Covestro AG

XETRA:1COV

Earnings Call Transcript 2021-Q4

[Operator]

The

conference

is

now

being

recorded.

Ladies

and

gentlemen,

thank

you

for

standing

by.

Welcome

to

the

Covestro

earnings

call

on

the

first

quarter

and

full

year

2021

results.

The

company

is

represented

by

Markus

Steilemann,

CEO,

Thomas

Toepfer,

CFO,

and

Ronald Köhler,

Investor

Relations.

During

the

presentation,

all

participants

will

be

in

a

listen-only

mode.

The

presentation

will

be

followed

by

a

question

and

answer

session.

[Operator Instructions]

I

would

now

like

to

turn

the

conference

over

to

Ronald

Köhler.

Please

go

ahead,

sir.

[Ronald Köhler, Head-Investor Relations, Covestro AG]

Yeah.

Good

afternoon

to

all

European

participations

and

good

morning

to

all

Americans.

I'm

happy

that

you're

joining

our

full-year

2021

conference

call,

and

I

know

it's

a

busy

day

and

it

might

be

one

of

the

several

conference

calls

you

have,

therefore,

I'm

even

more

happy

that

you're

here.

We

have

posted

the

Annual

Report

and

the

earnings

call

presentation

at

our

IR

website,

and

if

you

haven't

seen

it,

you

can

always

download

it.

And

there

you

will

also

find

our

Safe

Harbor

statement

and I

assume

you

have

read

it.

And

with

that,

I'll

turn

it

over

to

Markus.

[Markus Steilemann]

Thanks

a

lot,

Ron

and

very

good

afternoon

and/or

good

morning

to

everybody

on

the

call.

In

the

full-year

2021,

our

earnings

performance

was

well

above

previous

year

levels,

as

the

2020

results,

as

you're

well

aware,

were

heavily

impacted

by

the

coronavirus

pandemic.

The

demand

rebound

resulted

in

a

10%

core

volume

growth

in

last

year,

and

earnings

remained

on

high

levels

throughout

the

entire

year

2021.

We

delivered

€3.1

billion

EBITDA

and

a

free

operating

cash

flow

of

€1.4

billion,

and

I

think

that

qualifies

2021

as

a

strong

financial

year

for

Covestro.

We

want

our

shareholders

to

participate

in

our

financial

success

and

therefore

yesterday

we

announced

a

new

share

buyback

program

of

€500

million

over

the

next

two

years.

We

also

continue

our

ambition

to

pay

out

an

attractive

dividend

and

propose

a

dividend

of

€3.40

per

share.

How

do

our

2021

results

compare

to

our

past

promises?

Let's

turn

to

the

next

page.

We

achieved

all

our

financial

targets

set

for

the

year

2021.

As

I

said,

core

volume

growth

of

10%

included

the

volumes

from

the

acquired

RFM

business

and

came

in

at

the

lower

end

of

the

guided

range.

We

also

saw

strong

demand

and

also

limited

product

availability

accompanied

us

in

our

customers

throughout

– and

our

customers

throughout

the

year.

Free

operating

cash

flow

of

exactly

€1.429

billion

came

in

at

the

lower

end

of

the

latest

guided

range,

yet

above

the

upper

end

of

the

initial

range.

While

earnings

and

cash

flow

outlook

improved

in due

course

of

the

year,

cash

was

increasingly

absorbed

by

working

capital,

reflecting

the

outstanding

price

inflation,

especially

during

the

second

half.

We

generated

€3.85

billion

of

EBITDA

and

19.5%

return

on

capital

employed,

well

above

our

initial

guidance

and

close

to

the

center

of

the

latest

guidance

corridors.

While

delivering

on

target

on

the

financial

side,

I'm

excited

to

announce

today

new

targets

on

the

non-financial

climate-related

side.

Covestro

has

a

tradition

and

a

track

record

of

pioneering

sustainability

in

the

polymer

industry.

I'm

convinced,

shareholders

of

Covestro

will

also

in

future

benefit

from

both

leadership

in

sustainability

and

profitable

growth.

Let's

take

a

look

at

our

new

targets

in

more

detail.

Covestro

aims

for

climate

neutrality

and

has

set

for

itself

a

bold

and

ambitious

target.

Net

zero

for

Scope

1

and

Scope

2

greenhouse

gas

emissions

by

2035.

This

target

is

another

major

milestone

toward

our

corporate

vision

of

becoming

fully

circular.

As

a

key

milestone,

we

plan

to

cut

greenhouse

gas

emissions

from

our

own

production,

referred

to

as

Scope

1,

and

from

external

energy

sources

referred

to

as

Scope

2,

by

60%

by

2030.

A

key

aspect

for

our

2035

reduction

target

is

meeting

the

goal

of

the

Paris

Climate

Agreement,

under

which

the

world

community

aims

to

limit

global

warming

to

1.5

degrees

Celsius.

Sustainability,

and

more

specifically,

climate-related

targets

are

not

new

to

Covestro.

As

a

matter

of

fact,

in

2021

we

achieved

our

previous

specific

greenhouse

gas

emission

reduction

target

for

2025

ahead

of

time.

We

more

than

halved

specific

emissions,

again,

Scope

1

and Scope

2

compared

to

the

base

year

2005,

while

production

volume

doubled.

As

a

consequence,

Covestro

achieved

climate-neutral

growth

since

2005.

Reducing

our own

emissions,

however,

will

not

be

the

end.

We

plan

to

further

reduce

indirect

greenhouse

gas

emissions

from

upstream

and

downstream

processes

in

the

value

chain

referred

to

as

[indiscernible]



(00:06:06).

This

part

of

the

transformation

will

be

largely

linked

to

our

transition

to

a

circular

economy.

More

importantly,

we

strongly

believe

that

transition

opportunities

will

outweigh

transition

costs.

We

aim

to

shift

all

our

production

processes

and

products

completely

to

circular

principles

in

the

long-term

and

we

intend

to

support

meeting

our

and

customers'

climate

objectives

at

the

same

time. Covestro

is

continuously

expanding

its

portfolio

of

climate-neutral

products

as

customers

already

today

demand

sustainable

products

and,

we

believe,

are

also

willing

to

pay

for

the

added

value.

This

is

vital

to

align

our

transition

to

net

zero

emissions

with

profitable

growth

prospects.

To

achieve

net

zero

emissions,

Covestro

anticipates

dedicated

investments

of

accumulated

€250

million

to

€600

million

by

2030.

These

investments

will

tackle

our

direct

greenhouse

gas

emissions,

but

also

increase

our

overall

energy

efficiency.

This

is

expected

to

result

in

low

operating

expenses

of

between

€50

million

and

€100 million

annually

during

the

same

time.

We

currently

also

expect

an

increase

in

operating

expenses

in

the

magnitude

of

a

low

three-digit

million

euro

amount

annually.

These

cost

assumptions,

based

on

historic

circumstance

that

prices

for

fossil-derived

energies

are

lower

than

prices

for

renewable

energies.

The

upside

here

is

that

this

historic

price

order

is

being

turned

around,

as

it

can

be

observed

in

many

places

today.

If

we

now

turn

to

the

next

page,

we

have

identified

three

main

levers

that

make

a

vital

contribution

to

achieving

our

climate

targets:

more

sustainable

manufacturing,

renewable

electricity,

and

renewable

steam.

The

waterfall

graph

on

the

chart

shows

our

detailed

path

and

expected

contribution

of

each

of

the

measures

to

reach

our

interim

target

of

60%,

emission

reductions

in

2030

and

a

100%

reduction

in

2035.

It

is

needless

to

say

that

business

growth

without

any

climate-related

measures

leads

to

higher

emissions,

in

our

case,

plus

1

million

metric

tons

until

2030.

Thereafter,

we

expect

no

negative

impact

on

emissions

from

business

growth

as

future

growth

investments

are

required

to

support

climate

neutral

growth

from

2030

onwards.

Also,

there are

external

factors

that

influence

our

Scope

1

and

Scope

2

emissions.

These

factors

comprise

the

energy

mix

of

[indiscernible]



(00:08:58),

for

example,

the

announced

nuclear

exit in

Germany

and

Belgium,

as

well

as

public

energy

allocation

schemes,

for

example,

determined

by

the

German

renewable

energy's

law,

short,

EEG.

The

net

effect

of

all

changes

as

known

today

amounts

to

minus

0.7

million

metric

tons.

To

look

at

the

identified

lighthouse

projects

from

the

area

of

manufacturing

excellence

and

renewable

energy,

let's

turn

to

the

next

page,

number

7.

We

have identified

numerous

measures

to

effectively

reduce

our

greenhouse

gas

emissions.

In

the

area

of

more

sustainable

manufacturing,

production

processes

will

be

further

improved

and

energy-efficiency

enhanced.

One

focus

is

to

reduce

nitrous

oxide

emissions

by

installing

highly

efficient

catalysts.

Secondly,

in

the

area

of renewable

electricity,

our

production

sites

worldwide

will

be

gradually

converted

from

fossil

based

to

renewable

electricity.

We

have

already

entered

a

number

of

power

purchase

agreements

for

renewable

energy

and

further

agreements

are

being

planned.

Thirdly,

steam. This

is

an

important

energy

source

for

chemical

production

processes.

Converting

steam

generation

from

fossil

to

renewable

energy

sources

is

a

challenge

that

Covestro

intends

to

solve

by

various

routes.

Those

routes

are

ranging

from

electrifying

steam

generation

based

on

renewable

energies

to

using

bio

gas

or

green

hydrogen

as

an

energy

source

for

steam

generation.

In

a

nutshell,

we

are

very

excited

to

have

set

ourselves

this

bold

emission

targets

and

have

worked

relentlessly

out

our

roadmap

towards

climate

neutrality.

Covestro

continues

as

a

pioneer

towards

a

circular

economy

and

to

successfully

deliver

both

leadership

in

sustainability

and

profitable

growth.

