"OSI2020 to make production processes more cost- and energy-efficient."

  • August 18, 2020

Sucheta Govil, Chief Commercial Officer and Member of Board, Covestro AG spoke exclusively to Pravin Prashant, Editor, Indian Chemical News on the impact of COVID-19, restructuring of Capex plan, use of Quantum Computing and plans to save EUR 430 million. Excerpts of the interview.     
 
Covestro has strengthened its presence in China by investing more than Euro 3 billion in recent years. Are you planning to increase investment in other countries in the 2020-21 timeframe? If yes, for which product and by when?
Covestro invested a total of EUR 910 million in 2019 (up by approximately 200 million from the previous year level EUR 707 million), the highest figure in its history. We manage our investment projects across our product portfolio with a focus on efficiency and the best possible return on and use of capital. We don't comment on regional investment plans.
 
What would be the impact of COVID-19 in your 2020 revenue and profitability? Due to drop in revenue have you restructured your capex plan and by how much?
The COVID-19 pandemic has had unprecedented impacts globally on many industries especially automotive, construction, travel, leisure etc. For Covestro too, results of the first half of 2020 were significantly impacted by the effects of the coronavirus pandemic. Covestro adapted very quickly to the new conditions at an early stage, focusing on active, consistent crisis management and further strengthening its liquidity position. As a result of the focus on liquidity management, current investments are being curtailed by around EUR 200 million bringing total investments to some EUR 700 million (previously EUR 900 million). Investment projects of Covestro are managed consistently with a focus on efficiency and the best possible use of capital.
 
How is your company planning to cope up with COVID-19 so that your company has minimal effect in future?
Business development in the first half of 2020 was significantly influenced by the development of the coronavirus pandemic. Covestro took decisive action at an early stage to adapt the company to current conditions, protect the health of all employees, ensure the ability to supply customers and safeguard its strong liquidity position.
 
In response to the economic challenges posed by the coronavirus pandemic, Covestro raised its target for short-term cost savings in the 2020 financial year to over EUR 300 million. This was in addition to the ongoing efficiency program. Current investments were reduced by around EUR 200 million. In addition, the Management Board, Supervisory Board and employees of Covestro are jointly making a solidarity contribution in the course of country-specific cost-saving measures. Additionally, the company took a number of measures in the first half of 2020 to further secure its robust liquidity position. These include the signing of a new syndicated revolving credit facility with ESG element, the issuance of two Eurobonds, continuous financing of ongoing business operations through working capital facilities and the signing of a loan facility with European Investment Bank for R&D activities.
 
The Management Board of Covestro continues to actively monitor the worldwide development of the coronavirus pandemic. Any necessary adjustments or expansions of existing measures are made in accordance with the recommendations and instructions of the respective governments and advisory councils.
 
Presently, what is the level of digitization in Europe, Asia (India) and US plants and by what percentage are you increasing its digitization and focus areas of investment in terms of digitization?
One of the main objectives of our digitization efforts is to intensify customer centricity, optimize marketing strategies and identify attractive market opportunities even sooner.
 
Also in production, Covestro is already actively exploiting the benefits of digital transformation and consistently driving digital innovation. Different pilot projects provide new findings for the predictive, intelligent maintenance of systems, one of these has been running at the production site in Caojing, China. The global project for digitizing and integrating the system landscape in production, "Optimized System Integration" (OSI2020) for short, will make production processes even more cost- and energy-efficient in the future. Further digitalization of the production facilities will make planning, operation and maintenance much easier.
 
In order to achieve long-term innovation leadership also in digital chemistry, Covestro builds up resources and expands partnerships. With so-called quantum computing, the materials manufacturer is going one step further to investigate new possibilities in the field of chemical simulations. Therefore, Covestro and Google have signed a research partnership agreement recently.
 
What's the R&D budget for 2020? New innovations in terms of alternative raw materials, innovative recycling, joint solutions and renewable synergies that you are conducting in PUR, PCS and CAS business units. How do you see these innovations increasing the overall market size for Covestro globally?
In fiscal 2019, our R&D expenditure amounted to €266 million (previous year €276 million). We don't comment on planned investments.
 
How are you planning to use Quantum Computing for new innovations within the company?
The novel quantum computing is another important milestone in the search for new, digitized research processes. This forward-looking computer technology is the key to knowledge that is needed, for example, to successfully advance the circular economy. With the help of quantum computing, details of highly complex chemical reaction processes can be digitally simulated and evaluated in a very short time. With quantum computing, Covestro intends to build on the success of previous investments and further deepen its global competencies in computational chemistry.
 
What are the cross industry collaborations that Covestro is working on and how will it benefit industry and Covestro? What are the programs running in 2020?
Covestro is dedicated to the orientation towards the circular economy. Shifting to a global Circular Economy is a large-scale project that can only be achieved through collaboration. Society, businesses, and governments will have to cooperate across borders and continents. We are convinced that the environmental service sector offers new business opportunities, value creation paths and cooperation that go beyond all B2B models.
 
Covestro already cooperates with a number of partners in this area. Current projects include the EU Circular Plastics Alliance, launched in 2019, which brings together plastics manufacturers and processors, major retailers, and waste management and recycling companies with the aim of reusing ten million tons of recycled plastics annually across Europe by 2025. Another example of cross industry collaboration is the Alliance to End Plastic Waste, a global network of companies that has also been active since 2019. Together with other companies, Covestro is working to stop the disposal of plastic waste in rivers and seas. Pollution caused by the improper treatment of plastic waste is a challenge of global proportions to which countries throughout Africa and Asia in particular urgently need answers.
 
By 2020, the company is planning to save Euro 430 million. What are the steps you are planning to take to execute this program?
Targets for short-term measures were raised in the course of the corona crisis. To realize savings of overall €450 million in 2020, the existing efficiency programme perspective was accelerated. This includes streamlined standard business, maximized portfolio synergies, increased efficiency, reorganized central units as well as fostered differentiation. In addition, Covestro took short-term measures for additional savings in areas such as SG&A costs, building maintenance, procurement and solidarity measures.
 
Industry trends for Covestro range of products in 2020?
For our customers, we develop numerous product innovations that deliver answers to global challenges such as urbanization, mobility of the future or climate change. As an innovation leader, Covestro and its materials are absolutely in tune with the time. Sustainability is the driving force: We therefore listen to our customers and develop products for a circular economy, especially in unprecedented times of crisis. For example we have successfully developed the world's first 64.2-meter wind turbine blade made completely of polyurethane. The blade, made jointly with leading Chinese wind turbine manufacturer Goldwind, and leading wind blade manufacturer LZ Blades, represents a breakthrough in the application of polyurethane resin in large-scale wind turbine blades and marks the beginning of a new generation of longer and stronger blades for the wind power industry.

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