Covestro Ag Ord

Welcome to the Covestro earnings call on the Q1 results. The company is represented by Marco Steinemann, CEO, and Christian Beyer, CFO. During the presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you have a question, please use the raise your hand function or post your question into the Q&A tab. You will find the quarterly statement and earnings call presentation on our investor relation website. I assume you have read the safe-haver statement. With that, I would now like to turn the conference over to Markus.

Thank you very much, Ronald, and hello and a warm welcome also from my side to our first quarter call. The highlights of the first quarter were a volume increase of 11% year-on-year. This represents the second quarter in a row with a positive volume growth. Lower prices burdened sales, which came in at 3.5 billion euros. We achieved an EBITDA of 273 million, approaching the upper end of our quarterly guidance range. The free operating cash flow shows the usual seasonal pattern with minus 129 million euros. Overall, we are fully on track to achieve our full year 2024 guidance. Let me take the opportunity and give you a short update on the discussions with APNOC. The status remains unchanged as the discussions are still ongoing. Let's turn to page number three. Before coming to the business details, I would like to direct your attention to two CapEx topics. We remain very disciplined on CapEx with a stable budget of around 800 million euros for 2024. Herein, we continue to invest with a focus on selective expansion projects, asset reliability and efficiency. The business unit Engineering Plastics recently inaugurated a new polycarbonate copolymer plant in our integrated site in Antwerp. Polycarbonate copolymers represent a material class in which polycarbonates are chemically reacted with additional components forming a new polymeric chain. These copolymers are very important for the advancement of our business as they allow for easy adjustment of technical properties in our materials. The investment is in the mid-double-digit million-euro range and covers a pilot plan for tests and a full production plant. The new solvent-free technology with an innovative reactor concept has been developed by Covestral. It allows fast product changes and reduced time to market for new solutions. Target applications are antennas, battery housings, photovoltaics, healthcare equipment and IT applications. Future innovations might also focus on mobility and other trends. We expect a low double-digit EUR 1 million amount as additional EBITDA contribution per annum, while further increasing our captive use of polycarbonates. Let's turn to the next page. Another example of an investment, this time contributing to expand our competitive position for TDI in Europe. Based on our assessment, Our TDI plant in Dormag remains the cost leader compared to our European and international competitors. In addition, our customers advocate strongly for local production instead of relying on fragile international logistics. Therefore, we started a comprehensive three-year debottlenecking and modernization project on our TDI plant and the precursor unit for TDA. This will increase the capacity towards 280,000 tons and at the same time improve reliability significantly. The additional capacity will be available beginning of 2025. During the modernization, we will also implement several measures and parts to increase the efficiency of the unit. One example is that we are integrating a new reactor that allows us to generate steam for the unit by using heat generated by the chemical processes. This measure will save around 22,000 tons of carbon dioxide per annum. A positive effect contributing to our Scope 1 emission reduction, but it will also have a positive EBITDA effect as the cost for purchasing energy and carbon dioxide certificates decreases. We expect a very favorable return on investment with a mid-double-digit million euro investment leading to an additional low-double-digit million euro EBITDA per annum. Let's turn to page number 5. Let us now come back to the business and the volume development in the first quarter of 2024. Year on year, the global sales volume increased by 10.9%. There are three reasons for the increase. Firstly, improving demand. Secondly, fixing our reliability issues in EMEA. And thirdly, end of the stocking or perhaps even some restocking. Going through the different industries, construction showed the highest growth rates with a high teens percentage increase. Furniture and electro followed with a high single-digit increase. Auto remains on a more modest growth path with a mid-single-digit percentage increase. Important, on global level, all industries showed a positive volume development. Looking into the different regions, EMEA benefited strongly from the resolved internal availability issues. All industries important to Covestro are exhibiting growth with a strong increase in construction, furniture, and electro. This is mostly associated with better availability of our core products, MDI, TDI, and polycarbonates. Auto is showing a slight increase as the backlog in the order book seems to be worked through. Sales volumes in North America also increased slightly, driven by growth in the construction industry, while furniture, auto, and electro were still declining. Asia-Pacific experienced growth across all industries that Covestro is focused on. Furniture, auto, and also construction exhibited significant growth, and electro showed a slight increase. With this summary of the demand development, I'm now handing over to Christian, who will guide you through the financials.

