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 is included in the DAX, Germany’s leading index. In line with the product portfolio, Covestro is divided into three reportable segments: Polyurethanes (PUR), Polycarbonates (PCS), and Coatings, Adhesives, Specialties (CAS). The administrative functions are consolidated centrally. As of December 31, 2020, the Covestro Group comprised 47 consolidated companies in 22 countries in addition to Covestro AG, and employed 16,501 people*.

Group structure

The Board of Management of Covestro AG manages operations, and defines and tracks corporate goals. Dr. Markus Steilemann is the company’s Chief Executive Officer (CEO). Sucheta Govil is Covestro’s Chief Commercial Officer and is responsible for the three segments, Polyurethanes, Polycarbonates, and Coatings, Adhesives, Specialties. In addition, she heads the Innovation, and Marketing and Sales corporate functions. The Board of Management member responsible for Production and Technology as well as all production sites is Dr. Klaus Schäfer. Dr. Thomas Toepfer is its Chief Financial Officer (CFO) and additionally holds the position of Labor Director.

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

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 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 mobile phone cases, and medical devices 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 and transportation; construction; furniture and wood processing; and 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. In addition, materials by Covestro are used to manufacture medical equipment, safety barriers, and sneeze and splash guards used to combat and control the spread of the coronavirus pandemic.

Covestro aims to leverage this broad positioning to further reduce the product range’s exposure to cyclical fluctuations. The focus here is on sustainability and innovation. To this end, Covestro closely monitors developments in its sales and consumer markets and orients its activities to support customers’ growth. Together with customers as well as with business and scientific partners, the company works continuously to further advance products, technologies, and application solutions.

Global megatrends play a considerable role in this process: Advancing climate change, the growing global population, increasing urbanization, and new forms of transportation are changing the lives of billions of people. Consequently, the polymer industry will have to develop as well. Companies like Covestro are facing new challenges and playing a part in developing innovative solutions as a result. For this reason, Covestro intends to reorient its entire production process and product portfolio – and ultimately the entire company – to a circular approach in the long term, the focus is on alternative raw materials, innovative recycling, joined solutions, and renewable energies.

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.

Reportable segments

Polyurethanes

In the PUR segment, Covestro primarily develops, produces, and markets chemical precursors for the manufacture of polyurethane foams. These precursors are diphenylmethane diisocyanate (MDI), toluene diisocyanate (TDI), and polyether polyol, which are used primarily in the furniture, construction, and automotive industries. MDI-based rigid polyurethane foam serves mainly to efficiently insulate buildings and refrigeration appliances, therefore contributing to lowering energy usage. 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. Covestro was among the top suppliers in the global polyurethane industry in fiscal 2020. Our main competitors are BASF, Dow Chemical, Huntsman, and Wanhua Chemical.

Polycarbonates

In fiscal 2020, Covestro was also one of the world’s leading 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 particularly 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), and electrical and electronic devices (e.g., cords and laptop cases). Our main competitors include Lotte Chemical, Luxi Chemical, Mitsubishi Chemical, Saudi Basic Industries Corporation (SABIC), Teijin, and Wanhua Chemical.

Coatings, Adhesives, Specialties

The CAS segment develops and produces substances that make finished products more aesthetically appealing and durable, and therefore increase their value. The focus is on aliphatic and aromatic isocyanates and their derivatives as well as 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 3,700 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 BASF, Evonik Industries, Vencorex Chemicals, and Wanhua Chemical.

Procurement

Procurement at Covestro is centrally steered and managed by the Procurement corporate function, which is responsible for the timely global supply of goods and services to all divisions of the company under the best possible conditions. This ensures that our Group’s high quality standards are met. Furthermore, Procurement is responsible for ensuring 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.

Strategic principles in Procurement

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. By purchasing renewable energy or biobased raw materials, Procurement contributes to realizing Covestro’s vision of a closed-loop circular economy. 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.

In fiscal 2020, goods and services were procured from some 13,000 suppliers (previous year: some 15,000) in 67 countries (previous year: 72) for approximately €7.9 billion (previous year: €9.4 billion). Distribution of purchasing volumes was balanced across the regions.

