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Annual Report 2024

The results of our fiscal year 2024, stories behind the numbers and further information about ����AV can be found .

����AV at a Glance

Are you looking for more information? Here you could find further facts about ����AV.

Guidance for 2024 further narrowed within given ranges

In light of the continued challenging economic environment, ����AV has narrowed its guidance for the 2024 fiscal year regarding expectations for EBITDA and ROCE above WACC. 

The Group now anticipates EBITDA between EUR 1.0 billion and EUR 1.25 billion (previously: between EUR 1.0 billion and EUR 1.4 billion). For ROCE above WACC, ����AV now expects a range between –7.0 and –5.0 percentage points (previously: between –7.0 and –4.0 percentage points) for the financial year 2024. Regarding GHG emissions (measured as CO₂ equivalents), ����AV continues to expect a figure between 4.4 and 5.0 million metric tons. ����AV also continues to expect a Free Operating Cash Flow between EUR –100 and EUR 100 million. 

“Overall, global demand is intact but remains at a low level. We continue to face challenges in various industries and regions,” says Christian Baier, CFO of ����AV. “Nonetheless, we were able to slightly increase our EBITDA, indicating that our measures for efficiency and plant reliability are working. However, the economic environment remains challenging, and we have therefore narrowed our guidance for the full year accordingly.” 

Investment Agreement with ADNOC supports execution of “Sustainable Future” strategy 

As announced in an ad-hoc release on October 1, 2024, ����AV has on that day signed an Investment Agreement with entities of the ADNOC Group, including ADNOC International Limited (“ADNOC International”) and its indirect subsidiary ADNOC International Germany Holding AG (“Bidder”). The agreement stipulates, among other items, that the Bidder will make a public takeover offer for all outstanding shares of ����AV at a price of €62.00 per share. In addition, ADNOC International is committing itself to fully supporting the ����AV's "Sustainable Future" strategy and intends to fully support ����AV in further executing on this strategy. To this end, the Bidder shall subscribe to new ����AV shares at the offer price via an increase of the ����AV’s share capital by 10% under simplified exclusion of subscription upon the completion of the transaction. This will result in an amount of €1.17 billion proceeds at an offer price of €62.00 which ����AV will use to foster the further implementation of its growth strategy. 

On October 25, 2024, the Bidder, following approval by BaFin, has published the corresponding offer document in relation to all outstanding ����AV shares at an offer price EUR 62.00 per ����AV share. The Board of Management and the Supervisory Board of ����AV will now carefully review the offer document and issue a reasoned statement pursuant to Section 27 WpÜG in due course. Subject to the review of the offer document, the Board of Management and the Supervisory Board assume that they will recommend the acceptance of the offer to the ����AV’s shareholders.

Further milestones on the road to climate neutrality achieved 

In the third quarter of 2024, ����AV further increased the share of renewable energies in its energy mix, thereby achieving another important milestone on the road to operational climate neutrality by 2035. In July 2024, ����AV signed a long-term power purchase agreement (PPA) with bp to supply its sites in Spain with solar energy. The contract has a term of ten years and increases the share of renewable energy from less than ten percent to around 30 percent. As a result, a significant share of the electricity consumption of ����AV's main production site in Tarragona, Spain, is now also covered by renewable sources. 

EBITDA in the Performance Materials segment significantly increased

 In the Performance Materials segment, ����AV increased its sales by 4.1 percent to EUR 1.78 billion (previous year: EUR 1.71 billion) in the third quarter of 2024. This was primarily driven by higher volumes, especially in the EMLA region. These higher volumes contributed to a significant increase in EBITDA of 47.1 percent to EUR 125 million (previous year: EUR 85 million). Free Operating Cash Flow amounted to EUR 111 million (previous year: EUR 317 million) due to a significantly lower release of funds from working capital compared to the same quarter of the previous year. 

In the Solutions & Specialties segment, sales in the third quarter of 2024 decreased by 2.0 percent to EUR 1.77 billion (previous year: EUR 1.81 billion). This was primarily due to a demand-related decline in average selling prices, which higher volumes were unable to offset fully. As a result, the segment's EBITDA fell 15.4 percent to EUR 208 million (previous year: EUR 246 million). Free Operating Cash Flow was EUR 101 million (previous year: EUR 185 million), primarily due to cash being tied up in working capital, as opposed to a release of funds in the same quarter last year, and lower EBITDA. 

Challenging environment weighs on results in the first nine months of 2024 

In the first nine months of 2024, ����AV's sales remained largely stable at EUR 10.8 billion compared to the same period of the previous year (previous year: EUR 11.0 billion). The increase in volumes across the Group did not offset the demand-related decline in average selling prices in the first nine months. That is also reflected in the EBITDA for the first nine months of 2024, which fell by 7.2 percent to EUR 880 million (previous year: EUR 948 million). Net income fell to –€74 million (previous year: –€11 million). Free Operating Cash Flow for the nine-month period amounted to –€164 million (previous year: €159 million). 

“The market environment remains very challenging,” says Dr. Markus Steilemann, CEO of ����AV. “Our sharp rise in volumes sold shows that we’re prepared for the market recovery. In addition, our transformation program STRONG is creating the necessary conditions for us to further expand our leading position in the global market and secure our competitiveness.” 

In view of a rapidly changing market environment, ����AV launched the global transformation program STRONG in June 2024. The Group is therefore making itself even more effective and efficient and is systematically driving its digitalization. As part of STRONG, ����AV is planning to realize global annual savings in material and personnel costs of EUR 400 million by 2028, of which EUR 190 million will be in Germany. 

Full-year 2024: Earnings guidance narrowed 

����AV continues to expect challenging economic conditions in the remainder of the year. ����AV has therefore narrowed its guidance for EBITDA and ROCE above WACC and adjusted its forecast for the free operating cash flow for fiscal 2024. The company now anticipates EBITDA between EUR 1 billion and EUR 1.4 billion (previously: between EUR 1 billion and EUR 1.6 billion). ����AV now expects a free operating cash flow of between EUR –100 million and EUR 100 million (previously: between EUR 0 million and EUR 300 million). For ROCE above WACC, ����AV now anticipates a range between –7.0 percentage points and –4.0 percentage points (previously: between –7.0 percentage points and –2.0 percentage points). ����AV projects that GHG emissions measured as CO₂ equivalents will still be between 4.4 million metric tons and 5.0 million metric tons. The Group anticipates EBITDA for the third quarter of 2024 will be EUR 250 million to EUR 350 million. 

“We were able to keep our sales stable in the second quarter and reached the middle of our EBITDA guidance. That’s positive news and proof of our resilience,” says Christian Baier, CFO of ����AV. “In view of the continuing challenging economic environment, we have narrowed our earnings guidance for the year as a whole accordingly." 

Confirmatory due diligence with ADNOC has started 

Based on the open-ended talks held up to then with the Abu Dhabi National Oil ����AV (ADNOC), the Board of Management of ����AV resolved in June 2024 to enter into concrete negotiations about a possible transaction and the possible conclusion of an investment agreement and to enable an adequate exchange of corporate information to confirm assumptions (confirmatory due diligence). The starting point for the negotiations is a potential offer price of EUR 62 per ����AV share indicated to ����AV by ADNOC, which is subject to, among other things, the results of the confirmatory due diligence as well as agreement on the content of an investment agreement.  

����AV systematically advances its aim to become fully circular 

In May 2024, ����AV announced its authorization as a waste trader at IFAT, the world’s leading trade fair for the waste and disposal industry. The Group has created the legal conditions to become a purchaser and recycler of plastic waste itself, thereby securing independent access to the valuable resource of waste. ����AV has secured further access to recycled materials through a partnership announced in June 2024 with Neste and Borealis to enable the recycling of discarded tires into high-quality plastics for automotive applications. 

With the aim of continuously enhancing chemical recycling, ����AV also invested a mid single-digit million euro amount in the Dutch company BioBTX in June 2024. With this partnership, ����AV is enabling construction of the world’s first demonstration plant for an innovative technology that makes it possible to produce valuable chemicals such as benzene, toluene and xylene from organic and mixed plastic waste and then use them in plastics production. 

Increase in volumes sold in both segments 

In the Performance Materials segment, ����AV significantly increased volumes sold despite the difficult market situation in the second quarter of 2024, in particular in the EMLA and APAC regions. Sales thus have increased year on year by 2.5 percent to EUR 1.83 billion (previous year: EUR 1.79 billion). At the same time, lower raw material prices only partially offset the demand-related decline in selling prices, with the result that EBITDA fell by 35.1 percent year on year to EUR 196 million (previous year: EUR 302 million). The free operating cash flow was EUR –89 million (previous year: EUR –77 million). 

����AV has also increased volumes sold in the Solutions & Specialties segment in the second quarter of 2024, especially in the APAC region. Again, this increase only partially offset the lower selling prices, meaning that sales declined by 3.3 percent year on year to EUR 1.81 billion (previous year: EUR 1.88 billion). EBITDA fell by 21.3 percent to EUR 174 million (previous year: EUR 221 million). This decline is attributable in particular to a non-recurring positive effect from the sale of the additive manufacturing business in the second quarter of 2023, which had increased earnings by EUR 35 million. In addition, expenses in connection with implementation of the transformation program STRONG had a negative impact in the low double-digit million euro range in the second quarter of 2024. The free operating cash flow in the past quarter was EUR 36 million (previous year: EUR 150 million), with the fall being the consequence of higher funds tied up in working capital and a decline in EBITDA. 

First half of the year impacted overall by low sales prices 

Group sales in the first half of the current fiscal year 2024 declined by 3.5 percent to EUR 7.2 billion (previous year: EUR 7.5 billion). The Group’s EBITDA fell by 11.6 percent to EUR 593 million in the first half of the year compared to the first six months of 2023 (previous year: EUR 671 million). The free operating cash flow in the first half of the year was at EUR –276 million (previous year: EUR –149 million), while net loss fell to EUR 107 million (previous year: net income of EUR 20 million). 

Full-year guidance for 2024 confirmed 

Despite a solid start and positive volume development in the first quarter, ����AV expects macroeconomic conditions to remain volatile throughout the remainder of the year. The Group is thus confirming its full-year guidance and still expects EBITDA of between EUR 1.0 billion and EUR 1.6 billion. ����AV anticipates FOCF of between EUR 0 and EUR 300 million and ROCE above WACC of between –7 percentage points and –2 percentage points. The Group’s greenhouse gas emissions measured as CO₂ equivalents are expected to range between 4.4 million metric tons and 5.0 million metric tons. The Group anticipates EBITDA between EUR 270 million and EUR 370 million for the second quarter of 2024. 

“Our volumes have remained buoyant since the turn of the year and we’ve made a solid start to 2024 despite the current global challenges,” says Christian Baier, CFO of ����AV. “In view of the economic uncertainties, however, we remain cautious for the rest of the year. We continue to focus our efforts on creating a sustainable basis for growth through targeted capital expenditure and thus on strengthening ����AV’s future viability.”

Progress in driving the circular economy and climate neutrality

The Group remains focused on driving its vision of becoming fully circular and achieving climate neutrality. ����AV presented climate neutrality targets for Scope 3 emissions at its Annual Press Conference in February 2024 and finalized its climate neutrality strategy: By 2035, the Group aims to decrease its Scope 3 emissions by 10 million metric tons of CO₂ equivalents, using 2021 as baseline. ����AV likewise aims to make its operations climate neutral in terms of its Scope 1 and Scope 2 emissions by 2035 and to be completely climate neutral by 2050. 

To achieve these goals, ����AV is focusing on expanding renewable energies and cross-industry partnerships for joint solutions along the value chain, among other things. The Group is also committed to research and development. For instance, ����AV has produced a wide range of polycarbonate copolymers on an industrial scale in a new plant at its site in Antwerp, Belgium, since March of this year. The new technology developed by ����AV allows for the integration of new functionalities and properties into existing materials, such as enhanced flame retardancy. 

Another example of an innovative research success lies in the development of a new process for producing the chemical aniline entirely based on plant biomass, marking the first ever departure from traditional petroleum-based production. ����AV put a special pilot plant into operation for this purpose in February 2024. German Chancellor Olaf Scholz visited ����AV’s Asia-Pacific Innovation Center in Shanghai in April 2024 to witness the Group’s global innovativeness for himself. There, the company develops future-oriented, sustainable products, technologies and solutions geared towards future-important sectors, including electromobility, wind energy and photovoltaics, consumer electronics and construction. 

Higher sales volumes in both segments support sales development 

The Performance Materials segment posted a 5.7 percent decrease in sales to EUR 1.7 billion in the first quarter of 2024 (previous year: EUR 1.8 billion). In line with the overall Group trend, this was attributable in particular to the decline in average selling prices associated with lower raw material prices being passed on to customers. However, the increase in volumes sold, especially in the APAC and EMLA regions, contributed positively to sales. The segment’s EBITDA fell by 40.5 percent from the prior-year quarter to EUR 103 million (previous year: EUR 173 million), whereas the free operating cash flow was EUR –73 million (previous year: EUR –57 million). 

Sales in the Solutions & Specialties segment fell by 6.2 percent to EUR 1.8 billion (previous year: EUR 1.9 billion) in the first quarter of 2024, a reduction, mainly driven by lower selling price levels, yet there was an increase in sales volumes. The segment’s EBITDA rose to EUR 208 million, marking a 26.1 percent increase over last year’s first quarter (previous year: EUR 165 million). This increase was primarily driven by higher sales volumes. The free operating cash flow improved to EUR 22 million (previous year: EUR –48 million). 
 

• Watch a recording of ����AV's Annual Press Conference 2024 .
• Find here the presentation of the ����AV Annual Press Conference 2024. 

Images and key financial figures

Annual Report 2023

The results of our fiscal year 2023, stories behind the numbers and further information about ����AV can be found .

����AV at a Glance

Are you looking for more information? Here you could find further facts about ����AV.

“Again, there was no significant revival of the economic activity in the third quarter, with global demand remaining at a very weak level,” says Dr. Markus Steilemann, CEO of ����AV. “����AV is thus all the more committed to creating the right framework: we are operating efficiently and with a high degree of cost consciousness. We are also investing in the global expansion of our capacities using innovative technologies. We are thus continuing to consistently orient ourselves towards the circular economy and are expanding the foundations for sustainable growth.” 

Guidance for 2023 narrowed at the lower end of the ranges 

����AV has narrowed its guidance published in April this year at the lower end of the given corridors, in line with the statements made on the half-year report in August 2023. The Group thus anticipates EBITDA of around EUR 1.1 billion and a free operating cash flow of between EUR 0 million and EUR 200 million. ����AV anticipates a ROCE above WACC of around –6.0 percentage points. ����AV’s GHG emissions measured as CO₂ equivalents are projected to still be between 4.2 million metric tons and 4.8 million metric tons.

“����AV is operating in a challenging environment: Economic activity is weak, demand is low and the outlook for our core industries has deteriorated further, with the exception of the automotive industry,” says Christian Baier, CFO of ����AV. “Accordingly, we have narrowed our guidance at the lower end of the given ranges. At the same time, the Group stands on a very stable foundation with a global presence and strong balance sheet. I am therefore very much looking forward to continuing to drive ����AV’s transformation forward.” 

Christian Baier has been in office as ����AV’s new Chief Financial Officer since the beginning of October 2023. He succeeds Dr. Thomas Toepfer, who left the company as of August 31, 2023. Baier has since been responsible for the areas of Accounting, Controlling, Finance & Insurance, Information Technology & Digitalization, Investor Relations, Law, Intellectual Property & Compliance, Portfolio Development and Taxes. He is also responsible for country-specific topics in the United States and China. 

In addition, the Board of Management decided to terminate the remaining ongoing share buyback program ahead of schedule on October 26, 2023. This decision has been taken due to the current overall situation and the limited time remaining until the end of the program on February 28, 2024 and the authorization of the Annual General Meeting expiring on April 11, 2024. As such, EUR 199 million of the intended EUR 500 million share buyback were executed. ����AV bought back 4.7 million shares with an average price of EUR 42.50 per share. ����AV plans to seek for a renewal of the authorization during the Annual General Meeting in 2024 to continue share buybacks in the future.   

Investment in a sustainable and circular future 

To achieve its vision of becoming fully circular, ����AV is committed to delivering products and solutions that contribute to a more climate-neutral and circular world. One example of that is the new Elastomers plant, which the Group put into operation at its site in Shanghai, China, this August. The new plant is part of a series of investments in high-performance elastomer business made by the company worldwide in recent years. The polyurethane elastomer systems produced there are used, among other things, for applications in the field of renewable energies, such as in manufacturing photovoltaic panels. In addition, they themselves consist partly of alternative raw materials, meaning that they contribute to a more sustainable future in two ways. 

The use of alternative raw materials is one of the cornerstones of the Group’s efforts to become fully circular. To be able to further explore and expand this field, ����AV is also committed to dovetailing its financing and sustainability strategies to a greater extent. As part of that, the Group issued a green bond for the first time in November 2022. A move that has already produced a positive impact: after just the first year of the total six-year term, the funds raised were already used in full in sustainable expenditures and projects. Around 34 percent of the issuing proceeds were used, for example, to expand alternative raw materials, resulting in a reduction of 250 kt of CO₂ equivalents. 

A further focus on the path toward a circular economy is the recycling of used plastics. ����AV has also made further progress in this area, announcing this August that it had achieved a major milestone by developing an innovative process for the chemical recycling of polycarbonates. The Group is now commencing technical implementation of chemical recycling on a pilot scale at its site in Leverkusen, Germany, and will invest millions of euros into it over the next few years. 

Economic weakness weighs on both segments; lower fixed costs have positive impact 

The selling price level and volumes sold at both of the Group’s segments declined in the third quarter, particularly in the EMLA region. Nevertheless, the Group’s strong focus on efficiency as part of implementation of its Sustainable Future strategy had an impact. In the third quarter, fixed costs were again reduced by a high double-digit million euro amount compared to the previous year. For the year as a whole, ����AV expects lower fixed costs in the mid three-digit million euro range compared to the prior-year period. 

Sales in the Performance Materials segment were down 26.7% to EUR 1.7 billion (previous year: EUR 2.3 billion) in the third quarter of 2023, in particular due to considerably lower average selling prices. The segment’s EBITDA increased by 60.4 percent year over year to EUR 85 million (previous year: EUR 53 million), mainly because of higher margins and lower fixed costs. The free operating cash flow rose to EUR 317 million (previous year: EUR 93 million). 

The Solutions & Specialties segment registered a 17.6 percent decrease in sales to EUR 1.8 billion in the third quarter of 2023 (previous year: EUR 2.2 billion). That was mainly attributable to a decline in average selling prices due to weak demand worldwide, exchange rate movements and a fall in volumes sold. The segment’s EBITDA fell by 12.1 percent year over year to EUR 246 million (previous year: EUR 280 million), but has shown a steady, sequential increase since the fourth quarter of 2022. The segment’s free operating cash flow improved to EUR 185 million (previous year: EUR 65 million). 

