Covestro AG

Name: Covestro AG
Bloomberg ticker: 1COV:GR
Primary listing: Frankfurt Stock Exchange
Financial year end: December
Sector: Materials
Industry: Chemicals
Sub-Industry: Basic & Diversified Chemicals

Hard Coded number Blue font color

Formula Black font color
Forecast Assumption Green font color
Forecast Year Dark background
Covestro AG

FY 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

GROWTH RATIOS
Sales growth (%) na na na na na
Gross profit growth (%) na na na na na
EBITDA growth (%) na na na na na
EBIT growth (%) na na na na na
Pre-tax profit growth (%) na na na na na
Net income growth (%) na na na na na

Margins
Gross profit margin (%) 27.7% 33.4% 32.6% 34.9% 35.7%
EBITDA margin (%) 16.9% 23.6% 24.2% 24.4% 25.0%
EBIT margin (%) 11.2% 19.2% 19.6% 20.0% 20.7%
Pre-tax profit margin (%) 9.5% 17.7% 18.7% 19.0% 19.9%
Net income margin (%) 6.8% 13.1% 13.9% 14.0% 16.2%

OPERATING PERFORMANCE RATIO

Capex/deprecation (x) 0.6 0.5 0.6 0.7 1.6
Working capital/sales (%) 18.3% 18.1% 19.6% 19.1% 17.4%
Receivable days 61 59 59 59 56
Payable days 65 60 53 55 65
Inventory days 73 71 71 73 77
Cash operating cycle (days) 69 70 78 76 68

LIQUIDITY RATIOS
Current ratio (x) 1.7 1.6 1.7 1.9 1.9
Quick ratio (x) 1.0 1.0 1.1 1.3 1.2

RISK MEASUREMENT RATIOS

Dividend payout ratio (%) 34% na na na na
Net interest coverage ratio (x) 12 18 31 32 43
Net debt/equity (%) 0.4 0.3 0.3 0.2 0.1
Net Interest expense to operating cash flow (%) 6.4% 13.3% 5.4% 2.8% 1.9%
Net debt to EBITDA (x) 0.8 0.5 0.5 0.3 0.2
Net debt to free cash flow (x) 1.2 1.8 1.3 0.5 0.2

RETURN RATIOS
Return on average capital employed (%) 15.7% 34.0% 34.2% 33.7% 36.6%
Return on average equity (%) 19.1% 42% 41% 40% 43%
Return average assets (%) 7.9% 17.9% 18.3% 18.4% 20.4%
FY 2017 Q1 2018 Q2 2018E Q3 2018E Q4 2018E FY 2018E FY 2019E FY 2020E Assumptions

18.8% 5.4% 2.4% 1.8% 2.4% 3.0% 2.9% 3.5%

46.7% 19.4% 6.8% 2.0% 0.3% 7.0% 1.4% 3.5%
70.6% 25.7% -5.0% 0.5% -1.8% 4.8% 1.4% 3.5%
111.0% 31.8% -2.0% 4.0% 0.1% 8.3% -0.5% 2.9%
134.2% 38.6% 1.4% 8.8% 3.9% 12.8% 0.9% 4.3%
150.2% 37.7% 0.8% 9.4% -5.3% 9.8% 1.1% 4.3%

34.2% 37.9% 34.0% 35.0% 35.0% 35.5% 35.0% 35.0%

24.3% 28.1% 22.5% 24.1% 23.9% 24.7% 24.4% 24.4%
19.9% 24.0% 18.8% 20.4% 20.2% 20.9% 20.2% 20.1%
18.8% 23.3% 18.5% 20.3% 20.2% 20.6% 20.2% 20.4%
14.3% 17.1% 13.7% 15.0% 14.9% 15.2% 14.9% 15.1%

0.8 0.6 1.4 1.3 1.3 1.1 1.3 1.3

17.4% 19.8% 19.6% 19.5% 19.5% 19.4% 20.3% 20.3%
56 59 59 59 59 58 61 61
63 56 56 56 56 56 60 60
75 78 75 75 75 75 80 80
67 81 78 78 78 77 81 81

1.9 2.2 2.4 2.6 2.6 2.6 3.1 3.1

1.2 1.4 1.6 1.8 1.8 1.8 2.3 2.4

22% na na na na 20% 20% 19%

28 60 60 177 2144 99 7053 na Interest coverage ratio has increased h
0.1 0.1 0.0 na na na na na Owing to significant increase in cash a
4.2% 3.3% 1.4% 0.6% 0.1% 1.2% 0.0% na
0.2 0.1 na na na na na na From Q2 2018E onwards company has
0.3 0.2 na na na na na na

33.9% 39.7% 28.0% 28.5% 27.2% 30.9% 25.2% 21.9%

 42% 47% 33% 33% 32% 36% 36% 30%
18.7% 22.9% 17.0% 18.0% 17.6% 18.7% 16.8% 15.3%
overage ratio has increased heavily as cash and cash equivalent has increased which has to increase in interest income, while interest has
significant increase in cash and cash equivalent, company now has net cash compared to net debt in the early years.