With

this,

I

would

like

to

hand

over

to

Thomas

for

the

financial

review.

[Thomas Toepfer]

Yes,

thank

you,

Markus

and

also

a

very

warm

welcome

from

my

side

to

our

call.

So,

if

you

go

to

page

8

of

the

presentation,

you

can

see

our

core

volume

growth

of

10%

in

the

financial

year

2021

and

that

reflects

the

volume

rebound

and

the

consolidation

of

RFM.

Just

to

remind

you,

RFM

contributed

6

percentage

points,

but

I

would

also

like

to

remind

you

that

at

the

same

time,

we

were

constrained

by

product

availability,

and

you

can

see

the

volume

development

by

our

key

industries

in

the

box

on

the

right

hand

side

in

the

order

of

kilotons

sold.

So,

first

of

all,

wood and

furniture

came

in

at

minus

4%.

We

saw

solid

demand,

however,

we

were

constrained

in

terms

of

TDI

and

polyol

availability.

Construction,

we

came –

came

in

at

plus

1%

against

solid

demand,

however,

constrained

and

MVI

and

P –

polycarbonate

availability.

And

number

three,

the

auto

and

transportation

industry,

plus

10%,

so,

very

strong

year-on-year

growth

globally

and

I

would

like

to

remind

you

that

the

global

auto

industry

grew

by

only

2%

year-on-year.

So

we

outgrew

the

industry

by

8

percentage

points.

And

that,

for

me,

is

another

indication

that

we

are

delivering

in

the

high

growth

part

of

that

industry,

specifically

electric

vehicles.

Last

but

not

least,

electro

came

in

at

plus

9%

with

growth

in

all

regions.

And

I

would

like

to

remind

you

that

all

industries

are

excluding

RFM

and

the

RFM

business

is

fully

consolidated

in

diverse

and

this

is

why

you

find

the

plus

33%

in

the

box

on

the

right-hand

side

of

the

page.

So

with

that,

let's

turn

to

page

9

of

the

presentation,

where

you

have

the

sales

bridge.

You

can

see

full-year

sales

increased

by

48.5%

pushed

by

35%

higher

prices,

that

is

the

€3.7

billion

that

you

see

in

the

bridge.

And

it's

just

another

proof

point

that

Covestro

successfully

passed

through

the

unprecedented

inflation

of

raw

material

prices

to

our

customers.

The

net

volume

effect

in

sales

and

that

excludes

RFM

was

6.5%

year-on-year,

mainly

driven

by

solutions

and

specialties,

as

this

segment

compared

itself

to

a

relatively

weak

prior

year.

And

the

volume

growth,

especially

in Performance

Materials

was

limited

by

constrained

product

availability

as

I

mentioned

earlier.

FX

is

only

a

small

negative

number

with

minus

0.8%,

mainly

driven

by

the

weak

US

dollar.

And

I

would

like

to

draw

your

attention

to

the

portfolio

bucket,

which

is

the

€863

million

that

isn't

essentially

the

entire

sales

of

RFM,

which

have

been

consolidated

as

of

April

1.

And

that's

an

8.1%

and

8.1%

effect

for

the

full

year,

if

you

put

it

to

the

Covestro

numbers.

So

with

that,

let

us

turn

to

the

EBITDA

bridge

on

page

10.

You

can

see

that

the

full-year

EBITDA

doubled

compared

to

prior

year,

driven

by

the

highly

positive

pricing

delta.

And

that

is

the

1.866

billion,

and

the

vast

majority

of

that

was

contributed by

all

key

product

groups

within

Performance

Materials.

However,

also

the

volume

effect

in

EBITDA

contributed

positively

with

an

attractive

volume

leverage

of

49%

and

FX

was

virtually

neutral

on

a

year-on-year

basis.

So

I

would

just

like

to

comment

on

the

other

items

bucket,

which

includes

essentially

three

main effects.

First

of

all,

there

is

a

negative

€443

million

in

there,

and

that

is

the

impact

from

the

higher

bonus

provisions

for

variable

compensation.

Secondly,

there's

a

negative

€60

million

one-time

effect,

which

is

related

to

the

acquired

RFM

business,

and

that

compares

to

a

negative

€33

million

in

2020.

And

number

three,

there's

a

negative

€39

million

one-time

effect

included

in

that

bucket,

which

is

related

to

the

LEAP

transformation

program,

and

we

had

no

such

effect

in

2020.

So

with

that,

let

us

go

to

page

11,

which

shows

you

the

free

operating

cash

flow,

and

as

Markus

said

earlier,

we

generated

a

free

operating

cash

flow

of

€1.4

billion,

which

is

a

strong

number,

well

above

previous

year,

and

we

achieved

this

despite

the

significant

higher

working

capital.

You

can

see

in

the

bullet

on

the

right-hand

side

that

in

Q4,

the

free

operating

cash

flow

was

somewhat

below

previous

year

as

the

positive

contributions

from working

capital

and

the

higher

earnings

were

eaten

up

by

significantly

higher

income

taxes

paid

and

also

higher

CapEx.

And

talking

about

working

capital

that

ratio

in

terms

of

working

capital

to

sales

ratio

stood

at

18.6%,

so

it's

just

slightly

above

the

18.2%,

which

we

had

a

year

earlier.

And

again,

that

reflects

higher

feedstock and

also

product

prices,

which

push

up

the

euro

values,

especially

of

our

inventories.

You

can

also

see

in

the

table

below

the

graph

that

we

spent

€764

million

on

CapEx,

so

slightly

below

the

budget

number

of

€800

million.

That

is

due

to

two

effects;

one

is

some

projects

were

shifted

into

2022,

but

also

some

projects

came

in

at

a

lower

spend

than

we

had

expected,

so

that

is

a

positive

news

in

terms

of

CapEx.

And

you

can

also

see

that

year-on-year

we

spend

a

much

higher

number

on

income

tax

paid,

but

that

reflects

our

cash

tax

rate

of

25%,

absolutely

within

the

guidance

range

and

also

below

the

P&L

tax

rate

of

25.9%.

My

last

comment

is

the

last

item

in

the

little

table:

the

other

effects.

That,

of

course,

reflects

the

higher

provisions

for

variable

compensation

because

the

cash

out

for

the

bonus

will

only

occur

in

the

second

quarter

of

2022.

So

with

that,

let

us

turn

to

the

balance

sheet

on

page

12.

I

can

truly

make

the

statement

that

our

balance

sheet

remains

strong.

Our

pension

provisions

decreased

by

€924

million.

That

is

due

partly

to

the

higher

discount

rate

specifically

in

Germany.

But

the

other

reason

is

that

we

transferred

€500

million

of

funds

in

one

of

our

pension

trusts

and

the

effect

you

can

see

it's

essentially

shown

twice

in

the

bridge,

one

time

on

the

financial

debt

side

and

the

other

time

on

the

pension

provision

reduction

side.

In

terms

of

the

balance

sheet

ratios,

you

can

see

that

the

ratios

are

strong,

so

the

ratio

of total

net

debt

to

EBITDA

stands

at

0.8

times

at

the

year

end

of

2021

versus

1.7

times

the

year

before.

And

essentially,

you

can

also

see

that

after

€1.5

billion

cash

outflow

for

RFM

and

the

€0.5

billion

euro

bond

repayment

and

also

the

€0.5

billion

fund

transfer,

we

still

have

€1.1

billion

available in

cash,

cash

equivalents

and

also

current

financial

assets.

So

with

that,

I

would

like

to

hand

it

back

to

Markus

for

the

segment

review.

[Markus Steilemann]

Yeah.

Thanks

a

lot,

Thomas.

And

please

allow

me

to

begin

with

the

full-year

review

of

our

Performance

Materials

segment.

The

segment

delivered

a

highly

positive

pricing

data

in

2021.

We

were

able

to

pass

through

increasingly

higher

feedstock

as

well

as

energy

prices,

and

on

top,

expanded

our

margin.

First

and

foremost,

this

performance

was

based

on

solid

underlying

demand.

However,

simultaneously,

our

growth

potential

was

limited

by

a

continued

constrained

product

availability.

Looking

forward

into

full-year

2022,

we

expect

our

sales

volumes

to

grow

strongly

based

on

improving

product

availability.

At

the

same

time,

we

expect

the

segment

EBITDA

to

significantly

decrease

year-on-year

due

to

intensified

competition,

mainly in

polycarbonates,

and

I

will

talk

a

bit

more

about

polycarbonates

in

a

short

moment.

Positively,

we

anticipate

that

the

supply/demand

balance

for

our

product

groups,

MDI

and

TDI

will

further

improve

as

announced

supply

additions

are

below

expected

demand growth.

Let's

turn

to

the

next

page.

So

turning

to

Solutions

&

Specialties,

we

defended

absolute

EBITDA

and

managed

earnings

to

remain

virtually

unchanged

year-on-year

despite

unprecedented

inflation.

Positively,

the

segment

recorded

strong

sales

volume

growth of

12%

year-on-year,

reflecting

a

rebound

in

demand

from

a

pandemic-impacted

prior

year.

The

acquired

RFM

business,

consolidated

since

April

2,

2021,

also

contributed

positively.

EBITDA

margin,

however,

was

down

year-on-year

by

nearly

5

percentage

points.

This

is

due

to

mainly

three

reasons:

significantly,

higher

price-driven

sales

comparing

to

unchanged

absolute

EBITDA

resulting

in

a

mathematically

lower

margin;

earnings

significantly

burdened

by

higher

[indiscernible]



(00:20:16)

prices

and

longer-term

sales

contracts,

yet

prevented

to

fully

pass

through

prices,

reflecting

the

typical

nature

of

a

specialty

business.

Looking

forward

into

2022,

we

expect

sales

volumes

to

continue

strong

growth

versus

2021,

and

we

also

expect

segment

EBITDA

to

significantly

increase

year-on-year.

