Covestro AG (1COV) Earnings Call Transcript & Summary

Welcome to Covestro's earnings call on Q1 2023 Results. The company is represented by Markus Steilemann, CEO; and Thomas Toepfer, CFO. [Operator Instructions] You will find the quarterly statement and earnings call presentation on our IR website. I assume you have read the safe harbor statement. With that, I would now like to turn the conference over to Markus.

Thanks, Ronald, and hello and warm welcome also from my side to the results of our first quarter. Today, we published our Q1 details after we had pre-released the headline figures 2 weeks ago. Sales were down by 20% compared to last year to EUR 3.7 billion, clearly indicating the global demand crisis we are currently facing. Against this trend, we achieved the first quarter EBITDA of EUR 286 million, clearly beating the guidance of EUR 100 million to EUR 150 million given in early March. Free operating cash flow was also better than expected by us despite the usual seasonal working capital build up. After the positive trend in EBITDA during the first quarter and improved visibility going forward, we are now returning to a quantitative guidance force for full year 2023, with a defined range for our financial KPIs. Finally, as you recall, in the first quarter 2022, we initiated a EUR 500 million share buyback program. The program was paused mid 2022 due to the recessionary environment. With more clarity on the outlook, we are now restarting the program in May. Let's turn to Page #3. In line with our vision to become fully circular and to achieve climate neutrality, we successfully completed two milestones and initiated a new project towards simplified recycling. A major circularity milestone has been achieved with Baytown, our U.S. side, receiving its ISCC Plus certification. We are the first manufacturer of polyurethane and polycarbonate raw materials in the United States achieving this. Now the Covestro network of ISCC Plus certified plants reaches across 9 major sites spanning across all regions. This network allows us to regionally produce and offer a broad variety of our circular intelligence materials to our customers. These products contain a minimum of 25% sustainable content and are marketed under the CQ brand. The second breakthrough is related to the EU funded PUReSmart project, for chemical recycling of polyurethane mattresses. This project has been completed successfully with closing the loop from polyurethane foam to a chemical recovery of raw materials in a high level of quality and purity. Now, for the first time, a flexible foam sample has been produced from the fully recycled polyol and TDI. Both raw materials were obtained in Covestro's pilot plant in Leverkusen, which we inaugurated in 2021. A new governmentally funded project has been initiated by a consortium of industry and science to design future automotive headlamps from a polycarbonate mono material. The project's target is to design lighting systems in such a way that they can be recycled at the highest possible value-added level. Covestro is the partner of choice for this project as we do not only have extensive expertise in this area, but we also already showcased a visionary headlamp concept a few years ago. During the 3-year project, the transfer of the results to other applications, like the appliance industry, will be also examined. We will keep you posted on the outcome of this exciting new endeavor. Let's turn the page to Page #4. Despite a reduced CapEx plan for 2023, we, nevertheless, plan to spend almost EUR 400 million for growth projects with a focus on Solutions and Specialties. During the first quarter, we announced two important projects: Firstly, our business entity, Thermoplastic Polyurethane will be built its largest site in Zhuhai, China, with an overall capacity of 120,000 tons. It will be constructed in three phases until 2032. The mechanical completion of the first phase with a capacity of 30,000 tons is estimated for the end of 2025. The total investment lies in the low 3-digit million euro range. This will also be the company's largest investment in the TPU business. The site will furthermore utilize the most advanced production technologies and will be run on 100% green power. We expect the EBITDA contribution to be in the range of a low to mid double-digit million euro. TPUs are a highly versatile plastic material, offering a broad range of properties for a diverse set of applications. Most prominent applications are the IT, consumer electronics, footwear and automotive industry. The second example comes from our business entity Specialty Films. The high double-digit million euro investment into new extrusion lines at the Map Ta Phut site in Thailand will be completed by 2025. The added polycarbonate films production is an answer to the increasing demand and supporting our expansion of future technologies and industries. Our Makrofol and Bayfol product range is used primarily in the identity documents, medical and electronic industries. The EBITDA contribution we are expecting lies in the low to mid-double-digit million euro range. Both investments have in common that we are also expanding our sustainable CQ product range with at least 25% alternative nonfossil raw materials. Now let's turn to Slide #5. We are now coming to the volume development in the first quarter 2023. Year-on-year, the global sales volume decreased by 17%, caused by significantly weaker demand across all regions and limitations in our internal availability. The region, Europe, Middle East, Latin America has seen significant decreases in almost all industries important to Covestro and was again clearly the weakest region. Part of the volume weakness was caused by our production limitations in Germany. We plan a gradual ramp-up of the production during the second quarter and third quarter and then return to a normal output in the fourth quarter of this year. Asia Pacific, is also showing a clearly negative volume development across all industries with a modest pickup after Chinese New Year. Electro, automotive and construction declined significantly and Furniture slightly. Sales volumes in North America were also declining, but with a more mixed picture. Construction is showing a considerable decline. Electro is still with a slight decline, but we observed an end of destocking in furniture/wood with slight increases and also a slight increase in auto and transport. That concludes the overview on the demand development, and I'm now handing over to Thomas, who will guide you through the financials.

