Based on the results of the first half of 2019, Covestro has confirmed its
guidance for the current fiscal year. As expected, ongoing intense competitive
pressure and uncertainties in major sales markets persisted into the second
quarter. Whereas core volumes rose by 1.1%, Group sales fell to EUR 3.2 billion
(-16.9%) due to lower selling prices. At EUR 459 million, EBITDA stabilized at
the level of the first quarter of 2019 (EUR 442 million), but remained well
under the outstanding result achieved in the prior-year quarter (-53.4%). The
decline in earnings resulted mainly from lower margins in the Polyurethanes and
Polycarbonates segments. Net income declined to EUR 189 million, while free
operating cash flow amounted to minus EUR 55 million on account of lower cash
flows from operating activities and higher investments.
"The economic situation is still challenging, since global economic and
political uncertainties remain", said CEO Dr. Markus Steilemann. "Nonetheless,
we reached our earnings targets and were able to increase our core volumes
again in the second quarter. This underscores the trend towards more
sustainable solutions, which we offer to many industries."
Covestro confirms guidance for 2019
The results for the first six months were well under the previous year's level,
but this was because 2018 was marked by exceptionally high margins in some
product groups.
"Our half-year results met our expectations in the current economic
environment. Thus, we confirm our guidance for the fiscal year. At the same
time we will closely follow further developments in our major sales markets,"
explained CFO Dr. Thomas Toepfer. "The automotive industry developed much
weaker than expected, on the other hand the construction sector as well as the
wood and furniture industry evolved better."
For fiscal 2019, Covestro continues to project core volume growth to be in the
low- to mid-single-digit percentage range. FOCF is expected to be between EUR
300 million and EUR 700 million, with ROCE between 8% and 13%. EBITDA for the
fiscal year is forecasted to be between EUR 1.5 billion and EUR 2.0 billion,
while in the third quarter, the EBITDA is expected to be around EUR 410
million.
Progress on portfolio optimization and investments
In the second quarter, Covestro made further progress on improving the
portfolio. The European systems houses business is being sold to H.I.G. Capital
for a price in the high double-digit millions of euros.
Simultaneously, the Group continues to focus on value-creating investments: In
May, Covestro laid the foundation for expanding production of polycarbonate
films in Dormagen, Germany. This investment is part of a program totaling EUR
100 million with which Covestro aims to reinforce the high-margin specialty
films business. Provided the necessary official permits are obtained,
construction of a dedicated chlorine supply facility for the existing MDI
production in Tarragona, Spain, will begin at the end of the year. The first
internal milestone was met in Baytown, Texas (USA), where a large-scale plant
for the rigid foam precursor MDI is planned. Now, the 100-person project team
will begin with the detailed technical planning.
Core volume growth in Polyurethanes and Polycarbonates
In the Polyurethanes segment, core volumes grew by 0.7%. Sales declined 24.3%
to EUR 1,489 million, driven by lower selling prices as a result of increased
competition. The downturn in selling prices was also evident in EBITDA, which
decreased to EUR 172 million (-70.5%).
Core volumes in Polycarbonates rose by 4.4% over the prior-year quarter.
Whereas the electrical and electronics industry and the construction sector
contributed to this growth, volumes in the automotive industry declined. Sales
were down 15.0% to EUR 898 million in the second quarter of 2019. EBITDA in the
Polycarbonates segment was 46.0% lower, amounting to EUR 154 million, mostly
due to the drop in selling prices.
The Coatings, Adhesives, Specialties segment saw a decline in core volumes of
4.7%. As a result, sales were down 1.3% to EUR 621 million. Exchange rate
movements and the gradual purchase of the shares of Japan-based DIC Covestro
Polymer Ltd. had a positive effect, however. The increase in the stake held in
the Japanese joint venture also led to a positive non-recurring effect on
EBITDA, which grew 7.9% to EUR 150 million in the second quarter of 2019.
Intensified competition a hallmark of H1 2019
On the whole, the first six months of 2019 saw growing competition, as
expected. Volumes sold remained mostly stable (-0.4%), while Group sales
dropped 16.4% to EUR 6,386 million due to lower selling prices. In the
Polyurethanes and Polycarbonates segments in particular, selling prices were
well below those of the prior-year period. As a result, EBITDA was down 56.0%
to EUR 901 million. Net income stood at EUR 368 million (-70.5%). Free
operating cash flow decreased to minus EUR 100 million.
About Covestro:
With 2018 sales of EUR 14.6 billion, Covestro is among the world's largest
polymer companies. Business activities focus on the manufacture of high-tech
polymer materials and the development of innovative solutions for products used
in many areas of daily life. The main segments served are the automotive,
construction, wood processing and furniture, and electrical and electronics
industries. Other sectors include sports and leisure, cosmetics, health, and
the chemical industry itself. Covestro has 30 production sites around the globe
and employed approximately 16,800 people (full-time equivalents) as of the end
of 2018.
This investor news is available for download from the Investor Relations
website of Covestro at http://investor.covestro.com/en/news/investor-news/.
The full Interim Report together with the presentation and audio recording of
the analyst conference are available at investor.covestro.com.
