Results of Operations, Financial Position, and Net Assets of Covestro AG

Covestro AG is the parent company and strategic management holding company of the Covestro Group. The principal management functions for the entire Group are performed by the Board of Management. These include strategic planning for the Group, resource allocation, and executive and financial management. Covestro AG’s results of operations, financial position, and net assets are largely determined by the business performance of its subsidiaries.

The financial statements of Covestro AG are prepared in accordance with the German Commercial Code (HGB) and the German Stock Corporation Act (AktG). The company, headquartered in Leverkusen (Germany), is registered in the commercial register of the Local Court of Cologne under No. HRB 85281.

Covestro AG performs energy-specific services for Covestro Brunsbüttel Energie GmbH, Brunsbüttel, (affiliated power and gas grid operator) and therefore prepares activity reports in the areas of electricity supply and gas supply pursuant to Section 6b (3) Sentence 1 Nos. 2 and 4 of the German Energy Industry Act (EnWG).

There is a control and profit and loss transfer agreement between Covestro AG and Covestro Deutschland AG, Leverkusen (Germany). All profit not subject to a prohibition on transfer is transferred in full to Covestro AG at the end of the year. Losses are absorbed in full. Other retained earnings recognized during the term of the agreement must be released upon request by Covestro AG and used to compensate a net loss for the year or transferred as profit.

Results of Operations

In fiscal 2021, Covestro AG generated net income of €648 million (previous year: net loss of €45 million). The increase over the prior year was largely based on the higher income from investments in affiliated companies of €757 million (previous year: €77 million). Income from investments in affiliated companies was solely attributable to income from the control and profit and loss transfer agreement with Covestro Deutschland AG.

General administration expenses totaling €80 million (previous year: €46 million) mainly consisted of personnel expenses for the employees of the Group holding company and members of the Board of Management. This figure was higher in fiscal 2021 mainly on account of the increase in provisions for short-term variable compensation and costs associated with setting up the new organizational structure as of July 1, 2021 and the integration of the Resins & Functional Materials (RFM) business acquired from Koninklijke DSM N.V., Heerlen (Netherlands). The interest result included interest expense of €23 million (previous year: €20 million) for the euro bonds issued. Interest income mainly for loans extended to Covestro Deutschland AG had the opposite effect. Other financial income and expenses mainly comprised bank fees totaling €7 million (previous year: €15 million). These included fees for the provision of credit lines and the pro rata reversal of the discount on the euro bonds issued. Other operating income mainly related to a one-time transfer of costs amounting to €33 million in connection with the acquisition of the RFM business to Group company Covestro (Netherlands) B.V., Nieuwegein (Netherlands). In the previous year, this figure included €19 million from the reversal of provisions for settling possible tax claims by Bayer AG in connection with the contribution, indemnification, and post-formation agreement. Other operating expenses mainly resulted from expenses associated with the acquisition of the RFM business in the amount of €3 million (previous year: €30 million).

The result of operations was €677 million (previous year: €–16 million) and led to income taxes of €29 million (previous year: €29 million). After adding retained earnings brought forward from prior year of €0 million (previous year: €220 million) and withdrawing an amount of €9 million from other retained earnings (previous year: €76 million), distributable profit amounted to €657 million (previous year: €251 million).

For fiscal 2021, net income was expected to far exceed the level in fiscal 2020 in line with our forecast from the Annual Report 2020. With a net profit of €648 million this forecast was met. The Board of Management and the Supervisory Board are proposing a dividend of €3.40 per share carrying dividend rights for the 2021 fiscal year to the Annual General Meeting.

Net Assets and Financial Position

Covestro AG had total assets of €7,155 million as of December 31, 2021 (previous year: €7,189 million). The net assets and financial position of Covestro AG are dominated by its role as a holding company in managing subsidiaries and financing corporate activities. This is primarily reflected in the levels of financial assets (24.7% of total assets), receivables from affiliated companies (72.9% of total assets), and bonds and liabilities to banks.

Receivables from affiliated companies declined by €118 million to €5,219 million (previous year: €5,337 million). This was mainly attributable to a decrease in the intercompany loan to Covestro Deutschland AG. The increase in receivables from the control and profit and loss transfer agreement had the opposite effect.

All receivables and other assets have maturities of less than one year.

Intangible assets and property, plant and equipment were immaterial. Trade accounts receivable of €67 million (previous year: €30 million) and deferred income of €12 million (previous year: €12 million) were also immaterial in relation to total assets. Other assets of €85 million (previous year: €34 million) mainly included income tax and VAT receivables.

Covestro AG’s equity amounted to €5,222 million (previous year: €4,823 million). This corresponds to an equity ratio of 73.0% (previous year: 67.1%). Capital reserves increased by €2 million due to the issue of treasury shares to employees as part of the Covestment share participation program. Net income of €648 million increased equity. Moreover, the payment of dividends for fiscal 2020 in the amount of €251 million reduced equity.

In contrast to equity, provisions amounted to €129 million (previous year: €90 million) and liabilities totaled €1,804 million (previous year: €2,276 million).

Provisions comprised provisions for pensions and other post-employment benefits of €9 million (previous year: €4 million), tax provisions of €92 million (previous year: €77 million), and other provisions of €28 million (previous year: €9 million).

The decline in liabilities was largely due to the full, early repayment at par value of the €500 million euro bond on July 7, 2021. The bond had been placed in fiscal 2016 and was scheduled to mature in October 2021. The euro bonds totaling €1.5 billion have the following maturities: €1.0 billion mature in one to five years and €500 million mature in 2027 or later. Moreover, liabilities to banks totaling €50 million are due in 2022, and €225 million are due in one to five years. Other liabilities amounting to €12 million are due in 2022, and €1 million are due in one to five years. All other liabilities are due within one year.