Prices affect Covestro's third quarter

In the third quarter of 2019 Covestro was able to achieve core volume growth of 5.3% over the prior-year period in a continuing challenging economic environment. At the same time, Group sales declined as expected by 14.6% to 3.2 billion euro due to continued lower selling prices. At 425 million euro, Ebitda forecast was achieved for the quarter but was down 50.5% from the prior-year quarter as a result of negative price effects. Net income fell to 147 million euros (-70.4%), whereas free operating cash flow (FOCF) came in at 243 million euros (-58.0%). This was primarily because of reduced cash flows from operating activities as well as scheduled investments.

“After generating solid volume growth in the second quarter, demand once again grew in the third quarter,” CEO Markus Steilemann reported. “The economic climate remains challenging, which we notice particularly in the automotive sector. However, our volume growth indicates that our business is well diversified across various industries,” he said. Growth was attributable mainly to the construction, furniture, electrical and electronics industries.

Outlook for the year confirmed and ranges narrowed
Based on the results of the third quarter, CFO Thomas Toepfer confirmed the outlook for the year as a whole. “We remain confident we will reach the targets we have set for the fiscal year,” emphasized Toepfer. “Margins were unusually high in the prior-year quarter, which is why the year-on-year decline in sales and earnings is in line with our expectations.”

After the third quarter, the Group narrowed the forecast for fiscal year 2019 within the published ranges: Covestro anticipates core volume growth in the low-single-digit percentage range for 2019. The Group’s FOCF is expected to be between 300 million euros and 500 million euros, with ROCE between 8% and 10%. Ebitda for the fiscal year is forecast to be between 1,570 million euros and 1,650 million euros.

New circular economy program launched

In order to remain successful in the long run with its sustainable and innovative solutions, Covestro aims to narrow its focus on circular economy going forward and has launched a new strategic program to this end. In its production processes in particular, the Group is aiming for the greatest possible use of raw materials from sustainable sources, such as plants, waste and carbon dioxide. This should eliminate the use of fossil resources such as crude oil as far as possible. Above all, used plastics must be recycled systematically and to the greatest possible extent.

Sustainability and innovation were also the keywords at K 2019, the world’s largest plastics trade show held in Düsseldorf (Germany). Covestro showcased many different products and technologies there that offer solutions to urgent global challenges. For instance, it presented high-tech materials that use carbon in more environmentally friendly textiles, improve the performance of wind turbines, and accelerate the expansion of the 5G technology.

Volume growth in the third quarter in the polyurethanes and polycarbonates segments
Core volumes in the polyurethanes segment increased by 5.1%. The increased demand in the furniture and electrical and electronics industries, especially in household appliances, as well as in the construction sector more than offset weaker demand from the automotive industry. However, sales in this segment decreased by 20.1% to 1,478 million euros due to lower selling prices stemming from increased competitive pressure. This development was also reflected in Ebitda, which fell to 196 million euros (–54.6%).

Core volumes in polycarbonates even rose by 9.3% over the prior-year quarter. The electrical and electronics industry and the construction sector were the main contributors to this growth. Sales in this segment decreased by 13.2% to 901 million euros in the third quarter of 2019. Ebitda fell by 58.1% to 132 million euros, mostly on account of a negative development in selling prices.

The coatings, adhesives, specialties segment reported a drop in core volumes by 4.0% as a result of weaker demand for coating raw materials from all key industries, particularly the automotive sector. Sales therefore decreased by 3.0% to 588 million euros. In the third quarter of 2019, Ebitda was down by 11.9% to 111 million euros, driven by declining volumes and lower margins.