2016 was a record year for materials manufacturer Covestro. Driven by demand for innovative materials, the Group’s core volumes increased by 7.5 percent. With greater capacity utilization across its plants, adjusted EBITDA surged by 22.7 percent 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.
“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.
Optimized production capacity matches growing demand
In 2016, core volume growth outpaced global gross domestic product (GDP) significantly, thereby emphasizing Covestro’s strong strategic positioning alongside important trends in key customer industries. The company was able to consistently increase sales volumes and further improve utilization 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.
In Europe, the production platform is being further optimized. The expansion of production capacity for the rigid foam precursor MDI at the Brunsbüttel (Germany) site was initiated in June. Capacity will double to 400,000 metric tons per year by 2018.
In addition, Covestro proved in 2016 that CO2 can be used as a raw material for market-ready products: at Dormagen (Germany) last year, the company put into operation the world’s first industrial production facility to use CO2 as a raw material for flexible foam components.
Strong demand for Polyurethanes and Polycarbonates
In 2016, Covestro’s Polyurethanes segment achieved year-on-year core volume growth of 7.7%, driven by a strong increase in all product groups, particularly in the MDI product group, as well as a 41.2% rise in adjusted EBITDA to EUR 881 million. Demand was driven by key industries such as the automotive and construction sectors. In October, due to an unforeseen production outage at a supplier, Covestro was forced to operate the European production facilities for MDI and TDI at reduced capacity and therefore declared force majeure. This was lifted at the end of the year.
Core volume growth in Polycarbonates was 10.3% year-on-year. Once more, sales volumes increased sharply, particularly in the APAC and NAFTA regions. Adjusted EBITDA climbed 25.7% to EUR 704 million in the Polycarbonate segment. Demand from the electrical and electronics industry was among the main growth drivers.
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.
As a global company with operations in close proximity to its regional customers, Covestro also considers itself well positioned in an environment marked by geopolitical uncertainty and economic volatility. Based on current global economic and key customer industry forecasts, Covestro expects solid performance across key indicators in 2017.