Financial Position

Statement of cash flows

Cash flows from operating activities/free operating cash flow

Cash flows from operating activities dropped to €1,234 million (previous year: €1,383 million). A reduction in EBITDA and increase in funds tied up in working capital stood in contrast to lower income tax payments. Thanks to the reduction in cash outflows for additions to property, plant, equipment, and intangible assets from the original forecast (projected: €900 million), free operating cash flow increased to €530 million (previous year: €473 million) despite the decrease in cash flows from operating activities.

Cash flows from investing activities

In fiscal 2020, net cash used in investing activities totaled €1,769 million (previous year: €838 million). This item comprised investments in money market funds of €771 million, short-term bank deposits of €355 million, as well as cash outflows for additions to property, plant, equipment, and intangible assets of €704 million (previous year: €910 million).

Capital expenditures in fiscal 2020 were targeted at maintenance and improvement of existing plants as well as new capacity in all three reportable segments. In the Polyurethanes segment, an investment was made in the construction of a chlorine production facility at the Tarragona (Spain) site, which promotes the use of energy-saving technologies, following commissioning of the MDI pilot plant at the Brunsbüttel (Germany) site. What is more, an investment at the Rotterdam (Netherlands) site improved water treatment, while capital expenditure in Shanghai (China) secured and optimized the supply of chlorine. Strategically relevant investments comprised the expansion of capacity at the Shanghai and Krefeld-Uerdingen (Germany) sites in the Polycarbonates segment and of global production capacity for specialty films at the Map Ta Phut (Thailand) and Dormagen (Germany) sites in the Coatings, Adhesives, Specialties segment. In addition, the new Group headquarters building in Leverkusen (Germany) was completed.

Cash flows from financing activities

Net cash inflow from the Covestro Group’s financing activities amounted to €1,204 million in fiscal 2020 (previous year: net cash outflow of €668 million). For the most part, this relates to the issue of euro bonds totaling €1.0 billion and the net proceeds of the capital increase in October 2020 amounting to €444 million. The dividend payout for Covestro AG was €219 million (previous year: €438 million).

In comparison with December 31, 2019, the Covestro Group’s financial debt increased by €1,149 million to €2,886 million as of December 31, 2020. The increase was due to the assumption of a loan from the European Investment Bank totaling €225 million in the first quarter of 2020. The loan is for research and development with a focus on sustainability and the circular economy in the European Union. On June 5, 2020, Covestro also successfully placed a total of €1.0 billion in euro bonds on the capital market.

Current financial assets increased to €1,126 million and comprised money market funds in the amount of €771 million and short-term bank deposits totaling €355 million. At the same time, cash and cash equivalents rose to €1,404 million (previous year: €748 million).

On the one hand, the higher level of cash and cash equivalents and current financial assets at year-end reflected Covestro’s aim to secure liquidity in view of the economic impact of the coronavirus pandemic. On the other hand, these are earmarked for financing of the purchase price of the announced acquisition of the RFM business from Koninklijke DSM N.V., Heerlen (Netherlands).

In fiscal 2020, net financial debt decreased by €633 million to €356 million (previous year: €989 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.

Effective March 17, 2020, Covestro AG obtained a new syndicated revolving credit facility totaling €2.5 billion with a term of five years. It includes two options to extend the term by one year in each case. An important new feature of the credit line is its link to an ESG (environment, social, and governance) rating: The better (worse) the externally calculated ESG score is, the lower (higher) the interest component of the credit facility. The new facility replaces the existing revolving credit line of €1.5 billion and, like it, functions as a backup liquidity reserve. No loans had been drawn against this syndicated credit facility as of December 31, 2020. On September 30, 2020, Covestro arranged another syndicated credit facility in the original amount of €1.7 billion. This second credit facility was reduced on October 26, 2020, and stood at €1.2 billion as of December 31, 2020. This serves as bridge financing for the purchase price of the announced acquisition of the RFM business from Koninklijke DSM N.V. No loans had been drawn against the second syndicated credit facility as of December 31, 2020, either. This credit facility used for bridge financing was terminated as of January 29, 2021, thanks to Covestro’s strong liquidity position.

Covestro AG operates a Debt Issuance Program with a total volume of €5.0 billion 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 €1.0 billion are fixed-rate bonds maturing in October 2021 (1.00% coupon, €500 million) and September 2024 (1.75% coupon, €500 million), and carry a Baa2 rating with negative outlook from Moody’s Investors Service, London (United Kingdom). On June 5, 2020, Covestro successfully placed a total of €1.0 billion in euro bonds on the capital market. The proceeds of the new bonds placed will be used to further reinforce Covestro’s liquidity in view of the economic effects of the coronavirus pandemic and, among other things, to repay the existing bond maturing in fiscal 2021. The bonds mature in February 2026 and June 2030 and carry coupon rates of 0.875% and 1.375%, respectively.

As a company, Covestro AG currently holds a Baa2 investment-grade rating with negative outlook from the rating agency Moody’s Investors Service. Covestro intends to continue to maintain financing structures and financial ratios that support a solid investment-grade rating.

The Covestro Group pursues a prudent debt management strategy to ensure flexibility, drawing on a balanced financing portfolio. This 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. Instruments including derivatives are used to minimize risks.

For a detailed presentation of financial opportunities and risks as well as further explanations, please see Covestro’s opportunities and risks report.