Yes. Thank you very much, Markus, and also from my side, a very warm welcome to everybody on the call. I'm on Page 6 of the presentation. So let's start with the sales bridge. As you can see, our sales declined 20.1% to EUR 3.7 billion, and Markus already mentioned the negative volume growth of 16.8% that is almost equally spread across both segments, PM and also Solutions and Specialties. You can also see that our sales were affected by 3.9% lower prices. That, however, was mainly coming from Performance Materials with a negative 7.1% and only negative 0.5% decline from Solutions and Specialties. And you also see there's a small FX effect of 0.6% year-on-year, driven by the stronger U.S. dollar and stronger Chinese RMB. So let's go to Page 7, and you have the EBITDA bridge. Also here, of course, volumes in Q1 significantly affected our EBITDA, and that shows that we are still in a very weak demand environment. You could also see the negative pricing delta with price decreases as an effect of the low demand and the ongoing destocking. And in Q1, raw material energy price increases contributed to the negative pricing delta. However, as of Q2, we do assume a year-on-year tailwind from lower variable costs. You see also a positive development from other items and behind us a significant cost savings, which we realized, especially in the Performance Materials segment. So that overall, EBITDA came in at EUR 286 million, clearly above the guidance of EUR 100 million to EUR 150 million, which we had given and the better-than-expected results are driven by, as I said, strict control of fixed costs and the lower-than-expected burden from the pricing delta. So let's look at the sequential development on Page 8. As you can see on the upper side of the page, sequentially, we see a slightly negative sales development, which is due to minor reductions in price and also currency, but I would like to highlight that we are looking at stable volumes sequentially. And if you look at the lower part of the page, you can see that our EBITDA is coming back into positive territory from the historical low point, which we had in Q4 last year. And also with that, of course, we have finished the negative trend in terms of our EBITDA margin, and we're returning to a positive 7.6%. And therefore, I think with this, we do see that Q4 actually represents the trough of the cycle. So let's look into the segments and go to Page 9, where you have Performance Materials. Overall, sales declined sequentially. This is driven by a strong sales decline in APAC because of the Chinese New Year, followed by a slight decline of sales in North America. However, we've seen slight sales increases quarter-over-quarter in Europe, Middle East and America. And in Q1 2023, if you look at the lower part of the page, EBITDA of EUR 173 million is significantly below last year, but however, it is significantly better than expected and also increasing sequentially. So the year-over-year decline is driven by the volume decline, the negative pricing delta, which was counterbalanced partly by positive fixed cost development. If you look at the EBITDA sequentially, we are returning to positive numbers, driven by the fixed cost savings, the positive pricing delta quarter-over-quarter and additionally, of course, the usual seasonal inventory buildup. So let's now go to our segment, Solutions and Specialties on Page 10. The year-over-year demand weakness also here is a major factor for the sales decline. If you look at the upper side of the page, you see sequential sales growth in EMEA, benefiting from positive volumes, but slightly negative pricing. And the regions, APAC and also North America are still declining. If you look at the lower part of the page, you see that our EBITDA for Q1 '23 is below our Q1 2022. And the positive pricing delta -- and we have a positive pricing delta, which I would like to emphasize both year-over-year and also quarter-over-quarter. And the EBITDA margin of 8.8% is still depressed by destocking. So we do continue to see significant margin upside going forward. Let's go to the next Page 11 and talk about the free operating cash flow. So first of all, if you look at the graph, you see we came in at EUR 139 million negative, which is below previous year, and, of course, mainly attributable to the lower EBITDA year-over-year. What I would like to emphasize is there was, of course, a negative cash contribution from trade working capital buildup of EUR 257 million. But as you can see in the highlighted line item in the table, this is a purely seasonal effect. So I can reassure you that we run a very stringent working capital management, and we will limit this clearly to the seasonal rebound so that, overall, and you've seen our guidance, we're