Covestro AG · VIE:1COV
Covestro — FY2018 Earnings Presentation
34 slides from Covestro's earnings presentation, Feb 25, 2019
Slide 1: Strong FY results despite weak Q4
Strong FY results despite weak Q4 Financial Highlights Q4 & FY 2018 covestro.com February 25, 2019│ Q4 & FY 2018 Investor Conference Call
Slide 2: Forward-looking statements
Forward-looking statements This presentation 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 situati
Slide 3: Securing profitable growth in more challenging times
Securing profitable growth in more challenging times Highlights Strong FY 2018 results despite weak Q4 with shares bought back for €1.3bn and a dividend proposal of €2.40 per share Continuous growth above global GDP fueled by capex as most value-creating use of cash based on industry and cost leader
Slide 4: Financial highlights FY 2018
Financial highlights FY 2018 +1.6% €1.7bn 29.5% Core Volume FOCF ROCE Growth €2.40 €1.5bn €3.2bn Proposed Share buy-back EBITDA dividend per program share completed 3 February 25, 2019 │ Q4 & FY 2018 Investor Conference Call
Slide 5: Asia continues to drive global Core Volume Growth
Asia continues to drive global Core Volume Growth FY 2018 – Regional split Sales and Core Volume Growth Highlights in € million / changes Y/Y • APAC: impacted by unplanned shutdown of MDI plant in Caojing in Q3, slow-down in China and China 3,106 negative Core Volume Growth in automotive in Q4 EMLA
Slide 6: Significant pricing pressure towards year end
Significant pricing pressure towards year end FY 2018 – Group results Sales and Core Volume Growth Highlights in € million / changes Y/Y 3.4% 1.6% • Core Volume Growth of +1.6% in FY 2018 despite 8.9% 2.6% 4.2% 4.4% 1.7% constrained product availability, i.e. unplanned 0.0% 0.2% -1.7% outages and lo
Slide 7: Strong EBITDA result driven by first half year
Strong EBITDA result driven by first half year FY 2018 – EBITDA bridge in € million Highlights Pricing delta +€65m Strong positive volume leverage 641 • EBITDA volume leverage(a) at 68% • Broad-based in all three segments +216 3,435 -576 Slightly positive pricing delta, driven by H1 -100 3,200 • Pos
Slide 8: Weak Q4 with pronounced negative pricing delta
Weak Q4 with pronounced negative pricing delta Q4 2018 – EBITDA bridge in € million Highlights Pricing delta -€550m Strong positive volume leverage +69 • EBITDA volume leverage(a) at 68% 879 • Broad-based in all three segments Pronounced declining contribution margin • Negative pricing delta in all
Slide 9: Margin decline in all segments in Q4
Margin decline in all segments in Q4 Q4 & FY 2018 – Segment results Polyurethanes Polycarbonates Coatings, Adhesives, Specialties 3.1% 0.8% 5.0% 3.0% 1.5% 2.5% 5.3% 20.0% 2.3% 3.7% 15.0% 1.6% 10.0% -1.0% -1.8% 5.0% 2,327 2,361 7,386 7,362 3,737 4,051 0.0% -5.0% -10.0% 1,876 1,597 939 924 529 534 -15
Slide 10: Strong balance sheet after high cash return to shareholders
Strong balance sheet after high cash return to shareholders December 31th 2018 – Total net debt in € million Highlights 258 1,793 • Total net debt to EBITDA ratio of 0.6x end of 2018 1,313 vs. 0.4x end of 2017 348 1,470 • Slight increase of net financial debt mainly due to -62 283 share buy-back and
Slide 11: Right strategy and thorough execution in different stages
Right strategy and thorough execution in different stages Different stages since IPO 2015 – 2016 2017 – 2018 2019 – 2021 Becoming independent Riding ‘the wave’ Driving efficiency • Normal supply/demand conditions • Tight supply conditions • Volatile conditions Industries • Volume growth above global
Slide 12: High volume leverage continuously contributes to EBITDA
High volume leverage continuously contributes to EBITDA Volume Growth contribution to EBITDA in € million, Highlights Core Volume Growth in % • Track record of growth above global GDP at ~4% Core Volume Growth 2015-18 CAGR, with 267 corresponding average volume leverage of 46% 232 • Striving to grow
