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Thank you, Patrick!
Ladies and gentlemen, I’m happy to take you through the past fiscal year in more detail. Despite all the significant events and changes we faced, we never lost sight of our operating business in 2015. On the contrary – we were very successful financially.
Our core volume growth, in particular, is an important measure of our success. From this fiscal year forward, we will be using this as a further significant key performance indicator for controlling the Group. Changes to this parameter, unlike sales, are influenced less by raw material prices or currency effects, making it more suitable for assessing growth.
Core volume growth refers to the core products in our Polyurethanes, Polycarbonates and Coatings, Adhesives, Specialties segments. It is calculated as the percentage change from the prior year in externally sold volumes in thousands of tons.
Viewed over the year as a whole, we recorded core volume growth of 2.7 percent. The fourth quarter, which tends to be seasonally weak, stood out with an above-average increase of 3.3 percent.
Not only we did we increase adjusted EBITDA by a good 41 percent in 2015 as mentioned before, our margin also improved significantly to 13.6 percent compared with 9.9 percent in 2014. I would like to emphasize that adjusted EBITDA in all four quarters was above – in some cases substantially – that of the respective reference periods in 2014.
Closer examination of the income statements shows that the cost of goods sold decreased in the reporting year despite negative currency effects. This was due to lower raw material costs. We were therefore able to improve our gross margin by 3.6 percent compared with the previous year.
Although our business continued to grow, we were able to keep fixed costs – adjusted for special effects and currency changes – virtually stable in 2015.
To maintain the accustomed pace of innovation, we increased research and development spending by approximately one-fifth.
General administration expenses increased by nearly 40 percent. The main factors here were special charges in connection with the consolidation of production sites as well as expenses for and proceeds from the stock market flotation of Covestro.
The weaker euro also had an impact on our costs overall, influencing fixed costs by EUR 357 million.
Our EBIT rose by 31.5 percent to EUR 680 million in 2015. We achieved a similar increase in pre-tax income. At a rate of approximately 30 percent, tax expense was of course higher than in the prior year. Net income came in at EUR 343 million, an increase of 26 percent.
Last year was a good year overall on the segment level as well. Volumes expanded in all three operational segments, which also contributed to Covestro’s strong earnings growth. Polycarbonates alone more than tripled its adjusted operating result.
But I would like to start with our largest segment, Polyurethanes. Development here was again volatile, but overall we achieved core volume growth in 2015 of 1.8 percent compared with a year earlier. The fourth quarter stands out with an increase of 4.9 percent, which is also due in part to the weak prior-year period.
In 2015, adjusted EBITDA at Polyurethanes rose by 5.4 percent year-on-year to EUR 624 million. This is primarily attributable to improved margins in our polyols business, which is relatively robust thanks to its structure.
I would now like to move on to our Polycarbonates segment, ladies and gentleman, which developed very well in 2015.
Here we recorded core volume growth of 5.2 percent. The only outlier over the course of the year was the fourth quarter with a sideways trend that can be attributed to reduced production output resulting from planned plant shutdowns.
Adjusted EBITDA at Polycarbonates increased from EUR 160 million in 2014 to EUR 560 million last year – a more than three-fold increase as I mentioned before. The reason for this extremely good result was an advantageous supply and demand situation that enabled us to achieve a good margin despite declining selling prices.
Adjusted EBITDA decreased slightly in the fourth quarter compared with the prior-year period, but this was due to seasonal fluctuations. Margins remained stable, however, and confirm what we already noted when we presented our third-quarter figures: this is not a temporary increase, but rather a structural improvement of our margins.
We were again very pleased with the performance of the Coatings, Adhesives, Specialties segment last year.
Sales here rose by 8.6 percent to around EUR 2.1 billion, marking the first time we have exceeded the two-billion mark. Core volume growth amounted to 2.7 percent against the prior year.
One special feature of CAS is that our products are specifically tailored to customer requirements, thus making their products more valuable. We are therefore reaping the rewards of our first-class research performance and the added value that we offer. Also, the low raw material prices do not have a very strong impact on selling prices.
The segment’s adjusted EBITDA increased by 12.4 percent to EUR 491 million. The margin for the full year is 23.5 percent, which is not only higher than in the previous year, but the highest ever. Another record.
Fourth-quarter performance was affected by a scheduled maintenance shutdown and expenditures for capacity expansions in China. The margin therefore decreased year-on-year.
Ladies and gentlemen, Covestro focuses particularly on the free operating cash flow, which alongside core volume growth will be one of our key performance indicators for controlling the Group.
We can now confirm for the full year what was already implicit in our data for the first nine months: in 2015, we more than tripled free operating cash flow to a record EUR 964 million.
This was driven by the strong increase in earnings and improvements in working capital. Moreover, our capital expenditure costs were substantially below depreciation and impairment losses.
This clearly demonstrates that Covestro is a financially strong and thoroughly healthy enterprise. We aim to use our financial strength to quickly pay down our debts – which brings us to our balance sheet.
This slide can also be summarized as follows: Covestro is well positioned. We currently have a solid equity ratio of 34 percent. Our total financial liabilities amount to approximately EUR 2.9 billion. This year we intend to pay back loans of more than EUR 2 billion to Bayer, our major shareholder. The first tranche is due in March; the second in June.
The refinancing of the financial liabilities due to mature has already been secured by way of credit lines of EUR 2.7 billion. We are also planning additional steps to keep various financing options open for the long term.
Besides the aforementioned reduction in working capital, another notable item in the balance sheet is the slight reduction in pension liabilities compared with September 2015. This was primarily attributable to higher long-term interest rates in Germany.
I now want to add a few details about net financial debt. We reduced this in 2015 by around EUR 1.9 billion to approximately EUR 2.2 billion. Taken together with pension liabilities of roughly EUR 1.5 billion, net financial debt is 2.2 times adjusted EBITDA, and thus even lower than we had previously announced.
We would like to reduce net indebtedness still further this year. Our mid-term target is 1.5 times adjusted EBITDA.
The rating of Baa2 with stable outlook that Covestro received from the rating agency Moody’s immediately after the stock market listing confirmed our company’s creditworthiness on the international capital market.
Ladies and gentlemen, in light of our very gratifying business development, we would also like to honor the promise we made on the occasion of the stock market listing and reward our stockholders with a dividend right from the start. The Board of Management and Supervisory Board will propose the payment of EUR 0.70 per share to the Annual Stockholders’ Meeting on May 3.
That corresponds to a dividend yield of 2.7 percent relative to the closing price of our stock on February 19 of this year. Overall, we intend to pay out EUR 142 million to our stockholders. That places us at the upper end of our forecast.
For the current year, we expect to increase the dividend and plan a payout ratio of 30 to 50 percent of net income. We also intend to make attractive dividend payments to our stockholders over the medium term. Our objective is to further increase the dividend or at least keep it stable.
That is all I have for you, ladies and gentlemen. I’ll now hand back to Patrick, who will go through our forecast for 2016 with you. Thank you!
This release may contain forward-looking statements based on current assumptions and forecasts made by Covestro AG. 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 Covestro’s public reports which are available on the Covestro website at www.covestro.com. Covestro assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.
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