Bjoern Eller
View from the Top

Materials Giant Flies Solo

Thu, 09/01/2016 - 10:34

Q: What led Bayer to carve the MaterialScience business out into a separate entity creating Covestro?

A: Bayer wanted to focus purely on the LifeScience business. The separation was beneficial for both Bayer and MaterialScience since we had been competing for resources internally for years with the LifeScience part of the company. Healthcare and CropScience are still part of Bayer’s portfolio, while the MaterialScience business was carved-out and converted into Covestro. We now enjoy strategic freedom to execute our own asset optimization. Bayer owns over 60 percent of our shares but its clear long-term strategy is to reduce its Covestro shares down to zero.

Q: Which megatrends are shaping your innovation strategy?

A: Our global strategies focus on megatrends such as scarcity of fossil resources, urbanization and the onset of climate change. We help our customers design and develop innovative products that reflect these issues and promote sustainable applications. We believe sustainability should be considered at the early stages of every production process. We are working to make cars lighter, helping to reduce fuel consumption significantly. For example, substituting glass for polycarbonate reduces the weight of components by almost half. About 15 percent of a car was made with plastics in 2015. Studies show that by 2020 this percentage will grow to 25.

Our intention is to produce more environmentally friendly plastics by reducing waste during our manufacturing processes. We are using more efficient technologies that consume significantly less energy than traditional processes. Practically all of our products are produced in the NAFTA region, giving us a competitive advantage on delivery times and costs, and helping to reduce pollution from transporting goods.

Q: How is Covestro participating in sustainability trends?

A: We are working closely together with electric car OEMs and scientific research centers that use our materials for designing parts for these vehicles. Our Bioplastic mixture of biological and inorganic plastic parts was designed for electric car batteries. Other applications include glazing  sunroofs and windows. With sustainability in mind, our coating business has developed a new self-repairing coating that eliminates the need for new paint to repair scratches on the car. Together with a major German energy company and RWTH Aachen University, we also developed innovative technology to use CO2 from the air and transform it into a raw material for our production process. Even though this technology is still not available in the market, it is a major breakthrough as it does not only reduce the use of certain oil derivatives in our production process but contributes actively to the elimination of CO2 pollution.

Q: How do you incorporate the automotive industry’s projected growth into your strategy in Mexico?

A: Our three divisions cover Polyurethanes (PUR), Polycarbonates (PCS), as well as Coatings, Adhesives and Specialties (CAS). Six out of the seven announcements of foreign direct investment by major OEMs worldwide have been dedicated to Mexico between 2014 and 2016. This shows the market here will continue to grow. Our goal is to work hand in hand with our customers and OEMs to support them with our technical knowledge and services, guaranteeing an efficient distribution network. Our clients are mainly Tier 1 and sometimes Tier 2 suppliers. These companies represent the most important segment for Covestro.

Q: What strategies are you implementing to keep growing your stock price?

A: The key strategies in capital markets are communication, transparency and reliability. Being a newly listed company we are focusing on building our credibility in the market. Our investor relation department is in constant dialogue with our equity and debt investors. Although our share price has grown to more than €40 (US$44.7) since our initial public offering in October 2015, we still depend on the overall stock market’s development. We also have a chance to communicate what Covestro stands for. Our objective is to increase awareness of our products’ applications. We expect to end the year with mid to high single-digit growth of our core volume, freeing up operating cash flow and earning a higher premium over our cost of capital than in 2015.