2018E onwards company has net cash, compared to net debt earlier.
est income, while interest has declined due to payment of loans. So effectively EBIT has increased but net interest obligation has decrease
terest obligation has decreased.
Covestro AG
Year ending 31st December

(EURm except per unit or otherwise stated) FY 2016 Q1 2017 Q2 2017 Q3 2017
Income statement
Sales 11904 3586 3498 3532
% change
Cost of goods sold -8611 -2388 -2358 -2298
Gross profit 3293 1198 1140 1234
% change
Margin 27.7% 33.4% 32.6% 34.9%
Selling expenses -1323 -346 -344 -327
Research and development expenses -259 -64 -68 -68
General administration expenses -451 -113 -114 -120
Other operating income 126 24 87 6
Other operating expenses -55 -11 -14 -20
Share of associates profit 0 0 0 0
EBITDA 2014 846 848 862
% change
Margin 16.9% 23.6% 24.2% 24.4%
Depreciation, amortization and impairment expense -683 -158 -161 -157
EBIT 1331 688 687 705
% change
Margin 11.2% 19.2% 19.6% 20.0%
Equity-method loss -20 -6 -6 -6
Interest income 19 3 8 5
Interest expense -133 -41 -30 -27
Other financial result -62 -10 -6 -7
Financial result -196 -54 -34 -35
Income before income taxes 1135 634 653 670
Income taxes -329 -165 -167 -177
Tax rate 29.0% 26.0% 25.6% 26.4%
Income after income taxes 806 469 486 493
Attributed to non-controling interest -11 -1 -2 -2
Attributed to Covestro AG shareholders 795 468 484 491

Basic earnings per share 3.93 2.31 2.39 2.42

Diluted earnings per share 3.93 2.31 2.39 2.42

Basic weighted average number of shares 203 203 203 203

Diluted weighted average number of shares 203 203 203 203

Dividend per share 1.4

% change
Payout 34%
Cash flow statement
Income after income taxes 806 469 486 493
Income taxes 329 165 167 177
Financial result 196 54 34 35
Income taxes paid -418 -29 -33 -207
Depreciation, amortization and impairment 683 158 161 157
Change in pension provision 8 10 16 -13
(Gains)/losses on retirements of non-current assets 1 -7 -38 0
Change in working capital:
Decrease/(increase) in inventories 73 -157 -43 -13
Decrease/(increase) in trade receivables -171 -328 -54 -13
(Decrease)/increase in trade payables 123 44 -172 51
Change in other working capital 156 -94 -113 108
Change in working capital 181 -535 -382 133
Cash flow from operating activities 1786 285 411 775
Purchase of property, plant, equipment and intangible assets -419 -74 -92 -117
Sale of property, plant, equipment and other assets 6 12 0 0
Cash inflow from divestitures 0 47 0
Cash outflow for non-current financial assets -19 -13 -4 -11
Cash inflow from non-current financial assets 4 1 0
Cash outflow for acqusition less acquired cash 0 -4 0
Interest and dividend received 18 9 9 7
Cash inflow from (outflow for) other current fiancial assets -548 -61 -207 -177
Cash used in purchase of stake in associates 0 0 0 0
Cash flow from investing activities -958 -127 -250 -298
Reacquisition of treasury shares 0 0 0 0
Dividend payments and withholding tax on dividends -143 -274 0
Issuance of debt 1793 75 81 27
Retirements of debt -2727 -35 -64 -123
Interest paid -129 -31 -32 -39
Cash flows from financing activities -1206 9 -289 -135
Cash and cash equivalent generated from business activities -378 167 -128 342
Cash and cash equivalent at the beginning of period 642 267 434 300
Exchange rate movements 3 0 -6 -5
Cash and cash equivalent at the end of the period 267 434 300 637

Check OK OK OK OK

Balance sheet
Non-current assets
Goodwill 264 262 258 254
Other intangible assets 97 90 85 79
Property, plant and equipment 4655 4562 4327 4230
Investments accounted for using equity method 230 234 216 213
Other financial assets 31 33 31 31
Other receivables 41 48 40 39
Deferred tax 648 642 636 661
Total non-current assets 5966 5871 5593 5507
Current assets
Inventories 1721 1868 1842 1827
Trade receivables 1674 1998 1982 1967
Other financial assets 171 201 465 665
Other receivables 316 302 282 303
Claims for income tax refunds 119 98 53 52
Cash and cash equivalents 267 434 300 637
Assets hold for sale 0 12 3 3
Total current assets 4268 4913 4927 5454
Total assets 10234 10784 10520 10961