Thank you, Markus, and a warm welcome also from my side. We are on page six of the presentation. Sales for Q1 2024 are down by 6.2% year on year to 3.5 billion euros. The strong increase in volume was more than offset by negative pricing and FX. A negative impact of 576 million was coming from 15.4% lower prices, and here the pricing in the business entity performance materials declined much stronger with minus 21.3% than in the solutions and specialty segment with minus 10.4%. The volume increase of 405 million euros, or 10.9%, was significant. The segment performance materials exhibited a much stronger increase with 17.3%. This was supported by the resolved internal issues on the chlorine supply and thus better availability of our core products. Solutions and specialties showed a solid 5.9% increase in volume. The negative FX effect of minus 1.7% or 62 million euros was mainly driven by the weaker Chinese renminbi. With that, let's turn to page seven of the presentation where we are showing the Q1 2024 EBITDA bridge. Year on year, we have a slight decrease in EBITDA of 4.5 percent to 273 million euros, which is approaching the upper end of our guidance range of 180 to 280 million euros. Selling prices declined stronger than raw material costs due to an unfavorable industry supply demand ratio. As a consequence, EBITDA was impacted with minus 175 million euros from a negative pricing delta. The volume increase could not fully absorb the negative pricing delta, and the volume leverage was clearly below the long-term average due to the very low margins. FX also contributed to the negative development. Other items showed a positive development. This was driven by the success of our savings initiative with significant reduction on fixed costs. On slide 8, we are breaking down the details for the different segments and are starting with solutions and specialties. In S&S, the year-over-year price decline of 10.4% led to a sales decline of 6.2% despite increasing volume of 5.9%. FX also had a negative impact. Sequentially, sales growth was recorded in AMLA and North America. Due to Chinese New Year, declining sales were observed in Asia-Pacific, and overall, the trend was still slightly positive. The EBITDA in Q1 2024 was higher year-on-year, mainly due to higher volumes and a positive pricing delta, burdened by negative others and FX. The quarter-over-quarter EBITDA increase was mainly driven by seasonal factors and despite a slightly negative pricing delta. Raw material prices significantly increased during Q1, with an even accelerating trend in Q2. As a consequence, we expect a meaningful burden from higher raw material costs in Q2. At the same time, pricing flexibility is limited in S&S given quarterly or partly even longer contract duration and a value-based pricing strategy. This said, we expect Q2 EBITDA to be around the Q1 level. After solutions and specialties, we are now looking at the segment performance materials. Year-over-year sales declined by 5.7%, driven by price as the main contributor with minus 21.3% and FX with minus 1.7%. Volume, however, was up 17.3% and partially compensated for the drop in sales. Quarter-over-quarter sales increased across EMLA and Asia Pacific while North America was flat. Growth in EMLA was significantly driven by the improved internal availability. APAC showed slight growth. The Q1-24 EBITDA of €103 million is around 40% below last year. The year-over-year decline is mainly driven by a negative pricing delta and FX. Volumes and reduced fixed costs contributed positively. Sequentially, the EBITDA in Q1 2024 increased mainly due to positive volumes and reduced operational costs as well as a positive pricing delta. The next topic is the free operating cash flow development for Q1 2024. As you can see from the graph, the free operating cash flow in Q1 2024 was negative with 129 million. The free operating cash flow slightly improved year on year despite the lower EBITDA due to continuous working capital management and lower capex despite higher income tax payments. Changes in working capital of minus 229 million in Q1 2024 were mainly attributed to higher stocks. As