targeting a positive free operating cash flow for the full year. Also, if you look at the table, our CapEx is absolutely in line with our budget and the full year guidance. And you do see a negative income tax payment of EUR 22 million, mainly driven by payments in China. So I would like to remind you that for the full year, we're expecting cash tax payments of between EUR 200 million to EUR 300 million for the full year. On Page 12, I would just like to explain two onetime effects, which are affecting our P&L, and therefore, also on net income. So first of all, and you see it highlighted, we had D&A impairments in Q1 2023 at minus EUR 33 million, EUR 30 million of this relate to the discontinuation of our nonstrategic and loss-making Maezio product line and the closure of the site in Markt Bibart. It's noncash -- it's a noncash item, but as I said, of course, it affects our P&L. And secondly, I would like to talk about the DTA adjustments. So last year, we adjusted our deferred tax assets in Germany. And as a consequence, based on the IFRS rules, we are no longer allowed to activate our tax loss carryforward in Germany as the accounting projections expect further losses in Germany in the full year 2023. So the tax rate will continue to be affected by the regional profit mix. And currently, we assume a P&L income tax of EUR 150 million and EUR 250 million for the full year. What I would like to emphasize, though, is that in contrast to the IFRS rules based on German tax rules, the tax loss carryforward can be used indefinitely. So this means we are confident that in the future, we're able to use the tax loss carryforward in order to lower our tax rate and we're economically not making any losses by the IFRS rules. And as you can see, the impairments and the income tax together then caused the net income to be negative, which came in at minus EUR 26 million. So let's go to Page 13 and look at our balance sheet. And let me start by saying our balance sheet remains very solid. The total net debt increased by EUR 215 million versus the end of 2022. You see a decrease in net pension liabilities of EUR 26 million, driven by the increase in pension -- for the increase of the pension discount rate in Germany and in the United States, resulting in a EUR 404 million net pension liability and that consists of pension provisions of EUR 462 million, which, to a smaller extent, are offset by a net benefit from pension assets of EUR 58 million. Now the total net debt-to-EBITDA ratio stands at 2.8x based on a 4-quarter rolling EBITDA of EUR 1.1 million. And quite obviously, based on our mid-cycle EBITDA, the ratio would look totally different, rather in the region of 1.1x. So let me just close this chart by reiterating the key statement that Covestro remains committed to a solid investment-grade rating. With that, I would like to turn to Page 14 and talk about our measures to improve the financial performance. Compared to our initial financial planning for 2023, we have identified several levers for cost savings and improvement of our financial performance during the course of this year. So already in 2022, a differentiated hiring approach was initiated, and that means we're only rehiring positions that are absolutely crucial for the company's performance or indispensable for the reliability and safety of the operations. And therefore, since the start of the program, the number of FTEs has been reduced by around 250. And we've also, on top of that, implemented a freeze for the contracting of temporary workforce. Now if you look at the other items on the chart in terms of operational savings, they are essentially based on lower maintenance cost, that means our FAM costs. So savings from our lead transformation program and the additional long-term savings are supporting our cost ambition in this category. And then under the headline portfolio streamlining, we are eliminating nonstrategic and loss-making businesses like, for example, the Maezio product line and its production site in Germany. But I would also mention here the successful sale of our 3D printing business, which was also actually loss-making. And in addition to that, we reduced various negative onetime items. In addition, that is the last bucket, we strongly reduced our underutilization costs and various small-scale contingencies are, of course, also contributing to further savings over the course of the year. So with that, let me come to the outlook for Covestro's core industries on Page 15. Compared to our last assumption, the outlook for the global GDP has slightly improved from 1.5% to now 1.9%, which is, of course, a step into the right direction. But far from normal growth rates [ with ] that we have observed in the past. This positive