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Covestro’s important financial figures in Q2 of 2018.
Covestro’s important financial figures in Q2 of 2018.

Covestro continued the year’s successful performance in the second quarter of 2018. Group sales grew 10.4% compared with the prior-year quarter to €3.9 billion thanks to higher selling prices and increased demand. Core volumes were up 4.4%, with all three segments contributing with positive growth rates. EBITDA improved by 16.2% to €985 million. At €604 million, net income was 24.8% higher than in the prior-year period. Free operating cash flow (FOCF) increased by 14.1% to €364 million.

There is sustained demand for our products worldwide, proving our strategy to further pay off as our products serve important global trends,” said CEO Dr. Markus Steilemann. “We improved all key figures in the second quarter. Thanks to this strong performance, we are raising our guidance for the full year.” That applies for EBITDA, FOCF and ROCE (return on capital employed).

The group will further increase investments, including the expansion of production in all three segments at various locations in all regions. For instance, significant expansion of global film production with an investment of around €100 million has been announced to meet sharply rising demand.

At the site in Tarragona (Spain), around €200 million is being invested to build an own chlorine production and extend the present facilities for the rigid foam precursor MDI. In addition, MDI capacity in Brunsbüttel (Germany) and the polycarbonate production in Caojing (China) are being extended.

Sustained growth prospects confirmed

We see solid growth in our main customer industries and are raising investments to €650–700 million this year,” said CFO Dr. Thomas Toepfer.

In the next three years, these annual capital expenditures (capex) are to be increased further up to €1.2 billion. That will allow targeted expansion of production capacity as well as the construction of new facilities.

There are currently signs that market prices are normalizing in some product areas, especially for the flexible foam precursor TDI. “Our goal is therefore to reduce the cyclicality of our product portfolio even further and to continue our successful development,” added Toepfer. This is to be achieved primarily through additional highly differentiated applications, for example, for the automotive, electronics and healthcare sectors.

Since sustained high demand is expected in the main customer industries in the mid- term, core volume growth of around 4% per year is projected. The company therefore plans to continue to grow faster than global gross domestic product (GDP). At the same time, Covestro is monitoring the present geopolitical uncertainties.

Guidance for EBITDA, FOCF and ROCE raised

In view of the strong results of the first half-year, Covestro is raising its forecast for EBITDA, FOCF and ROCE in 2018. The company now expects that EBITDA for the fiscal year will be above the previous year’s level and FOCF will be over €2 billion. ROCE is now expected to be around the 2017 level. Covestro still anticipates core volume growth in the low to mid single-digit percentage range in 2018. As always, this forecast is based on a normal GDP environment. In the third quarter of 2018, EBITDA is expected to be around the prior-year level.

Second quarter of 2018: growth in all three segments

Sales of the Polyurethanes segment rose by 8.1% to €1,966 million in the second quarter of this year. Sales developed positively in all regions. Core volumes grew 3.9% in this segment, mainly due to the increase in the MDI product group, and the segments EBITDA increased 6.2% to €583 million.

The Polycarbonates segment registered particularly strong sales growth of 15.9% to €1,056 million in the second quarter, with the positive trend coming primarily from higher selling prices. Core volumes increased by 5.3%. In particular, the APAC region contributed to this rise. Polycarbonates grew EBITDA by 44.7% to €285 million.

The Coatings, Adhesives, Specialties segment also posted a significant improvement compared with the prior-year quarter, with sales rising 4.1% to €629 million. Core volumes for Coatings, Adhesives, Specialties rose 5.8%, the highest growth rate of the three segments. EBITDA was 14.9% higher at €139 million.

Positive performance in the first half of 2018

Overall, Covestro’s performance in the first six months of 2018 was very strong. Group sales rose 7.9% year-on-year to €7.6 billion, driven principally by higher selling prices across all three segments. Group-wide, core volumes rose 2.2% year-on-year in the first six months. EBITDA grew 20.9% to around €2 billion, primarily driven by earnings growth in the Polyurethanes and Polycarbonates segments. Net income was €1.2 billion, a rise of 31.1%. FOCF increased by 37.4% to €728 million.

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