How

we

anticipate

to

reach

our

segment

margin

target

of

17%

is

what

I

will

present

to

you

on

the

next

page.

As

just presented,

the

unsatisfactory

2021

margin

of

9.9%

as

a

reference

point

to

target

a

segment

EBITDA

margin

of

17%

in

2024.

In

order

to

reach

17%,

our

EBITDA

margin

will

be

driven

by

the

four

key

elements

that

are

shown

in

light

orange

on

the

chart.

Firstly,

continued

execution

of

our

lead

transformation

and

cost

containment

program,

as

well

as

continued

strong

growth

are

expected

to

further

dilute

fixed

costs.

Secondly,

we

are

going

to

further

progress

with

the

RFM

integration

and

realize

the

anticipated

synergies.

Thirdly,

we

will

focus

on

value-based

pricing,

especially

for

newly

launched

innovative

products. Lastly,

the

margin target is

based

on

mid-cycle

intersection

charges

by

Performance

Materials,

therefore,

are

anticipated

to

be

lower

than

in

2021.

In

2022,

as

already

mentioned,

we

expect

a

significant

increase

in

EBITDA.

On

the

following

two

charts,

I'm

going

to

share

some

further

details

on

our

targeted

path

of

margin

improvement,

beginning

with

RFM.

So

let's

turn

to

the

next

page.

Regarding

the

integration

of

the

acquired

RFM

business's

all

planned

synergies

are

fully

confirmed

and

realization

is

ahead

of

plan.

As

a

recap,

at

the

time

of

acquisition,

we

identified

a

total

EBITDA

contribution

from

synergies

of

€120

million,

or

about

12%

of

RFM

full-year

sales,

thereof,

€80

million

synergies

from

lower

costs

and

€40

million

from

additional

revenues.

We

could

pull

forward

the

realization

of

[ph]



these (00:22:33)

and

delivered

€26

million

in

2021,

compared

to

originally

expected

€10

million

in

the

same

year.

We

achieved

this

above-plan

realization

at

€6

million

lower

cost

compared

to

earlier

planning,

and

we

now

expect

total

implementation

cost

of

€150 million, €40

million

less

than

we

originally

expected.

The

main

reason

this

lower-than-expected

severance

needs.

In

a

nutshell,

the

integration

of

the

acquired

RFM

business

about

one-and-half

years

after

the

announcement

is

a

success

and

we

are

satisfied

with

the

delivered

results.

Let's

now

turn

pages

to

polycarbonate.

As

a

second

deep

dive,

let

me

elaborate

a

little

bit

more

on

our

polycarbonate

strategy.

Overall,

we

continue

the

strategic

portfolio

shift

from

standard

polycarbonate

to

different

polycarbonates.

I

myself

accelerated

this

shift

from

2013

onwards

when

I

headed

the

former

business unit

polycarbonates.

The

graph

on

the

left

side

shows

the

development

of

the

volume

split,

while

the

grey

bars

continuously

shrink,

depicting

the

standard

polycarbonate

business

within

our

Performance

Materials

segment,

the

light

pink

bars

continuously

rise,

depicting

a

differentiated

polycarbonate

business.

Refining

standard

polycarbonate

resins

produced

at

our

fully

integrated

large-scale

[indiscernible]



(00:24:00)

plants

within

Performance

Materials

into

differentiated

grades.

That

is

the

job

of

the

business

entity

engineering

plastics within the

Solutions

&

Specialties

segment.

In

order

to

allow

this

shift,

we

are

continuously

investing

in

downstream

capacity

referred

to

as

polycarbonate

compounding

between

2020

and

2025.

We

will

add

230,000

tonnes

of

additional

compounding

capacity.

Importantly

to

note

is

this

addition

is

neutral

to

the

overall

industry

supply-demand

balance

yet

it

exclusively

allows

Covestro

to

cater

even

more

for

the

attractive,

differentiated

customer

segments

of

this

industry.

This

portfolio

shift

is

supported

by

the

expected

7%

industry

demand

CAGR

for

engineering

plastics

across

several

customer

industries.

A

detailed

list

of

growth

drivers

is

shown

on

the

right

side

of

this

chart.

With

that,

allow

me

to

turn

to

the

next

page.

Looking

at

into

2022,

we

export

expect

solid

demand

recovery

to

continue

globally.

This

applies

to

the

products

we

just

talked

about

in

more

detail,

but

also

to

our

entire

product

portfolio.

The

figures

on

this

chart

show

full-year

demand

estimates

for

our

key

industries

and

respective

important

industries.

The

expected

2022

demand

growth

in

global

automotive

and

global

construction

shows

growth

estimates

above

the

full

year

2021

values.

The

recovery

in

those

industries

is

expected

to

continue

after

the

strong

demand

hit

by

the

coronavirus

pandemic

in

2020.

The

expected

2022

demand

growth

in

global

furniture

and

global

electro

in

contrast

show

values

below

full

year

to

2021

but

on

continued

attractive

levels.

Key

reason

is

the

strong

demand

recoveries

seen

in

these

industries

already

in

last

year.

Now,

I

would

like

to

hand

over

to

Thomas.

[Thomas Toepfer]

Yes,

thank

you.

And

I'm

on

page

19

of

the

presentation

where

we

talk

about

our

fixed

cost

development.

So,

remember

last

year, we

committed

to

keep

our

fixed

costs

unchanged

until

2023

relative

to

the

2020

level.

And

it's

fair

to

say

that

we

qualified

this

target

as

being

challenging

from

the

beginning.

Now,

if

you

look

at

the

chart,

you

can

see

that

in

financial

year

2021,

the

cost

development

was

in

line

with

the

expectation

and

our

guidance.

So,

we

saw

a

rebound

from

the

2020,

which,

at

the

time,

was

marked

by

the

lockdown

and

short-term

cost

savings.

And

the

rebound

was

absolutely

in

line

with

our

guidance

and

expectation,

as

I

said.

So,

also

in

2022

and

2023

we

do

continue

to

execute

cost

reductions

of

between

$50

million

and

$100 million

per

year

through

the

LEAP

program,

and

I

can

tell

you

that

all

the

costs

that

we

can

control

are

on

track.

However,

we

also

see

now,

of

course,

is

that

there

are

counter

effects

resulting

from

high

inflation,

for

example,

logistics

and

labor

cost,

and

also

potential

projects

that

we

will

decide

like

the

MDI

project.

And

last

but

not

least,

also

the

new

climate-related

investments

that

are

necessary

in

order

to

reduce

our

greenhouse

gas

emissions,

as

Marcus

just

elaborated

on.

So,

as

the

graph

indicates,

with

that

we

will

have

to

face

some

counter

effects

in

the

years

2022

and

2023,

but

we

remain

fully

committed

to

tightly

manage

our

fixed

cost.

And

just

one

example

of

that,

counter

effect,

you

find

on

page

20,

because

I

think

just

shows

you

this

unprecedented

challenge

with

the

global

energy

costs

more

than

doubling

within

two

years.

So

as

you

can

see,

the

global

energy

costs

are

significantly

increasing

in

2021,

mainly

driven

by

the

European

energy

prices.

And

you

can

see

this

in

the

blue

columns

in

the

upper

part

of

the

chart.

So

global

energy

costs

for

Covestro

in

2021

where

€1

billion

and

thereof

€0.6

billion

were

driven

by

electricity

and

€0.4

billion

were

driven

by

natural

gas.

And

if

you

break

that

down

on

a

region-by-region

basis,

I

can

tell

you

that

70%

of

that

is

in

the

EU,

20%

is

in

Asia

and

10%

is

in

the United

States.

So

the

lower

part

of

the

chart

depicts,

by

some

key

countries,

the

specific

price

development

for

electricity

and

natural

gas.

And

you

can

see,

first

of

all,

the

significant

increases,

but

also

the

regional

differences.

So

that

based

on

our

actual

breakdown,

our

global

energy

bill

in

2022

is

expected

to

be

at

€1.5

billion.

And

again,

you

see

this

in

the

light

blue

bar

on

the

upper

half

of

the

chart.

So,

if

we

put

it

all

together

and

you

go

to

page

21,

we

are

expecting

an

EBITDA

in

2022

again

about

the

mid-cycle

earnings

level.

The

mark-to-market

estimate

stands

at

about

€3.3

billion

based

on

the

January

data.

And

that

is

above

the

upper

end

of

our

EBITDA

guidance

corridor.

And

that

EBITDA

guidance

is

€2.5

billion

to

€3

billion,

reflecting

expectations

on

an

increase

in

competitive

pressure

during

the

course

of

2022.

I

would

also

like

to

say

that

the

mid-cycle

EBITDA

level,

we

now

see

that

€2.5

billion

after

a

step

up

compared

to

2021

which

is

attributable

to

the

RFM

acquisition

and

the

mid-cycle

EBITDA

should

increase

to

€2.8

billion

until

2024,

driven

by

the

business

growth

and

of

course,

also

the

realization

of

the

RFM

synergies.

So,

what

I

would

also

say

is

that

based

on

the

industry

supply

and

demand

forecast

that

we

see

for

the

next

years,

the

EBITDA

is

expected

to

remain

above

the

mid-cycle

levels

for

the

next

years.

And

with

that,

I

would

like

to

come

to

the

concrete

outlook

for

2022

on

page

22

and

as

you

can

see,

it

contains

two

new

KPIs.

So

first

of

all,

EBITDA

is

replacing

core

volume

growth,

and

that

reflects

our

ongoing

way

from

volume

growth

towards

value-driven

growth.

And

secondly,

there

is

an

ESG

KPI

measuring

the

greenhouse

gas

emission

measured

in

metric

million

tons

for

absolute

CO2

equivalents

in

Scope

1

and

Scope 2.

The

free

operating

cash

flow

outlook

is

in

line

with

our

EBITDA

outlook,

as

I

explained

a

minute

ago,

and

the

number

stands

at

€1

billion

to

€1.5

billion.

