Driven by a high demand for high-performance plastics and significantly higher margins, Covestro increased Group sales by 18.8% to EUR 14.1 billion over the past fiscal year. Group EBITDA came in at € 3.4 bn, which, at a 70.6% increase over the prior year period, is a ‘significant plus’, Thomas said at the financial news conference earlier today in Cologne. Net income more than doubled from EUR 795 million to EUR 2.0 billion.
Core volumes registered growth of 3.4%, ‘in the middle of our guidance of low-to-mid-single- digit growth”, he noted. APAC showed an increase of 6%, EMLA of 3% and NAFTA, at 1%, grew slightly slower, due to the effect of hurricane Harvey. “The infrastructure was impacted, and the effects were felt into November,” said Thomas.
He added that ROCE increased from 14.2 to 33.4%, “so we reached our target as well.”
Sustainability remains a driver of growth, emphasized Thomas. The trends which have led to Covestro’s successful development in the past years are still valid, he said, enabling the company to achieve these excellent results. Covestro not only outgrew GDP in 2017; the company is confident it will continue to do so in years to come.
For 2018, Covestro expects solid growth in the main customer industries, as well as in other areas, including e-mobility, energy-efficient construction and energy-saving LED lamps.
Robust customer demand and the tight supply situation over the past year meant that many facilities were running almost at full capacity, Covestro will also significantly increase its investments to take advantage of the expected growth in the main customer industries – the automotive and the building sectors. These investments include all segments and regions and are expected to be in excess of the depreciation level.
Covestro is in an excellent position to do so, as despite higher working capital, the Free Operating Cash Flow reached a record of more than €1.8 bn in 2017, an improvement of some 35% that was wholly driven by the significant EBITDA increase.
The company now expects to deliver a cumulative free operating cash flow of €5 bn by the end of 2019, ahead of the original commitment made in 2017 to generate a cumulative FOCF by year end 2021.
With so much cash coming in, the interesting challenge of what to spend it on then arises.
The company intends, in the first place, to pay its shareholders a dividend of € 2.20 per share, an increase of 63% over the dividend for 2016 and a dividend yield of 2.4%.
Covestro also remains prepared to use opportunities for acquisitions that strengthen the portfolio and create value. “We screen the market very carefully for external opportunities that are value-creating’, said Thomas. “We are extremely disciplined in our approach.”
Lastly, he referred to the share buyback programme, which began last year, and will be completed by mid-2019. Under the programme, Covestro’s Board of Management is buying back their own shares up to €1.5 bn, or up to 10% of the capital stock.
On the basis of anticipated stable growth in the main customer industries and current economic forecasts, Covestro expects ongoing positive development for 2018. The company expects a low- to mid-single-digit percentage increase in core volume growth. Covestro anticipates free operating cash flow significantly above the average of the last three years. In 2018, ROCE is expected to approach the previous year’s level. EBITDA is estimated to be around the level of 2017. For the first quarter of 2018, Covestro anticipates EBITDA significantly above the level of the first quarter of 2017.