Covestro AG (1COV) Earnings Call Transcript & Summary

Ladies and gentlemen, as Chairman of the Supervisory Board of Covestro AG, and therefore, as Chairman, of this meeting, I would like to hereby officially open the sixth ordinary AGM of our company, and welcome you on behalf of the Supervisory Board and the Board of Management to the AGM. This sixth AGM of our company is, at the same time, the second virtual AGM of Covestro AG. The coronavirus pandemic is continuing and is continuing to determine human interaction. Unfortunately, hopes that the pandemic and thus the restrictions would have been overcome by this spring have not been fulfilled. Major events such as an AGM are still not possible. Against that backdrop, the Board of Management of the company with the agreement of the Supervisory Board has decided that the AGM in 2021 would be held according to the rules of the COVID-19 Measures Act in the version from the 22nd of December 2020 as a purely virtual AGM without the physical presence of shareholders or their proxies. As was the case last year, shareholders can exercise their rights electronically, the AGM is being streamed on Covestro's investor portal and also for the public on the Internet in its entire length. Ladies and gentlemen, it is important for me to add that the Board of Management and Supervisory Board really do appreciate a dialogue with you and that the format of a virtual AGM offers, unfortunately, merely just restricted opportunities for such a dialogue. In order to ensure that your questions can be asked of the company and answered completely based on current information, the speeches of the CEO and the CFO have for the first time been published on the company's homepage for -- prior to the -- 1 week prior to the AGM. This year, you've been able to submit your questions ahead of time, and we will be answering these during the course of the AGM. Again, ladies and gentlemen, after these preliminary remarks, I would now like to move on the formal matters for this virtual AGM, which are different from those of an AGM held in the normal format. First of all, I would like to state that the convocation of today's virtual AGM was published in the Federal Gazette dated the 4th of March 2021, together with the agenda and the proposed resolutions that were submitted by the Board of Management and the Supervisory Board in a proper format within the time prescribed. Since then, all of the obligatory documents and information has been available, accessible on Covestro AG's homepage, and these documents will remain available there for the entire duration of this virtual AGM. One copy of each and every piece of the obligatory materials are in the meeting room here today with Dr. Mark Hermanns, whose official office is in Koln, he's our notary, and he's taking the minutes of today's AGM as in years past. Dr. Hermanns is next to me here. And of course, he is at the mandatory distance, and I'd also like to welcome him very warmly. The Board of Management of Covestro AG is present here today on site. I'd like to welcome very warmly the CEO, Dr. Markus Steilemann; Dr. Thomas Toepfer, the CFO and Labor Director of the company; Dr. Klaus Schafer, Board of Management member for technology and Production; and Ms. Sucheta Govil, our Board of Management member responsible for innovation, sales and marketing. At this juncture, I'd like to already point out that later on, Ms. Govil has got to go to a different appointment. And for this reason, unfortunately, she'll be obliged to leave the AGM at 12:45, and I hope you have understanding for this. We have next to me from the Supervisory Board, also Professor Rolf Nonnenmacher, he is the Deputy Chairman of this meeting. The other members of the Supervisory Board are participating virtually in the AGM by means of a 2-way video and audio transmission. If need be, they can exchange views with each other and contact us, the people here up on stage. This virtual participation of the Supervisory Board in the AGM is also due to the particular circumstances in the context of the coronavirus pandemic. And it helps us to keep the amount of personal contacts as low as possible. Ladies and gentlemen, of course, We are going to be keeping, as is prescribed by law, a list of participants at our AGM. And this includes the proxies of the company here in the room as well as the shareholders represented by them with the different numbers of shares that these people hold. I would now like to tell you what the official attendance is currently. It is based on the current figures from the listed participants of the share capital, registered share capital of the company of EUR 193,200,000 divided into 121,254,412 shares, non-par value shares are represented, and that same number of votes corresponds to 62.76% of the registered share capital. In addition to that, we have received ballots by mail for 112,787 non-par value shares. And as a result, we have here represented 121,367,199 non-par value shares, which corresponds to 62.82% of the registered share value of the company. Ladies and gentlemen, of course, for our virtual AGM too, as is required by law -- sorry, the list of participants is here in the meeting room, and is constantly being updated, if necessary. I will be announcing to you the attendance later on. Again, when I began, I already mentioned the subject of questions. The shareholders that registered in due time and in due form were able to submit questions to the AGM via our investor portal ahead of time. And as of the deadline of last Wednesday, 14th of April, 2021, this was possible. We have received a total of 88 questions from 10 different people. And I'm happy that so many questions have been submitted by so many different people, which expressed the interest in our company and our virtual AGM. These questions will all be answered after the speeches from the Board of Management members and the report from the Supervisory Board. We will be answering your questions by -- in the order of the people who submitted them and provided that they have clearly submitted their acceptance of having their name published, we will do that, too. We will be answering all of these questions just as comprehensively as we would at a normal face-to-face AGM because it's important for us, for you, our shareholders, to receive all the necessary information to make well-informed decisions today about the agenda and our proposed resolutions. And in this way, we want to be as close as possible to the dialogue we would have at a normal physical AGM. In addition to that, the shareholders that have submitted their votes in due time and in due form have been able to exercise their voting rights by appointing proxies or submitting them by mail. And during the course of the AGM too, it is still possible to go through the investor portal at the homepage of the company to submit your vote in writing or to submit voting instructions, if you wish. And this -- both of these will be possible until the Board of Management has answered all of the previously submitted questions from shareholders, and we then move on to the voting. And at that point in time, I will expressly, once again, point out that, that will be the last opportunity to electronically submit a vote or voting instructions. But I would already like to call upon you to submit your votes early enough. Information on exercising your voting rights can be found in the convocation to the AGM and on the homepage of the company. And finally, I'd like to note that no one has requested any additions to the AGM, and we have not received any countermotions either. So those were the formal matters. Ladies and gentlemen, before we move on to the rest of the agenda, allow me briefly to look back on last year from the point of view of the Supervisory Board. 2020 was shaped by the coronavirus pandemic. As a result, it was a trying year for all of us. There were the health challenges and above all, in addition to that, there were many uncertainties and restrictions. And in businesses, this, of course, were entailed collapsing markets. In the first half of the year, this had a major impact on Covestro, too. But the Board of Management reacted prudently and quickly. They took the appropriate measures in order to rise to the challenges they faced. First of all, it was about ensuring the safety of our employees and maintaining production operations of the company and our supply chain. What was always important was to ensure that the company could continue to act and operate as a company. Because despite all difficulties, last year, there were some important strategic decisions made to set the course for the future. The Board of Management announced a long-term vision for the company. And on the basis of that, it is realigning the strategy for the group. And in 2020, Covestro closed on a major acquisition. And first of all, agreed on it and closed a major acquisition. These measures taken have meant that 2020 for Covestro was a successful one despite the burden from the pandemic. You, ladies and gentlemen, shareholders, we want you to be able to benefit from the success, and therefore, the Board of Management, Supervisory Board are proposing today to pay out a dividend of EUR 1.30. And this will be decided on when we get to item 2 on the agenda. EUR 1.30 means that the dividend is EUR 0.10 higher than it was in 2020. And this dividend corresponds to a payout ratio 55% of the earnings -- net earnings of the company. The Board of Management also has established a new basis for its dividend policy. The objective is to create a stronger link to the overall economic situation of the company and, of course, to ensure that we can, in the future, too, pay out an attractive dividend. In their speeches, the CEO, Markus Steilemann; and the CFO, Dr. Thomas Toepfer, will go into the details of these aspects that I just mentioned. Ladies and gentlemen, Now we will move on to the agenda that was published in the invitation in the convocation. We'll begin with items 1 and then 2 on the agenda, they are regarding the annual financial statements and reports and the use of appropriation of debt earnings. Ladies and gentlemen, and on that note, I'd like to hand over to the CEO of Covestro AG, Dr. Markus Steilemann.

