April 29, 2020 / 5:25 AM / a month ago

Covestro expects to weather crisis thanks to business mix, strong balance sheet

(Reuters) - German chemicals maker Covestro (1COV.DE) believes it can weather the coronavirus crisis thanks to its balanced customer base, geographical mix and strong balance sheet, the company said on Wednesday.

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

“We are financially sound and have a very high level of liquidity,” Chief Financial Officer Thomas Toepfer told Reuters.

The company expects improvement in its business from the third quarter as it maintains a focus on cutting costs and reviews investments, Toepfer said, adding it has no plans to apply for state aid.

Covestro’s first-quarter results came in slightly above analysts’ expectations as the company offset an automotive sector slowdown by selling more polycarbonates to industries such as construction and medical technology, Toepfer said.

“Polycarbonates are a perfect material for safety glasses,” the finance chief said.

There are also niches of the electronics industry, such as home entertainment equipment, where polycarbonates are selling well during the pandemic, Chief Executive Markus Steilemann told a conference call.

Covestro shares were up 5% at 1500 GMT, outperforming Germany’s blue-chip DAX index which was up 2.25%.

The company was also sheltered by its businesses in different geographies suffering from the impact of the coronavirus crisis in different periods, Steilemann said.

China saw most impact in February and March, Italy and Spain were hurt mainly in the late first quarter, while the United States experienced the most recent hit, Steilemann said.

The former Bayer unit said its first-quarter net income attributable to shareholders came in at 20 million euros ($21.7 million). That marked a hefty decline compared to 179 million euros last year, but was slightly above the 17 million euros expected on average by analysts in a company-provided poll.

The better performance in medical technology offset weak demand in China due to coronavirus-driven production disruptions and strong competition, which pushed Covestro to release a profit warning on April 15.

“The coronavirus pandemic is an exceptional situation and has further exacerbated the existing global uncertainties,” Steilemann said in a statement.

Prior to the outbreak, analysts had warned against lower pricing of Covestro’s main products such as polycarbonates and polyurethanes in China, where it generates over 20% of group revenue and holds more than 30% of its assets.

However, according to analysts at Baader Helvea, China’s recovery combined with the recent oil price decline give potential for a 2020 result above the middle of Covestro’s latest guidance range.

Reporting by Zuzanna Szymanska in Gdansk; Editing by William Maclean and Keith Weir

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