Equity
Capital stock of Covestro AG 203 203 203 203
Capital reserve of Covestro AG 4908 4908 4908 4908
Other reserve -922 -418 -393 -8
Equity attributable to Covestro AG shareholders 4189 4693 4718 5103
Equity attributable to non-controling interest 27 28 28 29
Total Equity 4216 4721 4746 5132
Non-current liabilities
Provisions for pension and other employement benefits 1209 1144 1167 1208
Other provisions 319 309 287 291
Financial liabilities 1796 1280 1245 1233
Income tax liabilities 36 39 40 44
Other liabilities 26 19 18 16
Deferred taxes 158 193 163 169
Total non-current liabilities 3544 2984 2920 2961
Current liabilities
Other provisions 569 509 384 490
Financial liabilities 135 690 701 607
Trade payables 1536 1577 1358 1393
Income tax liabilities 37 133 236 199
Other liabilities 197 170 175 179
Labilities related to assets held for sale 0 0 0 0
Total current liabilities 2474 3079 2854 2868
Total equity and liabilities 10234 10784 10520 10961

Check OK OK OK OK
Q4 2017 FY 2017 Q1 2018 Q2 2018E Q3 2018E Q4 2018E FY 2018E FY 2019E FY 2020E Assumptions

3522 14138 3779 3583 3595 3607 14563 14981 15501

18.8% 5.4% 2% 2% 2% 3% 3% 3%
-2264 -9308 -2348 -2365 -2336 -2344 -9393 -9738 -10075
1258 4830 1431 1218 1258 1262 5170 5243 5425
46.7% 19.4% 7% 2% 0% 7% 1% 3%
35.7% 34.2% 37.9% 34.0% 35.0% 35.0% 35.5% 35.0% 35.0%
-335 -1352 -344 -358 -334 -343 -1379 -1423 -1473
-74 -274 -68 -72 -72 -76 -287 -315 -341
-134 -481 -115 -115 -119 -115 -464 -479 -496
28 145 12 0 0 0 12 0 0
-15 -60 -9 0 0 0 -9 0 0
0 0 0 0 0 0 0 1 0
879 3435 1063 805 867 863 3,598 3,648 3,777
70.6% 25.7% -5.0% 0.5% -1.8% 4.8% 1.4% 3.5%
25.0% 24.3% 28.1% 22.5% 24.1% 23.9% 24.7% 24.4% 24.4%
-151 -627 -156 -132 -133 -135 -556 -622 -661
728 2808 907 674 733 729 3042 3027 3116
111.0% 31.8% -2% 4% 0% 8% -1% 3%
20.7% 19.9% 24.0% 18.8% 20.4% 20.2% 20.9% 20.2% 20.1%
-5 -23 -4 -4
5 21 5 5 11 15 36 60 100
-22 -120 -20 -16 -16 -15 -67 -61 -60
-5 -28 -9 -9
-27 -150 -28 -11 -4 0 -44 0 40
701 2658 879 662 729 728 2999 3026 3155
-132 -641 -233 -172 -190 -189 -784 -787 -820
18.8% 24.1% 26.5% 26.0% 26.0% 26.0% 26.1% 26.0% 26.0% In line with company's guid
569 2017 646 490 540 539 2214 2239 2335
-3 -8 -2 -2 -2 -2 -8 -8 -8
566 2009 644 488 538 537 2206 2231 2327

2.80 9.93 3.24 2.45 2.70 2.70 11.09 11.18 11.66

2.80 9.93 3.24 2.45 2.70 2.70 11.09 11.18 11.66

202 202 199 199 199 199 199 200 200 No guidance on buyback or
202 202 199 199 199 199 199 200 200

2.2 2.2 2.2 2.2 The company guided for sta

63.0% 0.0% 0.0% 0.0%
22% 20% 20% 19%
 569 2017 646 490 540 539 2214 2239 2335
132 641 233 172 190 189 784 787 820
27 150 28 11 4 0 44 0 -40
-241 -510 -56 -172 -190 -189 -607 -787 -820
151 627 156 132 133 135 556 622 661
4 17 8 8 0 0
0 -45 1 1 0 0

