Materials manufacturer Covestro continued its successful half-year trend in the third quarter of 2016 with high Free Operating Cash Flow and strong earnings. Adjusted EBITDA rose significantly by 21.9% year-on-year to EUR 574 million, mainly driven by higher volumes combined with higher margins. The Group’s core volumes (in kilotons) were up by 9.1% on the prior-year period.
“We seamlessly continued the positive half year trend in the third quarter and profit from the strong demand for our products,” said Covestro CEO Patrick Thomas. “Growth in EBITDA and Free Operating Cash Flow was particularly healthy and so we are again adjusting our forecast for full-year 2016 slightly upwards.”
The company continues to expect a mid- to high-single-digit percentage increase in core volume growth. Covestro now anticipates Free Operating Cash Flow above the prior-year level (previously: at the previous year’s level). The company is now forecasting ROCE significantly above the prior-year figure (previously: above last year).
Stable sales, Free Operating Cash Flow more than doubled
Group sales amounted to EUR 3.0 billion in the third quarter, on a level with the prior-year quarter. Following declines in the first two quarters, sales rose mainly as a result of the high total sales volumes which increased by 6.3%. Polyurethanes and Polycarbonates in particular posted significantly higher volumes. At the same time, the two segments again saw selling prices decrease on the back of lower raw material prices, which pushed down sales. Currency effects also had a slightly negative impact.
At EUR 259 million, net income in the third quarter confirmed the H1 trend and was up by a significant 61.9% on the prior-year period. Free Operating Cash Flow developed particularly positively, rising by 157.4% year-on-year to EUR 646 million. The increase is primarily due to an improved cash flow from operating activities as well as reduced cash outflows for additions to property, plant, equipment and intangible assets.
Growth in all segments – significantly higher EBITDA in Polyurethanes
Core volumes in the Polyurethanes segment again rose by 9.0% year-on-year in the third quarter. All product groups contributed to this increase, particularly diphenylmethane diisocyanate (MDI). Higher sales volumes and higher margins lifted adjusted EBITDA by 50.3% to EUR 263 million.
The Polycarbonates segment also again recorded strong growth of 11.6% in core volumes compared with the prior-year quarter. APAC in particular posted much higher sales volumes. The segment’s adjusted EBITDA rose by 13.5% to EUR 194 million, buoyed by higher sales volumes.
Core volumes in the Coatings, Adhesives, Specialties segment increased by 3.5% as against the prior-year period. It achieved this growth despite the anticipated contractual termination of trading activities. At EUR 136 million, adjusted EBITDA was virtually unchanged in the third quarter. Lower selling prices were offset by higher sales volumes and lower raw material prices had a positive effect.
Positive first nine months – improved sales volumes and profitability
Overall, the Group turned in a very positive performance in the first nine months of 2016. Its core volumes were up 8.4% year-on-year. This is mainly attributable to increases at Polycarbonates and Polyurethanes, which recorded strong growth rates of 9.6% and 9.4%.
Adjusted EBITDA rose by 17.3% to EUR 1.6 billion. Sales declined by 4.3% to EUR 8.9 billion in the first nine months, largely due to an 8.1% decrease in selling prices overall. Average selling prices were down year-on-year, especially in the Polyurethanes segment. Exchange rate movements also had a slightly negative effect.
At EUR 671 million, net income in the Covestro Group was up by a significant 57.1% on the prior-year period. Free Operating Cash Flow also improved, rising by 68.1% to EUR 960 million at Group level.
With 2015 sales of EUR 12.1 billion, Covestro is among the world’s largest polymer companies. Business activities are focused on the manufacture of high-tech polymer materials and the development of innovative solutions for products used in many areas of daily life. The main segments served are the automotive, electrical and electronics, construction and the sports and leisure industries. Covestro, formerly Bayer MaterialScience, has 30 production sites around the globe and employs approximately 15,700 people (full-time equivalents) as of the end of 2016.
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This press release may contain forward-looking statements based on current assumptions and forecasts made by Covestro AG. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in Covestro’s public reports which are available on the Covestro website at www.covestro.com. Covestro assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.