Slide 13: Resilient businesses generate EBITDA of €1.3 – 1.6bn
Resilient businesses generate EBITDA of €1.3 – 1.6bn Resilient vs. supply/demand-driven share of EBITDA in € billion Highlights 3.4 • Resilient businesses(b) supports value-creating 3.2 base earnings • EBITDA generation between ~€1.3bn and ~€1.6bn per year under normal economic conditions • In 2015-
Slide 14: Supply-demand-driven businesses point towards mixed picture
Supply-demand-driven businesses point towards mixed picture Historical industry development and outlook Covestro Industry demand development Industry supply development Industry highlights S/D-driven share of (kt)(a) CAGR (kt)(b) CAGR FY18 Group sales CAGR HIGH CAGR HIGH • Structurally sound demand
Slide 15: Adapt organizational structure to market needs
Adapt organizational structure to market needs Efficiency measures Driving efficiency Internal bundling of standard businesses and strong cost focus with Streamline standard businesses initiatives along entire value chain Focused customer-centric technical and commercial capabilities, Extend differe
Slide 16: Execute cost-cutting, reduce headcount in non-production areas
Execute cost-cutting, reduce headcount in non-production areas Expected cumulated savings and restructuring costs Progress on “Perspective” program Highlights Approx., in € million • Cumulated savings of around €350m planned 350 until end of 2021e • 2018 slightly ahead of plan (+€8m) and 120 expecte
Slide 17: Entire organization aligned for performance
Entire organization aligned for performance Full STI annual target achievement requires EBITDA above €2bn Uniform bonus system Three equally weighted Group metrics Transparent ambition • Full alignment of all employees • Targets for 100% achievement: • Future core volume growth goal of 4% (including
Slide 18: FY 2019 EBITDA development driven by pricing delta
FY 2019 EBITDA development driven by pricing delta Pricing delta development in EBITDA bridge in € million Highlights +1,245 • Pricing delta calculated by adding selling and raw material price effects on earnings +296 • Raw material price movements are usually directly +265 passed through to custome
Slide 19: Below mid-cycle earnings in challenging economic environment
Below mid-cycle earnings in challenging economic environment Historical EBITDA development and FY 2019 guidance in € million, Underlying assumptions Core Volume Growth in % Low-end scenario 3,435 • Further price decline compared to January 2019 especially 3,200 in TDI • Low end of CVG(b) range due t
Slide 20: FY 2019 cash flow burdened by bonus and tax payments
FY 2019 cash flow burdened by bonus and tax payments Historical FOCF development and FY 2019 guidance in € million Highlights 2018 1,843 • Solid EBITDA to FOCF conversion rate at 52% 1,669 • Working capital to sales ratio slightly up at 16.2% in 2018 vs. 15.4% in 2017, within the 1,367 targeted rang
Slide 21: Below mid-cycle earnings in challenging economic environment
Below mid-cycle earnings in challenging economic environment FY 2019 guidance FY 2018 Guidance FY 2019 Core Volume Growth +1.6% Low- to mid-single-digit percentage increase Y/Y FOCF €1,669m €300 – 700m ROCE 29.5% 8% – 13% Additional financial expectations FY 2018 Guidance FY 2019 EBITDA FY €3,200m €
Slide 22: Use of cash with focus on value creation
Use of cash with focus on value creation Clear set of priorities Commitment Focus Opportunities Dividend policy Capex Portfolio Return to shareholders € € • Progressive policy: increase • Covestro’s industry and cost • Disciplined and focused • Return excess cash to or keep at least stable leadershi
Slide 23: Dividend policy: increase or keep at least stable
