Company Profile

Organization and Business Model

Organization

Covestro is one of the leading global suppliers of high-tech polymer materials and application solutions developed for these materials. Covestro AG, the parent company of the Covestro Group, is headquartered in Leverkusen (Germany). It is listed on the stock exchange in Germany and has been included in the leading German index DAX since 2018. In line with its product portfolio, Covestro is divided into three operational reporting segments: Polyurethanes (PUR), Polycarbonates (PCS), and Coatings, Adhesives, Specialties (CAS). The administrative functions are consolidated within the central units. As of December 31, 2019, the Covestro Group comprised 47 consolidated companies in 22 countries in addition to Covestro AG and employed around 17,201 employees*.

Group structure

The Board of Management of Covestro AG manages the operational businesses and defines and pursues the corporate goals. Dr. Markus Steilemann has served as the company’s Chief Executive Officer (CEO) since June 2018. Dr. Thomas Toepfer acts as Chief Financial Officer (CFO) and, additionally, has been Labor Director since January 2019. The Board of Management member responsible for Production and Technology as well as all production sites is Dr. Klaus Schäfer. Sucheta Govil joined Covestro’s Board of Management in August 2019 and is responsible for the three divisions: Polyurethanes, Polycarbonates and Coatings, Adhesives, Specialties. She also took over Innovation, Marketing and Sales from Dr. Markus Steilemann, who had previously filled this position on an interim basis in addition to acting as CEO.

The 12-member Supervisory Board advises and oversees the Board of Management. In accordance with the German Codetermination Act, half the members of the Supervisory Board are elected by the stockholders and half by the company’s employees. Dr. Richard Pott holds the office of Chair of the Supervisory Board.

Business model

Covestro produces precursors for polyurethane foams and the high-performance plastic polycarbonate as well as precursors for coatings, adhesives, sealants and specialty products, including specialty films. Other precursors such as chlorine and by-products like styrene are also part of Covestro’s product portfolio.

The company’s materials are used in many areas of modern life – the array of products ranges from insulation for refrigerators and entire buildings through laptop and cell phone cases to scratch-resistant and fast-drying vehicle coatings and film coverings for personal identification cards. Covestro therefore covers a wide variety of sectors. The company’s main customers are from the automotive, construction, wood processing and furniture industries, and from the electrical, electronics and household appliances industries. The products are also used in sectors such as sports and leisure, cosmetics and health, as well as in the chemical industry itself.

Going forward, Covestro aims to position the company even more broadly, thus further reducing the product range’s exposure to cyclical fluctuations. Covestro’s focus in this connection is on sustainability and innovation. To this end, we closely monitor developments in our sales and consumer markets and aim to increase our customer base. Together with customers as well as with business and scientific partners, Covestro works continuously to further advance products, technologies and application solutions.

Global megatrends play a considerable role in this process: Progressing climate change, increasing mobility, a growing global population, and rising urbanization are changing the lives of billions of people. Consequently, the polymer industry will have to change. Companies like Covestro are facing new challenges and playing a part in developing innovative solutions as a result. The focus is primarily on the topics of renewable energy, energy-efficient transportation, and sustainable and affordable living.

Covestro’s aim is to pave the way and support these trends with its materials. By replacing traditional materials with durable, light, more environmentally-compatible and cost-effective materials, Covestro makes significant contributions in areas such as lightweight construction in the automotive industry, increasing the energy efficiency of living spaces through the use of new insulating materials, promoting sustainable energy with specialty raw materials, and improving the shelf-life of food through better insulation along the entire refrigeration chain.

Segments

Polyurethanes

In the PUR segment, Covestro primarily develops, produces and markets chemical precursors for the manufacture of polyurethane foams. These precursors are toluene diisocyanate (TDI), diphenylmethane diisocyanate (MDI) and polyether polyol, which are used in furniture production, construction and in the automotive industry. TDI-based flexible polyurethane foam is used in products such as mattresses, upholstered furniture and car seats, thus making day-to-day life more comfortable. MDI-based rigid polyurethane foam serves mainly to efficiently insulate buildings and refrigeration appliances. In doing so, it contributes to reduce energy consumption. Covestro was among the top suppliers in the global polyurethane industry in 2019. Our main competitors are BASF, Dow, Huntsman and Wanhua Chemical.