Results in the first nine months of 2023 below previous year; significant increase in FOCF

The Group’s sales in the first nine months of the year fell by 21.2 percent to EUR 11 billion (previous year: EUR 14 billion). Weak economic activity and low global demand throughout the year resulted in a lower average selling price level and lower volumes sold overall. ����AV’s EBITDA in the first nine months of 2023 declined by 42.7 percent to EUR 948 million (previous year: EUR 1.7 billion), while net income fell to EUR –11 million. However, the FOCF rose to EUR 159 million (previous year: EUR –412 million), in particular due to higher cash flows from operating activities. Less cash tied up in working capital, mainly due to the development of inventories, and lower income tax payments more than compensated for the drop in EBITDA. 

“The second quarter of the year was characterized by continued economic weakness and weak demand worldwide. Nevertheless, we achieved our targets for the quarter and are confirming our full-year guidance,” says Dr. Markus Steilemann, CEO of ����AV. “Our focus in this difficult environment is on operating in an efficient and cost-conscious manner. We will continue to serve our customers’ needs in the best possible way, while creating the right foundation for sustainable growth and our vision of becoming fully circular.” 

Full-year guidance for 2023 confirmed 

����AV is confirming its guidance for fiscal 2023. As announced this April, the Group expects EBITDA to be between EUR 1.1 billion and EUR 1.6 billion. The Group anticipates free operating cash flow of between EUR 0 million and EUR 500 million and ROCE above WACC of between –6.0 percentage points and –2.0 percentage points. ����AV’s GHG emissions measured as CO₂ equivalents are projected to be between 4.2 million metric tons and 4.8 million metric tons. Against the backdrop of an anticipated economic downturn in the further course of the year, ����AV currently expects results to be rather in the lower half of the specified ranges for all key performance indicators. ����AV anticipates EBITDA for the third quarter of 2023 to be between EUR 240 million and EUR 340 million. 

“The second quarter was in line with our expectations, but we still face a challenging economic environment,” says Dr. Thomas Toepfer, ����AV’s CFO and Labor Director. “We currently still do not anticipate an economic recovery in the remainder of the year.” 

Dr. Klaus Schäfer, ����AV’s Chief Technology Officer, left the Group and retired at the end of the second quarter of 2023. On July 1, 2023, his successor, Dr. Thorsten Dreier, took charge of the corporate functions of Process Technology, Engineering, Group Health, Safety and Environment, and Group Procurement. 

First major contract for renewable energies for the U.S. business 

In order to drive its vision of becoming fully circular, ����AV is committed to using renewable energies, among other things. To enable that, the Group is concluding power purchase agreements (PPAs) and is successively converting its sites worldwide to electricity from renewable sources. This June, ����AV concluded a virtual power purchase agreement for its U.S. business for the first time in order to cut CO₂ emissions at its third-largest production site in Baytown, Texas, United States. That is expected to offset an estimated 70,000 tons of CO₂ emissions a year, from the end of 2024. The contractual partner is once again the Danish energy utility Ørsted, which will also meet 10 percent of the energy requirements at ����AV’s German sites from renewable sources from 2025 onward. As of the end of 2022, ����AV already obtains 12 percent of its global demand through electricity from renewable sources and is aiming to increase that figure to up to 18 percent in 2023.

Another key driver for the circular economy is the digital transformation. In this context, ����AV is also increasingly relying on data-focused corporate management, with a particular focus on the areas of production, research and development, and supply chain management. The Group recently developed an app for calculating the carbon footprint of its products. ����AV’s climate impact in manufacturing its products can be assessed using the product carbon footprint from cradle to gate. It can currently be calculated for about 50,000 intermediate and finished products. ����AV is now validating the results in order to make them gradually available to customers from 2024 onward and thus potentially help reduce emissions on the customer’s side. In addition to the carbon footprint, the app also enables the calculation of other environmental impact categories. 

Challenging environment and weak demand impact segments 

Sales in the Performance Materials segment fell by 27.3 percent to EUR 1.8 billion (previous year: EUR 2.5 billion). That was due, in particular, to lower average selling prices and a decline in volumes sold, primarily as a result of weak demand worldwide, combined with availability constraints, especially in the EMLA region. The segment’s EBITDA declined by 17.7 percent year-on-year to EUR 302 million (previous year: EUR 367 million), in particular due to lower margins as a result of weak demand. The free operating cash flow fell by 108.1 percent to EUR –77 million (previous year: EUR –37 million). 

The Solutions & Specialties segment posted a 13.5 percent fall in sales to EUR 1.9 billion in the second quarter (previous year: EUR 2.2 billion) due to a lower selling price level and a decline in volumes sold. This is attributable to the weak demand situation, compared to the advantageous competitive situation in the prior-year quarter. EBITDA rose year-on-year by 3.8 percent to EUR 221 million (previous year: EUR 213 million), mainly due to lower fixed costs and the sale of the Additive Manufacturing Business this April. Despite the weak economic environment, the segment was able to increase its margins by two percentage points compared to the prior-year quarter. The segment’s free operating cash flow was EUR 150 million (previous year: EUR –139 million). 

First half of 2023 impacted by weak economic activity and demand 

Group sales in the first six months of this year decreased by 20.5 percent to EUR 7.5 billion (previous year: EUR 9.4 billion). The decline was primarily due to a reduction in volumes sold driven by demand and availability factors and a lower selling price level. The Group’s EBITDA fell by 50.4% to EUR 671 million in the first half of 2023 compared with the prior-year period (previous year: EUR 1.4 billion). This was mainly attributable to a demand-related decline in the selling price level, which resulted in lower margins, and a reduction in volumes sold driven by demand and availability factors. The free operating cash flow in the first half of 2023 rose by 66.5 percent to EUR –149 million (previous year: EUR –445 million), while net income fell by –96.7 percent to EUR 20 million (previous year: EUR 615 million).

“Our start to 2023 has been better than expected and clearly shows that our Sustainable Future strategy is having an impact. We have achieved an initial success through our own efforts,” says Dr. Markus Steilemann, CEO of ����AV. “This positive momentum shows that ����AV is on the right track. We continue to focus relentlessly on sustainable growth, successful cooperation with our customers and efficiency. In this way, we are pushing ahead with our vision of becoming fully circular.” 

Guidance for 2023 quantified 

In view of the results for the first quarter of 2023, higher margins and an improved cost level, ����AV has adjusted the guidance for the key management indicators EBITDA, free operating cash flow, and ROCE above WACC for fiscal 2023. Reductions of emissions expected in energy procurement have led to the guidance for greenhouse gas (GHG) emissions being narrowed. 

����AV now projects that the Group’s EBITDA will be between EUR 1.1 billion and EUR 1.6 billion (previously: significantly down on the previous year). The Group anticipates free operating cash flow of between EUR 0 million and EUR 500 million (previously: significantly down on the previous year) and ROCE above WACC of between –6.0 percentage points and –2.0 percentage points (previously: significantly down on the previous year). ����AV’s GHG emissions measured as CO₂ equivalents are now projected to be between 4.2 million metric tons and 4.8 million metric tons (previously: on a level with the previous year*). For the second quarter of 2023 ����AV expects EBITDA of between EUR 330 million and EUR 430 million. 

“The first quarter of 2023 went much better than expected at the beginning of the year, and we’re also confident about the current second quarter. That’s reflected in our guidance,” says Dr. Thomas Toepfer, CFO of ����AV. “Against the backdrop of reduced costs and the increased margin level, we also see positive momentum for the further course of the year and have adjusted our guidance for fiscal 2023. In addition, we have decided to resume our current share buyback program in the short term.” 

����AV had started the share buyback program in February 2022 and temporarily paused it in the middle of last year due to the weakening economic outlook. In view of the revised guidance and the sequential improvement in earnings and volumes, the Board of Management has now decided to continue the current program. The buyback of the next sub-tranche with a volume of up to EUR 75 million will begin in May 2023. 

Focus still on sustainable growth and circular economy 

����AV is consistently implementing its strategy “Sustainable Future” and made further progress in its efforts to become fully circular and develop sustainable innovations in the first quarter of 2023. In addition to investing in its own research and development of non-fossil raw materials, ����AV is also focusing on the use of mass-balanced products, for example. As part of that, the Group is having more and more of its global sites certified under the internationally recognized ISCC PLUS sustainability standard and is thus continuously expanding its circular product portfolio. In March 2023, ����AV was awarded certification for Baytown, Texas (United States), its third-largest production site worldwide, meaning that all its central locations have now been certified in accordance with this standard. Alongside Baytown, they include Leverkusen, Dormagen and Krefeld-Uerdingen (Germany), Shanghai (China), Changhua (Taiwan), Map Ta Phut (Thailand), Antwerp (Belgium) and Filago (Italy). ����AV expects to start delivering selected ISCC PLUS-certified products from its Baytown plant in the second half of 2023. 

����AV is also making continuous progress in the field of plastic recycling. Together with its partners, ����AV successfully completed PUReSmart, an EU-funded research project, proving that chemical recycling of flexible PU foam, such as is used in mattresses, is possible. Now ����AV, together with partners from the waste management industry, is driving the further development of this technology through to industrial use. ����AV has now launched Evocycle^® CQ Mattress, the first initiative dedicated to chemolysis of PU mattress foam, thus underscoring the company’s willingness to continue investing in this innovative technology. 

Both segments robustly positioned despite challenges 

As the results for the first quarter of 2023 demonstrate, ����AV is well positioned with its strategic and structural setup to successfully overcome challenges on its own. While the Performance Materials segment focuses on the reliable supply of standard products at competitive market prices, the Solutions & Specialties segment serves the need for complex products with a high pace of innovation in combination with application technology services. ����AV can thus leverage the individual strengths of both segments in their respective competitive landscapes ideally and gear them to customers’ needs.

Group sales in the Performance Materials segment fell by 25.0 percent to EUR 1.8 billion (previous year: EUR 2.4 billion). That was attributable in particular to the decline in volumes sold and lower average selling prices, mainly as a result of continued weak demand. The segment’s EBITDA declined by 72.1 percent year over year to EUR 173 million (previous year: EUR 620 million) due to lower margins and a reduction in volumes sold driven by demand and availability factors. The free operating cash flow declined to EUR –57 million (previous year: EUR 112 million), primarily as a result of the drop in EBITDA.

Sales in the Solutions & Specialties segment fell by 15.3 percent to EUR 1.9 billion (previous year: EUR 2.2 billion), mainly on the back of a decline in volumes sold and lower average selling prices, both due to weaker demand. The segment’s EBITDA fell in the first quarter by 26.3 percent year over year to EUR 165 million (previous year: EUR 224 million). Here, too, the main drivers behind this decline were the demand-related decrease in volumes sold. However, the rise in margins had a positive effect as lower raw material prices outweighed the lower selling prices. The free operating cash flow increased by 67.1 percent to EUR –48 million (previous year: EUR –146 million), mainly because of the fact that less cash was tied up in working capital compared to in the same quarter of the previous year. 

“Demand in the first quarter remained at a weak level, however, we took the right measures on the cost side. As a result, the first three months of 2023 have been significantly better than expected at the beginning of the year,” says Dr. Thomas Toepfer, CFO of ����AV.

Therefore, ����AV provides already today the following preliminary key financial data for the first quarter 2023: 

• Preliminary sales amount to EUR 3,743 million. The consensus expects EUR 3,942 million. 
• Preliminary EBITDA amounts to EUR 286 million. The previous guidance expected EBITDA to be between EUR 100 million and EUR 150 million. The consensus expects EUR 158 million. 
• Preliminary net income amounts to around EUR -30 million. The consensus expects EUR -77 million. 
• Preliminary free operating cash flow (FOCF) amounts to around EUR -140 million. 

The interim statement for the first quarter 2023 will be published on April 28, 2023. 

Despite lower sales volumes as a consequence of the recessionary environment, ����AV’s Group sales grew by 13.0 percent to EUR 18.0 billion (previous year: EUR 15.9 billion), the highest-ever figure in the Group’s history. A key factor in that was a considerably higher selling price level. High energy and raw material prices and slackening demand in the course of the year impacted the Group’s EBITDA. It fell in full-year 2022 by 47.6 percent over the prior-year figure to EUR 1.6 billion (previous year: EUR 3.1 billion). Net income declined to EUR –272 million (previous year: EUR 1.6 billion), in particular as a result of exceptional impairments of noncurrent assets totaling EUR 463 million and impairment losses on deferred tax assets from tax loss carryforwards totaling EUR 255 million. Despite the challenging economic environment, ����AV achieved a positive free operating cash flow (FOCF) of EUR 138 million thanks to strong working capital management. ROCE above WACC in full-year 2022 was –5 percentage points (previous year: 12.9 percentage points). The nonfinancial key management indicator for reducing greenhouse gas emissions improved by 9.6 percent to 4.7 million metric tons of CO₂ equivalents (previous year: 5.2 million metric tons). 

“2022 was a year of polycrisis with unprecedented challenges for ����AV. That is reflected in our results for the fiscal year,” says Dr. Markus Steilemann, CEO of ����AV. “The action we took last year was all the more resolute: We reduced our energy consumption, cut costs and worked on further developing our products. Our vision of a circular economy as well as our strategy “Sustainable Future” have proven to be a strong foundation. We are continuously gearing our product portfolio towards sustainable growth markets such as wind energy or electromobility and serving the increasing demand for circular solutions. One thing is clear, our contribution is essential for a sustainable future."

Solid balance sheet despite negative net income

“As expected, the global crises adversely affected our business performance and, due to the resultant exceptional impairments, meant that we posted negative net income for the first time,” says Dr. Thomas Toepfer, CFO of ����AV. “Yet at the same time we see that ����AV has a solid balance sheet and a stable liquidity position. In addition, we are increasingly interlinking our financing and sustainability strategies and thus gearing ourselves further towards sustainable growth. That means we are well equipped to deal with the current uncertain economic situation.” 

����AV adopted a raft of financing measures last year to bolster its liquidity position. For example, the company issued Schuldschein loans for the first time in October 2022. They are linked to an ESG (environmental, social, and governance) rating and, driven by strong demand, reached a total volume of around 
EUR 650 million. The fact that the Group is increasingly linking its financing strategy to its sustainability strategy is also reflected in the first-ever establishment of a “Green Financing Framework”, which was published in May 2022. It enables green bonds and other green debt instruments with a clear benefit for the environment and society to be used for financing and refinancing products or projects. In this context, ����AV issued its first green euro bond with a total volume of EUR 500 million in November 2022. 

No dividend payment for fiscal 2022

Due to the negative net income in fiscal 2022 and in line with the company’s dividend policy, the Board of Management decided that no dividend will be paid for fiscal 2022. ����AV’s dividend policy stipulates a distribution of between 35 and 55 percent of the net income in order to create a stronger link to the Group’s overall business situation. Under it, a record dividend was paid out to shareholders last year for fiscal 2021. 

Sights set on sustainable growth

Despite the current global challenges, ����AV continues to systematically implement its strategy “Sustainable Future” and align its portfolio to growth markets. These include areas of importance in the future, such as electromobility and wind energy, where a significant increase in demand for high-performance and sustainable materials is expected. ����AV also expects to see a growing demand in the area of energy efficiency, for example in the field of efficient insulation solutions for buildings and refrigerators. 

In addition, ����AV is optimizing its production capacities in a targeted manner for sustainable growth and improving its offerings and cost position in relation to MDI, among other things. For instance, the Group successfully began operating a new world-scale plant in Tarragona, Spain, in February 2023 so that it can manufacture its own chlorine independently. This investment of around EUR 200 million will strengthen the efficiency and competitiveness of the Group’s MDI plant there. The new chlorine plant is also the world’s first industrial-scale plant where innovative oxygen depolarized cathode (ODC) technology is used. It enables energy savings of up to 25 percent. At the new plant in Tarragona, up to 22,000 metric tons of CO₂ emissions per year can be avoided compared with existing processes. 

Circular economy more important than ever and a strong focus on the customer 

To help its customers reduce their own carbon footprint and identify more sustainable product alternatives more quickly, ����AV introduced the new "CQ" concept last year. With this, the Group highlights those products that contain at least 25 percent alternative raw materials. At the same time, ����AV continues to expand its portfolio of sustainable products. For example, the Group has developed a partially bio-based and fully recyclable coating resin for the packaging industry that acts as a consistent protective layer for food. This is a major step forward, as food packaging is still mostly made of multilayer composites that provide food protection but reduce the recycling of paper packaging. Other developments in the past year included the introduction of climate-neutral MDI¹ and renewable toluene diisocyanate (TDI)². 

The company is also pressing ahead with its vision of becoming fully circular and is working to expand the use of alternative raw material sources in order to make itself independent of fossil resources in the long term. For example, the Group is gradually converting its production sites to electricity from renewable sources. The most recent example of that is the large supply agreement signed in December 2022 with CGN New Energy for the procurement of 300 GWh of wind and solar power annually for its site in Shanghai, China. Since the beginning of 2023, the site has met over 30 percent of its electricity requirements from renewable energy as a result. This agreement therefore marks an addition to the existing power purchase agreements (PPAs) that supply ����AV’s production sites worldwide with renewable energies. In full-year 2022, the Group will therefore cover 12 percent of its global energy requirements with electricity from renewable sources, a figure that is expected to rise to 16 to 18 percent in 2023. 

Outlook for 2023: economic conditions remain challenging 

In view of the challenging and uncertain economic and geopolitical conditions that will persist in 2023, ����AV for now has decided to classify its outlook for fiscal 2023 on a qualified-comparative basis at this time. 
The company expects EBITDA of the ����AV Group and the Performance Materials segment to be well below that of the previous year. ����AV expects EBITDA at the Solutions & Specialties segment to be around that for 2022³. ����AV assumes that FOCF at Group level and for the Performance Materials segment will be significantly below the figure for the year 2022. However, the company projects FOCF in the Solutions & Specialties segment to be significantly higher than in 2022. ����AV anticipates that ROCE above WACC will be significantly down on the previous year and expects greenhouse gas emissions measured as CO₂ equivalents to be around the 2022 level³. ����AV expects that EBITDA for the first quarter of 2023 will be EUR 100 million to EUR 150 million. 

Challenging environment for both segments; EBITDA at Solutions & Specialties rises

Sales in the Performance Materials segment in fiscal 2022 increased by 11.7 percent compared to the prior-year period and were EUR 9.1 billion (previous year: EUR 8.1 billion), in particular as a result of a rise in the selling price level. EBITDA fell by 63.0 percent over the prior-year period to EUR 951 million (previous year: EUR 2.6 billion), mainly due to lower margins as a result of higher raw material and energy prices coupled with a decline in sales volumes. As a consequence of the decline in EBITDA, the segment’s FOCF also fell by 60.8 percent to EUR 544 million (previous year: EUR 1.4 billion). 

