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Covestro reports sales growth of 55.9% YOY in Q3
Source:Adsale Plastics Network    Editor:JK    Date:09.Nov.2021

Covestro recorded a strong third quarter of 2021, which saw a continuation of the high earnings momentum from the first half of the year. Since demand remained strong, high selling prices meant that sales increased by 55.9% to around €4.3 billion (previous year: around €2.8 billion).

 

The core volumes sold rose slightly by 0.8% compared to last year’s third quarter, mainly as a result of additional volumes from the Resins & Functional Materials (RFM) business acquired from DSM on April 1, 2021. Temporarily limited product availability, caused by unplanned production outages, curbed growth potential despite continuing solid demand.

 

EBITDA was up 89.0% to €862 million (previous year: €456 million) on the back of a strong upward trend in margins. The high margins are attributable to significantly higher selling prices due to an advantageous competitive situation, which enabled Covestro to more than offset the rise in raw material prices.


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Consequently, net income more than doubled in the third quarter, rising to €472 million (previous year: €179 million). Free operating cash flow (FOCF) also increased by 5.5% to €381 million (previous year: €361 million).

 

Earnings outlook for full year 2021 raised

 

Taking into account its current business performance, Covestro again revised its full-year guidance on November 8. The Group now anticipates EBITDA will be €3.0 billion to €3.2 billion for 2021 as a whole (previously: €2.7 billion to €3.1 billion). Due to a valuation-driven increase of working capital the FOCF is now expected to be €1.4 billion to €1.7 billion (previously: €1.6 billion to €2.0 billion).

 

Covestro also anticipates that the return on capital employed (ROCE) will be 19% to 21% (previously: 16% to 20%). Due to limited product availability, core volume growth for the year as a whole is expected to be 10% to 12% (previously: 10% to 15%), of which around 6 percentage points will still be attributable to the RFM business.

 

Besides, Covestro assumes a positive medium-term trend. At its Investor Conference in September, the Group announced that it expects a substantial increase in mid-cycle EBITDA from its current level of €2.2 billion to €2.8 billion in 2024. This is due to Covestro’s organizational realignment implemented since July 2021 in the wake of the company’s transformation and the successful integration of RFM.

 

Increases in sales in both segments

 

In the third quarter of 2021, the Performance Materials segment saw core volumes sold fall by 11.6% year over year. Limited product availability due to unplanned production outages curbed growth potential despite the fact that demand remained intact. That resulted in a decline in sales volumes in the furniture and wood processing industry as well as the construction industry, especially in the EMLA and APAC regions.


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On the back of high selling prices, the segment’s sales increased by 52.2% to around €2.2 billion (previous year: around €1.4 billion). EBITDA was €755 million, more than double the figure for the prior-year quarter (previous year: €288 million), due to higher margins, as Covestro was able to more than offset the rise in raw material prices due to higher selling prices.

 

In the third quarter of 2021, the Solutions & Specialties segment’s core volumes sold rose by 22.7% year over year. That was mainly due to additional volumes from the acquisition of the RFM business. Sales also increased by 60.6% to around €2.1 billion (previous year: around €1.3 billion). That was attributable to the rise in average selling prices, as well as to the portfolio effect stemming from the acquisition of RFM.

 

The segment’s EBITDA fell to €173 million, or by 16.4% compared to last year’s third quarter (previous year: €207 million). Higher selling prices were not able to fully offset the increase in raw material prices, with the result that lower margins reduced earnings. The costs of RFM integration, which were at the level planned, also had a negative impact on earnings.

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