development, however, does not hold true if we look at our core customer industries, the automotive growth expectation has been corrected downwards to 4.2%. However, within this the Electric Vehicle outlook remains unchanged and strong with positive 43%, and this gives us confidence because our Engineering Plastics business and the polycarbonates exhibit a much stronger exhibition to EVs compared to classical combustion engine-driven cars. A very similar picture can be drawn for the construction industry. The further reduction to only 0.5% growth for 2023 is strongly influenced by the globally increasing interest rates, the higher construction costs and ongoing destocking and the outlook for the furniture industry remains also on a low level for the year 2023. If you look at electro industry, the demand expectations have been also corrected downwards to 1.7%. And against this negative development in electro within this, the appliance industry is seeing stronger signs of recovery and is actually expected to grow at 4.4% after being negative throughout the year 2022. So with this rather mixed picture from our customer industries, let's now come to our own outlook for 2023 on Page 16. What I can say is that as the year progresses, our visibility clearly has improved, and therefore, we decided to reinstate our quantitative guidance ranges for our core KPIs. And we're now expecting an EBITDA of between EUR 1.1 billion and EUR 1.6 billion for the full year 2023. And compared to our initial guidance, the increase is driven by successful internal cost measures and a positive development of the pricing delta. We expect unchanged, flat volumes year-on-year for the full year 2023. And sequentially, we expect a slight volume increase in the second quarter driven by seasonal effects and also better product availability in Germany. Now the seasonal effects are very much driven by Asia as the second quarter will not be impacted by the Chinese New Year, and also the usual improvement in the construction industry after the end of the winter period in the Northern Hemisphere. And in the second half of 2023, we assume further sequential improvement in the volumes, mainly driven by resolving our own production limitations. So this should allow us to return to a year-on-year growth in the second half of 2023, given the low comparison basis. As you can also see in the chart, the current mark-to-market calculation comes out at about EUR 1.4 billion based on the margins flat forward. And this is slightly above the midpoint of our new quantified guidance range. Our assumptions for the revised mark-to-market were lower fixed cost and the improved margins as of March with unchanged flat volume for the full year. And on this chart, you can also see that we confirm our mid-cycle EBITDA level of EUR 2.8 billion in 2024, driven by underlying capacity growth and of course, the realization of the RFM synergies. So that leads us to Page 17 for the overview of the remaining KPIs. As I said, the quantified EBITDA guidance, as I explained in the previous slide, is now EUR 1.1 billion to EUR 1.6 billion. We keep the EBITDA guidance range for our Solutions and Specialties segment to be around previous year. As you can see in the second line items, the free operating cash flow is also upgraded, and we're now expecting a positive number within a range of EUR 0 million to EUR 500 million in 2023. This is mainly driven by the improved outlook for the EBITDA and the Solutions and Specialties segment delivering a positive free operating cash flow significantly above previous year. Now in line with the EBITDA adjustment, we guide for a ROCE above WACC between minus 6 and minus 2 percentage points. And the ESG KPI relate to our net-zero target comprises our greenhouse gas emissions, which we now guide to be between 4.2 million and 4.8 million tons. For the second quarter, we expect a sequential improvement in volumes and flattish margins, which should then lead to an EBITDA of between EUR 330 million and EUR 430 million. For the other KPIs, I can tell you, the financial result was slightly adjusted to be between minus EUR 130 million, minus EUR 170 million, and the closure of the nonstrategic, and as I said, loss-making Maezio product line and the related production site in Germany led to an impairment of EUR 30 million. Therefore, we have increased our full year D&A guidance to EUR 900 million versus the guidance which we have given in March. Our ambitions for a strict CapEx regime remain fully in place, and we're guiding for EUR 800 million. That has not changed. However, as I have alluded to in the beginning of the presentation, we continue our investments in the profitable growth of the company. So with that, I would like to hand it back to Markus.

