German chemicals company splits two business segments in July
While Covestro’s performance materials business, which offers products such as base chemicals, is largely driven by volume, the solutions and specialty unit sells more complex products such as coatings and adhesives, specialty films and elastomers, which are used in rubber products. And can be used to make the ceiling. . According to Chief Financial Officer Thomas Toeffer, the units are managed differently and therefore should be separate. “If we want to transform our business, we have to start with a different structure,” he said.
By breaking down these two business segments, Covestro gained additional insight into its performance, which led it to increase its margin target for the Solutions and Specific business to 17% by 2024, up from the current 11%. The company expects to see additional savings and efficiencies as a result of the restructuring, Mr Tofer said. “It became clear that the performance of the solutions and specialty business was not satisfactory,” he said.
Mr Toffer, who has led the company’s finance department since April 2018, said he is responsible for tracking those efforts to increase profitability. He is also looking for synergies following the acquisition of Covestro’s resins and functional materials business from Dutch peer Royal DSM NV for €1.61 billion, equivalent to the $1.87 billion it closed in April. When it announced the deal last year, Covestro said it would generate synergies of €120 million per year until 2025.
Covestro is reviewing its financial and other metrics used to measure incentive pay for its employees. Covestro plans to replace existing key performance indicators and add a component related to the company’s environmental, social and governance achievements, Mr. Toeffer said. Such metrics can be used starting January 1, 2022. Those ESG factors could be Covestro’s success in reducing carbon dioxide emissions, said Mr. Toeffer, who has been involved in reviewing the company’s performance metrics.
Covestro currently doesn’t have a timeline for when it wants to go carbon neutral, but expects to set a goal next year. The company wants to set new environmental standards for its production in order to reduce emissions, Mr Toeffer said. According to the CFO, Covestro signed a credit facility linked to its ESG performance last year and has since added another ESG-related financing instrument.
The company, which is exposed to higher commodity and energy costs, plans to offset them by raising its prices, Mr Toeffer said. He said Covestro saw its input costs increase by €401 million during the second quarter compared to the prior-year period, but prices more than doubled, resulting in a net profit of €588 million.
“Covestro has pricing power,” said Isha Sharma, equity analyst at investment bank Stifel Europe Bank AG.
Sebastian Bray, head of chemicals research at German bank Berenberg, said the new segment structure could boost the company’s valuation. “This is one of the ways Covestro is trying to influence the way we look at the market,” said Mr. Bray. Other chemical companies have made similar organizational changes, including Solvay SA and BASF SE.
Shares of Covestro closed Thursday at €59.34 on the Frankfurt Stock Exchange, less than 1% from Wednesday’s close.
Nina Trentmann at Nina [email protected]