Ladies and gentlemen, dear shareholders. On behalf of the Board of Management of Covestro AG, I would like to warmly welcome you to our Annual General Meeting. Just like last year, we are holding a virtual meeting once again. There is no longer anything unusual about such meetings. Virtual communication has been a fixed part of our lives for more than a year now, and that includes Covestro. The way that we communicate has changed as has the way we work. We have focused even more intensely on digital solutions and applied them as rapidly as possible around the world. And we have implemented them, as I said as rapidly as possible. In this process, our team has become an even more tightly knit unit. We also took another step forward in terms of digitalization during this period. At the same time, a pioneer of digitalization has set aside an incomparably greater task, how to avoid [Audio Gap] We want to make the world a brighter place. This is our commitment. And it is a commitment from which even the coronavirus pandemic has not been able to deter us. Our vision is clear, we will be fully circular, and we intend to be a pioneer on this path. Today, our production is largely based on fossil raw materials. We are determined to change this. In order to do so, we are replacing raw materials such as coal with more sustainable alternatives. Wherever possible, we are already doing this today. Innovative chemical recycling is closely related to this process. Our vision is ambitious, and it is technologically demanding. This is why we are working very closely with partners and customers. And the alliance extends well beyond our own industry. We are jointly devising new sustainable business models, and we are making technologies usable on a broad basis. By doing so, we will accelerate our efforts to become fully circular. Moreover, our production is energy intensive. This is why we are dependent on renewable energies. To achieve our vision, we are driving forward the turnaround in energy policy. We use sustainable energy sources wherever possible. As part of this effort, we will cover a significant amount of our power needs in Germany with offshore wind power. We took a step towards this by signing a long-term agreement with the energy provider, Orsted, in December 2019. And we are now also making the transition to renewable energies at our production operation in Antwerp. Since April 1, 2021, we have been sourcing around 45% of our power needs in that location with wind energy. This is how we're reducing Covestro's carbon footprint in Belgium by more than 38,500 metric tons of CO2. This is roughly the amount of emissions that 20,000 cars produced in 1 year. We firmly believe one thing: by taking such steps, we are generating significant momentum that will lead to more sustainable industrial production. Ladies and gentlemen, sustainable growth is one of our core goals. One further example of this commitment is the acquisition of the Resins & Functional Materials business or RFM for short, from DSM last December. We successfully completed this transaction on April 1 of this year. We are now one of the world's market leaders when it comes to sustainable coating resins. This acquisition enabled us to reach a key milestone in the implementation of our strategy, and we're able to do so despite all of the challenges posed by the coronavirus pandemic to our operating business last year. RFM is an ideal fit for us. The products and technologies perfectly complement the portfolio of our segment Coatings, Adhesives, Specialties or CAS for short. In total, RFM will contribute about EUR 1 billion to group sales. This acquisition will also enable us to expand the basis of our customer industries. At the same time, we will systematically expand our position in fast-growing markets. RFM has already pursued ambitious sustainability goals as part of DSM. Today, roughly 85% of its portfolio already consists of sustainable technologies. As a result, this transaction represents an important step on our way to more sustainable business practices. As of 2025, we expect to generate synergies totaling EUR 120 million annually. The acquisition price of around EUR 1.6 billion thus represents 5.7x RFM's EBITDA after synergies. This means the acquisition is very attractive in financial terms as well. But our RFM acquisition was by no means our only major development in 2020. I'd like to give you a few more examples. Let's look at the use of CO2 as a raw material. This development is a critical step in our effort to create circular processes. Last year, in Shanghai, we laid a sidewalk made of our CO2-based material, Cardyon, for the first time. This material reduces the use of crude oil during production by up to 1/5, and it can be used in a wide range of areas as well, including the production of mattresses and upholstered furniture as well as car interiors. We also made new strides in our work with artificial intelligence. We intend to use digital technologies to increase our company's efficiency and to make it more sustainable. One example of these efforts is the partnership which Google and Covestro initiated in the area of quantum computing. Together, we are further developing this technology to use it to solve chemical challenges. This will mean significant time savings, reduced use of resources and more efficient and environmentally conscious processes. We have already achieved some major successes with such strategic partnerships. One of the first partnerships that come to mind is our alliance with Neste and Borealis. Together, we are working on replacing fossil raw materials with sustainable materials, and we are doing so successfully. Today, we can use certified mass-balanced raw material to produce polycarbonates. Renewable raw materials are allocated to selected end products, thus facilitating the creation of a wide range of sustainable products. We reached an important milestone in production as well. Since October 2020, we have been successfully operating a pilot facility in Brunsbuttel based on our new AdiP technology. This technology has eliminated the need for an external heat supply during reaction control, and this helps lower the CO2 emissions of our production facilities there. In Brunsbuttel, we are optimizing technology from Germany for the world. This will massively improve the energy efficiency of our production. Our awareness for the environment is continually expanding in every area of our lives. Our customers are also demanding more sustainability. Policy initiatives like the European Green deal are pointing the way. But it's clear, CO2 emissions must decline. With our technologies, we are well prepared for this development. We are actively lowering the CO2 emissions of our production facilities. We are also improving the carbon footprint of our value chains. We, thus, have the answers we need to become a pioneer in the chemical industry. Regardless of our long-term goals, I can say that the year 2020 was dominated above all by the coronavirus pandemic. We took fast and decisive measures after the virus broke out. The health of our employees is and always will be our highest priority. Most of our administrative staff works remotely. This is not always an option in production. For this reason, we acted very quickly and implemented a wide range of hygiene and protective measures here. All of these measures was issuing additional personal protection equipment to employees. We also minimized the contact points between individual work shifts and production. Furthermore, we are now providing employees with a self-test at our German locations. And of course, we're supporting the German government's vaccination campaign as well. We want to offer voluntary and free immunization shots to our employees in Germany and to make use of our infrastructure and medical facilities for this purpose. There is, of course, an essential prerequisite for this, sufficient supplies of vaccine, not only for our workforce in the plants but also for the general population, and the necessary political framework must have been created. We have also actively managed our supply chains, thanks to this, we've been able to reliably supply our customers. We face broad economic uncertainties, particularly at the beginning of the pandemic. It was, thus, even more important to maintain our ability to act at any time. One key factor was strengthening our liquidity position. We introduced a wide range of financing measures to achieve this goal. On December 31, 2020, Covestro had an exceptionally strong liquidity position of EUR 2.5 billion. We also created a strong liquidity reserve with our EUR 2.5 billion syndicated credit facility. We link our financing measures to sustainability criteria wherever possible. The reason for this is clear, our vision is the foundation of each entrepreneurial decision we make. Thomas Toepfer will take a detailed look at this in a few minutes. At this point, I would like to highlight 1 liquidity safeguarding measure in particular, because it impressively reflects our We are 1 culture. In the spring of 2020, a time when the first pandemic was cresting the economic outlook for the year appeared to be . We agreed with employee representatives on a special act of solidarity. The voluntary cut in wages and salaries that was combined with reduced working hours. The results, 96% of the company's workforce in Germany, including the Board of Management and Supervisory Board took part in the program. Our colleagues at international Covestro locations devised a similar country-specific measures of their own. The level of wage and salary cuts varied. The fixed portion of remuneration paid to members of the Board of Management and the Supervisory Board was reduced by 15% for 6 months. The compensation of employees was reduced less on a staggered basis. We have not used the German government's temporary unemployment program or any other government support at any time. And our measures succeeded as well. In December 2020, we were able to reward all individuals who took part in the program by making bonus payments that equaled the total amount of wages and salaries that each individual had given up. In other words, they earned the same amount of money for less work. This is a tremendous proof company's team spirit. And a special word of thanks goes to all employees who did such exceptional work last year. All of these measures were very successful. This becomes particularly clear when you compare our results with the pre-corona guidance we issued at the beginning of 2020. The pandemic slammed the brakes on global industrial production in 2020. We too experienced declines in core volume growth. This is largely the result of our performance in the first half of 2020. During this time, our business was massively affected by the pandemic worldwide. Beginning in the third quarter, demand rebounded strongly, and it did so in all customer industries and regions. Nevertheless, we generated our strongest quarterly performance in the past 2 years during the fourth quarter. Our group sales totaled EUR 10.7 billion. This total fell within the range that analysts had expected under pandemic conditions. More important for us is what we ourselves could control better. Before the pandemic, we guided an EBITDA of EUR 1 billion to EUR 1.5 billion. And we generated EUR 1.5 billion despite the pandemic. This clearly shows one thing. We took the right steps. We significantly exceeded our pre-corona guidance for free operating cash flow with a total of EUR 530 million. At 7%, our return on capital employed also finished the year at the upper end of the guidance that we originally issued for 2020. When you add it all together, you can say that we responded quickly and correctly to the crisis. We retained our ability to act at all times, and we delivered strong results. I would now like to turn the floor over to Thomas Toepfer. He will provide you with a detailed look at the results of the past fiscal year. Thomas, the floor is yours.

Thank you very much, Markus. Dear shareholders, I, too, would like to welcome you to our virtual Annual General Meeting. It's a great pleasure for me to present the results for fiscal year 2020 to you. Let's start by looking at the development of our core volumes. You can see that the pandemic had a negative effect in all regions. Core volumes declined everywhere by 4.4% in the Asia Pacific region, by 6.4% in North America and by 6.2% in Europe. Overall, core volumes fell by 5.6%. But global demand for our products rebounded strongly in the second half of the year. In Europe, we began to grow again in the third quarter year-on-year. North America also picked up considerable steam in the fourth quarter year-on-year. In China, we even returned to the growth path starting in the second quarter. We also generated growth in some sales industries during fiscal 2020 in spite of corona. These sectors included the construction industry in Asia, the electronics industry in Europe and the furniture and wood industries in the United States. This shows that demand for our products remains high. And it remains so even during a global pandemic. The economic downturn we experienced in the first half of the year initially created challenges for us, just as it did for all companies, bolstering our liquidity position was a critical success factor for us in this situation. We needed to take this step to preserve our ability to act. This relates, for example, to procurement, travel expenses and lower CapEx budget. We originally planned to lower cost by EUR 200 million in 2020. We raised the goal significantly and achieved savings of EUR 360 million by the time the year ended. We also profited from long-term structural measures. We continue to consistently implement our ongoing efficiency and effectiveness program perspective and successfully completed it ahead of schedule at the end of the year. By streamlining our standard business, we lowered cost by an additional EUR 130 million in 2020. And over the entire program, we generated cost savings of EUR 350 million as planned. Ladies and gentlemen, we reacted at the right time in the face of the pandemic. Our package of measures made a significant contribution to our strong performance. This package was bolstered by a turnaround in demand that began midyear. This enabled us to return to our profit path or growth path in the second half of the year. At approximately EUR 1.5 billion, our earnings almost reached the levels seen in the previous year. It was an incredible success for such an unusual year. The largest negative effect in the EBITDA bridge is primarily attributable to the pandemic-related decline in sales volumes. You can see that on this chart. This had a total impact of EUR 400 million on our earnings. Exchange rate effects were slightly negative, as you can see, at EUR 26 million. The price delta was slightly positive during the entire year at EUR 132 million. The other items category had the largest positive effect on EBITDA. This area includes savings produced on -- produced by short-term measures and our perspective efficiency and effectiveness program that totaled EUR 350 million. Let's now turn to the balance sheet for fiscal 2020. Covestro is very solidly positioned. We strengthened our balance sheet last year even as we grappled with the substantial strain caused by the coronavirus pandemic. We reduced our net debt by nearly EUR 500 million to about EUR 2.5 billion. Our leverage ratio also declined slightly year-on-year. It totaled 1.7x our EBITDA at the end of the past fiscal year. At the same time, our equity ratio remained virtually stable at a solid level of 44%. This is also linked to our continued commitment to maintaining a solid investment-grade rating. At EUR 2.5 billion, Covestro has an exceptionally strong liquidity position. There are 2 primary reasons for this. First, strong free operating cash flow at the end of the year. And second, the capital increase we conducted in October 2020 to help refinance the RFM acquisition. As part of an accelerated placement process, we issued 10.2 million shares and generated gross proceeds of EUR 447 million. We use these proceeds to finance part of the RFM acquisition. We also successfully issued bonds with a total volume. And we also managed to take -- make use of part of our capital -- authorized capital. And this is something that was done in the best interest of the company and the shareholders. In addition, in June of 2020, we also issued bonds totaling EUR 1 billion. This was a successful placement. Our strong liquidity position helped us, in particular, to maintain our ability to act at all times. Even in the face of the pressures caused by corona, we were able to carry out the acquisition of RFM and bring the deal to a successful conclusion shortly before Easter this year. The pandemic, however, is not over. Even if our business has rebounded strongly in the second half of the year, overall economic conditions remain uncertain. As a result, a strong liquidity position remains all the more important this year. Our syndicated line of credit totaling EUR 2.5 billion provides us with a robust liquidity reserve, which we can tap into whenever we need to. That brings us then to the issue of financing. Let me look at this issue now from a different perspective. Covestro is becoming fully circular. This is our vision. It guides us not just in our operating business, it really is the foundation of all our entrepreneurial activity. That is why we are also -- we have also based the financing measures that we took last year on the circular economy and sustainability. Our syndicated credit line of EUR 2.4 billion is a good example of this approach. We linked it to an ESG rating. This means that the better we are at meeting the environmental social and governance standards underlying the rating, the better the interest rate component will be. In doing so, we will create further incentives for sustainable business development. The fact that we are already well positioned in these areas is also shown by the loan from the European Investment Bank for EUR 225 million. Loans issued by this bank are tied to the fulfillment of high technical and environmental standards, and we're investing the entire loan proceeds in sustainability-focused research projects. So as you can see, our systematic focus on the circular economy steers the actions of each of our divisions. The 10-fold oversubscription of the bond we issued in June of 2020 reflects investors' continued interest in our company. It was an impressive expression of the confidence that the investors have placed in the path we are following. Dear shareholders, we want you to participate in the success of our company and pay out an attractive dividend. That's tradition at Covestro, and we will continue to follow this tradition in the future, too. Today, we are proposing a dividend of EUR 1.30 per share. Despite corona, this recommendation exceeds the EUR 1.20 dividend per share that we paid In the previous year. We also plan to modify our dividend policy. In the future, we would like to distribute between 35% and 55% of our net income. This will enable us to react more flexibly to developments in our business and create a stronger link to the overall business situation at Covestro. In years with high earnings, we will tend to focus on the lower end of the scale while still paying high dividends. In challenging years, we will orient the payout on the higher end of the scale. By taking this approach, we will ensure that our investors always receive an attractive dividend. Our proposal for the past fiscal year amounts to a payout ratio of 55%. This puts us clearly at the upper end of the scale. Finally, let's take a look at our guidance for the year 2021, which we raised for our EBITDA, free operating cash flow and ROCE, return on capital employed, on April 13, 2021. We have gained tremendous momentum since the second half of 2020, and we closed the fourth quarter very successfully. Also, we entered the new fiscal year with good impetus. That is why we expect strong core volume growth of 10% to 15% for fiscal 2020 (sic) [ 2021 ]. The RFM business will contribute 6 percentage points to this total. Overall, we will be able to more than offset the decreases caused by the pandemic, and we will exceed our core volumes from 2019. We now expect EBITDA to total between EUR 2.2 billion to EUR 2.7 billion, in line with the adjustment we made this week. Here, too, we will exceed the pre-pandemic level of EUR 1.6 billion from 2019. We expect our return on capital employed to total between 12% and 17%, and we're striving to have free operating cash flow of EUR 1.3 billion to EUR 1.8 billion. This represents a significant increase from 2019. Our outlook for the first half of 2021 is positive as a result. Preliminary EBITDA for the first quarter is EUR 743 million, a level that represents our strongest quarter in the last 2.5 years. For the second quarter, we expect EBITDA of between EUR 730 million and EUR 870 million. With this very positive outlook, I will now hand back over to Markus Steilemann.

