Covestro AG · VIE:1COV
Covestro — Q3 2018 Earnings Presentation
37 slides from Covestro's earnings presentation, November 2018
Slide 1: Solid development despite headwinds
Solid development despite headwinds Roadshow Presentation covestro.com Q3 2018 │IR Roadshow Presentation
Slide 2: Innovation and sustainability driving growth
Innovation and sustainability driving growth Covestro key investment highlights Above GDP volume growth driven by innovation and sustainability trends, also embodied by non-financial targets Leading and defendable global industry positions as innovation and cost leader More than half of sales genera
Slide 3: Global leader in high-tech material solutions
Global leader in high-tech material solutions Covestro at a glance Sales split by segments Sales split by regions Sales split by end-markets % of 2017 Group sales 2017 Group sales in € million % of 2017 Group sales Core volume growth, CAGR 2015-2017 Core volume growth in %, CAGR 2015-2017 Core volum
Slide 4: Higher global GDP expectation leads to higher industry growth
Higher global GDP expectation leads to higher industry growth Structural growth drivers UN SDGs(a) Needs to be served Industry demand outlook(b) 2017 – 2022e related to climate change: ('000kt) CAGR • Zero emission concepts 16.9 ~5% ~21.3 • Low-energy buildings PU(c) related to increasing mobility:
Slide 5: Non-financial ambition supports growth strategy
Non-financial ambition supports growth strategy Covestro non-financial targets 2025 Our R&D project portfolio is aligned with UN Sustainable Development Goals 100% of suppliers compliant with our sustainability requirements Reduce specific greenhouse gas emissions by 50% by 2025 Ten million people i
Slide 6: Product innovation as long-term growth driver
Product innovation as long-term growth driver Addressing ever-changing customer needs for new material solutions Need Overall market Relevant market 2015-2017 Covestro solutions More durable and eco- Energy consumption Offshore wind energy Covestro Novel materials for wind power plants: PU resins fo
Slide 7: Global leader across its entire portfolio
Global leader across its entire portfolio Production capacities and world-wide industry positions #1 in Polyurethanes #1 in Polycarbonates #1 in Coatings, Adhesives, Specialties Aliphatic Polyurethane MDI TDI Polyether polyols PC isocyanate derivatives dispersions Capacity share in 2017(a) Others Ot
Slide 8: Leading cost positions across business segments and regions
Leading cost positions across business segments and regions Cash cost positions North America Europe Asia Highlights Cash cost Cash cost Cash cost • Covestro is one of the low-cost producers in MDI MDI(a) • Capex for ongoing MDI expansion projects reflected leader Chinese Chinese laggard (landed Chi
Slide 9: Synergies in scale, process technology and chemical know-how
Synergies in scale, process technology and chemical know-how One chemical backbone across all segments Infrastructure Raw Materials Core Units / Technology Final product Phosgene(d) DNT TDA Toluene Dinitrotoluene Diaminotoluene TDI Highlights • State-of-the-art asset base with leading process • Prem
Slide 10: Over 50% of sales generated with resilient businesses
Over 50% of sales generated with resilient businesses Product portfolio overview Sales by segments Highlights % of 2017 Group sales Resilient businesses • CAS business is resilient in sales and earnings due to characteristics of niche ingredient chemicals • Resilient portion of PCS business is drive
Slide 11: CAS at a glance
Stable margins driven by differentiated product portfolio CAS at a glance 2,700+ 5,000+ 3.7% €2.3bn €249m Products based Customers in Core volume Sales FOCF primarily on 6 monomers 10+ high-end industries CAGR in 2015-2017 2017(a) 2017(a) Ingredients for Ingredients for Ingredients for surface coati
Slide 12: CAS demonstrated solid underlying growth of ~4% p.a.
CAS demonstrated solid underlying growth of ~4% p.a. High Growth Specialties businesses CAS sales split by businesses Highlights Covestro sales share FY 2017(a), rounded Core volume growth, CAGR 2015-2017 Diverse High • Adjusted core volume growth of 3.7% CAGR in Growth Specialties 2015-2017(a) Vol.
