2019 Annual Report
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ANNUAL REPORT 2019 KEY DATA COVESTRO GROUP 20181 2019 Change € million € million % Core volume growth2, 3 +1.5% +2.0% Sales 14,616 12,412 –15.1 Change in sales Volume +2.3% +0.8% Price +4.5% –17.3% Currency –3.0% +1.9% Portfolio –0.4% –0.5% Sales by region 4 EMLA 6,284 5,289 –15.8 5 NAFTA 3,469 3,141 –9.5 6 APAC 4,863 3,982 –18.1 EBITDA7 3,200 1,604 –49.9 Changes in EBITDA of which volume +6.3% +2.3% of which price +18.7% –79.2% of which raw material price effect –16.8% +15.1% of which currency –2.9% +1.3% EBIT8 2,580 852 –67.0 Financial result (104) (91) –12.5 Net income9 1,823 552 –69.7 Earnings per share (€)10 9.46 3.02 –68.1 Operating cash flows11 2,376 1,383 –41.8 Cash outflows for additions to property, plant, equipment and intangible assets 707 910 +28.7 Free operating cash flow12 1,669 473 –71.7 Net financial debt13, 14 348 989 >100 ROCE15 +29.5% +8.4% Employees (in FTE)14, 16 16,770 17,201 +2.6 1 Reference information was not restated, see Note 2.1 “Financial Reporting Standards Applied for the First Time in the Reporting Period.” 2 Core volume growth refers to the core products in the Polyurethanes, Polycarbonates and Coatings, Adhesives, Specialties segments. It is calculated as the percentage change in externally sold volumes in thousand tons compared with the prior year. Covestro also takes advantage of business opportunities outside its core business, for example the sale of precursors and by-products such as hydrochloric acid, sodium hydroxide solution and styrene. These transactions are not included in core volume growth. 3 Reference values calculated based on the definition of the core business effective March 31, 2019 4 EMLA: Europe, Middle East, Africa and Latin America (excl. Mexico) region 5 NAFTA: United States, Canada and Mexico region 6 APAC: Asia and Pacific region 7 EBITDA: EBIT plus depreciation and amortization 8 EBIT: income after income taxes plus financial result and income taxes 9 Net income: income after income taxes attributable to the stockholders of Covestro AG 10 Earnings per share: according to IAS 33, earnings per share comprise net income divided by the weighted average number of outstanding no-par voting shares of Covestro AG. The calculation was based on 182.728.724 no-par shares (previous year: 192.768.826 no-par shares). 11 Operating cash flows: cash flows from operating activities according to IAS 7 12 Free operating cash flow: operating cash flows less cash outflows for additions to property, plant, equipment and intangible assets 13 Excluding obligations for pensions and other post-employment benefits 14 As of December 31, 2019 compared with December 31, 2018 15 ROCE: The return on capital employed is calculated as the ratio of adjusted operating result (EBIT) after imputed income taxes to capital employed. The capital employed is the capital used by the company. It is the sum of noncurrent and current assets less noninterest-bearing liabilities such as trade accounts payable. 16 Employees calculated as full-time equivalents (FTE) Covestro Annual Report 2019 CONTENTS FOUR BOARD OF MANAGEMENT MEMBERS, FOUR QUESTIONS 4 Markus Steilemann, Sucheta Govil, Thomas Toepfer and Klaus Schäfer answer questions on fiscal 2019 and Covestro’s strategy. MAGAZINE BEYOND INDUSTRY 8 – 13 BEYOND MATERIALS 14 – 21 We are innovation drivers and pioneers in our Companies use our materials to develop sector – from digital chemistry all the way to our revolutionary, future-oriented and sustainable vision of the circular economy. products in many industries. FINANCIAL REPORT TO OUR STOCKHOLDERS 23 CONSOLIDATED FINANCIAL STATEMENTS OF COVESTRO AG Report of the Supervisory Board 24 AS OF DECEMBER 31, 2019 147 Covestro on the Capital Market 31 Covestro Group Consolidated Income Statement 148 Covestro Group Consolidated Statement COMBINED MANAGEMENT REPORT of Comprehensive Income 149 OF THE COVESTRO GROUP AND COVESTRO AG Covestro Group Consolidated Statement AS OF DECEMBER 31, 2019 33 of Financial Position 150 Covestro Group at a Glance 34 Covestro Group Consolidated Statement Report on Economic Position 77 of Cash Flows 151 Report on Future Perspectives Covestro Group Consolidated Statement and on Opportunities and Risks 100 of Changes in Equity 152 Corporate Governance Report 114 Notes to the Consolidated Financial Statements of the Covestro Group 153 Disclosures on Sustainability Reporting 145 RESPONSIBILITY STATEMENT 228 INDEPENDENT AUDITOR’S REPORT 229 FURTHER INFORMATION 235 1 Covestro Annual Report 2019 REPORTING PROFILE FORWARD-LOOKING STATEMENTS This Annual Report may contain forward-looking statements based on current assumptions and forecasts made by the management of 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 Group and the estimates given here. These factors include those discussed in Covestro’s public reports, which are available at