The Urethane Blog

Covestro Q1 Results

Covestro first-quarter profit sinks on low China demand, tough competition


(Reuters) – German chemicals maker Covestro (1COV.DE) sees itself well-equipped to weather the coronavirus crisis thanks to its balanced customer base and strong balance sheet, the company said on Wednesday.

“We are financially sound and have a very high level of liquidity,” Chief Financial Officer Thomas Toepfer said in an interview with Reuters.

Covestro’s first-quarter results came in slightly above analysts’ expectations as the company offset an automotive sector slowdown by selling more polycarbonates to industries such as construction and medical technology, Toepfer said.

“Polycarbonates are a perfect material for safety glasses,” the CFO said.

The former Bayer unit said its first-quarter net income attributable to shareholders came in at 20 million euros ($21.69 million) compared to 179 million euros last year, slightly above the 17 million euros expected on average by analysts in a company-provided poll.

The company continues to expect improvement from the third quarter as it will keep focusing on cutting costs and reviewing investments, but has no plans to apply for state aid, Toepfer said.

The better performance in medical technology managed to offset weak demand in China despite coronavirus-driven production disruptions and strong competition, which pushed Covestro to release a profit warning on April 15.

“The coronavirus pandemic is an exceptional situation and has further exacerbated the existing global uncertainties,” Chief Executive Markus Steilemann said in a statement.

Prior to the outbreak, analysts had warned against lower pricing of Covestro’s main products such as polycarbonates and polyurethanes in China, where it generates over 20% of group revenue and holds more than 30% of its assets.

However, according to analysts at Baader Helvea, the volume recovery in China in April gives hope for a 2020 result above the middle of Covestro’s new guidance range.

The recent oil price decline may also boost the company’s gross margins, giving potential for positive surprises when it reports its second-quarter results, Baader Helvea adds.

Covestro shares were up 2.6% at 0730 GMT, outperforming Germany’s blue-chip DAX index which was up 0.5%.