Thank you, Thomas. Ladies and gentlemen, shareholders, the past year was a challenging one, for the world, for Germany, for Covestro. But we responded accordingly, and we brought this exceptional year to a successful conclusion. We reinforced our position of one of the world's leading chemical companies. We are proud of this achievement, but we will not rest on our laurels. The world will continue to change rapidly. Digitalization is certainly one good example of this. The coronavirus pandemic acted like an accelerant here last year. Sustainability and climate protection are 2 other examples that are worth mentioning as well. The pandemic has overshadowed their importance only temporarily. Climate change, environmental pollution, dwindling resources, these areas will remain the big challenges of our time. They will also have an impact on our customer and sales industries. I'm thinking here about such things as the growing importance of electromobility, about low energy building techniques and about structural changes in the energy industry. Climate and environmental protection affect us all. They are global challenges. I wish everybody should contribute a solution. With our high performance products, we want to contribute to the solution. For this purpose, we are reducing our energy usage and the emissions generated during production. And we rely increasingly on sustainable raw materials. We are firmly convinced of one thing, the circular economy is a crucial part of the response to these global challenges. This is why we are moving resolutely forward. We will not stand still. We will respond to change. And we will position Covestro in the best possible way for the future. For this reason, we have realigned our strategy in recent months. The new strategy called, Sustainable Future, follows our vision. We will become fully circular. We are fostering a climate-neutral and resource-conserving economy. With the help of our circular products, we are working on ways to solve the pressing challenges of our times. And in doing so, we are paving the way for tomorrow. The new strategy consists of 3 chapters. In Chapter 1, we will become the best version of our company. We will create even more streamlined structures that will enable us to unleash our full potential. In Chapter 2, we will combine sustainability and efficiency. This means that we will systematically align investments and acquisitions with these goals. We will invest in attractive and sustainable market segments over the long term. However, sustainability is not the only criterion. We will also base our investments on clear profitability criteria. And by taking this approach, we will create the maximum level of value for Covestro and for you, our shareholders. Furthermore, we will explicitly base our research and development activities on sustainability. 80% of our development projects should be based on the United Nations' sustainable development goals by the year 2025. We will also draw on these UN goals in our efforts to make our product portfolio even more sustainable. In the process, we will systematically foster sustainable growth. The third chapter covers our vision. We intend to do our part to accelerate the transformation to a climate-neutral and resource-conserving economy. The specific aim is to move completely away from fossil raw materials. This will apply, first of all, to electricity supply. We are working intensely to become a company that obtains 100% of its power from renewable energy. Production is a key lever in this effort as well. Over the long term, we will replace raw materials like crude oil with alternatives like biomass, CO2 or recycled waste materials. By taking such steps, we will close the carbon loop and move ever closer to achieving our goal of becoming climate-neutral. This is a goal that applies not only to Covestro but also to our upstream and downstream value-creation stages. We are making rapid progress in implementing our new strategy. We will reach one of our first major milestones this summer. As part of the first chapter of our strategy, we will tailor our businesses even more closely to the needs of individual markets and, above all, to the needs of our customers. What does that mean specifically? As of July 1, we will restore our organization -- restructure our organization. We will realign our 3 business units into 7 new business entities. And we will operate them along their own individual success factors. The new entities will be given more entrepreneurial responsibility. So we will integrate all operational activities that are critical to success directly into the new units. Sales and production will also become part of the unit's areas of responsibility. They will be able to provide their customers with the best possible support as a result. The new units will be divided into 2 large segments: Performance Materials on the one hand and the Solutions & Specialties business on the other. In taking this step, we are moving with our customers. The requirements differ completely in both areas. In the Performance Materials area, we reliably supply customers with high-quality standard chemicals at competitive prices. The willingness of customers to change suppliers in this area is high. This will mean 2 things: first, we will have to expand our global cost leadership; second, we will have to ensure the availability of our products. Optimal utilization of our production facilities will be a key to this. On the other hand, we have the Solutions & Specialties business that involves complex products with a high level of innovation pressure. The needs of customers in this area are much more individual. We address them by offering tailored products and solutions. We draw on our technical expertise to facilitate the development and refinement of specialty products. Our new structure will enable us to do this even better. Instead of categorizing our products on the basis of their chemical composition, they will instead be clustered according to their specific customer requirements. This will enable us to become an even better partner for our customers and to become much more competitive. Let me conclude with a short summary. We demonstrated last year that Covestro can masterfully manage a crisis. But we will not simply be content with this. Not at all. We are actively setting the right course for the future. We are focusing even more strongly on our customers, and we are basing our processes and products even more closely to their needs. In taking this step, we are determined to become the best partner our customers could ever have. With our new strategy, we combine sustainability and efficiency. By investing in attractive and sustainable market segments, we are systematically fueling the development of a future-proof portfolio. As a result, we will generate long-term growth. With the help of our tailored structures, we will become significantly more effective and efficient. We will become the best version of who we are. And we will become even more competitive. In short, we are laying the optimal foundations to not only maintain our leading position, but also to expand it. In the process, we will remain, without a doubt, the driving force behind efforts to drive a circular economy. Ladies and gentlemen, we are pleased to have you at our side on this journey. Thank you for your attention.

Mr. Steilemann, Mr. Toepfer, thank you for your reports. Ladies and gentlemen, On behalf of the Supervisory Board, and I believe also on behalf of all of you, I would like to express my thanks to the Board of Management members and all of the employees of the company. Our thanks and our appreciation for their great dedication and their performance. And I'd like to do this in particular in the backdrop of the special challenges faced in the past year in the context of the coronavirus pandemic. You have made essential decisions and taken essential measures and supported them not only to master the exceptional and challenging year 2020, but also to reorient the company for the future and position it correctly. Now ladies and gentlemen, before I go on to the report from the Supervisory Board. I'd like to take this opportunity to point out that additional information on all of the members -- current members of the Supervisory Board and their specific experience and knowledge as well as to any other positions they might have in other companies is available at the Covestro homepage and in the latest annual report. As you have been able to see in the invitation to the AGM, Fernando Beccalli -- Ferdinando Falco Beccalli, a Supervisory Board member, has ended his position on the Supervisory Board as of today. And this means that at today's AGM, we must elect a new member of the Supervisory Board. But first of all, allow me to thank, very warmly, Mr. Beccalli for his work on the Supervisory Board in the past 6 years. Mr. Beccalli has accompanied Covestro from its very first year and has enriched the Supervisory Board, in particular, with his knowledge of the industry and his management experience in the relevant plastics industry for Covestro. On behalf of the Supervisory Board, I'd like to thank Mr. Beccalli for his many years of work on the Supervisory Board and on the Nomination Committee, for our cooperation in the spirit of trust and the many valuable discussions and for his dedication to our company. The Supervisory Board on the basis of the recommendations of the Nomination Committee is suggesting, as a successor to Mr. Beccalli, Ms. Lise Kingo, as a candidate for this election. Lise Kingo has much experience and knowledge in areas which are essential for the challenges that Covestro is facing, and she provides an ideal complement to the expertise profile of our Supervisory Board. But let's allow Ms. Kingo to speak herself. She will introduce herself in a brief video that she has sent to us.

Yes. Shareholders, My name is Lise Kingo, and I'm very excited to present myself to you for the election as a member of the Covestro Supervisory Board today. Currently, I'm living in Denmark, where I was born in 1961. Among other things, I'm an independent Board Director at Sanofi SA in France, and I have more than 30 years of work experience in driving sustainable business transformation. For example, with the Novo Nordisk Company, where I was an Executive Vice President and member of the executive management team for more than 12 years. And in the Novo Science company where I was a Director of Environment, Health and Safety. I have known Covestro for several years in my role as CEO and Executive Director of the United Nations Global Compact. Covestro was a very inspiring role model for how to integrate sustainability into business strategy and was awarded in 2018 as a leader in driving change in the entire plastics industry. So I would be honored to bring my expertise and experience to the Supervisory Board of Covestro and help take the company to the next level of implementing a fully circular business strategy, guided by the sustainable development goals and show that a company can be even more future-proof benefiting both planet, profit and people by being very serious about combining business and sustainability. Thank you.

