and benzene derivatives coming down, this normally takes about six to eight weeks to really be fully consolidated in our books. And in addition we're not only buying in the spot market but also have contract volumes for sure with pricing formulas but in the end of the day, there's a mix of contracts so to say that we also have to honor in this context. So there was a limited impact in the first quarter and we will most likely see more in the second quarter. Demand in medical to particularly address this question is good. However the medical segment is still, in absolute terms too small to compensate for example and counterbalance other weak industry just to name one, the automotive industry and yes, we have also seen business with protective equipment, however that is also in the overall context I would say neglectable where I can give you some flavor if the niches of the electronic market, polycarbonates are selling quite well. For example for home entertainment equipment and here particularly everybody is looking for a second computer screen, everybody is looking for video, camera equipment. Everybody is looking for any devices that under voice control and that is exactly where Polycarbonate is also widely used so from that perspective, we also had some counterbalancing effects.

Thank you. Might I still - a third question or so on the free cash flow guidance so if you could - in the beginning. This free cash flow range is then - what kind of - raw material costs or net working capital inflows or what kind of raw material costs level have you baked in this guidance, just as based raw material cost level of the end of the first quarter or is it assumption - as it for the full year for the raw material costs?

I would say the raw material cost in terms of the free operating cash flow is not the key driver. As you know raw material cost is mainly a flow-through item in our in our big BU segment, so namely in polycarbonate but also in polyurethanes and a little less so in costs. I think the - the answer to that I would give to this is that our assumption obviously is that margins stay relatively stable and that means that the fluctuation of the raw material costs which we will obviously see because they have come down due to a large extent be passed on to our customers and therefore our core assumption is that the margin level that we see at the end of March will largely flow through for the rest of the year. Then I think the easiest way to revive our free operating cash flow is, if you take our EBITDA and then at the lower end of the guidance you would probably assume our CapEx of €700 million obviously plus tax payments of maybe a €100 million, and then a negative working capital and at the upper end, I would say the tax payments are probably a little higher and on the other hand that's very working capital should be at least neutral. And this is I think how I would be - the easiest way to the revive the free operating cash flow is all the way down from the EBITDA taking into account CapEx, taxes and trade work.

The next question comes from Charlie Webb, he's calling from Morgan Stanley. Over to you.

Just a couple for me, so first just kind of following up on that working capital, just trying to understand why we didn't see a better working capital performance year-on-year I’m surprised given the raw material deflation. The working capital outlays were higher year-on-year especially given the volume environment. So perhaps just first of all on that one and then secondly just around utilization rates, can you help us understand the cross products what the current industry utilization rates are and currently what you're operating at, just want to try and understand how you are faring relative to your peers?

Yes. Let me maybe take the working capital first, question first. So first of all the raw materials impact first of all is probably less pronounced because our working capital is mainly driven by finished goods and what you saw is the normal seasonal impact after we had admittedly driven down our inventory levels quite low at the end of December. So the pick-up was a little bit more pronounced in Q1 2020 maybe than in 2019 simply because the starting point was more ambitious this year than it was last year. That's the first one. Secondly, it's mainly determined by finished goods not so major - not so much by our raw materials and thirdly the price decline for raw materials that you have seen really only kicks in for us with a delay of at least two months and therefore it had from that perspective no impact on our working capital performance in Q1.

