Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Covestro AG (CVVTF, Financial) reported a strong volume increase of 9.3% year on year, indicating robust demand.
- The company achieved an EBITDA of EUR320 million, landing at the midpoint of their guidance range.
- Covestro AG (CVVTF) has launched a new transformation program aiming for annual savings of EUR400 million by 2028.
- The company is on track for a high single-digit percentage volume increase for the full year 2024.
- Asia Pacific region, particularly China, continues to show positive growth across all industries.
Negative Points
- Lower prices are still affecting sales, which came in at EUR3.7 billion.
- Free operating cash flow was negative EUR147 million, in line with expectations but still a concern.
- EBITDA decreased by 17% year on year due to a negative pricing delta and higher raw material costs.
- The company narrowed its EBITDA guidance for 2024 to EUR1 billion to EUR1.4 billion, reflecting ongoing challenges.
- The auto industry exhibited a flattish development, with significant declines in North America.
Q & A Highlights
Q: Your cost of goods sold for the first time in five quarters are increasing again year on year, but also sequentially. Can you please explain why?
A: The increase is mainly due to higher volumes and slightly higher raw materials, particularly benzene. (Markus Steilemann, CEO)
Q: What's the reason for the relatively high tax expense at present and what kind of tax payments should we model for the remainder of this year?
A: The higher tax expense in Q2 is due to deferred tax assets in the German tax group. For the full year, expect EUR250 million to EUR350 million in tax payments. (Christian Baier, CFO)
Q: How close to net income breakeven are the operations in Germany currently? Has there been a sequential improvement or is it roughly stable between Q1 and Q2?
A: Operations in Germany are reasonably close to breakeven without special items. The development is stable between Q1 and Q2. (Christian Baier, CFO)
Q: Could you give us a feel for how China is developing and if you expect any bigger recovery moving into '25? Likewise, any comments on Europe and the US are welcome.
A: Asia Pacific, mainly China, continues with positive growth across all industries. Europe had a good Q2 but faces a higher comparison base in Q3. The US is expected to be stable in Q3. (Markus Steilemann, CEO)
Q: Could you give us some color on margin development for MDI, TDI, PC, and polyols?
A: MDI margins are stable, TDI and polyols are slightly down, and polycarbonate is stable. The downstream business in polycarbonates is resilient. (Markus Steilemann, CEO)
Q: Is there any scope for the Adnoc deal to break?
A: The ongoing process is constructive. We are negotiating in good faith and balancing time with the quality of the outcome. (Markus Steilemann, CEO)
Q: Is there any short-term disruption in the market for any of your products?
A: There are some small disruptions, but they are not material enough to change the supply-demand balance. (Markus Steilemann, CEO)
Q: Your Q3 guidance is slightly down versus Q2. Can you explain the dynamics from Q2 to Q3?
A: Volumes are expected to be slightly up, but margins are slightly down. Auto is slightly softer, but electro electronics show a better development. (Christian Baier, CFO)
Q: What was driving the margin decline in Specialties and Solutions?
A: The decline is due to higher raw material costs, particularly benzene. We expect Q3 to be slightly stronger as we increase prices selectively. (Markus Steilemann, CEO)
Q: What led you to lower the outlook for free cash flow?
A: The adjustment is due to ensuring continuous operational setup and good product availability, which might lead to higher inventory levels. (Christian Baier, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
