Stronger-Than-Expected Polycarbonate Results Buoy Covestro

Covestro, after just a few weeks as a public company, announced this morning that significantly higher profitability for its polycarbonate business should contribute to “a very good year”, in the words of CEO Patrick Thomas.

It was surprisingly good news for the company, which was offloaded by Bayer in September and which was forced to lower the size of its Initial Public Offering Oct. 2 because of global financial headwinds and negative effects from the VW emission scandal.

Patrick Thomas

Patrick Thomas

In comments at a news conference Thomas sounded like he even had to pinch himself to make sure that the polycarbonate business is as profitable as it is. He credited a positive supply balance and an ability to keep PC prices from falling as rapidly as feedstock prices.

Due to poor profitability triggered by overcapacity, Trinseo (former Dow assets) and Teijin have closed polycarbonate plants. Operating rates for the remaining plants rose this year as demand increased. Meanwhile, prices for key feedstocks dropped as the price of oil fell

Covestro said that it is forecasting a mid-single-digit percentage increase in core volume growth for polycarbonate this year. Adjusted EBITDA (a key measure of profitability) is expected to more than triple compared with the prior-year figure of €160 million.

According to Covestro, free operating cash flow is on track for a new record and net income for the third quarter improved by around 62 percent. Thomas said that no acquisitions are on the horizon and that the company will proceed with a dividend, a move that should even further warm up investor interest.

Bayer would surely like to unload even more of Covestro if possible. Bayer ended up selling only about 31 percent of the company because of the 40 percent scaleback of the IPO.

Covestro is also planning to reduce net financial debt including post-employment benefit obligations to €4 billion.

In the Polyurethanes segment, Covestro anticipates slight core volume growth this year with an improvement in adjusted EBITDA compared to the €592 million recorded in 2014.

Covestro stock rose to $29.57 after the earnings report, up 23 percent from the opening IPO price.

About Doug Smock

Former Chief Editor at Plastics World and Senior Technical Editor Design News

Asia, Europe, Injection Molding, North America, Polycarbonate, Polyurethane foam , ,

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