Covestro has met its EBITDA guidance for the first quarter of 2020 in a business environment strongly impacted by the coronavirus. 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.”
Full year guidance already adjusted for coronavirus impact
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.
The Annual General Meeting originally scheduled for April 17, 2020, has been canceled due to the coronavirus pandemic. In accordance with the adapted legal framework, the AGM is now to be held without physical presence on
July 30, 2020 as a fully virtual event.
Liquidity secured, focus on sustainability and innovation unchanged
In March 2020, Covestro replaced its existing credit facility of EUR 1.5 billion with a new, as yet undrawn syndicated revolving credit facility amounting to EUR 2.5 billion to maintain the company’s financial flexibility and secure liquidity. The interest component is linked to an ESG (environmental, social, governance) rating, which provides Covestro with financial incentives for sustainable business development. Additionally, the company has signed short-term working capital facilities amounting to EUR 500 million, which have been fully drawn in the meantime.
In addition, Covestro was able to secure a loan of EUR 225 million from the European Investment Bank (EIB). The loan is being used to strengthen Covestro’s research and development activities in the areas of sustainability and circular economy within the European Union. Details on the strategic program for a comprehensive orientation towards the circular economy are expected to be provided in the second quarter of 2020.
In order to further build the company’s capacity for innovation, Covestro expanded its strategic partnerships with start-ups early this year. The company is pursuing the Covestro Venture Capital (COVeC) approach to invest in young companies in five technological focus areas. The latest example is Covestro’s equity investment in French tech start-up Crime Science Technology (C.S.T.). As a stockholder, Covestro pushes the development of sustainable innovation as a long-term growth driver in its core businesses.