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Good morning, ladies and gentlemen.
Or it might be better to say: good morning and welcome to today’s premiere!
For a genuine premiere is what we have to offer. And I don‘t mean the film you’ve just seen, but what is to follow. My colleagues on the Board of Management and I would like to welcome you to Covestro’s very first Financial News Conference.
Our company has been independent for only a short time. In fact, strictly speaking, it’s not even six months old – even though we can look back on a long and successful history as a producer of high-performance polymer materials under our former name of Bayer MaterialScience.
And we believe we can look forward to an equally successful future with our new identity. I shall be explaining why shortly.
First of all, though, I would like to look back on the past year, in which we opened a major new chapter in our company’s history and scored a series of other firsts in quick succession. Our company became legally and economically independent in September, was listed on the stock market in October and admitted to the MDAX in December.
However, despite all this, we did not lose sight of our business operations. In the past year, we again introduced a large number of innovations. We were very successful financially, achieving all the targets we had set ourselves. Our operating result, for example, increased substantially, with contributions from all segments. A further success was the record level of our free operating cash flow.
Ladies and gentlemen, allow me now to talk in more detail about the highlights of our income and loss statements.
We improved external sales to around EUR 12.1 billion – despite a rather difficult environment with slower growth in key emerging economies and declining selling prices. Compared with 2014, the increase amounted to 2.7 percent. This was in line with our forecast.
The same applies to core volume growth, which we will be using as a further significant performance indicator starting in the current year. For this parameter, too, we finished in our target range with growth of 2.7 percent.
Covestro registered a particularly sharp increase in adjusted EBITDA, with a rise of 41 percent to EUR 1.6 billion. This was largely attributable to higher volumes and a more favorable supply and demand situation. Currency effects also had a positive impact.
Group net income came to EUR 343 million, which was 26 percent more than in the previous year.
The next success – and another premiere – is one I’ve already alluded to. Free operating cash flow increased by more than 200 percent in 2015 to reach a new record high of EUR 964 million.
As I just mentioned, we faced a somewhat difficult business environment in 2015. Against this backdrop, we are well served by the fact that we have a truly global organization and are present in all the major economic regions. This enables us to balance out our sales.
If we look at core volumes, last year we achieved growth of between two and three percent in all three regions in which we operate. In fact, in the United States and China, growth reached four percent. In the fourth quarter, core volumes in China rose again considerably, also compared to the previous quarter.
And we are not that pessimistic at all about China. In international terms, the country is still achieving substantial growth rates.
The macroeconomic environment is obviously important to us. However, I would like to emphasize that our portfolio is less cyclical than some people might think. We do about 40 percent of our business in areas that are characterized by relatively low volatility.
Our Coatings, Adhesives, Specialties segment – CAS for short – is one example. This segment manufactures raw materials for products such as coatings, adhesives, sealants and high-quality films. CAS also makes specialty products for the cosmetics, textile and health care industries.
The segment not only has an outstanding market position, but has for years also produced stable profit margins in excess of 20 percent. It’s a true hidden champion offering strong growth rates as well.
Our Polyols business has also proved resistant to cyclical fluctuations. Polyols are precursors used to manufacture polyurethane foam. The isocyanates MDI and TDI form the second key component and are the core products of our largest segment, Polyurethanes. The Polycarbonates segment is the third pillar in our portfolio. Here we are producing and continually developing a versatile high-performance plastic.
With all these products we want to contribute to making the world a brighter place. This is exactly what we express in our vision. We want to realize this claim with our three core values: we are curious, courageous and colorful. And this is also expressed in our bright new logo.
We are all familiar with the everyday products in which our materials are used. The world in your immediate vicinity is full of Covestro – even here now. I’m thinking for example of the casings for the laptops you are using to write your reports. Or the chairs on which you have made yourselves comfortable.
I could list many more products and name key industries we supply – like the automotive sector, the construction industry or the energy sector. They all rely on high-tech materials for addressing the major challenges of our time: climate change, the expanding global population and urbanization, to name just a few. These are all trends that are likely to continue to sustain our industry.
But we’re not driven just by major trends and macroeconomic developments. We also benefit, for instance, from our state-of-the-art facilities – production is safe, highly efficient and as environmentally compatible as possible.