Thanks a lot, Thomas. And I would now like to come to a specific topic as we are not only quantifying our full year guidance, but we are also resuming our share buyback program. Let me quickly remind you, we started the EUR 500 million share buyback program end of February 2022. And the reason for the buyback program was major M&A acquisitions were out of scope. We have had our share to be undervalued and as such, a good investment. In 2 sub tranches of each EUR 75 million, we purchased around 3.5 million shares in the first half year of 2022. Yet due to the recessionary environment with the start of the second half of 2022, we had then temporarily suspended the share buyback to protect our balance sheet and retain cash within the company until an economic rebound becomes foreseeable. However, it was always our strategic intention to execute the share buyback in an anticyclical manner. Now our raised EBITDA and free operating cash flow guidance and the improved visibility that the second quarter 2023 will sequentially result in higher volumes and further raised EBITDA. We consider this to be the right point in time to reinitiate the buyback. We are still firm in our opinion that our share is currently undervalued and deemed the investment into our own shares as best investment for our shareholders. Consequently, the third sub-tranche of up to EUR 75 million will be launched in May. Let's turn pages now to Page #19, a very busy chart, so let me guide you through it. As you know very well from the past and the current situation, Covestro's business is a cyclical business. In times of an economic downturn, our core products, MDI, TDI and polycarbonate are usually strongly effected. Our products are an early indicator of a crisis as we are at the very beginning of the value chain and have strong exposure to multiple consumer industries. There are steps in the value chain between us and the consumer market, but in time of crisis, the stop of stock replenishment is regular and immediate action and progressing very fast throughout different value chains. So our products are an early indicator to an economic downturn. During a recession, the value chain empties through destocking. Upon the start of an economic recovery, a fast and efficient replenishment of the value chain is also required again. Rebounds often create a strong demand to quickly refill the supply chain. These high-growth rates usually lead to supply shortages, allowing Covestro to execute the pricing power to again, realize financially attractive margins. So despite the cyclical behavior, the long-term growth drivers for our products remain intact or even improve. The current energy crisis will have a positive impact on the growth of MDI and polycarbonate. The trend for effective insulation to save energy can add 1 to 2 percentage points to the growth rate of MDI in the future as MDI is the best insulated materials for buildings and appliances. And MDI is so versatile, it can also be used in the manufacturing of wind turbine blades giving additional benefits of longer lifetimes and reduced maintenance rates. Our polycarbonates are an essential part of the battery pack in most electric vehicles as well as a contributor to lightweight and technically advanced electrical features. This results in a 2 to 5x higher use of polycarbonates in modern EVs compared to a regular combustion car. With that, we believe that once the crisis is over, we will see again a strong rebound of demand for our products. Let's turn pages to Page #20 to another topic of special attention. In the past year, the competitiveness of European TDI production compared to competitor imports from Asia Pacific was always a point of discussion. And yes, there were times like in the third quarter of 2022, when gas prices peaked so that the import of TDI was cost-wise a better solution than local production in Europe. Consequently, and supported by a temporarily significant gap of toluene prices between Europe and China, the imports were peaking at this point in time, taking into account the shipment delay of about 6 weeks. Also we were importing TDI from our plant in China. You can clearly see in the above chart that the landed cost advantage of imports from China in the third quarter peaked even considering logistics and import duties of EUR 350 to EUR 600 per ton. But as soon as the gas prices were coming down, this advantage quickly disappeared. And with the continuous gas prices decline since the January 2023, this advantage has now reversed. So Europe as a TDI production location is definitely competitive and has its place to cover the market demand. If we take a look at the imports that have been coming in from Asia Pacific in 2022, around 100 kilotons TDI have been imported and market prices have nevertheless peaked during the time of high gas prices. This clearly indicates that the market needs the European asset base for reliable supply and with the announcement of a 300-kiloton of European production disappearing towards third quarter of 2023, Europe will even require more imports to cover the again, rising demand. Demand, as of 2024, will exceed the local European production and customers are hesitant to rely on import given the supply chain interruptions seen in the past 2 years. We believe that we have a clear technological and cost advantage with our gas faced TDI technology and additionally, an advantage of having a production in the heart of Europe being able to supply TDI competitively to our customers. So now let's turn to the last page of today's presentation. Let me quickly summarize on Page #21. Volume decline is resulting in lower sales or has resulted in lower sales of EUR 3.7 billion in the first quarter, and that was caused by weak demand and ongoing destocking across many industries. Our EBITDA came in with EUR 286 million above guidance range of EUR 100 million to EUR 150 million, and that was driven by cost efficiency and improved pricing delta across both segments. This negative free operating cash flow of minus EUR 139 million still came in better than expected, and that was helped by ongoing strict working capital measures. We also now quantify the guidance for full year 2023, with an expected EBITDA between EUR 1.1 billion to EUR 1.6 billion. And we resumed or will resume our EUR 500 million share buyback program with a third tranche up to EUR 75 million starting in May. So -- And for questions that remained open, Thomas and myself are now here to answer them. With that, I hand over to Carson, who will guide us through the Q&A session. Carson?

