LONDON (ICIS)–Covestro has slashed its earnings guidance for 2020 by 20-30% despite having achieved its target in the first quarter, the German chemicals major said on Wednesday.

The “increasingly adverse” business conditions are set to remain for the second quarter and the company as of Wednesday “assumes” the recovery will only start in the third quarter.

“As the pandemic is still evolving, further updates to the financial expectations may be necessary,” said Covestro.

€300M DOWN
Before Europe became the epicentre of the coronavirus pandemic, Covestro expected earnings before interest, taxes, depreciation and amortisation (EBITDA) in 2020 to stand at €1.00bn-1.50bn, which would have already represented a fall from 2019’s €1.6bn.

The company now expects EBITDA for 2020 to stand at between €700m-1.20bn, a reduction of 30% in the low end and 20% in the high end.

Despite a fall in sales volumes of 4.1% during the first quarter, year on year, EBITDA in the first quarter stood at €254m, in the upper range of its guided range of €200-280m, according to a preliminary figure published on Wednesday.

The figure however would represent a sharp drop from EBITDA in the first quarter of 2019 at €422m.

Covestro will publish full first-quarter results on 29 April.

Worsening economic conditions in Europe and the current pandemic’s epicentre the US, where the company has important operations, has prompted the firm to slash its full-year guidance as key end markets like automotive are at a standstill.

Its home market of Germany, the largest economy in Europe, is also expected to take a hit as its export-oriented manufacturing sectors take a hit from falling global demand.

Covestro is a major producer of polyurethanes (PU) isocyanates and polyols, as well as polycarbonate (PC), coatings, and adhesives; end markets include foams, fibres, coatings, or elastomers, among others.

It also produces methylene diphenyl diisocyanate (MDI) and toluene di-isocyanate (TDI).

Following the fall in the first quarter, sales volumes will be negative for the full year; in February the company expected them to grow in the “low-single-digit-percentage range”.

Capital expenditure (capex) expectations for the year of €900m have also been trimmed to €700m.

Free operating cash flow (FOCF) could be negative for the full year, with the range at between minus €200m and €300m; prior guidance expected it at a range of nil to €400m.

“The board of management increases the target for short-term cost savings to more than €300m in FY [full year] 2020 (previously: €200m) in addition to the ongoing ‘Perspective’ restructuring program that is expected to contribute savings of €100m FY 2020,” it said.

“Covestro continues to maintain a strong balance sheet and has significant sources of liquidity. Presently, these include around €1.2bn in cash or cash equivalents as well as an undrawn revolving credit facility (RCF) of €2.5bn.”

The company did not provide guidance for expected sales in 2020; in 2019, revenue stood at €12.4bn.

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https://www.icis.com/explore/resources/news/2020/04/15/10496489/covestro-slashes-2020-earnings-guidance-by-20-30-assumes-recovery-in-q3