-93 -306 -149 68 23 -7 -65 -207 -74

70 -325 -258 106 -7 -7 -166 -160 -75
233 156 -137 9 -17 5 -140 162 56
38 -61 -20 4 -1 -1 -18 -12 -11
248 -536 -564 186 -2 -10 -389 -217 -105
890 2361 452 819 675 664 2611 2644 2851
-235 -518 -88 -179 -180 -180 -627 -824 -853
4 16 0 0
0 47 0 0
-2 -30 -4 -4
0 1 0 0
0 -4 0
4 29 5 5
157 -288 117 117
0 0 0 0 0 0 0 -18 0
-72 -747 30 -179 -180 -180 -509 -842 -853
-143 -143 -257 -257
0 -274 -445 -445 -438 -439 Dividend decalred is paid n
61 244 6 6
-108 -330 -525 -25 -25 -25 -599 -46 -31
-29 -131 -13 -11 -4 0 -29 0 40
-219 -634 -789 -36 -29 -470 -1324 -484 -430
599 980 -307 604 467 14 778 1318 1568
637 267 1232 926 1530 1997 1232 2011 3329
-4 -15 1 1
1232 1232 926 1530 1997 2011 2011 3329 4897

OK OK OK OK OK OK OK OK OK

253 253 250 250 250 250 250 250 250

81 81 78 78 78 78 78 78 78
4296 4296 4216 4263 4310 4355 4355 4658 4849
208 208 203 203 203 203 203 221 221
 31 31 31 31 31 31 31 31 31
35 35 51 51 51 51 51 51 51
702 702 759 759 759 759 759 759 759
5606 5606 5588 5635 5682 5727 5727 6048 6239

1913 1913 2011 1943 1920 1927 1927 2134 2208

1882 1882 2108 2002 2009 2016 2016 2175 2251
285 285 180 180 180 180 180 180 180
281 281 318 314 315 316 316 328 340
138 138 101 101 101 101 101 101 101
1232 1232 926 1530 1997 2011 2011 3329 4897
4 4 30 30 30 30 30 30 30
5735 5735 5674 6101 6552 6581 6581 8278 10007
11341 11341 11262 11736 12234 12308 12308 14326 16246

201 201 198 198 198 198 198 248 248

4767 4767 4513 4513 4513 4513 4513 4513 4513
367 367 942 1432 1972 2065 2065 3867 5763
5335 5335 5653 6143 6683 6776 6776 8628 10524
30 30 33 33 33 33 33 33 33
5365 5365 5686 6176 6716 6809 6809 8661 10557

1187 1187 1293 1293 1293 1293 1293 1293 1293

229 229 243 243 243 243 243 243 243
1213 1213 1204 1192 1179 1167 1167 1186 657
74 74 79 79 79 79 79 79 79
21 21 26 26 26 26 26 26 26
161 161 154 154 154 154 154 154 154
2885 2885 2999 2987 2974 2962 2962 2981 2452

529 529 490 490 490 490 490 490 490

583 583 83 71 58 46 46 31 529
1618 1618 1442 1451 1434 1439 1439 1601 1656
161 161 330 330 330 330 330 330 330
200 200 231 231 231 231 231 231 231
0 0 1 1 1 1 1 1 1
3091 3091 2577 2574 2544 2537 2537 2684 3237
11341 11341 11262 11736 12234 12308 12308 14326 16246

OK OK OK OK OK OK OK OK OK
Assumptions

In line with company's guidance for effective tax rate of 25%-27%, expecting tax rate of 26% for future year.

No guidance on buyback or issuance of shares, hence expecting same level for forecasted years.

The company guided for stable dividend, hence expecting it at same level as of 2017.
Dividend decalred is paid next year
Covestro AG
Year ending 31st December

(EURm except per unit or otherwise stated) FY 2016 Q1 2017 Q2 2017 Q3 2017
Revenue driver
Covestro group
Sales 11904 3586 3498 3532
% change -1.5% 24.7% 17.0% 16.9%
Volume 5.0% 9.9% 0.6% 2.0%
Price -5.2% 13.4% 15.3% 18.4%
Organic -0.2% 23.3% 15.9% 20.4%
Currency -1.3% 1.4% 1.1% -3.5%
Portfolio 0.0% 0.0% 0.0% 0.0%

Check OK OK OK OK

Segments
Polyurethanes
Sales 5927 1821 1889 1938
% change -2.6% 35.0% 27.5% 28.9%
Volume 5.2% 7.6% -0.8% 3.0%
Price -6.4% 25.8% 27.0% 29.7%
Organic -1.2% 33.4% 26.2% 32.7%
Currency -1.4% 1.6% 1.3% -3.8%
Portfolio 0.0% 0.0% 0.0% 0.0%

Polycarbonates
Sales 3298 954 911 933
% change 4.0% 21.4% 9.6% 10.0%
Volume 10.0% 17.2% 2.5% 4.4%
Price -4.3% 2.9% 6.1% 9.4%
Organic 5.7% 20.1% 8.6% 13.8%
Currency -1.7% 1.3% 1.0% -3.8%
Portfolio 0.0% 0.0% 0.0% 0.0%