Polycarbonates

In 2019, Covestro was also one of the leading global suppliers of polycarbonates. In the PCS segment, Covestro not only produces and distributes this high-performance plastic but also works to continually improve it. Polycarbonates are extraordinarily light, transparent, shatter resistant and moldable. Available as granules, composite materials and semifinished products, manufacturers use this versatile material in a wide variety of products such as vehicles (e.g., passenger compartment and vehicle lighting), buildings (e.g., roof structures), electrical and electronic devices (e.g., cords and laptop cases), as well as for medical equipment. Our main competitors include Lotte, Mitsubishi Chemicals, Saudi Basic Industries Corporation (SABIC) and Teijin.

Coatings, Adhesives, Specialties

The CAS segment develops and produces substances that make finished products more aesthetically appealing and durable, and therefore increases their value. The focus is on both aliphatic and aromatic isocyanates, on their derivatives as well as on polyurethane dispersions. These are required for the production of coatings, adhesives, sealants and specialty products. The latter comprise specialty elastomers, high-quality films and precursors for cosmetics, textiles and medical products. These materials serve to protect, bond, seal or functionalize a wide variety of surfaces. The main areas of application are automotive and transportation, infrastructure and construction, wood processing and furniture. With more than 2,700 products and some 4,000 customers across the globe in the CAS segment, Covestro was among the world’s top suppliers in the reporting period in this area as well. Our main competitors are DSM, Evonik Industries, Vencorex Chemicals and Wanhua Chemical.

Procurement

Procurement at Covestro is centrally steered and managed by the Procurement unit. Procurement is responsible for the timely global supply of goods and services to all divisions of the company at the best possible market conditions. This ensures that our Group’s high quality standards are met. Furthermore, Procurement makes sure that Covestro’s ethical and environmental principles are upheld throughout the entire procurement process. The basic tenets of our procurement policy are set forth in a directive that is binding on all employees throughout the Covestro Group.

The objective is to generate a competitive advantage for Covestro and make a decisive contribution to the overall value. In doing so, Covestro is guided by four strategic principles: reliability, sustainability, cost transformation and innovation. In addition, Procurement promotes the digitalization of purchasing processes and systems in the interest of improving the efficiency and effectiveness of the procurement process for Covestro and its suppliers.

Strategic principles in procurement

In 2019, goods and services were procured from some 15,000 suppliers (previous year: some 15,500) in 72 countries (previous year: 71) for approximately €9.4 billion (previous year: €10.1 billion). Distribution of purchasing volumes was balanced across the regions.

The main precursors for our products are petrochemical substances such as benzene, toluene, propylene/propylene oxide, phenol and acetone – which collectively account for approximately 35% of our purchasing value. Moreover, the operation of our production facilities requires large amounts of energy, which we primarily procure from external sources and in the form of electricity and steam. We endeavor to procure critical raw materials from within the Group or through joint ventures in order to reduce the dependency on external supply sources. To name just two examples: Covestro produces some chlorine in-house and procures propylene oxide through a joint venture. Apart from raw materials and energy, operations, logistics and investment projects also require technical goods and services. These activities are also centralized by Procurement to add value to Covestro. We regularly monitor the sustainability and quality of our suppliers and ensure that they comply with internal and external standards.

Production sites and R&D facilities

Covestro operates production sites and research and development (R&D) facilities for various product groups throughout the world. The following chart shows the geographical distribution of Covestro’s 33 production sites and four R&D facilities.

