Covestro got off to a better start than expected in the 2023 fiscal year. Despite a still weak level of demand in a business environment that remains challenging, the company was able to limit the related negative impacts, said the company.
Group sales were down 20.1% in 1Q 2023, to EUR 3.7 bn (1Q 2022: EUR 4.7 bn), among other things due to a drop in volumes sold and a lower selling price level. The Group's EBITDA amounted to EUR 286 M and was thus 64.5% lower year over year (1Q 2022: EUR 806 M) due to a drop in volumes sold and lower margins. However, this result significantly exceeded the company's own expectations of EUR 100 M to EUR 150 M as well as recent analysts' estimates of EUR 158 M for 1Q 2023.
That was due in particular to the Group's focus on efficiency as part of its Sustainable Future strategy. Net income in 1Q 2023 fell to EUR -26 M (1Q 2022: EUR 416 M), while the free operating cash flow (FOCF) was EUR -139 M (1Q 2022: EUR 17 M). As the results for 1Q 2023 demonstrate, Covestro is well positioned with its strategic and structural setup to successfully overcome challenges on its own.
While the Performance Materials segment focuses on the reliable supply of standard products at competitive market prices, the Solutions & Specialities segment serves the need for complex products with a high pace of innovation in combination with application technology services. Covestro can thus leverage the individual strengths of both segments in their respective competitive landscapes ideally and gear them to customers' needs. Group sales in the Performance Materials segment fell by 25.0% to EUR 1.8 bn (1Q 2022: EUR 2.4 bn).
That was attributable in particular to the decline in volumes sold and lower average selling prices, mainly as a result of continued weak demand. The segment's EBITDA declined by 72.1% year over year to EUR 173 M (1Q 2022: EUR 620 M) due to lower margins and a reduction in volumes sold driven by demand and availability factors. The free operating cash flow declined to EUR -57 M (1Q 2022: EUR 112 M), primarily as a result of the drop in EBITDA. Sales in the Solutions & Specialties segment fell by 15.3% to EUR 1.9 bn (1Q 2022: EUR 2.2 bn), mainly on the back of a decline in volumes sold and lower average selling prices, both due to weaker demand.
The segment's EBITDA fell in 1Q 2023 by 26.3% year over year to EUR 165 M (1Q 2022: EUR 224 M). Here, too, the main drivers behind this decline were the demand-related decrease in volumes sold. However, the rise in margins had a positive effect as lower raw material prices outweighed the lower selling prices. The free operating cash flow increased by 67.1% to EUR -48 M (1Q 2022: EUR -146 M), mainly because of the fact that less cash was tied up in working capital compared to in 1Q 2022.
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remind, Covestro successfully started up a new world-scale facility for the production of chlorine in Tarragona, Spain. It is the first world-scale production plant for chlorine based upon the highly innovative and energy efficient ODC (oxygen depolarized cathode) technology invented by Covestro and its partners.
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