Strategy and Management
Principles guiding our actions
Vision and mission
Climate change, increasing mobility, a growing global population, and rising urbanization: global megatrends such as these represent tremendous challenges. Covestro is facing these challenges, uniting business success with sustainability. The goal is to realize Covestro’s vision: to make the world a brighter place.
We aim to promote innovation and growth with profitable products and technologies that benefit society and reduce the impact on the environment. This is our mission. In pursuing it, we rely on technologies that reduce energy consumption and emissions in our production processes. And we are replacing traditional materials such as glass and metal, which are manufactured less sustainably or have a less sustainable life cycle, with products and plastics we develop. We accomplish this by thinking ahead and, instead of fossil resources, and developing alternative building blocks for our chemicals that are either omnipresent or far more sustainable.
Covestro is proud of its corporate values, summarized as C3: curious, courageous and colorful. These values guide all of the Group’s employees and are reflected in their daily thoughts and actions.
We are proud of our past, but we are not defined by it. We never settle for the status quo and think ahead. Our curiosity drives us to listen to our customers and suppliers and respond with creative and unexpected solutions. We are responsive to what is happening around us and believe that speed and flexibility will give us an advantage over our competitors. We are open to new ideas and hungry for progress.
Curiosity is the engine that drives us.
We look toward the future and see opportunities where others see limitations. Where others ask “why?”, we reply “why not?” Our courage permeates our entire business – from partnerships to business models. We stand on a foundation of knowledge and experience that allows us to act courageously and push the boundaries of innovation.
We have courage and integrity. We do what is right, not just what is convenient.
In a corporate world that can often be dull, we make a difference. We are optimistic and resourceful and use every color in our palette to create solutions that inspire our customers and partners. We value strong customer, supplier and employee relationships and believe that humanity helps us to create a rainbow of opportunities. We are convinced that diversity and inclusiveness not only promote innovation, sustainability and employee engagement within our workforce, but also improve decision-making processes and contribute to our success.
We believe diversity drives creativity and multiple viewpoints allow us to solve problems in innovative ways.
Corporate culture and leadership profile
The corporate culture is a key strategic pillar for Covestro and is based on the company’s values and vision. Moreover, a culture firmly rooted in the company enables the implementation of the strategy, therefore ensuring the company’s long-term success. We live in a culture that facilitates fast decisions, innovative approaches and close proximity to the customer. At the same time, diversity is at the heart of our corporate culture. Diversity is our strength – inclusion is our obligation.
This culture is influenced by the employees and in particular by the managers who are responsible for setting a good example through their conduct and embodying the culture. The expectations for this transformational leadership are described as follows: we want value-based leadership motivated by personal mindset as well as corporate values. Conducive leadership helps to improve employees’ ability to maximize their full potential. It also ensures that the employees possess the necessary decision-making authority and have access to optimal work and safety conditions.
In keeping with our vision, we want to make an equal contribution to increasing the overall value at the economic, environmental and social levels. Our decisions and our actions always take into account the three Ps of sustainability – people, planet and profit. Our actions are oriented toward a positive impact on at least two of the three Ps, while at the same time ensuring no harm is done to any of them. We take a holistic view of every decision and every action as well as their consequences – which, all in all, reflects an integral part of the Group’s strategy and corporate governance.
Strategic goals and activities
Our overarching goal is to make the world a brighter place, which is in keeping with our vision. To this end, the company provides innovative products, technologies and application solutions. In particular, our activities are aligned with the UN Sustainable Development Goals (SDGs) in support of global progress at the ecological, economic and social levels. Experts agree that these goals have significant economic potential and could lead to profound changes and above-average growth in the industrial sectors important to Covestro.
Our current strategy was developed with a view primarily to taking full advantage of business opportunities resulting from global megatrends and sustainability issues. This is all part of our efforts to continue growing profitably in the years to come and to exceed global economic growth rates overall. We intend to achieve this using six strategic pillars.
Investing to strengthen the core business
Covestro expects to see strong growth in its markets and plans to successfully leverage this development through optimal participation. We will therefore significantly expand production capacities in our core lines of business. To this end, we plan to invest in excess of the depreciation level in the years to come. As a rule, this concerns production facilities across all product groups and at all of the major sites. We are adding skilled staff and resources in order to ensure optimal technical implementation of the corresponding projects.
