Covestro achieves targets in continuing challenging market environment

Core volumes up by 2.0%

Group sales total approximately EUR12.4billion (–15.1%)

EBITDA as forecast at approximately EUR1.6billion (–49.9%)

Program launched to promote circular economy

Dividend proposal of EUR2.40 per share

Outlook for 2020: Full year remains challenging

SHANGHAI,Feb. 20,2020 -- Covestro has achieved its targets in a challenging market environment in fiscal 2019. Core volumes increased by 2.0% compared to the previous year. Group sales fell by 15.1% to approximately EUR12.4billion as selling prices remained low due to increased competitive pressure in all segments. Consequently,EBITDA declined in line with our forecast by 49.9% to approximately EUR1.6billion. Net income fell to EUR 552 million (–69.7%),while free operating cash flow (FOCF) came in at EUR473million (–71.7%). On this basis,Covestro plans to distribute a dividend at the previous year's level of EUR2.40 per share.

"2019 was marked by a number of geopolitical and macroeconomic uncertainties. Nevertheless,demand for our materials remains intact,which confirms our view that plastics are more valuable for the future than ever before," said CEO Dr. Markus Steilemann. "2020 will remain challenging for us. However,we still see long-term demand for high-tech plastics to enable a more sustainable development across a wide range of different key technologies. Therefore,we are consistently gearing our business towards circular economy."

In the 2019 fiscal year,Covestro launched a global strategic program to implement circular economy in all corporate divisions going forward. In particular,the company aims to use alternative raw materials,develop innovative recycling and establish broad-based cooperations and new business models.

Efficiency ensures ability to act

"Covestro has a solid financial base,even though the operating result for fiscal 2019 was,as expected,below the record levels of previous years due to continuing pressure on prices. Nevertheless,we still achieved our targets in this environment," said CFO Dr. Thomas Toepfer. "We will only be successful in the current market environment if we position ourselves even more efficiently,prioritize projects and question investments in order to maintain the necessary financial flexibility."

Given the continuing challenging economic outlook for 2020,Covestro has accelerated the implementation of the multi-year effectiveness and efficiency program launched in October 2018. That enabled Covestro to cut costs by around EUR150million in the past fiscal year. For 2020,the company aims to achieve savings of EUR250million,while the cumulated savings by the end of 2021 are expected to be around EUR350million annually. In addition,various short-term measures were taken,such as more efficient cost management and another review of all existing and planned investments. This should result in additional savings of EUR 200 million in the current financial year. In addition to the continuous improvement of the company's commercial clout,the focus in 2020 will therefore remain on increasing efficiency.

Full commercial leverage of product innovations

At the plastics trade show K2019 in Düsseldorf last fall,Covestro presented numerous product innovations that deliver answers to global challenges such as urbanization,mobility of the future or climate change. As an innovation leader,Covestro and its materials are in tune with the times. In the coming years,the focus will be on fully exploiting this potential commercially. Sucheta Govil,the new board member and Chief Commercial Officer at Covestro since summer of 2019,will work on enhancing Covestro's sales strength. The objective is to intensify customer centricity,digitalize and optimize marketing strategies,and identify attractive market opportunities even sooner.

Continuous review of investment projects: Focus on long-term success

Covestro invested a total of EUR910million in 2019 (previous year: EUR707million),the highest figure in its history. Investment projects are managed consistently with a focus on efficiency and the best possible use of capital. Since the market environment remains challenging,Covestro announced in January2020 that the MDI investment project in Baytown (United States) will be paused for 18 to 24months.

Nevertheless,Covestro is still confident that the long-term growth prospects for MDI are highly promising. The new MDI plant at the Brunsbüttel site in Germany started up as planned in the first quarter of 2020. Annual production capacity there will thus be doubled to 400,000metric tons. That will make Brunsbüttel one of the three largest MDI production sites in Europe and secure Covestro's leading position in this market segment.

Guidance for fiscal 2020: Market environment remains challenging

For 2020 as a whole,Covestro anticipates low single-digit percentage growth in core volumes. The Group expects FOCF to come in between EUR0 and 400million and ROCE between 2% and 7%. Covestro assumes that EBITDA for the year as a whole will be between EUR1.0 and 1.5billion. In the first quarter,EBITDA is expected to be between EUR200 and 280million.

The financial impact of the corona virus on the current fiscal year 2020 cannot yet be fully predicted.

Covestro 2019 segment results

Positive volume growth in Polyurethanes and Polycarbonates

Core volumes in the Polyurethanes segment increased by 2.3% year on year. A positive demand trend in the furniture and construction industries and in the electrical,electronics and household appliances industries more than offset weaker demand,especially from the automotive industry. Sales decreased by 21.5% to EUR5,779million,mainly on the back of the negative trend in average selling prices due to intensified competition. The low level of prices cut deeply into margins despite a decline in raw material prices. EBITDA consequently fell by 63.2% to EUR648million.

In fiscal 2019,core volumes in the Polycarbonates segment increased by 2.7% year over year,mainly due to stronger demand in the electrical,electronics and household appliances industries and the construction industry. Sales fell by 14.3% to EUR3,473million and EBITDA by 48.3% to EUR536million. The declines were likewise attributable to the year-over-year decrease in selling price levels as a result of increased competitive pressure. Moreover,the sale of the U.S. sheets business in the third quarter of 2018 impacted sales in fiscal 2019 with a negative effect of 2.2%.

