The Dax group has to lower the profit forecast.
(Photo: imago images/imagebroker)
Dusseldorf The plastics manufacturer Covestro surprisingly received its ambitious profit forecast for this year on Monday evening. The Dax group blames three developments for this: the ongoing lockdown in China, the rising energy and raw material costs and the weaker than expected growth in the global economy.
Together, this leads to a significant correction in adjusted earnings (Ebitda). Just a few weeks ago – and after the start of the Ukraine war – Covestro had assumed that it would be able to achieve earnings of between 2.5 and 3 billion euros this year.
Management is now targeting an adjusted profit of between 2 and 2.5 billion euros. The corridor for the earnings outlook was thus screwed down by up to half a billion euros.
On the stock exchange, the news on Tuesday is likely to be a nuisance for investors. In after-hours trading on Monday evening, Covestro shares fell by four percent to around 39 euros. The adjusted forecast is well below the consensus estimates of analysts, who expect adjusted Ebitda of 2.7 billion euros for 2022 so far.
Free operating cash flow, Covestro’s second key control parameter, will also be significantly lower. Here the analysts expected a value of 1.2 billion euros. Covestro now only forecasts free operating cash flow of between EUR 400 and 900 million.
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The profit warning from the world’s leading plastics manufacturer comes unexpectedly, because so far none of the large chemical companies have felt compelled to take this step. BASF is one of the Leverkusen-based company’s major competitors in the market for hard and soft foams (polyurethane), the business is the highest-volume at Covestro and was recently the major profit driver.
A few days ago, however, BASF confirmed its earnings forecast for 2022 despite all the growing uncertainties. This indicates that Covestro is currently struggling with individual problems – and these are likely to be found primarily in China.
Lockdown in Shanghai strained
China is one of the most important markets for Covestro, the foams and the transparent plastic polycarbonate are used there for electric cars, insulation and in medical and electrical engineering. The Leverkusen company maintains a huge production facility in Shanghai – the region that has been hit hard by the current corona lockdown.
In the report from Monday evening, Covestro expressly points out the negative consequences of the ongoing lockdown in Shanghai. At the weekend, official Chinese figures already showed that the country’s economy was suffering more than feared from the rigid measures to contain corona infections.
The purchasing managers’ indices for the manufacturing and service sectors in China fell in April at the sharpest rate since the start of the corona pandemic. According to the companies, the restrictions have caused shipping problems at the port of Shanghai – the world’s largest – and a drop in orders.
Shanghai has eased the restrictions somewhat: after weeks of lockdown, around half of the population in the Chinese metropolis were allowed to leave their homes again at the weekend.
But the economic effects are likely to continue for months, especially since the fight against corona is being tightened in other regions of China. The first lockdowns in China at the beginning of the corona pandemic have shown how severely and persistently supply chains and demand are affected.
Covestro also fears this at its most important Asian location, and it is likely to be the main reason for the significant correction in the forecast for the year as a whole. In the first quarter, the group still did well and achieved an Ebitda of 806 million euros, which was above analysts’ expectations.
More: Covestro benefits from material shortages – but for how long?