Covestro a star is born. In its first year apart from parent Bayer, the company produced stellar financial results plus a new identity

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1 IN ASSOCIATION WITH special report ICIS COMpaNY OF THE YEAR Phil Arthur Covestro The a star is born In its first year apart from parent Bayer, the company produced stellar financial results plus a new identity will beacham barcelona German-headquartered producer of polyurethanes, polycarbonates, and coatings, adhesives, and specialties produced exceptional levels of profitabilty with 2016 operating profit adjusted earnings before interest and tax (EBIT) growing by 41%. The former Bayer MaterialScience business is now in a strong position for future growth led by chairman and CEO Patrick Thomas, who will be replaced by chief commercial officer Markus Steilemann when Thomas retires at the end of September September 2017 ICIS Chemical Business 25

2 special report ICIS COMPANY OF THE YEAR IN ASSOCIATION WITH Covestro is the ICIS Company of the Year Covestro called 2016 a year of premieres in terms of production, finance and employees In its first full year as a public company, Covestro demonstrated stellar financial performance, which made it the clear winner of the 2017 award Nigel Davis london Germany-headquartered polycarbonate and polyurethanes maker Covestro is the ICIS Company of the Year based on its exceptional financial performance in The company performed strongly in its debut year and the gains made in profits and returns ensured that it topped the detailed ICIS analysis of financial metrics collected for the ICIS Top 100 listing of the world s largest chemical companies. Covestro s sales fell slightly but it lifted operating profit adjusted earnings before interest and tax (EBIT) by 41%. Net profit for the year was more than doubled. As a consequence returns on sales and assets were higher. Covestro called 2016 a year of premieres in terms of production, finance and employees. It embedded a new corporate identity as it stepped apart from major shareholder Bayer. New production facilities were brought on stream and materials research pushed hard. Covestro called 2016 phenomenal from a business perspective. We can look back on a record year for all our key indicators, including adjusted EBIT- DA [earnings before interest, tax, depreciation and amortisation] for 2016, which rose by 22.7% over the previous year, growing to Q&A with COVESTRO s CEO and Chief COMMERCIAL OFFICER Patrick Thomas, chairman and CEO, Covestro What has been the winning formula that fuels Covestro s success? We are just over two years old but still have the spirit and hunger of a start-up and this is evident across every facet of the business. Our employees are what make us strong and successful; their constant dedication to innovate and grow the business is what truly makes us stand out from our competitors. The first six months of 2017 were very positive for Covestro and underscore our strong position in our customers industries across key regions. Our performance is underpinned by the consistently strong demand for our products and the fact that we are always willing to push boundaries in research and development (R&D) and innovation. We will continue to drive growth to meet shareholders expectations while retaining our number one position in the markets where we operate. Markus Steilemann, Covestro Chief Commercial Officer What is your future growth strategy? We are a company committed to creating value and expect to grow in line with our customer industries, which are forecast to grow above global GDP. We follow our intention to grow organically including a number of debottlenecking projects as well as brown-field investments. We will look at bolt-on acquisitions to boost our specialty businesses and are also continuously looking for new ways to embed sustainability in our products and processes. To outpace global growth, we need to innovate and work GettyImages $2.0bn, it said. We were even able to boost core volumes by 7.5% owing primarily to increased demand in all segments. The company also hit other financial goals. Free operating cash flow, at 1.4bn, exceeded the 2015 total. Return on capital employed (ROCE) was significantly higher closely with our value chain to anticipate and fulfil its needs. We are well prepared to develop tailored solutions and become even more customer-centric. Our portfolio should be increasingly geared towards differentiated products. Already today, more than 50% of sales and around 70% of earnings are generated with resilient businesses. We are working on further detaching our business from cyclicality, partly through close collaborations with customers and tailored innovations. than in 2015 at 14.2%. The Covestro share price responded to the strong financial performance and expectations of further growth for the company, which sees a bright future in growing polycarbonate and polyurethanes demand. By the end of 2016, the Covestro share price was 65.18, more than double the price a year earlier when the company made its debut on the stock market. A dividend distribution for 2016 of 1.35 was close to double that made in 2015 of 0.70 a share. THE TOP 100 LISTING ANALYSIS ICIS looks at a series of core financial metrics for the companies included in our Top 100 Chemical Companies and Bubbling Under categories, the annual listing of major chemical companies by sales in the most recent financial year. US-headquartered producer Celanese was in a clear second place in the latest analysis of financial performance based on reported annual data. Other companies performing strongly include Chilean fertilizer producer SQM (a smaller company in the annual listing); Turkey s Petkim; and Russia s petrochemical major, Sibur. In the top 10 were Albemarle, Altana, Formosa Chemical & Fibre, Arkema and Tosoh. A materials and acetyls producer, Celanese said that its business models in 2016 had delivered record financial results and value creation for shareholders. Operating and net profits were significantly higher compared with Celanese said that its total shareholder return had exceeded 19%, beating the S&P 500 at 12% and the Dow Jones US Chemical Index at 14%. We managed through very challenging times marked by weak economies and unique commercial challenges to deliver yet another year of double digit adjusted earnings growth, the company said. 26 ICIS Chemical Business September September 2017 ICIS Chemical Business 27

