Covestro achieves record year

2016 was a record year for materials manufacturer Covestro. Driven by demand for innovative materials, the group’s core volumes increased by 7.5%.

CEO Patrick Thomas (left) and Frank H. Lutz -

With greater capacity utilisation across its plants, adjusted EBITDA surged by 22.7% above the 2015 figure to EUR 2.0 billion. Net income more than doubled from EUR 343 million to EUR 795 million. On this basis, Covestro plans to pay its shareholders a dividend of EUR 1.35 per share.

Fundamental strength

“Our strategy is paying off. These excellent results underscore Covestro’s fundamental strength,” explains CEO Patrick Thomas. “Growing customer demand for our innovative and sustainable products shows that we are increasingly successful at replacing conventional materials with superior plastics.” Free Operating Cash Flow also increased sharply by 41.8% to EUR 1.4 billion. Covestro increased profitability as well: Return on Capital Employed (ROCE) reached 14.2%, exceeding the previous year significantly. In contrast, Covestro Group’s sales were down slightly by 1.5% to EUR 11.9 billion, as a result of lower selling prices and FX effects.

Optimises production capacity

In 2016, core volume growth outpaced global gross domestic product (GDP) significantly, thereby emphasising Covestro’s strong strategic positioning alongside important trends in key customer industries. The company was able to consistently increase sales volumes and further improve utilisation of existing production capacity. Covestro also began the expansion of its capacity in high-growth regions at an early stage in order to meet increasing demand. This is particularly true of the Asian market, where the company put a plant into operation producing raw materials for coatings (HDI) and doubling its polycarbonates capacity.

Improved financial flexibility

Covestro repaid all outstanding loans from Bayer in the past fiscal year. In March, the company placed a first bond in the total amount of EUR 1.5 billion as part of a debt issuance program, facilitating the funds to repay the loans in full. By the end of 2016, net financial debt was EUR 1.5 billion, some EUR 700 million below the level of the previous year. “The debt issuance program provides us with additional financial flexibility,” says CFO Frank H. Lutz. “Along with our positive cash flow performance, we now have sufficient funds for financing investments on our own.”

CAS segment remains stable

In the Coatings, Adhesives, Specialties (CAS) segment, core volumes remained stable despite the expected contractual termination of trading activities. Adjusted EBITDA increased by 1.8% to EUR 500 million. Lower raw material prices had a positive effect on earnings. In addition, the trend towards higher-quality end products also pushed demand for CAS products.

High profitability in Q4 2016

Covestro’s successful performance continued in the fourth quarter of 2016. From October to December, core volumes were up 4.8% compared to the same period in the previous year. Thanks to higher selling prices, Group sales rose by 7.8% to EUR 3.0 billion. Adjusted EBITDA jumped 52.3% to EUR 390 million. Net income of EUR 124 million was also well above the fourth quarter of 2015 (minus EUR 84 million). Free Operating Cash Flow rose slightly by 3.6% to EUR 407 million.

Further profitable growth envisaged

In 2017, Covestro will continue to work on developing innovative materials in line with the company’s vision: ‘To make the world a brighter place’. “With our clear focus on sustainable growth in line with global macro trends, we have established a strong position for profiting from long-term market developments. We therefore face 2017 with great confidence,” states Patrick Thomas.

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