Sales in the Solutions & Specialties segment in fiscal 2022 grew by 13.3 percent to EUR 8.6 billion (previous year: EUR 7.6 billion), in particular as a result of a rise in the selling price level. EBITDA at Solutions & Specialties increased by 9.9 percent over the prior-year period to EUR 825 million (previous year: EUR 751 million). A contributing factor here was the fact that integration of the RFM business was accomplished even faster than planned, and lower nonrecurring expenses and higher synergy effects had a positive impact on earnings. The segment’s FOCF increased by 34.5 percent over the prior-year period to EUR 195 million (previous year: EUR 145 million), mainly due to the increase in EBITDA. 

Fourth quarter of 2022: cash generated in a volatile market environment 

����AV’s sales in the fourth quarter of 2022 fell by 8.6 percent to EUR 4.0 billion (previous year: EUR 4.3 billion). EBITDA in the final quarter of full-year 2022 was EUR –38 million (previous year: EUR 663 million), while net income was  EUR –899 million (previous year: EUR 302 million), in particular as a result of exceptional impairments and impairment losses on deferred tax assets from tax loss carryforwards. FOCF was very positive in the fourth quarter of 2022 due to the Group’s rigorous working capital management, increasing by 54.5 percent to EUR 550 million (previous year: EUR 356 million). 

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“We will have to cope with this unprecedented environment for the time being. We’re therefore using all the levers available to us to steer ����AV through the current situation,” said Dr. Markus Steilemann, CEO of ����AV. “In particular, the unparalleled price increases for fossil fuels show that ����AV’s strategic focus on becoming fully circular is the right path. Our products are vital in paving the way for a fossil-free future.” 

In view of the energy crisis in Europe and a weakening global economy, ����AV is systematically ensuring its economic ability to maneuver. The company is taking short- and medium-term cost-cutting measures, for example. ����AV has also initiated various measures to reduce its gas requirements in Germany and continues to work on making its processes even more energy-efficient. Technical optimization measures, for instance, are helping to improve energy efficiency in production. One example is the use of digital sensors to monitor steam traps, enabling ����AV to use steam as efficiently as possible in production. 

Full-year guidance for 2022 narrowed 

“The further significant weakening in overall economic conditions is also affecting our business performance. Despite the significant burdens from very high energy and raw material prices, we achieved our EBITDA forecast for the third quarter,” said Dr. Thomas Toepfer, CFO of ����AV. “Based on these results, we still expect to achieve the targets we have set ourselves for the full year as well.” 

����AV has narrowed the full-year guidance for 2022 that it issued on July 29, 2022, and now anticipates that EBITDA will be between EUR 1.7 billion and EUR 1.8 billion (previously: between EUR 1.7 billion and EUR 2.2 billion) and that the FOCF will be between EUR 0 million and EUR 100 million (previously: between EUR 0 million and EUR 500 million). Return on capital employed over the weighted average cost of capital is expected to be between minus two percentage points and minus one percentage point (previously: between minus two and plus two percentage points). GHG emissions measured as CO₂ equivalents are projected to be between 5.0 million metric tons and 5.4 million metric tons (previously: between 5.3 million metric tons and 5.8 million metric tons). 

Further milestones on the path to a circular economy 

����AV continued to press ahead with its vision of becoming fully circular in the third quarter of 2022 and achieved further milestones. As part of that, the Group is committed among other things to expanding its sources for alternative raw materials and thus eliminating the use of fossil resources, such as crude oil and natural gas, in the long term. 

Since September 2022, SOL Kohlensäure GmbH & Co. KG has supplied ����AV’s Lower Rhine sites with biogenic carbon dioxide (CO₂) under a supply partnership. This gas, which among other things is obtained as a by-product from the treatment of plant residues, is used by ����AV to produce plastics such as MDI (methylene diphenyl diisocyanate) or polycarbonate. SOL will supply up to 1,000 metric tons of biogenic CO₂ this year, enabling ����AV to save the same amount of CO₂ from fossil sources. The supply volume is to be increased substantially from 2023 on. 

����AV was also able to expand its portfolio of sustainable products in the third quarter. The launch of climate-neutral MDI and renewable TDI (tolulene diisocyanate) was followed in September 2022 by bio-circular polyether polyols – a sustainable component for polyurethane foams. ����AV uses renewable precursors such as organic waste or other residual materials to produce them, thus rounding out its range of components based on alternative raw materials for making rigid and flexible foams. These are used among other things as an efficient means of thermal insulation for buildings and refrigerators or, for example, in mattresses, upholstered furniture, car seats and shoes. 

Full circularity and cross-industry collaboration throughout the value chain are also the focus at the world’s largest plastics trade show , which ends on October 26th. ����AV is presenting innovative ideas and new technologies there in the fields of electrification, smart design, sustainable living and the circular economy – such as a new process to enable different materials in multilayer film packaging to be separated completely from each other, or a new, more sustainable concept for wallboxes, which are used to charge electric vehicles. 

Increase in sales in both segments 

Sales in the Performance Materials segment in the third quarter of 2022 rose by 6.6 percent compared to the prior-year quarter and were EUR 2.3 billion (previously: EUR 2.2 billion). The reasons for that were exchange rate movements and a higher selling price level. In contrast, a drop in total volumes sold – driven primarily by a downturn in demand – had a negative effect. The segment’s EBITDA fell by 92.5 percent to EUR 53 million (previously: EUR 708 million). This is mainly due to lower margins, since higher selling prices were able to offset the rise in raw material and energy prices only to a small extent. FOCF fell by 64.0 percent to EUR 93 million (previously: EUR 258 million), in particular due to the decline in EBITDA. 

Sales in the Solutions & Specialties segment in the third quarter of 2022 rose by 6.1 percent compared with the prior-year quarter to EUR 2.2 billion (previously: EUR 2.1 billion), mainly due to exchange rate movements and a higher selling price level. In contrast, the total volumes sold – due in particular to a downturn in demand – had a negative effect. The segment’s EBITDA rose to EUR 280 million, or by 26.7 percent compared to last year’s third quarter (previously: EUR 221 million). One of the reasons for this was lower provisions for short-term variable compensation. Margins remained stable at the last year’s level since higher selling prices were able to offset the rise in raw material and energy prices. FOCF increased by 25.0 percent to EUR 65 million (previously: EUR 52 million) due to the higher EBITDA. 

High price level in the first nine months of 2022 

Group sales in the first nine months of 2022 increased by 21.1 percent to EUR 14.0 billion (previously: EUR 11.6 billion). The main reasons for that were a high selling price level and exchange rate movements. The Group’s EBITDA in the first three quarters of 2022 fell by 31.7 percent to EUR 1.7 billion (previously: EUR 2.4 billion), mainly due to lower margins. This resulted from a considerable rise in raw material and energy prices, which could only be partly offset by a higher selling price level. Compared to the previous year, net income in the first nine months of 2022 fell by 52.3 percent to EUR 627 million (previously: EUR 1.3 billion). FOCF declined to EUR –412 million (previously: EUR 1.1 billion). This can be predominantly attributed to a lower EBITDA and an increase in funds tied up in working capital, especially given the payment of short-term variable compensation for the successful fiscal year 2021.

More information

• Please find a table showing key data for the third quarter 2022 in the sidecolumn.
   
• You can find the Quartely Statement Q3 2022 at
   
• The Annual Report 2021 is available at

“We can look back at what was overall a solid second quarter, and we even slightly surpassed our EBITDA forecast. Nevertheless, we are looking ahead to an increasingly challenging second half of the year. The current geopolitical situation shows us all too clearly that there is no alternative to the transformation toward a sustainable, fossil-free industry landscape,” said Dr. Markus Steilemann, CEO of ����AV. “With our vision of becoming fully circular and our ambitious climate targets, we are underscoring our position as a forerunner on the path toward a climate-neutral future.”

Full-year guidance 2022 adjusted

The Russian war against Ukraine has fundamentally changed the geopolitical situation and caused extensive consequences for the global economy. The Group therefore expects continued impacts on global supply chains, very high energy price levels, high inflation and weaker growth in the global economy. 

As a consequence of a recent significant further increase in energy costs and a further weakening global economy, ����AV adjusted its outlook for the current fiscal year on July 29, 2022. The Group anticipates that EBITDA will be between EUR 1.7 billion and EUR 2.2 billion (previously: between EUR 2.0 billion and EUR 2.5 billion) and ROCE above WACC between minus two and two percentage points (previously: between one and five percentage points). The FOCF is now expected to be between EUR 0 million and EUR 500 million (previously: EUR 400 million and EUR 900 million). ����AV expects greenhouse gas emissions to fall to between 5.3 million and 5.8 million metric tons (previously: between 5.5 million and 6.0 million metric tons). The Group anticipates EBITDA for the third quarter of 2022 will be EUR 300 million to EUR 400 million.

“In the second quarter we benefited from a faster than expected recovery after the lockdowns in China and an intact demand for our products,” said Dr. Thomas Toepfer, CFO of ����AV. “In this second half of the year, the macroeconomic risks have once again increased significantly, particularly with regard to the very high energy costs and uncertainties in gas supply at our German sites."

The company’s German sites account for around a quarter of global production capacity. ����AV is initiating various measures to reduce its gas requirements in Germany in the short term, such as by switching to oil-based steam generators. In addition, the company is continuously working to improve existing production technologies and roll out new ones in order to further reduce gas and energy consumption. If gas supplies are rationed in the further course of the year, this could result in partial load operation or a complete shutdown of individual ����AV production facilities, depending on the level of the cutback. Due to the close links between the chemical industry and downstream sectors, a further deterioration of the situation is likely to result in the collapse of entire supply and production chains.

Continued focus on the circular economy and climate neutrality

����AV has implemented further measures to drive its vision of becoming fully circular and achieving climate neutrality by 2035. In May 2022, for example, the company launched “CQ” – “Circular Intelligence”, a new concept that makes circular solutions in the product portfolio even more visible to customers. That means ����AV will in the future highlight the alternative raw material base for its products if it is at least 25 percent. One of the first “CQ” products is Desmodur^®CQ. Polyurethanes based on Desmodur^®CQ are used in upholstered furniture, mattresses or thermal insulation, among other things.

In June 2022, ����AV also opened a new Wind Technology Center in Leverkusen, where the company is conducting research into material solutions for sustainable energy generation from wind power. The focus is on faster and more cost-effective production of rotor blades and optimization of their blade properties. In this way, the service life and thus also the energy yield can be increased in order to drive the expansion of alternative energies.

Both segments post sales growth

Sales in the Performance Materials segment in the second quarter of 2022 rose by 25.8 percent compared to the prior-year quarter and were EUR 2.5 billion (previous year: EUR 2.0 billion), in particular on the back of a higher selling price level. Logistical bottlenecks caused by lockdowns due to the pandemic in China limited the segment’s further growth particularly in the APAC region. EBITDA in Performance Materials fell by 43.0 percent to EUR 367 million (previous year: EUR 644 million), mainly due to lower margins. The free operating cash flow fell to EUR –37 million (previous year: EUR 373 million), largely due to the lower EBITDA and an increase in funds tied up in working capital.

The Solutions & Specialties segment posted an 11.0 percent increase in sales to EUR 2.2 billion in the second quarter of 2022 (previous year: EUR 2.0 billion). A rise in the selling price level and exchange rate effects helped increase sales. The segment’s EBITDA fell to EUR 213 million, or by 10.1 percent compared to last year’s second quarter (previous year: EUR 237 million). This was mainly due to a decline in volumes sold and lower margins. The free operating cash flow of Solutions & Specialties fell to EUR –139 million (previous year: EUR 29 million), likewise due to an increase in funds tied up in working capital.

High selling price level impacts first half of 2022

Group sales in the first half of 2022 increased by 29.2 percent to EUR 9.4 billion (previous year: EUR 7.3 billion). That was due to a higher selling price level, exchange rate movements and the portfolio change arising from the acquisition of the Resins & Functional Materials (RFM) business from DSM. Due to higher raw material and energy prices, which however were able to be partially offset by the higher selling price level, the Group’s EBITDA in the first half of 2022 declined by 13.3 percent to EUR 1.4 billion (previous year: EUR 1.6 billion). Net income in the first half of 2022 was EUR 615 million (previous year: EUR 842 million), while the FOCF fell to EUR –445 million (previous year: EUR 692 million).

More information

• Please find a table showing key data for the second quarter 2022 in the sidecolumn.
   
• You can find the Half-Year Financial Report 2022 at
   
• The Annual Report 2021 is available at

• EBITDA is expected to be between EUR 1,700 million and EUR 2,200 million. The previous forecast projected EBITDA between EUR 2,000 million and EUR 2,500 million. The consensus expected this figure to be EUR 2,342 million. 
   
• Free operating cash flow (FOCF) is expected to be between EUR 0 million and EUR 500 million. The previous forecast projected FOCF between EUR 400 million and EUR 900 million. The consensus expected this figure to be EUR 598 million. 
   
• Return on capital employed over weighted average cost of capital (ROCE over WACC) is expected to be between -2 and +2 percentage points. The previous forecast projected ROCE over WACC between +1 and +5 percentage points. 
   
• Greenhouse gas emissions, measured via CO₂ equivalents, are expected to be between 5.3 million tons and 5.8 million tons. The previous forecast projected greenhouse gas emissions between 5.5 million tons and 6.0 million tons. 

In the second quarter 2022, ����AV EBITDA was EUR 547 million, which is slightly above the previous forecast between EUR 430 million and EUR 530 million. This was supported by a faster than expected normalization of the lockdown-burdened supply chain situation in China. The consensus expected this figure to be EUR 509 million. Second quarter 2022 FOCF was EUR -462 million. This included the bonus pay-out for the fiscal year 2021 of EUR 475 Mio. 

Third quarter 2022 EBITDA is expected to be between EUR 300 million and EUR 400 million. 

The financial report for the second quarter 2022 will be published on August 2, 2022. 

Capital market expectations are based on the average values of the latest consensus estimates of financial analysts, recently published by Vara Research on July 12, 2022. 

Reduced earnings outlook for 2022

Given the ongoing coronavirus-lockdown in China, particularly around the Shanghai region, further significantly increasing energy and raw material costs and an assumed lower than expected global economic growth, ����AV reduced its guidance for fiscal year 2022 on May 2, 2022. The Group now expects EBITDA will be EUR 2.0 billion to EUR 2.5 billion (previous: EUR 2.5 billion to EUR 3.0 billion) and the FOCF will be EUR 400 million to EUR 900 million for the full year (previous: between EUR 1.0 billion and EUR 1.5 billion). The Group anticipates a return on capital employed over weighted average cost of capital (ROCE over WACC) between one percentage point and five percentage points (previous: between five and nine percentage points). ����AV’s greenhouse gas emissions measured as CO₂ equivalents are now projected to rise to between 5.5 million and 6.0 million metric tons (previous: between 5.6 and 6.1 million metric tons). The Group anticipates EBITDA for the second quarter will be EUR 430 million to EUR 530 million.

“We benefited from continuing high demand in the first quarter. Since the Ukraine war began, however, we have seen a significant increase in the risks to our energy supply and supply chains. That is compounded by a weakening global economy, as well as the challenges still posed by the impacts and restrictions related to the coronavirus pandemic, in particular in China,” stated Dr. Thomas Toepfer, CFO of ����AV. “We have consequently decided to adjust our guidance for the full year. We are continuously monitoring further developments so that we can steer ����AV as best as possible through these times.” 

After ����AV restructured its setup last year by reorganizing its three former reportable segments into the segments “Performance Materials” and “Solutions & Specialties,” the Group is reporting in its new control system for the first time in fiscal 2022. Instead of core volume growth as a KPI, ����AV has used EBITDA as a key indicator for growth since the beginning of the year. The company has also added a sustainability component for the first time, which is measured by direct and indirect (scope 1 and 2) greenhouse gas emissions. 

Progress toward a circular economy and climate neutrality 

����AV announced an ambitious climate target in March 2022: The Group is striving to become climate neutral and to reach net-zero emissions¹ by 2035. To achieve this, the company aims to reduce GHG emissions from its own production activities (scope 1) and from external energy sources (scope 2) by 60 percent to 2.2 million metric tons by 2030. In addition, indirect greenhouse gas emissions from upstream and downstream processes in the value chain (scope 3) are to be reduced further; a target for cutting them is to be defined in 2023. 

In the long term, ����AV aims to offer a climate neutral version of every product and is expanding its portfolio continuously. For example, the company has been supplying its customers with the world’s first climate neutral² polycarbonate since 2021. That was followed by inclusion of the world’s first climate neutral MDI in the product range in February 2022. As a result, ����AV is significantly reducing its carbon footprint from cradle to gate, helping its customers achieve their climate targets, and driving the transition to a circular economy. 

����AV made further progress on its path to meeting its ambitious climate targets and becoming fully circular in the first quarter of 2022. For example, the Group announced that it had finalised a joint agreement relating to the supply of up to 100,000 metric tons of green hydrogen and its derivatives with Fortescue Future Industries (FFI), a global green energy company based in Australia, at the beginning of the year. The deliveries, which could start as early as 2024, are intended for production sites in Asia, North America and Europe and will help ����AV reduce its GHG emissions by as much as 900,000 metric tons of CO₂ a year. 

Sales growth in both segments 

Sales in the Performance Materials segment increased by 37.2 percent to EUR 2.4 billion in the first quarter of 2022 (previous year: EUR 1.7 billion). The largest positive effect came from ����AV’s still advantageous competitive situation, which resulted in high average selling prices. EBITDA in Performance Materials fell slightly by 1.6 percent to EUR 620 million, but was nevertheless almost at the level of the prior-year quarter (previous year: EUR 630 million). This was largely the result of higher raw material and energy prices, which were able to be largely compensated for, albeit not fully, thus resulting in lower margins. The free operating cash flow fell by 56.8 percent to EUR 112 million (previous year: EUR 259 million), mainly because of a larger amount of cash tied up in working capital. 

The Solutions & Specialties segment posted a 45.3 percent increase in sales to EUR 2.2 billion in the first three months of fiscal 2022 (previous year: EUR 1.5 billion). In particular, the effect from the RFM acquisition and higher selling price levels helped increase sales. The segment’s EBITDA rose to EUR 224 million, or by 23.8 percent compared to last year’s first quarter (previous year: EUR 181 million), mostly on account of the acquisition of RFM. However, declining margins due to higher raw material and energy prices had an offsetting effect. The free operating cash flow of Solutions & Specialties fell to EUR –146 million (previous year: EUR 11 million) due to a larger amount of cash tied up in working capital compared with the prior-year quarter. 

More information

• Please find a table showing key data for ����AV AG for the first quarter 2022 in the sidecolumn.
   
