Leverkusen, Germany - Covestro AG has lowered its 2018 guidance due to what it described as “intense competition” and production losses as a result of low water levels of the Rhine River.
In a statement 20 Nov, the Leverkusen-based chemicals company said it was lowering earnings (EBITDA) to “slightly below” the level of 2017 which stood at €3.44bn. The previous guidance projected an EBITDA above last year's level.
This adjustment, said Covestro, is primarily due to stronger-than-expected competition and the low water level of the Rhine River, which has resulted in production losses and higher logistics costs, and therefore lower earnings.
The River Rhine is a key transport route for the European chemical industry. This is because many of the industry’s plants are located on the river. Low water levels reduce the number of chemical barges that can navigate the river. This means lower production for plants on the river, such as Leverkusen and Dormagen.
Additionally, the company said it had also undertaken a "Perspective" efficiency programme, which impacted its earnings.
Covestro has also lowered volume growth for 2018 to a “low-single-digit percentage increase”, an adjustment compared to the previous guidance, which anticipated a “low- to mid-single-digit percentage” core volume growth. In the fourth quarter, the company expects a slight core volume growth “despite the burden from the low water levels of the Rhine River.”
Free operating cash flow (FOCF) is expected to finish the current year slightly below the previous year's level of €1.84bn. The previous forecast projected FOCF was more than €2 billion.
The adjustments to the guidance are the result of earnings levels falling below previous expectations, higher-than-expected funds tied up in working capital and higher investments, Covestro added.