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Monday, 27 January 2020
Markets & companies, Raw materials market

Covestro: Profitability and volumes increased in the first quarter

Tuesday, 26 April 2016

The materials manufacturer Covestro made a strong start to fiscal 2016. Compared with the prior-year period, EBITDA in the first quarter increased by 29.3% to EUR 508 million.

Covestro's headquarters remain in Leverkusen, Germany. Source: Covestro

Covestro's headquarters remain in Leverkusen, Germany. Source: Covestro

 All three segments contributed to this performance. Polyurethanes and Polycarbonates additionally achieved strong growth in core volumes, which at Group level increased by 8.5% overall against the prior-year quarter.

Higher volumes in the Polyurethanes segment

"In the first quarter, Covestro successfully sustained the strong business performance of the prior year. This is renewed confirmation of our company’s good position and, especially, our earning power,” said CEO Patrick Thomas. "We stand by our forecast for the full year 2016.” The increase in EBITDA was mainly due to higher volumes in the Polyurethanes and Polycarbonates segments. Moreover, lower raw material prices outweighed the declines in selling prices, especially at Polycarbonates. Earnings also included a one-time insurance reimbursement of EUR 30 million.

Net income in the first quarter of 2016 increased year on year by 58.3% to EUR 182 million. Free operating cash flow decreased by EUR 13 million to EUR 77 million. This was mainly due to higher income tax payments and an increase in cash tied up in working capital, which together outweighed the improvement in EBITDA.

Group sales declined to EUR 2.9 billion

In the first three months of 2016, Group sales declined by 5.9% to approximately EUR 2.9 billion. The primary reason for this was the decline in selling prices - especially at Polyurethanes - which reflects lower raw material prices. On the other hand, Covestro saw increased demand in all regions compared with the prior-year quarter.

The strongest core volume growth of 11.4% was achieved in the Asia Pacific (APAC) region in the first quarter. In China particularly, sales increased by 13.3%. The NAFTA region comprising the United States, Canada and Mexico, and the EMLA region (Europe, Middle East, Africa and Latin America excluding Mexico) also saw high core volume growth of 9.6% and 5.8%, respectively.

Earnings growth in all segments

Compared with the prior-year quarter, the Polyurethanes segment posted a substantial increase of 10.4% in core volumes. In this segment, Covestro develops and manufactures precursors for applications including high-quality foams. EBITDA increased by 39.9% to EUR 214 million, mainly as the result of higher volumes.

Core volumes in the Coatings, Adhesives, Specialties segment declined by 2.8%. Following exceptionally strong growth of 6.3% in the prior-year period, this quarter was impacted by the contractual termination of trading activities, as expected. Nevertheless, EBITDA increased by 6.1% to EUR 139 million. This was due to the positive effect of lower raw material prices, which outweighed the impact of lower selling prices and volumes. The segment comprises raw materials for coatings, adhesives and sealants, as well as specialties such as high-quality films.

Confirming forecast for 2016

Overall, Covestro is confirming its forecast for 2016. Compared with the assumptions made in the Annual Report 2015, the company now anticipates global economic growth of 2.6%. However, it also expects a mid-single-digit percentage increase in core volumes, especially due to positive momentum at Polyurethanes and Polycarbonates. Covestro expects that free operating cash flow will remain unchanged at a high level and above the average for previous years. The company also continues to anticipate that ROCE will be above its capital costs.

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