Coatings, Adhesives, Specialties

Sales 2040 637 533 490
% change -2.5% 10.2% 0.2% -4.9%
Volume 0.6% 9.1% -1.2% -6.0%
Price -2.4% -0.3% 0.6% 3.8%
Organic -1.8% 8.8% -0.6% -2.2%
Currency -0.7% 1.4% 0.8% -2.7%
Portfolio 0.0% 0.0% 0.0% 0.0%

All other segments

Sales 639 174 165 171
% change -12.3% 0.0% 13.0% 9.6%
Volume -6.0% -1.6% 9.8% 5.2%
Price -6.1% 1.0% 2.6% 5.6%
Organic -12.1% -0.6% 12.4% 10.8%
Currency -0.2% 0.6% 0.6% -1.2%
Portfolio 0.0% 0.0% 0.0% 0.0%

Cost drivers
Cost of goods sold -8611 -2388 -2358 -2298
% of sales 72.3% 66.6% 67.4% 65.1%
% change na na na na
Selling expenses -1323 -346 -344 -327
% of sales 11.1% 9.6% 9.8% 9.3%
% change na na na na
Research and development expenses -259 -64 -68 -68
% of sales 2.2% 1.8% 1.9% 1.9%
% change na na na na
General administration expenses -451 -113 -114 -120
% of sales 3.8% 3.2% 3.3% 3.4%
% change na na na na
Q4 2017 FY 2017 Q1 2018 Q2 2018E Q3 2018E Q4 2018E FY 2018E FY 2019E FY 2020E Assumptions
In the recent release com
The company is expected
3522 14138 3779 3583 3595 3607 14563 14981 15501
16.5% 18.8% 5.4% 2.4% 1.8% 2.4% 3.0% 2.9% 3.5%
4.3% 4.2% -1.7% -0.2% 0.0% 0.8% -0.3% 1.3% 1.8%
17.5% 16.1% 14.3% 2.6% 1.7% 1.6% 5.2% 1.7% 1.8%
21.8% 20.4% 12.6% 2.4% 1.8% 2.4% 4.9% 3.0% 3.6%
-5.5% -1.6% -7.2% 0.0% 0.0% 0.0% -1.8% 0.0% 0.0%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

OK OK OK OK OK OK OK OK OK

Growth rate assumption i

2012 7660 1950 1,927 1,957 2,072 7,907 8,144 8,469
25.6% 29.2% 7.1% 2.0% 1.0% 3.0% 3.2% 3.0% 4.0%
6.6% 4.1% -2.8% -1.0% -1.0% 1.0% -1.0% 1.0% 2.0%
25.1% 26.9% 17.3% 3.0% 2.0% 2.0% 6.1% 2.0% 2.0%
31.7% 31.0% 14.5% 2.0% 1.0% 3.0% 5.1% 3.0% 4.0%
-6.3% -1.8% -7.4% 0.0% 0.0% 0.0% -1.8% 0.0% 0.0%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

939 3737 1033 957 975 967 3,932 4,050 4,171

12.2% 13.3% 8.3% 5.0% 4.5% 3.0% 5.2% 3.0% 3.0%
4.3% 7.1% 0.2% 2.0% 2.5% 1.0% 1.4% 1.0% 1.0%
13.6% 8.0% 16.3% 3.0% 2.0% 2.0% 5.8% 2.0% 2.0%
17.9% 15.1% 16.5% 5.0% 4.5% 3.0% 7.2% 3.0% 3.0%
-5.7% -1.8% -8.2% 0.0% 0.0% 0.0% -2.1% 0.0% 0.0%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

393 2053 592 528 483 381 1,984 1,984 1,984

-3.0% 0.6% -7.1% -1.0% -1.5% -3.0% -3.4% 1.0% 1.0%
-2.3% -0.1% -2.2% -2.0% -2.0% -2.0% -2.1% 2.0% 2.0%
3.1% 1.8% 1.0% 1.0% 0.5% -1.0% 0.4% -1.0% -1.0%
0.8% 1.7% -1.2% -1.0% -1.5% -3.0% -1.7% 1.0% 1.0%
-3.9% -1.1% -5.9% 0.0% 0.0% 0.0% -1.5% 0.0% 0.0%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
 178 688 204 172 180 186 741 804 877
8.1% 7.7% 17.2% 4.0% 5.0% 4.5% 7.7% 8.5% 9.0%
3.0% 4.1% 0.4% 3.0% 4.0% 3.5% 2.7% 3.5% 3.5%
7.6% 4.2% 20.5% 1.0% 1.0% 1.0% 5.9% 5.0% 5.5%
10.6% 8.3% 20.9% 4.0% 5.0% 4.5% 8.6% 8.5% 9.0%
-2.4% -0.6% -3.7% 0.0% 0.0% 0.0% -0.9% 0.0% 0.0%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

