Covestro forecasts EBITDA drop this year as Q4 profits slump

DUSSELDORF (ICIS)–Covestro expects earnings before interest, tax, depreciation and amortisation (EBITDA) to fall by up to 53% in 2019 amid intensifying competition, the Germany-headquartered firm said on Monday, as fourth-quarter 2018 profits slumped.

€ million	Q4 2018	Q4 2017	Change (%)
Revenue	3,272	3,522	-7.1
Operating profit	140	728	-80.8
Net profit	79	566	-86

Key points

– EBITDA this year to fall to €1.5bn-2bn compared to €3.2bn in 2018 as a result of increased competitive pressure, with €440m of those earnings expected in the first three months of the year.

– Volumes grew 1.7% year on year during the period but sales fell over 7% amid a more challenging market environment, the company said.

– The profitability drop from intensifying competition and comparison against an extremely strong fourth quarter 2017 was deepened by one-off costs including the impact of chronic low Rhine water levels and efficiency restructuring expenses.

– 2017-18 financial performance was characterised by “unusually” high margins, according to Covestro CFO Thomas Toepfer.

– Operating profit down across all divisions year on year, with polyurethanes earnings falling almost 95% during the quarter as margins receded.

– Fourth-quarter operating profit for polycarbonates fell 47.9% year on year as operating conditions became more difficult and 30.4% for coatings, adhesives and solvents (CAS) operations as a result of higher raw materials pricing.

– €1.5bn share buy-back completed during the quarter, with plans to acquire up to 10% of capital stock, to be proposed at the company’s annual general meeting on 12 April.

“2018 was a successful year for Covestro, even though after a strong start to the year, we did not approach our record year of 2017 overall,” said Toepfer.

€ million	Full-year 2018	Full-year 2017	Change (%)
Revenue	14,615	14,138	3.4
Operating profit	2,580	2,808	-8.1
Net profit	1,823	2,009	-9.3

 Outlook

– Low to mid-single digit volume growth expected for 2019 but earnings expected to fall.

– Targeting €350m in annual efficiency savings by 2021.

– To focus on diversification to better insulate the company against cyclic fluctuations. At present the company derives 50% of its sales from what it terms “resilient” businesses.

“We have launched important strategic initiatives in 2018 to actively promote [our] growth path,” said CEO Markus Steilemann. “These include investments in specific business segments with above-average demand potential and a stronger focus on efficiency.”

Pictured: Covestro’s Dormagen site in Germany, by the River Rhine; the company’s logistics operations took a hit from low water levels in 2018
Picture source:  Covestro

(re-leads, adds detail throughout)