mentioned already, Q1 capex of 106 million euros was down year on year and underlines our savings ambition. All in all, the Q1 2024 free operating cash flow is showing a normal seasonal dip related to increases in working capital after the winter break. Let's now look at our balance sheet on page 11. Our total net debt slightly increased by €186 million versus end 2023. The increase was mainly caused by the seasonally negative free operating cash flow of €129 million and negative others. The decrease in the net pension liability of 50 million euros was driven by an increase of the pension discount rates in the US and Germany. This comprises pension provisions of 348 million and a net defined benefit asset of 73 million euros. In 2022 and 2023, we executed a share buyback program of close to 200 million euros before the authorization expired. We are keeping the option of anti-cyclical share buybacks in the future in line with our cash spending priorities. The renewal of the authorization was successfully endorsed by the AGM earlier this month. Summarizing our net debt position, the total net debt to EBITDA ratio is at 2.9 times based on a four-quarter rolling EBITDA of 1.1 billion euros. However, based on our mid-cycle EBITDA, the ratio would be only around one times. Covestro remains committed to a solid investment grade rating. Our BAA2 rating was confirmed by Moody's end of Q2 2023. On the next page, we are now coming to the outlook for Covestro for 2024. We confirm our EBITDA guidance for fiscal 2024, assuming that the rather slow development of the economy will prevail in Q2. We are expecting the EBITDA for fiscal 2024 to come out between 1 and 1.6 billion euros. The mark-to-market EBITDA is calculated at around 1.2 billion euros based on April 2024 margins, flat forward, and our current budget assumptions for 2024. This is a 0.1 billion euro increase compared to January, driven by slightly improved margins. Many of you have remarked the missing mid-cycle numbers on this chart. Let me be very clear. We remain committed to our mid-cycle EBITDA concept with a mid-cycle level as indicated by the blue line. Our mid-cycle is also supposed to steadily increase based on capacity additions and the shift of commodities to our downstream businesses and solutions and specialties. We gave you two examples for both segments at the beginning of this presentation. We are confident that we would achieve an EBITDA of 2.8 billion euros in 2024 under normal economic conditions. Just a few words to the global demand outlook, which we are usually showing on a separate slide. The market outlook on global GDP is still around 2.5%, and the outlook for our core industries is mostly unchanged versus our February call. Given the minor movement in the industry outlook, we are skipping the comprehensive discussion and the specific slide here. Let me now focus on the additional guidance elements. Also here, the fiscal year outlook is unchanged. The free operating cash flow is forecast to come out at 0 to 300 million euros. The ROC above WACC is expected at minus 2 to minus 7 percentage points. and the greenhouse gas emissions in Scope 1 and 2 are estimated to be between 4.4 and 5 million tonnes. In Q2 2024, we expect an EBITDA between 270 and 370 million euros. The strong volume growth we have seen in Q1 continued in April. However, margins remain on a rather low level, which is expected to lead to a quite negative year-on-year pricing delta in Q2. For the full year 2024, we remain confident about a high single-digit percent volume improvement. However, we expect that lower selling prices will counterbalance the volume expansion in sales. Therefore, we expect sales between 14 and 15 billion euros. As you have seen already, we are quite focused on the CapEx budget of around 800 million euros. With our maintenance capex, we are strengthening the reliability of our assets, especially in performance materials. The expansion capex of around 300 million euros is mainly dedicated to strategic expansion projects, like the new copolymer plant in Antwerp for the business entity Engineering Plastics. And with that, back to Markus.