Ladies and gentlemen, shareholders, we would be pleased if you were to support the election of Lise Kingo to the Supervisory Board. We are persuaded that Ms. Kingo is an outstanding choice for becoming a member of our Supervisory Board. With her expertise and her experience, in particular, in the field of sustainable corporate development, she will be able to set some key signals and accompany Covestro on its path toward a complete alignment toward a circular economy. Allow me to briefly point out that further information about our candidate, Ms. Kingo, can be found in the convocation to the AGM that was published in the Federal Gazette and on our homepage. There, you will also see that Ms. Kingo has been proposed for a term of office of 4 years instead of the maximum allowed by law of 5 years, which has been a rule and is also mentioned in Articles of Association. By doing it this way, we want to take into account in particular of institutional investors and the requirements of corporate governance. Ladies and gentlemen, now I'd like to move on to the report of the Supervisory Board. You will find it in this year's annual report on Pages 22 to 28, and I would like to expressly point to those. Now, there you will see a more detailed report. And therefore, today, I'd like to be a little bit more briefer here. As has been mentioned several times, last year was shaped in particular by the coronavirus pandemic. And this, of course, posed many challenges for Covestro too. The management of the company reacted quickly, prudently and decisively. And looking back, we can say in hindsight that the Board of Management did take the right measures in order to protect all of our employees, to maintain production operations and business activities and, thus, to accompany and manage the company as best as possible through the pandemic. The Supervisory Board had regular exchanges of views with the Board of Management and was convinced of the effectiveness of the measures they took. In addition to that, Covestro made the decision to orient the company entirely toward a circular economy and to anchor this in its strategy, which is a key and major step in the future orientation of the company. And with the acquisition of RFM, the Resin & Functional Materials operations from the Dutch company, DSM, Covestro has taken another further step for more long-term growth. On all of these decisions, the Supervisory Board accompany the Board of Management very closely and has thus actively had an impact on the securing the future of Covestro. And last year was a special year for the way the Supervisory Board worked, too. The AGM 2020, of course, had to, first of all, be postponed and then it had to be conducted virtually. At that AGM, the 6 representatives of the shareholders on the Supervisory Board were reelected. Only one Supervisory Board meeting was held in the face-to-face format, as usual, all other meetings, including those of the committees were conducted as virtual meetings. We constantly monitor the management activities carried out by the Board of Management in the last fiscal year and provided consulting and advice to them. This was done in particular in the -- at the 7 meetings of the Supervisory Board that all members always took part in. Five members were not able to take part in 1 meeting and 2 -- and 1 person was not able to take part in 2 meetings because they were not able to come for personal reasons. But in almost all cases there were briefings ahead of time between the Supervisory Board members and between myself and these people so that all of the members of the Supervisory Board always were involved in passing all resolutions on the -- of the Supervisory Board. Last year, the Supervisory Board focused on the following subjects in particular, in the first meeting, in the fiscal year in February, the Supervisory Board dealt in detail with the annual financial statements and the consolidated financial statements for fiscal 2019, the audit report and the report of the external auditor. In addition to that, internal risk reporting and group-wide compliance management system were discussed. The Supervisory Board looked in detail at the results of its effectiveness and efficiency check in the form of self-evaluation. Other important subjects were the preparation of the elections of the owner representatives to the Supervisory Board at the AGM 2020, the adaptation of the financing or funding framework for fiscal 2020 in the context of the renewal of the revolving credit facility and the planned introduction of the new vision that is completely aligned to the circular economy for the company. After different resolutions passed by circulation of documents by the Supervisory Board, for instance, on the conducting the 2020 AGM as a virtual meeting, on the forgoing of remuneration by way of solidarity to support the overcoming of the corona crisis in the company and the bond issued to secure the liquidity of the crisis situation. Then in June at the meeting of the Supervisory Board, the Supervisory Board dealt with preparing the first virtual AGM of the company and the reappointment of Dr. Thomas Toepfer and the extension of his contract as CFO. And then after the AGM on the 30th of July, the Supervisory Board met so that it could conduct its constituent meeting after the election of the representatives of the shareholders to the Supervisory Board and to also elect the Chairman of the Supervisory Board and the members for the committees. In the meeting in August, the Supervisory Board looked at the acquisition of RFM from DSM, another subject they deal with was the planned global transformation program, LEAP, that is intended to realign and reshape the structures and processes at Covestro. At the extraordinary meeting on the 29th of September, the Supervisory Board had a detailed discussion and then they passed the resolution on the planned acquisition of RFM and thus approved the planned financing structure, including a capital increase, which was then actually carried out later on, on the 13th of October. At the October meeting of the Supervisory Board, the focus was on strategy and more specifically, it was a new group strategy, which anchors the alignment to the circular economy in the group strategy and contains the 3 strategic chapters you're familiar with. Specifically, making Covestro become the best of who we are, driving forward with sustainable growth and completely aligning the company to the circular economy. In its last meeting in December, the Supervisory Board looked at the remuneration system for the Supervisory Board and the Board of Management and checked the compensation of these people. In addition to that, the Supervisory Board passed the new remuneration system for the Board of Management, which now includes a nonfinancial sustainability criteria, and I'll get back to that in a minute. In view of the substantial improvement in the economic situation of the company and the general repayment of the solidarity contribution to all employees, the Supervisory Board at that meeting also passed the lifting of its proportionate remuneration waiver. In addition to that, the Supervisory Board at its December meeting looked at the corporate plan for fiscal 2021 that was put together by the Board of Management. Between the Chairman of the Board of Management or the CEO and myself, there were regular exchanges of views between meeting dates, in particular on strategy and planning questions, on the development of business and on important upcoming decisions. The members of the Supervisory in fiscal 2020, also focused on their personal training. For instance, there was a virtual series of Covestro events on project management in chemical engineering. Allow me now briefly to touch on the activities conducted on the committees of the Supervisory Board. The work of the Supervisory Board is prepared in the meetings of the committees and also involved there in the reporting period. The Audit Committee met 5 times, the HR Committee met a total of 3 times, and the Nomination Committee met a total of 4 times. In addition to that, there were times when a special committee was set up to prepare and carry out the capital increase in the context of the acquisition of RFM to monitor that and to approve it. And that special committee met a total of 2 times. All of the committee members always participated in all of these meetings. The Audit Committee monitored the accounting process and the effectiveness of our internal control system and the risk management system. It also got constant updates on the evolution of the compliance management system and further subject of the Supervisory Board. Furthermore, there was regular exchange of views between the Chairman of the Audit Committee, Professor Rolf Nonnenmacher and Dr. Thomas Toepfer so that they could discuss in-depth the risk and compliance management system of the company and the accounting process at Covestro. The Audit Committee and the Supervisory Board discussed in detail the financial statements and the joint management report, and all of them received unqualified auditor's certificate, and they also discussed the audit report from the external auditor with financial statement documented, in particular, the assessment of the further development of the company, I can say that we are very satisfied in agreement with them. As was the case in the past, I am convinced that there has been a continuation of the close transparent cooperation between the Board of Management and the Supervisory Board in the spirit of trust. And during this cooperation, we value, in particular, the principles of good corporate governance. Ladies and gentlemen, that was the report from the Supervisory Board. I'd like to now take this opportunity to tell you a little bit about the remuneration system for the Board of Management and Supervisory Board. Later on, you will be past -- or looking at the resolutions on this subject in Items 8 and 9 on the agenda. As a result of the German Act for Implementation of the Shareholders' Directive, ARUG, it's called in German. There has been a new section introduced into German Stock Corporation law, this stipulates that any time there's an essential change, at least once every 4 years, the AGM of listed companies must pass a resolution on approval of the Supervisory Board -- of the remuneration system submitted by the Supervisory Board for the Board of Management. And it was last done on the 3rd of May 2016, that was when the Supervisory Board did this at an AGM for the Board of Management, and the Supervisory Board has decided that it would evolve the from the 1st of January 2021. The evolved remuneration system passed by the Supervisory Board for Board of Management members can be found in the convocation to the AGM with detailed explanations. The changes compared to the existing system regard above all the complement to the long-term variable remuneration and sustainability -- to which a sustainability component has been added. The introduction of rules on retaining or clawing back variable remuneration component, this is called the malice and clawback rules and the definition of maximum remuneration, which in line with the requirements of the act in Germany, implementing the shareholder rights directive, has been adapted in line with the German Governance code. The target total remuneration has basically remained unchanged. The sustainability criteria that I mentioned will now go into the long-term variable remuneration and the installment beginning in fiscal 2021 has been defined, and it's been based on the target savings in terms of CO2 equivalent, it's called Scope 1. As was announced in the convocation of today's AGM, the Supervisory Board has proposed on the basis of the recommendation from the HR committee that this remuneration system should be approved. It has been passed by the Supervisory Board with effect from the first of January 2021, as I mentioned. Then there's item 9. That is the decision on the remuneration for members of the Supervisory Board as a result of the changes to the act implementing the shareholder rights directive. Section 113, Paragraph 3 of the German Stock Corporation Act has been changed. And as a result of this, at least once every 4 years, the remuneration of Supervisory Board members must be passed once again. And that can also be just a confirmation of what has been done. The remuneration of the Supervisory Board members has remained unchanged according to Section 12 of the Articles of Association. The Supervisory Board members have a right to a fixed component and an attendance fee. The amount of the fixed component is based on the tax they have on the Supervisory Board and in the committees. This is for a -- separate for each individual. And the remuneration stipulated in Section 12 is appropriate in view of the Supervisory Board and will be -- and should remain unchanged. As was announced in the invitation to today's AGM, the Board of Management Supervisory Board, therefore, propose we have a confirmation of the remuneration of the Supervisory Board members and the system fund, which is based -- as it is stipulated in paragraph or in Section 12 of the Articles of Association and is described in the annual report on Pages 173 to 174. Ladies and gentlemen, now before we move on to answering your questions, I would like to, once again, point out that you can go to our investor portal on the company's own page during the virtual AGM to exercise your voting rights. You can do this either by electronic absentee vote or by authorizing and giving instructions to the proxies of the company. Please remember, though, that this function at our investor portal will be closed down just after the end of the answering of shareholder questions, so that we can then determine the results of the vote. And at the appropriate point in time, I will point this out once again.

Now let's move on to the questions that were submitted ahead of time. As I mentioned when we began, we received a total of 88 questions from 10 different people. We will be answering these questions in groups. They've been grouped by the individual person who submitted them. The Board of Management will now respond to these questions that were addressed to them. Questions to the Supervisory Board will be answered by myself in agreement with the Board of Management. Ms. Ina Moritz from our legal department will read the questions that you've submitted. And by doing this, we want to ensure that to the greatest possible extent, we are doing things in a similar fashion the way we do at a physical AGM. Ms. Moritz, the floor is yours.

Dear shareholders, allow me to explain, first of all, the order in which we will be answering your questions. Let's begin with the questions from DSW, a German Shareholders Association and SDK because they represent a large number of shareholders and the answers to these questions will probably be of interest to many of you. Then we will have the questions and answers in the order in which they were received. If you explicitly said you were willing to have your name mentioned, then we will mention your name. So let's begin with questions from Mark Tumler. He is a spokesman for the DSW, a German Shareholders Association. Mr. Tumler asked what Covestro has learned from the corona crisis. What changes and adjustments will remain and what effect will they have?

Yes. Mr. Tungler, I'd like to answer your question from my very personal point of view, what did I learn about Covestro during the past year. We can perform crisis management, and we have a We are 1 culture and both belong together. We've heard this in the speeches already. Covestro was able to get through coronavirus year 2020 successfully because we took comprehensive measures for cost savings and liquidity early, and we were also -- seen a great deal of solidarity amongst our employees. This could be seen by the flexible way they dealt with rules on working from home and also the change in their day-to-day working environment to a virtual world. This solidarity was also seen by the fact that many renounced part of their pay with reduced working orders. Together with employee representatives, we agreed on this very special solidarity measures. 96% of the workforce in Germany, including the Board of Management, the Supervisory Board, were part of this program. Colleagues in international sites also had similar country-specific measures as well. This showed me one thing. Crisis management and solidarity belong together at Covestro. But we don't want to rest on our laurels. On the contrary, we are taking the right decisions for the future. At the Financial Press Conference in February '21, we announced the new alignment of our group strategy. Focusing on this, we see more customer orientation as well as sustainable growth. In the long term, our goal at group level is to be fully -- have a fully circular economy and our strategy for sustainability and economic efficiency. We are optimistic when it comes to the future.

Mr. Tumler then asked about the positive structural environment and looking at the top line and the margins that were in the best of all situations. He continued to say, could it get even better? And if so, where does Covestro see further potential? He would be interested in hearing where Covestro is in the economic cycle.

Thank you, Mr. Tumler. Covestro focuses on market, which grow as a result of the trend to substitution above the gross national product. We plan to also continuously increase these sales volumes. This means that there will be a structural increase in our earnings. Covestro is also subjected to price for fluctuations, especially in our standard business, which means that about half of our sales is affected by this. Market prices can fluctuate considerably due to specific supply and demand situation. Right now, compared to historic developments, prices are above the average level long term but not at a peak level. Our guidance for 2021 says that prices or the margins per ton will fall again. But in the next few years, we expect that the supply will grow more slowly than demand, which then can lead to structural increase in margins. We can see an undulating wave, and we see a growing earnings power at Covestro. It will be interesting here to compare Covestro and the predecessor organization, Bayer MaterialScience, and how they performed in the economic crisis 2009 and the pandemic in 2020. There, we had an EBITDA which was below EUR 0.5 billion. In this crisis, now were able to generate EUR 1.5 billion. The difference is due primarily to increased volumes due to 11 years of growth. And based on this trend, we assume that, in the future, we will also be able to achieve new peak results. Another important factor for future potential is seen in the implementation of our global transformation program, LEAP. As part of this transformation, we want to focus even more on the market's requirements and tailor them to that. In our speeches, we also talked in detail about the adjustment of our organization that we are planning. In addition, we also plan to further increase our efficiency. The target will soon be. We will keep our overheads the same up until 2023. This target, of course, will also depend on the -- this is without the bonus because this depends on developments. And this is very demanding for 2 reasons. First of all, we want to continue to grow our business. Growth normally leads to an increase in overheads. And secondly, baseline 2020 had a very low cost basis because there were short-term crisis measures that were taken as a reaction to the pandemic. And that's why this target is a very serious one in order to increase cost efficiency at Covestro. Throughout the cycle, we also want to be able to have attractive earning on the capital employed. And we also want to have a high degree of free cash flow after CapEx. And because paying an attractive dividend is something we plan to make part of our -- to use our liquidity for acquisitions. A good example of this is the acquisition of Resins & Functional Materials from DSM.

Mr. Tumler has asked for some information as to why the group is being realigned and asked what added value is associated with this? And to what extent this will have an impact on responsibility, transparency, management and reporting?

We -- thank you very much, Mr. Tumler. With our global transformation program, LEAP, we want to realign our structures, processes and managing mechanisms so that we can position our company in an optimum way. To do so, we want to restructure our operational and organizational structure as well as responsibilities. In future, we will have 7 new business entities. These entities will have the necessary decision-making authority so that they can manage their businesses themselves and to best look after their customers themselves. And to ensure this, we will also embed activities, which are critical to success in the business entities. In addition, our product, the type of product will not be decisive criteria as to how we manage our company. What counts now is the business aspects and the customers' needs that are behind these products. So in the future, we will distinguish between standardized performance materials and solutions and specialties business. In addition, this program also provides for a clustering of certain skills in cross-company functions, which is important for the development of a country, company considering, in particular, sustainability and circular economy. And in this way, Our strategy is reflected transparently in our business structure. This new realignment at Covestro will focus on circular climate-neutral economy, and we will have even more digitization and customer orientation. This will lay the foundation for the fact that the company can be more effective and more efficient, we can avoid redundancies and we can modernize our ways of working. Implementation of these changes is to begin in the middle of 2021 and should be completed by the end of 2023. The new segment structure is something that will be implemented in our external reporting for the first time in the interim report in Q3.

DSW has noted that in the corona year 2020 and in a very strained business year that Covestro was resilient, and they the way that they have gone forward to be correct. Mr. Tumler asks if maybe additional measures and steps might be necessary and sensible in order to increase the group's resilience. He wants to know what steps are planned and If it might also be necessary to have additional operational improvements when it comes to complements from the outside. He'd like to ask for some information on the plan.

Thank you very much, Mr. Tumler. Well, basically, our new strategy answers your question. As we said in our presentations, So I'll repeat this very briefly. Our new strategy called Sustainable Future is in line with our vision. We focus on circular economy. That means that we have climate-neutral and resource saving economy. We have 3 chapters. First of all, Chapter 1. This gives even better fitting structures in order to tap our full potential. One example of this is the staggered transformation program called LEAP. The second chapter is where we combine sustainability and economic efficiency. Investments and portfolio measures will be focused on these points. An example of this is the completed acquisition of Resins & Functional Materials, which we acquired from DSM. The third chapter is our vision. With our business activities and with upstream and downstream at value added chain, we want to become climate neutral, and we want to conserve resources and accelerate this process. Examples of this are the first deliveries and processing of certified mass balance raw materials, phenol and benzol.

