Volumes up, sales down, but targets have been achieved nevertheless difficulties

Covestro has achieved its targets in a challenging market environment in fiscal 2019. Core volumes increased by 2% compared to the previous year. Group sales fell by 15.1% to approximately 12.4 billion euros as selling prices remained low due to increased competitive pressure in all segments. Consequently, Ebitda declined in line with our forecast by 49.9% to approximately 1.6 billion euros. Net income fell to 552 million euros (-69.7%), while free operating cash flow (FOCF) came in at 473 million euros (-71.7%). On this basis, Covestro plans to distribute a dividend at the previous year’s level of 2.40 euros per share.

Given the continuing challenging economic outlook for 2020, Covestro has accelerated the implementation of the multi-year effectiveness and efficiency program launched in October 2018. That enabled Covestro to cut costs by around 150 million euros in the past fiscal year. For 2020, the company aims to achieve savings of 250 million euros, while the cumulated savings by the end of 2021 are expected to be around 350 million euros annually. In addition, various short-term measures were taken, such as more efficient cost management and another review of all existing and planned investments. This should result in additional savings of 200 million euros in the current financial year. In addition to the continuous improvement of the company’s commercial clout, the focus in 2020 will therefore remain on increasing efficiency.

Covestro invested a total of 910 million euros in 2019 (previous year: 707 million euros), the highest figure in its history. Investment projects are managed consistently with a focus on efficiency and the best possible use of capital. Since the market environment remains challenging, Covestro announced in January 2020 that the MDI investment project in Baytown (United States) will be paused for 18 to 24 months. Nevertheless, Covestro is still confident that the long-term growth prospects for MDI are highly promising. The new MDI plant at the Brunsbüttel site in Germany started up as planned in the first quarter of 2020. Annual production capacity there will thus be doubled to 400,000 metric tons. That will make Brunsbüttel one of the three largest MDI production sites in Europe and secure Covestro’s leading position in this market segment.

Polyurethanes

Core volumes in the polyurethanes segment increased by 2.3% year on year. A positive demand trend in the furniture and construction industries and in the electrical, electronics and household appliances industries more than offset weaker demand, especially from the automotive industry. Sales decreased by 21.5% to 5,779 million euros, mainly on the back of the negative trend in average selling prices due to intensified competition. The low level of prices cut deeply into margins despite a decline in raw material prices. Ebitdas consequently fell by 63.2% to 648 million euros.

Polycarbonates

In fiscal 2019, core volumes in the polycarbonates segment increased by 2.7% year over year, mainly due to stronger demand in the electrical, electronics and household appliances industries and the construction industry. Sales fell by 14.3% to 3,473 million euros and Ebitda by 48.3% to 536 million euros. The declines were likewise attributable to the year-over-year decrease in selling price levels as a result of increased competitive pressure. Moreover, the sale of the US sheets business in the third quarter of 2018 impacted sales in fiscal 2019 with a negative effect of 2.2%.

Coatings, adhesives, specialties

Core volumes in coatings, adhesives, specialties for fiscal 2019 were down 1% from the prior year. The prime reason for this decline is weaker demand for coating precursors from the automotive industry. At 2,369 million euros, the coatings, adhesives, specialties segment’s sales remained stable year over year (previous year: 2,361 million euros). Ebitda increased by 1.1% to 469 million euros. Declining margins, due to lower selling prices, and lower volumes had a negative impact on earnings, whereas exchange rate effects and the portfolio effect of the step acquisition of shares of Japan-based DIC Covestro Polymer increased earnings.

Fourth quarter of 2019
Core volumes in the fourth quarter of 2019 increased by 3.8%. Group sales fell by 12.5% over the prior-year quarter, mainly due to lower selling prices as a result of increased competitive pressure in all segments. Ebitda was therefore 278 million euros (-5.1%) and net income was 37 million euros (-53.2%) in the fourth quarter. FOCF decreased by 9.1% year on year to 330 million euros.