Slide 13: PCS at a glance
Strategic focus on increasing resilience PCS at a glance 1,000 #1 7.6% €3.7bn €321m PC grades for Producer and inventor Core volume Sales FOCF broadest offering of PC globally(a) CAGR in 2015-2017 2017 2017 Mobility Electronics Consumer Electrical Mobility Healthcare e.g. exterior e.g. robot housing
Slide 14: Growing share of resilient business to 65% long term
Growing share of resilient business to 65% long term PCS product portfolio Development of resilient portion of PCS volumes Covestro highlights Covestro sales volumes in kt ~ flat Product portfolio improvement Covestro utilization +15pp • Goal to increase resilient portion of PC volumes to 65% long t
Slide 15: PUR at a glance
Almost half of sales in resilient businesses PUR at a glance 1,000 #1 5.3% €7.4bn €1.1bn Polyols grades Producer and inventor Core volume Sales FOCF for differentiation of PU globally(a) CAGR in 2015-2017 2017(b) 2017(b) Cold chain Construction Cost leadership Comfort Automotive Sustainability e.g.
Slide 16: Polyether polyols demonstrate inherently stable margins
Polyether polyols demonstrate inherently stable margins PUR resilient business Spread development Highlights • Resilient industry margins over the last decade reflective of overall Covestro polyether polyols profitability • Single capacity addition with little influence 2005 – 2017 Spreads from on s
Slide 17: Resilient portion of MDI business accounts for ~25% of sales
Resilient portion of MDI business accounts for ~25% of sales PUR resilient business Resilient MDI applications(a) Large-scale innovation Resilient share of MDI volumes has ~20% higher gross margin (2006-2017 average) • Focus on three large-scale innovation hubs in Pittsburgh, Leverkusen and Shanghai
Slide 18: Above GDP growth supports solid industry margin outlook
Above GDP growth supports solid industry margin outlook Historical industry development and outlook Demand development (2012 – 2022e) Supply development (2012 – 2022e) Industry highlights (kt)(a) (kt)(b) CAGR CAGR CAGR CAGR HIGH ~5% HIGH • Budgeted demand growth of ~5% may be conservative given ~5%
Slide 19: Industry constantly witnesses delays and cancellations
Industry constantly witnesses delays and cancellations Examples of supply delays Delays between initially announced start-up date and actual production start Highlights in number of years • Long lead time for investments of up to a decade PC TDI MDI in PC, TDI and MDI makes delays the norm 11 • No o
Slide 20: Cumulative EBITDA volume leverage of >€1bn in next 5 years
Cumulative EBITDA volume leverage of >€1bn in next 5 years Core volume growth contribution to EBITDA Core Volume Growth CAGR Highlights +7.5% +3.4% ~4% • ~4% average core volume growth EBITDA in € million expected in next 5 years • Expected €200-300m EBITDA contribution per year until 2022e, based o
Slide 21: Growth through debottlenecking projects and world-scale plant
Growth through debottlenecking projects and world-scale plant Covestro planned capacity additions 2019e 2020e 2021e 2022e Beyond 2022 MDI +200kt Brunsbüttel MDI +100kt Caojing MDI +50kt Tarragona PUR MDI +410kt Baytown(b) Polyols +60kt Channelview Polyols +30kt St. Clara OPTION OPTION OPTION +50kt C
Slide 22: Positioning for growth with new capacity additions
Positioning for growth with new capacity additions Investment highlights of long-term MDI capex program • Attractive MDI industry with above GDP growth requires new Highlights of new US world-scale plant world-scale capacities • Investment of around €1.5bn in new, highly • Satisfy global demand and
Slide 23: Investment into organic growth to deliver attractive returns
Investment into organic growth to deliver attractive returns Covestro Group capex(a) development 2018e–2024e Budgeted capex(a) Long-term capex(a) indication Highlights in € billion Phasing of capex for MDI and precursors Upper end • 2018e-2022e: ~€0.2bn for chlorine plant and debottlenecking in Tarr
Slide 24: Continued efficiency focus: Perspective complements PEP
Continued efficiency focus: “Perspective” complements “PEP” Expected cumulated savings and one-time cash outflows in € million Highlights ~350 • Cumulated savings of around €350m planned until end of 2021e ~120 • Implemented “PEP” program expected to deliver ~230 carry-over savings of ~€110m by 2019
