Report on Economic Position – Results of Operations, Financial Position, and Net Assets of the Covestro Group

Results of Operations

Quarterly sales

€ million

Quarterly EBITDA

€ million

Sales

Group sales declined by 20.0% in fiscal 2023, to €14,377 million (previous year: €17,968 million). This was mainly due to a drop in the selling price level, which had a negative impact on sales of 11.0%, as well as to lower volumes sold, which had a negative effect on sales of 6.8%. Both drivers were the result of weak demand worldwide. Furthermore, exchange rate movements had a sales-reducing effect of 2.2%.

Sales in both segments were down in fiscal 2023. In the Performance Materials segment, sales fell 24.4% to €6,876 million (previous year: €9,095 million), while the Solutions & Specialties segment’s sales decreased 15.1% to €7,267 million (previous year: €8,558 million).

In the EMLA region, sales were down 21.8% to €5,941 million (previous year: €7,600 million). Sales dropped by 19.5% to €3,735 million (previous year: €4,639 million) in the NA region, and by 17.9% to €4,701 million (previous year: €5,729 million) in the APAC region.

Sales by segment and region

€ million, prior-year figures in brackets

EBIT

There was a 21.6% decrease in cost of goods sold – especially due to lower raw material and energy costs, a decline in impairment losses on property, plant and equipment, and a lower level of fixed costs – to €12,071 million (previous year: €15,404 million); as a result, the ratio of cost of goods sold to sales went down to 84.0% (previous year: 85.7%).

Gross profit fell 10.1% to €2,306 million (previous year: €2,564 million). This was primarily driven by a decline in selling prices, which was only partially offset by the drop in raw material and energy prices. In addition, the decline in total volumes sold and negative effects from exchange rate movements reduced earnings. On the other hand, lower impairment losses had a beneficial effect on earnings.

Selling expenses were down by 7.2% to €1,489 million (previous year: €1,604 million). The ratio of selling expenses to sales was 10.4% (previous year: 8.9%). Research and development (R&D) expenses were up 3.6% to €374 million (previous year: €361 million). As a share of sales, this produced an R&D ratio of 2.6% (previous year: 2.0%). General administration expenses were up 2.0% to €360 million (previous year: €353 million), for a ratio of administration expenses to sales of 2.5% (previous year: 2.0%).

Higher provisions for variable compensation had the effect of lowering earnings by €166 million.

Other operating income exceeded other operating expenses by €103 million (previous year: €21 million). The year-over-year change reflects, for example, the sale of the additive manufacturing business of the Solutions & Specialties segment, which had a positive effect on earnings in an amount of €35 million.

EBIT declined 30.3% to €186 million (previous year: €267 million). The EBIT margin retreated to 1.3% (previous year: 1.5%).

EBITDA

Depreciation, amortization, impairment losses, and impairment loss reversals decreased by 33.8% to €894 million in fiscal 2023 (previous year: €1,350 million), of which €801 million (previous year: €1,194 million) was attributable to property, plant and equipment and €93 million (previous year: €156 million) to intangible assets. The decline was mainly driven by lower impairment losses of €45 million (previous year: €463 million). There were no reversals of impairment losses (previous year: €1 million).

EBITDA decreased 33.2% year-over-year in the full-year period, declining to €1,080 million (previous year: €1,617 million). This was mainly attributable to the 39.4% fall in EBITDA, to €576 million (previous year: €951 million), in the Performance Materials segment. The Solutions & Specialties segment’s EBITDA was down 1.0% to €817 million (previous year: €825 million).

Net Income

In the fiscal year under review, the financial result stood at €–113 million (previous year: €–137 million) and largely consisted of net interest expense of €90 million (previous year: €61 million). In view of the financial result, income before income taxes went down to €73 million (previous year: €130 million). Income tax expense amounted to €275 million (previous year: €411 million). It includes impairment losses of €42 million (previous year: €64 million) on deferred tax assets arising from loss carryforwards and temporary differences. Furthermore, deferred tax assets arising from loss carryforwards and temporary differences of €197 million (previous year: €191 million) could not be recognized in the fiscal year. After income taxes and noncontrolling interests, the net loss amounted to €198 million (previous year: €272 million).

Return on Capital Employed (ROCE) above Weighted Average Cost of Capital (WACC)

The Covestro Group’s NOPAT totaled €139 million (previous year: €200 million), and average capital employed amounted to €9,550 million (previous year: €9,785 million). The resulting ROCE was 1.5% (previous year: 2.0%), significantly lower than the increased WACC of 7.6% (previous year: 7.0%).

• Additional information on the calculation of indicators is available in “Key Management Indicators.”