The most important raw materials for our products are petrochemical substances such as phenol, benzene, propylene/propylene oxide, toluene, and acetone – which collectively account for approximately 33% 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 raw materials essential for operations from within the Group or through joint ventures in order to reduce our dependence on external supply sources. To name just two examples: Covestro produces part of its chlorine in-house and procures propylene oxide through a joint venture. Operations, logistics, and investment projects require technical goods and services in addition to raw materials and energy. 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’s production sites and R&D facilities

Covestro has 33 production sites located in Europe, North America, and Asia, eight of which have world-scale facilities. The latter are large-capacity production facilities that serve in particular to ensure that customers in the respective regions 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 for customer-specific compounding of polycarbonate resins.

Thanks to the integration of upstream production stages (backward integration), e.g., in its own production of chlorine, Covestro has continually optimized the value chain. In addition, Covestro has put in place wide-ranging programs and 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. Key growth projects in fiscal 2020 included commissioning the MDI plant in Brunsbüttel (Germany), boosting polycarbonate production capacity in Shanghai (China), and expanding specialty films production in Map Ta Phut (Thailand) and Dormagen (Germany).

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 are mainly conducted in Germany. We also operate an R&D facility in Japan that concentrates on the Japanese market. Our global presence allows us to respond to regional trends and customer requirements.

Marketing and Sales

Industry-specific marketing and sales teams are responsible for developing potential business with prospective and existing customers and continually analyzing markets and trends. Each reportable 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 marketing, sales, and application development teams.

At Covestro, we have consolidated the management of marketing activities in the Central Marketing function, which is also responsible for our digital sales channel Covestro Direct Store. Selected business units transferred their sales activities to the Covestro Direct Store either in whole or in part in the 2020 fiscal year. During that time, this digital trading platform handled more than 8,000 transactions with a total value in the mid-triple-digit millions, corresponding to approximately four times the business volume compared with the prior-year period. Meanwhile, we are working hard to meet our goal of tailoring our products and services more consistently to our customers’ needs as well as providing a completely digital customer experience. To this end, we developed a Group-wide initiative called Customer Centricity in fiscal 2020 to put customers at the forefront of every employee’s day-to-day responsibilities. This effort relies greatly on digitalization. Especially against the background of the coronavirus pandemic, we were thus able to flexibly react to our customers’ needs early on and to meet these optimally thanks to innovative applications such as webinars and digital showrooms. Our new digital customer relationship management (CRM) application supports us with this effort, as it helps us to understand our customers even better and provide them with more customized and tailored solutions.

The three Supply Chain Centers in the EMLA, NAFTA, and APAC regions are responsible for key customer service activities and the efficient fulfillment of customer orders. They cover the entire process – from receiving orders through shipping to invoicing and handling complaints. 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. However, Order@Covestro is not used to initiate new business: Instead, the portal complements the services we provide our existing customers and helps us handle routine inquiries during times outside our customer service and sales staff’s business hours.

The transportation of our products to customers is handled by logistics service providers who 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 – 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. Whenever permitted by transportation times and delivery reliability, we supply customers from close-to-production warehouses. In the case of longer distances and depending on the reliability of the mode of transportation, our products are temporarily stored in regional distribution centers and then dispatched from there in order to shorten delivery times. We also participate in the RH2INE industry initiative as part of our corporate commitment to reducing our carbon emissions. This initiative aims to deploy fuel-cell-powered vessels on the Rhine River starting in the year 2024. Building on RH2INE, Covestro is a key player in initiating another fuel cell project whose goal is to accelerate the development and use of fuel cells in cargo trucks.

In the future, we plan to measure customer satisfaction using the Net Promoter Score (NPS) to ensure that customer feedback is incorporated to a greater degree in our internal decision-making processes. The NPS is obtained by sending customers short surveys on an ad hoc basis to determine the extent to which they would recommend Covestro to others. In addition, our foremost quality goal is to eliminate error in all our processes to guarantee a high level of customer satisfaction. This information is regularly collected throughout the world and analyzed in a global management system, taking into account customer satisfaction analyses and supplier assessments. We use this data to derive corrective and preventive measures for the purpose of further increasing quality and customer satisfaction and further lowering the error rate and the incidence of complaints. In the reporting period, we received only 3.99 customer complaints per 1,000 deliveries, a reduction of 26% from the previous year.