• The Quarterly Statement Q1 2022 is available at 
   
• The Annual Report 2021 is available at

Ideally positioned: new strategy and Group structure, successful integration of RFM

After presenting its new strategy “Sustainable Future” in February 2021, ����AV achieved important milestones in implementing it in the course of the fiscal year. The strategy has customer centricity and sustainable growth at its core. As part of that, the Group restructured its organization in July 2021 and focused its businesses even more closely on the requirements of individual markets and on customers’ needs. ����AV has since been divided into the two reportable segments Performance Materials and 
Solutions & Specialties. Integration of the Resins & Functional Materials business acquired from DSM in the Solutions & Specialties segment is proceeding successfully. The company was thus already able to generate synergy effects of EUR 26 million, almost twice the figure originally anticipated for 2021. ����AV expects to generate permanent synergies totaling around EUR 120 million annually by 2025. 

Record dividend: highest payout in the Group’s history 

Given its very good performance in fiscal 2021, ����AV plans to propose a dividend of EUR 3.40 per share to the Annual General Meeting on April 21, 2022. That is equal to a payout ratio of 41 percent. ����AV redefined its dividend policy last fiscal year. It envisages a payout ratio between 35 and 55 percent of net income in order to create a stronger link to the Group’s overall business situation.

“We can look back on an extremely successful year marked by high demand. Not least, that is reflected in the fact that we were virtually sold out over large stretches of 2021,” said Dr. Thomas Toepfer, CFO of ����AV. “In the past year we have created the foundation for further sustainable growth with our new Group structure.”

In light of the successful business development, ����AV's Board of Management has also resolved on a share buyback program with a total volume of approximately EUR 500 million over the next two years. The repurchased shares are subsequently to be cancelled and the share capital is to be reduced accordingly. “Major acquisitions are not ����AV's focus at the moment; instead, we believe investing in our own shares is the best investment," Dr. Thomas Toepfer continued. "We are convinced of our company and want to create additional value for our shareholders."

����AV to become climate neutral: ambitious targets announced 

����AV is making systematic advances on its path to circular plastics production and has set bold climate targets. The Group is striving to become climate neutral and achieve net zero* emissions by 2035. On the path to achieving that, ����AV has already reduced its specific greenhouse gas emissions per metric ton of product produced by 54 percent in 2021 compared to 2005, achieving its sustainability target for 2025 already today. 

Now, the company plans to cut greenhouse gas emissions from its own production operations (scope 1) and from external energy sources (scope 2) by 60 percent to 2.2 million metric tons by 2030. In the long run, ����AV aims to use renewable energies only, such as wind power and solar energy, as well as alternative raw materials such as biomass, waste, CO₂ or hydrogen within its production processes. In addition, a reduction target for the long-term reduction of indirect greenhouse gas emissions from upstream and downstream processes in the value chain (scope 3) is to follow in 2023. 

Investments in a circular future and sustainable growth 

As a pioneer for a circular and climate neutral future, ����AV has been awarded ISCC PLUS mass balance certification for several of its production facilities. Further sites will also acquire it in the future alongside the certified sites in Antwerp (Belgium), Shanghai (China) and the German Lower Rhine locations at Leverkusen, Dormagen and Krefeld-Uerdingen. ����AV can offer its customers, for example, the rigid foam precursor MDI and the high-performance plastic polycarbonate as “drop-in solutions”; they are based on alternative raw material sources in accordance with the mass balance approach and are made in a quality identical to conventional counterparts. As a result, the company helps its customers steadily decrease their carbon footprint across the value chain. 

����AV also achieved further successes last fiscal year in gradually switching its production sites to green electricity. The company operates cooperation models with energy suppliers who generate onshore and offshore wind power and solar energy so that it can keep on cutting its greenhouse gas emissions. To enable that, the Group signed multiple Power Purchase Agreements for its sites in Belgium, China and Germany in 2021. 

Outlook for 2022: continued high earnings; expanded management system 

����AV is updating and expanding its existing management system at the start of fiscal year 2022. The previously used growth indicator of core volume growth will be replaced by EBITDA. The Group is also adding a sustainability component, measured by direct and indirect greenhouse gas emissions (scope 1 and 2) in 2022. 

“Adaptation of our Group controlling is a further logical step toward circularity,” said Dr. Markus Steilemann. “With regard to our ambitious goal of becoming climate neutral, we will thus link profitability and sustainability even more closely in the future and continue on our sustainable growth trajectory.” 

����AV expects an EBITDA value between EUR 2.5 billion and EUR 3.0 billion and a FOCF of between EUR 1.0 billion and EUR 1.5 billion for fiscal 2022. The Group anticipates that the ROCE will be between 12 and 16 percent. ����AV expects greenhouse gas emissions, measured by CO₂ equivalents, to increase to between 5.6 million and 6.1 million metric tons (level at the end of 2021: 5.2 million metric tons). This increase is mainly attributable to a less favorable mix of external electricity purchases for ����AV, as well as to an expansion in production volumes. ����AV anticipates EBITDA for the first quarter of 2022 to be between EUR 750 million and 850 million. 

Growth in both segments in 2021, successful start with the new structure 

The Performance Materials segment generated year-over-year core volume growth of 0.3 percent in fiscal 2021. Despite solid global demand, the growth potential of the segment was constrained by limited product availability resulting from, among other things, unplanned weather-related production outages in the first quarter of 2021. The segment’s sales grew by 48.9 percent to EUR 8.1 billion (previous year: EUR 5.5 billion), in particular due to the higher average selling prices. Increased margins due to an advantageous competitive situation and strong demand meant that EBITDA rose year over year to EUR 2.6 billion (previous year: EUR 896 million). 

Core volumes sold in the Solutions & Specialties segment increased in the past fiscal year by 26 percent year on year. In particular, additional volumes from the acquired RFM business contributed 16 percentage points to that. In addition, higher core volumes sold in the automotive and transportation industry and in the electrical, electronics and household appliances industry, especially in the EMLA and APAC regions, had a positive volume effect. At the same time, reduced product availability, for instance due to raw material bottlenecks, had a negative impact on core volumes sold and limited further organic growth opportunities. Higher selling prices meant that the segment’s sales in 2021 increased by 49.3 percent to EUR 7.6 billion (previous year: EUR 5.1 billion), while EBITDA rose slightly year over year by 1.1 percent to EUR 751 million (previous year: 743 million). 

Buoyant prices boost sales in the fourth quarter of 2021 

Core volumes sold in the fourth quarter of 2021 rose by 4.6 percent compared with the previous year. Group sales in the final quarter of the year grew by 44.3 percent to EUR 4.3 billion (previous year: EUR 3.0 billion), in particular on the back of higher selling prices as a consequence of the rise in raw material prices. EBITDA grew year on year by 4.1 percent to EUR 663 million (previous year: EUR 637 million). Net income in the fourth quarter of 2021 fell by 3.2 percent to EUR 302 million (previous year: EUR 312 million), while the FOCF fell by 9.6 percent to EUR 356 million (previous year: EUR 394 million). 

• Find the recording of the ����AV Annual Press Conference 2022 .
• Find here the  presentation of the ����AV Annual Press Conference 2022. 

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Annual Report 2021

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EBITDA was up 89.0 percent to EUR 862 million (previous year: EUR 456 million) on the back of a strong upward trend in margins. The high margins are attributable to significantly higher selling prices due to an advantageous competitive situation, which enabled ����AV to more than offset the rise in raw material prices. Consequently, net income more than doubled in the third quarter, rising to EUR 472 million (previous year: EUR 179 million). Free operating cash flow (FOCF) also increased by 5.5 percent to EUR 381 million (previous year: EUR 361 million).

“We were able to carry the entire momentum from the first half of the year over to the third quarter and benefited from the continuing high pricing level. Constantly robust demand for our products shows that we offer the right solutions for our customers,” said Dr. Markus Steilemann, CEO of ����AV. “With our portfolio, we’re ideally positioned to meet the increasing demand for sustainable solutions and can serve this need even more precisely with our new Group structure.”

Earnings outlook for full year 2021 raised

Taking into account its current business performance, ����AV again revised its full-year guidance on November 8. The Group now anticipates EBITDA will be EUR 3.0 billion to EUR 3.2 billion for 2021 as a whole (previously: EUR 2.7 billion to EUR 3.1 billion). Due to a valuation-driven increase of working capital the FOCF is now expected to be EUR 1.4 billion to EUR 1.7 billion (previously: EUR 1.6 billion to EUR 2.0 billion). ����AV now anticipates that the return on capital employed (ROCE) will be 19 percent to 21 percent (previously: 16 percent to 20 percent). Due to limited product availability, core volume growth for the year as a whole is expected to be 10 percent to 12 percent (previously: 10 percent to 15 percent), of which around 6 percentage points will still be attributable to the RFM business.

“We’ve achieved significant increase in earnings and were at the upper end of the EBITDA guidance for the third quarter,” stated Dr. Thomas Toepfer, CFO of ����AV. “We feel confident that this positive earnings trend will continue. This is further emphasized with our revised full-year guidance.”

����AV also assumes a positive medium-term trend. At its Investor Conference this September, the Group announced that it expects a substantial increase in mid-cycle EBITDA from its current level of EUR 2.2 billion to EUR 2.8 billion in 2024. This is due to ����AV’s organizational realignment implemented since July 2021 in the wake of the company’s transformation and the successful integration of RFM.

Investment in sustainable growth

On the back of global political initiatives to reduce greenhouse gases, ����AV anticipates growing demand, especially in the fields of energy-efficient construction and electromobility. In order to satisfy this increase in demand, ����AV aims to generate sustainable growth and in the future will align investments even more consistently to the aspects of profitability and sustainability as part of its “Sustainable Future” strategy.

At its Investor Conference, ����AV also announced that it would resume the investment project for the construction of a world-scale MDI plant, which was temporarily suspended at the beginning of 2020. The company is exploring building the new plant in either the United States or China. A final decision is expected to be taken after the current project stage. The plant is scheduled to be put into operation in 2026. The Group plans to deploy the energy efficient AdiP technology, which is already used at its Brunsbüttel site in Germany. This technology can reduce CO₂ emissions by up to 35 percent in an MDI plant

The Group aims to become fully circular in the long term. ����AV is therefore planning targeted capex spending of around EUR 1 billion on circular economy projects over the next ten years, with a focus on alternative raw materials, innovative recycling, joint solutions and renewable energies. The EU’s Circular Foam innovation project has been a further important component of ����AV’s long-term strategic program since October. The company is coordinating this project, in which a total of 22 partners from nine countries are collaborating. Its goal is to close the material cycle for rigid polyurethane foams and to prepare the Europe-wide implementation of a blueprint. That could reduce waste by one million metric tons and CO₂ emissions by 2.9 million metric tons, as well as EUR 150 million in incineration costs, every year in Europe from 2040 onward. As insulation material in refrigerators and buildings, rigid polyurethane foams help to increase energy efficiency significantly. However, to date there is a lack of coordinated waste management and suitable recycling processes to enable a sustainable lifecycle. Consequently, chemical recycling in particular will be an important link in the chain to pave the way to a circular economy.

Significant increases in sales in both segments

As part of the Quarterly Statement for the third quarter, ����AV reported for the first time in the new reporting structure with the two segments Performance Materials and Solutions & Specialties. Reference information was restated accordingly.

In the third quarter of 2021, the Performance Materials segment saw core volumes sold fall by 11.6 percent year over year. Limited product availability due to unplanned production outages curbed growth potential despite the fact that demand remained intact. That resulted in a decline in sales volumes in the furniture and wood processing industry as well as the construction industry, especially in the EMLA and APAC regions. On the back of high selling prices, the segment’s sales increased by 52.2 percent to around EUR 2.2 billion (previous year: around EUR 1.4 billion). EBITDA was EUR 755 million, more than double the figure for the prior-year quarter (previous year: EUR 288 million), due to higher margins, as ����AV was able to more than offset the rise in raw material prices due to higher selling prices.

In the third quarter of 2021, the Solutions & Specialties segment’s core volumes sold rose by 22.7 percent year over year. That was mainly due to additional volumes from the acquisition of the RFM business. Sales also increased by 60.6 percent to around EUR 2.1 billion (previous year: around EUR 1.3 billion). That was attributable to the rise in average selling prices, as well as to the portfolio effect stemming from the acquisition of RFM. The segment’s EBITDA fell to EUR 173 million, or by 16.4 percent compared to last year’s third quarter (previous year: EUR 207 million). Higher selling prices were not able to fully offset the increase in raw material prices, with the result that lower margins reduced earnings. The costs of RFM integration, which were at the level planned, also had a negative impact on earnings.

Strong demand and high prices in the first nine months

On the whole, the results for the first nine months of 2021 are significantly above those of the previous year, in which the coronavirus pandemic had a substantial impact. Robust demand and, related to that, high selling prices continued to prevail. In the first nine months of 2021, core volumes sold rose by 11.9 percent (first nine months of 2020: –7.9 percent) and Group sales by 50.2 percent to around EUR 11.6 billion (first nine months of 2020: around EUR 7.7 billion), mainly due to an increase in selling prices. EBITDA tripled to around EUR 2.4 billion (first nine months of 2020: EUR 835 million), while net income rose by around EUR 1.3 billion (first nine months of 2020: EUR 147 million) or by almost nine-fold year over year. FOCF also increased significantly to around EUR 1.1 billion (first nine months of 2020: EUR 136 million).

At the same time, unplanned weather-related production outages in the North America (NA) region and continued raw material bottlenecks have had a negative impact on product availability – also constraining the growth potential of all segments in the second quarter of 2021. Apart from the volume growth, substantially higher selling prices resulted in an 83.5 percent year-on-year increase in sales of over EUR 3.9 billion. As a result of the volume growth and the overall increase in margins, EBITDA rose to EUR 817 million (previous year: EUR 125 million). This result also includes negative one-time effects of EUR 35 million in connection with the consolidation of RFM. Net income in the second quarter of 2021 was EUR 449 million (previous year: EUR –52 million), and the free operating cash flow (FOCF) increased significantly to EUR 374 million (previous year: EUR 24 million).

“In the second quarter, we were able to build seamlessly on the positive course of business in the first quarter. The reorganization of our business since July 1 also means we’re closer to our customers and optimally positioned to address specific market requirements,” said Dr. Markus Steilemann, CEO of ����AV. “We’re starting the second half of the year with strong momentum and will continue full speed ahead with driving our vision of becoming fully circular.”

Increased earnings guidance for full year 2021 confirmed

Given the positive business performance, ����AV had already raised its outlook for earnings in 2021 as of July 12, 2021. The company confirms this guidance today. The Group anticipates EBITDA will be EUR 2.7 billion to EUR 3.1 billion on the back of an improved outlook for margins in the second half of the year. The FOCF is expected to be between EUR 1.6 billion and 2.0 billion and the return on capital employed (ROCE) between 16 and 20 percent. Core volume growth is expected – unchanged – to be between 10 and 15 percent, of which around 6 percentage points is attributable to the RFM business.

“We continued to benefit from ongoing high demand and from a sustained positive price trend in the second quarter while maintaining cost discipline. In addition, the RFM business was fully consolidated for the first time,” said Dr. Thomas Toepfer, CFO of ����AV. “Our strong operating results are further proof of the strategic rationale behind this acquisition. We will now take this positive earnings momentum with us into the third quarter.”

Foundation for sustainable growth: new Group structure since July 1

With the realignment of its Group structure, ����AV has achieved a first milestone in implementing its “Sustainable Future” strategy, which the Group presented in February 2021. The company successfully reorganized its three former business units – Polyurethanes, Polycarbonates, and Coatings, Adhesives, Specialties – into seven new, tailored business entities as of July 1, 2021. These entities are organized according to their success factors and tailored to specific customer needs and market requirements. This enables the company to systematically align processes and products with customer needs while sharpening its focus on profitability and sustainability. In the future, ����AV will distinguish between the reporting segments “Performance Materials” and “Solutions & Specialties.” ����AV’s first report containing the new structure will be issued for the third quarter of 2021, on November 8, 2021.

Strong performance in all segments: growth in volumes and sales

In the second quarter of 2021, the Polyurethanes segment saw core volumes sold grow by 27.8 percent compared with the prior-year quarter. Volumes sold increased in all main customer industries across all regions. The segment’s sales amounting to around EUR 1.8 billion more than doubled compared with the prior-year quarter (EUR 913 million). That is mainly attributable to an increase in average selling prices and in total volumes sold. Along with higher margins, this led to a strong increase in EBITDA to EUR 452 million (previous year: EUR –24 million).

In the Polycarbonates segment, core volumes sold rose in the second quarter of 2021 by 15.4 percent over the prior-year quarter. This change is mainly due to growth in volumes sold in the automotive and transportation industry observed across all regions. Higher total volumes sold and selling prices meant sales rose by 56.6 percent to around EUR 1.0 billion (previous year: EUR 648 million). Substantially improved margins and growth in total volumes sold increased EBITDA to EUR 260 million (previous year: EUR 96 million).

Core volumes sold in the Coatings, Adhesives, Specialties segment rose 133.5 percent from the figure in the prior-year quarter. Around 100 percentage points is attributable to the initial consolidation of the RFM business. This portfolio change, together with the increase in volumes and higher selling prices, resulted in sales of EUR 926 million (previous year: EUR 443 million). Consequently, EBITDA more than doubled year on year, rising to EUR 134 million (previous year: EUR 60 million).

First half of 2021: substantial recovery in demand

A substantial recovery in demand for all main customer industries resulted in an 18.9 percent increase in core volumes sold in the first half of 2021. Higher selling prices, an increase in total volumes sold, and the change in portfolio resulted in sales in the first half of the year increasing by 47.1 percent to around EUR 7.3 billion. In particular, a significant increase in selling prices, which more than compensated for higher raw material prices, resulted in a Group EBITDA of around EUR 1.6 billion (previous year: EUR 379 million). Net income in the first half of 2021 was EUR 842 million (previous year: EUR –32 million), while the FOCF was EUR 692 million (previous year: EUR –225 million).

“Our start to 2021 was very successful, and we are optimistic about the upcoming year as a whole,” Dr. Markus Steilemann, CEO of ����AV, said. “We are taking this momentum into the implementation of our new strategy with our focus directed firmly toward the future. We are pro-actively working toward a circular economy, because I am convinced that a sustainable future is not possible without our materials.”

In February 2021, ����AV presented the new corporate strategy “Sustainable Future”, which has customer centricity and sustainable growth at its core. In the course of building this effort, the Group plans to reorganize its business into seven operating business entities as of July 1, 2021. The entities are organized according to their respective success factors and tailored to specific customer needs and market requirements. This enables the company to systematically align processes and products with customer needs while sharpening their focus on efficiency and sustainability. In the future, ����AV will distinguish between two business areas: “Performance Materials” and “Solutions and Specialties”.

Guidance 2021: Optimistic outlook for the fiscal year

Given business performance exceeded expectations, on April 13, 2021 ����AV adjusted its outlook for fiscal year 2021 and revised its guidance upward. The Group now expects EBITDA to range between EUR 2.2 billion and EUR 2.7 billion. FOCF is projected to amount from EUR 1.3 billion up to EUR 1.8 billion, with ROCE between 12 percent and 17 percent. Core volume growth at ����AV is still anticipated to come in at between 10 percent to 15 percent. Around 6 percent of this total figure is attributable to the Resins & Functional Materials business (RFM), which is now being integrated into the company after the successful acquisition from DSM on April 1, 2021. In addition, rating agency Moody's confirmed ����AV's investment grade rating in March 2021 and raised the outlook to "stable".