And

in

terms

of

ROCE

above

WACC,

the

outlook

is

between –

the

outlook

is

that

we

have

the

WACC

of

7

percentage

points

in

2022

after

6.6%

in

2021,

and

we

expect

an

over

achievement

so

ROCE

over

WACC

between

5

percentage points

and 9

percentage

points.

Greenhouse

gas

emissions

we

expect

between

5.6

million

and

6.1

million

metric

tons.

And

the

increase

is

mainly

attributable

firstly

to

the

composition

of

the

externally

procured

power,

which

is

less

favorable

for

us

and

secondly

to

the

growth

of

the

business.

And

last

but

not

least,

I

would

like

to

mention

our

guidance

for

the

EBITDA

in

Q1.

So,

we're

expecting

between

€750

million and

€850

million

and

even

with

the

lower

end

of

this

guidance

range,

we

would

be

above

the

previous

year

level

of

€743

million.

So

let's

turn

to

the

next

page,

which

shows

our

CapEx

development

so

unchanged

and

we

end

with

the

highest

priority

is

the

investment

into

profitable

organic

growth

because

we

do

think

that

we

are

delivering

attractive

returns

based

on

our

industry

and

cost

leadership.

So

for

2022,

we

have

expected

total

planned

CapEx

of

€1

billion

and

that

includes

€0.6

billion

expansion

CapEx

and

€400

million

of

maintenance

CapEx.

And

this

planned

year-on-year

step

up,

especially

in

expansion

CapEx,

includes

our

single

largest

CapEx

project,

which

is

currently

our

aniline

expansion

in

Antwerp

in

Belgium.

And

of

course,

we

will

continue

to

maintain

an

adequate

level

of

maintenance

CapEx

to

secure,

safe

and

reliable

and

efficient

operations.

So

with

that,

let

me

come

to

the

topic

of

the

dividend

on

page

24,

we're

proposing

€3.40

per

share.

That

is

the

highest

dividend

in

the

Covestro

history.

We

had

communicated

our

new

payout

corridor

between

35%

and

55%.

We

said

that

in

strong

years,

we

would

probably

be

in

the

lower

half

of

the

corridor

and

in

weaker

years

in

the

upper

half

of

the

corridor.

And

as

we

consider

2021

to

be

a

strong

but

not

a

peak

year,

the

payout

ratio

of

41%

is

pretty

much

in

the

middle

of

the

lower

half.

So

that

explains

the

context.

And

of

course,

the

upcoming

AGM

on

April

21

should

then

ratify

the

proposal

that

we're

making.

So

on

the

next

page,

you

can

see

the

details

on

the

share

buyback

program,

which

we

announced

yesterday,

we

announced

to

buy

back

shares

of

€500

million

over the

next two

years €500

million over

the

next

two

years.

And

we

do

see

a

share

buyback

as

an

additional

option

to

create

value

for

our

shareholders

because

it

optimizes

the

capital

structure

for

the

group

and

of

course

it

increases

the

earnings

and

the

dividend

per

share.

And

with

this

decision,

I

would

like

to

reiterate

and

explain

also,

and

you

can

see

this

in

the

right

hand

side

in

the

box,

our

priorities

in

terms

of

capital

allocation.

So,

what

is

unchanged,

our

number

one

priority

is

profitable

growth

through

capital

expenditures,

and

I

was

talking

about

the

CapEx

spending

for

next

year

on

one

of

the

previous

pages.

Secondly,

we

do

want to

maintain

an

attractive

dividend

payout.

And

I

think

the

proposal

that

we're

making

for

2021

is

underlining

that.

However,

what

we

currently

see

is

that

large

acquisitions

currently

for

us

have

a

lower

priority.

This

is

also

driven

by

the

fact

that

we

see

that

the

multiples

that

are

currently

paid

in

the

market

make

it

very

difficult

for

us

to

find

value

creating

M&A

activities

for

us,

at

least

on

the

larger

scale.

And

you

know

that

we

are

very

much

value

driven

and

selective

here.

And,

therefore,

as

I

said,

the

priority

for

large

acquisitions

currently

is

lower.

And

that then

leads

me

to

a

share

buyback

because

we

do

think

that

currently

the

investment

into

our

own

shares

is

a

very

attractive

investment

opportunity

that

we

have.

And

just

to

conclude

it,

of

course,

we

do

remain

committed

to

a

solid

investment

grade

rating.

And

with

that,

I

would

like

to

hand

it

back

to

Markus.

[Markus Steilemann]

Yeah.

Thanks

a

lot,

Thomas.

And

before

we

now

entered

into

the

Q&A

session,

please

allow

me

to

quickly

summarize.

Our

EBIDTA

increase

in

full

year

2021

was

driven

by

positive

pricing

data,

and

we

were

able

of

passing

through

the

unprecedented

raw

material

inflation.

Secondly,

we

plan

to

–

we

suggest

to

the

annual

general

meeting

a

record

dividend

of

€3.40

per

share

for

full

year

2021,

with

a

dividend

yield

of

6.3%

based

on

year-end

share

price.

Thomas

just

alluded

to

a

share

buyback

program

of

€0.5

billion

that

has

been

launched

using

the

opportunity

to

create

value

for

our

shareholders.

The

full

year

2022

earnings

outlook

is

again

above

mid-levels

based

on

solid

sales

growth

and

a

strong

start

into

the

first

quarter

of

2022.

And

we

also

announced

our

climate

neutrality

in

2035

ambitions after

as

an

important

intermediate

milestone

a

60%

reduction

of

greenhouse

gas

emissions

referring

to

Scope

1

and

Scope

2

in

2030.

So

all

in,

looking

ahead

means

expecting

profitable

growth

into

a

climate-neutral

future.

Thanks

a

lot.

And

now

we're

looking

very

much

forward

to

your

questions,

and

I'm

handing

back

to

the

operator.

Thanks

a

lot.

[Operator]

Thank

you.

Ladies

and

gentlemen,

at

this

time,

we'll

begin

the

question-and-answer

session.

[Operator Instructions]



Okay.

And

the

first

question

for

today

comes

from

Mr.

Christian

Faitz,

who's

calling

from

Kepler

Cheuvreux.

Over

to

you.

[Christian Faitz, Analyst, Kepler Cheuvreux]

Yes.

Good

afternoon,

everybody.

Good

afternoon

Markus,

Thomas

and

Ronald.

Two

questions

if

I

may,

first

one,

I

know

your

sales

exposure

into

Russia

and

Ukraine

is

rather

limited.

Yet

looking

at

some

of

your

major

customer

sales

exposures

in

these

regions,

I

am

thinking

of

IKEA

in

furniture

or Henkel

in

adhesives.

Would

you

see

those

sales

into

these

major

customers

being

impacted?

And

can

you

give

us

an

idea

of

how

impacted

those

would

be?

And

then,

second

question,

your –

is

it

still

your

plan

to

come

to

a

decision

where

to

build

the

new

MDI

plant

by

the

middle

of

this

year?

Thank

you.

[Markus Steilemann]

Yeah.

Christian,

great

to

hear

from

you,

and

let

me

answer

the

following way.

For

sure,

we're

looking

into

individual

customers

that

have

exposure

to

Russia,

and

for

sure,

we

are

also

looking,

let's

say,

into

specific

industries

that

have

exposure

into

Russia.

But

currently

it

is

way

too

early

to

speculate

or

start

speculating

about

how

that

from

a

macro

perspective

and

also

from

an

overall

industry

perspective,

would

impact

our

own

sales

because

there's

so

many

influencing

factors

that

it

is

really

currently

difficult

to

predict.

One

thing

that

I

would

like

to

make

sure

is

that

we

understand

we

have

numerous

assumptions

from

a

macro

perspective,

but

also

numerous

assumptions

from

individual

industry

perspectives.

And

so,

if

some

of

those

aspects

are

maybe

not

exactly

in

the

order

of

magnitude,

as

we

currently

expected

today,

we

do

see

very

limited

to

maybe

even

no

impact

on

our,

for

example,

current

guidance

for

the

year.

For

sure,

if

there

would

be

massive

influence,

for

example,

global

GDP

would

go

massively

down,

maybe

even

half

or

even

go

[indiscernible]



(00:39:17)

that

would

have

an

impact,

but

it

is

way

too

early

to

say

that.

And

that's

why

we're

also

factoring

in

what

we

currently

can

see,

and

that

is

also

what

you

see

reflected

in

the

current

guidance.

So

I

hope

that

answers

the

first

part

of

your

questions.

And

in

that

context,

you

also

have

to

see

that

Russia

is

only

representing

2%

of

global

GDP.

Therefore,

a

spillover, let's

say, effect

should

be,

at

least

from

today's

perspective,

limited.

I

know

that

there's

different

scenarios

out

there,

but

we're

closely

monitoring

the

situation.

And

but

today,

honestly

speaking,

this

is

the

position

we

have,

and

this

is

also

what

we

today

can

say

to

this.

On

MDI,

we

have

always

been

clear

that

we

will

come

to

a

decision

end

of

third

quarter

beginning

of

fourth

quarter.

So

that

means

after

the

summer

holiday,

you

will

hear

more

about

that.

[Christian Faitz, Analyst, Kepler Cheuvreux]

Thanks,

Markus. Thank

you

very

much.

[Markus Steilemann]

Thanks, Christian.

[Operator]

The next

question

comes

from

Mubasher

Chaudhry, he's

calling

from

Citi.

Over

to

you.

[Mubasher Chaudhry, Analyst, Citigroup Global Markets Ltd.]

Hi. Thank

you

for

taking

my

questions. First

one

is

on

the

guidance.

Can

you

please

talk

about

some

of

the

moving

parts

which

get

you

from

the

bottom

end

of

the

guidance

at

€2.5

billion

to

€3

billion

range

from

[indiscernible]

(00:40:42)

And

then

second

one on

industry

utilizations.

