Results of Operations

Results of operations in fiscal 2021 improved considerably over the prior year, a development reflected above all in sales and earnings. Over the course of the year as a whole, Covestro saw demand for its products recover in all regions.

Covestro Group
Quarterly sales

€ million

Covestro Group
Quarterly EBITDA

€ million

Volume Growth and Sales

Core volumes sold by the Group saw year-over-year growth of 10.0% in full-year 2021. The additional volumes from the Resins & Functional Materials business (RFM) acquired from Koninklijke DSM N.V., Heerlen (Netherlands) was a major contributor to this growth, adding 6.1 percentage points. Our growth opportunities were curtailed by reduced product availability, e.g., due to the impact of unplanned, weather-related production stoppages in the NA region in the first quarter of 2021. Core volumes sold in the Performance Materials segment remained largely stable with an increase of 0.3%, whereas Solutions & Specialties saw core volumes sold jump by 26.0%.

In fiscal 2021, Group sales were up by 48.5% year over year to €15,903 million (previous year: €10,706 million), the highest ever in Covestro’s history. This was mainly due to a higher selling price level driven by increased demand, which had a positive impact on sales amounting to 34.7%. Moreover, the portfolio change arising from the RFM acquisition in the second quarter of 2021 had a positive effect on sales of 8.1%, while the development of total volumes sold increased sales by 6.5%. Exchange rate changes had a negative effect on sales of 0.8%.

Sales in both segments were up in fiscal 2021. In the Performance Materials segment, sales rose 48.9% to €8,142 million (previous year: €5,468 million), while the Solutions & Specialties segment’s sales increased 49.3% to €7,554 million (previous year: €5,060 million).

EBIT

The cost of goods sold was up by 39.8%, amounting to €11,475 million (previous year: €8,207 million), on account of higher raw material prices, while the ratio of the cost of goods sold to sales decreased to 72.2% (previous year: 76.7%).

The gross profit rose 77.2% to €4,428 million (previous year: €2,499 million). The driver of this trend was the higher selling price level, which significantly exceeded the increase in raw material prices. Furthermore, growth in volumes sold gave earnings a boost.

Selling expenses rose by 19.5% to €1,428 million (previous year: €1,195 million). Due to higher sales, however, the ratio of selling expenses to sales was lower at 9.0% (previous year: 11.2%). Research and development (R&D) expenses were up 30.2% to €341 million (previous year: €262 million). As a share of sales, this produced an R&D ratio of 2.1% (previous year: 2.4%). General administration expenses increased by 33.9% to €415 million (previous year: €310 million), for a ratio of administration expenses to sales of 2.6% (previous year: 2.9%).

Higher provisions for short-term variable compensation reduced earnings. Nonrecurring expenses related to the RFM acquisition also had a negative effect on earnings in the mid-double-digit million euro range. In contrast, positive synergy effects from the RFM acquisition were in the low double-digit million euro range thanks in particular to an efficiency boost in sales, administration, and procurement activities.

Other operating income exceeded other operating expenses by €18 million (previous year: €–36 million).

EBIT amounted to €2,262 million, more than tripling in the reporting period (previous year: €696 million). The EBIT margin rose to 14.2% (previous year: 6.5%).

EBITDA

In fiscal 2021, depreciation, amortization, impairment losses and impairment loss reversals rose by 6.1% to €823 million (previous year: €776 million). They comprised €760 million (previous year: €754 million) in depreciation and impairments of property, plant, and equipment and €63 million (previous year: €22 million) in amortization and impairments of intangible assets. This included €5 million (previous year: €20 million) in impairment losses and €3 million (previous year: €0 million) in reversals of impairment losses.

The Group’s EBITDA in the year as a whole more than doubled over the prior-year period to €3,085 million (previous year: €1,472 million). The Performance Materials segment made a particularly strong contribution to this growth, increasing EBITDA to €2,572 million (previous year: €896 million). The Solutions & Specialties segment’s EBITDA rose by 1.1% to €751 million (previous year: €743 million).

Net Income

In the fiscal year, the financial result stood at €–77 million (previous year: €–91 million) and largely consisted of net interest expense of €41 million (previous year: €47 million). In view of the financial result, income before income taxes rose to €2,185 million (previous year: €605 million). The change in income resulted in the income tax expense increasing to €566 million (previous year: €151 million). After taxes and noncontrolling interests, net income more than tripled over the prior year to €1,616 million (previous year: €459 million).

Return on Capital Employed (ROCE) and Value Contribution

The Covestro Group’s NOPAT totaled €1,676 million (previous year: €522 million), and average capital employed amounted to €8,598 million (previous year: €7,475 million). This triggered an increase in ROCE to 19.5% (previous year: 7.0%). Despite a lower WACC of 6.6% (previous year: 7.3%), the cost of capital rose slightly to €567 million (previous year: €546 million) on account of the increase in average capital employed. Since ROCE was well above the lower WACC, Covestro earned a significant premium over capital costs. The value contribution therefore increased to €1,109 million (previous year: €–24 million).