3 special report ICIS COMpaNY OF THE YEAR IN ASSOCIATION WITH With 2016 a challenging year for many companies, as were the fiscal years that ran into the earlier part of 2017, strong financial performance was achieved against the backdrop of economic uncertainty and oil price volatility. The second half of the year was, for companies upstream certainly, a stronger period than the first half, with product prices climbing on the back of higher priced crude. Volume growth was achievable in most markets but not won easily. The charts show some performance metrics for the leading companies in the Company of the Year analysis. Data are collected for many different types of producers as well as the chemicals offshoots of the oil majors that split out chemicals sales data by value. Markus Steilemann Chief Commercial Officer, Covestro To outpace global growth, we need to innovate and work closely with our value chain to anticipate and fulfil its needs In Our Top 100 listing, based on the most recent annual financial data, BASF remains the leading chemical company by sales followed by the chemicals operations of China s Sinopec, Dow Chemical, SABIC and INEOS. Financial performance for the major players was mixed with some companies experiencing sales declines, driven by lower crude prices year on year and portfolio changes. The rankings are expected to change significantly in future given the number of mega deals that have recently closed or that are likely to close in the remainder of 2017 and into Sales growth last year was driven, to a great extent, by portfolio changes and also by price movements for petrochemical players. Volumes took a back seat. A significant increase in reported sales by INEOS reflects the full inclusion of acquired joint ventures. A sharp increase in sales for Reliance Industries in its most recent fiscal year, which ended on 31 March 2017, was driven by a significant capacity increase as new plants came on stream in India. SIBUR s 8.4% sales increase was gained as the company processed more NGLs into downstream products rather than selling raw gas liquids. Polypropylene production was ramped up. In a very different type of business Merck KgaA s sharp sales growth in 2016 of 17.0% was driven by organic growth of 3.2% and a sales increase of 16.4% following the acquisition of Sigma Aldrich of the US. The ICIS Company of the Year analysis is based on year-on-year growth in sales, profits and margins for the leading companies in the sector and also takes into account the absolute Patrick Thomas Chairman & CEO, Covestro We are just over two years old but still have the spirit and hunger of a start-up level of returns at the operating and at the net level relative to sales and total assets. In this way, it reflects operating and financial performance as well as the core strengths of the companies concerned. Operating and net margins remained strong in 2016 for some of the largest petrochemical producers in the industry. ICIS also collects data where it is available on capital spending, research and development (R&D) spending and employee numbers. The data shows that Reliance Industries reported the greatest increase in capital spending among the ICIS Top 100 and Bubbling Under category chemical companies. Capital spending growth in was also strong for Japan s Asahi Kasei and Nippon Shokubai as well as Persian Gulf Petrochemical Industries. Research and development provides the lifeblood for growth for some companies while it is less important for others. Merck KgaA and Reliance Industries (the group) reported the most significant increases in R&D spending in the most recent financial year of the companies that report this measure. R&D spending increased most markedly for Nippon Shokubai, Mexichem, BASF, Shin- Etsu Chemical, and Kuraray, according to the available data. 28 ICIS Chemical Business September 2017

