Covestro performance down on lower prices in first half of 2019

LEVERKUSEN, Germany—Covestro A.G. 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 percent year-on-year to $7.1 billion, due to lower selling prices driven by competition, the company reported on July 24.

Selling prices remained "well below" the prior-year levels, particularly in the company's key polyurethanes and polycarbonates segments, leading to a 56 percent drop in earnings at $1 billion.

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

In the second quarter, group sales plunged 16.9 percent to $3.6 billion despite a 1.1 percent year-on-year volume increase.

Earnings more than halved—53 percent—at $511 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 percent year-on-year to just under $1.67 billion despite a 0.7 percent increase in core volumes.

Segment EBITDA fell sharply by 70.5 percent to $192 million, due in large part to the downturn in selling prices.

The polycarbonates segment also registered a 15 percent decline in sales at just under $1 billion, although core volumes rose by 4.4 percent over the three-month period.

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

Segment EBITDA came in 46.0 percent lower than second quarter 2018, at $171 million, due to the drop in selling prices.

The coatings, adhesives, specialties segment recorded a 7.9 percent increase in earnings at $167 million on 1.3 percent lower sales of $692 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," CEO Dr. Markus Steilemann said.

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 $1.67 billion and $2.22 billion.

Third quarter earnings are expected to top out at $456 million.