Yes Charlie, let me take the second question which is a bit difficult because we have as you know extremely extraordinary times here, and that is totally unprecedented and that's why talking about industry utilization is in this context also is quite difficult as we get very, very mixed messages on let's say how overall the industry is doing or how individual players might be doing. So if you look at our full year and just starting with MDI, we assume that as of last year the industry utilization was around 87%, and we did actually not significantly deviated let's say on a normalized level for the entire year. For the full year 2020 we are currently calculating again, and that is an estimate on a normalized basis with 80% however that could significantly vary quarter-on-quarter simply due to the fact that some competitors might have shutdown entirely given the cost curves that some of them have, and you know at the end the high cost curve is also steep for the entire industry. But also there were a preponements of turnarounds that were planned maybe later in the year which we also might have seen. So from that perspective it is very difficult to say, and that is also a picture that we see in our overall setup of assets, we have had assets, and Thomas commented on that a little bit earlier in China that we're running at reduced rates and very low rates for example in February and March, and I'll have revamped and then have been slowed down in China but we also have seen similar patterns now in Europe where we have actually brought down production to a much lower level than in previous years in Europe and now we're seeing actually similar effects in the United States where actually we see positive signs for our potential development of capacity in MDI ramping up again in Europe, so it is a very, very mixed picture. On TDI, it is actually a similar picture last year the industry based on our - on our insights and market intelligence that was around 80% to 81%, and this year we expect the overall normalized industry utilization to be at around 69% to 71%, just to give you a flavor. But also here we will see asset-by-asset, competitor-by-competitor and entirely different pattern on a quarterly level. So from that perspective it is very difficult to judge frankly speaking also for us where the overall industry utilization might be at current market demand which is highly volatile and it is, excuse my French very badly here in this context. And therefore it is for me frankly speaking almost impossible to give you a clear number that would be meaningful to be very honest.

Okay. Thank you very much. Just one other if I sneak it in, on your volumes activity. Thank you, sir for providing that. But just did a quick - it looks like it's a 40% drop through based on that sensitivity, and I see in Q1 the drop through is something more like a 50%. So just any sense on what the difference is kind of the Q1 drop through in volumes versus the guide - the kind of sensitivity of a 40%?

Charlie, I would say it is simply the effect of smaller numbers in Q1. I mean first of all you're absolutely right with the drop through rates, but there is some fluctuations simply because of mix effects and a relatively small volume base in Q1. I think directionally the 40% you said are the one that we always had and which we think will hold true for the full year. But well-observed in Q1 there were some deviations which are not representative for the rest of the year.

Okay. And if we assume that Q2 is going to be weaker from a volume perspective than perhaps Q1 given the U.S. and Europe situation would we expect higher drop driven to 50 we had in Q1?

No. I would - I think for Q - I mean we’ve given you the volume sensitivity for the full year which is this the fact that one - the plus, minus €50 million plus 1 percentage point of change in volume I would for the sake of simplicity simply divide this by four and take this as a - an assumption for Q2.

Thank you. The next question comes from Christian Faitz, he’s calling from Kepler Cheuvreux. Over to you.

Yes. Good afternoon, gentlemen. Two questions please. First of all can you please comment on the demand situation in China obviously because here lockdown is over yet there are varying reports about the sustainability of the recovery given the large export depends on many of your Chinese customers. You will lose - you alluded to that a bit but how does the situation look at present would be quite interesting. And then second question, can you please elucidate your other financial results and in your P&L which was rather high. And what is your expected run rate for the remainder of this year? Thanks.

So Christian this is Markus speaking - it might be of help to look at one of the choice that we have presented a little bit early. And I’m referring to chart page number 3, that gives you a flavor about how the volume developments were over recent months and we also have put in here the seven days average and there you see that there is definitely recovery in China happening and has happened since end of March. And we also have seen that Europe in this context - in a buy up let’s say the last one, one and a half weeks has also started to stabilize. However, this is still a very weak stabilization according to what we see. And whereas the U.S. is still approaching the trough or just in the middle of the trough I would say. And also recent data which are not shown in the chart for the last seven days which we just got freshly in this morning indicate that this is also the trend that we've seen for the last week of April. So globally you still can see that the curve is somehow showing relief, but it is still for us absolutely not foreseeable. How stable in particular the development in China is. Currently, we can truly say there's real demand behind each and every order that we have so we see a ramp-up in the automotive industry. We see as I said some relief from the electronics - particular electronics demand which is where the majority of goods is produced in Asia Pacific. And we also see in the medical sector still a high demand of our products. And none the less it is for us currently impossible to really judge how sustainable this will be because as - many of the demand in China is depending on export into Asia-Pacific, but also depending on export to the United States and Europe. And here the big, big question mark is how much - is driven really by local demand versus how much is driven by export effects and how those effects in the next couple of days and week will really impact our sales in China. For now the trend that we have shown here on chart number 3, for all respective region is concerned by the last week data that we just freshly got in this morning.