-2264 -9308 -2348 -2365 -2336 -2344 -9393 -9738 -10075

64.3% 65.8% 62.1% 66.0% 65.0% 65.0% 65% 65.0% 65.0% Kept same as historical av
na 8.1% -1.7% 0.3% 1.7% 3.6% 0.9% 3.7% 3.5%
-335 -1352 -344 -358 -334 -343 -1379 -1423 -1473
9.5% 9.6% 9.1% 10.0% 9.3% 9.5% 9.5% 9.5% 9.5% Kept same as historical av
na 2.2% -0.6% 4.1% 2.2% 2.3% 2.0% 3.2% 3.5%
-74 -274 -68 -72 -72 -76 -287 -315 -341
2.1% 1.9% 1.8% 2.0% 2.0% 2.1% 2.0% 2.1% 2.2% Kept same as historical av
na 5.8% 6.3% 5.4% 5.7% 2.4% 4.8% 9.5% 8.4%
-134 -481 -115 -115 -119 -115 -464 -479 -496
3.8% 3.4% 3.0% 3.2% 3.3% 3.2% 3.2% 3.2% 3.2% Kept same as historical av
na 6.7% 1.8% 0.6% -1.1% -13.9% -3.6% 3.4% 3.5%
Assumptions
In the recent release company has mentioned about digitalisation and it expects digitalisation to be the key driver in future. Digitalisatio
The company is expected to benefit from favourable growth its key end-markets, company expects all growth from its key end-markets t

Growth rate assumption is based on historical growth rate, as there is no any guidance for growth. % change in revenue from foreign exc
Kept same as historical average as guidance is not there.

Kept same as historical average as guidance is not there.

Kept same as historical average as guidance is not there.

Kept same as historical average as guidance is not there.

 y driver in future. Digitalisation move will help the company in enhancing it operating process and improving customer experience by sym
wth from its key end-markets to come in above the average GDP growth.

ge in revenue from foreign exchange and portfolio change is kept at zero, as I have not forecasted foreign exchange and there is no guidan
g customer experience by symplifying customers access through online portals.

change and there is no guidance on acqusition or divestiture.

Covestro AG
Year ending 31st December

(EURm except per unit or otherwise stated) FY 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
Tangible assets schedule
Opening balance 4934 4,655 4,562 4,327 4,230
Total tangible assets 4655 4562 4327 4230 4296
Capex (419) (74) (92) (117) (235)
% of sales 3.5% 2.1% 2.6% 3.3% 6.7%
Depreciation -683 -158 -161 -157 -151
Depreciation rate 3.2% 3.3% 3.5% 3.5% 3.4%
Acqusition / disposal (15) (9) (166) (57) (18)
Capex to depreciation 0.6 0.5 0.6 0.7 1.6

Depreciation rate
Opening balance

2Q 2018E 4,216
3Q 2018E 4,263
4Q 2018E 4,310
FY 2018E 4,296
FY 2019E 4,355
FY 2020E 4,658
Total depreciation

Debt Schedule
Long term borrowings
Opening balance 374 1796 1280 1245 1233
Addition / (repayment) 1422 -516 -35 -12 -20
Issuance of debt 0 0 0 0 0
Closing balance 1796 1280 1245 1233 1213

Short term borrowings

Opening balance 2507 135 690 701 607
Addition / (Repayment) 39 -24 -106 -44
Current portion of long term liabilities 516 35 12 20
Closing balance 135 690 701 607 583
Interest income/(expense) schedule
Interest income
Average cash 455 351 367 469 935
Interest income 19 3 8 5 5
Interest income rate (%) 4.2% 3.4% 8.7% 4.3% 2.1%

Interest expense
Average debt 2406 1951 1958 1893 1818
Interest expense 133 41 30 27 22
Interest expense rate (%) 5.5% 8.4% 6.1% 5.7% 4.8%

Net interest expenses 114 38 22 22 17

Working capital schedule

Trade receivables 1674 1998 1982 1967 1882
Other receivables 316 302 282 303 281
Inventories 1721 1868 1842 1827 1913
Trade payables 1536 1577 1358 1393 1618

Trade receivables days 51 51 52 51 49

Other receivables days 10 8 7 8 7
Inventories days 73 71 71 73 77
Trade payables days 65 60 53 55 65

Working capital 2175 2591 2748 2704 2458

416 157 -44 -246

Associates investment schedule

Purchase of 30% stake in XYZ Ltd.
Net profit reported by XYZ Ltd.
Dividend declared by XYZ Ltd.
Retained earnings of XYZ Ltd.
Share in associate
Share of associates profits
Investments accounted using equity method 230 234 216 213 208
Acqusition / disposal 0 0 0 0 0
Net investment accounted equity method 230 234 216 213 208

Acqusition of factory
Cost of acqusition
Debt funding (50%)
Equity funding (50%)
Current share price
Price at shares are issued
Number of share issued
Capital stock of Covestro AG 203 203 203 203 201
Issuance or repurchases 0 0 0 0 0
Total capital stock of Covestro AG 203 203 203 203 201

