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Covestro Q1 earnings to suffer €60m hit from coronavirus – CFO

Author: Tom Brown


Dusseldorf, GERMANY (ICIS)–The impact of production restrictions and logistics issues in China brought on by the coronavirus outbreak is likely to reduce Covestro’s first-quarter earnings by €60m, the CFO at the German polyurethanes (PU) and polycarbonates (PC) producer said on Wednesday.

According to Thomas Toepfer, “massive” restrictions on production facilities and the extension of the Lunar New Year holiday as a means of reducing contagion are likely to cut first-quarter earnings before interest, taxes, depreciation and amortisation (EBITDA), with the impact likely to continue to be felt through much of the year.

“Production facilities in China were restricted massively,” said Toepfer, speaking to reporters in Dusseldorf after the company released its fourth-quarter financial results earlier on Wednesday.

“In March, [production] can return to normal but not everywhere,” the CFO added.

Covestro is assessing its supply chains for any potential weak links from the outbreak, according to CEO Markus Steilemann, in a bid to reduce the likelihood of any larger failure in its product flows.

Production and logistics in China, which was Covestro’s largest growth market in 2019, were substantially disrupted by the outbreak and the Chinese government’s measures to contain it.

Some production and transportation continue to be difficult, according to Covestro’s chief technology officer (CTO) Klaus Schafer.

“Shanghai has over 24m inhabitants and, over Chinese New Year, 15m people leave the city,” Schafer said.

“A reduced number of them came back and these people were quarantined, they stayed at home for the next two weeks before they could go back to work, which meant that things such as truck drivers… [and] logistic workers, were not available for the last few weeks and [are] only available to a limited extent today,” he added.

However, Schafer said that production across China is starting to ramp up.

Covestro has not made any forecasts for the impact that the ongoing crisis could have on its financial performance in the second or third quarters of 2020, Steilemann added.

The company is projecting first-quarter EBITDA of €200m-280m, meaning that even the top of the range would only be commensurate with the fourth quarter of 2019, which Steilemann described as an extremely challenging market.

Despite a 50% year-on-year fall in group company EBITDA in 2019 to €1.6bn, China generated the highest volume growth for Covestro, with sales outstripping those from its home German market by nearly €1bn.

Sales volumes rose 8.2% year on year as strong electronics, construction, wood processing and furniture end market demand counterbalanced automotive sector woes.