Covestro meets third-quarter EBITDA guidance

● Group sales of €3.6 billion (–22.7%)

● EBITDA reached €277 million (–8.3%), in line with expectations

● Total net profit – €31 million

● Free operating cash flow increased to €308 million (>100%)

● Full-year guidance narrowed to lower end of expectations

● New CFO Christian Baier takes office

In the third quarter of 2023, Covestro continued to be affected by the difficult market environment, and demand continued to be sluggish in all regions. Affected by lower sales prices and a slight decline in sales volume, the group’s third-quarter sales fell 22.7% year-on-year to 3.6 billion euros (same period last year: 4.6 billion euros). Earnings before interest, taxes, depreciation and amortization (EBITDA) fell by 8.3% to 277 million euros (same period last year: 302 million euros), mainly due to currency fluctuations and lower sales due to lower demand. In contrast, margins improved, with a positive impact on EBITDA, as raw material and energy prices fell from the very high levels seen in the prior year period, offsetting lower sales price levels. The Group attaches great importance to efficiency, and the resulting reduction in selling and administrative expenses and fixed cost of goods also had a positive impact on EBITDA. Net profit in the third quarter was €31 million (same period last year: €12 million), and free operating cash flow (FOCF) increased to €308 million (same period last year: €33 million).

“Economic activity has not yet recovered significantly in the third quarter, and global demand is still at a very weak level.” Dr. Markus, CEO of Covestro
Steilemann said, “Covestro is therefore even more committed to building the right framework: operating efficiently with a high degree of cost awareness and using innovative technologies to expand production capacity globally. Based on this, we are consistently moving towards our circular economy goals, and lay the foundation for sustainable growth.”

2023Annual performance guidance narrowed to the lower end of the expected period

When it releases its first-half financial report in August 2023, Covestro has narrowed the guidance issued in April this year to the lower end of the expected range. The group now expects full-year EBITDA to be approximately 1.1 billion euros, free operating cash flow between 0 and 200 million euros, and ROCE
above
The WACC (return on capital employed minus the weighted average cost of capital) is approximately –6.0 percentage points. The Group maintains its full-year greenhouse gas emissions forecast unchanged at 4.2 million to 4.8 million tons of carbon dioxide equivalent.

“Covestro’s operating environment is challenging: economic activity is weak, demand is sluggish, and the prospects for core customer industries other than automotive have further deteriorated.” Christian Baier, Chief Financial Officer of Covestro
“Accordingly, we have narrowed our guidance to the lower end of our forecast range. At the same time, the Group has established a very solid foundation with its global presence and strong balance sheet. Therefore, I look forward to continuing to drive Covestro’s transformation trip.”

Bayer will serve as the chief financial officer of Coves Innovations from early October 2023, replacing Dr. Thomas who will leave on August 31, 2023.
Toepfer). He is responsible for accounting, controlling, finance and insurance, information technology and digitalization, investor relations, legal, intellectual property and compliance matters, business portfolio development and tax. Bayer is also responsible for matters related to the two major markets of the United States and China.

In addition, in view of the current overall situation, the Board of Directors has decided to terminate the remaining ongoing share repurchase program early on October 26, 2023. Other reasons include the limited time before the original planned end date of February 28, 2024, and the imminent expiration of the authorization of the general meeting of shareholders on April 11, 2024. As a result, Covestro repurchased a total of 4.7 million shares at an average price of €42.50 per share, completing €199 million of the €500 million share buyback plan. Covestro plans to seek an extension of the authorization at its annual shareholder meeting in 2024 to continue repurchasing shares in the future.

Invest in a sustainable and circular economy future

To realize its vision of total circularity, Covestro is committed to providing products and solutions for a climate-neutral and circular economy future. For example, in August this year, the group’s new elastomer factory in Shanghai was officially put into production. The new facility is part of a series of investments the company has made globally in recent years in its high-performance elastomers business. The polyurethane elastomer materials it produces are widely used, such as in the production and manufacturing process of photovoltaic panels, to help the development of the renewable energy industry. In addition, these elastomers themselves also contain some alternative raw materials, a two-pronged contribution to a more sustainable future.

The use of alternative raw materials is an important part of the Group’s efforts to achieve full circularity. In order to further explore and expand this area, Covestro is also committed to integrating its financing strategy and sustainable development strategy to a greater extent. To this end, the group issued its first green bond in November 2022. The move is already having a positive impact: in the first year of the six-year bond, all proceeds have been used for sustainability-related spending and projects. For example, approximately 34% of funds raisedwas used to expand the use of alternative raw materials, thereby reducing emissions by 250,000 tons of carbon dioxide equivalent.

Another focus on the road to a circular economy is the recycling of waste plastics. Covestro has also made further progress in this area. In August this year, the group announced that it had successfully developed an innovative chemical recycling process for polycarbonate, reaching an important milestone. The Group is currently conducting pilot trials of the technical implementation of this chemical recycling process in Leverkusen, Germany, and plans to invest millions of euros in this over the next few years.

Economic weakness puts pressure on both sectors; lower fixed costs have positive impact

In the third quarter, both the sales price level and sales volume of the group’s two major business segments declined, especially in the EMLA region (Europe, the Middle East, Africa and Latin America except Mexico). Nonetheless, the Group’s strong focus on efficiency in implementing its “Sustainable Future” strategy has had an impact. Fixed costs fell further by tens of millions of euros in the third quarter compared with the same period last year. Covestro expects fixed costs to be reduced by hundreds of millions of euros this year compared with last year.

Sales of the Functional Materials segment in the third quarter of 2023 fell 26.7% year-on-year to 1.7 billion euros (same period last year: 2.3 billion euros), mainly due to a significant decrease in average selling prices. The segment’s EBITDA increased by 60.4% year-on-year to 85 million euros (same period last year: 53 million euros), mainly due to improved profit margins and lower fixed costs. Free operating cash flow increased to €317 million (previous year: €93 million).

Affected by lower average selling prices, exchange rate fluctuations and lower sales volume due to weak global demand, sales in the Solutions and Specialty Chemicals segment fell by 17.6% year-on-year to 1.8 billion euros in the third quarter of 2023 (same period last year: 2.2 billion euros) . Although the segment’s EBITDA fell by 12.1% year-on-year to 246 million euros in the third quarter (same period last year: 280 million euros), it has shown steady and continuous growth since the fourth quarter of last year. The segment’s free operating cash flow rose to €185 million (previous year: €65 million).

Performance for the first nine months was lower than the same period last year; free operating cash flow increased significantly

In the first nine months of this year, group sales fell by 21.2% to 11 billion euros (same period last year: 14 billion euros). The main reason is that the average sales price level and sales volume declined due to weak economic activities throughout the year and sluggish market demand. Covestro’s EBITDA in the first nine months of 2023 fell by 42.7% to 948 million euros (same period last year: 17
billion euros), while net profit fell to –11 million euros. However, free operating cash flow increased to €159 million (previous year: €412 million), mainly due to higher cash flow from operating activities. Lower funds tied up in working capital (mainly due to lower inventories) and lower income tax expenses made up for the decline in EBITDA.