Thank you, Christian. So let me quickly summarize. We have seen a strong volume increase by 11%, and that was driven by higher demand and improved internal availability. Our sales decreased to 3.5 billion euros, and that was caused by lower prices and unfavorable currency effects while volumes increased. EBITDA first quarter 2023 of 273 million was close to the upper end of the guidance range and was burdened by negative pricing data and currency effects. Seasonally, we saw solid free operating cash flow of minus 129 million euros and it was supported by successful CapEx and working capital management. And last but not least, Full year 2024 guidance is confirmed with an expected EBITDA of 1 billion to 1.6 billion euros. And now Christian and myself are happy to answer any questions that remained open. With that, I hand it over to Carsten who will guide us through the Q&A session.

Thanks, Markus. And we will now begin the question and answer session. Ladies and gentlemen, if you have a question, please use the raise your hand function on your telephone. This is star 5. or post your question to the Q&A tab. If you wish to cancel your request, please use the raise your hand function again. When speaking, please ensure that you are unmuted. The first question comes from Christian Feitz from Kepler Chevreux. Please unmute your microphone.

Yes, good afternoon, Markus, Christian, Ronald, and team. Two questions that were made. First of all, Can you elucidate a bit the Q2 trends you are currently seeing? I appreciate the FDA guidance. I appreciate your comments overall, but you did mention that in Q1 you did see automotive furniture coming back a little bit. Do you see that continuing into April, May? I mean, you must have a lot of visibility of something like three, four weeks at least at the moment. And then the second question would be more on the supply side slash pricing. There's a quite a few outages by your peers lately on the MDI side, for example. Would that give you some muscle flex on increasing your own prices? Because, I mean, typically when I look at your historical development, you see volumes coming back and then eventually two, three quarters later a price is coming in. We're looking now at the most likely second, third volume quarter. So shouldn't pricing be back on track at some point during the course of this year? Thank you very much.

Yeah, thanks a lot, Christian. Very warm welcome. Also personally here from my side. On the first topic, we assume high single-digit volume growth year over year in the second quarter. And that should also allow for low to mid single digit quarter on quarter increase. So we see that the trend continues. You were asking specifically for automotive and furniture, maybe a bit of history. Last year, automotive was up by, I think, more than 10 percent or exactly on 10 percent for the entire year. And that's why the mid-single-digit growth rate in the first quarter for auto is not actually a real slowdown. It's just that we have now worked through the order books, and that's why I would say we see a bit more normalized levels on auto. plus what is maybe negatively impacting auto that we see in Europe as well as the U.S., quite significant decline in new EV-propulsed systems. So that's one of the key issues. The market segment is still small, but it has an impact on the overall auto sales. So I expect, however, that the automotive sales will continue also in the second quarter to be in that range, so around the mid-single-digit growth rates. For furniture, it's a slightly mixed picture. Here, I think we might also see continued positive growth. On the other hand, China seemed to be in that particular segment currently taking a quick break, so I have no real assessment how that would maybe impact the global picture, but I'm Still, given the overall numbers, positive that also furniture will show year over year, and to a slightly smaller extent, quarter over quarter, let's say, positive growth. You asked on MDI. As you said, some smaller outages, but nothing big. So if there is technically, let's say, one or the other smaller market where due to short-term supply issues, we might have the chance to grasp some business and then maybe also gain here and there, let's say, some more value from customers, that remains to be seen. But we also have to take into consideration that the increasing prices in the market are partly also driven by higher raw material cost. So, yeah, long story short, I would not say that from an MDI market perspective, we are currently already at a point where the market would switch from a buyer's market to a seller's market. So it could only, from my perspective, to be expected anecdotal evidence They'll be here and there, gain a bit more on the price front. So all in, PM margins are expected to slightly improve for the second quarter. However, S&S margins facing a slight or a bit downward pressure. And as we also stated during our presentation, Here we normally have contracts, let's say, 8, 10, even 3 months, sorry, 10 to 12 weeks, 3 months validity. That makes price increases for the second quarter on average a bit more difficult than in the PM sector. So long story short, PM margins a bit up. S&S margins for the second quarter may be a little bit under pressure.

Very helpful. Thank you, Markus.

The next question comes from Joff here from UBS. Joff, please unmute your microphone.

Hi, good afternoon. Can you hear me?

Very well, Joff.

