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Fiscal 2020: Significant
improvement in second half of year
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“We
were able to successfully navigate through this highly exceptional year and
maintained our ability to act at all times. We took a broad range of measures
to protect our employees, keep supply chains running, and expand our strong
liquidity position," said CEO Dr. Markus Steilemann. "In fiscal 2020,
we therefore were able to actively pursue our strategic goals. We defined our
vision to become fully circular and took a major step in this direction with
the announced acquisition of the Resins & Functional Materials business
from DSM."
Earlier
in 2020, Covestro announced to become fully circular. To fulfill this long-term
vision and embed circularity into all areas of its business activities, the
Group decided to focus on four topics: alternative raw materials, innovative
recycling, joint solutions, and renewable energies.
Strong results thanks to consistent
measures
"The decisive measures we took early on helped considerably in delivering strong results. Backed by a significant recovery in demand from mid-year, we returned to our growth trajectory in the second half of the year and generated earnings that almost reached prior-year level," said CFO Dr. Thomas Toepfer.
"In an
environment that is still characterized by uncertainty, we remain
cost-conscious and continue to strengthen our efficiency. In addition, we are
focusing even more explicitly on our customers in order to create value."
To position itself more robustly in the wake of the coronavirus pandemic and secure liquidity reserves, Covestro implemented numerous additional cost-saving measures last year. As a result, the Group saved a total of EUR 360 million in the short term.
The efficiency program "Perspective" launched in 2018 also
contributed EUR 130 million in savings in fiscal 2020 and was wrapped
up at year-end as announced.
Covestro also pursued various types of financing measures in 2020. In doing so, the Group has aligned its financial instruments with its sustainability performance wherever possible to underscore its commitment to greater sustainability.
The syndicated credit
facility of EUR 2.5 billion, signed in March 2020, was linked with an
Environment, Social, Governance (ESG) rating, for instance. The better
Covestro's ESG performance is, the lower the interest component of the credit
facility will be.
Realignment of the strategy: Vision as guiding principle
With the clear goal
of becoming fully circular and as an answer to changing market expectations,
Covestro has consequently aligned its Group strategy.
This effort is
centered on increased customer orientation and sustainable growth. Starting on
July 1, 2021, Covestro will manage its business in a new, tailored structure
around seven business entities aligned to customer needs and the competitive
landscape. Going forward, the Group will distinguish between two business
areas, Performance Materials as well as Solutions and Specialties.
· Performance
Materials: This
area will form a separate business entity and will comprise Standard
Polycarbonates, Standard Urethane Components, and Basic Chemicals.
· Solutions and
Specialties:
This area will consist of the six new business entities Tailored Urethanes,
Coatings and Adhesives, Engineering Plastics, Specialty Films, Elastomers, and
Thermoplastic Polyurethanes.
Covestro is combining
the consistent alignment of products and processes with its customers' needs
with an even sharper focus on addressing sustainability in a profitable way. In
the future, the Group will apply sustainability criteria even more stringently
when undertaking investments, acquisitions, and R&D activities. As part of
its transition towards a circular economy, Covestro is also expanding its
portfolio of circular products.
"Our vision to become fully circular is charting the direction of our new Group strategy. The new structure is creating an optimal starting point for the future and will position us to become significantly more competitive," according to Steilemann.
"This will enable us to better meet our customers' needs, make
our company more efficient and effective, and generate sustainable growth. We
are truly driving forward the transformation towards a circular economy."
New dividend policy with stronger focus on
Group's earnings
Covestro is setting its dividend payout on a new basis. The dividend policy is based more strongly on the Group's earnings, with the dividend payout ratio amounting to 35% to 55% of the net income generated by the Group.
"This dividend policy is more
closely linked to Covestro's overall financial position and enables us to
increase the dividend in years with strong earnings," Toepfer said. Based
on current performance, Covestro plans to distribute a dividend of
EUR 1.30 per share for fiscal 2020. This corresponds to a payout ratio of
55%.
Guidance 2021: Fiscal year above
pre-pandemic level 2019 expected
For fiscal 2021,
Covestro expects core volume growth of between 10% and 15%. Around 6 percentage
points of this figure are attributable to the planned acquisition of the Resins
& Functional Materials (RFM) business from DSM, that the Group announced.
Moreover, Covestro forecasts FOCF at between EUR 900 million and
EUR 1.4 billion, with ROCE between 7% and 12%. The Group's EBITDA for
full-year 2021 is anticipated to come in at between EUR 1.7 billion
and EUR 2.2 billion. In the first quarter of 2021, the EBITDA range
is projected to be EUR 700 million to EUR 780 million.
Recovery in demand across all segments in second half of 2020
The Polyurethanes segment saw core volumes sold decline by 6.1% in fiscal year 2020. Following a drop in demand in the first half of the year due to the coronavirus pandemic, a significant improvement in demand and an advantageous competitive situation in the second half of the year led to an increase in core volumes sold.
Sales were
down by 13.1% to EUR 5.0 billion for the full year, mainly due to a lower
level of average selling prices for the year and the decline in total volumes
sold. EBITDA fell by 3.5% to EUR 625 million, also on account of the
decrease in volumes sold. However, a lower cost level resulting from
cost-saving measures had a positive effect on EBITDA.
The Polycarbonates segment saw core volumes sold drop by 3.0% in fiscal 2020. The pandemic caused demand to dry up in the first six months. In the second half of the year, however, a robust recovery in demand pushed core volumes sold over the prior-year level.
Sales were down by 14.1% to EUR 3.0 billion, mainly due
to a lower level of selling prices and the decline in total volumes sold. In
contrast, EBITDA improved by 3.2% to EUR 553 million, a trend primarily
attributable to lower raw material prices and lower costs as a result of
cost-saving measures.
The Coatings, Adhesives, Specialties segment's core volumes sold declined by 8.9% in fiscal 2020. In the first six months of fiscal 2020, core volumes sold were down largely because of the sharp drop in demand due to the coronavirus pandemic.
By the end of the year, demand had recovered and core volumes sold in the fourth quarter of the 2020 fiscal year exceeded those of the prior year. Sales for the full year slid 13.9% to EUR 2.0 billion, mostly because of the decline in total volumes sold and lower average selling prices. EBITDA dropped by 27.3% to EUR 341 million. This was due to a decrease in volumes sold, lower margins and expenses for the planned acquisition of the RFM business.
However,
a lower cost level resulting from cost-saving measures had a positive impact on
earnings. In addition EBITDA in the prior-year period was positively impacted
by a one-time effect from the step acquisition of shares of Japan-based DIC
Covestro Polymer Ltd.
Fourth quarter of 2020 well over prior-year level
Core volumes sold in
the fourth quarter of 2020 rose by 1.7% over the prior-year period. Group sales
therefore increased by 5.0% to EUR 3.0 billion as a result of higher
selling prices. At EUR 637 million, EBITDA in the fourth quarter of
2020 more than doubled from the figure in the previous year. Net income climbed
sharply from EUR 37 million in the prior-year quarter to EUR 312
million. FOCF also increased in the fourth quarter, by 19.4% to
EUR 394 million.
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