Slide 25: Counterbalancing capex-driven cost increases
Counterbalancing capex-driven cost increases Cumulative additional operational costs, net of savings from efficiency programs in € million Highlights • Long-term growth strategy triggers higher operational costs mainly in production and technology (e.g. engineering expertise) • Additionally, inflati
Slide 26: Updated FOCF target for FY 2018
Updated FOCF target for FY 2018 Development of FOCF components Highlights Slightly below FOCF 313 +208% 964 +42% 1,367 +35% 1,843 previous year’s level in € million • Sustainably high EBITDA to FOCF conversion rate • Working capital to sales ratio in the target range of 15-17%, with limited EBITDA s
Slide 27: Decisions based on best value for shareholders
Decisions based on best value for shareholders Use of free cash Dividend policy Return to shareholders Portfolio € € • Progressive dividend policy: increase or • Share buyback for up to €1.5bn(a) in • Disciplined and focused approach keep at least stable execution, with completion targeted by • Acqu
Slide 28: Financial Highlights
Financial Highlights Q3 2018 covestro.com Q3 2018 │IR Roadshow Presentation
Slide 29: Covestro – solid results despite headwinds
Covestro – solid results despite headwinds Group results – Q3 2018 Highlights Sales and Core Volume Growth Highlights in € million / changes Y/Y 8.9% 3.2% 1.5% • Stable core volumes in Q3 2018 due to 4.2% 4.4% 2.6% constrained product availability 0.0% 0.2% -1.7% 11,344 10,616 • Sales in Q3 2018 inc
Slide 30: Polyurethanes – normalizing earnings
Polyurethanes – normalizing earnings PUR segment results – Q3 2018 Highlights Sales and Core Volume Growth Highlights in € million / changes Y/Y 2.4% 0.3% • Decline in core volumes by -2.0% Y/Y, driven by 6.3% 4.1% 5.3% 3.9% constrained product availability in Polyols and -2.9% -1.0% -2.0% 5,510 5,7
Slide 31: Polycarbonates – driven by price, volume and product mix
Polycarbonates – driven by price, volume and product mix PCS segment results – Q3 2018 Highlights Sales and Core Volume Growth Highlights in € million / changes Y/Y 14.7% 5.4% 3.5% • Solid core volume growth of +2.6% Y/Y driven by APAC and EMLA 3.7% 5.3% 2.7% 2.6% 0.7% 1.5% 2,798 3,127 • Sales incre
Slide 32: Coatings, Adhesives, Specialties – strong growth
Coatings, Adhesives, Specialties – strong growth CAS segment results – Q3 2018 Highlights Sales and Core Volume Growth Highlights in € million / changes Y/Y • Strong core volume growth of +7.2% Y/Y with all 2.3% 3.8% 10.8% 20.0% regions contributing 5.8% 7.2% 15.0% -0.2% -3.1% -1.0% -1.3% 10.0% 5.0%
Slide 33: Strong volume leverage, small negative pricing delta
Strong volume leverage, small negative pricing delta Q3 2018 – EBITDA bridge in € million Highlights Pricing delta -€27m Strong positive volume leverage +109 • Broad-based in all three segments +67 862 +2 • EBITDA volume leverage(a) at 63% 859 -136 Slightly declining cash margin -45 • Selling prices
Slide 34: More than €1.4bn cash returned to shareholders
More than €1.4bn cash returned to shareholders September 30th 2018 – Total net debt in € million Highlights 77 1,655 974 • Total net debt to EBITDA ratio(a) unchanged 1,470 -33 at 0.4x end of Q3 2018 vs. end of 2017 391 • Slight increase of net financial debt by €108m 283 mainly due to share buyback
Slide 35: Updated FY 2018 guidance
Updated FY 2018 guidance Increasingly challenging economic conditions FY 2017 Updated guidance FY 2018 Low-single-digit percentage increase Y/Y Core Volume Growth +3.4% (Previously: Low- to mid-single-digit percentage increase Y/Y) Slightly below previous year’s level FOCF €1,843m (Previously: >€2bn
Slide 36: Upcoming IR events
Upcoming IR events Find more information on investor.covestro.com Broker conferences • November 28, 2018 Exane BNP Paribas, SRI Forum, Paris • November 29, 2018 Société Générale, The Premium Review, Paris • December 4, 2018 Credit Suisse, Chemicals and Agriculture Conference, London • December 4, 20
Slide 37: Disclaimer
Disclaimer 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 situation, development