Good, thank you. I just wanted to ask if you could help us with the volume growth that you achieved in Q1. Could you strip out what the impact of the ramp-up in the Dormagen and Kreufeld sites were, both at the growth level and at the performance materials level? And the second question I have is that, Mark, I think last year you said that given where capacity utilization is, if you got back to sort of historically high levels, that would give you an extra billion of EBITDA. Given the growth that you've got in Q1 and probably the growth that you would hope to get in Q2, why are you not looking at higher guidance? I was wondering whether you could explain what the offsets are. Maybe that's raw materials, but it is helpful to understand your guidance for Q2.

Okay, Joff, also very warm welcome from my side. So I would say that the volume growth has, I mean, stemming from the availability of our plants in Krefeld as well as Erdingen, particularly chlorine availability, should have on a group level three percentage points, three to five percentage points positive impact. So if you then boil it down to PM, which represents half, let's say, of our total volume a bit more, then you should end up with a high single digit for performance materials. So does that make sense? So three to five percentage point group level, high single digit on performance materials. Yeah. On the second part, I see Christian is preparing himself, so...

Yeah, very happy also to answer that with respect to why the guidance from your perspective moderate on Q2. I think there is probably two elements. If you look at it from a quarter over quarter perspective, we continue to see some positive results. volume development there, obviously seasonally driven. And as Mark has stated, also year over year, we are expecting a high single digit volume increase also for Q2. Nevertheless, when you look from a year over year perspective, there is quite some pricing delta, which we would expect still to be negative between Q2 2024 and Q2 2023, which is then being offset by the positive elements from the high single-digit volume increases. So that broadly gives you the perspective bridging from the last year's Q2 number of 385 to the now midpoint of our guidance range for the Q2 2024 of 320 million, with a little bit of a position in the other segment of a bit of phasing around the a mid double digit amount. So that brings you to that level. So strong confidence with respect to the volume improvement. And still, when we look back at the year 23, margins started in Q1 and Q2 of 23 stronger than we see right now. But obviously, we are offsetting that with significantly higher volumes that we are producing and selling.

And the next question comes from Chetan Udeshi from JP Morgan. Chetan, please unmute your microphone with star six. Chetan. Can you hear me? Yes, very well, Chetan.

Hi, thanks. You know, first, slightly technical, slightly more technical question, maybe for Christian. I'm looking at the slide number 11. which shows your net debt bridge. And you've got this 98 million of other increase. It seems it's mainly driven by leases. Can you talk about what's going on with the leases? Because it seems like it's more just a transfer of capex into leases, which reduces capex but maybe increases your leverage. And what impact should we think in terms of these increases in leases on your annual cash lease out payments and should we think about this leasing increases something that will continue over the course of this year. The second question I had was, can you talk about what is happening a bit in China because we've seen prices go up, go down and then up again. From a demand perspective, are things on a steady you know, sort of footing and improving, or you still see a lot of choppiness and maybe even some weakness in China in the last month or so, as sort of prices would suggest? Thank you.

Yeah, thank you, Chetan, for your questions. And I will address the first one, and then we'll hand over to Marcus for China. With respect to the net debt position that you are referring to on page 11, we have had historically always a portion of leases basically into that net debt number. If you think about the 2.7 billion euros of financial debt, there is about around 800 million in there of old leases. So existing, for example, CO supplies that are basically being accounted for in our balance sheet. These are elements that are continuously flowing through. There is usually not any big trend and any big changes or additions. In this very year of 2024, there is a couple of prolongations, which are basically then adding to the lease liability. However, over the longer-term trend, there is no significant changes, and therefore also with respect to cash out from those perspectives, nothing relevant to write home about. And therefore, I think our net debt should be looked at as it is here. At some point, there will be an addition. At some point, there will be a reduction. But across the years, it should be pretty stable.