4 Keep in touch with ICIS Sign up to receive FREE ICIS updates by , tailored to the markets you are interested in. Insightful analysis on price drivers News articles on the latest developments Thought-provoking white papers Market outlooks for different industries Sign up by completing the short form /keep-in-touch In the first quarter of 2012, the CFR (cost & freight) Japan naphtha price has risen to its highest level since May 2011 supported by strong demand, tight supplies and strong crude values. In recent months the naphtha market has moved into a steeper backwardated structure, which underlines demand for prompt naphtha supplies from the petrochemical sector in Asia amid increased operating rates at crackers in Taiwan and full operating rates at crackers in China and South Korea. Supply for regional cargoes loading and arriving in the first half of April continue to be tight, with record premiums paid by cracker operators such as South Korea s Honam Petrochemical, LG Chem and Malaysia s Titan Chemicals. Natural gas prices, front month Millions US Henry Hub, S/MMBtu Feb 2011 UK NBP Feb 2012 Source: ICIS US Henry Hub The global commodity polymers market continues to be under severe pressure from challenges such as the European debt crisis, slowing emerging market growth and increased competition. Despite these challenges, overall polymers consumption is poised to grow at a compounded annual growth rate (CAGR) of 4.7%/year through After the plunge in global consumption during the economic crisis, demand started to recover in the following years. Yet, a full recovery to pre-crisis levels is still far off in mature economies, and the industry entered another difficult period during The worsening of the European debt crisis, volatility of the capital markets and a faltering economy have all destabilized confidence at a global level. The cumulative global consumption of polyethylene (PE), polypropylene (PP), polyvinyl chloride (PVC) and polystyrene (PS) excluding expandable PS - in 2011 is estimated at 178m tonnes or 4.5% over 2010 levels. The largest increases were recorded by PVC at 6.2% and linear low density PE (LLDPE) at 5.8%. However, growth was hampered considerably on the widespread slowdown of key end-markets, also in some of the fastest-growing economies. Energy and feedstocks: Asia crackers ramp up production, boosting naphtha Global Naphtha prices China Impact $/tonne $/bbl China is the largest world market for each of these polymers, accounting for 49m tonnes in 2011 or 27% of global demand. China s market recovered quickly after 2008, thanks to government economic stimulus measures and incentives to boost consumption. 1, , , PE and PVC demand recorded consecutive double-digit annual increases in 2009 and Overall Chinese demand growth in 2011 is estimated at 5.6%, Mar 2011 Naphtha Asia Naphtha US Feb 2012 Source: ICIS Naphtha Europe Oil - West Texas Intermediate Copyright 2012 Reed Business Information Ltd. ICIS is a member of the Reed Elsevier plc group. ICIS accepts no liability for commercial decisions based on the content of this report MARKET UPDATE: Global polymers to face heightened competition Copyright 2012 Reed Business Information Ltd. ICIS is a member of the Reed Elsevier plc group. ICIS accepts no liability for commercial decisions based on the content of this report The backwardated structure could ease moving into the next few weeks amid reports of an increase in arbitrage cargoes into Asia from the West. There were reports that some 650,000 tonnes of naphtha were expected to arrive in Asia during April. Crack spreads between April naphtha and ICE Brent crude futures were strong, but have moved off highs as market players digested news of possible increased spot availability. The European naphtha cargo market is subdued. With low levels of business taking place, the market has lengthened slightly, rendering it balanced too long. The arbitrage to Asia remains closed, although some believe it viable for heavy grades of naphtha to head east. The arbitrage to the US is also shut. Demand from the gasoline sector is described as mediocre, while interest from the petrochemical industry is also minimal, despite naphtha having a financial advantage over rival feedstock propane. A lack of near-term buyers in the US Gulf heavy naphtha market has pushed differentials to a deeper discount to US Gulf spot gasoline in both the gasoline sector and the petrochemical industry. percentage points lower than the 11.0% growth in The government s efforts to curb inflation through restrictive monetary policy resulted in a tight credit market, which hurt investment and demand. Furthermore, China s exports of finished and semi-finished plastic products had to cope with lower demand from recipient markets, and with some loss of competitiveness due to the stronger yuan. The electronic and household appliances sectors in China slowed down notably during the second and third quarters of 2011 on weak domestic sales and exports to traditional markets in the West. Later in the year, shipments to fast-growing countries such as India and Brazil also decelerated. PS demand grew less in the manufacture of TVs, computers and electronic accessories, which resulted in a weak peak demand season. PE and PP performed relatively better thanks particularly to the packaging sector and agriculture applications. But China s automotive industry worsened overall with a slight increase in the production of passenger cars, and a decline in commercial vehicles, which principally impacted PP consumption. The domestic PVC market recorded another year of substantial growth, but at a reduced pace. Government policies aimed at limiting speculation in the housing market and preventing a bubble, such as restrictions on mortgages and pre-sales of homes, have cooled down the property sector. This has impacted demand for PVC, and high density PE (HDPE) to a lesser extent. Remarkably, the profitability of the polymers sector in China worsened on the mounting costs of energy and raw materials and volatile downstream demand. Major PP producers chose to reduce operations in mid due to tight margins. Many PVC operators reported small profits or losses during most of the year. Also, margins over the September 2017 ICIS Chemical Business 29

5 ICIS News The leading news service for real-time ground breaking news and analysis on the global petrochemicals markets The ICIS News services give you unrivalled access to the most in-depth stories impacting the petrochemicals markets, influencing commodity prices and affecting your daily business decisions. Our team of global editors are reporting around the clock to bring you the latest news and analysis so that you get the full picture of market and pricing developments first, providing you with invaluable foresight to take advantage of every opportunity and to stay ahead of your competitors. With ICIS News, you will be the first to read: Breaking news on the chemical markets that will impact your business News on market moves, deals and announcements that will affect your organisation Force majeures, closures and developments that influence your commodity prices Expert analysis on industry trends and hot topics know what s happening and why Plants and Projects news - the latest on capacities, outputs and shutdowns Searchable archive with over 1.4 million articles from the past 10 years ICIS News offers access to additional sources including the ICIS Plants and Projects database and Chemical Business News Base (CBNB) Chemical Business News Base (CBNB) is a premium resource available on ICIS News. It provides you with an extensive external source of upstream and downstream petrochemical news in summarised snapshots, so you can quickly and easily get the latest updates on what s important to you. CBNB offers readers: Fast and consistent coverage on news, facts, figures from the upstream and downstream petrochemicals industry Access to over 700 news sources, including technical and trade journals, company literature, market research reports, stockbroker reports, books, and directories User-friendly search functionality to find articles most relevant to you from around the globe Quick and easy-to-read summarised snapshots of articles with option to access full articles from the original source Find out more: /news