Covestro Ag Ord

Welcome to the Covestro earnings call on the second quarter results. The company is represented by Markus 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 IR website. I assume you have read the safe-haver statement. With that, I would like now to turn the conference over to Markus.

Thank you, Ronald, and good afternoon to everybody and a warm welcome to our second quarter call. With the end of today, Covestro's Chief Commercial Officer, Sucheta Govir, will go into her well-deserved retirement after two consecutive terms on the board of Covestro. I would like to express my sincere gratitude to Cecita for her exceptional contributions and her dedication to shaping our company. On behalf of the entire Board of Management, I now have the great pleasure to introduce the new Chief Commercial Officer of Covestro, Monique Buch, to the investor community. Monique is an esteemed top manager with an impressive track record and a long-standing experience in the materials business. In her last position, she served as Executive Vice President non-woven at Lenzing AG Austria. This position had been preceded by various leading positions at Freudenberg and Dow Corning. She obtained a Master in Industrial Engineering and Management from the University of Twente. The other members of the Board of Management of Covestro and I are delighted that Monique will take an active role in improving our business performance while transforming Covestro to the circular economy and execute our Sustainable Future Strategy. Turning to the next page, positive news are coming from our M&A team. We always said that we are looking for bolt-on acquisitions for our solutions and specialty businesses. Now, with the acquisition of Pontacol, a Swiss manufacturer of multi-layer adhesive films, we have done another step in this direction. This move expands our specialty films product and technology portfolio, enhancing our European market presence. The acquisition offers attractive value creation through portfolio, organizational and procurement synergies. The addition of production sites in Switzerland and Germany strengthens our global manufacturing network and improves regional availability of adhesive films. This expansion enables us to deliver more powerful customer solutions, increase competitiveness and grow sustainably. We expect sales growth in the low double-digit Euro-million range by accessing growing applications including security glazing, flexible printed electronics and wind blade leading edge protection. The EBITDR contribution of these attractive applications is expected in the mid-single-digit euro-million range. The closing is expected in the second half of this year. After these encouraging news, let us now turn to the key facts of the last quarter. Turning to next page, the key facts of the second quarter were sales volumes remained stable. We had lower sales of 3.4 billion and they were caused by lower prices and unfavorable currency. We achieved an EBITDR of 270 million, which is in the upper half of our guidance range. The free operating cash flow came in negative at Euro 228 million. Following our July 11th announcement, we adjusted our guidance for EBITDA, free operating cash flow and return on capital employed above WACC. We were the first of several chemical companies that have since revised their guidance in response to adverse market conditions. Turning over to the next page. We are looking at the business and the volume development in the second quarter of 2025. Year over year, global sales volume remained flat, almost balancing negative developments in Europe, Latin America and Asia-Pacific with positive volume trends in North America. Across different industries, construction showed the highest growth with a mid-single-digit percentage increase, mainly driven by regional supply and demand patterns without major import-export trade flows. All industries depend on imports-slash-exports declined. Automotive saw low single-digit decline. Furniture followed with a mid-single-digit decline, and electronics was most affected with a high single-digit decline. Regional performance varied significantly. Europe and Latin America presented a mixed picture. Furniture, wood showed a slight increase, automotive remained flat, while construction declined slightly and electronics dropped significantly. North America's sales volumes, especially in performance materials, increased significantly, driven by strong growth in construction due to gaining market share from competitors relying on imports. Furniture would increase slightly, electronics developed flattish, while automotive showed significant decline. Asia-Pacific maintained a slight sales volume increase due to significant growth in construction, automotive with slight growth, but strong negative trends persisted in electronics and furniture. With this summary of the demand development, I am now handing over to Christian, who will guide you through the financials.

