Half-Year Financial Report 2023

Significant Events

Events outside the Company

Challenging Economic Environment

The situation in the European energy markets largely stabilized in the first half of 2023 compared with the volatile full-year 2022, mainly due to a significant decrease in gas prices. This is, however, countered by persistently weak demand, driven especially by lower consumer spending. The adverse macroeconomic conditions affected Covestro primarily by impacting on the volumes sold and the selling price level.

War in Ukraine

The Russian war against Ukraine, which began in February 2022, has had a notable impact on the global economy. However, Covestro’s business situation is not directly affected by the consequences of the war, as Covestro does not operate any sites in the countries affected by the war (Russia, Belarus, and Ukraine). As in the previous year, the sanctions imposed on Russia and Belarus by the international community therefore affected Covestro’s business only indirectly.

Events within the Company

Business in Europe, the Middle East, and Africa to Be Centralized at the Leverkusen Site

In line with its Sustainable Future strategy and Group-wide initiatives to increase operating effectiveness and efficiency, Covestro is planning to manage the business in Europe, the Middle East, and Africa centrally from Leverkusen (Germany) in the future. As a consequence, Covestro International SA, based in Fribourg (Switzerland), is expected to be closed down by the middle of fiscal 2024. The relocation is not expected to have any effects on the Group’s sales activities or sales. The main factors in the second quarter of 2023 were a net tax expense of €29 million and provisions for restructuring of €14 million.

Sale of Additive Manufacturing Business

As of April 3, 2023, Covestro successfully completed the sale of the additive manufacturing business of the Solutions & Specialties segment to Stratasys, a U.S.-Israeli manufacturer of 3D printers and 3D production systems. The sale resulted in an inflow of purchase price payments of €50 million for Covestro in the second quarter of 2023; the net gain on the disposal amounted to €35 million. In addition, a variable earn-out payment has been agreed, which will depend on the achievement of various success factors and will be determined in the year 2025.

Operations Start at New Chlorine Plant in Tarragona

In February 2023, Covestro successfully commissioned a new large-scale plant for the manufacture of chlorine in Tarragona (Spain). It is the world’s first industrial-scale production plant using the innovative and energy-efficient oxygen-depolarized cathode technology developed by Covestro and partners. The new plant guarantees efficient, continuous, and independent supplies of chlorine for the diphenylmethane diisocyanate (MDI) production in Tarragona, thus strengthening the European MDI production network.

Maezio® Product Line to be Discontinued

As part of its continuous Group-wide activities to optimize the portfolio, Covestro will in the future align the Engineering Plastics business entity in the Solutions & Specialties segment with its core business. As a result, the Board of Management has resolved that the manufacture of the highly specialized Maezio® products, and therefore the operations at the production site in Markt Bibart (Germany), will be discontinued. In this context, impairment losses of €30 million were recognized on goodwill, intangible assets, and property, plant and equipment in the first half of 2023, and personnel-related provisions and valuation allowances on inventories of €7 million were recognized through profit or loss.

Changes in the Board of Management

Chief Technology Officer Dr. Klaus Schäfer retired from the company as of June 30, 2023. His successor, Dr. Thorsten Dreier, takes on responsibility for the corporate functions of Process Technology; Engineering; Group Health, Safety and Environment; and Group Procurement as of July 1, 2023.

In February 2023, Chief Financial Officer (CFO) and Labor Director Dr. Thomas Toepfer requested the early termination of his contract, which was due to expire on March 31, 2026, to pursue a new role as CFO at the European aircraft manufacturer Airbus. The Supervisory Board of Covestro AG acceded to this request, and Dr. Thomas Toepfer will leave the company as of August 31, 2023. Until then, he will continue his work as CFO and Labor Director to the full extent. The Supervisory Board immediately initiated the search for a successor.

Financing Measures

Share Buyback Program

On February 28, 2022, Covestro AG’s Board of Management resolved a share buyback program totaling around €500 million (excluding transaction costs), which was launched in March 2022 and is expected to be completed within two years. All repurchased shares are subsequently expected to be retired and the capital stock reduced accordingly. Following the resumption of the program in May 2023, 1,208,035 shares with a total value of €49 million were bought back during the third tranche in the second quarter of 2023. By June 30, 2023, Covestro AG had acquired a total of 4,687,991 shares valued at €199 million in three tranches.

Issuance of Schuldschein Loans

On October 7, 2022, Covestro for the first time issued Schuldschein loans with a total volume equivalent to around €650 million, of which the remaining €100 million was transferred to Covestro in the first quarter of 2023. Linked to an ESG rating, these Schuldschein loans were issued in tranches comprising fixed and variable interest rates with terms of three, five, and seven years.

MDI / Diphenylmethane Diisocyanate
A chemical compound from the class of aromatic isocyanates, primarily used in polyurethane foams.