Covestro Earnings Call Highlights
Covestro AG (CVVTF) CEO Markus Steilemann on Q1 2022 Results – Earnings Call Transcript
Ronald Köhler – Head of Investor Relations
Markus Steilemann – Chief Executive Officer
Thomas Toepfer – Chief Financial Officer
Well, thank you very much, Markus, and also a very warm welcome from my side to everybody on the call. I’m on page four of the presentation. And as you can see and as Markus said in the beginning, our quarterly sales rose to 4.7 billion, which is actually the highest quarterly sales number in the Covestro history. That’s an uplift of 42%. And you see the biggest impact came from 23% higher prices that is the 757 million that you see in the bridge. And the increases actually came from both segments. And they were of course enabled by the continuously strong demand that we saw for our products.
With that, I would also say that we were technically sold out and the volume growth that we saw in Q1 was actually only limited by our product availability. The volume increase came particularly from our performance materials business but as Markus said, the business and the segment also benefited from a somewhat lower reference quarter, because in Q1 of last year, we had the winter storm, Uri that affected our sales at the time.
And you can also see in the bridge, the 314 million, which we labeled as portfolio effect this is obviously the effect from the acquisition and first-time consolidation of our RFM business. At this point, I just would like to mention and reiterate that the integration really runs very successfully. And we’re very pleased also with the progress that we’re making in terms of the synergies that we realize.
So with that, let’s turn to page five. The EBITDA bridge, as you can see, we achieved an EBITDA of 806 million this quarter coming from 743 a year ago. And you’ll see the big factor, of course, in the development is the pricing delta in the middle. As you can see, raw material prices increased by 820 million. And I would say it’s a very good achievement that we were able to pass on more than 90% of that to our customers, that is the 757 million so that we came out with an only slightly negative pricing delta of 63 million. So that means the volatile price increases were mostly and largely compensated by sales price increases.
You can see also the volume effect 39 million that is a volume leverage of 32%, relative to the 121 million additional sales that you saw on the previous page. So the 32% is slightly below the usual level of around 50%. And there’s some product mix effects behind that. FX is positive and in the other items of 36 million that includes a 38 million positive FX from lower provisions for variable compensation.
So with that, let’s go to the next page, Page six which shows you the sequential development of our sales and also EBITDA, first of all for the group. As you can see on the upper half of the page, there’s a continuous sales growth during the quarters. And the higher prices in Q1 2022 versus Q4 of last year, as I said led to the highest quarterly sales in the Covestro history. On the lower part of the page, you can see the quarterly EBITDA is on a relatively steady level as I said the pricing delta in Q1 this year versus Q4 is slightly negative. So sales prices almost but not fully could compensate, a big part of the strong raw material price increases, and we also benefited from a volume increase quarter-over-quarter. So sequentially, despite the unprecedented raw material price inflation, as you can see, we still managed to increase our EBITDA margin from 15.3% to 17.2%, than in Q1 of this year.
So let’s turn the page and look at our performance materials segment and look at the same set of numbers of the sequential development. As you can see, again, in the upper half of the page, there is a steady increase of quarterly sales. And the increase in Q1 ’22 versus Q4 stems particularly from the price increases quarter-over-quarter. The lower part of the page shows you also a relatively stable development of our quarterly EBITDA and Q1 EBITDA came in at 620 million. So that was 10 million below Q1 of 2021. And again, considering the strong raw material price increases, that shows you we were able to pass on the majority of that to our customers plus we had a positive x effect and higher volumes year-over-year.
The Q1 2022 EBITDA margin declined year-over-year, I would say that is a technical effect, again, driven by the higher raw material prices and then also higher sales numbers. I would say it’s more interesting to see that sequentially the EBITDA in Q1 of this year is 30 million above Q4 of last year, and slightly lower pricing delta from raw materials was more than compensated by the volume and the FX effect.
Let’s look at the solutions and specialty segment on page number eight. And again, you see sequential sales growth driven by a favorable pricing and volume development on the upper half of the page. Of course, the sales in Q1 of this year, if you compare them with Q1 of last year, contains the effects from the RFM portfolio contribution. If you look at EBITDA lower part of the page, the EBITDA in Q1 of this year, exceeds both the Q4 number and also the Q1 number of 2021. And the strong increase versus Q4 last year comes from higher volumes, positive pricing delta, and also lower provisions for variable compensation. And therefore with that our EBITDA margin increased q-over-q to 10% in Q1 of this year.
Polyurethane based insulation is one of the best options to reach higher energy efficiency and between 30% to 40% more polyurethane is required to achieve these higher energy standards compared to the current standards. On a global scale with regard to climate protection, this should drive the growth rate of MDI by one additional percentage point per year. The reason energy price increases should then be an additional accelerator for implementing higher energy standards for buildings, opening more business opportunities for Covestro.
Wind energy last but not least, is one of the answers for our future supply with electricity and Covestro has already secured renewable power through the different PPAs we have signed. Beyond that we are considering wind energy is more than just a source of electricity, namely also as an attractive field of business. Our unique polyurethane resin for windmill blades, is planned to gain a 10% market share of the epoxy dominated market by 2032, offering an 8% reduction in manufacturing costs. In combination with other Covestro solutions, we can offer a 30% reduction in blade maintenance cost and a two-year extended lifetime.
Thank you. I have a few questions on raw materials really. Could you talk a little bit about availability on ammonia, on chlorine and then also, in light of what is happening in European refining? Are you concerned about benzene availability, if we have a sharp preference from a mid-distillates? That’s really my first question. And then the second question is, are you making when you look at your global landscape right now? Are you making very high profitability in North America compared to the rest of the world? And therefore, if North America market loosens because of demand, or because of more supply structurally into North America, then we will have some level of convergence? And then just final follow up is, could you just update on your MDI plans and progress in North America? Thanks a lot.
So Jaideep, I take the first and maybe also third question and Thomas maybe the second one. So on the raw materials, ammonia as well as chlorine topic that you addressed and benzene availability, we currently do not foresee shortages of any of those materials. Part of the reason is that we are either, let’s say having long-term agreements with respect to suppliers where we have had no indications that that supply would actually be shortened. Secondly, at some sites, we are producing chlorine ourselves and/or ammonia, ourselves and or with partners. And also here, we have no indication that we would actually have a challenge to get access to ammonia. And from that perspective, switching now to benzene also here. Next to all you hear, we do not foresee any shortage particularly in benzene or even toluene, with regard to the output of the respective refineries. So from that perspective, for sure, it’s a complete containment, for example of Russian gas would come saw an embargo no matter from which side it will be induced, that will have significant impacts on the respective value chains.« Previous Post Next Post »