Could

you

provide some

thoughts

on

the

MDI,

TDI

utilizations

in

2021

and

where do

you

see

them

going

for

2022?

Thank

you.

[Thomas Toepfer]

Yeah,

so

this is

Thomas.

The

sound

quality

was

a

little

bit

poor.

So

I'm

trying

to

answer

the

first

question

if

it's

not

spot

on,

please

let

me

know

and

then

I

will

try

to

repeat

it.

[Mubasher Chaudhry, Analyst, Citigroup Global Markets Ltd.]

Thank

you.

[Thomas Toepfer]

So

what

I

understood

your

question,

what

is

the –

what

would

bring

us

to

the

bottom

end

and

the

top

end

of

the

guidance?

So,

I

think

there are

two

major

factors.

One

is

you

should,

of

course,

know

that

we

are

assuming

a

growth

factor

for

2022.

So

a

mid-to-high

single

digit

number

growth.

That

is

factoring

in

the

assumption

that

we

will

have

lower

unplanned

shutdowns

than

we

had

in

2021

and

that

we

will

simply

have

a

higher

uptime

for

our

own

plants.

And

secondly

on

the

negative

side,

it

is

assuming

essentially

a

negative

pricing

delta

of

$1

billion

because

we

do

see

that

there

is,

especially

in

Asia,

new

capacities

for

polycarbonates

coming

to

the

market,

and

we

already

are now

seeing

some

pricing

pressure

on

for

polycarbonate

in

that

region.

So,

now

how

exactly

that

will

play

out

is,

of

course,

the

big

question.

But,

therefore,

the

lower

end

of

the

guidance

simply

assumes

that

we

will

again

have

some

unplanned

shutdowns

and,

therefore,

not

deliver

the

full

growth

potential.

So,

rather

in

the

mid-single

digit

range

and

the

other

factor

and

every

percentage

point

of

growth

is

some

€80

million

of

EBITDA,

just to

give

you

the

order

of

magnitude.

And

the

other,

of

course,

is

the

pricing

delta.

We

do

think

that

$1

billion

is

a

reasonable

number

and

you

can

see

that

the

pricing –

the

mark

to

market

today

stands

at

3.3%,

so

that

also

shows

you

the

order

of

magnitude

that

we've

factored

in.

But,

of

course,

things

can

move

quickly.

However,

I

would

also

like to

be

a

little

bit

more

[indiscernible]

(00:42:47) we

currently

do

see

that

Q1

is

on

a

very

good

track

and

the

fact

that

we're

guiding

between $750

million

to

$850

million,

so

above

the

previous

year

is

maybe

proof-point

to

that.

So,

I

think

those

are

the

factors,

the

swing

factors

between

the

lower

and

the

upper

end of

the

guidance

for

EBITDA.

[Markus Steilemann]

Yeah.

And

thanks,

Thomas,

also

here

if

you

would

like

to

have

a

bit

more

flavor

on

the

individual

product

groups,

MDI,

TDI,

polycarbonate,

as

well

as

our

standard

polyols;

let's

take

a

look

at

MDI

first.

So

we

actually

assume

that

based

on

nameplate

capacity,

last

year,

we

had

an

industry

utilization

of

around

90%

for

the

full

year.

And

we

expect

given

the

continued

demand,

but

also

the continued,

let's

say,

supply

additions

that

we

see

that

we

should

move

above

90%

in

full

year

2022,

the

maybe

well-known

one

ramp-up

last

year

and

early

2021

expansion

should

be

more

or

less

already

being

absorbed

by

the

market.

And

then,

at

the

same

time,

I

believe

that

we're

currently

in

a

situation

where

things

can

turn

north

and

south.

That

means

we're

in

a

situation

where

we

have

a

balanced

MDI

market,

but

I

would

lean

currently

more

towards,

let's

say,

a

market

that

would

change

to

be

a

little

bit

undersupplied,

if

there's

no,

let's

say,

major

disruptions

happening

in

one

or

the

other

direction.

On

TDI

margins,

it's

slightly

a

different

story

because

nameplate

capacity,

we are

operating

at

rates

and

full

year

2021

at

around

73%.

That

would

indicate

that

there

would

have

been

little

pricing

power,

but

we

have

seen

actually

the

opposite

in

the

overall

market.

And

also

given

that

the

available

capacity

based

on

planned

or

unplanned

shutdowns

is

actually

much

lower

than

the

nameplate

capacity

also

expected

overall

structurally,

the

situation

improves,

but

we

also

may

benefit

a

little

bit,

let's

say,

from

this

current,

let's

say,

lack

of

availability

of

some

TDI

plants

around

the

world.

So

long

story

short,

if

you

look

at

the

overall

[ph]



long-term (00:45:00)

development,

the

announcement

until

2026,

the

supply

growth

and

on

the

other

hand,

demand

growth

in

TDI,

we

expect

that

we

will

see

a

further

improving

industry

utilization

rate

and

especially

in

2022

and

2023,

the

announced

capacity

additions

would

only

sum

up

to

1%

by

the

year –

each

year.

So

that

also

gives

you

flavor

on

TDI.

Standard

polyols

and

the

really

relevant

markets

for

Covestro,

which

is

Europe

and

North

America,

you

could

see

that

the

– let's

say

industry

margin

levels

are

assumed

to

be

extraordinarily

high.

That

means

more

than

twice

as

high

as

historic

average.

And

the

reason

for

that,

let's

say,

margin

peak

was

that

we

had

several

production

limitations

[indiscernible]



(00:45:51)

of

larger

producers,

and

I'm

not

going

down

the

entire

list

now.

We're

seeing

a

recovery

of

the

supply

in

Europe

and

North

America,

and

that

would

indicate

further

margin

normalization

during

that

year.

That

might

be

on

the

other

hand,

potentially

cushioned

by

planned

turnarounds

in

the

second

quarter

by,

for

example,

Dow

and

Shell

in

Europe,

but

also Lyondell (sic) [LyondellBasell] (00:46:11)

and

Dow

in

North

America.

So

overall,

we

have

seen

that

in

China

already

decline –

there

is

some

margin

decline

happened

to

more

normal

levels

and

with

the

rest

of

Asia

Pacific

to

follow.

And

it

remains

to

be

seen

how

that

spillover

effect

will

look

like

for

Europe

and

US,

because

currently

that

is

limited,

particularly

by

the

increased –

significantly

increased

supply

chain

costs

that

we

talked

already

about

in

a

different

context

and

reliability

of

the

essence.

So

last

point,

and

Thomas

has

alluded to

that

already

quite

a

bit

on

the

polycarbonate

and

here

I'm

particularly

referring

to

the

commodity

part.

Yeah,

in

our

performance

materials

segment,

so

the

standard

polycarbonate

types,

we

assume

that

we

will

see

a

further

decline

of

the

nameplate

capacity

utilization

from

69%

last

year

to

around

65%

in

the

full

year

2022.

And

we

also

see

that

there's

additional

capacity

until

2026

coming

in.

So

we

have

a

supply

growth

of

5%

to

6%,

which

is

above

average

annual

demand

growth

of

4%.

That

would

also

then

indicate

that

it

would

lead

to

a

further

decline

in

industrialization

rates.

So

long

story

short,

supply

additions

expected

to

peak

this

year

and

so

on

and

so

forth.

Long-term

supply

growth

is

expected

to

further

decline.

Nonetheless,

we

are

in

a,

let's

say,

rather

challenging

situation

with

regard

to

standard

polycarbonates.

However,

and

I

think

we

have

made

that

very

clear,

we

are

moving

away

from

the

commodity

and

standard

polycarbonate

for

Covestro,

the

volume

share

of

standard

polycarbonates

now

in

the

segment

Performance

Materials

versus

the

total

polycarbonates,

declined

from

65%

in

2010

to

only

32%

in

2020

and

we're

expecting

27 –

sorry,

we

saw

27%

in

2021,

and

we

expect

that

share

to

further

declining

to

25%

to

20%.

And

that

shows

you

very

clearly

that

our

exposure

to

that

segment

is

decreasing

by

the

day

and

our

exposure

to

the

high

value

segment

is,

let's

say,

increasing

by

the

day.

And

that

should

give

you

also

some

comfort

about

how

we

are

cushioning

this.

Nonetheless,

Thomas

has

alluded

to

that

what

that

overall

could

mean

for

all

four

product

routes

in

terms

of,

let's

say,

pricing

effect

in

2022.

It

was

a

long

answer.

However,

I

think

it's

important

to

get

the

full

picture

so

that

you

have

a

better

flavor

how

to

look

at

our

guidance

and

also

the

year

ahead.

[Mubasher Chaudhry, Analyst, Citigroup Global Markets Ltd.]

Very

thorough.

Thank

you

very

much.

[Operator]

The

next

question

comes

from

Geoff

Haire,

who's

calling

from

UBS.

Please

go

ahead.

[Geoff Haire, Analyst, UBS AG (London Branch)]

Oh,

good

afternoon

and thank

you

for

the

presentation

and

the opportunity

to

ask

some

questions.

I

have

two

related

to

energy.

So

if

I

look

at

slide

20,

if

I'm

reading

that

right,

I

think

you're

saying

that

there's

a

€500 million

increase

in

the

energy

bill

in

2020.

But

if

I

look

on

a

mark-to-market

basis

that

the

graphs

and

information

we

can

see,

it

would

imply

that

this

could

be

significantly

higher

than

€500

million.

So

is

there

offsets

with

hedging

or

long-term

energy

pricing

contracts

that

you

have,

wondering

if

you

could

discuss

that?

And then

also

connected

with

this,

do

you

expect

energy

costs

to

continue

to

be

high

relative

to

where

we

were

last

year

in

2023

or

do

you

assume

some

normalization?

[Thomas Toepfer]

Well, Geoff,

this

is

Thomas.

Your

last

question

certainly

is

the

$100

million

question.

So

let

me

start

with

the

first

one –

exactly.