[Operator Instructions] The first question comes from Christian Faitz from Kepler Cheuvreux. Christian, could you please unmute your microphones? So far, we have not been able to hear you.

All right. Sorry. Yes, can you hear me now?

Yes, very well. Thanks, Christian.

Yes. All right. After 3 years of Teams, I still can't handle it. Two questions, please. First one, very straight one. What is your order book visibility at present? And the second one, I mean, I don't need to be nagging, but any particular reason why your R&D expenses in Q1 are up quite considerably in relation to the past and should we count on a 3-digit quarterly figure going forward. Thank you very much.

This is Markus speaking. Looking at the order book, for sure, for April, as we are, let's say, almost 100% because it's basically the last day of the month. For May, we see currently about 40% of the usual order intake, and that's not unusual. And for June, 20% roughly. And that, let's say, is not an unusual pattern, so to say, which gives us, let's say, quite some good insights about the months to come. So from that order, so to say, of order intakes and order book view we definitely see that what we have baked in into our full year guidance and also Q2 guidance is obviously coming in. Positive news is maybe if you look into some more specifics. There is, as you know, some talks about the general situation in North America in terms of, let's say, some economic macro indicators. What we see, we have seen a slight dip in April, but it looks as if in May, things are not only back to normal but even slightly positive, a bit more positive than we expected. So maybe on the research development cost, I hand over to Thomas.

Yes, Christian, on R&D, they are up EUR 11 million and EUR 94 million to EUR 105 million. In this is the effect from the impairments that I talked about in Markt Bibart, not to the full extent, but about 1/3 of the EUR 30 million impairment that we had to incur finds its way into the R&D cost because it's -- it is -- intangible assets exactly which we had to impair. So essentially, the full effect can be explained by this noncash impairment of Markt Bibart.

And the next question comes from Chetan Udeshi from JPMorgan. Chetan, so far, we've not been able to hear. Could you please unmute? [Operator Instructions] Okay. If there are issues, Chetan, you are not forgotten. Otherwise, we'll continue on the line and try again to get you into the call afterwards later on. Then the next question comes from Matthew Yates from Bank of America.

I'd like to just dwell on the Q1 result for a minute, if that's okay. Because obviously, you came in double what you guided or I guess, EUR 150 million in absolute numbers. . Can you just help me understand and on that Slide 7 bridge, where exactly did the upside come from? Because it didn't seem to be volumes. So if it was cost, why didn't you already know about this fixed cost saving when you guided in early March? Or is it more about market conditions rather than the proactive things that you were doing? And maybe if I can tie that into Slide 14, I think you had around some of the new initiatives that you've identified. Is there any aspect the results from that were coming through faster than expected?

Matthew, this is Thomas. So first of all, you're right, the positive development in Q1 was not driven by market conditions. As we highlighted, we would say the demand is still pretty much depressed, specifically in Europe. So the out-performance really came from a better pricing delta and from cost savings. I would say they were equal in size, maybe the cost savings were even bigger than the pricing delta. The pricing delta improvement came very much in March and therefore, at the end of the quarter and the cost savings were driven by many small items, which then altogether summed up. So the visibility during the quarter is not always so big, but I think we also expressed already during the quarter that our guidance seemed somewhat conservative. Therefore, it did not come as a total surprise to us. And I think what we're indicating with Page 14, is that those savings were not short-term measures, but they're really the result of also structural things, which we have implemented in the course of our lead program. And therefore, we do think that they are also sustainable over the course of the year.

And the next question comes from Markus Mayer from Baader Bank.

Three questions, if I may. Coming back to these cost savings, which were higher than expected of this guidance or implicit guidance range, how much came from this cost savings and how much came basically from a better pricing delta. That would be my first question. Then a second question is on this outlook overview from your end customer industries and also GDP. Three out of 4 most important end market saw at least according to the assumptions you have versus the ones you had in this full year [indiscernible] saw a decline in the outlook, whereas GDP improves. Now I am puzzled, what is basically more important for you is basically at the end, the [indiscernible] change was your original volume assumption for the group. That's my second question. And then the last question is on TDI. You said last year, roughly 100,000 tons have been imported into Europe. Is this [ fuel ] also the maximum of imports, which can be imported to Europe, given its chemical reactivity or what would be terrifically a maximum number, which could be imported to Europe. That's all from my side.