Mr. Tumler has also noted that in addition to increasing resilience in their business that you are also focusing even more on sustainability. He asked about this emphasis on sustainability. Will this come to portfolio changes or does the company believe that its environmental, social and corporate governance targets, the ESG targets, can be achieved by organic measures alone? He want to know what gap needs to be closed through portfolio adjustments.

Thank you, Mr. Tumler, All of our activities that promote organic and inorganic growth are focused on sustainability. This includes in particular CapEx, acquisitions, research and development activities as well as our strategic venture capital initiative. A large share of our innovative and new products are already focusing on our -- on the United Nations sustainability targets, the so-called sustainable development goals. And our clear cut objective is to expand our portfolio of circular products. To be fully climate-neutral in production, we need to switch our supply of raw materials and electricity to renewable materials and energy. This has to be done at competitive prices, and we have to maintain supply, safety and quality. About 20% of our planned investments, which push our growth will then be focusing on the circular economy. We don't expect that we will increase our overall need for investment. The recent acquisition of Resins & Functional Materials from DSM also makes a big contribution towards implementing our new group strategy. This means that we have taken another step forward in implementing our growth strategy and focus on the circular economy. Covestro continues to observe the market, looking for possible acquisition possibilities. But right now, we have no specific portfolio measures being planned.

Mr. Tumler also has a question on Covestro's dividend strategy. He wants to know what the specific reasons are for the complete change in dividend policy. He says that tying the dividend to the results is something that is understandable to DSW and makes sense. But he would also like to explain why the current dividend strategy had a different basis for its different parameters. And, now why now the change is being implemented?

Thank you very much for your question, Mr. Tumler. As we said in our presentations, the Board of Management decided that we would realign our dividend payout policy. One of the major reasons here was to focus the dividend more on the development of net income and also the overall situation, economically speaking. We can achieve this by referring this to the payout ratio. The Board of Management is convinced that this new policy fits Covestro better than the past policy did. Up until now, we paid a dividend per share that was increased or in challenging times, it would at least be kept stable. And also referring to the earnings situation. This dividend policy also considered the factor of dividend continuity. We found, however, that this dividend policy was an attractive promise but it didn't always fit in our cyclical business. And as a result, The earnings and cash developments in 2017 to 2020 made this very clear to us. For the dividend from 2019 -- fiscal 2019 paid out last year in the middle of the pandemic, we had proposed halving the previous year's dividend in addition to other drastic savings measures, we wanted to secure our cash position. As a result of this, The Board of Management then, we decided to review and announced a review of the dividend policy. And this is now what we have, the new dividend policy.

Mr. Tumler has also asked about the dividend for the past 5 years. What would the dividend have been if this new dividend strategy had already been in effect? Would the dividends have been lower or higher?

Well, let me give you the examples of the years 2017 and 2018. For these fiscal years, with record level results, the dividend, according to the old policy, was EUR 2.20 and EUR 2.40, respectively, per share. These were higher absolute values than the current dividend proposal for 2020 -- for fiscal 2020. But the payout quota was 22% and 24%, respectively. So if we apply the lower limit or the lower scale of the new payout amounting to 35%, if that is applied to these years, then the dividend proposal would have been higher. The lower limit of our new payout quota would have given us a dividend in '17 and '18, very good years, it would have been a dividend share of about EUR 3.50 per share. The dividend for fiscal year would only have been EUR 0.05 higher. In other words, EUR 1.40 as opposed to EUR 1.35 per share. And the dividend for fiscal 2019, if using the new target policy would have remained the same. So this is all hypothetical, of course, but you asked for that specifically. What's important here is for the future, we remember that our new dividend policy allows us to pay out a clearly higher amount in good years and to be involved in our success.

And finally, Mr. Tumler from DSW would also like to know what strains CapEx and OpEx will expect by implementing their sustainability strategy in the next 10 years. Well, I can tell you that all of our activities, organic and inorganic growth, that promote growth, in other words, CapEx, acquisitions, R&D activities and also our strategic venture capital initiative are aligned towards sustainability. A large share of our new innovative products are already focused on the UN sustainability targets, the sustainable development goals. And our goal is to expand our portfolio of circular products. For completely climate-neutral production, we have to have a consistent gradual shift in our raw material and energy supply. We have to switch to renewable energies and materials at competitive prices and maintain supply security and quality. And when it comes to our share of investments in circular economy, I'd like to refer to what Mr. Steilemann said, and I'd like to refer to -- and refer to another question that you already asked. We could move to the questions of Mr. [ Andres Messick ], speaker for SDK Capital Investor Association. To start with, Mr. [ Messick ] said, the ESG reporting and the risk assessment is gaining an importance. He also refers to global activities of NGOs with political consequences against the use of plastic products and also about legislation governing supply chains with liability consequences for Boards of Management and companies. He would like to know what the risk assessment is of the Board of Management when it comes to this topic.

Thank you very much, Mr. [ Messick ], for your question. Yes, now ESG reporting, which is the reporting on topics from the fields of the environment and social issues and good corporate governance has become much more relevant in recent years. Now Covestro has been reporting extensively on this for a number of years now. Every year, we report according to the internationally recognized reporting standard, the Global Reporting Initiative, which is GRI for short. Now assessing ESG risks, which are nonfinancial risks, is part of our company-wide risk management system. When assessing this, we don't just look at risks, we also look at opportunities which arise from these topics. Now our strategy has also come to being with these opportunities in mind, this is why we come up with circular economy. Now with this program, we want to make ourselves for the future in order to tap the benefits of the circular economy. And we are also observing an increasingly critical perception of plastics, but this frequently relates to plastics packaging and also to the waste that comes about as a result of it. But what we do, we find long-term applications for plastics. And because our products are not usually generally used for packaging, we are less exposed than other plastics manufacturers. You also mentioned the supply chain law. Now this deals with the cautious handling from companies when it comes to adhering to human rights. With the planned law, we believe it will lead to greater legal certainty for such companies, for companies who already consider this of pivotal importance, just like we do. Now even if Covestro is less exposed than other companies in other sectors when it comes to this topic, we do, of course, take human rights very, very seriously indeed and are consistently looking for ways to minimize our risk exposure. Last year, for example, we founded a working group of Covestro. This group looks closely at the short-term integration of various regulatory requirements and institutional recommendations when it comes to protecting and adhering to human rights in our management systems, in systematic risk analysis as well as prioritizing and monitoring the measure implementation. This is why when it becomes -- when it comes to legislative developments in this field, we believe we are well prepared.

In his next question, Mr. Messick is referring to the dividend policy. Now in the future, Covestro's dividend policy states that the company will pay 35% to 50% of earnings out as a dividend. Now what criteria are decisive for determining this percentage?

Now Mr. Messick as I said during my speech, Covestro is rebasing its dividend policy. And as such, we will be looking at a payout ratio which focuses more on the performance in terms of our consolidated result and the overall economic situation. As you rightly state, this is currently 35% to 55% of our recorded net income. Now there are 3 key criteria, which play the role here. Now firstly, the profit-oriented corridor in years when we have top earnings will allow for a higher payout measured in terms of the absolute figure in euros. And in years when we have a below-average consolidated earnings figure, then we would be able to pay out a lower figure. But a fair participation of the shareholders on the company's success is the main criteria when it comes to establishing the level of the dividend. Secondly, in years when we have a below-average group results such as in 2020 when the pandemic hit, the percentage value will tend to be at the upper end of the corridor. In years when we have very positive earnings, then the percentage tends to be at the lower end of the corridor. Now the ratio of absolute dividend and our group earnings is thus the second key criteria when it comes to setting out the dividend. Thirdly, Covestro is operating in an overall economic context and depends on the general economic environment of its client market as well as on forecasts on the future development of the economic environment. Now the overall economic situation of the current year and in the foreseeable future is the third and final key criteria. The Board of Management and the Supervisory Board will look at the interplay between these 3 criteria when establishing what the level of the dividend will be.

Mr. Messick also refers to the draft proposal of Item 7 on the agenda, which allows approved capital of up to 30% of share capital. He says, that they are all already authorized capital of 10%. Now the SDK believes that authorized capital and the traction of 10% potentiables and 25% the cash reserves should be voted on in order to avoid dilution. He's asking whether the management has specific plans which would require a capital increase of up to 30% of share capital.

Now Mr. [ Messick ], as you would have seen, as you will have seen in the invitation, the new approved capital for 2021 will take over from the strategy we had for 2020. Now authorized capital of 2021 will allow the company to act more quickly and more flexibly without having to wait for the Annual General Meeting or for an Extraordinary General Meeting. Now this flexibility is important to ensure the options for financing the company are available quickly. Quick action also when unseen events occur is very important for us as a company. Now specific plans for utilizing authorized capital 2021 is currently not foreseen. The Board in each case will take -- from a careful assessment, as to whether authorized capital for 2021, the use of it, is in the interest of the company and its shareholders. Now the fact that we only use authorized capital very restrictively on the launch -- is underlined by the example in 2020. Here, we had the capital increase for the acquisition of the Resident Functional Material business at DSM. As I said during my speech, in the framework of an accelerated issuance method, 10.2 (sic) [ 10.2 million ] stocks were issued and a net issuance revenues of EUR 447 million were generated. The actual scope of the capital increase was geared around the requirements for maintaining a solid investment-grade rating by Moody's. A solid investment-grade rating will, in the future, continue to be our overarching target.

Mr. Messick has also asked about the class action lawsuits pending in the U.S. He would like to know what the status is and also what the risk assessment is of the Board of Management.

At the end of June 2018, a brief report in a U.S. legal trade magazine spoke about an ongoing antitrust investigation from the U.S. Justice Ministry related to the U.S. American market for diphenylmethane diisocyanate. And Covestro LLC as well as other plaintiffs received the first of a 12 class action lawsuits from various U.S. American MDI and TDI customers. Now it's been claimed that since the first of January 2015, various antitrust provisions have been violated by -- in a coordinated manner, limiting MDI and TDI production capacity while also increasing prices for these products. On the third of October 2018, a local legal committee combined these 12 class action lawsuits into 1 single suit. Now as such, this class action lawsuit is in the discovery status, which means that it is at a status where oral proceedings are currently under preparation. The parties will be looking at the evidence that has been raised to be able to respond to them during oral proceedings. Now the State Attorney of Mississippi, on behalf of the federal state and its citizens, in September 2019 filed a civil lawsuit against Covestro LLC and a number of other accused as well. Now this suit was withdrawn. Now Covestro, due to the official 6-month investigation by the U.S. Justice Ministry about antitrust practices in the field of MDI shows that there was no -- that the acquisitions raised were unfounded. And as such, it will continue to defend itself with all legal means available.

Mr. [ Messick ] also asked about the CO pipeline extending from the Dormagen to Krefeld-Uerdingen, and he would like to know what the significance is of the CEO pipeline for the company and when it will become operational.

Good morning, Mr. Messick. Thank you very much for your question. Let me speak about this at length. Now the pipeline is in North-Rhine Westphalia. And here, we manufacture products at 3 different sites: in Leverkusen, Dormagen and Krefeld-Uerdingen. Now these sites are around 70 kilometers away from one another and are closely intertwined with one another. It relates to maintenance, infrastructure, logistic processes and also to the supply of our sites with raw materials that are important for production. Such as is the case with carbon monoxide, which is transported via -- will be transported via the pipeline. Now with the pipeline from Dormagen to Krefeld-Uerdingen, the existing system for carbon monoxide between Dormagen and Leverkusen will be extended, which will mean that we will have a raw material alliance for our plastic productions. Now the strategic and economic importance of the pipeline after years of legal challenges remains as valid as ever because at the Krefeld-Uerdingen site, we only have local carbon monoxide production based on coking coal. Whereas in Dormagen, we have state-of-the-art plants for producing carbon monoxide based on natural gas. Now Krefeld-Uerdingen will be integrated into this alliance. This will increase the availability and also the production safety, but also the sustainability and competitiveness of our entire North-Rhine Westphalia production facilities. For this reason, I would like to say again, that in this context, we have always emphasized the pipelines always factor in environment and the safety relevant aspects. And doing so, this is the basis we use for determining the most suitable transport means for liquid and gaseous substances. And we are convinced of the merits of this project. Such the safety concept for our pipeline to Krefeld-Uerdingen is not only technically very sophisticated, but in a number of aspects, it actually goes beyond what is required by laws that are currently in place. This has been confirmed by the court of Munster, which issued a verdict on the 31st of August 2020 on the matter. Now before the pipeline becomes operational, the planning amendment law needs to be implemented. And this was approved by the district government of Dusseldorf in August 2018. Now only once a positive decision in our favor has been issued will this be possible. It's difficult to say at the moment with any certainty when such a verdict will be reached. Following the decision issued by the court of Munster, the construction and operation of the pipeline is acceptable and there is not going to be an appeal. We have significant interest in showing that the implementation of this verdict will be able to take place with as little conflict as possible. Now a nonadmittance appeal was filed at the Federal Administrative Court in Leipzig. So we will have to wait and see what happens with these proceedings.

