Covestro’s Resilient Performance and Strategic Transformation in 2024
Despite the ongoing challenges in the global market, Covestro, a leader in materials innovation, made substantial progress in its transformation during fiscal year 2024. The company managed to increase its volumes sold globally through targeted efforts aimed at improving plant availability, despite facing difficult market conditions. Though sales saw a slight dip, the company’s focus on improving its long-term competitiveness through key investments in production, sustainability, and efficiency continues to bear fruit.
Key Financial Highlights for FY 2024
In 2024, Covestro’s total sales fell by 1.4% to EUR 14.2 billion compared to EUR 14.4 billion in the previous year. This decrease was primarily driven by lower selling prices, a trend that has been prevalent across the chemical industry. Despite this, the company’s EBITDA remained relatively stable, with only a marginal drop of 0.8%, ending the year at EUR 1.1 billion (compared to EUR 1.1 billion in 2023). This performance was largely in line with the company’s expectations, showing resilience amidst a challenging market environment.
On the downside, the company posted a net income of EUR –266 million, a deterioration compared to EUR –198 million in the previous year. Free operating cash flow (FOCF) also saw a decrease, falling to EUR 89 million from EUR 232 million in 2023. Despite this, the company has made considerable strides in its sustainability efforts, with greenhouse gas emissions falling to 4.7 million metric tons of CO₂ equivalents, down from 4.9 million metric tons in the prior year.
Covestro’s Resilient Performance and Strategic Transformation in 2024
Steadfast Commitment to Transformation
Despite the external challenges, Covestro’s leadership is resolute in its strategy of ongoing transformation. CEO Dr. Markus Steilemann emphasized the company’s unwavering commitment to its long-term strategy, focusing on plant optimization and volume increases, even amidst a global slowdown in the chemical industry. “In particular, the improvement in our plant availability enabled us to significantly increase our volumes sold,” said Dr. Steilemann. “We are continuing resolutely along this path, creating the basis for long-term growth with targeted investments in our competitiveness and sustainable future technologies.”
Investments in Production and Circular Economy
A key aspect of Covestro’s transformation plan involves bolstering its production capacities. In 2024, the company made significant improvements to its facilities in locations like Baytown (USA), Shanghai (China), and Tarragona (Spain). These upgrades were designed to optimize production processes, improve energy efficiency, and increase competitiveness. In Dormagen, Germany, the company focused on improving energy efficiency at its TDI plant. Additionally, Covestro announced plans to expand its site in Hebron, Ohio, with a significant investment aimed at increasing polycarbonate production in the Solutions & Specialties segment. This expansion is set to begin in 2025, with operations slated to commence by the end of 2026.
In its push towards sustainability, Covestro is making considerable strides in transitioning to a circular economy. In 2024, the company secured access to renewable energy from a solar farm in Spain through a long-term power purchase agreement with bp. This agreement will increase the share of renewable energy in Covestro’s electricity consumption in Spain from 10% to 30%, reducing CO₂ emissions by around 16,000 metric tons annually.
Covestro also committed EUR 100 million globally towards research and development innovation centers. The company’s dedication to sustainability is underscored by its systematic efforts to optimize internal processes, such as through the “STRONG” transformation program, which aims to save EUR 400 million annually by 2028 through digitalization and structural adjustments.
Embracing Digitalization and Resilience Amidst Market Challenges
As CFO Christian Baier noted, “We cannot influence external market conditions, but we can control how we respond to them.” In 2024, Covestro responded to these market challenges by optimizing internal processes, enhancing its resilience, and embracing digital technologies. Artificial intelligence and digitalization are key factors in this strategy, which aims to make Covestro more agile and better equipped to navigate future market fluctuations.
While the company faced a negative net income for 2024, Covestro adhered to its dividend policy and opted not to distribute dividends, as it did in 2023. The focus remains on long-term growth and maintaining financial strength to navigate the economic landscape.
Successful Takeover by ADNOC Group
A major event in 2024 was the successful takeover offer by the ADNOC Group. After months of negotiations, Covestro signed an Investment Agreement with ADNOC Group companies, including ADNOC International Germany Holding AG, for the acquisition of Covestro shares. On October 25, 2024, the ADNOC Group made a voluntary public takeover offer of EUR 62 per Covestro share. By the end of the additional acceptance period on December 16, 2024, ADNOC had acquired 91.3% of Covestro’s share capital.
The takeover is part of ADNOC’s strategy to solidify its position in the performance materials and special chemicals business. The move is aligned with ADNOC’s goal of becoming one of the world’s top five chemical companies and pursuing a fully circular business model. The completion of the takeover is still subject to antitrust and regulatory approvals, and is expected to be finalized in the second half of 2025.
2025 Outlook: Challenges Ahead but Optimism Remains
Looking ahead to 2025, Covestro anticipates that the challenging market conditions will persist. In light of these circumstances, the company expects EBITDA to fall between EUR 1.0 billion and EUR 1.6 billion. Additionally, the company anticipates free operating cash flow (FOCF) to range between EUR 0 and EUR 300 million, and return on capital employed (ROCE) to remain below the company’s weighted average cost of capital (WACC) by a margin of 6 to 2 percentage points. Covestro projects that greenhouse gas emissions at its environmentally relevant sites will remain between 4.2 million and 4.8 million metric tons of CO₂ equivalents.
For the first quarter of 2025, Covestro expects EBITDA to be between EUR 50 million and EUR 150 million, reflecting continued market challenges in the short term.
Segment Results for FY 2024
Covestro’s Performance Materials segment showed modest growth in 2024, with sales rising to EUR 7.0 billion from EUR 6.9 billion the previous year. A strong 12% increase in volumes was the main driver behind the higher sales. However, the segment was impacted by a challenging market environment, which caused a decline in margins and selling prices. EBITDA for the Performance Materials segment fell by 1.2% to EUR 569 million, while free operating cash flow (FOCF) dropped to EUR 78 million.
In the Solutions & Specialties segment, sales decreased by 3.6% to EUR 7.0 billion, primarily due to lower average selling prices and reduced raw material costs. The absence of a one-time gain from the sale of the additive manufacturing business in 2023 also weighed on the segment’s performance. EBITDA fell by 9.4% to EUR 740 million, and free operating cash flow (FOCF) decreased by 24.3% to EUR 417 million.
Fourth Quarter Performance: Positive Momentum
Covestro finished the year on a positive note in the fourth quarter of 2024. Sales rose by 0.9% year-over-year to EUR 3.4 billion, and EBITDA saw a significant increase of 44.7%, reaching EUR 191 million compared to EUR 132 million in the previous year. Free operating cash flow surged by 246.6%, reaching EUR 253 million, compared to EUR 73 million in the same period in 2023.
In conclusion, while 2024 was a challenging year for Covestro, the company’s continued commitment to innovation, sustainability, and digitalization positions it for long-term growth. The strategic investments, coupled with the successful acquisition by ADNOC Group, provide a solid foundation for Covestro’s future, despite the ongoing economic pressures.