“We started the new year with a strong first quarter. Demand for our products remains high, and we have benefited from very good margins,” ����AV CFO Dr. Thomas Toepfer explained. “In fiscal year 2021, we will return to our growth trajectory in all regions and further reinforce our leading position.”

����AV expects EBITDA in the second quarter of 2021 to amount to between EUR 730 million and EUR 870 million.

New research successes on the path toward a circular economy

Sustainable growth is one of ����AV's core ambitions. The Group aims to become fully circular in the long term and is making steady progress on this front.

Since the beginning of the year, the company has worked with its industrial and scientific partners to develop additional applications for its innovative CO₂ technology. This technology allows ����AV to replace up to 20 percent of the fossil-based raw materials it uses with CO₂, thereby producing a valuable precursor for plastics. Examples of other research successes include novel CO₂-based surfactants for use in a wide range of everyday products such as detergents and cleaning agents. The more sustainable,
CO₂-based materials could also be used in the future in the production of insulating panels for housing construction or flexible foams for padding the interior of footwear for running, trekking, and skiing.

����AV achieved another milestone in the area of renewable energy. As of April 1, 2021, ����AV has been obtaining around 45 percent of the electricity it requires for production in Antwerp (Belgium) from onshore wind turbines. The supply contract with Belgian energy supplier ENGIE is the second of its kind signed by the Group. As early as December 2019, ����AV agreed a supply contract with energy supplier Ørsted, which will provide a considerable share of the electricity for ����AV's production facilities in Germany starting in 2025.

In order to continuously reduce the carbon footprint of ����AV's materials, the Group is constantly moving forward with the research and development of new recycling technologies. As of March 2021, ����AV began operating a pilot plant for the chemical recycling of flexible polyurethane foam from mattresses at its site in Leverkusen (Germany). The company aims to industrialize chemical recycling processes for used flexible foams and to re-market the raw materials obtained from the process.

Volume growth in all segments, high demand from Asia-Pacific

In the first quarter of 2021, the Polyurethanes segment’s core volumes sold rose by 2.5 percent compared to the previous-year’s quarter. Positive volume growth in the APAC region more than balanced out limited product availability and the resulting adverse effect on growth potential in other regions. Higher margins and a favourable competitive situation in particular led to a 30.7 percent increase in sales to around EUR 1.7 billion. In the first quarter, EBITDA also rose substantially to EUR 443 million as a result of higher selling prices (previous year: EUR 50 million). An increase in provisions for variable compensation and temporary cost of goods sold reduced earnings.

In the first quarter of 2021, the Polycarbonates segment saw core volumes sold grow by 11.6 percent compared to the previous year’s first quarter. This was attributable to the continued upswing in demand and expansion of core volumes sold, especially in the APAC region. Sales grew by 21.3 percent to EUR 889 million, largely driven by the rise in average selling prices due to a favourable competitive situation and higher volumes sold. This led to an increase in EBITDA from the prior-year quarter to EUR 222 million (previous year: EUR 109 million). An increase in provisions for variable compensation reduced earnings.

Core volumes in the Coatings, Adhesives, Specialties segment were up by 7.1 percent from last year’s quarter, particularly in the APAC region. In the first quarter, raw material bottlenecks resulted in the limited availability of products and curtailed growth opportunities. An increase in total volumes sold and higher selling prices had a positive effect on sales, which rose by 4.0 percent to EUR 595 million in the first quarter. In contrast, EBITDA dropped to EUR 114 million (previous year: EUR 130 million). Higher provisions for variable compensation were particularly responsible for reducing earnings. A positive volume effect and higher selling prices caused earnings to increase, however.

Capital market expectations are based on the average values of the latest consensus estimates of financial analysts, published by Vara Research on April 12, 2021.

����AV adjusts its forecast for fiscal year 2021 as follows:

• EBITDA is expected to be between EUR 2,200 million and EUR 2,700 million. The previous forecast projected EBITDA between EUR 1,700 million and EUR 2,200 million. The adjustment of the forecast mainly results from a better than expected margin development in the first half of the year. The consensus expects this figure to be EUR 2,206 million.
   
• Core volume growth is expected – unchanged – to be between 10% and 15%, of which around 6 percentage points are attributable to the acquisition of the Resins & Functional Materials (RFM) business.
   
• Free operating cash flow (FOCF) is expected to be between EUR 1,300 million and EUR 1,800 million. The previous forecast projected FOCF between EUR 900 million and EUR 1,400 million. The adjustment of the forecast mainly results from the increased forecast for EBITDA. The consensus expects this figure to be EUR 1,037 million.
   
• Return on capital employed (ROCE) is expected to be between 12% and 17%. The previous forecast projected ROCE between 7% and 12%. The adjustment of the forecast mainly results from the increased forecast for EBITDA.

The increased EBITDA forecast is based on a preliminary EBITDA for Q1 2021 of EUR 743 million and an expected EBITDA for Q2 2021 between EUR 730 million and EUR 870 million.

The outlook factors in the acquisition of the Resins & Functional Materials (RFM) business of Koninklijke DSM N.V., Heerlen (Netherlands), which was closed on April 1, 2021, and the integration into the Coatings, Adhesives, Specialties segment. One-time costs that could arise in conjunction with the transformation program “LEAP” have not been considered.

The Q1 2021 interim statement will be published on April 28, 2021.

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Annual Report 2020

The results of our fiscal year 2020, stories behind the numbers and further information about ����AV can be found .

����AV at a Glance

Are you looking for more information? Here you could find further facts about ����AV.

“We were able to successfully navigate through this highly exceptional year and maintained our ability to act at all times. We took a broad range of measures to protect our employees, keep supply chains running, and expand our strong liquidity position,” said CEO Dr. Markus Steilemann. “In fiscal 2020, we therefore were able to actively pursue our strategic goals. We defined our vision to become fully circular and took a major step in this direction with the announced acquisition of the Resins & Functional Materials business from DSM.”

Earlier in 2020, ����AV announced to become fully circular. To fulfill this long-term vision and embed circularity into all areas of its business activities, the Group decided to focus on four topics: alternative raw materials, innovative recycling, joint solutions, and renewable energies.

Strong results thanks to consistent measures

“The decisive measures we took early on helped considerably in delivering strong results. Backed by a significant recovery in demand from mid-year, we returned to our growth trajectory in the second half of the year and generated earnings that almost reached prior-year level,” said CFO Dr. Thomas Toepfer. “In an environment that is still characterized by uncertainty, we remain cost-conscious and continue to strengthen our efficiency. In addition, we are focusing even more explicitly on our customers in order to create value.”

To position itself more robustly in the wake of the coronavirus pandemic and secure liquidity reserves, ����AV implemented numerous additional cost-saving measures last year. As a result, the Group saved a total of EUR 360 million in the short term. The efficiency program “Perspective” launched in 2018 also contributed EUR 130 million in savings in fiscal 2020 and was wrapped up at year-end as announced.

����AV also pursued various types of financing measures in 2020. In doing so, the Group has aligned its financial instruments with its sustainability performance wherever possible to underscore its commitment to greater sustainability. The syndicated credit facility of EUR 2.5 billion, signed in March 2020, was linked with an Environment, Social, Governance (ESG) rating, for instance. The better ����AV’s ESG performance is, the lower the interest component of the credit facility will be.

Realignment of the strategy: Vision as guiding principle

With the clear goal of becoming fully circular and as an answer to changing market expectations, ����AV has consequently aligned its Group strategy.

This effort is centered on increased customer orientation and sustainable growth. Starting on July 1, 2021, ����AV will manage its business in a new, tailored structure around seven business entities aligned to customer needs and the competitive landscape. Going forward, the Group will distinguish between two business areas, Performance Materials as well as Solutions and Specialties.

• Performance Materials: This area will form a separate business entity and will comprise Standard Polycarbonates, Standard Urethane Components, and Basic Chemicals.
• Solutions and Specialties: This area will consist of the six new business entities Tailored Urethanes, Coatings and Adhesives, Engineering Plastics, Specialty Films, Elastomers, and Thermoplastic Polyurethanes.

����AV is combining the consistent alignment of products and processes with its customers’ needs with an even sharper focus on addressing sustainability in a profitable way. In the future, the Group will apply sustainability criteria even more stringently when undertaking investments, acquisitions, and R&D activities. As part of its transition towards a circular economy, ����AV is also expanding its portfolio of circular products.

“Our vision to become fully circular is charting the direction of our new Group strategy. The new structure is creating an optimal starting point for the future and will position us to become significantly more competitive,” according to Steilemann. “This will enable us to better meet our customers’ needs, make our company more efficient and effective, and generate sustainable growth. We are truly driving forward the transformation towards a circular economy."

New dividend policy with stronger focus on Group’s earnings

����AV is setting its dividend payout on a new basis. The dividend policy is based more strongly on the Group's earnings, with the dividend payout ratio amounting to 35% to 55% of the net income generated by the Group. “This dividend policy is more closely linked to ����AV's overall financial position and enables us to increase the dividend in years with strong earnings,” Toepfer said. Based on current performance, ����AV plans to distribute a dividend of EUR 1.30 per share for fiscal 2020. This corresponds to a payout ratio of 55%.

Guidance 2021: Fiscal year above pre-pandemic level 2019 expected

For fiscal 2021, ����AV expects core volume growth of between 10% and 15%. Around 6 percentage points of this figure are attributable to the planned acquisition of the Resins & Functional Materials (RFM) business from DSM, that the Group announced. Moreover, ����AV forecasts FOCF at between EUR 900 million and EUR 1.4 billion, with ROCE between 7% and 12%. The Group's EBITDA for full-year 2021 is anticipated to come in at between EUR 1.7 billion and EUR 2.2 billion. In the first quarter of 2021, the EBITDA range is projected to be EUR 700 million to EUR 780 million.

Recovery in demand across all segments in second half of 2020

The Polyurethanes segment saw core volumes sold decline by 6.1% in fiscal year 2020. Following a drop in demand in the first half of the year due to the coronavirus pandemic, a significant improvement in demand and an advantageous competitive situation in the second half of the year led to an increase in core volumes sold. Sales were down by 13.1% to EUR 5.0 billion for the full year, mainly due to a lower level of average selling prices for the year and the decline in total volumes sold. EBITDA fell by 3.5% to EUR 625 million, also on account of the decrease in volumes sold. However, a lower cost level resulting from cost-saving measures had a positive effect on EBITDA.

The Polycarbonates segment saw core volumes sold drop by 3.0% in fiscal 2020. The pandemic caused demand to dry up in the first six months. In the second half of the year, however, a robust recovery in demand pushed core volumes sold over the prior-year level. Sales were down by 14.1% to EUR 3.0 billion, mainly due to a lower level of selling prices and the decline in total volumes sold. In contrast, EBITDA improved by 3.2% to EUR 553 million, a trend primarily attributable to lower raw material prices and lower costs as a result of cost-saving measures.

The Coatings, Adhesives, Specialties segment's core volumes sold declined by 8.9% in fiscal 2020. In the first six months of fiscal 2020, core volumes sold were down largely because of the sharp drop in demand due to the coronavirus pandemic. By the end of the year, demand had recovered and core volumes sold in the fourth quarter of the 2020 fiscal year exceeded those of the prior year. Sales for the full year slid 13.9% to EUR 2.0 billion, mostly because of the decline in total volumes sold and lower average selling prices. EBITDA dropped by 27.3% to EUR 341 million. This was due to a decrease in volumes sold, lower margins and expenses for the planned acquisition of the RFM business. However, a lower cost level resulting from cost-saving measures had a positive impact on earnings. In addition EBITDA in the prior-year period was positively impacted by a one-time effect from the step acquisition of shares of Japan-based DIC ����AV Polymer Ltd.

Fourth quarter of 2020 well over prior-year level

Core volumes sold in the fourth quarter of 2020 rose by 1.7% over the prior-year period. Group sales therefore increased by 5.0% to EUR 3.0 billion as a result of higher selling prices. At EUR 637 million, EBITDA in the fourth quarter of 2020 more than doubled from the figure in the previous year. Net income climbed sharply from EUR 37 million in the prior-year quarter to EUR 312 million. FOCF also increased in the fourth quarter, by 19.4% to EUR 394 million.

Capital market expectations are based on the average values of latest consensus estimates of financial analysts, published by Vara Research on November 16, 2020.

����AV adjusts its forecast for fiscal year 2020 as follows:

• EBITDA is expected between EUR 1,440 and 1,500 million. The previous guidance projected an EBITDA at around EUR 1,200 million. The adjustment of the guidance is primarily due to a better margin development in the segments Polyurethanes and Polycarbonates. Consensus expects this number to be EUR 1,199 million.

• Free operating cash flow (FOCF) is expected between EUR 400 and 550 million. The previous guidance projected FOCF between EUR 0 and 300 million. The adjustment of the guidance is mainly the result of an increased forecast for EBITDA. Consensus expects this number to be EUR 309 million.

• Core volume growth is expected – unchanged – to be below previous year (in 2019: +2.0%). This decline is now expected between -5% and -6%.

The 2020 annual report will be published on February 23, 2021.

����AV CEO Dr. Markus Steilemann: “Although the coronavirus pandemic is still causing uncertainty, we have reacted decisively and have taken the right measures, which are now paying off. In the third quarter, demand from our customer industries experienced a strong rebound. The volume growth we achieved shows that we are meeting our customers’ needs and offering the right solutions.”

Full-year guidance specified; earnings guidance raised

����AV confirmed its full-year guidance for 2020 as adjusted on October 9, 2020. This assumes that economic activity will not be severely restricted again to curb the spread of the coronavirus pandemic. The Group now anticipates EBITDA at around EUR 1.2 billion in 2020 (previous: EUR 700 million to EUR 1.2 billion). In terms of core volume growth, ����AV continues to expect a year-on-year decline. The Group currently expects FOCF of between EUR 0 million and EUR 300 million (previous: EUR –200 million to EUR 300 million) and a return on capital employed (ROCE) in the mid-single-digit percentage range (previous: –1% to 4%).

“The recovery from the impact of the coronavirus pandemic has developed more dynamically than so far anticipated. In the third quarter, we were therefore able to significantly improve earnings,” explained ����AV CFO Dr. Thomas Toepfer. “Due to our strict focus on efficiency, we have achieved higher cost savings and additionally benefited from positive margin development. We were able to raise our earnings guidance for 2020 on this basis. Accordingly, we look forward to the fourth quarter with confidence.”

Acquisition announced: ����AV to be one of the leading suppliers of sustainable coating resins

On September 30, 2020, ����AV signed an agreement to acquire the Resins & Functional Materials (RFM) business of DSM for a purchase price of EUR 1.61 billion. This deal marks an important step for ����AV in its long-term corporate strategy to strengthen its sustainable and innovation-driven businesses. Integrating RFM into the Coatings, Adhesives, Specialties segment significantly broadens the company's portfolio in the high-growth market for sustainable coating resins.

“The announced acquisition enhances the growth trajectory of our business and is truly a milestone on our way toward a circular economy: Along with RFM, we can meet global demand for sustainable products even better and drive innovations for the transition to a circular economy even more effectively,” stated Steilemann.

On October 13, 2020, ����AV successfully completed a capital increase in connection with the announced acquisition comprising 10.2 million new no-par value ordinary bearer shares that were placed with institutional investors through partial utilization of authorized capital. The gross proceeds amount to EUR 447 million and will be used to finance the acquisition.

Lower cost level in all segments; volume growth in Polyurethanes and Polycarbonates

The Polyurethanes segment saw core volume growth of 4.3% in the third quarter of 2020. Sales declined by 11.0% to EUR 1.3 billion mainly due to competitive pressure on selling prices in the prior year and a persistent lower raw material price level. EBITDA in the Polyurethanes segment rose by 12.2% to EUR 220 million. The positive effect of volumes sold and reduced cost levels as a result of cost-cutting measures increased earnings.

In the Polycarbonates segment, core volumes were up by 3.6% in the third quarter of 2020. Sales decreased by 11.1% to EUR 801 million mainly due to the development of the selling price level as a result of lower raw material prices. EBITDA in the Polycarbonates segment increased by 12.1% to EUR 148 million. An improved cost level as a result of cost-cutting measures and higher margins had a positive effect on earnings.

In the third quarter of 2020, the Coatings, Adhesives, Specialties segment saw a decline in core volumes of 6.9% on account of weaker demand from the automotive and transport industries as well as the construction industry. Sales were down by 15.8% to EUR 495 million chiefly due to lower total volumes sold and lower average selling prices. EBITDA decreased by 10.8% to EUR 99 million in the third quarter of 2020. A negative effect on volumes sold and a slight decline in margins put downward pressure on earnings. Reduced cost levels as a result of cost-cutting measures were unable to compensate for these effects.

Nine-month figures below prior-year level due to pandemic

After a challenging first half of 2020, ����AV saw demand from its main customer industries recover during the third quarter. On the whole, however, the results for the first three quarters of 2020 remained below the prior-year level. In the first nine months of 2020, core volumes declined by 7.9%, and Group sales were down by 19.4% to around EUR 7.7 billion. This was attributable mainly to reduced selling prices and lower total volumes sold. EBITDA therefore decreased by 37.0% to EUR 835 million, while net income amounted to EUR 147 million (–71.5%). FOCF was down, coming in at EUR 136 million (–4.9%).

Therefore, ����AV provides already today the following preliminary key financial data from the Q3 2020 interim statement:

• Preliminary EBITDA amounts to EUR 456 million. Consensus expects this number to be EUR 373 million. The difference is mainly driven by higher cost containments as well as a stronger volume growth and a better margin development.
  
  Preliminary EBITDA for the Polyurethanes segment amounts to EUR 220 million, for the Polycarbonates segment to EUR 148 million and for the Coatings, Adhesives, Specialties segment to EUR 99 million.
   
• Preliminary core volume growth compared to prior year amounts to +3.0%. The recovery from the effects of the coronavirus pandemic has developed more dynamically than so far anticipated.
   
• Preliminary sales amount to EUR 2,760 million. Consensus expects this number to be EUR 2,847 million.
  
  Preliminary effects on sales amount to +0.9% by volume, -9,0% by price, -3.3% by exchange rates and -1.4% by portfolio.
  
  Preliminary sales for the Polyurethanes segment amount to EUR 1,315 million, for the Polycarbonates segment to EUR 801 million and for the Coatings, Adhesives, Specialties segment to EUR 495 million.

The Q3 2020 interim statement will be published on October 27, 2020.

As a consequence of the better than expected Q3 2020 results and a better than expected operational start into Q4 2020 ����AV adjusts its guidance for full year 2020 as follows:

• EBITDA is expected at around EUR 1.2 billion. The previous guidance projected an EBITDA between EUR 700 million and EUR 1,200 million. The adjustment of the guidance is primarily due to higher cost containments, a stronger volume growth and a better margin development for the full year. Consensus expects this number to be EUR 1,005 million.
   