Mr. Messick also asked about the remuneration system for the Board of Management. Because in addition to fixed compensation, it will also be composed of a short- and long-term perform -- compensation components. He would like to know how you calculate the variable components.

Now in order to answer this question, I would like to go into the short-term and long-term variable components, and I'd like to do this separately. Now I assume that the target value is what you're referring to. Here, the goals will be considered to have been achieved if 100% of the remuneration components are paid out. Let's start by looking at a short-term variable remuneration. Now here, the same performance criteria are referred to as well as the control system for Covestro for planning, controlling and reporting on our commercial performance. These include growth, liquidity and profitability. This ensures that a short-term variable remuneration is directly linked with the corporate success of the company. Now in order to assess these performance criteria, there were 3 KPIs. We have volume growth in our core business, free operating cash flow and the return on capital employed. The target values for these 3 KPIs are derived from the medium-term strategic targets of Covestro, which apply for a multiyear period, which usually lasts for 3 years. For the long-term variable compensation, there have been -- there are 3 KPIs which apply as of 2021. We have total shareholder return, which is the return on our stocks, the outperformance of our stocks compared with the STOXX Europe 600 chemicals and also the change in the direct annual greenhouse gas emissions from our production facilities. Now there is no target set for total shareholder return. Moreover, what's decisive here is the level of the return on our stocks, and this determines the amount paid out from the long-term remuneration program. The target for outperform, which is deemed to have been achieved if the share price as a percentage exceeds the growth in percentage of the reference index. And for the third factor, the emission of greenhouse gas emissions is forecast for the coming years. Now taking into account the measures planned for reducing emissions, then a reduction of emissions in absolute terms is reduced by 150,000 tonnes within 4 years is an ambitious but also realistic target.

And his last question, Mr. [ Messick ] would like to know about the change in personnel on the Supervisory Board. He would like to know which criteria we used for selecting candidates and also how many candidates were narrowed -- it was narrowed down to and whether external consultancy services were required to determine who would be appointed.

Thank you very much for your question. The supervisory body of Covestro AG has specific objectives. And these include competence, expertise, the international character, diversity, management experience and also the independence of its members. Now these are targets for the Supervisory Board, which you can see in the current annual report on pages 154 and 155 correspond to the recommendations provided by the German Corporate Governance Code. The Nomination Committee, which is responsible for selecting suitable candidates for our shareholder representatives and to propose them for appointment to the Supervisory Board based around a specific skillset that the Supervisory Board, as an overall body, would like to fulfill. Now members of the Supervisory Board should have commercial experience. And based on their individual knowledge, skillsets and expertise should be able to fulfill the duties of a Supervisory Board member in an internationally active company and also to ensure that Covestro continues to enjoy a positive image amongst the public. Now the Nomination Committee has come up with a framework of finding candidates using an international consultancy which has a wealth of experience and has proven itself when it comes to the development and recruitment of management staff. And before making a final decision, the Nomination Committee looked at the profile of a wide range of potential candidates. And 2 of the female candidates were -- it was narrowed down to 2 female candidates and detailed discussions were held on these 2 candidates. And for today's proposal to the AGM, Ms. Lise Kingo was selected as the new representative. Now this is not only to her impressive personality, her integrity, but also her exemplary professionalism, but also her comprehensive and long-term experience in the field of sustainability. Now a particular focus on this field corresponds to the Covestro Group's alignment towards the circular economy by which sustainability will be even more important when it comes to the actions of our company.

Shareholder Thomas [ Kelth Bitner ] has questions in the context of the coronavirus pandemic. First of all, he would like to know how the Board of Management judges the medium-term value creation in the context of the current pandemic.

Thank you, Mr. [ Bitner ]. The current coronavirus pandemic has not so far led to any fundamental changes in our value creation or business strategy. The way it looks today in the medium term to the pandemic will not have essential changes -- result in essential changes to our business strategy. As has been stated in the speeches, the pandemic year 2020 has ended with a good result for the company. This was due to the systematic and comprehensive crisis management and our broad regional and market positioning. Our business activities in all business global regions and across many different customer industries have proved to be a good idea and led to sound results for the group as a whole.

Mr. [ Bitner ] also asked about the coronavirus pandemic. In particular, what risks are at the forefront and which ones can be considered secondary?

Thank you, Mr. [ Bitner ]. In our short-term reaction to the coronavirus pandemic at the beginning of 2020, there were 3 aspects in -- at the forefront, and they were at the time also the highest risks. First of all, the protection of the health of our employees and our business partners; second, maintaining the supply capability of the company; and third, securing our financial strength. That is liquidity. Corporate management together with the strong support of all employees has successfully implemented measures in all 3 areas, thus counteracting negative impacts of the pandemic. In current business year fiscal '21, the remaining risks, and therefore the focus of our measures has slightly changed above all on the basis of the dynamic economic recovery, which has been going on since the second half of 2020. Our business activities are back at a pre-pandemic level in most areas, and this also applies to our earnings and cash situations. Major attention, therefore, is being focused now on the protection of the health of our employees and our business partners.

In addition to that, he asked whether the coronavirus pandemic has had any impact on sites and jobs.

Thank you, Mr. [indiscernible]. Allow me to answer this question very clearly. As a result of the pandemic, there will be no closing of sites at Covestro. The opposite is true. About EUR 800 million is being invested in 2021. That's about EUR 100 million more in our plant capacities than in the previous year. And in the future, too, we are not changing our plans for continued investments in sustainable growth. And at Covestro, there were also no dismissals due to the pandemic. The implementation of the reduction of the global headcount in 2020 was done within the framework of the efficiency program perspective, which was initiated in 2018 and concluded successfully in 2020. In that context, positions that became vacant due to manpower turnover or retirements were not occupied. Again, these measures were taken in agreement with the relevant labor representatives in the different countries.

Shareholder [indiscernible] has asked about Covestro sports sponsoring and would like to know what the expenditures for this were in fiscal 2020 and how these expenditures were distributed across different types of sports.

Thank you, Mr. [ Pfifer ]. Allow me at the beginning of my answer to give you some more context to this. In its corporate decisions, Covestro focused on the 17 sustainability targets of the United Nations. One objective is to sponsor and foster health and well-being. With the support of sports clubs in and around our production facilities, that's exactly what we achieved. Our commitment here covers above all sponsoring of sports clubs at our biggest German sites in Leverkusen, Dormagen and Krefeld-Uerdingen and Brunsbuttel. So sports sponsoring is an important component of our good corporate citizenship and our health management at the company because good work is closely connected to health and well-being of our employees. In the sponsoring of recreational sports, Covestro sees an important contribution to our social environment and a strong signal to our neighbors and our employees because our clubs -- these clubs make people's lives a little bit more attractive and give us quality of life in our -- in the areas around our sites. Let me give you a couple of examples. Of the state of North-Rhine Westphalia and Leverkusen, Covestro supports RTHC Bayer Leverkusen e.V. And in Dormagen, we support TSV Bayer Dormagen 1920 e.V. Both of these clubs offer many different sports, above all leisure and recreational sports, competitive sports as well as fitness and health. And in Krefeld-Uerdingen, we support, first of all, SC Bayer 05 Uerdingen e.V., one of the biggest sports club in North-Rhine Westphalia that has many different sports. There, we have under the umbrella of Covestro Sport Uerdingen, many different sports facilities brought together. In addition to that, we support SV Bayer Uerdingen 08, which is one of the biggest swimming clubs in Germany. After ending the partnership with Germany's hockey club, DEL, Covestro no longer sponsors any professional sports at all anymore. Covestro rather now is focusing on technology partnerships and sponsoring recreational sports in addition to the sponsoring of different clubs in the sites in North-Rhine Westphalia that I was mentioning, that is Leverkusen, Dormagen and Krefeld, we have in the United States had an innovation partnership with the Pittsburgh Penguins and Carnegie Mellon University, Pittsburgh. The core of this partnership is to improve the performance and safety of hockey with the help of Covestro materials. The motto is making hockey safer for future generations. Around the world, the expenditures for sports sponsoring in 2020 were a low 7-digit figure.

Another shareholder has referred to Covestro's homepage. And they said that they expect Covestro to design their homepage that would make it easier for him to reject the use of cookies without having to install any tools.

Thank you for your question. I can assure you that we take very seriously the protection of your personal data. And therefore, you can always use Covestro's homepage without us collecting any personal data from you. If you visit our Covestro home page, you will, first of all, see a pop-up fence or a pop-up window, and it will say things about the use of cookies. If you do not want to agree to the use of cookies, you can just shut that window by clicking on the X in the top right corner. And after that, you can go to our website and look at whatever you're interested in and no cookies will be stored. Installation of any other applications is not necessary, regardless of the browser you're using. Now if you want to agree to the use of cookies, you can just click on the okay in the pop-up window. And in the pop-up window, you'll also see a link to detailed data protection information there. You can read how and why we use cookies, but you can also deactivate any agreement you have already in the past accepted.

Now we'll have some questions from Mr. [indiscernible]. He is a proxy for a shareholder, and he has questions about the carbon monoxide pipeline between Dormagen and Krefeld-Uerdingen, and he would like to ask you this question. Why are you reporting on the nonapproval complaint after the decision of the higher administrative court in Munster on the original zoning decision, but you're not reporting on the upcoming extensive and costly work that will result from the planned revision procedures? The shareholders would like to know here about the amount of time and expense this will entail, because only then will we have an initial idea as to whether the high-risk project that you were handed over to -- that you were handed over from Bayer, even makes any economic sense.

Mr. [ Donner ], we'd be pleased to give you a rundown on this. First of all, allow me begin with the work on the pipeline that is left to be done that you mentioned. First of all, this is implementation of the measures resulting from the planned revision decision that was issued by the Government in Dusseldorf in August 2018. For instance, installation of a second geo grid that is special mats that protect our pipelines from damage. Furthermore, this work is necessary to comply with a few additional targets stipulated by the authorities. For instance, inspection of the pipeline with the help of a special inspection device which is called an intelligent pigging device, and also the final coordination of the alarm and hazard prevention plan. The costs and time to be spent on these activities will, of course, be included in our economic viability assessment for the project as a whole. However, for competitive reasons, we never provide specific costs for our individual investment projects in public. However, I can tell you this, the total sum for the construction of the carbon monoxide pipeline, which also includes costs that are entailed as a result of delays, amounts to an 8-digit figure in euros. For Covestro, the project, however, still makes sense despite the costs and time that's going to be necessary from a strategic and from an economic point of view. Because as I already said in my answer to the question from Mr. [ Messick ], this pipeline is intended to complement the existing integrated system between Dormagen and Leverkusen to set up a cross-site integrated raw material system for our plastics production facilities. As a result of that, our coal -- carbon monoxide availability and production security will be improved as well as the sustainability and the competitiveness of our entire integrated system of sites in the state of North-Rhine Westphalia. And as a result, this pipeline will make a major contribution to helping us move forward on the path we've adopted for the company of achieving climate neutrality.

Mr. [ Donner ] also asks about possible risks of the pipeline and would like to ask you the following question. A risk question that can only be assessed in future proceedings is the risk of death for several hundred people -- residents in the area if there are sabotage or if there is an accident with the mechanical shovel. And for this, Bayer, former parent company had a research done, and it was published on Page 24 of a magazine [indiscernible], and it was about a deadly cloud, but we have not got any information about that in your report on legal and compliance in the management report -- in the annual report.

