July 26, 2018
Plans to increase investment for further growth
Covestro raises guidance after a strong second quarter
Group sales improved by 10.4% to EUR 3.9 billion / Core volumes up 4.4% / EBITDA grew by 16.2% to EUR 985 million / Earnings per share rose by 28.5% to EUR 3.07 / Free operating cash flow increased by 14.1% to EUR 364 million / Guidance for EBITDA, FOCF and ROCE raised
Covestro continued the year's successful performance in the second quarter of
2018. Group sales grew 10.4% compared with the prior-year quarter to EUR 3.9
billion thanks to higher selling prices and increased demand. Core volumes were
up 4.4%, with all three segments contributing with positive growth rates.
EBITDA improved by 16.2% to EUR 985 million. At EUR 604 million, net income was
24.8% higher than in the prior-year period. Free operating cash flow (FOCF)
increased by 14.1% to EUR 364 million.
"There is sustained demand for our products worldwide, proving our strategy to
further pay off as our products serve important global trends," said CEO Dr.
Markus Steilemann. "We improved all key figures in the second quarter. Thanks
to this strong performance, we are raising our guidance for the full year."
That applies for EBITDA, FOCF and ROCE (return on capital employed).
"In order to maintain growth in the long term, we will also further increase
investments," explained Steilemann. The investment program includes expansion
of production in all three segments at various locations in all regions. For
instance, significant expansion of global film production with an investment of
around EUR 100 million has been announced to meet sharply rising demand. At the
site in Tarragona (Spain) around EUR 200 million is being invested to build an
own chlorine production and extend the present facilities for the rigid foam
precursor MDI. In addition, MDI capacity in Brunsbüttel (Germany) and the
polycarbonate production in Caojing (China) are being extended.
Sustained growth prospects confirmed
"We see solid growth in our main customer industries and are raising
investments to EUR 650-700 million this year," said CFO Dr. Thomas Toepfer. In
the next three years, these annual capital expenditures (capex) are to be
increased further up to EUR 1.2 billion. That will allow targeted expansion of
production capacity as well as the construction of new facilities.
There are currently signs that market prices are normalizing in some product
areas, especially for the flexible foam precursor TDI. "Our goal is therefore
to reduce the cyclicality of our product portfolio even further and to continue
our successful development," added Toepfer. This is to be achieved primarily
through additional highly differentiated applications, for example, for the
automotive, electronics and healthcare sectors.
Since sustained high demand is expected in the main customer industries in the
mid term, core volume growth of around 4% per year is projected. The company
therefore plans to continue to grow faster than global gross domestic product
(GDP). At the same time, Covestro is monitoring the present geopolitical
uncertainties.
Covestro's share buy-back program has made further progress and the second
tranche was launched in the second quarter. So far, shares for a total amount
of more than EUR 800 million (around 5% of the capital stock) have been
repurchased. Overall, Covestro aims to buy back own shares totaling up to EUR
1.5 billion, or up to 10% of its capital stock by mid-2019. Earnings per share
climbed by 28.5% to EUR 3.07, partly as a result of the ongoing share buy-back
program.
Guidance for EBITDA, FOCF and ROCE raised
In view of the strong results of the first half-year, Covestro is raising its
forecast for EBITDA, FOCF and ROCE in 2018. The company now expects that EBITDA
for the fiscal year will be above the previous year's level and FOCF will be
over EUR 2 billion. ROCE is now expected to be around the 2017 level. Covestro
still anticipates core volume growth in the low to mid single-digit percentage
range in 2018. As always, this forecast is based on a normal GDP environment.
In the third quarter of 2018, EBITDA is expected to be around the prior-year
level.
Second quarter of 2018: growth in all three segments
Sales of the Polyurethanes segment rose by 8.1% to EUR 1,966 million in the
second quarter of this year. Sales developed positively in all regions. Core
volumes grew 3.9% in this segment, mainly due to the increase in the MDI
product group, and the segment's EBITDA increased 6.2% to EUR 583 million.
The Polycarbonates segment registered particularly strong sales growth of 15.9%
to EUR 1,056 million in the second quarter, with the positive trend coming
primarily from higher selling prices. Core volumes increased by 5.3%. In
particular, the APAC region contributed to this rise. Polycarbonates grew
EBITDA by 44.7% to EUR 285 million.
The Coatings, Adhesives, Specialties segment also posted a significant
improvement compared with the prior-year quarter, with sales rising 4.1% to EUR
629 million. Core volumes for Coatings, Adhesives, Specialties rose 5.8%, the
highest growth rate of the three segments. EBITDA was 14.9% higher at EUR 139
million.
Sustained positive performance in the first half of 2018
Overall, Covestro's performance in the first six months of 2018 was very
strong. Group sales rose 7.9% year-on-year to EUR 7.6 billion, driven
principally by higher selling prices across all three segments. Group-wide,
core volumes rose 2.2% year-on-year in the first six months. EBITDA grew 20.9%
to around EUR 2 billion, primarily driven by earnings growth in the
Polyurethanes and Polycarbonates segments. Net income was EUR 1.2 billion, a
rise of 31.1%. FOCF increased by 37.4% to EUR 728 million.
About Covestro:
With 2017 sales of EUR 14.1 billion, Covestro is among the world's largest
polymer companies. Business activities are focused 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
worldwide and employs approximately 16,200 people (calculated as full-time
equivalents) at the end of 2017.
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The full Interim Report together with the presentation and audio recording of
the analyst conference are available at investor.covestro.com.
