Covestro again scraps dividend as persistently higher prices weigh on demand

By Andrey Sychev and Ozan Ergenay

(Reuters) -German chemicals maker Covestro said on Thursday it had decided not to pay annual dividends for a second successive year after 2023 core earnings fell by a third in a challenging year marked by high energy prices and a weak global economy.

"The year 2023 was one of the most difficult for the chemical industry in recent decades," Chief Executive Markus Steilemann said in a statement.

The group, whose main products include foam chemicals used in mattresses, car seats and insulation for buildings, said earnings before interest, taxes, depreciation and amortisation (EBITDA) fell to 1.1 billion euros ($1.19 billion) in 2023, down 33% from 2022, but in line with analysts' average estimates.

Covestro's key automotive, construction and furniture end markets, which account for about half its sales, stayed weak during the year, especially in Europe, weighing on the company.

Its sales dropped by 15% to 3.3 billion euros in the fourth quarter of 2023, while EBITDA rose to 132 million, up from a loss of 38 million in the corresponding 2022 period.

The group said the quarterly core earnings improvement came on the back of a fall in fixed costs in 2023 that was in the mid-three-digit million euros range.

Peers BASF and Lanxess have recently announced job cuts and multi-million writedowns, citing sluggish demand and high energy prices in Germany.

Covestro sees further uncertainty in 2024 and forecasts annual EBITDA in a wide range from 1 billion to 1.6 billion euros, and between 180 million and 280 million euros for the first quarter of 2024, which is slightly higher mid-point than an LSEG consensus.

J.P. Morgan analysts said the firm indicated "good demand trends globally so far" in the first quarter, and expects volumes up in the high single digits, albeit off a low base of 2023.

Covestro shares were up 2% by 08:07 GMT.

The company gave no update on takeover talks with bidder Abu Dhabi National Oil Co (ADNOC), which submitted a preliminary offer of 60 euros per share, 20% higher than the last close price, thus valuing it at 11.3 billion euros.

($1=0.9230 euros)

(Reporting by Andrey Sychev and Ozan Ergenay in Gdansk, Patricia Weiss in Frankfurt; Editing by Janane Venkatraman and Clarence Fernandez)