The

numbers

in

the

light

blue

columns

that

you

see

is,

yes,

we

had

€0.6

billion

energy

costs

in

2020,

€1

billion

last

year.

And

we

were

expecting

€1.5

billion

for

2022

in

our

plans.

If

you

mark

that

to

market

with

yesterday's

levels,

you're

right

it

would

be

slightly

higher,

roughly

€1.7

billion.

But,

again,

I

would

say

in

the

overall

context,

we

have

shown

that

we

were

able

to

pass

through

energy

cost

rises

quite

successfully

in

2021,

and

therefore,

this

daily

mark-to-market,

which

really

has

quite

an

amplitude

over

the

last

number

of

days,

would

not

lead

us

to

change

our

guidance.

But

you're

right,

the

€1.5

million

would

be

€1.7

million

as

of

yesterday.

What

are

we

expecting

for

2023,

it's

really

more

the

volatility,

which

is

a

challenge

and

not

the

absolute

level,

because

you've

seen

this

specifically

in

our

Solutions

&

Specialty

segment,

where we

are somewhat

slow to

adjust contracts

to

price changes,

simply

because

they

are

longer

running.

However,

if

it

is

a

longer

plateau

on

a

high

level,

our

view

is

that

also

the

Solutions

&

Specialty

segment

should

be

able

to

pass

this

onto

the

customers.

And

therefore,

as

I

said,

we're

not

so

much

concerned

with

the

absolute

level,

but

more

with

the

volatility

in

the

energy

prices.

[Geoff Haire, Analyst, UBS AG (London Branch)]

Okay. I'll just

ask

a

quick

follow-up.

Within

your

sort

of

multi-year

contracts

that

you

have

for

MDI

or

polycarbonate,

do

you

have

energy

pass-through

clauses

on

those?

[Markus Steilemann]

Yeah.

Essentially,

we

do

not

have

longer-term

contracts

for

MDI

and

TDI.

So

those

are

one-month

rolling

contracts,

if

you

like.

I

mean,

there

might

be

a

frame

contract

with

the

minimum

and

maximum

quantities,

but

the

prices

are

essentially

adjusted

on

a

monthly

level,

and

therefore,

there

is

no

automatism.

So

there

is

not

an

automatic

price

adjustment

clause,

but

there

is

a

monthly

renegotiation

of

the

prices,

which

is

the

standard

in

the

industry.

[Geoff Haire, Analyst, UBS AG (London Branch)]

Okay.

Thanks.

[Operator]

The

next

question

comes

from

Thomas

Swoboda,

who's

calling

from

Société

Générale.

Please

go

ahead.

[Thomas Swoboda, Analyst, Société Générale SA (Germany)]

Yes.

Good

afternoon,

everybody.

I

have

two

questions

left,

please.

Firstly,

on

CapEx,

can

you

give

us

a

sneak

preview

on

the

next

couple

of

years

in

the

light

of

the

investment

in

sustainability

and

the

MDI

plant,

wherever

it

would

be

built?

So when

do

you

see

the

peak?

What

is

the

peak

CapEx

roughly

whatever

you

can

say?

And

the

second

question

is

on

your

emission

targets,

an

important

driver

is

the

renewable

energy.

My

question

is

how

much

of

this

renewable

energy

you

have

in

your

planning?

You

are

going

to

acquire

yourself,

meaning,

how

much

is

under

your

control

and

how

much

do

you

rely

that

basically

the

governments

will

provide

enough

green

energy,

so

you

can

reach

your

targets?

Thank

you.

[Thomas Toepfer]

Yeah,

Thomas,

this

is Thomas.

Let

me

take

the

first

question

on

CapEx.

And

of

course,

I

mean,

the

sneak

preview

is

somewhat

dependent

on

the

decision

that

we

take

after

the

summer

break,

as

Markus

said.

But

let's

assume

just

for

a

minute

that

we

were

to

decide

to

build

MDI

irrespective

of

which

region

it

is,

then

I

think

you

should

expect

another

step-up

in

2023

of

between

€100 million

and

€200

million.

And

you

should

expect

the

peak

to

occur

roughly

in

2025,

with

up

to

€1.5

billion

for

work.

You

also

put

this

in

context

with

our

investment

for

carbon-neutrality.

We

said

that

we

would

spend

€1

billion

over

the

next

10

years.

I

think

that

just

shows

you

the

absolute

CapEx

number

that

we

need

to

achieve.

The

target

is

not

the

big

swing

factor

here;

simply

because

we

have

not

stranded

assets.

We

can

fully

operate

our

assets

as

they

are

with

drop-in

solutions,

so

renewable

input

factors.

We

have

to

switch

the

energy

to

green

energy

supply.

We

have

to

switch

them

to

green

steam.

But

we

don't

have

to

invest

big

ticket

items

for

completely

new

installations

because,

as

I

said,

the

ones

that

we

have

do

work

with

drop-in

solutions

and

are

not

stranded

assets. And

I

think

that

just

puts

into

context

that

the

ticket

for

our

carbon

neutrality

path

is

not

the

big

swing

factor

in

our

CapEx

planning

[Markus Steilemann]

Yeah, and

Thomas, if

I

may

say

so –

it is

Markus

speaking.

That

plan

has

as

Thomas

alluded

three

big

ticket

items

not

in

terms

of

costs

but

where

we

want

to

focus

on

in

terms

of

levers,

how

to

make

our

Scope

1

and

Scope

2

emissions

climate-neutral

by

2030.

Part

of

it

is

for

sure

that

we

have

expectations

on

how

the

overall

electricity,

let's

say,

production

will

look

like

in

a

specific

country.

However,

we're

not

entirely

or

even,

to

a

large

extent,

relying

on

that.

And

proof

of

that

is,

for

example,

how

we

have

so

far

managed

that.

We

actually

closed

a

big

deal

at

that

time,

the

largest

ever

made,

let's

say,

private

deal

between

two

companies

on

renewable

energy,

which

[technical difficulty] (00:55:59) where

we

expect

about

10%

of

the

electric

demand

of

our

production

facilities

by

2025

being,

let's

say,

supported

by

a

wind

farm

of

Ørsted

in

the

North

Sea.

We

have

actually

done

a

similar

deal

with

the

company

ENGIE

for

our

production

plant

in Antwerp,

covering

already

since

last

year,

April 1,

45%

of

the

electrical

energy

demand.

And

we

have

now

actually

sun-powered

electricity

that

covers

around

10%

of

the

electrical

demand

of

our [ph]

charging

sites (00:56:30).

So

you

see

that

regardless

of

what

the

state

is

doing

and

how

the

state

grid

energy

mix

looks

like,

we

are

also

pursuing

own

options

to

buy

our

own

electricity

to

make

sure

that

we

achieve

that

target.

And

we

will

for

sure

adopt

this

depending

on

how,

let's

say,

the

overall

development

will

look

like.

So

that

flexibility

is

built

in

for

sure.

At

one

point

in

time,

you

have

to

jump

and

you

have

to

make

a

decision.

For

example,

the

Ørsted

contract

was

actually

signed

in

2019.

It

takes

six

years

to

build

a

wind

park,

and

therefore,

at

one

point

in

time,

we

have

to

say

no

matter

what

the

state

does,

we

secure

our

own

energy.

But

on

the

other

hand,

that

is

not

different

from

what

we

are

currently

doing,

let's

say,

with

fossil-based

energy

also

here,

we

have

own

supply

agreements

with

individual

companies.

And

also

here

we

already

had

the

chance to

say

how

much

green

electricity

we

want

to

have

and

so

on

and

so

forth.

So

long

story

short,

that

is

not

carved

in

stone,

and

it

is

not

relying,

let's

say,

on

individual

governmental

decisions,

but

rather

a

flexible

approach

that

we

have

within

the

three

major

levers

that

we

have

described

in

the

presentation.

[Thomas Swoboda, Analyst, Société Générale SA (Germany)]

Very

clear.

Thank

you,

both.

[Operator]

Thank

you.

The

next

question

comes

from

Matthew

Yates

calling

from

Bank

of

America.

Please

go

ahead.

[Matthew Yates, Analyst, Bank of America Merrill Lynch]

Hi.

Good

afternoon.

A

couple

of questions,

please.

Just

to

clarify

on

the

mark-to-market

calculation,

are

you

assuming

mid-to-high

single-digit

volume

growth

within

that

math?

That's

the

first

question.

The

second

question

to

Markus,

maybe

going

back

to

slide

17,

on

your

polycarbonate

mix.

Thanks

for

the

detail

there.

When

you've

talked

in

this

call

about

intensified

competition,

can I just

check,

is

that

specifically

on

these

more

standard

products?

Are

you

also

seeing

competition

creep

into

the

more

sophisticated

areas?

And

if

I

could

ask

a

third

one

around

the

buyback,

just

out

of

curiosity,

the

decision

to

do

this

over

two

years

rather

than

one

year,

can

you

just

explain

the

thought

process

there?

And

I

guess,

it's

not

really

a

question

of

approvals

but

more

living

within

the

financial

framework. And

if

that

was

the

case,

then

was

there

any

debate

about

adopting

a

sort

of

more

modular

approach

over

a

shorter

time

period

that

you

could

revisit

and

update

over

time

depending

how

things

evolve?

Thank

you.

[Thomas Toepfer]

Yeah.

Let

me maybe

start

with

the

first

question

on

the

mark-to-market,

so

yes,

that

essentially

takes

into

account

the

current

pricing

level

or current

margin

level,

I

should

say

as

of

January.

And

if

you

multiply

this

then

out

with

our

volume

assumption

for

2022,

so

the

mid-

to

high-single-digit

growth

rate

that

we

see.

So

that

is

essentially

the

product

that

gives

you

then

the

€3.3

billion.

And

as

I

said,

1

percentage

point

of

growth

essentially

translates

into

€80

million

of

EBITDA

as

an

effect.

I

could

also

directly

cover

the

share

buyback

question.