Covestro production sites and R&D facilities¹

Covestro has 33 production sites located in Europe, North America and Asia, 8 of which have world-scale facilities. The latter are large-capacity production facilities that serve in particular to ensure that customers around the world are supplied reliably and efficiently. We operate additional plants in selected countries to manufacture polyurethane precursors and products for the Coatings, Adhesives, Specialties segment. Moreover, we operate production plants in selected countries where we compound polycarbonate resins to meet specific customer requirements.

Thanks to the integration of upstream production stages (backward integration), e.g., in its own production of chlorine, Covestro has continually optimized value creation. In addition, Covestro has put in place wide-ranging initiatives to secure and steadily improve performance in the areas of safety, costs and plant availability.

We invest continuously in our global production network in order to maintain our production facilities and their infrastructure, to optimize manufacturing processes, and to expand capacities in line with market developments. To do so, Covestro relies on advanced and environmentally friendly production processes and continually optimizes its technologies.

Covestro conducts research and development at three major centers in Germany, North America and China. Customer-facing applications are generally developed in the relevant regions, while global, fundamental research and technology development is mainly conducted in Germany. We also operate a R&D facility in Japan that concentrates on the Japanese market. Covestro’s global presence allows us to respond to regional trends and customer requirements.

Marketing and sales

Industry-specific marketing and sales teams are responsible for building potential business with prospective and existing customers and continually analyzing markets and trends. Each operational reporting segment markets and distributes its own products through its own sales organization as well as through trading houses and local distributors. Major customers with global operations are an exception to this, as these are serviced directly by our key account managers. Marketing is conducted in close cooperation between the marketing, sales and application development teams. Chemical by-products such as sodium hydroxide solution are marketed primarily outside of the operational reporting segments. One exception is the by-product styrene, which is marketed directly by the PUR segment.

The central management of marketing activities in the Central Marketing function, which was reorganized in 2019, unlocks opportunities for us to tailor our products and services worldwide even more specifically to our customers’ needs. The division provides support to operations with new marketing approaches, digital applications and innovative services. This allows us to continually improve workflows in marketing and marketing communications. We conduct extensive dialogue with our customers to determine their needs in order to best leverage the opportunities emerging from current trends and developments, such as digitalization, sustainability and the circular economy, and to increase value.

Three regional Supply Chain Centers for the EMLA, NAFTA and APAC regions support efficient order processing by providing assistance to our customers and processing sales orders – from order acceptance through shipment planning, to invoicing and complaint acceptance. Customer-oriented support in the individual regions allows us to process orders especially quickly and seamlessly. Covestro makes use of channels such as e-commerce platforms for receiving and processing orders. Our customers can place orders and check the status of their orders at any time in the Order@Covestro self-service portal.

The transportation of our products to customers is handled by logistics service providers that are selected and evaluated according to stringent safety, environmental and quality criteria. Alongside the protection of people and the environment, delivery reliability is particularly important to us. The preferred mode of transportation is rail or intermodal – in other words using a combination of different modes of transportation. When selecting the mode of transportation, we also consider resource efficiency and seek to reduce associated CO₂ emissions in particular. Customers are supplied from close-to-production warehouses, wherever permitted by transportation times and delivery reliability. In the case of longer distances and depending on the reliability of the mode of transport, our products are temporarily stored in regional distribution centers and then dispatched from there with shorter delivery times.

In order to ensure a high level of customer satisfaction, our foremost quality target is avoiding errors in all of our processes. Customer satisfaction is regularly gauged and analyzed worldwide in a global management system. In doing so, we consider customer satisfaction analyses and supplier assessments. Furthermore, we request feedback from our customers from which we derive corrective and preventive measures for the purpose of further increasing quality and customer satisfaction and lowering the error rate and the incidence of complaints. We modified our methodology for measuring and analyzing customer complaints this year, which also led to a change in the baseline for 2018 from 6.72 complaints per 1,000 deliveries to 5.15. In the reporting period, we only received 4.57 customer complaints per 1,000 deliveries, a reduction of 11%. In our effort to improve and accelerate complaint processing, we also hired additional staff, trained employees on how to improve the effectiveness of responses to customers, and surveyed customers on their experience with how their input was handled.