Financial Position

Cash flows from operating activities/free operating cash flow

Operating cash flows sank to €1,383 million (previous year: €2,376 million). A reduction in EBITDA stood in contrast to greater freed-up working capital and lower income tax payments. Cash outflows for additions to property, plant, equipment and intangible assets increased, resulting in free operating cash flow of €473 million (previous year: €1,669 million).

Cash flows from investing activities

In fiscal 2019, net cash used in investing activities totaled €838 million (previous year: €346 million). This item mainly reflected cash outflows for additions to property, plant, equipment and intangible assets of €910 million (previous year: €707 million) and cash inflows from the sale of the European systems house business of €51 million.

Capital expenditures in 2019 were targeted at plant maintenance and improvement as well as at new capacities in all three segments. An investment in the Shanghai (China) site safeguards and optimizes the chlorine supply. At Polyurethanes, after the successful completion of the MDI investment in Brunsbüttel (Germany), the strategically relevant capital expenditures pertained to the expansion of MDI capacity in Tarragona (Spain); at Polycarbonates, to the expansion of capacity at the site in Shanghai (China); and at Coatings, Adhesives, Specialties, to the expansion of global production capacities for Specialty Films.

Cash flows from financing activities

Net cash outflow for the Covestro Group’s financing activities in 2019 amounted to €668 million (previous year: €2,402 million). These mainly included the dividend payout for Covestro AG totaling €438 million (previous year: €436 million).

In fiscal 2019, net financial debt increased by €641 million to €989 million (previous year: €348 million). This rise was mainly attributable to the initial application of the IFRS 16 financial reporting standard and the resulting increase in lease liabilities. Moreover, cash and cash equivalents decreased to €748 million (previous year: €865 million).

Financial management

The main purpose of financial management is to ensure solvency at all times, continuously optimize capital costs and reduce the risks of financing measures. Financial management for the Covestro Group is performed centrally by Covestro AG.

Covestro AG currently holds a Baa1 investment-grade rating with a stable outlook from the rating agency Moody’s Investors Service, London (United Kingdom).

Covestro AG operates a Debt Issuance Program as a framework with a total volume of €5,000 million to facilitate obtaining flexible financing from the capital market. The company is thus in the position to issue fixed- and variable-rate bonds as well as to undertake private placements. Covestro AG successfully placed several bonds from its Debt Issuance Program in March 2016. The outstanding bonds with a total volume of €1,000 million are fixed-rate bonds maturing in October 2021 (1.00% coupon, €500 million) and September 2024 (1.75% coupon, €500 million), and carry a Baa1 rating from Moody’s Investors Service.

The liquidity acquired in this way is intended to be used for general financing needs. Covestro AG agreed a syndicated revolving credit facility with a banking consortium totaling €1,500 million with a term until September 2022. No loans were drawn against this syndicated credit facility as of December 31, 2019.

The Covestro Group pursues a prudent debt management strategy to ensure flexibility, drawing on a balanced financing portfolio. This portfolio is based for the most part on bonds, syndicated credit facilities and bilateral loan agreements.

As a company with international operations, Covestro is exposed to financial opportunities and risks. These are continuously monitored within the context of Covestro’s financial management activities. Derivative financial instruments are used to minimize risks.

Please see the “Opportunities and Risks Report” for further details of financial opportunities and risks.