Well, first of all, it's important for me to emphasize that the well-being of everyone involved in the production process at Covestro is important to us, and also anyone involved with our products or who has contact with our products. Our exemplary safety culture ranges from our employees to reliable and safe production processes, plants and equipment and transportation, all the way through to environmental protection. Now against back this backdrop, we take your concerns and those of local residents very seriously. And to the greatest possible extent, we have worked to take into account any wishes for change in our plans. As I mentioned in my answer to Mr. [ Messick's ] question, the safety concept that has been developed for our pipeline from our 2 Krefeld-Uerdingen complies not only with current technical requirements. In fact, in many aspects, it goes beyond existing regulatory requirements and standards. And this was confirmed to us by the Munster Higher Administrative Court in its decision from the 31st of August 2020. By way of example, I'd like to mention just a couple of aspects. The pipeline is going to be operated at a pressure of a maximum of 13.5 bars. But it's designed, however, for operation at pressures up to 100 bars. And the entire pipeline, in fact, has been subjected to 200 bars when a test of pressure was done. The plastic-coated steel tubes have a diameter of 25 centimeters. Their walls are particularly thick and nevertheless malleable. This strength protects the tubes, the pipelines in the event of vibrations and earthquakes, amongst other things. The tubes, the pipes are at a depth of at least 1.4 meters. Whereas in legal terms, only 1 meter is required. Over the entire length of this route, several leak detection and locating systems have been installed. There is a sensor tube system that we use so that even the smallest amounts of carbon monoxide could be discovered before anyone is seriously at risk. In addition to that, the carbon monoxide fed in and the amount coming out at the end of the pipeline is measured with a mass total process. And as a result, any variance would be immediately detected. But there are other aspects that contribute to the safety of this pipeline. For instance, Covestro is a member of the German Federal Information System on pipeline research. This is a central online platform which allows simple and efficient pipeline research processes for anyone involved in construction or building. This information system provides a completely digitized process in the form of a communications portal and brings together construction people and network and pipeline operators. As a result, unintentional intrusion of third parties into the pipeline can be avoided. And what's ultimately decisive though is the safe handling of carbon monoxide. We at Covestro have had decades of experience with this as we have with the operation of pipelines. And incidentally, in our opinion, pipelines are the safest transportation means that makes the most economic sense for most liquid and gaseous substances.

The next five questions are from [ Arne Rittenburg ], Fund Manager at Union Investment. First of all, Mr. [ Rittenburg ], would like to know by when and with what measures Covestro is intending to become a climate-neutral company.

Thank you, Mr. [ Rittenburg ]. In the discussion in society, climate protection plays a key role. The European Commission has set, as a target, that we should become climate-neutral by 2050. At Covestro, we have -- we are resolved to make a contribution to climate neutrality and, therefore, expressly support the Paris Climate Agreement. For us, the circular economy is a key way to achieve this objective by ensuring their products and materials are recycled at the end of their life. And by doing this, we want to cut the amount of resources used as well as reduce greenhouse gas emissions. And for this reason, we have, as an objective, making the company totally aligned to a circular economy, and thus helping achieve greenhouse gas neutrality. And this is reflected in our corporate vision and strategy. Specific measures for achieving our climate neutrality target are being developed now. A specific schedule as to when Covestro will achieve climate neutrality is being developed. I cannot tell you today, therefore, an annual figure. We have, however, already begun integrating emission reductions targets into our remuneration system step by step. We, of course, are working on reducing our emissions continuously. For instance, in years past, different measures were taken to reduce our direct emissions. And for the years to come, further measures are planned. We will continuously reduce our indirect emissions by targeted purchase of renewable energies. For instance, the recently concluded contract for our plant in Antwerpen and the agreement that we made in Orsted for 2019 for purchasing renewable energies. And we're also working full speed ahead on reducing emissions from raw materials. For instance, by purchasing raw material equivalents that have a low carbon -- a low-carbon footprint. And we're working on this together with Borealis and Neste.

Mr. [ Rittenburg ] has also noted that demand returned more quickly than expected. But for 2021, lower CapEx will be made than the company had expected prior to the pandemic. Mr. [ Rittenburg ] wants to know why.

Mr. [ Rittenburg ], capital expenditures have strategic importance for us. And after EUR 740 million in investments in 2020, this year, we plan to invest EUR 800 million. Remember that even in the 2020, more than half of our capital expenditures were in growth projects. As you rightly saw, prior to the pandemic, we had stated a higher amount. For cap '19, it amounted to EUR 910 million. Back then, we had planned annual [indiscernible] EUR 1 billion per annum. At the end of 2019, however, our prospects had deteriorated considerably. And this was due to increase in competition and lower margins as a result of increase in [indiscernible] in many markets. Our investment plans had already been the new earnings outlook. For example, our investment project for new MDI facilitates for EUR 1.5 billion was put on the back burner. And in the second half, we will be dealing with this investment project once again. This deference, in addition to delays of other smaller investment projects, is one of the major reasons why [indiscernible] has -- shows lower values than in the past. And if at the end of the year, if we find -- decide to go along with the MDI project, the high project CapEx would not '25 and later. So right now, in the future, when it comes to annual CapEx, we expect to remain in euros. In accordance with our new strategy, our focus in the future will be more on growth in sustainable, especially in our 6 new business entities in the solutions and specialties business. [indiscernible] business with Performance Materials, we want to focus on CapEx-light solutions and our investments with an [indiscernible] ratio for the euros per tonne capacity.

Mr. [ Rittenburg ] asked if Covestro will be changing its strategic capital allocation. Prove it? If so, yes.

Right. When it comes to our new dividend policy, at the beginning of this year amended our strategic capital allocation. As a matter of principle, when we look at our dividend, portfolio measures and our equity measures. All in all, our capital allocation is balanced over these 4 areas. Capital expenditures will remain a focus of our capital allocation. In organic growth, which is how we achieve the [indiscernible], we see that due to our leadership in technology and costs, that this is one of the main levers to [indiscernible] in the last 5 years from 2016, up to and including 2020, we spent EUR 2 billion for capital expenditures. As I said before, our dividend policy was adjusted attractive dividends from the second part of our strategic capital allocation. All in all, in the last, we have paid out about EUR 1.5 billion in the form of dividends to our shareholders. Portfolio measures make up the third part of our strategic capital allocation. This also includes the Resins and Functional Materials business from DSM. It also includes [indiscernible] with lower margins. For example, polycarbonates plate business or our polyurethane systems houses. Net amounts in the last 5 years, we've invested approximately EUR 1.5 billion in this area. Of the integration phase for RFM, we do not plan any additional acquisitions, nor do we plan any divestments. To conclude, the possibility to take [indiscernible] is part of our list of strategic allocation. And here, with the adjusted a share buyback is something that is not pending in the near future. Due to the authorization from the AGs, Board of Management does have this option, but buybacks, share buybacks is something that we in an opportunistic way and anticyclically. Instance, the IPO, our equity capital by approximately EUR 1.1 billion.

Mr. [ Rittenburg ] would also like to know the reason for -- with the deductible for D&O insurance, This is Directors & Officers insurance. What's the reason?

Mr. [ Rittenburg ], the new German Corporate Governance Code was published on the 16th of December 2019. And here a deduction is not included. And it's no longer recommended. Irrespective of the rules and regulations in the code, a deductible for supervisory board members is not provided by law. In other words, Covestro believes it's not necessary for Supervisory Board members in order to get them to do that in a responsible way. Covestro is convinced that the members of the Board are committed and perform their allocations even without such a deductible.

Mr. [ Rittenburg ] concludes with his question on the advisory board when it comes to further improvements of corporate governance and diversity at Covestro.

Thank you very much, [ Rittenburg ]. This is a very broad area. So this will be a relatively long answer. Diversity. This is responsible governance and diversity, important topics where Covestro has already achieved a number of aspects, but we also want to continue. These prints responsible governance are very important to us. The core behind this to our shareholders who have an unqualified declaration of intent with regard to those of the German Corporate Governance Code, which has been issued every year since our company was set up background. The rules of procedure for the Board of Management and the supervisor adapted to the recommendations of the Corporate Governance Codes. And these were also modified [Audio Gap] We modified the compensation system as well to meet these requirements and recommendations. We don't wait for a commission to publish their recommendations. We do when we deal with a number of different issues and initiatives in the field of governance. We also follow considerations and developments very closely and in the discussion for an expert groups. So to sum up, that good modern corporate governance is something that Covestro takes very serious, active and integral part of our corporate culture. Today, the situation is exactly the same at Covestro. We are committed. This is seen in one of our 3 corporate values: curious, courageous and colorful. And when I say colorful, we mean diversity. Diversity and inclusion are important components of Covestro's strategy. We want to discover potential trying to call prejudice into question. And we want to enter into dialogues with our employees. And we see diversity as a strength at all levels of hierarchy and at all. Our diversity and inclusion strategy results from our values, and this is also are different areas. Employees, company, community. These are central to Covestro when it comes to having a strong, diverse and inclusive culture at our sites. And this is a very important contribution towards the [indiscernible] Covestro. When it comes to implementation of our diversity and inclusion at Covestro, we have set up a global diversity team, and they have global councils made up of representatives from all of the different business segments. So are involved in -- Dr. Schaefer is the Board member for production and technologies of this area. These structures and corporate measures that result a couple of examples. We have a clear-cut goal on women in management positions. By 2022, 40% on the Board of Management [indiscernible] at the 2 levels below Board of Management. When it comes to this as of Level 2, the interview panel should also have a woman. The internal vacancies are published in countries where this is part-time possibilities. Networks are a set of work in order to include our workforce when promoting door. We promote these initiatives because they're an important engine behind inclusion. In 2020, we established a framework for all network. All of our employees worldwide will have the same underlying conditions in order to become [indiscernible] irrespective of our corporate efforts, promotion of diversity is a social duty where everyone has to assume responsibility. That's why we are sure that with the needs and beyond our activities, we can go together with other players. And this is what is required. Can diversity be enshrined on a long-term basis in our company, and that's why we continue to expand our cooperation with various partners. For instance [Audio Gap] Covestro has been working with the PROUT AT WORK-Foundation. They work as [indiscernible] homophobia, transphobia and biphobia. And since 2020, Covestro has owned the [indiscernible], which is an action which is to get moved in MINT, math, IT, natural science and technology. I'd like our Supervisory Board. Here, we want to have as much diversity as possible. This includes personal background and professional experience, but also internationality as ratio amongst agendas in our group. With the election of Lise Kingo to the Supervisory Board, this is an action going right in this direction. have international body, and we want to have a balanced composition, men and women, both on the shareholder representatives side. At our next Supervisory Board meeting, we will be dealing with diversity at Covestro. So it will be a separate agenda item. And this will be together with the entire Board of Management as well as [indiscernible] . We will be discussing the current status, our ambitions [Audio Gap]

He would first like to ask about the Resins and Functional Materials, RFM, from DSM and sees that supplemented Covestro's portfolio with sustainable coating this positions us well and for the transmission to add questions here. What value is expected by the time this is completed in the transformation period of 2023?

Well, we hit we've understood your question in the following way. When you refer to the transformation, that you are talking about the first 3 years of the RFM integration. The acquisition on the first of April this year, which is the starting point for integration and add RFM business should be generating EBITDA of EUR 150 million 2021. In addition, we measure the value contribution of the [Audio Gap] the incremental EBITDA. In other words, synergies between the 2 business. For 2021 amount of about EUR 10 million. And for 2022, we expect an amount of approximately [indiscernible]. For 2023, the amount should be about EUR 80 million, 2/3 of synergy potential amounting to EUR 120 million. The whole synergy potential could be available in 2025 and should be at around this amount. The value contribution in '23 should be generated above all by cost savings.

Mr. Schmidt asked about the specific skills and innovations that Covestro as a result of sustainability due to this acquisition.

Thank you, Mr. Schmidt. About 85% of RFM business is based on more sustainable and water-based coating technologies, fossil fuel and solvent-based coatings. With the acquisition, Covestro is now existing more sustainable products, but also with the staff at our, we can know how so that we can also expand this portfolio with R&D. The acquisition reinnovation businesses with a clear focus on sustainability. Niaga business, [indiscernible] of materials, which can help recycle mattresses or kind business with additive manufacturing develops sustainable solutions for 3D coatings produces special coatings, which can increase the efficiency of sold can result in lower energy costs for the end use of the consumer.

