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

Financial Position

Cash Flows from Operating Activities/Free Operating Cash Flow

In the second quarter of 2023, net cash inflows from the Covestro Group’s operating activities amounted to €149 million (previous year: net cash outflows of €272 million). A decline in EBITDA was more than offset by a smaller amount of cash tied up in working capital and lower income tax payments. In the prior-year quarter, the change in working capital had been impacted especially by the payment of short-term variable compensation for fiscal 2021. No short-term variable compensation was paid for fiscal 2022. After deduction of cash outflows of €159 million for additions to property, plant and equipment and intangible assets (previous year: €190 million), free operating cash flow in the second quarter of 2023 totaled €–10 million (previous year: €–462 million).

Cash flows from operating activities in the first half of 2023 accounted for net inflows of €130 million (previous year: cash outflows of €115 million). A decline in cash tied up in working capital and lower income tax payments more than offset the drop in EBITDA. After deduction of cash outflows of €279 million for additions to property, plant and equipment and intangible assets (previous year: €330 million), free operating cash flow totaled €–149 million (previous year: €–445 million).

Cash Flows from Investing Activities

Net cash outflow for investing activities in the second quarter of 2023 totaled €179 million (previous year: net cash inflow of €233 million). This was mainly attributable to cash outflows of €159 million (previous year: €190 million) for additions to property, plant and equipment and intangible assets and net outflows of €85 million for short-term bank deposits (previous year: net proceeds of €420 million). This was set against cash received in an amount of €50 million from the sale of the additive manufacturing business to Stratasys, a U.S.-Israeli manufacturer of 3D printers and 3D production systems, as well as an inflow of €39 million from the partial reversal of the tranche of the initial funding loan drawn down in December 2022, as announced by the pension fund.

In the first half of 2023, the net cash outflow from investing activities totaled €458 million (previous year: net cash inflow of €154 million). This was mainly attributable to cash outflows of €279 million (previous year: €330 million) for additions to property, plant and equipment and intangible assets and net outflows of €272 million for short-term bank deposits (previous year: net proceeds of €374 million). This was offset in particular by the above-mentioned cash inflows from divestitures.

Cash Flows from Financing Activities

In the second quarter of 2023, the Covestro Group’s net cash outflow for financing activities totaled €173 million (previous year: €276 million), mainly due to debt repayments of €121 million. The main drivers here were repayments of current liabilities to banks of €60 million in China and lease payments of €38 million. In addition, the third tranche of the share buyback program led to cash outflows of €49 million in the second quarter of 2023 (previous year: €102 million).

• See “Share Buyback Program.”
• See note 8 “Financial Instruments” in the Notes to the Consolidated Interim Financial Statements.

In the first half of 2023, financing activities gave rise to a cash outflow of €126 million (previous year: €381 million). The main factors driving these cash flows related to the repayment of a loan of Covestro AG in an amount of €125 million, lease payments of €78 million, and interest payments of €68 million. In addition, the above-mentioned current liabilities to banks in China and the third tranche of the share buyback program led to cash outflows. This was set against cash inflows of €149 million, primarily from current liabilities to banks in China, and cash inflows of €100 million from the Schuldschein loans.

Financial debt grew by €143 million compared with the figure on December 31, 2022, to €3,790 million as of June 30, 2023. In addition to the increase of €56 million in liabilities to banks, this was also due to a rise of €32 million in lease liabilities. The rise in liabilities to banks was due to the Schuldschein loan referred to above and the net increase in current liabilities to banks in China in an amount of €82 million. The repayment of the loan of Covestro AG had an offsetting effect.

Cash and cash equivalents decreased in comparison with the figure on December 31, 2022, by €457 million to €741 million. This was mainly due to cash outflows for additions to property, plant and equipment and intangible assets of €279 million and net outflows for short-term bank deposits of €272 million. Conversely, higher cash flows from operating activities led to a €130 million increase in cash and cash equivalents. The net cash outflows for short-term bank deposits drove up current financial assets by €272 million to €287 million.

In comparison with December 31, 2022, the Covestro Group’s net financial debt rose by €328 million to €2,762 million as of June 30, 2023.