Okay. That is - our comments were actually my questions, so very helpful. Thanks Markus.

Now to your question with the other financial results, I think you're probably referring to the minus €24 that we recorded - minus €24 million that we recorded relative to the minus €5 million that we had a year ago. And the main driver of that is actually evaluation effect, because the fair value of planned assets for funded long-term employee plans had to be adjusted. And that plays into this number and is the main driver for the more negative result this year. So that shouldn't repeat itself and I think we will uphold our guidance for the full year financial result which should be just slightly above €100 million so pure accounting valuation effect in connection with pension.

The next question for today comes from Isha Sharma calling from MainFirst. Please go ahead.

Thank you for taking my questions. In polycarbonates you mentioned that the prices were up. Is that due to the mix or do you see delays in previously announced capacity additions and in that respect, it would be nice to understand why was there so much pressure on polyurethanes - were there further downward pressure on prices quarter-over-quarter? And my second question would be could you please help us just to understand how you, and I know you’ve probably touched on this a little bit. But do you see any customer - change in customer behavior in your end markets that you might see as a development because of COVID. So anything that you hear from your testing on the ground level as to perhaps try to understand how this might develop? Thank you.

Okay Isha, this is Markus speaking. And to give you some flavor about what we have seen in polycarbonates, I would not actually associate this with product mix effect. The major - effect is - really that prices have slightly improved, and there is numerous let's say explanations for that. One explanation - or an explanation that I would not consider is that capacity came on stream late, or that some projects has been delayed because this would be too short-term from my perspective. However, what we could see is that some competitors and that's what we assume may be have stored - sold stocks and inventories last year. So last quarter four in 2019 at very low prices just to get rid of it and manage also their liquidity, and an additional effect could be that in the commodity segment of the polycarbonate area and now some competitors might be even reaching negative cash margins and contribution margins, and from that perspective that they maybe have stopped producing. That is one topic. Second topic is regional exposure. So many, many customers are asking us on very short notice to deliver. And then it is very difficult for producers who have global supply chains - and only trying to supply from one region to organize this on very short notice or organize it at all. So also here, a clear hedging so to say that we have always pronounced also in other and our calls that this global presence in each and every important region is a competitive advantage and I think that also plays a role. And we also have seen that we sold significantly more in a high margin let’s say segment for example in electronics, but also in medical. So, from that perspective that might give, you a flavor why the pricing development is as it is and why we also have seen margins improving from Q4 to Q1 in 2020. If you look at the downward pressure on prices, we have always made it very clear that for polycarbonates as well as for MDI in the commodity area we might not yet have seen trough levels. So whereas for TDI we have approached trough levels and that is also what our current data indicating that there was continued price pressure on MDI and partially, but only partially also for polycarbonates and less - let's say less so for TDI. And so, that gives you maybe a flavor why the polyurethane results have further declined.

The next question for today comes from Sebastian Bray, he's calling from Berenberg. Over to you.

I have two please the first is on the reduction and pension liability. I think it's due to performance of German plant asset or so probably maybe the change in this discount rate. Could you remind me of how this is calculated, is it just the investment grades German debt? The second question is on the IFRS 16 cash out for lease payments or interest on leases, what was this in 2019? I remember this was disclosed separately at the end of 2018, but if you are calculating a free cash flow figure including the lease payments how much does that justify? Thank you.

