Financial Position

Statement of Cash Flows

Cash Flows from Operating Activities/Free Operating Cash Flow

Cash flows from operating activities grew to €2,193 million (previous year: €1,234 million), chiefly due to the increase in EBITDA. This stood in contrast to higher cash tied up in working capital and an increase in income tax payments. Higher cash flows from operating activities less cash outflows for additions to property, plant, equipment, and intangible assets of €764 million (previous year: €704 million) led to an increase in free operating cash flow to €1,429 million (previous year: €530 million).

Cash Flows from Investing Activities

In fiscal 2021, net cash used in investing activities totaled €1,995 million (previous year: €1,769 million). The cash outflows mainly comprise net purchase price payments of €1,469 million for the RFM acquisition and additions to property, plant, equipment and intangible assets of €764 million (previous year: €704 million). In contrast, cash inflows stemmed from the net sale of money market fund units and totaled €207 million.

Capital expenditures in fiscal 2021 were targeted at maintenance and improvement of existing plants as well as new capacity in both segments. In the Performance Materials segment, construction of Covestro’s own chlorine production facility at the site in Tarragona (Spain) continued. The plant will promote the use of energy-conserving technologies and aims to lower production costs at the site. As in fiscal 2020, water treatment was invested in further at the Rotterdam (Netherlands) site. Additional investments were also made at the Shanghai (China) site to secure and optimize the chlorine supply. Strategic capital expenditure in the Solutions & Specialties segment was aimed at capacity expansion, e.g., for compounding, at the Map Ta Phut (Thailand), Shanghai (China), and Krefeld-Uerdingen (Germany) sites.

Cash Flows from Financing Activities

Net cash outflow from the Covestro Group’s financing activities amounted to €965 million in fiscal 2021 (previous year: net cash inflow of €1,204 million). This 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 set to mature in October 2021. Cash outflows additionally included dividend payments of €262 million. Of this amount, €251 million was attributable to Covestro AG shareholders (previous year: €219 million).

Net Financial Debt

The Covestro Group’s financial debt decreased by €379 million from €2,886 million as of December 31, 2020, to €2,507 million as of December 31, 2021. This was mainly due to the repayment of the €500 million euro bond maturing in October 2021. In contrast, lease liabilities grew by €89 million and bank loans by €50 million.

Cash and cash equivalents decreased in comparison with the figure on December 31, 2020, by €755 million to €649 million. This change was mainly driven by the net purchase price payments for the RFM acquisition amounting to €1,469 million. Moreover, cash and cash equivalents declined on account of cash outflows for additions to property, plant, equipment and intangible assets of €764 million, the repayment of the euro bond in the amount of €500 million, and dividend payments of €262 million. Conversely, higher cash flows from operating activities of €2,193 million increased cash and cash equivalents.

The contribution of money market fund units totaling €500 million to pension plan assets (Metzler Trust e.V.) and the net sale of other money market fund units amounting to €207 million led to a €673 million decrease in current financial assets to €453 million.

In fiscal 2021, net financial debt increased by €1,049 million to €1,405 million (previous year: €356 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 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. The €500 million euro bond placed in March 2016 carries a fixed coupon of 1.75% and matures in September 2024. The €500 million euro bond also placed in March 2016 carrying a fixed coupon of 1.00% and maturing in October 2021 was repaid in full at par value on July 7, 2021. The additional €1.0 billion in euro bonds placed on June 5, 2020 consist of one €500 million euro bond with a fixed coupon of 0.875% maturing in February 2026, and another €500 million euro bond with a fixed coupon of 1.375% maturing in June 2030. All outstanding bonds have been assigned a Baa2 rating with stable outlook by Moody’s Investors Service, London (United Kingdom).

In fiscal 2020, Covestro AG obtained a 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 and represents a back-up liquidity reserve. One option to extend was exercised in March 2021 to extend the term of the syndicated revolving credit facility to March 2026. An important new feature of the credit line is its link to an environmental, social, governance (ESG) rating: The better (worse) the externally calculated ESG score is, the lower (higher) the interest component of the credit facility. The syndicated credit facility was unused as of December 31, 2021. On September 30, 2020, Covestro arranged another syndicated credit facility in the original amount of €1.7 billion. This second credit facility was reduced to €1.2 billion on October 26, 2020, and was terminated as of January 29, 2021. It originally served as bridge financing for the net purchase price payments for the RFM acquisition.

On March 31, 2021, Moody’s Investors Service, London (United Kingdom), confirmed Covestro AG’s Baa2 investment-grade rating to date and lifted the outlook from negative to stable. Covestro intends to continue to maintain financing structures and financial ratios that support a solid investment-grade rating in the future.

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.