The bottom line is that the group was just in the profit zone in the third quarter.
(Photo: Reuters)
Dusseldorf The plastics manufacturer Covestro is hit hard by the high energy and raw material costs. In the third quarter, the adjusted profit (Ebitda) of the Dax group fell by 65 percent to just 302 million euros. Covestro was no longer able to fully pass on the burden through price increases, as it had been able to do in the first half of the year.
This is seen as a clear signal that global demand has weakened significantly in recent months. As a chemical company, Covestro senses such a development early on. The mood is bad throughout the chemical industry. In view of high energy prices and a weakening economy, the business climate has deteriorated further, as determined by the Munich-based Ifo Institute. Expectations fell to their worst since 1991.
Covestro’s earnings were slightly below analysts’ expectations. Sales increased in the third quarter by seven percent to 4.3 billion euros, including a favorable dollar exchange rate. With a net profit of twelve million euros, the Leverkusen group was just able to stay in the black. In the previous year, this value was still 472 million euros.
Despite the burdens, Covestro believes it is on track to meet its 2022 profit targets. However, the group will only achieve the lower end of the forecast and assumes an Ebitda of 1.7 to 1.8 billion euros. The previous expectations on the stock exchange are slightly higher. In pre-market trading, Covestro shares were down 2.8 percent at EUR 34.80.
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In view of the looming recession, the management now wants to take countermeasures. “We will have to deal with this unprecedented environment for the time being. We are therefore using all the levers available to us to guide Covestro well through the current situation,” said CEO Markus Steilemann. In view of the historical price increases for oil and gas, he sees his strategy of converting the group to green energy and renewable raw materials as confirmed.
Systems are trimmed to lower gas consumption
But that is the long-term plan and will not bring immediate relief for Leverkusen. Covestro therefore announced “short- and medium-term cost-saving measures” on Tuesday, but did not give any details about the plans. Competitor BASF has already opted for a savings program that is intended to cut costs by half a billion euros, especially at the German and European locations.
Covestro also wants to further reduce gas consumption in its plants and is relying on the conversion that has already begun. This applies, for example, to the use of process steam, which is important in chemical production and is now monitored and controlled by digital sensors.
Bulk business was responsible for the slump in profits in the third quarter. In the Performance Materials division, Covestro bundles the sale of soft and hard foams used in upholstery, car seats and facade insulation. In addition, there is the transparent plastic polycarbonate. The division’s Ebitda fell by 93 percent to just 53 million euros.
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This clearly shows how reluctant customers are when ordering new plastics. The volume sold also fell in the Solutions & Specialties segment. It contains the high-quality, innovative plastics.
Although the Ebitda increased by 27 percent, this is also due to a comparatively weak previous year’s value. All the same, the profit margins remained stable in this segment because Covestro was able to compensate for the higher raw material and energy costs with price increases.
More: Recession could slow down the chemical industry’s green transition.