So let me take the first question with the €530 million reduction in our pension liabilities, that is as you correctly said driven by a decrease in our - in the discount rate, and while the asset performance actually was negative. And you find this also in our quarterly report, if I have the numbers correct from the top of my head the pure discount effect was from €720 million and the counter effect is then the negative asset performance. So that is what is behind it, and the discount rate in Germany went up from 1.0% to 1.9% and yes investment grade bonds are the benchmark here. So that's what's behind that. IFRS 16, the effect on cash flow I don't have the number from the top of my head before I give you the wrong one, we'll just look it up and send it to you separately.

The next question for today comes from Thomas Swoboda who is calling from Société Générale. Over to you.

I've always given us by - I still have two questions if I may and I will try to give them one by one - ask them one-by-one. Firstly on inventory levels, some companies are reporting or saying that there was some degree of panic buying in Q1 which they observed. I know you cannot carry much inventory yourself in polyurethanes but I am just wondering if you have any insight how the inventory situation looks at your customers meaning are the end product base on your stuff, high, low or whatever you might see?

Thomas, this is Markus speaking. We have seen some customers but really, very, very limited amount in the U.S. for example who thought that in case supply chains might be disrupted that there may be - pile a little bit more of materials on stock but that was where they selected, actually for most of the customers we have observed that they are in very tight control actually of their raw material inventories in particular as they were all expecting very, very sharp focus on liquidity and the liquidity situation of corporations plus which I think also gives further evidence to the thesis that inventory levels are rather low. Currently customers are ordering only what they immediately need which would also indicate and that goes by the way across the Board not only in the specialty grades but also in the commodity area. When they order they want to have delivery on very short notice, and we are also in very close contact with our customers exactly to also make sure that we get access to their cash in terms of that they’re paying, and that's why we also looking very, very closing about how the ordering pattern looks like, how the demand pattern look like. So currently I have to say that we have no indication that there’s unusual high stock levels or things like that. So, definitely not for the industries/for the applications that we supported raw materials.

That's interesting. Thank you. The second question, I have is on the short-term cost’s measures in 2020. These are €200 million to €300 million and the question is how quickly and to what extent those costs would come back in a scenario - you know where we see economic recovery? Will they come back all in the very short period of time or will this be stretched?

No they will not come back all - again just a short recap. we said in the beginning, it was €200 million, and I said of those €200 million, €100 million was essentially budget cuts or kind of cutting out planned increases, but they are not year-on-year effective. So that leaves us with €100 million from our original announcement plus another €100 million that we now announced as of today, so that gives you year-on-year €200 million and again this is a broad range of savings driven by maintenance cost, but also driven through lower CapEx spending, travel, entertainment, training et cetera, et cetera. And I think - I mean it's difficult to say how quickly they will come back, but definitely not all on the spot on January 1, next year. But they will be stretched out because simply the cost discipline will be maintained up. So again rule of thumb I would say 50% we will maintain also - and also bring into 2021.

That's terrific. And if I may sneak in a third question, a small one, how big is the OpEx for data on - at the current level of investment you have made?

So you probably mean what is the - what is the kind of the sticky cost that we still have in 2020 despite the fact that we cut the MDI-500 project, is that your question?

Yes, more or less. What would this project cost you on a perpetual basis, if you - would you now stop investing for the time being?

There is no perpetual cost. I mean we will - essentially what we will do is we will, okay, again let's step back, these projects are executed in stages. The Baytown MDI-500 project was still in the planning phase where the rough engineering was being done, we call the stage-gate 2. Essentially, we must put all our plans we had put them - we can put them into drawers so that at a later stage we can essentially take it up and then continue into our front-end loading phase number three. So there is no permanent running cost for keeping the option up. There is a certain ramp down cost which we have - which is a mid-double digit million amount this year because we had to ramp down our construction sites, deal with the people, repatriate many people, et cetera, et cetera. But there is no permanent cost for keeping the option up.

Right. So you could freeze it for longer periods of time without extra cost.

Correct.

That is basically the message.

Correct.

That's understood. Thank you very much. Very helpful.

The next question comes from Geoff Haire who is calling from UBS. Over to you.