So

we

always

said

that

a

share

buyback,

we

would

do

this

in

a

opportunistic

and

anti-cyclical

way.

So

we

do

feel

that

the

two-year

horizon

gives

us

the

flexibility

to

do

exactly

this.

There

was

not

a

big

debate

because

secondly,

we

also

see

this

as

market

standard,

and

therefore,

we

do

feel

that

both

from

a

company

but

more

specifically

from

a

shareholder

perspective,

this

is

the

right

approach

to

give

us

the

time

to

really

act

flexibly,

and

as

I

said,

opportunistically

with

respect

to

the

share

buyback.

[Markus Steilemann]

Yeah. And

on

the

third

question,

as

you

alluded to,

more

sophisticated

or

the

non-sophisticated

part,

if

I

assume

that

you

mean

with

non-sophisticated

part,

the

standard

polycarbonates,

that

is

where

the

competition

is

really

in

full

swing,

that

is

where

we

also

expect

the

market

to

really

heavily

compete.

And

that

is

exactly

why

we

long

term

ago

already

have

moved

away

and

doing

that

with

increasing

speed

over

the

next

years

from

that

particular

segment.

Nonetheless,

we

are

very

competitive

in

this

market

to

be

absolutely

clear.

We

have

large

assets,

we

use

high

economy

of

scales

and

we

continuously

and

particularly

now

in

a

new

structure

focusing

on

cost-leading

positions

in

all

regions

with

all

assets

where

we

produce

to

make

sure

that

we

always

get

the

best

out

of,

let's

say,

our

investments

here

and

compete

as

tough

as

possible

and

as

dedicated

as

possible

in

that.

Do

we

see

similar

trends

in

the

sophisticated

grades?

Honestly

speaking,

no.

Why?

We

have

some

local

competitors

here

and

there

who

try

to

do

the

same

trick

that

we

do.

But

we

have

to

consider

that

this

is

a

more

a

technology

platform

approach

for

the

sophisticated

grades

of

polycarbonate.

What

do

I

mean

with

that?

You

have

to

understand

how

all

the

technologies

work

together,

you

have

to

have

the

ability

to

invest,

you

have

to

have

the

ability

to

have

critical

mass

also

to

have

this

research

and

technology

platform

really

having

leading-edge

technologies.

And

the

newest

trend

here

is,

for

example,

the

digitalization,

simulation

kicks

in,

with

all

the

new

calculation

capacity,

supercomputing,

high-performance

computing,

even

quantum

computing.

And

by

that,

you

could

even

further

accelerate,

let's

say,

your

development

speed

towards

customers

with

regard

to

that

technology

platform.

That

makes

it

more

and

more

difficult

for

smaller

local

competitors

to

really

step

in.

And

that

means

you

need

to

have

global

reach,

global

scale

and

access

to

those

technology

platform

levers.

Otherwise,

you

will

not

be

able

to

really

compete

in

that

market.

And

therefore,

that

is

a

market

for the

big

ones,

that

is

a

market

for

the

fast

ones,

and

that

is

a

market

for

the innovative

ones.

Therefore,

we

feel

[indiscernible]



(01:02:40)

position

in

the

segment

no

matter

how

competition

looks

like.

[Matthew Yates, Analyst, Bank of America Merrill Lynch]

Okay.

Thank

you

for

taking

the

time.

[Operator]

Thank

you.

The

next

question

comes

from

Georgina

Fraser,

who is

calling

from

Goldman

Sachs.

Please

go

ahead.

[Georgina Fraser, Analyst, Goldman Sachs International]

Thank

you

and

good

afternoon,

Markus

and

Thomas.

Thanks

for

taking

my

questions.

I

have

two.

The

first

one

is

–

just

looking

a

bit

further

up

the

supply

chain

in

Russia,

I

understand

it's

quite

difficult

to

predict

how

demand

might

be

impacted.

But

are

there

any

key

raw

materials

in

either

your

own

supply

chains

or

competing

chemical

product

supply

chains

that

you

think

will

be

affected?

And

then,

my

second

question

is,

do

the

recent

geopolitical

tensions

raise

the

importance

of

delivering

your

circularity

targets?

And

how

would

you

characterize

the

opportunities

or

benefits?

And

for

a

chemical

company,

that

is

switching

to

more

diversified

feedstocks?

[Markus Steilemann]

Yeah, Georgina,

thanks

for

the

questions.

While

the

Russian

supply

chain –

petrochemicals

are,

let's

say,

limited

in

that

sense,

if

you

look

at

the

[indiscernible]



(01:03:56)

prices,

for

example,

in

Europe,

they

just

settled

only

slightly

up.

And

if

you

look

into

specific

raw

materials

that

we

have

versus

competing

products,

we

have

done

so

far

only

our own

analysis

and

we

do

not

see

currently

any

short,

not

even

in

all

the

cases,

any

mid-term,

let's

say,

physical

supply

risks

of

any

of

the

raw

materials

that

we

need

for

our

production.

And

on

the

long

term,

we

anyhow

and

we

have

stated

that

also

in

a

different

context,

in

earlier

conference

calls,

anyhow, to –

or

however

due

to

different

reasons – regions –

reasons,

that

we

want

to

broaden

our

supply

base

to

make

sure

that

we

also

have

here

more

competition

with

regard

to

our

supplier

base.

So,

long

story

short,

we

currently

do

not

see

any

large

effects

on

our

own

supply

chains,

but

currently

I

have

to

say

we

are

not

yet

aware

of

any,

let's

say,

supply

chain

disruptions

of

immediately

competing

products

or

drop

in

products

for

our

solutions.

So,

that analysis

has

not

yet

been

performed.

On

the

second

bit

–

second

question,

we

do

see

a

clear

demand

in

the

markets

for

products

that

are

having

a

higher

share

of

circular

carbon,

let's

say,

in

our

context.

The

challenge

we

are

currently

facing

is

that

we

want

to

build

the

raw

material

markets

for

circular

carbon,

and

that

is

a

key

challenge

because

we

would

have

more

demand

from

our

customer's

side

for

those

products.

We

are

able

to

create

value

and

extract

value

from

those

products,

and

we

get

by

the

day

more

and

more

requests

from

customers

and

consumers,

whether

they

can

have

the

respective

products.

And

that's

why

we

have

very

boldly

moved

forward

on,

let's

say,

renewable

MDI,

on

renewable

TDI,

on

renewable

polycarbonate

exactly

to

address

those

markets.

The

key

challenges

we

have

to

grow

and

to

develop

the

respective

markets

from

a

supplier

side.

Just

to

give

you

a

few

numbers,

last

year,

we

roughly

bought

20,000

tons

of

renewable

certified

respective

raw

materials

that

go

into

our

large

products.

This

year,

we

aim

to

roughly 70,000

tons

to

100,000

tons.

That

would

mean

Sector

3

to

5.

However,

that

still

at

the

upper

end

would

only

represent

2.5%

of

the

total

amount

of

petrochemical

feedstock

that

we're

currently

buying.

So,

long

story

short,

we

see

great

opportunities.

We

also

believe

in

a

first

mover

advantage

to

also

extract

value,

but

we

also

see

the

challenges

to

now

rapidly

scale

up

and

we

are

far,

I

have

to

say

far,

let's

say

from

the

situation

where

this

is

a

major

share

of

our

portfolio.

However,

I

see

mid

of

the

century

that

the

[ph]



overall (01:06:50)

industry

will

be

able

to

supply

maybe

millions

of

tons

of

renewable

carbon

feedstock,

not

necessarily

for

our own

products,

but

in

terms

of

the

overall

industry

supply

and

I

think

also

that

for

mid

of

the

century,

those

investments

will

fully

kick

in,

so

that

we

make

major

progress

here

in

that

regard.

But

I

truly

believe

there

is

a

first-mover

advantage

and

that

is

exactly

what

we

currently

try

to

establish

and

we'll

try

to

also

lock

in

business

with

our

customers.

[Georgina Fraser, Analyst, Goldman Sachs International]

That's

great.

Thank

you.

[Operator]

Thank

you.

The

next

question

comes

from

Chris

Counihan,

who's

calling

from

Jefferies.

Please

go

ahead.

[Chris Counihan, Analyst, Jefferies International Ltd.]

Thanks, guys.

You've

mentioned,

the

mid

to

high

single

digit

volume

growth

assumptions

for

2022,

but

I

was

just

trying

to

tie

it

back

to

your

10-year

growth

in

greenhouse

gas

emissions

on

slide

6,

in

which

the

orange

bar

implies

average

of

historic

growth

closer

to

1.5%

per

annum

before

the

described

abatement

measures.

And

I

note

at

the

top

end

of

your

guidance

as

well,

you've

already

potentially

used

or

admitted

at

least

half

of

that

in

2022.

So,

are

there

already

some

net

offsets

in

this

orange

bar

over

the

coming

years

or

can

you

help

me

reconcile

that

to

growth

expectations

on

the

volume

side

longer

term?

[Thomas Toepfer]

Chris,

again,

the

sound

quality

was

a

little

bit

poor,

so

I

hope

that

I

can

answer

your

question

correctly.

If

I

understand

correctly,

your

question

is,

how

to

reconcile

the

mid

to

high

single

digit

core

volume

growth

assumptions,

especially

if

you

compare

this

to

the

historic

development.

And

I

would

say,

what

you

have

to

keep

in

mind

is,

in

2022,

first

point,

2021

was

a

poor

year

in

terms

of

operational

uptime

that

we

delivered

for

various

reasons,

some

of

them

external,

like

the

winter

storm,

some

of

them

simply

internal,

we

had

a

major

standstill

in

our

newly

built

MDI

facility

in

Brunsbüttel.

We

had

standstill

in

our

facilities

in

Leverkusen

and

also

in

Dormagen.

So,

it

was

not

a

great

year

and

we

were

actually

operationally

below

the

numbers

in

terms

of

call

volumes

of

2019

still.