Core volumes in Coatings,Adhesives,Specialties for fiscal 2019 were down 1.0% from the prior year. The prime reason for this decline is weaker demand for coating precursors from the automotive industry. At EUR2,369million,the Coatings,Specialties segment's sales remained stable year over year (previous year: EUR2,361million). EBITDA increased by 1.1% to EUR469million. Declining margins,due to lower selling prices,and lower volumes had a negative impact on earnings,whereas exchange rate effects and the portfolio effect of the step acquisition of shares of Japan-based DIC Covestro Polymer Ltd. increased earnings.

Fourth quarter of 2019 also marked by fierce competition

Core volumes in the fourth quarter of 2019 increased by 3.8%. Group sales fell by 12.5% over the prior-year quarter,mainly due to lower selling prices as a result of increased competitive pressure in all segments. EBITDA was therefore EUR278million (–5.1%) and net income was EUR37million (–53.2%) in the fourth quarter. FOCF decreased by 9.1% year on year to EUR330million.

About Covestro:

With 2019 sales of EUR12.4billion,Covestro is among the world's largest polymer companies. Business activities are focused on the manufacture of high-tech polymer materials and the development of innovative solutions for products used in many areas of daily life. The main segments served are the automotive,construction,wood processing and furniture,and electrical,electronics and household appliances industries. Other sectors include sports and leisure,cosmetics,health and the chemical industry itself. Covestro has about 30 production sites around the globe and as of the end of 2019 employed approximately 17,200 people (full-time equivalents).

Note to editors:

Below please find a table showing key data for CovestroAG for fiscal 2019.

A presentation and a video recording of the conference are available for download from our website at: https://www.press.covestro.com

The annual report is available online at:

https://report.covestro.com/annual-report-2019/

The press conference starts at 10a.m. CET. You can listen to a webcast of the conference at https://edge.media-server.com/mmc/p/z3nuf4ag/lan/en

Find more information at www.covestro.com.

Forward-Looking Statements

This press release may contain certain forward-looking statements that are based on current assumptions and forecasts issued by the management of CovestroAG. 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 company and the estimates given here. These factors include those discussed in Covestro's public reports which are available at www.covestro.com. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.

Covestro Group Key Data

4th quarter 2018

4th quarter 2019

Change

2018

2019

Change

€ million

€ million

in %

€ million

€ million

in %

Covestro Group

Core Volume Growth

+1.7%

+3.8%

+1.5%

+2.0%

Sales

3,272

2,864

–12.5

14,616

12,412

–15.1

Change in Sales

Volume

+2.9%

–0.7%

+2.3%

+0.8%

Price

–9.3%

–13.3%

+4.5%

–17.3%

Currency

+0.3%

+1.5%

–3.0%

+1.9%

Portfolio

–1.0%

0.0%

–0.4%

–0.5%

EBITDA

293

278

–5.1

3,200

1,604

–49.9

EBIT

140

93

–33.6

2,580

852

–67.0

Net Income

79

37

–53.2

1,823

552

–69.7

Free Operating Cash Flow

363

330

–9.1

1,669

473

–71.7

Polyurethanes

Core Volume Growth

+2.4%

+3.6%

+0.8%

+2.3%

Sales

1,597

1,336

–16.3

7,362

5,779

–21.5

Change in Sales

Volume

+2.5%

–0.2%

+0.9%

+1.5%

Price

–17.6%

–16.9%

+1.9%

–24.7%

Currency

+0.2%

+1.5%

–3.1%

+1.8%

Portfolio

0.0%

–0.7%

0.0%

–0.1%

EBITDA

111

123

+10.8

1,763

648

–63.2

EBIT

27

24

–11.1

1,412

250

–82.3

Free Operating Cash Flow

222

114

–48.6

972

32

–96.7

Polycarbonates

Core Volume Growth

+1.6%

+3.5%

+3.0%

+2.7%

Sales

924

814

–11.9

4,051

3,473

–14.3

Change in Sales

Volume

+4.2%

0.0%

+3.8%

+2.4%

Price

–2.3%

–13.5%

+9.7%

–16.5%

Currency

+0.3%

+1.6%

–3.4%

+2.0%

Portfolio

–3.8%

0.0%

–1.7%

–2.2%

EBITDA

133

95

–28.6

1,036

536

–48.3

EBIT

88

39

–55.7

861

300

–65.2

Free Operating Cash Flow

165

120

–27.3

468

404

–13.7

Coatings,Specialties

Core Volume Growth

–2.2%

+6.2%

+2.3%

–1.0%

Sales

534

533

–0.2

2,361

2,369

+0.3

Change in Sales

Volume

+0.3%

+0.1%

+3.5%

–2.1%

Price

0.0%

–4.2%

+0.6%

–1.1%

Currency

+0.6%

+1.9%

–2.6%

+2.3%

Portfolio

0.0%

+2.0%

0.0%

+1.2%

EBITDA

63

62

–1.6

464

469

+1.1

EBIT

39

32

–17.9

371

352

–5.1

Free Operating Cash Flow

71

115

+62.0

203

191

–5.9

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