Innovating to promote greater sustainability
Sustainability is a central concern, and it shapes our activities all along the entire value chain. We consider sustainability to represent an economic opportunity benefiting all interest groups. In the years to come, we therefore intend to focus our research and development even more on sustainability issues such as electromobility as well as energy- and cost-efficient construction. Accordingly, we plan to invest even more heavily in research and development projects oriented toward the UN Sustainable Development Goals.
Growth options within the circular economy are one key element. This pertains both to our existing business with polycarbonate recyclates as well as to the area of polyurethanes. Here, we closely analyzed products that are at the end of their life cycle as the basis for future raw materials. Over the years to come, we will conduct the corresponding economic and environmental analyses of both recycling technologies and new product developments. This underscores our commitment to creating sustainable solutions for meeting the challenges of the future.
Acquiring to create value and accelerate growth
We are actively seeking acquisition options in order to expand our portfolio. They represent another way to participate in the rapid market growth that we anticipate in the years to come stemming from issues related to the future and sustainability. We carefully evaluate potential acquisitions to determine whether they – with regard to our stockholders – increase Covestro’s enterprise value and the impact they may have on other stakeholders. Furthermore, takeover candidates must also suit our existing lines of business, our entire company and our corporate culture.
Becoming more efficient and effective
To increase effectiveness and efficiency throughout the entire company, Covestro rolled out a Group-wide performance program entitled Perspective in 2018. The program’s primary objectives are to further refine work methods and cross-divisional processes, in addition to continually improving our competitive and cost position. These measures are expected to generate a long-term cost savings of approximately €350 million by 2021 at the latest, which in turn will be used to limit an increase in operating costs.
With an extensive program, we aim to increasingly take advantage of the opportunities arising from digitalization. Our primary aim is to set new standards for how we work with our customers. At the same time, all employees should benefit from digitalization. To achieve this goal, Covestro anchors digital technologies and work activities in production, along the supply chain, in research and development, in the administrative functions and at all points of contact with the customer. In 2018, we continued to work on and test a digital trading platform where customers will be able to purchase standard products from Covestro and also, where applicable, from other providers. Selected business entities have partially or entirely shifted their sales to the platform, which is now integrated into the SAP processing system, and have managed to reach the expected volumes and sales with products sold through fixed-price and auction-style listings. Meanwhile, we are cooperating closely with customers in other industries on a global scale. The goal of this collaboration is to implement the customers’ requests with regard to the design and functionality of our digital sales channels. To this end, we opened a flagship store on the leading Chinese B2B platform 1688.com, which is owned by the Alibaba group.
Shaping our corporate culture
In the coming years we intend to improve our corporate culture in such a way that it bolsters our efforts to successfully address future trends and meet market requirements. The purpose here is to tap into our internal potential to the fullest extent and reach our business goals by more intensively promoting innovative ideas and short chains of command. Influenced by the responsible conduct of our managers, this culture provides our employees with the framework for their day-to-day activities and ensures that all employees share the same values. In this way, we aim to put every employee in a position to be able to achieve their best performance.
Strategy of the Individual Segments
In the years to come, demand for polyurethanes is expected to grow at an above-average rate compared to the global economy. In the Polyurethanes segment (PUR), we aim to provide the precursors needed to tap into this development.
The construction industry is one of the strategic industries where we are already strongly represented, and we intend to further expand this position. At the same time, we plan to take into account the growing need for sustainable solutions. In the future, our range of products should satisfy the demand for energy-efficient and affordable living spaces, mainly in the emerging economies. Considering the UN Sustainable Development Goals, there are some not yet fully developed segments that also warrant our attention – such as wind energy, where we provide materials for generation.
The PUR segment manufactures largely standardized products and the focus there is thus also on increasing efficiency through cost management as well as product and process innovations. In addition, we plan to develop new business models and improve existing ones. To achieve this, we are continually evaluating the potential for optimizing facilities and sites, in addition to opportunities to cooperate with other companies.
New forms of mobility call for innovative solutions. In the Polycarbonates segment (PCS), we are continually improving our product portfolio to take this trend into account. After all, materials with low weight, high-quality optics and transparency are particularly in demand in the automotive industry, such as in the promising electromobility market.
We intend to further increase the share of stable-margin business by focusing on the applications with more stringent requirements in the automotive as well as in the health and electronics/LED areas. Furthermore, through innovations such as fiber-reinforced composite materials, we plan to consolidate the technological position of the PCS segment and generate even more growth in differentiated markets.
With its distinct application expertise and global alignment, the PCS segment should grow at a higher rate than that of the global economy.