Basic number of shares 203 203 203 203 202

Diluted number of shares 203 203 203 203 202
Issuance / repurchase of shares 0 0 0 0 0
Total basic number of shares 203 203 203 203 202
Total diluted number of shares 203 203 203 203 202
 FY 2017 Q1 2018 Q2 2018E Q3 2018E Q4 2018E FY 2018E FY 2019E FY 2020E Assumptions
As company has not given bifurcatio
4,655 4,296 4,216 4,263 4,310 4,296 4355 4658
4296 4216 4263 4310 4355 4355 4658 4849
(518) (88) (179) (180) (180) (627) (824) (853)
3.7% 2.3% 5.0% 5.0% 5.0% 4.3% 5.5% 5.5% For FY2018 the company has guided
-627 -156 (132) (133) (135) (556) (622) (661)
3.0% 3.6% 3.0% 3.0% 3.0% 2.8% 3.0% 3.0%
(250) (12) - - - (12) 100 -
0.8 0.6 1.4 1.3 1.3 1.1 1.3 1.3

3.0%
Opening balance Capex

179 132
180 133
180 135
627 556
824 622
853 661
132 133 135 556 622 661

1796 1213 1204 1192 1179 1213 1,167 1,186

-583 -9 (12) (12) (12) -46 -31 -529 Company has guided for repayment
0 0 - - - 0 50 0
1213 1204 1,192 1,179 1,167 1,167 1,186 657

135 583 83 71 58 583 46 31

-135 -509 (25) (25) (25) -583 (46) (31) Current portion of long term liabiliti
583 9 12 12 12 46 31 529 Each period long term repayment is
583 83 71 58 46 46 31 529
750 1,079 926 1530 1997 1232 2011 3329
21 5 5 11 15 36 60 100
2.8% 1.9% 2.0% 3.0% 3.0% 2.9% 3.0% 3.0% Kept as per historical trend

1864 1542 1275 1250 1225 1225 1215 1202

120 20 16 16 15 67 61 60
6.4% 5.2% 5.0% 5.0% 5.0% 5.5% 5.0% 5.0% Kept as per historical trend

99 15 11 4 0 31 0 (40)

1882 2108 2002 2009 2016 2016 2175 2251

281 318 314 315 316 316 328 340
1913 2011 1943 1920 1927 1927 2134 2208
1618 1442 1451 1434 1439 1439 1601 1656

49 51 51 51 51 51 53 53 Kept as per historical trend

7 8 8 8 8 8 8 8 Kept as per historical trend
75 78 75 75 75 75 80 80 Kept as per historical trend
63 56 56 56 56 56 60 60 Kept as per historical trend

2458 2995 2809 2811 2820 2820 3037 3143

283 537 -186 2 10 10 217 105

18 Company is expected to purchase 30

2 XYZ Ltd. is expected to generate net
0.06 XYZ Ltd. Is expected to declare divid
1.94
30%
0.58
208 203 203 203 203 203 203 221
0 0 0 0 0 0 18 0
208 203 203 203 203 203 221 221

Covestro is expected to make acqus

100
50 Assuming new debt is issued on exis
50
 75.7
75.7 Assuming equity is issued on curren
0.7
201 198 198 198 198 198 198 248
0 0 0 0 0 0 50 0
201 198 198 198 198 198 248 248

202 199 199 199 199 199 199 200

202 199 199 199 199 199 199 200
0 0 0 0 0 0 0.7 0
202 199 199 199 199 199 200 200
202 199 199 199 199 199 200 200
ny has not given bifurcation of depreciation and amortization and capex for tangible and intangible assets, I have assumed whole deprecia

8 the company has guided for capex in the range of EUR600m-EUR650m, for FY2019 and FY2020 capex as a % of sales is expected to be in

has guided for repayment of EUR46m in 2018, EUR31m in 2019 and EUR529m in 2020. In 2018 the remaining amount is expected to be re

ortion of long term liabilities is paid next year. For 2018 the remaing amount is paid equally each quarter.
od long term repayment is transferred to "current portion of long term liabilities".
er historical trend

er historical trend

er historical trend
er historical trend
er historical trend
er historical trend

is expected to purchase 30% stake in XYZ Ltd. For EUR18m in 2019E

s expected to generate net profit of EUR2m in 2019E, there is no guidance for 2020E, hence I am asuming no profit / loss.
s expected to declare dividend of EUR0.06m in 2019E.

s expected to make acqusition of a factory for EUR100m in 2019, with 50% debt and rest as equity.

new debt is issued on existing terms and conditions, as details are not available
equity is issued on current market price
have assumed whole depreciation and amortization expense as depreciation and whole capex only for tangible assets. I have kept intangi

