February 19, 2020 / 10:43 AM / 2 months ago

Covestro sees lower earnings, weaker volume growth in 'challenging' 2020

(Reuters) - German chemicals maker Covestro forecast lower first-quarter and 2020 core profit on Wednesday after missing fourth-quarter revenue expectations, citing the impact of the coronavirus outbreak, increased competition and lower prices for its key products.

FILE PHOTO: The logo of German chemicals maker Covestro is pictured outside its headquarters in Leverkusen, Germany, July 26, 2019. REUTERS/Wolfgang Rattay

The former Bayer unit forecast earnings before interest, tax, depreciation and amortisation (EBITDA) between 1.0 billion euros (£830 million) and 1.5 billion euros in 2020, including 200 million euros to 280 million euros in the first quarter. It reported core profit of 442 million euros in the first quarter last year and 1.6 billion euros in 2019.

The first-quarter guidance includes a negative effect of 60 million euros from the coronavirus epidemic, which has restricted the company’s production facilities in China, Chief Financial Officer Thomas Toepfer said in a conference call.

The company expects some of the negative effects to fade in March as production returns to normal in certain areas of China, he added.

This year “will remain challenging for us, although we still see the long-term need for high-tech plastics for sustainable development across a variety of key technologies,” Chief Executive Markus Steilemann said.

Covestro shares were up 3.4% at 0900 GMT, topping Germany’s blue-chip DAX index, but down 1.7% so far this year, lagging the sector and the broader market.

The group, whose main products include foam chemicals and clear plastics, said it planned additional 200 million euros of cost savings this year as part of its ongoing efficiency push.

A company spokesman said job cuts would not form part of the savings, which would instead come from more efficient management of administrative, procurement and maintenance expenses as well as a review of all existing and planned investments.

JP Morgan and Berenberg analysts have said the company will benefit from cutting its investment budget to focus on the most promising shorter-term projects if it wants to maintain high dividend payouts.

Covestro reported fourth-quarter revenue at 2.86 billion euros, 3.7% below analysts’ average expectations in a company-provided poll.

EBITDA fell 5.1% to 278 million euros in the three months, broadly in line with the 277 million euros expected on average by a poll of analysts provided by the company.

“From our conversations with investors over the past weeks, we got the impression their expectations were even lower than consensus,” Baader Helvea analysts said, adding that in-line results and outlook could provide a positive trigger for the company’s shares.

Reporting by Zuzanna Szymanska in Gdansk; Additional reporting by Milla Nissi; Editing by Tomasz Janowski and Mike Harrison

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