Covestro Planning to Cut 10% of Workforce
Management presented the proposals to the German central works council two weeks after the company reported solid financial results for the 2021 second quarter and confirmed the higher full-year earnings guidance announced in July, saying that the outlook for the second half was continuously improving.
Boosted by a tight market for both commodity and engineering plastics, Covestro’s second quarter sales surged 83.5% year-on-year to €3.9 billion, while net income turned around to a gain of €449 million after a loss of €52 million in the 2020 quarter. For the full year, management now forecasts EBITDA of €2.7 billion to €3.1 billion on the back of better margins.
More than half of job cuts in Germany
According to the works council, the proposals call for the elimination of around 1,700 positions out of nearly 17,000 globally, as existing structures are streamlined. Altogether 957 jobs would be shed at German plants. Covestro employs some 7,500 people across its domestic worksites.
Dormagen, the plastics producer’s focus for the isocyanate TDI, could see the heaviest job cuts, totaling about 500. In addition to Leverkusen, domestic sites at Brunsbüttel on the North Sea coast and at Uerdigen in the state of North Rhine Westphalia produce MDI, polycarbonate, bisphenol A or coatings raw materials.
Covestro has confirmed the basics of the works council’s announcement without giving additional detail. CEO Markus Steilemann told German news media that the plans – which he said are not final – represent part of a restructuring scheme that was kicked off at the beginning of July, building on a sustainability strategy finalized in February this year.
The company has not commented on reports that the scheme was worked out with the aid of consultants McKinsey, whose engagement often foreshadows major realignments coupled with job losses.
The corporate realignment converts the plastics producer’s three former business segments – Polyurethanes, Polycarbonates and Coatings, Adhesives, Specialities – into seven new tailored business entities with downstream operations integrated along value chains. It is not yet clear how the new structure would affect operations so substantially that a tenth of the workforce would no longer be needed.
Steilemann noted that under a 2018 agreement with the German workforce, layoffs are prohibited up to 2025, and that those terms can be extended until 2028 if necessary. The agreement was made when the company was in the process of cutting 900 staff, also at a time when earnings were relatively robust. According to reports, this last workforce drawdown – which in Germany primarily targeted Leverkusen – is close to being completed.
In an on-demand statement, Covestro said that it is positioning itself for future developments such as the circular economy. In its drive for sustainability, the company will be reviewing its global activities up to 2023 to determine whether all match its current strategy and vision of sustainability.
Author: Dede Williams, Freelance Journalist