Most of my questions have been answered. I just wanted to take the focus really into next year and the year after on CapEx. Clearly, you've brought the CapEx down by €300 million in 2020, what would we expect to see happen in 2021 and 2022, and I appreciate that depend on demand levels. But I was wondering if you can just talk a little bit about that, should we still be looking at €900 million-ish of CapEx in 2021 and 2022? And then finally just a clarification question, the positive price delta that you saw in polycarbonate in Q1, do you expect that to completely reverse in Q2?

So first of all on CapEx, I mean, I would expect CapEx for 2021 around our depreciation level. So take a number of between the €700 million and the €900 million. And as you correctly said, I think we will adjust flexibly depending on the demand situation, but also keep in mind we cannot so easily switch on and off project. So it will be a probably slow ramp up relative to the number that we see this year. And then for 2022 we don't have any precise guidance out, and I think this is understandable because it depends very much on the project portfolio that we will decide at some point this year and therefore this is really an open question.

And I think your second question was on the polycarbonate pricing delta for Q2, I mean essentially what it all through previously as we said in general, we expect the pricing to be relatively stable. So therefore I think for your models I would not model in a major change Q-on-Q.

The next question comes from Chetan Udeshi, who is calling from JPMorgan. Over to you.

Just a couple of questions, first want to just follow-up on the previous question on inventory at customers. I was just trying to see if you had any data to collaborate what you might be seeing in sales so volumes just now versus say the global auto production which was say down 23% in Q1 and probably down 50%. So are you shipping into your auto customers in terms of volumes similar to that or is there probably a better number for you and if there is, is that because of your wining share, that's the first question? And second question I had was, more on just how to think about the different moving parts on Q2 to the extent you can help outside of volumes - if you had some early thoughts into what could be the net pricing impact and the impact on the other line in Q2?

Chetan, this is Markus speaking. On the first for quarter one just to put this into perspective. According to our market insights the global market production of auto was down minus 26% year-on-year, higher volumes into automotive for Covestro were down minus 10%, it’s that now an indication that we would gain market share. I would say not necessarily because there is also here a few moving parts, one of it is definitely the shift in inventories, other topic is for sure also that particularly polycarbonate where we have segment-by-segment to highest exposure. Polycarbonate is also not equally distributed amongst let’s say the different car models. We normally sell into higher class models and if mass markets are down or in particular low priced producers are down for example in China that might have not such a big effect as we still continued in the first quarter to sell to a lot of premium manufacturers and as - as we try to bring across the major impact on our automotive industry was in China and in the Chinese manufacturers that means in particular the mass production has been hit quite hard where our polycarbonate exposure is not that high. And so it's not about gaining market share. There could be an effect but I would rather expect that this it is due to let’s say the application mix and exposure to different segments in the auto market. So on the second question Thomas was jump in.

Yes, Chetan again Q2 not very visible for us and this is why we didn't come out with a specific EBITDA guidance. But just to give you some moving parts that probably you can apply in your model. So let's take as a starting point the $459 million EBITDA of Q2, 2019. Then I would say in this quarter you should apply a negative pricing delta which is a low triple digit number and you should probably apply a high double digit benefit from others so cost saving et cetera, et cetera. So that brings you then - to a new starting point or adjusted starting point which is just slightly above $400 million, and I think from that you have to apply your volume assumption and again take what we said for the full year which is 1% equals €50 million for the full year divided by 50 by 4, and apply that to Q4, I think that is I would say structurally well that would be a sound framework obviously with the major uncertainty around what is the volume assumption that you plug in.

Mr. Köhler, there are no further questions at this time. Please continue with any other points you wish to raise. Ronald Köhler: Thank you. Perfect. And we are on time finishing the call. Thank you all for your interest, and for your interesting question. If you have more don't hesitate and come back to us for additional questions. And then speak to you soon potentially virtual, we have already a big schedule planned for a lot of virtual conferences, roadshows whatever, so I’m pretty sure we will meet - not meet, speak soon. See you then. Bye.

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