Welcome from my side as well. Thanks for your question. So on China, I had the pleasure to visit China twice in the last two weeks. And the picture I took away is that the overall Chinese market in many industries, including ours, is described best, I think, by overcapacities. And those overcapacities leading to a bit more fierce competition. And at the same time two ambitions to export from China into other regions, especially overseas that means Mexico us Parts of Europe Middle East and so on and so forth. So long story short There is from my perspective for the products that we are selling Still a stable demand. That's how I would this steady demand and But we see that some competitors, and I take as an example, anecdotally, one who are, they just announced the technical completion of an MDI expansion. So that drives a bit, let's say, the perception in the market about volatility on the supply side. And that leads sometimes to a bit more speculative behavior of buyers in the market, even though demand is steady and Some people buy a bit more, buy a bit less. There's a lot of trading involved, et cetera, and that leads to the pricing picture that we're currently seeing, which looks more volatile than the fundamental and underlying demand would suggest. So from that perspective, that's how I would currently assess the situation.

That's clear. Thank you. Thank you.

And the next question comes from Jaideep Pandya from On Field Research. Jaideep, please unmute your microphone.

Thanks.

Can you hear me? Very well, Jaideep.

Yeah, thanks. I have three questions. Firstly, on the supplier – sorry, apologies – competitive landscape, Markus, We have seen a gradual increase in the nameplate sort of capacity on a per plant basis in terms of the train size. In MDI, I mean, 600 kt is norm these days for Wanhua. And they've just announced TDI capacity expansion as well, which is now 320 kt. And I remember when BSF had the plant of 300 kt in Germany, this was supposed to be the biggest sort of plant. So as the nameplate capacity on a per-plant basis increases, how do you see the competitive landscape, especially, you know, when you always say you're the best in the cross-curve point of view? And sort of tied to that is, like, you know, when you think about expansion, should we also think that you will go for these bigger trains? That's my first question. The second question, and I won't bother you on EDNOC, But I just want to understand what's happening sort of at your board level and in terms of your conversations with shareholders because a lot has changed from September to now in terms of your underlying earnings power. So when you're discussing with shareholders, like what's been sort of the feedback? Because I suppose it is, if I may say so, a bit of a frustrating situation because and obviously they're involved in other deals like OMV or so. So, you know, like is there an element of frustration creeping in, you know, from the board or from your shareholder community in this matter? And lastly, on your capital markets, and I don't want to take the sort of topics away from the CMD, but obviously you have one clear target on the S&S division of 17%. and you're meaningfully behind that. So is there some background work done in this regard which you're going to share with us? Because I guess the 2.8 billion target, probably you will revise that based on the market conditions. Thanks a lot for taking my questions.

Thanks a lot. Let's talk first about the competitive landscape. If you look at new investments, scale is only one point in assessing the cost per ton. We also run world-scale capacities in MDI 600 kT. because you don't only have to build it and design it like this by nameplate, but you can also, which we do with smart expansion, get from a 500, let's say, conceptual plant with smart investments throughout a few years to a 600 KT plant. And 600 KT seems to be currently the sweet spot from which onwards then the economies of scale turn around into, let's say, complexity costs and things like that. So we are, in that sense, still extremely competitive, and that's why we are not concerned about let's say another competitor building now nameplate of 600 KT from the scratch or 320 KT in TDI. Because nameplate is one thing, the technology behind it, for example, gas phase fosgenation for TDI or let's say adiabatic processes for MDI, which we have in our portfolio and are protected IP, make a significantly higher contribution to the effectiveness and efficiency of the cash cost than the pure nameplate capacity in itself. And therefore, we not only believe, but we have, from our perspective, at least solid data based on internal and external assessments that we have the best-in-class process technology and also, therefore, very competitive assets despite, let's say, higher or higher, slightly creeping increased initial capacity on the nameplate side. So, overall, We assume that Wanhua and Covestro have a broadly similar cost structure. On AdNoc, well, if you ask me for my personal feelings, there is no frustration simply because I'm not paid for frustration. I'm paid for having open-minded, faithful conversations in the best interest of our shareholders, the company, and other stakeholders, and to make sure that we have constructive discussions. That's exactly what I'm doing and what the entire board of management is doing. So I would also not like to speculate, let's say, on our shareholder basis and their particular feelings. For sure, if you listen to one or the other shareholder and stakeholder, they might, let's say, raise some of their views and some of their views might also represent frustrating feelings. But once again, I'm not in the position to, let's say, represent any single shareholder here and saying, well, this shareholder or that shareholder or the majority or the minority is is frustrated. So please understand that this is also currently everything that I can share. with regard to the ongoing constructive, open-minded and faithful discussions with EPNOC. On capital markets, I think we will not talk about the content today. We plan to provide you a strategic update, but historically we do not plan, and that is also from our perspective not the case for the next Capital Markets Day big announcement today. because that was always what we also historically did. We just engaged in more in-depth discussion during a capital markets day on specific topics, but not necessarily on big announcements.