So Markus, let me start with the first question. The way I understood it is that your question is our mark-to-market came up from this EUR 1 billion to the EUR 1.4 billion. If you plug in the margins as of end of March and apply to flat volumes for the full year. And this EUR 400 million uplift relative to the EUR 1 billion that we had given earlier in this year essentially comes from 50% of that is better pricing delta and 50% of that is better cost positions that will find their way into the 2023 results. So EUR 200 million from the one and EUR 200 million from the other. Maybe on the other questions, Markus, you want to talk about TDI?

Yes, absolutely. So Markus, if you look at the TDI import capacity, what we're basically talking about is not only shipping capacity, but what we need, we need storage capacity and unloading capacity in respect of harbor, which is a key challenge as we're talking here about hazardous and very reactive chemicals. So having said that, it is not easy to build those capacity up. But even if it is built up, let me quickly recap on what I tried to explain a little bit earlier in one of the slides. It is absolutely necessary that we get this additional capacity imported into Europe as one of the largest sites in Europe, which represents roughly 40% of European-based capacity is about to be shut down by third quarter of 2023. That means we have [ named laid out ] 300,000 tons, how much real available capacity is represented by this? The jury is out. Nonetheless, we and our customers strongly believe in the growth opportunities and the demand for TDI. And therefore, we need import capacities. Otherwise, we will have, at least for some time, temporarily maybe a shortage of TDI in Europe. So we need this capacity. And therefore, you can assume that there might be an upscaling within this year of another 50,000 tons of import capacity on top of the 100,000 tons that we have seen being imported last year. So yes, once again, it's difficult to judge talking about, let's say, the chemistry we are handling here. We need that import capacity. And we feel in that overall situation as the, let's say, 1 of the last 2 standing TDI suppliers with a IP-protected leading cost position, let's say, very well positioned in that market. Then back to Thomas.

Yes. So maybe just on your second question, if I understood correctly, you said, well, there's -- the outlook is slightly less positive for the Covestro industries. How does that get along with our assumption of flat volumes? So I would say two things. One is, the change in growth rate, of course, is very, very small. So we're talking 0.3, 0.5 percentage points per industry, which I would say is within the normal volatility range. And secondly, I mean we're still talking about growth in all our customer industries and our assumption for 2023 is flat volumes relative to 2022. And therefore, I would say those numbers for us were not significant enough as to change our assumption. We do think it's well based.

And the next question comes from a British Telephone number, starting with [ 207774. ] If you please could state your name, company name followed by your question and please unmute your microphone.

Hello?

Yes, we can hear you. Is [ this ] Georgina?

Yes, it is Georgina. Sorry, I don't even know my phone number because it comes through some weird channel. Thomas, I actually just wanted to follow up on your volume assumptions. So exactly the point you made, you are actually talking about growth, and you even revised up your GDP growth assumption. . So why are you forecasting to undergrow the end markets? And then into a little bit more detail, I did notice that you had revised up the appliances outlook. Could you maybe talk a little bit about what's driving that? And if it's something that you're already seeing today or just a change in assumption that's coming later in the year?

Yes. Georgina, why are we undergrowing the industry? And again, we're talking relatively small numbers. This is due because we, as you know, have some production issues in Germany specifically [indiscernible] Dormagen site so that we have limited output and had to declare force majeure. Now turn it positively, the repair work is going on as planned, and we're making good progress here so that we're working on it over the course of the second and the third quarter, and we should be then in full swing back again at the end of Q3, beginning Q4. But as we -- in addition, of course, to the demand environment, which is still a little somewhat slow, we also have some output issues. We do think that flat volumes year-over-year is a fair assumption. Now on the appliances, I'm not sure, Markus, whether you have deeper insights? What's behind this?

Well, from my perspective, it's may be simple reason, but under appliances is not only, let's say, refrigerators under appliance, but other white goods, so to say, which means there is other things like washing machines -- sorry, yes, dishwashers, yes. So my most beloved device at home. And the issue here is, it's a very tiny one, availability of chips. So there is an increased production rate simply because the supply chain is getting back to a more normal level with availability of, let's say, low-class microchips and semiconductors. And that's one of the reasons why this overall, let's say, provided external outlook has increased, but it is not that substantial for us, as Thomas mentioned, because that is not particularly driven by the refrigerator market, which is the most important, let's say, submarket in appliances.

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