Business Development of the Covestro Group

Second quarter of 2019

The Group’s core volumes in the second quarter of 2019 rose by 1.1% compared with the prior-year quarter, in particular due to the performance of the Polycarbonates segment, which increased its volumes by 4.4%. Core volume growth in the Polyurethanes segment amounted to 0.7%, whereas volumes in the Coatings, Adhesives, Specialties segment declined by 4.7%.

Group sales amounted to €3,211 million, down 16.9% from the prior-year quarter (previous year: €3,863 million). This was mainly due to lower selling prices, which had a negative effect on sales of 18.7%. Total volumes remained at the level of the prior-year quarter. Exchange rate movements had a positive effect of 1.8% on Group sales. In addition, the change in the portfolio reduced sales by 0.8%. In terms of sales in the second quarter of 2019, the sale of the U.S. sheet business in the third quarter of 2018 had a negative effect, and the step acquisition of shares of Japan-based DIC Covestro Polymer Ltd. in the second quarter of 2019 had a positive effect.

All segments were affected by the drop in sales in the second quarter of 2019. Sales in the Polyurethanes segment decreased 24.3% to €1,489 million (previous year: €1,966 million), and in the Polycarbonates segment they were down 15.0% to €898 million (previous year: €1,056 million). In the Coatings, Adhesives, Specialties segment, sales decreased 1.3% to €621 million (previous year: €629 million).

In the second quarter of 2019, the Group’s EBITDA was down 53.4% to €459 million (previous year: €985 million). The decline in earnings resulted mainly from lower margins in the Polyurethanes and Polycarbonates segments. In contrast, higher volumes, a decrease in provisions for short-term, variable compensation, and the effects of applying the new financial reporting standard IFRS 16 (Leases) had a positive effect on earnings. In addition, earnings were also improved by the one-time gain from the remeasurement of the shares of DIC Covestro Polymer Ltd., which were previously recognized according to the equity method.

EBITDA in the Polyurethanes segment dropped 70.5% to €172 million (previous year: €583 million), and in the Polycarbonates segment it was down 46.0% to €154 million (previous year: €285 million). In the Coatings, Adhesives, Specialties segment, EBITDA rose 7.9% to €150 million (previous year: €139 million).

Depreciation, amortization, impairments and impairment loss reversals increased by 16.4% to €185 million in the second quarter of 2019 (previous year: €159 million). They comprised €180 million (previous year: €153 million) in depreciation and impairments of property, plant and equipment and €5 million (previous year: €6 million) in amortization and impairments of intangible assets.

In the second quarter of 2019, the Covestro Group’s EBIT was down 66.8% to €274 million (previous year: €826 million).

Taking into account a financial result of minus €23 million (previous year: minus €27 million), income before income taxes decreased to €251 million, compared with €799 million in the prior-year quarter. After tax expense of €61 million (previous year: €193 million), which declined in line with earnings, income after income taxes was €190 million (previous year: €606 million). After noncontrolling interests, net income amounted to €189 million (previous year: €604 million). Compared with the prior-year quarter, the earnings per share dropped to €1.03 (prior year: €3.07).

Operating cash flows decreased to €164 million (previous year: €517 million) despite lower income tax payments, largely on account of lower EBITDA.

Free operating cash flow declined to minus €55 million in the second quarter of 2019 (previous year: €364 million). This decrease was due to lower cash outflows from operating activities and the increase in cash outflows for additions to property, plant, equipment and intangible assets, which rose 43.1% to €219 million (previous year: €153 million).

First half of 2019

In the first half of 2019, the Group’s core volume growth was negative at minus 0.4%. The Polyurethanes segment saw growth of 0.3%, whereas volumes in the Polycarbonates and Coatings, Adhesives, Specialties segments fell 1.0% and 2.4%, respectively, compared with the prior-year period.

Compared with the prior-year period, Group sales dropped 16.4% to €6,386 million in the first six months of 2019 (previous year: €7,642 million). The decline in sales resulted chiefly from an overall decrease of 18.5% in selling prices. In the Polycarbonates and Polyurethanes segments in particular, selling prices were significantly below the prior-year period. In contrast, total volumes remained at the previous year’s level. Exchange rate movements had a positive impact of 2.1%, but the change in the portfolio reduced sales by 0.9%.

In the Polyurethanes and Polycarbonates segments, sales were down in the first six months of 2019. Sales in the Polyurethanes segment declined 24.3% to €2,965 million (previous year: €3,916 million), and in the Polycarbonates segment sales decreased 15.8% to €1,758 million (previous year: €2,089 million). However, sales in the Coatings, Adhesives, Specialties segment rose 2.2% to €1,248 million (previous year: €1,221 million).

The Group’s EBITDA fell 56.0% from the prior-year period, dropping from €2,048 million to €901 million in the first half of 2019. This was a result of lower earnings in the Polyurethanes and Polycarbonates segments.

Depreciation, amortization, impairment and impairment loss reversals increased by 15.2% to €363 million (previous year: €315 million) in the first half of 2019. They comprised €354 million (previous year: €304 million) in depreciation and impairments of property, plant and equipment and €9 million (previous year: €11 million) in amortization and impairments of intangible assets.

In the first six months of 2019, the Covestro Group’s EBIT slid 69.0% to €538 million (previous year: €1,733 million).

Taking into account a financial result of minus €46 million (previous year: minus €55 million), income before income taxes decreased to €492 million, compared with €1,678 million in the prior-year period. After tax expense of €122 million (previous year: €426 million), which declined in line with earnings, income after income taxes was €370 million (previous year: €1,252 million). After noncontrolling interests, net income amounted to €368 million (previous year: €1,248 million). Earnings per share dropped to €2.01 (previous year: €6.31).

Operating cash flows sank to €284 million in the first six months of 2019 (previous year: €969 million). This is mostly due to the decline in EBITDA, which could not be balanced out by lower income tax payments and reduced funds tied up in working capital.

Free operating cash flow declined to minus €100 million (previous year: €728 million) in the first half of 2019. In addition to lower cash flows from operating activities, cash outflows for additions to property, plant, equipment and intangible assets rose to €384 million (previous year: €241 million).