Just if I may follow up to your point about frustration, you are not being frustrated. Is there legally any time frame for this open-ended discussions or is this something that could go on for two years and you are doing business as usual?

Well, there's a couple of things, let's say, in your questions. First and foremost, there is no timeline that limits us in any way at the current stage. Secondly, I think I said it during the AGM, but I also said it in different contexts when asked. I mean, we also have to be clear that I think it is in no one's interest to drag on forever with these discussions, to be also clear. What was the third part of your question? Sorry. No, that's it.

No, that's it. Thanks a lot. Thanks a lot. Cool. Good luck with the discussions.

Thank you.

The next question comes from Sebastian Brey from Berenberg. Sebastian, please unmute your microphone.

Hello. Good afternoon, everybody, and thank you for taking my questions. Could I focus first on trading? Is there anything in particular that would make April an exceptionally good or bad month by Covestro's standards? And what I'm trying to get at here is, is it a prudent assumption simply to take April margins and transpose them to the rest of the year? Or is there some exceptional factor, be it struggling to recover higher benzene prices or something else that would make it different? Or perhaps to put the question differently, Was April better than March, both in volume and order book and margin terms, or were the two months roughly comparable? My second question is on tax effects. The tax rate has remained quite high because of the inability to recover tax losses in Germany whilst the operations there are loss-making. Can I just confirm, this tax credit never expires, so Convestro can make it back whenever it likes? And what is the current value of these deferred tax losses in Germany that can be used later? I don't believe it's disclosed in the quarterly report. Apologies if I missed it. Thank you.

Thank you, Sebastian, for your question. With respect to the trading specificity, we are seeing the same trends from that perspective between March and April. So there is insignificant improvements from March to April, but therefore you see the volume development as well as some progress in the way that Marcus described before. on PM margins, and on the other hand, a little bit of headwind from an S&S perspective. On the quarterly guidance that we have given, the 270 to 370, that basically entails exactly that perspective of that growth, high single-digit growth. On the one hand, on year over year, and on the other hand, negative pricing delta. So we look at that, and we have not seen any relevant change of play during April, and we do not foresee that for the remainder of the quarter, according to our data at this very moment. With respect to the topic of the tax situation, absolutely correct with respect to the expiration. For the German tax credits, basically there is no expiration date that is out there. We currently have about 3.6 billion euros of tax loss carried forward. out of which 3.1 billion euros is coming from Germany. They are not expiring. The other bigger part is coming from Switzerland to the tune of around 350 million euros. They do expire after a couple of years, but the German ones don't. remain there and we are certainly focusing on bringing forward also our setup in Germany in order to ensure that over time we also do benefit again from those tax losses carried forward that will be positioned also forward into the future and can then be used for cash benefit on the tax line.

So can I just follow up on this? 3.6 billion, so the company Has tax loss carried forwards currently equal to close to 30% of its market cap? This is quite a lot. Can you do something with it relatively quickly? When does this become cash? Do you just pay 0% tax once the profitability returns for 10 years, or how does it work?

