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.