Mr. Schmidt would also like to know if Covestro is planning on additional portfolio complements or divestments in the next 12 months? And if so, to what extent?

Thank you very much, Mr. Schmidt. In the next 12 months we're on the integration of our RFM business and implementation of the planned synergies and [ no ] portfolio additions or divestments are planned. Of course, however, Covestro will continue to watch the market for any possible acquisitions that might result.

Mr. Schmidt will how the borrowed capital component was for this acquisition and/or conditions will be same.

Mr. Schmidt, when preparing the announcement of the RFM acquisition, 2020, we concluded an acquisition bridge financing to the tune of EUR 1 billion with the 2 banks. Now this bridge financing is to apply from the [Audio Gap] until we -- until the price has been paid. Now according to the original planning, around [Audio Gap] which is around 1/3 of the acquisition bridge financing will be raised by means of [Audio Gap] Now the significantly improved earnings in 2020 may -- means we didn't need to have a refinancing of borrowed capital and allow Covestro [Audio Gap] liquidity for the refinancing. The entire purchase price will fall on the 1st of April 2021 from our own liquidity. And receive the proceeds from the capital increase of around EUR 450 million, which was concluded as planned [Audio Gap] The acquisition bridge financing has not been used, and the agreement has been terminated. The acquisition bridge financing, we incurred costs in the single-digit million range.

There's also asked about the changes to the dividend policy, which now requires the group earnings be a parameter for determining the level of the dividend. He has asked about the motivation behind this decision.

Mr. Schmidt, as I said during my presentation, the Board of Management has decided to [Audio Gap] repayment from Covestro. Now hitherto, our dividend policy was based on confidence. With the new dividend policy, our shareholders will directly participate in the current level of corporate success that we enjoy. Now this fits in much [Audio Gap] than for our current business model. In years with high earnings, return [Audio Gap] but are still able to pay at high dividends, whereas in challenging years, they pay [Audio Gap] the upper end of the corridor. This ensures that our dividends will always receive an attractive dividend. I'd like to cite the years 2017 and '18 is an example to underline this [Audio Gap] when we had record earnings. The dividend according to the previous dividend policy came in at EUR 2.20, [Audio Gap] respectively. Now these were higher absolute figures than the dividend proposal for fiscal [Audio Gap] However, The payout ratios were a mere 22% and 24%, respectively. Now if you transfer the lower threshold of the new payout ratio at 35%, then the current dividend policy would have resulted in a higher dividend for these record years.

Mr. Schmidt also says that DWS cannot agree [Audio Gap] for 2 reasons. Now the volume is within [Audio Gap] maturity over 5 years exceeds the maximum period of 3 years. Furthermore, [Audio Gap] exclusion is individually or cumulatively limited to 10% of share capital, but [Audio Gap] obligation, it's only part of the self obligation of the Board of Management and the Supervisory Board. [Audio Gap] U.S. expects a clear rule in the articles of association about this. Mr. Schmidt would like to [Audio Gap] what the proposed capital measures?

Our specific plans for the use of new [Audio Gap] 21 are not currently in place. But in each case, the Board of Management will look to check utilization of authorized capital to serve the interest of the company and its shareholders. We're behaving very restrictively with our authorized capital. We've shown by our capital increase within the framework of the RFM acquisition in year 2020. As I said here, we issued 10.2 million shares with gross revenue, [Audio Gap] million. Now if you look at our leverage ratio, then this was ideal in order to retain our investment grade rating provided by Moody's. Because a solid investment grade rating [Audio Gap] corporate governance.

At last year's AGM, DWS spoke about the situation of Ms. Bortenlanger and Dr. Nonnenmacher criticized that and had said, nothing had changed. Mr. Schmidt said the attendance rate for the member of the Supervisory Board, proved that in addition to Mr. Thomas, Dr. Bortenlanger and professor Dr. Nonnenmacher did not take part in all of the Supervisory Board meetings and the committee meetings. Therefore, Mr. Schmidt would like to know which meetings the aforementioned Supervisory Board members did not participate.

As I said in my speech as part of the Supervisory Board report, basically, all of the Supervisory Board members participated in the Supervisory Board and committee meetings, and just a small number of exceptions where just a few Supervisory Board members were unable to attend. Mr. Bortenlanger was not able to attend on the 18th of February, 2020, because she had another appointment that did not allow her to. Now we also had a special meeting on the 29th of September that was convened on very short notice. And Dr. Bortenlanger and Professor Dr. Nonnenmacher were not able to attend because they had other appointments. Mr. Thomas, due to another appointment, was unable to attend the meeting on the 8th of October 2020. But as soon as he had been appointed to the Supervisory Board on the 30th of July 2020, he told us he would not be able to attend on the 8th of October 2020 because he had a Supervisory Board meeting for another company on that date. Now what I'd like to say at this point is that a group people consisting of 12 Supervisory Board members and 4 Board of Management members, appointments that are convened at a very short notice are very challenging. And in my experience, it's not possible to ensure that every single member can attend every single meeting.

In this context, Mr. Schmidt would also like to know whether any resolutions were adopted during these meetings.

Dr. Bortenlanger, as I mentioned, was not able to participate in our meeting on the 18th of February 2020. Now this meeting, there were resolutions about the annual financial statements, Covestro reports and also for the proposal for the use of distributable profit. An extraordinary meeting of the Supervisory Board on the 29th of September 2020, as I said previously, Dr. Bortenlanger and Dr. Nonnenmacher were not able to attend. Now during this meeting, resolutions were adopted about the acquisition of Resins & Functional Materials from DSM and also the financing for the acquisition and the capital increase. Now in the meeting on the 8th October 2020, which Mr. Thomas was not able to participate in, no resolutions were adopted.

Mr. Schmidt would like to know whether any -- there were any proxies for these 3 Supervisory Board members.

Now because we were aware prior to these meetings that the aforementioned members would not be able to attend, then for these 2 meetings in which resolutions were to be adopted, we held briefings, all for these Supervisory Board members, with myself and the Board of Management. This allowed us to ensure that the Supervisory Board members, Dr. Bortenlanger and Professor Dr. Nonnenmacher, were able to cast their votes based on plenty of information on the resolutions that were to be adopted. Dr. Bortenlanger participated as a guest, the Audit Committee meeting on the 17th of February 2020. Now during this meeting, the key topics that would be discussed on the next day when Ms. Bortenlanger would have been able to attend were discussed at length. Because of this, Ms. Bortenlanger was able to cast the votes on -- based on sufficient information that she received. Now on the 28th of September, a meeting took place between Dr. Bortenlanger, Dr. Nonnenmacher, the entire Board of Management and myself prior to the 29th of September 2020 meeting. This was the meeting at which we had the adoption of the resolution for the acquisition of Resins & Functional Materials from DSM and also the financing and capital increase required for this purpose. Now based on the comprehensive information provided to these 2 Supervisory Board members, they were able to provide their votes based on plenty of information. Now one thing I would like to add to conclude, now whether or not Supervisory Board members attend all or not all of the meetings, all of the documents are provided, with plenty of notice prior to the meetings. As such, if our Supervisory Board members are unable to attend the meetings, then they have plenty of information available to cast their votes in their absence.

Mr. Schmidt said that I -- would like to speak about the remuneration systems such proposed for the AGM. DSM I believe supports this. However, what's notable is that the sustainability criterion, specifically for CO2 reductions, only related to Scope 1 emissions. For this reason, Mr. Schmidt would like to know why it's only based on Scope 1 and not on scope 2 emissions, which are more extensive.

Mr. Schmidt, thank you very much for your question. Now Scope 1 emissions according to the Greenhouse Gas Protocol, all direct greenhouse gas emissions are included, which are produced directly from production processes in our own plants. Whereas when it comes to Scope 2 emissions, these emissions are -- come indirectly from the sources from which we derive our energy. Now Covestro continues to aim to make a contribution to reducing greenhouse gas emissions. We already -- as soon as Covestro was founded, we committed to a goal of reducing specific greenhouse gas emissions. Now in the transformation of industry, which takes place over the next few years, we will set even more ambition goal -- ambitious goals, and these will look absolute reduction targets. As such, Scope 1 reduction targets are considered to be absolute reductions. Now when it comes to Scope 2 emissions, for the next few years, we have a lot of work ahead. Now the projects in place usually require a certain period of time before they can be implemented. It's expected that only the -- that they will only make their presence felt after the -- an expiry of the performance period. But we will expand the sustainability target to other emissions levels of Scope 2 and Scope 3. Now as the next step, our focus will be on Scope 2 emissions. And there are already been -- there's been also progress when it comes to looking at Scope 3 emissions as well.

Furthermore, Mr. Schmidt would like to know how advanced Covestro's efforts are in providing reliable Scope 3 reporting.

And the Greenhouse Gas Protocol distinguishes between greenhouse gas emissions, as I said, Scope 1, Scope 2 and Scope 3. We have been reporting Scope 1 and Scope 2 emissions for a number of years now. We transparently show our progress when it comes to emission reduction and are also intensifying our efforts. Now Scope 3 comprises emissions which come from our upstream and the downstream value chain. Solutions in the circular economy, particularly when it comes to Scope 3 emissions, make a significant contribution to reducing greenhouse gas emissions, which is why as part of our group-wide strategy program, circular economy, we are focusing intensely on the correct calculation and targeted reduction of said Scope 3 emissions. Now we are currently implementing measures for establishing a reliable Scope 3 reporting system.

In this context, Mr. Schmidt would also like to know when we can expect the first report on these emissions.

I think your question was referring to the reported Scope 3 emissions according to the Greenhouse Gas Protocol. Now we expect that next year, we will be reporting on Scope 3 emissions.

Mr. Schmidt would also like to know when the Supervisory Board, as explained on Page 32 of the invitation to the AGM, will establish goals for Scope 2 and Scope 3 greenhouse gas reductions.

As I said, now for the future tranches of long-term variable remuneration, the sustainability factor of Scope 1 will be expanded. But our focus to begin with will be on Scope 2 emissions. When it comes to Scope 3 emissions, we have already made progress, and what we will now be doing is finalizing the methodology and processes for our Scope 3 reporting.

On this group of subjects, Mr. Schmidt has also asked whether in short term, climate targets are going to be published in cooperation with the science-based targets initiative.

As part of the evolution of our targets for the reduction of greenhouse gas emissions, we have looked in detail at the method of what is called the science-based targets initiative. This offers a framework for companies to express their targets so that they are in line with the ambitions of the Paris target agreement -- climate agreement. In the evolution of our emission reduction targets and in designing our reporting, we therefore, of course, take into account the principles of the science-based targets initiative. A review and approval of our targets by the science-based targets initiative is an option which we will make a judgment on at a later point in time.

Finally, Mr. Schmidt from DWS has questions about the conducting of this AGM. How many questions did Covestro receive for this AGM? Home many are going to be answered by the company? And what criteria do you use for answering them?

Yes. I'd be pleased to answer this question. For today's virtual AGM, we received 88 questions from our shareholders. And as was the case last year, we will be answering all of the questions asked this year, too. And with regard to the order of answering them, as I said when we began, we basically follow the order in which the questions were received at our investor portal.

Shareholder [ Gottfried Arnold ] also has questions in the context of the carbon dioxide (sic) [ monoxide ] pipeline. He wants to know whether the company has announced to Covestro shareholders whether a CO pipeline rupture could mean the end of Covestro.

Mr. Arnold, as I already said in my answers to Mr. [ Messick ] and Mr. [ Donner ] in great detail, we believe that the pipeline from Dormagen to Krefeld-Uerdingen is a strategically correct investment, which makes economic sense. Not only will it secure the competitiveness of our entire system of integrated plants in North-Rhine Westphalia, but it will also make a major contribution on our path toward climate neutral production. In this context, we've developed a safety concept for our pipeline. And this complies not only in many, many ways technical requirements that apply now in many areas. Also, it goes beyond existing regulatory requirements and standards. This was most recently expressly confirmed by the decision of the higher administrative court in Munster in its decision from the 31st of August 2020. And for us, therefore, there is no reason to send out any announcement to our shareholders, such as the one you mentioned.