Dividend policy: increase or keep at least stable Historical dividend development Dividend payout per share in € Highlights 2.40 • For FY 2018 dividend, proposal of €2.40 per share 2.20 at the next AGM, on April 12th, 2019 • Dividend per share increase of 9% Y/Y • Dividend yield of 4.7%(b) • Corresp
Slide 24: Securing profitable growth in more challenging times
Securing profitable growth in more challenging times Highlights Strong FY 2018 results despite weak Q4 with shares bought back for €1.3bn and a dividend proposal of €2.40 per share Continuous growth above global GDP fueled by capex as most value-creating use of cash based on industry and cost leader
Slide 25: Appendix
Appendix covestro.com February 25, 2019│ Q4 & FY 2018 Investor Conference Call 24
Slide 26: Solid sales growth despite FX headwinds
Solid sales growth despite FX headwinds FY 2018 – Sales bridge in € million Highlights +641 Solid volume development +319 14,616 • Sales volume expansion (in €) by +2.3% Y/Y 14,138 -421 -62 Positive pricing • Selling prices increased sales by +4.5% Y/Y Negative FX • FX impacted sales by -3.0% Y/Y Li
Slide 27: Negative price effects decrease sales despite positive volume
Negative price effects decrease sales despite positive volume Q4 2018 – Sales bridge in € million Highlights +101 Solid volume development 3,522 +12 • Sales volume expansion (in €) by +2.9% Y/Y 3,272 -327 -36 Negative pricing • Lower selling prices negatively impacted sales by -9.3% Y/Y Limited FX •
Slide 28: Growing core volumes despite turbulences
Growing core volumes despite turbulences Q4 – Sales and Core Volume Growth per region Sales in € million & Core Volume Growth Y/Y in % Highlights • EMLA: negative Core Volume Growth in automotive and China impacted by low Rhine water levels 633 • NAFTA: positive Core Volume Growth in automotive and
Slide 29: Polyurethanes – earnings dropped below mid-cycle in Q4
Polyurethanes – earnings dropped below mid-cycle in Q4 PUR segment results – FY 2018 Highlights Sales and Core Volume Growth Highlights in € million / changes Y/Y 3.1% 0.8% • Stable core volumes of +0.8% Y/Y in 2018, due to constrained product availability in Q1 and Q3 6.3% 4.1% 5.3% 3.9% 2.3% • Sol
Slide 30: Polycarbonates – full year driven by price and volume
Polycarbonates – full year driven by price and volume PCS segment results – FY 2018 Highlights Sales and Core Volume Growth Highlights in € million / changes Y/Y 5.0% 3.0% • Solid Core Volume Growth of +3.0% Y/Y in 2018 14.7% • Positive Core Volume Growth of +1.6% Y/Y in Q4 2018 0.7% 1.5% 3.7% 2.7%
Slide 31: Coatings, Adhesives, Specialties – pressured by raw materials
Coatings, Adhesives, Specialties – pressured by raw materials CAS segment results – FY 2018 Highlights Sales and Core Volume Growth Highlights in € million / changes Y/Y • Solid Core Volume Growth of +2.5% Y/Y with all regions 1.5% 2.5% contributing 10.8% 5.8% 7.2% 0.2 0.15 • Sales increased by +1.5
Slide 32: One-time items affecting EBITDA
One-time items affecting EBITDA As communicated in results’ presentations Q1 Q2 Q3 Q4 Fiscal Year in € million 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 “Perspective” All segments -23 -23 provisions Tarragona – 9 63 72 provision releases Insurance payments for PUR 35 23 35 23 previous operat
Slide 33: Higher target values defined for 2019-2021
Higher target values defined for 2019-2021 Bonus system based on CVG, FOCF and ROCE Short-term incentive (STI) program for 2019 to 2021 Core Volume Growth FOCF ROCE above WACC(a) in € million Value 1.5% 4.0% 9.0% Value 400 800 1,600 Value 0.0%p 8.0%p 24.0%p Payout 0% 100% 300% Payout 0% 100% 300% Pa
Slide 34: Upcoming IR events
Upcoming IR events Find more information on investor.covestro.com Reporting dates • April 29, 2019 Q1 2019 Interim Statement • July 24, 2019 Half-Year Financial Report 2019 • October 28, 2019 Q3 2019 Interim Statement Annual General Meeting • April 12, 2019 Annual General Meeting, Bonn Sellside dinn