• Core volume growth is expected – unchanged – to be below previous year (in 2019: +2.0%).
   
• Free operating cash flow (FOCF) is expected between EUR 0 million and EUR 300 million. The previous forecast projected FOCF between EUR -200 million and EUR 300 million. The adjustment of the guidance is mainly the result of an increased forecast for EBITDA as well as partly compensating effects from working capital. Consensus expects this number to be EUR 185 million.
   
• Return on capital employed (ROCE) is expected in the mid-single-digit percent range. The previous forecast projected ROCE between -1% and 4%. The adjustment of the guidance is mainly the result of the increased forecast for EBITDA.

The 2020 annual report will be published on February 23, 2021.

“As anticipated, the global coronavirus pandemic had a significant impact on our results in the second quarter,” said Dr. Markus Steilemann, CEO of ����AV. “We took the right measures in timely fashion to protect our employees, maintain production and supply chains, and ensure continuous supply to our customers. We have managed to accomplish that very successfully to date and will continue to steer ����AV resolutely through this crisis.”

The company confirmed the full-year guidance it had revised in April. However, the uncertainties associated with the consequences of the coronavirus pandemic for economic development remain high.

Consistent crisis management and strengthening of liquidity position

The company also took further financing measures in the second quarter to sustainably strengthen its liquidity position. ����AV placed Eurobonds with a total volume of EUR 1.0 billion in the capital markets on June 5, 2020. The bonds will be maturing in February 2026 and June 2030 and pay a coupon of 0.875% and 1.375% respectively. Investor demand was exceptionally high with the order book being more than 10 times oversubscribed.

“Although Covid-19 is having a significant impact on our business performance, our consistent actions are already showing an effect,” said Dr. Thomas Toepfer, ����AV’s CFO and Labor Director. “2020 remains an exceptional year and the further development is still not fully foreseeable. That is a further reason why we will stick to our clear course with its focus on efficiency, cost awareness and securing our liquidity.”

In view of the exceptional situation, ����AV’s Board of Management, Supervisory Board and workforce are also making a joint solidarity contribution in order to enhance the company’s resilience in the current environment. For ����AV’s German companies, the Board of Management and employee representatives have agreed on a model to reduce working hours and remuneration for all employees by the end of November 2020. All of ����AV’s Group companies outside Germany are implementing comparable country-specific cost-saving measures.

New corporate vision: Accelerate orientation towards a circular economy

����AV presented its new long-term vision in May 2020. The company intends to fully align its entire production, its product and solution portfolio and all areas in the long term to the circular concept. The strategic program, which was already launched in 2019, aims to anchor circularity in all areas of the company in a holistic approach. It is now being successively implemented and backed up with concrete and measurable goals. It focuses in particular on the four topics of alternative raw materials, innovative recycling, joint solutions and renewable energies.

All segments affected by sales decline due to coronavirus

The Polyurethanes segment saw core volumes in the second quarter of 2020 decline significantly by 25.9% compared to the prior-year quarter (previous year: 0.7%) due to the coronavirus pandemic, a trend which affected all key customer industries. Sales were down 38.7% to EUR 913 million, mainly due to a decline in total volumes sold and lower average selling prices. Declining volumes and lower margins overall resulted in an EBITDA of EUR –24 million (previous year: EUR 172 million).

In the second quarter of 2020, core volumes in the Polycarbonates segment fell by 14.4% over the prior-year quarter (previous year: 4.4%). Decreased volumes as a result of significant drops in demand from the automotive and transport industries were cushioned by a lower decline in volumes from the electrical, electronics and household appliances industries and volume growth in the construction industry. Sales decreased to EUR 648 million (–27.8%) on account of a decline in total volumes sold and lower average selling prices. EBITDA consequently fell by 37.7% to EUR 96 million.

Core volumes in the Coatings, Adhesives, Specialties segment were down 25.3% compared to the prior-year quarter (previous year: –4.7%). The coronavirus pandemic resulted in far weaker demand from key customer industries, a trend that was reflected in particular in a downturn in volumes in the automotive and transport industries. Sales fell by 28.7% to EUR 443 million, mainly due to a decline in total volumes sold and lower average selling prices. EBITDA decreased by 60.0% to EUR 60 million on the back of lower volumes and margins.

First half of 2020 marked by coronavirus

As expected, the figures for the first half of 2020 were significantly impacted by the effects of the coronavirus pandemic. Core volumes decreased by 13.6%, and Group sales fell by 22.7% to around EUR 4.9 billion (previous year: EUR 6.4 billion). That is mainly attributable to lower total volumes and a decline in the level of selling prices. EBITDA consequently dropped by 57.9% to EUR 379 million, while net income totaled EUR –32 million (previous year: EUR 368 million). FOCF in the first half of 2020 declined to EUR –225 million (previous year: EUR –100 million).

As a consequence of the coronavirus pandemic and the increasingly adverse business environment, the provided outlook cannot be upheld. The Board of Management therefore provides the following adjustments to the Group financial guidance for 2020:

• Core volume growth is expected to be negative for 2020 compared to 2019 (previously: positive low-single-digit-percentage range). Preliminary core volume growth in Q1 2020 was -4.1%.


• EBITDA is expected to be in the range between EUR 700 million and EUR 1,200 million in 2020 (previously: between EUR 1,000 million and EUR 1,500 million). This adjustment is primarily due to declining core volumes.


• Free operating cash flow (FOCF) is expected to be in the range between EUR -200 million and EUR 300 million in 2020 (previously between EUR 0 million and EUR 400 million).


• In 2020, the return on capital employed (ROCE) is projected between -1% and 4% (previously: between 2% and 7%).


• The company publishes a Group EBITDA of EUR 254 million as a preliminary number of the Q1 2020 Interim Statement. This preliminary result is within the published range of EUR 200 to 280 million. The full Q1 2020 Interim Statement is scheduled to be published on April 29, 2020.


• The Board of Management increases the target for short-term cost savings to more than EUR 300 million in FY 2020 (previously: EUR 200 million) in addition to the ongoing ‘Perspective’ restructuring program that is expected to contribute savings of EUR 100 million in FY 2020.


• Capital expenditures (CAPEX) are reduced by around EUR 200 million and are now expected to amount to around EUR 700 million in FY 2020 (previously: EUR 900 million).


• ����AV continues to maintain a strong balance sheet and has significant sources of liquidity. Presently, these include around EUR 1.2 billion in cash or cash equivalents as well as an undrawn revolving credit facility (RCF) of EUR 2.5 billion.

This update takes into account the negative impact of the coronavirus pandemic as it is foreseeable on April 15, 2020, and assumes a recovery of the current situation starting in Q3 2020. As the pandemic is still evolving, further updates to the financial expectations may be necessary.

The health of employees, shareholders and service providers involved takes absolute priority. By postponing a meeting with physical presence, ����AV would like to actively contribute to the slowing down of the spread of the coronavirus. In addition, the city of Bonn has prohibited all events of any kind for an unlimited period of time. In view of the current course of the wave of the infection, it cannot be assumed with sufficient certainty that this legal situation will change by April 17, 2020.

As a result of the cancellation of the Annual General Meeting on the original date, the resolution on the use of the distributable profit 2019 and consequently, the payout of the dividend, among other things, will be postponed.

The Annual General Meeting shall be scheduled to take place on a new date within the first eight months of the current financial year as stipulated by the German Stock Corporation Act. ����AV will inform its shareholders as well as the public of the next steps in due course.

“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, ����AV 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

“����AV 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, ����AV has accelerated the implementation of the multi-year effectiveness and efficiency program launched in October 2018. That enabled ����AV to cut costs by around EUR 150 million in the past fiscal year. For 2020, the company aims to achieve savings of EUR 250 million, while the cumulated savings by the end of 2021 are expected to be around EUR 350 million 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 K 2019 in Düsseldorf last fall, ����AV presented numerous product innovations that deliver answers to global challenges such as urbanization, mobility of the future or climate change. As an innovation leader, ����AV 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 ����AV since summer 2019, will work on enhancing ����AV’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

����AV invested a total of EUR 910 million in 2019 (previous year: EUR 707 million), 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, ����AV announced in January 2020 that the MDI investment project in Baytown (United States) will be paused for 18 to 24 months.

Nevertheless, ����AV 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 400,000 metric tons. That will make Brunsbüttel one of the three largest MDI production sites in Europe and secure ����AV’s leading position in this market segment.

Guidance for fiscal 2020: Market environment remains challenging

For 2020 as a whole, ����AV anticipates low single-digit percentage growth in core volumes. The Group expects FOCF to come in between EUR 0 and 400 million and ROCE between 2% and 7%. ����AV assumes that EBITDA for the year as a whole will be between EUR 1.0 and 1.5 billion. In the first quarter, EBITDA is expected to be between EUR 200 and 280 million.

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

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 EUR 5,779 million, 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 EUR 648 million.

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 EUR 3,473 million and EBITDA by 48.3% to EUR 536 million. 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 EUR 2,369 million, the Coatings, Adhesives, Specialties segment’s sales remained stable year over year (previous year: EUR 2,361 million). EBITDA increased by 1.1% to EUR 469 million. 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 ����AV 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 EUR 278 million (–5.1%) and net income was EUR 37 million (–53.2%) in the fourth quarter. FOCF decreased by 9.1% year on year to EUR 330 million.

“After generating solid volume growth in the second quarter, demand once again grew in the third quarter,” CEO Dr. Markus Steilemann reported. “The economic climate remains challenging, which we notice particularly in the automotive sector. However, our volume growth indicates that our business is well diversified across various industries,” he said. Growth was attributable mainly to the construction, furniture, electrical and electronics industries.

Outlook for the year confirmed and ranges narrowed

Based on the results of the third quarter, CFO Dr. Thomas Toepfer confirmed the outlook for the year as a whole. “We remain confident we will reach the targets we have set for the fiscal year,” emphasized Toepfer. “Margins were unusually high in the prior-year quarter, which is why the year-on-year decline in sales and earnings is in line with our expectations.”

After the third quarter, the Group narrowed the forecast for fiscal year 2019 within the published ranges: ����AV anticipates core volume growth in the low-single-digit percentage range for 2019. The Group’s FOCF is expected to be between EUR 300 million and EUR 500 million, with ROCE between 8% and 10%. EBITDA for the fiscal year is forecast to be between EUR 1,570 million and EUR 1,650 million.

New circular economy program launched

In order to remain successful in the long run with its sustainable and innovative solutions, ����AV aims to narrow its focus on circular economy going forward and has launched a new strategic program to this end. In its production processes in particular, the Group is aiming for the greatest possible use of raw materials from sustainable sources, such as plants, waste and CO₂. This should eliminate the use of fossil resources such as crude oil as far as possible. Above all, used plastics must be recycled systematically and to the greatest possible extent.

Sustainability and innovation were also the keywords at K2019, the world’s largest plastics trade show held in Düsseldorf (Germany). ����AV showcased many different products and technologies there that offer solutions to urgent global challenges. For instance, it presented high-tech materials that use carbon in more environmentally friendly textiles, improve the performance of wind turbines, and accelerate the expansion of the 5G technology.

Volume growth in the third quarter in the Polyurethanes and Polycarbonates segments

Core volumes in the Polyurethanes segment increased by 5.1%. The increased demand in the furniture and electrical and electronics industries, especially in household appliances, as well as in the construction sector more than offset weaker demand from the automotive industry. However, sales in this segment decreased by 20.1% to EUR 1,478 million due to lower selling prices stemming from increased competitive pressure. This development was also reflected in EBITDA, which fell to EUR 196 million (–54.6%).

Core volumes in Polycarbonates even rose by 9.3% over the prior-year quarter. The electrical and electronics industry and the construction sector were the main contributors to this growth. Sales in this segment decreased by 13.2% to EUR 901 million in the third quarter of 2019. EBITDA fell by 58.1% to EUR 132 million, mostly on account of a negative development in selling prices.

The Coatings, Adhesives, Specialties segment reported a drop in core volumes by 4.0% as a result of weaker demand for coating raw materials from all key industries, particularly the automotive sector. Sales therefore decreased by 3.0% to EUR 588 million. In the third quarter of 2019, EBITDA was down by 11.9% to EUR 111 million, driven by declining volumes and lower margins.

Greater competition and new price level hallmarks of the first nine months

As expected, the first nine months were marked by growing competition and a pricing shift. Core volume growth amounted to 1.5%. Group sales decreased by 15.8% to EUR 9,548 million, mainly as a result of lower selling prices. EBITDA declined by 54.4% to EUR 1,326 million. Net income stood at EUR 515 million (–70.5%). Free operating cash flow was down by EUR 143 million (–89.1%).

“After generating solid volume growth in the second quarter, demand once again grew in the third quarter,” CEO Dr. Markus Steilemann reported. “The economic climate remains challenging, which we notice particularly in the automotive sector. However, our volume growth indicates that our business is well diversified across various industries,” he said. Growth was attributable mainly to the construction, furniture, electrical and electronics industries. 

Outlook for the year confirmed and ranges narrowed

Based on the results of the third quarter, CFO Dr. Thomas Toepfer confirmed the outlook for the year as a whole. “We remain confident we will reach the targets we have set for the fiscal year,” emphasized Toepfer. “Margins were unusually high in the prior-year quarter, which is why the year-on-year decline in sales and earnings is in line with our expectations.”

After the third quarter, the Group narrowed the forecast for fiscal year 2019 within the published ranges: ����AV anticipates core volume growth in the low-single-digit percentage range for 2019. The Group’s FOCF is expected to be between EUR 300 million and EUR 500 million, with ROCE between 8% and 10%. EBITDA for the fiscal year is forecast to be between EUR 1,570 million and EUR 1,650 million.

New circular economy program launched

In order to remain successful in the long run with its sustainable and innovative solutions, ����AV aims to narrow its focus on circular economy going forward and has launched a new strategic program to this end. In its production processes in particular, the Group is aiming for the greatest possible use of raw materials from sustainable sources, such as plants, waste and CO₂. This should eliminate the use of fossil resources such as crude oil as far as possible. Above all, used plastics must be recycled systematically and to the greatest possible extent.

Sustainability and innovation were also the keywords at K2019, the world’s largest plastics trade show held in Düsseldorf (Germany). ����AV showcased many different products and technologies there that offer solutions to urgent global challenges. For instance, it presented high-tech materials that use carbon in more environmentally friendly textiles, improve the performance of wind turbines, and accelerate the expansion of the 5G technology.

Volume growth in the third quarter in the Polyurethanes and Polycarbonates segments

Core volumes in the Polyurethanes segment increased by 5.1%. The increased demand in the furniture and electrical and electronics industries, especially in household appliances, as well as in the construction sector more than offset weaker demand from the automotive industry. However, sales in this segment decreased by 20.1% to EUR 1,478 million due to lower selling prices stemming from increased competitive pressure. This development was also reflected in EBITDA, which fell to EUR 196 million (–54.6%).

Core volumes in Polycarbonates even rose by 9.3% over the prior-year quarter. The electrical and electronics industry and the construction sector were the main contributors to this growth. Sales in this segment decreased by 13.2% to EUR 901 million in the third quarter of 2019. EBITDA fell by 58.1% to EUR 132 million, mostly on account of a negative development in selling prices.

The Coatings, Adhesives, Specialties segment reported a drop in core volumes by 4.0% as a result of weaker demand for coating raw materials from all key industries, particularly the automotive sector. Sales therefore decreased by 3.0% to EUR 588 million. In the third quarter of 2019, EBITDA was down by 11.9% to EUR 111 million, driven by declining volumes and lower margins.

Greater competition and new price level hallmarks of the first nine months

As expected, the first nine months were marked by growing competition and a pricing shift. Core volume growth amounted to 1.5%. Group sales decreased by 15.8% to EUR 9,548 million, mainly as a result of lower selling prices. EBITDA declined by 54.4% to EUR 1,326 million. Net income stood at EUR 515 million (–70.5%). Free operating cash flow was down by EUR 143 million (–89.1%).

“The economic situation is still challenging, since global economic and political uncertainties remain”, said CEO Dr. Markus Steilemann. “Nonetheless, we reached our earnings targets and were able to increase our core volumes again in the second quarter. This underscores the trend towards more sustainable solutions, which we offer to many industries.”

����AV confirms guidance for 2019

The results for the first six months were well under the previous year's level, but this was because 2018 was marked by exceptionally high margins in some product groups.

“Our half-year results met our expectations in the current economic environment. Thus, we confirm our guidance for the fiscal year. At the same time we will closely follow further developments in our major sales markets,” explained CFO Dr. Thomas Toepfer. “The automotive industry developed much weaker than expected, on the other hand the construction sector as well as the wood and furniture industry evolved better.”

For fiscal 2019, ����AV continues to project core volume growth to be in the low- to mid-single-digit percentage range. FOCF is expected to be between EUR 300 million and EUR 700 million, with ROCE between 8% and 13%. EBITDA for the fiscal year is forecasted to be between EUR 1.5 billion and EUR 2.0 billion, while in the third quarter, the EBITDA is expected to be around EUR 410 million.

Progress on portfolio optimization and investments

In the second quarter, ����AV made further progress on improving the portfolio. The European systems houses business is being sold to H.I.G. Capital for a price in the high double-digit millions of euros.

Simultaneously, the Group continues to focus on value-creating investments: In May, ����AV laid the foundation for expanding production of polycarbonate films in Dormagen, Germany. This investment is part of a program totaling EUR 100 million with which ����AV aims to reinforce the high-margin specialty films business. Provided the necessary official permits are obtained, construction of a dedicated chlorine supply facility for the existing MDI production in Tarragona, Spain, will begin at the end of the year. The first internal milestone was met in Baytown, Texas (USA), where a large-scale plant for the rigid foam precursor MDI is planned. Now, the 100-person project team will begin with the detailed technical planning.

Core volume growth in Polyurethanes and Polycarbonates

In the Polyurethanes segment, core volumes grew by 0.7%. Sales declined 24.3% to EUR 1,489 million, driven by lower selling prices as a result of increased competition. The downturn in selling prices was also evident in EBITDA, which decreased to EUR 172 million (–70.5%).

Core volumes in Polycarbonates rose by 4.4% over the prior-year quarter. Whereas the electrical and electronics industry and the construction sector contributed to this growth, volumes in the automotive industry declined. Sales were down 15.0% to EUR 898 million in the second quarter of 2019. EBITDA in the Polycarbonates segment was 46.0% lower, amounting to EUR 154 million, mostly due to the drop in selling prices.

The Coatings, Adhesives, Specialties segment saw a decline in core volumes of 4.7%. As a result, sales were down 1.3% to EUR 621 million. Exchange rate movements and the gradual purchase of the shares of Japan-based DIC ����AV Polymer Ltd. had a positive effect, however. The increase in the stake held in the Japanese joint venture also led to a positive non-recurring effect on EBITDA, which grew 7.9% to EUR 150 million in the second quarter of 2019.

