Covestro has reported a 70.4% year-on-year (YOY) plunge in net income to €147 million ($163 million) for the third quarter, mainly due to lower selling prices and increased competition, it says.
Sales decreased 14.6% YOY to €3.16 billion, while EBITDA declined 50.5% to €425 million compared to the equivalent period last year. Free operating cash flow was €243 million, down 58% YOY, primarily because of reduced cash flows from operating activities as well as scheduled investments, according to the company. Covestro did achieve core volume growth of 5.3% over the prior-year period despite “a continuing challenging economic environment,” it says.
“After generating solid volume growth in the second quarter, demand once again grew in the third quarter. 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,” says CEO Markus Steilemann. Growth was attributable mainly to the construction, furniture, electrical, and electronics industries, he adds.
The company remains confident that it will reach the targets it has set for the fiscal year, says chief financial officer Thomas Toepfer. “Margins were unusually high in the prior-year quarter, which is why the [YOY] decline in sales and earnings is in line with our expectations,” he says. Covestro has narrowed its forecast for fiscal-year 2019 and is anticipating core volume growth in the “low-single-digit percentage range for 2019,” it says. Free operating cash flow is forecast to be within a range of €300–500 million for the fiscal year, with EBITDA expected to be within a range of €1.57–1.65 billion.
Covestro’s polyurethanes business reported a 54.6% YOY fall in EBITDA to €196 million, on sales that fell 20.1% to €1.48 billion, on lower prices and increased competitive pressure, it says. Core volumes in the segment grew 5.1%. Increased demand in the furniture and electrical and electronics industries, as well as in the construction sector, more than offset weaker demand from the automotive industry, it says.
In its polycarbonates segment, EBITDA declined by 58.1% YOY to €132 million, with sales falling 13.2% to €901 million, again mostly due to lower prices. Core volumes in polycarbonates, however, rose 9.3% over the prior-year quarter, driven by growth in the electrical and electronics industry and the construction sector.
The coatings, adhesives, and specialties business saw EBITDA fall almost 12% YOY to €111 million, driven by declining volumes and lower margins, according to Covestro. Sales declined 3% compared to the equivalent quarter last year to €588 million, with core volumes falling 4% as a result of weaker demand for coating raw materials from all key industries, particularly the automotive sector.
For the first nine months of the financial year, net income was down 70.5% YOY to €515 million on sales down almost 16% to €9.55 billion, with the company saying the period as a whole was “marked by growing competition and a pricing shift.” EBITDA fell 54.4% YOY to €1.33 billion, while free operating cash flow for the first nine months of the fiscal year plunged almost 90% to €143 million. Core volume growth for the period was 1.5% YOY.
In order to remain successful “in the long run” with sustainable and innovative solutions, the company says it aims to narrow its focus on the circular economy going forward and has launched a strategic program accordingly. It is aiming for the “greatest possible use of raw materials from sustainable sources” in its production processes in particular, to eliminate the use of fossil resources as far as possible, it says. “Above all, used plastics must be recycled systematically and to the greatest possible extent,” it adds.
By Mark Thomas
Source: Chemical Week
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