After significant growth in the third quarter, the plastics group Covestro is becoming more optimistic about profit for the full year. The group benefits from the shortage of many products in the industry, which has driven prices up sharply in recent months. At the same time, the Leverkusen-based company is feeling the consequences of its own production problems, which slowed down sales. Investors on the stock exchange found it difficult to assess the results: After initially clear gains, the Covestro share price turned negative on Monday morning.
For 2021, CEO Markus Steilemann is now calculating earnings before interest, taxes, depreciation and amortization (Ebitda) between 3.0 and 3.2 billion euros, after having previously promised at best 3.1 billion euros. Due to a lack of materials, however, the quantities in the core business should only grow by ten to twelve percent – and thus not quite as strongly as previously planned at 15 percent at the upper end of the range. The business with sustainable coating resins taken over from competitor DSM should continue to contribute six percentage points.
Sales increased by more than half
In the months of July to September, sales increased by more than half year-on-year to 4.3 billion euros. The operating result almost doubled to 862 million euros. Covestro was thus able to absorb high raw material prices. The bottom line was, at 472 million euros, a good 160 percent more stuck than a year ago.
Covestro reported for the first time in the group structure introduced at the beginning of July. Seven operating units are combined in two business areas: performance materials for the bulk business with standard polycarbonates, standard urethane components and basic chemicals on the one hand and the specialty business on the other. This comprises six units: Custom-made urethane components, coatings and adhesives, engineering plastics, special films, elastomers and thermoplastic polyurethanes.
Problem with lack of material
Due to the significantly shorter contract terms in the performance materials segment, Covestro was able to pass on the recent sharp increases in raw material and energy prices to its customers more quickly than in the Solutions & Specialties Division. There, more effects of price increases are to be expected in the final quarter, explained Steilemann in an interview with the financial news agency dpa-AFX. According to him, there should be a significant leap in the coming year.
Steilemann is no reason to worry that Covestro has recently benefited primarily from higher sales prices while sales have stagnated. There was simply no more material to sell. The group suffered from an unplanned production downtime at the Brunsbttel plant. He also replenished the warehouse with his own products in order to arm himself for planned maintenance shutdowns in the coming year – so to be able to supply his customers even then.
Automotive business was going well
According to Steilemann, demand was high across the range. The important business with car manufacturers, who recently had to cut their production significantly due to a shortage of electronic chips, was still going well. According to the manager, the auto industry itself should hold up much better in 2021, i.e. shrink less sharply. The reason: “In electromobility we sell more material per vehicle than in classic combustion technology.”
Analyst Chetan Udeshi of the US bank JPMorgan assessed the earnings development in the past quarter as positive in an initial assessment. This is especially true in view of the high energy costs that the group had to digest. The expert also referred to the free operating cash inflow, which was lower than he expected due to the increase in working capital.
Covestro itself cut its outlook for free operating cash flow in 2021 to 1.4 to 1.7 billion euros. Until it had reached 1.6 to 2.0 billion euros. The difference, however, lies primarily in the higher valuation of raw materials that the group keeps in stock. (dpa / swi)
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