Thank you, Markus, and also a warm welcome from my side. We are on page 6 of the presentation and are coming to the year-over-year sales bridge. Sales for Q2 2025 declined by 8.4% to 3.4 billion euros. This decrease was mainly caused by negative pricing and FX effects. Prices declined by 4.8%, affecting both segments, while the negative FX effect of minus 3.2% was primarily driven by the weaker US dollar, Chinese renminbi, and Mexican peso. As mentioned earlier, overall volumes remained nearly flat at minus 0.4%. However, there was a divergence between the two segments with performance materials experiencing a slight decline while solutions and specialties achieving a slight volume growth. With that, let's turn to the next page where we are showing the Q2 2025 EBITDA bridge. Year over year, EBITDA decreased by 15.6% to €270 million, which falls in the upper half of our Q2 guidance range of €200 to €300 million. The performance above midpoint and consensus was driven by the release of 44 million short-term bonus provisions following the adjusted guidance for FY 2025. Selling prices once again declined more sharply than raw material costs due to the ongoing unfavorable industry supply-demand ratio. The price decline was most pronounced in APEC and EMLA after the tariff announcements of the US government. As a consequence, EBITDA was impacted by minus 100 million euros from a negative pricing delta and additionally adverse FX effects. The small volume increase shows the ongoing shift to reduce low margin business with strong market products. Other items were largely positive due to the aforementioned release of the bonus provision and included restructuring costs for strong of 37 million euros. On slide 8, we break down the details for the different segments starting as usual with solutions and specialties. In S&S, the combination of 3.4% negative FX effects and the year-over-year price decline of 3% led to a sales decline of 5.4%, despite increasing volumes by 1%. Sequentially, sales declined globally, with growth recorded only in APAC, while MLAR and North America declined. The EBITDA in Q2 2025 remained stable year-over-year as the negative pricing delta and FX effects were offset by positive volume development and others, mainly from bonus provision release and cost contingency. The quarter-over-quarter EBITDA decline was caused by a negative pricing delta, while volumes and others contributed positively. The EBITDA margin remained stable. In line with the adjustment of our FY guidance, we now expect SNS to contribute between 650 to 850 million euros to our FY 2025 EBITDA. After solutions and specialties, we now turn to the performance materials segment. Year-over-year sales declined by 11.8%, driven by negative contributions of minus 6.6% from pricing, minus 3.0% from FX, and minus 2.2% from volumes. Quarter-over-quarter sales increased in APEC and North America, while MLA declined. The Q2-25 EBITDA of €149 million is lower year-over-year, mainly due to a negative pricing delta, while positive volume effects from reducing low margin or loss-making business. Sequentially, the EBITDA in Q2-25 rebounded after the Q1 impact from one-time costs related to the closure of our POJV with Lionel. It increased due to positive effects from others, mainly from bonus provision release and cost contingency, positive volumes and pricing delta following the high energy costs during the winter period. We are also reducing the EBITDA guidance from 400 to 700 million euros and now expect PM to contribute between 200 to 500 million euros. This adjustment is based on the low probability of a margin recovery for H2 2025. The next topic is the free operating cash flow development. As you can see from the graph, the free operating cash flow in H1 2025 was negative with 481 million euros, with Q2 FOCF contributing negative 228 million euros. The free operating cash flow declined in H1 year-on-year, driven by lower EBITDA and higher CATEX. Changes in working capital of minus €314 million in H1-25 were mainly due to the seasonal build-up of inventories, however less pronounced than in 2024. H1, 25 capex of €365 million, was higher year-on-year due to phasing. We reiterate our capex guidance of €700 to €800 million for the full year 2025. Income tax paid of €85 million was similar to the previous year. The minus €127 million in other effects mainly comprises the bonus payout, which was slightly reduced compared to 2024. Overall, the Q2 2025 free operating cash flow is seasonally depressed. Our planning assumes an improved but still negative free operating cash flow in Q3, but a strongly positive free operating cash flow in Q4 2025. Let's now look at our balance sheet on page 11. Our total net debt increased by €492 million compared to the end of 2024. The increase was caused by the seasonally negative free operating cash flow of minus 481 million euros and the decrease in the net pension liability to 215 million euros was driven by an increase in pension discount rates mainly in Germany. This comprises pension provisions of 285 million euros and the net defined benefit asset of 70 million euros. Summarizing our net debt situation, the total net debt to EBITDA ratio is at 3.8 times, based on a four-quarter rolling EBITDA of €0.9 billion. Without the significant strong expenses of around €140 million in H1 2025, the increase would have been limited to a ratio of 3.3 times, which would have been an increase year on year of only 0.1 times. Covestro remains committed to a solid investment grade rating, which was just confirmed in April by Moody's, including a stable outlook. That concludes the overview of the Q2 financials, and I'm handing it back over to Markus.