% of sales is expected to be in line with historical average, as it is expected that Covestro will take more effort on innovation and environe

ng amount is expected to be repaid in equally in each quarter.

profit / loss.
ible assets. I have kept intangible assets same as previous year period.

ort on innovation and environemnt friendly products due to expected change in environemtal law, demanding sustainable and environemn
ng sustainable and environemnt friendly products.
Covestro AG Current share price (EUR)
Year ending 31st December Target Price - 12 months (EUR)
Potential upside / downside
Assumptions used in the calculation of DCF: Rating
WACC 7.9% Current market cap (EUR)
Terminal growth rate in FCF 2%

0 0.75 1.75
(EURm except per unit or otherwise stated) FY 2016 FY 2017 FY 2018E FY 2019E
Present value of cash flow
Income statement extracts
Sales 11904 14138 14563 14981
% change na 18.8% 3.0% 2.9%
EBITDA 2014 3435 3598 3648
% change na 70.6% 4.8% 1.4%
% of sales 16.9% 24.3% 24.7% 24.4%
Less: deprecation and amortization -683 -627 -556 -622
% of sales 5.7% 4.4% 3.8% 4.1%
EBIT 1331 2808 3042 3027
% change na 111.0% 8.3% -0.5%
% of sales 11.2% 19.9% 20.9% 20.2%
Check OK OK OK OK

EBIT*(1-t) 945 2,131 2,247 2,240

Add: depreciation and amortization 683 627 556 622
Less: capex -419 -518 -627 -824
% of sales 3.5% 3.7% 4.3% 5.5%
Add decrease / less increase in working capital na -283 -10 -217
% of sales na 2.0% 0.1% 1.4%
Unleveraged FCF to the firm 2,166 1,820
% change -16%
Terminal value based on Gordon growth model
Discount factor 1 0.94 0.88
Present value 2046 1593
DCF firm value 21832
Less: net debt / add net cash 361
Less: minority interest 33
DCF equity value 21438

Number of diluted share 199

DCF value per share 107.8

Assumptions for calculation of WACC (%):

 Assumption
Risk Free Rate of Return 2.9% US 10 years bond yield
Long Term Cost of Debt 5.0% Companies average cost of debt
Equity Risk Premium 5.5% Yahoo finance
Beta 1.25 Company is cyclical in nature, as its overall busin
Tax Rate 30.0% Long term tax rate
Target Debt to Total Capital 30.0% Yahoo finance
Target Equity to Total Capital 70.0%
Cost of Equity 9.8%
WACC 7.9%
 price (EUR) 76.24
12 months (EUR) 107.8
ide / downside 41%
Buy
et cap (EUR) 15164

2.75 3.75 4.75 5.75 6.75

FY 2020E FY 2021E FY 2022E FY 2023E FY 2024E Assumptions

15501 15966 16445 16938 17446

3.5% 3.0% 3.0% 3.0% 3.0% Sales is expected to grow at the latest forecasted level
3777 3353 3453 3557 3664
3.5% -11.2% 3.0% 3.0% 3.0%
24.4% 21.0%
### 21.0%
### 21.0%
### 21.0% Margin is expected to be dragged down in fututre owing to higher ra
-661 -639 -658 -678 -698
4.3% 4.0%
### 4.0%
### 4.0%
### 4.0% Depreciation as a % of revenue is expected to remain broadly at the
3116 2714 2796 2879 2966
2.9% -12.9% 3.0% 3.0% 3.0%
20.1% 17.0% 17.0% 17.0% 17.0%
OK

2,306 1,900 1,957 2,016 2,076

661 639 658 678 698
-853 -878 -904 -932 -960
5.5% 5.5%
### 5.5%
### 5.5%
### 5.5% To support further growth, we believe company needs to expand its
-105 -399 -411 -423 -436
0.7% 2.5% 2.5% 2.5% 2.5% As Covestro's end-customer are exposed very high to economic cyclic
2,009 1,261 1,299 1,338 1,378
10% -37% 3% 3% 3%
21788
0.81 0.75 0.70 0.65 0.60
1629 948 905 863 13849
erage cost of debt

yclical in nature, as its overall business is highly impacted by overall GDP growth rate. Its end customer is also impacted by economic cyclic
 casted level

fututre owing to higher raw material cost on tightened emvironemnt regulation, higher employee and research and development cost.

d to remain broadly at the same level

mpany needs to expand its capacity, as its current capacity utilisation is around 85%. Capex as a % of sales is expected to increase due to thi

ery high to economic cyclicity, it is expected it might also impact their paying capability in challenging environment, hence working capital
pacted by economic cyclicity.
arch and development cost.

expected to increase due to this.

nment, hence working capital as a % of sales is expected to increase going forward.