Intensified competition a hallmark of H1 2019

On the whole, the first six months of 2019 saw growing competition, as expected. Volumes sold remained mostly stable (–0.4%), while Group sales dropped 16.4% to EUR 6,386 million due to lower selling prices. In the Polyurethanes and Polycarbonates segments in particular, selling prices were well below those of the prior-year period. As a result, EBITDA was down 56.0% to EUR 901 million. Net income stood at EUR 368 million (–70.5%). Free operating cash flow decreased to minus EUR 100 million.

About ����AV:

With 2018 sales of EUR 14.6 billion, ����AV is among the world’s largest polymer companies. Business activities focus 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 and electronics industries. Other sectors include sports and leisure, cosmetics, health, and the chemical industry itself. ����AV has 30 production sites around the globe and employed approximately 16,800 people (full-time equivalents) as of the end of 2018.

This investor news is available for download from the Investor Relations website of ����AV at www.covestro.com/en/investors/news.

The full Interim Report together with the presentation and audio recording of the analyst conference are available at www.covestro.com/en/investors.

Forward-looking statements

This investor news may contain forward-looking statements based on current assumptions and forecasts made by ����AV. 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 ����AV’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.

“The economic situation is still challenging, since global economic and political uncertainties remain”, said CEO Dr. Markus Steilemann. “Nonetheless, we reached our earnings targets and were able to increase our core volumes again in the second quarter. This underscores the trend towards more sustainable solutions, which we offer to many industries.”

����AV confirms guidance for 2019

The results for the first six months were well under the previous year's level, but this was because 2018 was marked by exceptionally high margins in some product groups.

“Our half-year results met our expectations in the current economic environment. Thus, we confirm our guidance for the fiscal year. At the same time we will closely follow further developments in our major sales markets,” explained CFO Dr. Thomas Toepfer. “The automotive industry developed much weaker than expected, on the other hand the construction sector as well as the wood and furniture industry evolved better.”

For fiscal 2019, ����AV continues to project core volume growth to be in the low- to mid-single-digit percentage range. FOCF is expected to be between EUR 300 million and EUR 700 million, with ROCE between 8% and 13%. EBITDA for the fiscal year is forecasted to be between EUR 1.5 billion and EUR 2.0 billion, while in the third quarter, the EBITDA is expected to be around EUR 410 million.

Progress on portfolio optimization and investments

In the second quarter, ����AV made further progress on improving the portfolio. The European systems houses business is being sold to H.I.G. Capital for a price in the high double-digit millions of euros.

Simultaneously, the Group continues to focus on value-creating investments: In May, ����AV laid the foundation for expanding production of polycarbonate films in Dormagen, Germany. This investment is part of a program totaling EUR 100 million with which ����AV aims to reinforce the high-margin specialty films business. Provided the necessary official permits are obtained, construction of a dedicated chlorine supply facility for the existing MDI production in Tarragona, Spain, will begin at the end of the year. The first internal milestone was met in Baytown, Texas (USA), where a large-scale plant for the rigid foam precursor MDI is planned. Now, the 100-person project team will begin with the detailed technical planning

Core volume growth in Polyurethanes and Polycarbonates

In the Polyurethanes segment, core volumes grew by 0.7%. Sales declined 24.3% to EUR 1,489 million, driven by lower selling prices as a result of increased competition. The downturn in selling prices was also evident in EBITDA, which decreased to EUR 172 million (–70.5%).

Core volumes in Polycarbonates rose by 4.4% over the prior-year quarter. Whereas the electrical and electronics industry and the construction sector contributed to this growth, volumes in the automotive industry declined. Sales were down 15.0% to EUR 898 million in the second quarter of 2019. EBITDA in the Polycarbonates segment was 46.0% lower, amounting to EUR 154 million, mostly due to the drop in selling prices.

The Coatings, Adhesives, Specialties segment saw a decline in core volumes of 4.7%. As a result, sales were down 1.3% to EUR 621 million. Exchange rate movements and the gradual purchase of the shares of Japan-based DIC ����AV Polymer Ltd. had a positive effect, however. The increase in the stake held in the Japanese joint venture also led to a positive non-recurring effect on EBITDA, which grew 7.9% to EUR 150 million in the second quarter of 2019.

Intensified competition a hallmark of H1 2019

On the whole, the first six months of 2019 saw growing competition, as expected. Volumes sold remained mostly stable (–0.4%), while Group sales dropped 16.4% to EUR 6,386 million due to lower selling prices. In the Polyurethanes and Polycarbonates segments in particular, selling prices were well below those of the prior-year period. As a result, EBITDA was down 56.0% to EUR 901 million. Net income stood at EUR 368 million (–70.5%). Free operating cash flow decreased to minus EUR 100 million.

About ����AV:

With 2018 sales of EUR 14.6 billion, ����AV is among the world’s largest polymer companies. Business activities focus 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 and electronics industries. Other sectors include sports and leisure, cosmetics, health, and the chemical industry itself. ����AV has 30 production sites around the globe and employed approximately 16,800 people (full-time equivalents) as of the end of 2018.

Note to editors:
Below is a table showing key data for ����AV Group for the second quarter of 2019 and the first half of 2019.

The Half-Year Financial Report is now also available as an online version:

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Forward-looking statements

This news release may contain forward-looking statements based on current assumptions and forecasts made by ����AV. 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 ����AV’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.

“The first quarter was in line with our guidance and confirms our subdued expectations for the full year,” explains CEO Dr. Markus Steilemann. “It is therefore even more important to now set the right course for our future growth with investments and efforts to improve efficiency. After all, demand for our innovative and sustainable materials remains intact.”

����AV confirms targets for fiscal year 2019

Dr. Thomas Toepfer, CFO of ����AV, compares the results of the first quarter against the same period in 2018: “The prior-year quarter was influenced by exceptionally high margins in a number of product groups. In line with our expectations, our results therefore fell below those of the same period of last year. In anticipation of continued challenging environment influencing results throughout the year, we are especially focusing on efficient production and processes and targeted investments.”

Consistent with this focus, ����AV raised its stake to 80% in the joint venture DIC ����AV Polymer in Japan effective April 1, 2019, expanding its promising global thermoplastic polyurethanes business. ����AV plans total investments of over EUR 900 million this year to refurbish and expand its production plants and extend into growth areas such as specialty films. Efficiency measures are expected to deliver cost savings of EUR 350 million per year over the medium term.

For fiscal 2019, ����AV continues to project core volume growth to be in the low- to mid-single-digit percentage range. FOCF is expected to be between EUR 300 million and EUR 700 million, with ROCE between 8% and 13%. EBITDA for the fiscal year is forecast to be between EUR 1.5 billion and EUR 2.0 billion, with the second quarter EBITDA expected to be around the level of first quarter 2019.

Strategic initiatives making headway

Strategic initiatives to advance digitalization and innovation made progress in the first quarter. The new digital B2B trading platform Asellion was successfully launched at the end of March, enabling ����AV customers to order products online and do business around the clock and with just a few clicks at the link covestro.asellion.com.

����AV has also joined forces with the US-based biotechnology company Genomatica to research and develop high-performance materials on the basis of renewable raw materials. This collaboration aims to reduce the use of fossil-based resources such as crude oil through the use of sustainable raw materials instead.

Sales and earnings growth in Coatings, Adhesives, Specialties segment

Core volumes in the Polyurethanes segment remained largely stable (–0.2%) in the first quarter of 2019. Sales in this segment declined by 24.3% to EUR 1,476 million due to lower selling prices, with all three regions posting lower sales. EBITDA fell to EUR 157 million (–75.4%) due to lower margins.

Driven by weaker demand from the automotive industry, core volumes in the Polycarbonates segment decreased by 6.3%. Sales in this segment declined by 16.7% to EUR 860 million, due also to lower selling prices. With falling margins and stable raw material prices, EBITDA declined to EUR 155 million (–48.8%).

In the Coatings, Adhesives, Specialties segment, core volumes saw virtually no change versus the prior-year quarter (–0.1%). Sales in this segment increased by 5.9% to EUR 627 million, boosted by increased selling prices on average and exchange rate movements. EBITDA rose 7.4% to EUR 146 million.

About ����AV:

With 2018 sales of EUR 14.6 billion, ����AV 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 and electronics industries. Other sectors include sports and leisure, cosmetics, health and the chemical industry itself. ����AV has 30 production sites worldwide and employs approximately 16,800 people (calculated as full-time equivalents) at the end of 2018.

This investor news is available for download from the Investor Relations website of ����AV at /en/investors/news. Find more information at investor.covestro.com.

Forward-looking statements

This investor news may contain forward-looking statements based on current assumptions and forecasts made by ����AV. 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 ����AV’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.

Ladies and Gentlemen,

Dear Shareholders,

On behalf of the entire Board of Management of ����AV, I also would like to extend a warm welcome to our Annual General Meeting. I am delighted to see you here in Bonn today.

This is also a very special day for me personally, as it is my first Annual General Meeting as CEO of ����AV.

First of all, I’d like to give you a brief explanation regarding ����AV’s development in the financial year under review, where ����AV stands today and what our strategy looks like for a successful future.

Next, our Chief Financial Officer Thomas Toepfer will present you with the detailed results for the 2018 financial year.

Ladies and Gentlemen,

����AV is on a long-term and profitable growth track.

Since 2015, the year of our IPO, we have succeeded in continually increasing core volume growth and generating strong earnings.

We continued this trend during the last financial year.

Global demand for our products again remained unabated in 2018. Our customers find our solutions compelling. And the demand for innovative materials continues to grow.

We also invested in future fields with strong growth and high margins for this reason.

Plus, our newly launched efficiency program has enabled us to take a key step toward even greater efficiency and effectiveness.

However, you most probably also noticed that the market environment in 2018 was quite volatile:

We had an outstanding start and an outstanding first half-year: As it turned out however, the market situation changed significantly in the fourth quarter. We were confronted with reverse effects and were compelled to adjust our guidance.

The main reason for this was that selling prices of certain products of importance to us declined faster and more severely than originally expected. As you know, we already had substantial surplus demand in 2017, along with very good margins. It therefore was just a question of time for capacities to expand on the supply side as well.

Compounding factors included rising raw material prices that we were unable to pass on – and one-off effects such as the low water level in the river Rhine.

This combination put far more pressure than anticipated on our margins in the fourth quarter.

Overall, however – and this is very important to me – ����AV remains well positioned and highly profitable.

We can look ahead with confidence, as we are also able to operate sustainably and successfully in this environment. Following a successful fiscal year 2018, we have solid foundations as we head into the upcoming phase. Because all in all our 2018 results have once more reached an outstanding level.

We achieved 1.6% core volume growth – despite an already very high capacity utilization and bottlenecks in supply due to limited shipping capacity on the river Rhine.

Sales rose by 3.4% to 14.6 billion euros.

EBITDA, at 3.2 billion euros, was only just below the 2017 record year and well above the long-term average. However, this reflects the fact that margins are beginning to normalize.

The same applies to our free operating cash flow: at 1.7 billion euros, it reached a robust level but was down by 9.4% as compared with the previous year.

Our ROCE, at 29.5%, was likewise at a very high level.

These strong results are a major success story despite increasing competition. At this juncture, therefore, I would like in particular to thank those people who made this success possible: In 2018, ����AV’s employees once again demonstrated an impressive level of commitment and motivation. They were the ones who relentlessly drove ����AV forward. All this certainly cannot be taken for granted, especially in difficult market conditions.

I wish to thank them for this achievement on behalf of the entire Board of Management.

Ladies and Gentlemen,

The fact that market conditions are changing was to be expected. This is why we reacted at an early state; we wanted ����AV to also be prepared for this particular market phase.

We are investing in profitable, high-growth business areas.

We have introduced a program to become more efficient and more effective.

We are also continuing to focus on innovative and sustainable product solutions for our customers.

����AV is also becoming more digital. With solutions for distribution, research and production.

We actively manage our portfolio. We want to make targeted and value-adding acquisitions and farm out marginal fields of business if they no longer match our portfolio; this also makes us less vulnerable to cyclical fluctuations.

Thus, effective on April 1st 2019, we have increased our share in the Joint Venture DIC ����AV Polymer in Japan to 80 percent, further strengthening our global business with thermoplastic polyurethanes. The acquisition complements the recent global expansion in ����AV’s capacities at the New Martinsville (US) and Changhua (Taiwan) sites, where the expected annual production capacity for this business area has increased by 25 per cent.

And last but not least, we continue to develop the unique ����AV culture based on our three key values, namely of being curious, courageous and colorful – a culture of professional and personal development.

These strategic areas of focus will enable us to succeed in creating value for you as shareholders of ����AV – even in a changed environment.

Now I would like to outline four of these areas of focus in more detail.

Demand for ����AV products is growing. And in order to benefit from this growth, we are extending our capacities in a targeted fashion. Today’s investments are the foundations for the value creation of tomorrow.

For this reason, in 2018 we invested in particular in divisions with significant growth potential to drive forward our differentiation. These especially include MDI, CAS and PCS.

MDI is an attractive market with strong growth forecasts; this is why ����AV invested in expanding production at our Brunsbüttel location.

At the same time, we adopted a resolution to make the biggest single investment in our entire corporate history: we are investing around 1.5 billion euros in a new world-scale facility for MDI in Baytown in the United States.

And we are also investing in the production of key precursors. This will enable us to reinforce our cost leadership and to become more independent.

In Shanghai, we are extending our polycarbonates production from 400kt to 600kt per year. Initial additional capacities will become available step by step by the end of this year.

Moreover, we are focusing on our fast-growing and high-margin film production, in which we are investing at four sites worldwide. At the end of December, we held the groundbreaking ceremony for a new production line at Map Ta Phut in Thailand. We will be investing 100 million euros.

These specialty films are used for identity documents, for instance, smartphone casings and automotive interiors, making them simply indispensable in our daily lives.

Ladies and Gentlemen,

Boosting capacities is one thing. Deploying them efficiently and effectively is another.

We want to put every single euro invested to best use. We are pursuing that goal at several levels.

On the one hand, we launched our comprehensive effectiveness and efficiency program in 2018. The aim is to make our organization more agile. At the same time, we want to cap rising operating costs and save around 350 million euros a year by 2021.

It centers on adapting our structures so we can respond faster and better to market requirements.

We will achieve this, for instance, by pooling our distribution channels for standard businesses and position ourselves cost-effectively in the process.

In addition, we want to become even more customer-centric: We will do so by making our customers the center of our actions and by optimizing our organizational work flows accordingly, as well as by making increased use of digital offerings.

Last but not least we will continue to maximize synergies in our portfolio. For instance, we will be setting up a centralized marketing department to consolidate our segments’ marketing and communications functions.

Dear Shareholders,

����AV’s success is based on offering our customers innovative and sustainable solutions. This is why demand for ����AV products is growing.

We want to offer materials that are superior to and can replace existing ones. This is our recipe for success and what we are going to follow steadfastly.

The aspect of sustainability is becoming increasingly important in this regard. It is a key driver of innovation. This is why we rely on the Sustainable Development Goals (SDGs) of the United Nations for guidance.

By 2025, 80% of our project-driven R&D expenditures should be contributing to these goals.

And there is a simple economic logic behind this: Markets for sustainable products offer disproportionately high growth potential. They are being driven by megatrends such as climate change, increasing mobility and urbanization.

The average growth rate in the market for offshore wind power is expected to be about 15% a year. For hybrid and electric cars, the projected growth rate is as high as 25%, and for efficient LED lights it is 12%.

Apart from robust growth, these markets have something else in common: we supply all of them.

This is why innovation at ����AV is always sustainability-driven.

We’re convinced that this will enable us to make our long-term contribution to an increasingly stronger circular economy over time: the more sustainable and recyclable materials we offer and use, the stronger the circulation.

That is good for ����AV, for humankind and for this planet.

This finally brings us to a topic, the significance of which cannot be overestimated by us either, namely: Digitalization.

At ����AV, digitalization applies to all divisions and employees, because I am convinced that everything that can be digitalized will become digital.

This is why we continue to further expand our e-commerce platforms. In 2018 our flagship store was launched on the Chinese trading platform Alibaba.

In addition, the ����AV Direct Store went live last month. Our customers can now use this web platform to make business deals with a few mouse clicks round the clock, buying products in any number of volumes flexibly and securely.

Our Store once again reflects our aim to improve customer-centricity, adjusting the shopping experience to their individual needs.

Since 2018, a global team in Research and Development has been working on faster and more efficient application development with the help of high-performance computer systems. This is how we speed up research. What is more, we are building a platform for research data. This platform will make know-how accessible at all research sites across the globe. And this will increase the efficiency of R&D projects.

Digitalization is also making progress in production: New software solutions allow us to ensure the availability of our plants and equipment more efficiently and at lower cost. In the future we wish to identity problems such as a faulty pump before they can occur.

Notwithstanding all the benefits of digitalization, our primary focus is on humankind: After all, our employees are key to successful implementation. For this reason, all employees are enabled to use new digital tools and to further their own development thanks to digitalization.

Ladies and Gentlemen,

Dear Shareholders,

Setting the right priorities at the right time has been – and still is – the basis of our success.

This is why we at ����AV are actively preparing for the future.

We invest in high-return, high-growth business areas.

We are becoming more efficient and effective.

We bank on innovative and sustainable product solutions.

We are becoming increasingly digital.

We actively manage our portfolio.

And we continue to develop the unique culture we have here at ����AV.

Following this overview of what is currently driving ����AV forward – and what we ourselves are driving forward – I would like to hand over to Thomas Toepfer for a more detailed view of our figures for the 2018 fiscal year.

Thank you, Markus.

Ladies and Gentlemen,

I would like to join Markus in welcoming you cordially here today.

As you know, I have been a member of ����AV’s Board of Management for about twelve months now.

I am therefore especially delighted to address you today at ����AV’s Annual General Meeting for the very first time.

The 2018 results certainly were a great achievement.

Overall, the ����AV Group achieved very solid core volume growth of 1.6% in 2018. A negative impact in this regard was the restricted product availability as well as the low water level of the river Rhine in the fourth quarter as referred to earlier.

After the third quarter, this caused market conditions to deteriorate substantially faster than anticipated.

Nevertheless, we managed to boost our sales to 14,616 million euros.

EBITDA declined slightly, but at 3.2 billion euros it was still at a very high level, corresponding to a margin of 21.9%.

The return on capital employed, at 29.5%, is slightly down from the previous year but still remains at an exceptionally high level as well.

At 1,669 million euros, free operating cash flow is below the level of 2017.

As you can see in terms of these results: whereas 2018 did not match the 2017 record year, which was shaped by a special market situation, 2018 was another strong year for ����AV nevertheless.

This development was also reflected in the segments.

Volume growth was positive in all segments. That is further evidence that demand for our products is intact.

