German chemicals group Covestro AG reported on Thursday a net loss of 52 million euros (60.25 million U.S. dollars) in the second quarter (Q2) of 2020. Core volumes decreased by 4.1% compared to the prior-year quarter. This is mainly the result of significantly weaker demand in China due to coronavirus-related interruptions of production at local customers in February and March 2020. Coupled with a worldwide decline in selling prices, mainly driven by increased competitive pressure in the Polyurethanes and Polycarbonates segments, this led to lower Group sales of around EUR 2.8 billion (– 12.3%). EBITDA stood at EUR 254 million (– 42.5%), which was in the expected range for the first quarter. Net income declined to EUR 20 million (– 88.8%). At minus EUR 249 million, free operating cash flow (FOCF) was in negative territory, as expected.
“The coronavirus pandemic is an exceptional situation and has reinforced the existing global uncertainties even further,” CEO Dr. Markus Steilemann said. “Protecting the health of our employees and their families as well as our business partners is our top priority. In addition, Covestro is doing everything it can to continue to be a reliable supplier for its customers during this crisis. We are confident that we will successfully master this challenge with our absolute focus on customers, strict cost awareness and strong team spirit.”
Covestro had already adjusted its previous annual guidance in mid-April as a consequence of the foreseeable negative effects of the coronavirus pandemic on the global economic development and therefore also on future business performance. “Updating our guidance was necessary in view of the serious impact of the coronavirus pandemic on global markets,” explained Dr. Thomas Toepfer, Covestro’s CFO. “Covestro has a solid position and still has a strong balance sheet and high liquidity. We continue to rely on our operational efficiency, cost cutting programs and ongoing review of our investments to safeguard our stable financial foundation during these challenging times.”
For fiscal year 2020, Covestro anticipates core volume growth below the previous year. FOCF is expected to total between minus EUR 200 million and EUR 300 million, with return on capital employed (ROCE) amounting to between minus 1% and 4%. EBITDA is projected at between EUR 700 million and EUR 1.2 billion. In addition to the existing efficiency and effectiveness program launched in October 2018, Covestro increased the target for additional short-term cost savings by another EUR 100 million to EUR 300 million for the current fiscal year. Current investments are being reduced by around EUR 200 million bringing total investments to some EUR 700 million.
In the first quarter of 2020, Covestro’s business in all segments was affected by the significant impact of the coronavirus pandemic, particularly in China.
The Polyurethanes segment saw core volumes decline by 3.6% compared with the prior-year quarter during this period. This is mainly attributable to the downturn in volumes in the electrical, electronics and household appliances sector and the automotive industry. As a result of increased competition worldwide and the change in total volumes sold, sales were down to around EUR 1.3 billion (– 13.7%). EBITDA fell to EUR 50 million (– 68.2%) due to the decline in margins.
Core volumes in Polycarbonates declined by 4.9% from the prior-year quarter. This was due to considerably lower volumes sold in the electrical, electronics and automotive industry. A low level of selling prices and decreased volumes drove sales in the Polycarbonates segment down to EUR 733 million (– 14.8%). Lower margins caused EBITDA to decline to EUR 109 million (– 29.7%).
Core volumes in the Coatings, Adhesives, Specialties segment fell 5.2% compared to the prior-year quarter. This development was driven by weaker demand for coating precursors in all key customer industries, particularly the automotive industry. Sales were down 8.8% to EUR 572 million due to a decline in total volumes sold and lower average selling prices. EBITDA fell to EUR 130 million (–11.0%) due to negative volume effects and weaker margins. Lower costs enabled the EBITDA margin in the Coatings, Adhesives, Specialties segment to rise to 22.7% despite the effects of the coronavirus.