www.covestro.com. The Group assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments. NONFINANCIAL REPORTING The Covestro Group’s nonfinancial statement in accordance with Sections 315b and 315c in conjunction with Sections 289c through 289e of the German Commercial Code (HGB) is integrated into the Group Management Report. The respective sections include the strategies we pursue in addressing environmental, labor and social issues as well as protecting human rights and fighting corruption and bribery, the due diligence processes followed, as well as the outcomes of these strategies. Nonfinancial performance indicators are reported only when these are important to the Covestro Group. In addition to this Annual Report, we provide supplementary sustainability information that is not the subject of the Group Management Report in the online version of our Annual Report at report.covestro.com. The Group Management Report and the supplementary sustainability information comprise our company’s sustainability reporting, which is aligned with international standards and recommendations. Our sustainability reporting is prepared in accordance with the “Core” option of the Global Reporting Initiative’s (GRI) Sustainability Reporting Standards (SRS). ROUNDING As the indicators in this report are stated in accordance with commercial rounding principles, totals and percentages may not always be exact. PERCENTAGE DEVIATIONS Percentage deviations are only calculated and reported if they are no more than 100%. Larger deviations are reported as >100%, >200%, etc. If a deviation changes from positive to negative or vice versa, or if it is greater than 1,000%, this is shown by a period. EFFECTS OF NEW FINANCIAL REPORTING STANDARDS Comparative information relating to the 2018 fiscal year was not restated according to the new accounting standards. For more information, see note 2.1 “Financial reporting standards applied for the first time in the reporting period” in the Notes to the Consolidated Financial Statements. EQUAL TREATMENT We consider equal treatment to be important. To ensure legibility, this Annual Report avoids gender-specific wordings. All terms should be taken to apply equally to all genders. This Annual Report was published on February 19, 2020. It is available in German and English. Only the German version is binding. 2 Covestro Annual Report 2019 As a company,BEYOND our goal is not just to comply with standards, but to set new benchmarks ourselves. When it comes to research and development, our corporate culture and products, we transcend normal boundaries in our thinking and actions: BEYOND. FOUR QUESTIONS FOUR BOARD OF MANAGEMENT MEMBERS 4 BEYOND INDUSTRY 8 BEYOND MATERIALS Annual Report 2019 14 This report is also available as an online version with a host of interactive features. report.covestro.com/annual-report-2019 3 Covestro Annual Report 2019 FOUR BOARD OF MANAGEMENT MEMBERS, FOUR QUESTIONS FOUR BOARD OF MANAGEMENT MEMBERS, FOUR QUESTIONS Dr. Markus Steilemann Chief Executive Officer Dr. Markus Steilemann (born in 1970) holds a doctorate in chemistry from RWTH Aachen University. He has been a member of Covestro’s Board of Management since 2015, and its CEO since 2018. His area of responsibility covers strategy, personnel and communications, among other things. Where is Covestro’s STRATEGIC JOURNEY heading? Dr. Markus Steilemann: This year’s Annual Report motto points the way forward: “Beyond”. We are optimis- tic about the future, beyond any short-lived trends, and will continue to push boundaries to provide innovative products and solutions for a more sustainable future. The principle of sustainability is our guiding star when it comes to finding solutions for the major global challenges of our age, while exploiting potential for growth. Our materials support numerous key industries as they enter an increasingly sustainable and digitally minded world – in fields such as electromobility, energy-saving urban development and more efficient renewable energies. Because the fact is that plastic is indispensable for the future of our planet, and high-tech plastics are among the most sustainable materials we have. With this in mind, business and society must focus on achieving more sustainable patterns of production and consumption. This is why we are pushing ahead with the development of a circular economy and consistently aligning Covestro to this. In 2019, we set up a long-term strategic program to this end. Plastics should be treated as valuable resources at the end of their service lives, which is why we are pressing ahead with the development of innovative recycling processes. In the long term, we also want – as far as possible – to do without fossil resources such as crude oil in favor of other sources of carbon, including plastic waste, plant biomass and carbon dioxide. This will help close the carbon cycle and reduce greenhouse gas emissions.