Covestro H1 earnings halved on intense competition

Leverkusen, Germany – Covestro AG has reported major falls in its first half sales and earnings (EBITDA), due to ongoing intense competitive pressure and uncertainties in major sales markets.

Group sales dropped 16.4% year-on-year to €6.4 billion due to lower selling prices driven by competition, the company reported 24 July.

Selling prices remained “well below” the prior-year levels, particularly in the company’s key polyurethanes and polycarbonates segments, leading to a 56% drop in earnings at €901 million.

Core volumes remained stable during the six-month period, registering a marginal drop of 0.4% compared to 2018.

In the second quarter, group sales plunged 16.9% to €3.2 billion despite a 1.1% year-on-year volume increase.

Earnings more than halved – 53% – at €459 million, compared against the prior year’s “outstanding result”, Covestro said.

Increased competition drove selling prices down, resulting in a decline in second quarter sales in the polyurethanes segment of 24.3% year-on-year to just under €1.5 billion despite a 0.7% increase in core volumes.

Segment EBITDA fell sharply by 70.5% to €172 million, due in large part to the downturn in selling prices.

The polycarbonates segment also registered a 15% decline in sales at just under €900 million, although core volumes rose by 4.4% over the three-month period.

The segment saw a decline in volumes in the automotive industry, while shipments to the E&E and construction industries rose.

Segment EBITDA came in 46.0% lower than second quarter 2018, at €154 million, due to the drop in selling prices.

The coatings, adhesives, specialties segment recorded a 7.9% increase in earnings at €150 million, on 1.3% lower sales of €621 million.

Here, exchange rate movements and the gradual purchase of the shares of Japan-based DIC Covestro Polymer had a positive effect on the results.

“The economic situation is still challenging, since global economic and political uncertainties remain,” said CEO Dr. Markus Steilemann commenting on the results.

Covestro did, however, reach its adjusted earnings targets and was able to increase core volumes again in the second quarter, Steilmann added.

The Leverkusen-based company also attributed the sharp decline compared to the previous year to the “exceptionally high margins” achieved  in some product groups in 2018.

Among Covestro’s major sales markets, the automotive industry performed considerably worse than expected, while a more positive development was noted in the construction sector as well as in the wood and furniture industry, said CFO Dr. Thomas Toepfer.

For fiscal 2019, Covestro expects core volume growth to be in the low- to mid-single-digit percentage range. EBITDA for the fiscal year is forecast to be between €1.5 billion and €2.0 billion.

Third quarter earnings are expected to top out at €410 million.