So,

we

have

– and

therefore

the

big

effect

that

we're

expecting

for

2022

and it's a

Covestro-specific

effect,

is

that

those

things

will

not

reoccur,

plus

of

course

we

have

RFM

with

us

for

another

quarter,

which

was

not

the

case

in

2021.

And

if

you

take

those

things

together,

together

with

some

call

volume

growth

that

should

come

from

GDP

growth

and

a

catch-up

in

automotive,

and

you've

seen

the

–

the

double

digit

number

that

we

are

projecting,

that

brings

us

then

to

the

mix

number

of

a

mid

to

high

single

digit

number.

So,

there

is

quite

a

bit

of

catch-up

effect

in

there

and

there

is

of

course

some

support

from RFM in

there.

[Chris Counihan, Analyst, Jefferies International Ltd.]

So,

sorry,

Thomas,

I

was

more

referring

to

slide

6

and

mid-single

digits

for

2022,

but

then

slide

6

in

greenhouse

gas

emission

growth

of

– I

think

it's

one

million

metric

tons

over

the

next

decade,

and

asking

if

there is

already

abatement

measures

within

that

[indiscernible]



(01:10:26) on

slide

6,

because

that

would

be

implying

average

Covestro

growth

of

1.5%

per

annum,

when

historically

core

volume

growth

had

been

ahead

of

that.

[Thomas Toepfer]

Now,

I

get

it.

So,

the

–

the

–

of

course,

the –

the

new

volumes

that

we're

growing

are

growing

with

lower

CO2

emissions

than

the

historic

numbers

because

everything

that

we

invest

into

growth will

be

a

newer

technology,

Markus

was

mentioning

things

like

abatement

for

analytics.

We

have

the

high

temperature

[indiscernible]



(01:11:00),

et

cetera,

et

cetera.

So,

all

the

new

technologies

that

we're

building

have

a

lower

CO2

footprint,

plus,

of

course,

the

majority

of

growth,

as

we

have

also

shown

in

one

of

our

early

Investor

Relations

presentation,

takes

place

in

the

Solutions

&

Specialty

segment,

which

by

nature

has

lower

CO2

footprint

and

the

upstream

business.

And

that,

I

think,

is

the –

for

you

the

explanation

why

it's

not

a

one-to-one

relationship.

Sorry,

if

I

misunderstood

your

question

the

first

time.

[Chris Counihan, Analyst, Jefferies International Ltd.]

Thank

you.

[Operator]

Thank

you.

The

next question

comes

from

Markus

Mayer,

who's

calling

from Baader

Bank.

Please

go

ahead.

[Markus Mayer, Analyst, Baader Bank AG]

Good

afternoon,

gentlemen.

Three

questions

from

my

side

as

well.

The

first

one

is

on

the

RFM

synergies.

Have

been

there

any

specific

reasons

for

the

faster-than-expected

synergies

or

are

these

synergies –

or

the

faster

synergies

coming

from

somewhere

specific,

or

was

it

just

that

you

were

conservative

from

the

tied in

all

our

amount

of

the

synergy

and

also

on

the

cost?

That

would

be my

first

question.

[Thomas Toepfer]

And

directly

to

that,

Markus,

I

mean,

first

of

all,

all

the

operational

synergies

came

in

exactly

as

expected.

Where

we

were

faster

than

expected

is

the

cancellation

of

the

service

agreements

that

we

still

have

with

DCM

for

transitionary

period

and

we

were

able

to

take

over

those

services

in

terms

of

IT,

accounting,

controlling

and

some

other

administrative

functions

earlier

than

what

we

had

put

in

our

plans

and

that

led

to

the

overachievement.

However,

that

is

not

to

say,

to

be

very

clear,

that

the

more

operational

things

in

terms

of

head

count

consolidation

and

also

sales

synergies

through

the

joint

formation

of

laboratories

and

research

programs

is

not

on

track.

It's

also

on

track,

but

the

overachievement

specifically

in

2021

came

through

the

early

cancellation

of

transitionary

service

agreements,

mainly

with

DSM.

[Markus Mayer, Analyst, Baader Bank AG]

Okay,

thank

you.

And

second

question

would

be

on

the

potential

fall-away

of

the

EEG levy

and

Germany,

which

could

be

already

the

case

in

2022.

What

kind

of

effects

do

you expect

for

Covestro?

[Markus Steilemann]

Yeah, it's

currently

really,

I

would

say,

a

little

bit

challenging

to

say

because

the

currently

intended

stop

of

the

EEG

and

also

the

respective

potential

impact

would

mean

that

we

would

only

see

about

one

year

later

a

visible

impact.

And

if

that

would

be

cancelled,

we

would

at

least

[indiscernible]



(01:13:48) the

positive

impact

about, let's

say,

1.2

million

tons

of

less

accounted,

if

you

want to

say

so,

carbon

dioxide

equivalent

emissions,

simply

due

to

the

fact

that

we're

currently

falling

under

this

and

therefore

we

get

the,

if

I

may,

so,

dirty

part

of

the

German

energy

mix

fully

into

our

books.

Once

that

EEG

exemption

is

falling

away,

we

would

also

get

the

German

complete

energy

mix

in

our

books,

and

that

would

lead

to,

as

I

said,

1.

2

million

tons

positive

development

in

terms

of

lowering

our

carbon

dioxide

emission

footprint.

Does

that

answer

your

question?

[Markus Mayer, Analyst, Baader Bank AG]

Yeah,

yeah,

absolutely.

And

my

third

question

would

be

then

on

this,

230,000

tons

of

polycarbonate

compounding

capacities

until

2025.

Can

you

quantify

how

much

CapEx

would

be

needed

for

these

kind

of

capacities?

And

also

how

fast

is the capacity

additions

and also in

what

kind

of

regions.

[Markus Steilemann]

Yeah,

I

think

two

things

are

very

important.

Number

one

is

and

same

like

carbon

dioxide

intensity,

the

capital

intensity

for

those

businesses

is happily

and,

let's

say,

that's

good

that

that

is

actually

much

lower

than

the

intensity

for

the

upstream

businesses

in

terms

of

capital.

So,

normally,

we

would

expect

for

230KT, a

CapEx

in

the

low

triple

digit

million

number.

And

also

the

complexity

to

really

install

it

is

much

lower

than

building,

for

example,

a

fully-fledged

polycarbonate

plant

in

that

order

of

magnitude.

So,

from

that

perspective,

I

would

expect

that

those

CapEx

costs

are

much

lower

than

you

would

expect

for

an

upstream

polycarbonate.

I

would

also

expect

that

we

could

swiftly

execute

and

we

will

definitely

also

execute

this

where

the

key

markets

are

and

the

key

markets

are

for

that

growth

to

the

largest

extent

in

relative

as

well

as

absolute

terms

of

growth

in

Asia-Pacific.

However,

I

do

not

want

to

indicate

something

that

we

only

invest

in

Asia

Pacific

or

give

you

a

share

because

it

is

way

too

early

to

talk

about

specific

investments.

But

that

is

just

a

general

order

of

magnitude

to,

to

give

you

some

indication.

Asia

Pacific

is

the

market

to

be.

We

also

see

a

good

growth

for

those

high

value

products

in

the

United

States,

as

well

as

in

Europe.

[Markus Mayer, Analyst, Baader Bank AG]

And

regarding

the

ramp-up

pace,

so

basically

this

230,000

tons,

should

we expect

in

a

linear

trend

for

a

ramp

up?

[Markus Steilemann]

Yeah,

difficult

to

say,

because

we

really

look

into

individual

markets

and

there

we

go

for

local

permits,

we

need

to

see

where is

the

exact

place

where

we

do

that,

and

we

also

did

just

finish

one

line

in

2021

and

the

ramp-up

currently

is

happening.

That

means

specifying

with

customers,

then

fully

loading

the

plants

with

all

the

flexibility

that

those

plants

have

and

so

on

and

so

forth.

So,

I

would

not

expect

a

linear

ramp

up,

but

it's

more

like

bits

and

pieces

of

smaller

and

larger

lines,

as

we

call

it,

for

extrusion.

I

mean,

that's

the

name

of

the

technology

how

you

do

it.

That

compounding

is

basically

extrusion

process.

And

therefore

there

might

be

a

year 5,000

tons,

then

there

might

be

20,000 tons

and

there

might

be

another

6,000

tons.

So

it's

really

a

big

network

of

smaller

plants

here

and

there

at

sites

that

are

close

to

customers

within

an

already

existing

site.

And

that

is

exactly

why

I

cannot

say

it

will

be

a

linear

topic.

But

once

again,

as

a

reminder,

that

is

not

additional

capacity

in

terms

of

polycarbonate

capacity.

It's

just

that

we

take

more

of

our

own

production

of

standard

polycarbonate

and

route

it

through

the

additional

capacity

of

highly

specialized

polycarbonate.

So,

no

additional

overall

capacity,

we

are

just

moving,

let's

say,

from

highly

cyclical

standard polycarbonates

now

to

the

value

adding

products

in

our

portfolio

to

achieve,

let's

say,

80%

of

our

portfolio

by

2025

to

be

in

that,

let's

say,

space.

[Markus Mayer, Analyst, Baader Bank AG]

Okay.

Thank

you

for

this

clarification

and

the answers.

[Operator]

Mr. Köhler,

there

are

no

further

questions

at

this

time.

Please

continue

with

any

points

you

wish

to

raise.

[Ronald Köhler, Head-Investor Relations, Covestro AG]

Thank

you

all

for

your

interesting

question

and

for

your interest

in

Covestro.

I

think

we

are

already

slightly

overdue

on

time,

so,

happy

to

close

it

right

now.

If

you

have

any

additional

questions,

just

come

back

to

the

IR

team.

Thanks.

Bye.

[Operator]

Ladies

and

gentlemen,

this

concludes

the

Covestro

earnings

call.

Thank

you

for

participating.

You

may

now

disconnect.