Coatings, Adhesives, Specialties
Producing precursors for coatings and adhesives is our main area of business in the Coatings, Adhesives, Specialties (CAS) segment. In this segment, we supply coatings and adhesives producers whose products are used in the automotive, construction and furniture industries, among others. We aim to secure and further build on our strong position. Of particular importance in achieving this are consistent cooperation along the entire value chain, the efficient expansion of our capacities and product development close to the customers. Furthermore, we are working on products that are as environmentally friendly as possible, do not require the use of solvents and utilize alternative raw materials such as plant biomass.
As in past years, Covestro also plans to grow at an above-average rate in the area of specialties thanks to our superior technological knowledge and our expertise in chemical formulations. In this way we aim to achieve new and profitable application areas for our products.
Covestro’s management system is aligned with long-term, profitable growth and continuous value creation. The Board of Management, the main decision-maker for the company, is responsible for our global business and approving the planning derived from our corporate strategy. In order to plan, manage, and monitor the development of our business, we use steering parameters which enable the company’s business performance to be evaluated in a comprehensive and holistic manner. In addition, the Board of Management uses defined sustainability goals and selected nonfinancial performance indicators to govern the Group’s sustainable orientation.
The Covestro Group assesses business performance using key management indicators in the areas of growth, profitability and liquidity.
Growth of the Covestro Group is also measured in terms of the development of core volume growth1. In contrast to sales, this indicator is less influenced by raw material prices or currency effects.
The return on capital employed (ROCE) is the indicator used to assess the profitability of the Covestro Group, measuring the return the company achieves on the capital it uses. If ROCE exceeds the weighted average cost of capital (WACC), i.e. the minimum return expected by equity and debt capital providers, the company has created value.
Income after income taxes plus financial result, income tax expense, and depreciation and amortization (EBITDA) is the other indicator used to assess the operating profitability of Covestro and its reporting segments.
The ability to generate a cash surplus is measured by the free operating cash flow (FOCF). FOCF is an indicator of our company’s capacity to finance itself and of its liquidity, and corresponds to the operating cash flow less the cash outflows for additions to property, plant, equipment and intangible assets. A positive FOCF serves in particular to pay dividends and interest and to repay debt.
These management metrics also come into play in the Group’s bonus system, which applies uniformly to all staff − from the Board of Management to employees under collective bargaining agreements. The three growth factors, profitability and liquidity each account for one-third of the final assessment and bonus calculation formula. As a result, all employees whose personal efforts contribute to Covestro’s overall positive performance can share in the company’s success.
1 Core volume growth refers to the core products in the Polyurethanes, Polycarbonates and Coatings, Adhesives, Specialties segments. It is calculated as the percentage change in externally sold volumes in thousand metric tons compared with the prior year. Covestro also takes advantage of business opportunities outside its core business, for example the sale of precursors and by-products such as hydrochloric acid, sodium hydroxide solution and styrene. These transactions are not included in core volume growth.
Sustainability is a core element of our mission and an integral part of our strategy. We are committed to a conscientious approach in terms of how we handle both our environment and our surroundings. We fuse our economic growth with sustainability – by offering profitable products and technologies that are beneficial to society and reduce environmental impacts to push the boundaries of what is possible. Our commitment to sustainability is anchored in our vision.
We are driven by ambitious sustainability goals that we intend to achieve by 2025: we aim to reduce our specific emissions, i.e. the CO2 equivalent emissions per metric ton of product manufactured, by 50% by 2025 compared with 2005 benchmarks, convey our sustainability requirements to all of our suppliers, align our research with the UN Sustainable Development Goals, improve the lives of ten million people in underserved markets and get the most out of carbon.
Our five sustainability goals are aligned with the UN sustainability goals and have different positive impacts on the implementation of all 17 sustainability goals. In our corporate principles, we commit to finding ways of contributing toward reaching the UN sustainability goals.
We regularly review the sustainability topics of importance to Covestro as part of a materiality analysis. During this process, we also incorporate input from external stakeholders and update our nonfinancial goals as well as our activities and programs accordingly.
We have adopted the principles of the United Nations Global Compact. The principles of the charter we signed are mandatory for all our employees throughout the world. We are also committed to the industry-led Responsible Care initiative and are involved in global sustainability forums such as the World Business Council for Sustainable Development (WBCSD). Furthermore, we expect our suppliers to adhere to the same high standards of sustainability that we hold ourselves to. We have developed a Code of Conduct that all suppliers must observe, regardless of where they are headquartered or where they do business. The principles set out in this code serve as drivers of innovation for us and support the implementation of our strategy.