Our independence will help us to deploy these strengths to even better effect. It will enable us to become even faster, more flexible and more efficient. In other words, we’ll be able to leverage our advantages more effectively. We derived further momentum from the stock market flotation and admission to the MDAX stock index, which gave us greater prominence on the international stage.
A very important basis of our success is our company‘s capacity for innovation. Research and development are essential in order to maintain and build our position in the competitive arena. However, our understanding of innovation goes further than this and includes, for example, intelligent business models.
Last year, around 1,000 people worked in Covestro’s global research and development network, many of them in major innovation centers at our headquarters in Leverkusen, in Pittsburgh in the United States and in Shanghai, China.
They work closely not only with other companies but also with academic institutions in what is called “open innovation.” Such partnerships exist with RWTH Aachen University here in Germany and with Tongji University in China.
Collaboration, team spirit and expertise make up the breeding ground which allows Covestro to create groundbreaking products time and again. I would like to look first at our Coatings, Adhesives, Specialties segment.
One of many examples of the inventor spirit at CAS is an innovation for the global textile industry. The INSQIN™ technology offers many new options for the production, design, comfort and performance of synthetic materials. Moreover, production of the material has a particularly low environmental impact.
I would also like to highlight the new umbrella brand PASQUICK™. It stands for innovative solutions in floor coatings and corrosion protection. Features include fewer coats and faster drying – delivering economic benefits for the user.
CAS isn’t the only hotbed of new ideas at Covestro. For instance, our Polyurethanes segment regularly introduces novel ideas for many key industry sectors. One such example is wind energy, which is a big issue for the future. Here, we have been working with a partner company to develop a new composite material for making rotor blades, making them particularly light and robust at the same time. These features are essential for producing even larger wind turbines with a much higher energy yield in the future.
The Polycarbonates segment is also developing novel composite materials. Here we have taken our cue from nature – the composites have similar structural properties to bone. We see promising prospects for the especially lightweight and robust new material – it’s likely to be very useful, for instance, in the IT and automotive industries.
Whether we’re facilitating lightweight, fuel-saving cars, a new generation of wind power or environmentally friendly solvent-free production, sustainability is one of our main priorities. Applying the motto „People, Planet, Profit“, we are seeking to help protect the environment, move society forward and create added value through profitable growth. This holistic approach defines our operations along the entire value chain – from the procurement of raw materials through production, distribution and sales, to the use of our products and their disposal or recycling.
Let me say something now about recycling. Did you know that the greenhouse gas CO2 can now be put to good use making plastics? Our scientists have succeeded in incorporating around 20 percent CO2 into a precursor for polyurethane foam. This enables us to use less oil – the usual base product
for polyurethanes. The development is therefore an important contribution to resource efficiency.
This summer, we intend to start producing the new CO2-based raw material at our Dormagen site north of Cologne – another premiere. The foams produced in this way are to be used first in making mattresses.
I’ve given you a swift tour around the world of Covestro. I believe that we – as a global player with a particular focus on innovation and sustainability – have demonstrated our strengths in our very first year. However, as I already indicated, 2015 was also a strong year in terms of figures. Frank will now tell you more about this.
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Thanks a lot, Frank.
Ladies and gentlemen, we expect this year’s macroeconomic environment to be similar to that of 2015.
Against this backdrop, we expect core volume growth in the mid-single-digit percentage range.
But Covestro is not just aiming to achieve further growth in 2016. We are also expecting further substantial cash inflows. Free operating cash flow should be at a high level and above the average of previous years.
Our future ability to create value is demonstrated by our third key performance indicator: return on capital employed, or ROCE. At 9.5 percent, adjusted ROCE was substantially higher last year than the capital costs of 7.2 percent. In 2016 we also expect to earn our capital costs.
And that, ladies and gentlemen, brings us to the end of today’s premiere. My colleagues on the Board of Management and I would like to thank you very much for listening.
And now we look forward to taking your questions.
This release may contain forward-looking statements based on current assumptions and forecasts made by Covestro AG. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in Covestro’s public reports which are available on the Covestro website at www.covestro.com. Covestro assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.
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