In the Polyurethanes segment, we saw a substantial normalization of earnings. Sales remained constant and reached 7,362 million euros. Volume growth slowed to 0.8%. EBITDA dropped to 1,763 million euros, which still corresponds to a strong margin of 23.9% though.

In the Polycarbonates segment, sales increased significantly to 4,051 million euros. Volume growth was 3.0%. EBITDA increased to over 1 billion euros, reflecting a strong margin of 25.6%.

The Coatings, Adhesives, Specialties segment likewise registered growth. Here volumes were up by 2.5% and sales increased slightly. EBITDA slipped back to 464 million euros, but this still corresponds to a stable margin of 19.7%.

Ladies and Gentlemen,

These strong results are also reflected in a strong balance sheet. The balance sheet also shows ����AV’s commitment to creating value for you as our shareholders.

We have paid back a tidy sum to you: For one thing, we distributed a total of about 440 million euros as a dividend; for another, in the course of 2018 we bought back shares worth a total of over 1.3 billion euros.

Our net debt increased slightly by around 323 million euros, to 1.8 billion euros.

This means that the ratio of net debt to EBITDA at the end of the year came to 0.6 – a very good and solid value, as in the past.

Pension provisions increased by 258 million euros, partly due to negative return on plan assets.

Our equity ratio continued to improve to 49% at the end of 2018 (2017: 47%).

We have been operating on the basis of IFRS 16 since January 1, 2019. Due to this changeover and probably substantially lower EBITDA in the current fiscal year, we assume that there will be a significant increase in the ratio of net debt to EBITDA at the end of 2019.

We set clear priorities for use of our free cash flow.

And we remain committed to a policy of an at least stable or rising dividend.

Our investment is focused on capital expenditures, in other words, investment in long-lasting capital goods such as production facilities. Given our market-leading position and cost leadership, we are convinced that capital expenditures are the most value-accretive. We concentrate our growth investments on CAS, MDI and PCS. Furthermore, investment in maintenance across the board ensures that we can produce reliably and efficiently.

We want to and will make use of opportunities: This is why we take a disciplined and focused approach to managing our portfolio. We want to make acquisitions where we can leverage high margins and at the same time differentiate our business.

In addition, during the prior fiscal year, we completed our share buyback program.

As indicated in the agenda to this event, the Board of Management and Supervisory Board have therefore proposed the authorization for a new buy-back program to today’s Annual General Meeting for up to 10% of the capital stock by April 11, 2024.

Dear Shareholders,

I have already mentioned that we intend to continue our policy of ensuring at least a stable or rising dividend.

Since our independence, we have continually raised the dividend – and we will also remain true to our policy in 2018 and propose a dividend of 2.40 euros per share.

Our dividend proposal for 2018 thus corresponds to an increase of 9% compared to the dividend in our record year 2017 and to a dividend yield of about 4.5% based on yesterday’s XETRA closing price.

We would thus pay out a dividend of around 440 million euros for 2018.

Ladies and Gentlemen,

One of our strengths is the high proportion of resilient or, in other words, increasingly more non-cyclical business. This includes the CAS segment, the business with Polyols and individual MDI products as well as over half the PCS business.

These business activities will enable us to generate a solid basic result: in normal business conditions, EBITDA of 1.3 billion euros to 1.6 billion euros.

A further factor is the result of business that tends to be driven to a higher degree by supply and demand. This share saw a disproportionately high increase in 2017 and 2018. On average, demand in these product groups rose far faster than supply. The impact on selling prices and margins was equally positive.

In the future, new capacity on the market will make excess supply likely. Initial effects of this development were already discernible in 2018 and will certainly remain quite evident in 2019.

It is imperative to clearly remember one thing, however – namely, that ����AV earns its capital costs even in difficult market conditions.

Please allow me to deal with our guidance for the 2019 fiscal year as a whole.

A look at the global economy reveals a number of uncertainties. Trade conflicts are impairing importers’ industries, and especially in Europe there are immense Brexit-related uncertainties.

The outline is subdued in the chemicals industry. The German chemical industry association (VCI) forecasts that output will rise by just 1.5%.

Overall, we expect our established forecasting indicators to be slightly below the mid-cycle level in 2019.

But: The level of demand for our products remains intact. We expect core volume growth to be in the low to medium single-digit percentage range. Consequently, it is especially important for us to maintain and strengthen our cost leadership in many areas.

Furthermore, we forecast a free operating cash flow of 300 to 700 million euros and a return on capital employed of 8% to 13%.

Year-end EBITDA will probably be 1.5 to 2.0 billion euros. In the first quarter, we expect EBITDA to come in at roughly 440 million euros. The figures for the first quarter will be published on April 29th.

Planned investments will increase capex for full year 2019 to more than 900 million euros.

Ladies and Gentlemen,

Dear Shareholders,

Finally, please allow me to give you a recap of what we have said so far.

We were able to report a strong performance in 2018 despite the difficult market environment and weak fourth quarter. While it wasn’t another record year, we were pretty close.

In 2019, we expect results to temporarily fall below the average level of the cycle.

In the long run, we believe that growth in our buyer markets will exceed that of global Gross Domestic Product.

At the same time, we are driving efficiency and effectiveness so that ����AV can continue to operate very profitably.

We are focused on profitability and expect sustainable EBITDA of over 2 billion euros on a medium-term average.

And to this end we are setting the stage with our increased strategic focus for 2019.

Accordingly, we can sum up as follows: ����AV is well-prepared for the future. And well-equipped for continuing its long-term success story.

This brings me to the end of my presentation.

Thank you for your attention.

“In the past year, we again achieved strong results in an unsettled year, so we are sharing this success with our stockholders by distributing an attractive dividend,” CEO Dr. Markus Steilemann emphasized. In view of the increasingly challenging competitive landscape, several initiatives are underway in the current fiscal year, Steilemann pointed out: “We have taken key steps to actively foster our further growth going forward. Our investments focus on business segments with above-average demand potential and we concentrate increasingly on efficiency,” he said.

In his speech, CFO Dr. Thomas Toepfer highlighted the company's continuous drive to create value: “In the use of cash, we remain committed to an attractive dividend policy and value-creating investments,” Toepfer said. Following the completion of ����AV's first share buy-back program last year, the Board of Management was authorized to acquire own shares in the amount of up to 10% of the capital stock through April 11, 2024. “This resolution provides us with an additional attractive option for creating value,” Toepfer added.

Annual General Meeting voting results on the individual agenda items:

Agenda item 2:

Resolution on the use of the distributable profit As proposed by the Board of Management and Supervisory Board, the distributable profit of €439,200,000 for fiscal 2018 reported in the annual financial statements will be used almost in full to distribute a dividend to stockholders. This corresponds to a dividend of €2.40 per no-par value share carrying dividend rights for 2018.

Agenda items 3 and 4:

Ratification of the actions of the members of the Board of Management and the Supervisory Board
The actions of the members of the Board of Management and Supervisory Board who held office in fiscal year 2018 were ratified.

Agenda item 5:

Election of the auditor
As proposed by the Supervisory Board, the Annual General Meeting elected KPMG AG Wirtschaftsprüfungsgesellschaft, Düsseldorf, Germany, as auditor for fiscal 2019.

Agenda item 6:

Resolution on the amendment of Section 14 of the Articles of Incorporation
As proposed by the Supervisory Board and Board of Management, in the future the company will be able to issue invitations to the Annual General Meeting by electronic means in view of the increasing popularity of digital media.

Agenda item 7:

Resolution on rescinding an existing and issuing a new authorization to acquire and use own shares
The Annual General Meeting voted to authorize the company to again acquire own shares. Own shares may be acquired in the amount of up to 10% of the capital stock through April 11, 2024. The authorization issued on September 1, 2015, was mostly exhausted by the share buy-back program launched in November 2017 and completed on December 4, 2018, and was completed.

Additional information on the Annual General Meeting is provided here:
/de/investors/financial-calendar/annual-general-meeting

About ����AV:

With 2018 sales of EUR 14.6 billion, ����AV 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 and electronics industries. Other sectors include sports and leisure, cosmetics, health and the chemical industry itself. ����AV has 30 production sites worldwide and employs approximately 16,800 people (calculated as full-time equivalents) at the end of 2018.

Find more information at www.covestro.com.

Forward-looking statements

This news release may contain forward-looking statements based on current assumptions and forecasts made by ����AV. 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 ����AV’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.

“Demand for our high-tech materials remains intact. That is a strong foundation for our profitable growth in the long term, especially in an increasingly challenging market environment,” explained CEO Dr. Markus Steilemann. “We have launched important strategic initiatives in 2018 to actively promote this growth path. These include investments in specific business segments with above-average demand potential and a stronger focus on efficiency.”

Further growth in demand with declining margins at the same time

In an unsettled year, ����AV achieved solid results also in additional key figures in 2018. Free operating cash flow (FOCF) decreased to EUR 1.7 billion due to increased investments. Return on capital employed (ROCE) stood at 29.5%, well over the multi-year average. Net financial debt remained on a low level of EUR 348 million at the end of fiscal 2018.

“2018 was a successful year for ����AV, even though after a strong start to the year, we did not approach our record year of 2017 overall,” said Dr. Thomas Toepfer, CFO of ����AV. “The last two years were marked by unusually high margins. For 2019, we expect demand to continue to grow, however margins will drop significantly due to competitive pressure.”

Guidance influenced by changing competition situation

����AV anticipates core volume growth in the low to mid-single-digit percentage range for 2019 as a whole. FOCF is expected to be between EUR 300 and 700 million, while ROCE is projected between 8% and 13%. Due to the increased competitive pressure, ����AV expects EBITDA between EUR 1.5 and 2.0 billion. In the first quarter of 2019, EBITDA is anticipated to be around EUR 440 million.

Investments secure long-term growth

In 2018, ����AV took important strategic steps to further reinforce the Group’s position in relation to the competition. One key here are the investments to be made in profitable growth segments. The Group aims to build a new world-scale plant to produce the rigid foam precursor MDI in Baytown, Texas (United States). Another example is the expansion of production activities for the high-margin specialty films business at four sites worldwide. Simultaneously, the aim is to diversify the Group’s portfolio to ensure even greater independence from cyclical fluctuations. ����AV today generates more than 50% of Group sales with resilient businesses.

Stronger focus on efficiency and effectiveness

By way of a program launched in 2018, ����AV will step up the focus on effectiveness and efficiency going forward. By 2021 at the latest, the cost savings are estimated at around EUR 350 million per year with the goal of limiting the increase in operational costs. This will be accomplished mainly through stepped up cross-division partnerships and increased use of digital solutions. Initial measures will be implemented in the coming months:

A centralized marketing department will be set up to consolidate the global marketing and communications functions of the segments.

Digital transformation taking shape

The company has consolidated all digital activities since 2017 in the ‘Digital@����AV’ strategic program with the aim of advancing the digital transformation of the Group. Initial successes have become evident in recent months: Sales and marketing channels have been expanded and new online sales platforms developed. Since 2018, a global team has been working in Research and Development on faster and more efficient application development with the help of high-performance computer systems. New software solutions for predictive maintenance and repair of equipment were developed in production.

Share buy-back completed

In 2018, ����AV continued the share buy-back program begun in the previous year. The company acquired shares in three tranches totaling more than 9.8% of the capital stock and valued at nearly EUR 1.5 billion. Along with the dividend paid, ����AV therefore returned to stockholders a total of some EUR 1.7 billion in the past fiscal year. The Board of Management plans to propose to the coming Annual General Meeting a new authorization to acquire treasury shares at an amount of up to 10% of the capital stock.

Volume growth in all segments

The Polyurethanes segment recorded stable performance in core volumes sold in 2018 with modest growth of 0.8%. Compared with 2017, EBITDA decreased by 19.1% to EUR 1,763 million. Although greater total volumes and higher average selling prices on average improved earnings in the full year, these increases could not offset the negative effects of increasingly intense competition, particularly in the fourth quarter of 2018. In addition, there were non-recurring positive effects in fiscal 2017 due to which EBITDA was expected to decline in 2018.

Core volumes in Polycarbonates rose by 3.0%. EBITDA increased by 21.5% to EUR 1,036 million. An overall positive margins trend and greater total volumes lifted earnings, as did the proceeds from the sale of the U.S. sheet business. Over the course of the fourth quarter of 2018, earnings were burdened by an increasingly challenging competitive environment.

Core volumes in the Coatings, Adhesives, Specialties segment expanded by 2.5%. Higher raw material prices and negative currency effects put downward pressure on EBITDA, which dropped by 4.5% to EUR 464 million.

More intense competition and exceptional expenses in the fourth quarter

In the fourth quarter of 2018, ����AV saw volume growth of 1.7%. At the same time, the market environment became significantly more challenging. Group sales slid 7.1%. Apart from intensified competition, non-recurring effects such as higher logistics costs as a result of the low level of the Rhine River and expenses related to the efficiency program underway had a negative effect. EBITDA therefore decreased by 66.7% to EUR 293 million. Net income dropped 86.0% to EUR 79 million (Q4 2017: EUR 566 million). At EUR 363 million, FOCF was 44.6% below the figure for the prior-year quarter (EUR 655 million).

About ����AV:

With 2018 sales of EUR 14.6 billion, ����AV 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 and electronics industries. Other sectors include sports and leisure, cosmetics, health and the chemical industry itself. ����AV has about 30 production sites around the globe and as of the end of 2018 employed approximately 16,800 people (full-time equivalents).

Note to editors:

This investor news is available for download from the Investor Relations website of ����AV at /en/investors/news.

Find more information at investor.covestro.com.

Forward-looking statements

This investor news may contain forward-looking statements based on current assumptions and forecasts made by ����AV. 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 ����AV’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

“Demand for our high-tech materials remains intact. That is a strong foundation for our profitable growth in the long term, especially in an increasingly challenging market environment,” explained CEO Dr. Markus Steilemann. “We have launched important strategic initiatives in 2018 to actively promote this growth path. These include investments in specific business segments with above-average demand potential and a stronger focus on efficiency.”

Further growth in demand with declining margins at the same time

In an unsettled year, ����AV achieved solid results also in additional key figures in 2018. Free operating cash flow (FOCF) decreased to EUR 1.7 billion due to increased investments. Return on capital employed (ROCE) stood at 29.5%, well over the multi-year average. Net financial debt remained on a low level of EUR 348 million at the end of fiscal 2018.

“2018 was a successful year for ����AV, even though after a strong start to the year, we did not approach our record year of 2017 overall,” said Dr. Thomas Toepfer, CFO of ����AV. “The last two years were marked by unusually high margins. For 2019, we expect demand to continue to grow, however margins will drop significantly due to competitive pressure.”

Guidance influenced by changing competition situation

����AV anticipates core volume growth in the low to mid-single-digit percentage range for 2019 as a whole. FOCF is expected to be between EUR 300 and 700 million, while ROCE is projected between 8% and 13%. Due to the increased competitive pressure, ����AV expects EBITDA between EUR 1.5 and 2.0 billion. In the first quarter of 2019, EBITDA is anticipated to be around EUR 440 million.

Investments secure long-term growth

In 2018, ����AV took important strategic steps to further reinforce the Group’s position in relation to the competition. One key here are the investments to be made in profitable growth segments. The Group aims to build a new world-scale plant to produce the rigid foam precursor MDI in Baytown, Texas (United States). Another example is the expansion of production activities for the high-margin specialty films business at four sites worldwide. Simultaneously, the aim is to diversify the Group’s portfolio to ensure even greater independence from cyclical fluctuations. ����AV today generates more than 50% of Group sales with resilient businesses.

Stronger focus on efficiency and effectiveness

By way of a program launched in 2018, ����AV will step up the focus on effectiveness and efficiency going forward. By 2021 at the latest, the cost savings are estimated at around EUR 350 million per year with the goal of limiting the increase in operational costs. This will be accomplished mainly through stepped up cross-division partnerships and increased use of digital solutions. Initial measures will be implemented in the coming months:
A centralized marketing department will be set up to consolidate the global marketing and communications functions of the segments.

Digital transformation taking shape

The company has consolidated all digital activities since 2017 in the ‘Digital@����AV’ strategic program with the aim of advancing the digital transformation of the Group. Initial successes have become evident in recent months: Sales and marketing channels have been expanded and new online sales platforms developed. Since 2018, a global team has been working in Research and Development on faster and more efficient application development with the help of high-performance computer systems. New software solutions for predictive maintenance and repair of equipment were developed in production.

Share buy-back completed

In 2018, ����AV continued the share buy-back program begun in the previous year. The company acquired shares in three tranches totaling more than 9.8% of the capital stock and valued at nearly EUR 1.5 billion. Along with the dividend paid, ����AV therefore returned to stockholders a total of some EUR 1.7 billion in the past fiscal year. The Board of Management plans to propose to the coming Annual General Meeting a new authorization to acquire treasury shares at an amount of up to 10% of the capital stock.

Volume growth in all segments

The Polyurethanes segment recorded stable performance in core volumes sold in 2018 with modest growth of 0.8%. Compared with 2017, EBITDA decreased by 19.1% to EUR 1,763 million. Although greater total volumes and higher average selling prices on average improved earnings in the full year, these increases could not offset the negative effects of increasingly intense competition, particularly in the fourth quarter of 2018. In addition, there were non-recurring positive effects in fiscal 2017 due to which EBITDA was expected to decline in 2018.

Core volumes in Polycarbonates rose by 3.0%. EBITDA increased by 21.5% to EUR 1,036 million. An overall positive margins trend and greater total volumes lifted earnings, as did the proceeds from the sale of the U.S. sheet business. Over the course of the fourth quarter of 2018, earnings were burdened by an increasingly challenging competitive environment.

Core volumes in the Coatings, Adhesives, Specialties segment expanded by 2.5%. Higher raw material prices and negative currency effects put downward pressure on EBITDA, which dropped by 4.5% to EUR 464 million.

More intense competition and exceptional expenses in the fourth quarter

In the fourth quarter of 2018, ����AV saw volume growth of 1.7%. At the same time, the market environment became significantly more challenging. Group sales slid 7.1%. Apart from intensified competition, non-recurring effects such as higher logistics costs as a result of the low level of the Rhine River and expenses related to the efficiency program underway had a negative effect. EBITDA therefore decreased by 66.7% to EUR 293 million. Net income dropped 86.0% to EUR 79 million (Q4 2017: EUR 566 million). At EUR 363 million, FOCF was 44.6% below the figure for the prior-year quarter (EUR 655 million).

About ����AV:

With 2018 sales of EUR 14.6 billion, ����AV 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 and electronics industries. Other sectors include sports and leisure, cosmetics, health and the chemical industry itself. ����AV has about 30 production sites around the globe and as of the end of 2018 employed approximately 16,800 people (full-time equivalents).

Note to editors:

Below please find a table showing key data for ����AV for fiscal year 2018.

The presentation and the video recording of the conference are available for download from our website at

The Annual report is online available at .

Find more information at www.covestro.com.
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Forward-looking statements

This news release may contain forward-looking statements based on current assumptions and forecasts made by ����AV. 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 ����AV’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.