Well, we can certainly deep dive on the mechanics there. I think it's very, very important that the gross number is not the relevant one to look at. It's basically then the tax benefit that would be coming from that gross number. And if you would basically discount it and apply the tax rate. We are talking rather in the low to mid triple-digit million tax benefit that could be usable over the future. And with respect to the timing of that, that very much depends on the recovery and the development of the German asset footprint that we are bringing forward also with investments And the good thing is, on the one hand, they are not expiring these tax losses. The other thing is we are certainly impatient ensuring that we are using them as early as possible in line with our strategy.

That's helpful. Thank you.

And the next question comes from Matthew Yates from Bank of America. Matthew, please unmute your microphone.

Good afternoon, everyone. A couple of questions, please. Firstly, just around how you're dealing with the volatility in benzene pricing. Is that eroding any attempts to increase MDI prices you're putting through and offsetting the volume recovery? If, hypothetically, benzene prices were to go down over the coming months, do you think the market is in a tight enough position that you could hold on to some of that benefit in your own pricing? And then the second question, I wanted to just ask a little bit about the business case for your TDI investment you talked about at the beginning of the call. These days, we tend to hear much more about chemical closures in Germany rather than companies investing fresh capital in their assets. So this de-bottlenecking will obviously give you more capacity, and I don't know if that was motivated by BFF's retreat from the market, but why would you not think that just gets filled by imports? I think we also spoke on this call about some of the expansions OneWire is making. So just curious to hear a little bit more about the business case around that TEI investment. Thank you.

Matthew, on your first question on the, let's say, benzene prices impacting MDI prices, you could imagine or take the picture of a cork swimming off the surface of an ocean. The waves going up and down represent the benzene prices, and the cork more or less is just sometimes dipping a little bit in, but then popping up a little bit. But in general terms, at a given, supply-demand situation, actually the MDI prices are swimming on the benzene prices. That's how you could see it. That means if benzene prices are going lower, you might gain one to two weeks where you could gain a bit more in MDI prices, but then the market is following and MDI prices are going down back to the margins that you expect for a respective utilization rate and supply-demand ratio. So from that perspective, the opposite side, benzene prices going up, it takes you a couple of weeks to bring MDI prices up. That means you have short-term squeezed margins, but then things are, once again, back to the normal margin pattern you would expect for that particular supply-demand situation. Second effect, if you have benzene prices going up, it takes normally one to two months to as they're running through our books from the raw material purchase into the bill of materials and so on and so forth, and then finally into the finished goods. So it means if benzene prices are going down, there might be some benefits, for example, in the third quarter, but once again, it depends. Then midterm, midterm means in a couple of weeks, always on the supply-demand balance that you have at that current point in time. On TDI, there are only two plants remaining in Europe. We are by far the cost leader. And given that cost leading position, which we with this investment even further improving, we have significantly lower cost compared to landed costs for imported material, even from highly cost efficient plants in Asia Pacific. And that is the reason that with TDI, local TDI plants at the cost position we have, we are even, let's say, globally competitive against any import that comes from overseas.

Thanks very much.

So, thanks, Matthew. This has been all of today's questions. With that, handing back to Ronald.

Thank you, Carsten. And, yeah, if you have further questions, don't hesitate to come back to the IR team. And before concluding the earnings call, I also would like to make you aware of our Capital Markets Day, which we highlighted already this morning, but you will get an invitation later today as well, 27th of June, 24, in Leverkusen, showcasing obviously here also some production areas and so on. So that, and also just to make you aware, I mean that capital markets day for us is rather business as usual, and you should not read, try to read anything into it. It is obviously a regular event. We typically did with the Corona crisis. So to say there was a break, but of course we want to come back to a more regular update for you guys here. And with that, I conclude the Corvestro earnings call and see you then. at Capital Markets Day or after or in between. See you. Bye bye.