Covestro is off and running in 2016

Yesterday in Cologne, Germany, materials manufacturer Covestro held its first financial news conference—‘a genuine premiere’, as CEO Patrick Thomas described it—presenting the results achieved by the company over the past fiscal year. And, across the board, they were convincing results: all financial targets were achieved in 2015.

“2015 was a record year in terms of numbers,” said Thomas.

“We demonstrated earnings power and financial strength while achieving independence, getting listed on the stock exchange and being admitted to the MDAX. All three segments have contributed to the positive performance,” he declared. And: “We leverage our advantages better now that we are independent.”

Compared with the prior-year period, adjusted EBITDA increased by a very substantial 41%, to €1.6 billion, mainly thanks to a more favorable supply and demand situation as well as higher volumes. As a result, sales increased by 2.7% to €12.08 billion despite declining selling prices, as did the core volume growth—an important new key performance indicator starting in the current year. The free operating cash flow increased in 2015 by over 200%, to reach a record level of €964 million.

“Last year was a good year on the segment level as well, with volumes expanding in all three of Covestro’s businesses,” said CFO Frank Lutz. “Polycarbonates alone more than tripled its adjusted operating result,” he noted. “And, in 2015 adjusted EBIDTA at our largest segment, Polyurethanes, rose by 5.4% year-on-year to €624 million, which was primarily attributable to improved margins in our polyols business.”

Sales in the third segment—Coatings, Adhesives and Specialties—grew by 8.6% compared with 2014 to a record level of €2.09 billion while core volume growth was 2.7%. Adjusted EBITDA increased by 12.4% to €491 million. The segment comprises raw materials for coatings, adhesives and sealants, as well as specialties such as high-quality films. This segment, said Lutz, is a relatively stable business that is marked by the fact that “our products are specifically tailored to customer requirements, thus making their products more valuable. Also the low raw material prices do not have a very strong impact on selling prices,” he added.

Covestro plans to pay its stockholders a first-ever dividend of €0.70 per share. The company believes it is on course for further growth in 2016 and hopes to once again generate high cash inflows. Given positive expectations for the global economy and the development of key customer sectors such as the automotive, construction, electrical and electronics, and furniture industries, Covestro has established a target for 2016 of a mid-single-digit percentage increase in core volume growth.

Asked about a prognosis for 2016, Thomas said it was “still too early,” but that Covestro was in an excellent position, “with the best capacity to grow.”

“We expect this year’s macroeconomic environment to be similar to that of 2015.”

Moreover, he said that the supply/demand situation developing around polycarbonate was “very interesting.” “We saw a growth of 4-5% in 2015, and similar growth is expected in 2016. But supply is growing at a mere 2%. At the same time, old and outdated facilities are closing around the world, and consolidations are taking place,” he explained. “I can see a situation arising where demand will outstrip supply.”

He was far less reticent when asked about his stance on a possible Brexit: “Completely stupid!”

“Ninety-nine out of one hundred FTSE CEO’s think so. And no doubt the one who doesn’t—and who may that be, one wonders—solely does business in the UK.”