Business Development of the Covestro Group

Second quarter of 2020

The Group's core volumes decreased by 22.7% in the second quarter of 2020 compared with the prior-year quarter. This was largely due to considerably weaker demand in all segments as a result of the global coronavirus pandemic. The Polyurethanes and Coatings, Adhesives, Specialties segments saw a decline in core volumes of 25.9% and 25.3%, respectively. In the Polycarbonates segment, core volumes fell by 14.4%. Whereas the Group-wide decline in volumes sold in the initial weeks of the second quarter of 2020 was steeper than in the previous year, the downward trend in volumes sold slowed in the second half of the quarter.

Group sales amounted to €2,156 million, down by 32.9% from the prior-year quarter (previous year: €3,211 million). In particular, the decline in total volumes due to a massive coronavirus-driven collapse in demand in all of our main customer industries caused sales to decrease by 22.3%. A lower level of selling prices had an additional negative effect on sales of 9.0%, chiefly due to competition pushing down selling prices in the prior year and lower raw material prices overall in the second quarter of 2020. Exchange rate movements had no notable effect on Group sales. The changes in the portfolio lowered sales by 1.5%.

In the second quarter of 2020, the downturn in sales was significantly more pronounced in the EMLA and NAFTA regions than in the APAC region. This was mainly due to a delay in the effects of the coronavirus pandemic. Whereas the APAC region saw sales drop sharply as early as the first quarter of 2020, sales in the EMLA and NAFTA regions did not begin their steep decline until the second quarter of 2020. At the same time, demand in the APAC region, particularly in China, has recovered somewhat, already making the slowdown in sales in the APAC region much less severe than in the other regions in the second quarter of 2020.

All segments were affected by lower sales in the second quarter of 2020. In the Polyurethanes segment, sales tumbled by 38.7% to €913 million (previous year: €1,489 million), while the Polycarbonates segment saw sales decrease by 27.8% to €648 million (previous year: €898 million). Sales in the Coatings, Adhesives, Specialties segment declined by 28.7% to €443 million (previous year: €621 million).

In the second quarter of 2020, Group EBITDA decreased by 72.8% to €125 million (previous year: €459 million), chiefly due to a downturn in volumes sold in all segments as a result of the coronavirus pandemic. Lower margins, especially in the Polyurethanes segment, also negatively affected earnings. In contrast, factors such as lower selling expenses and administrative costs had a positive impact on earnings.

EBITDA in the Polyurethanes segment slid to minus €24 million (previous year: €172 million) and in the Polycarbonates segment was down by 37.7% to €96 million (previous year: €154 million). In the Coatings, Adhesives, Specialties segment, EBITDA dropped by 60.0% to €60 million (previous year: €150 million).

Depreciation, amortization and impairment losses rose by 4.3% to €193 million in the second quarter of 2020 (previous year: €185 million). This item comprised depreciation and impairment losses on property, plant and equipment of €187 million (previous year: €180 million) and amortization and impairment losses on intangible assets of €6 million (previous year: €5 million).

The Covestro Group’s EBIT declined to minus €68 million in the second quarter of 2020 (previous year: €274 million).

Including the financial result totaling minus €17 million (previous year: minus €23 million), income before income taxes was down from the prior-year quarter to minus €85 million (previous year: €251 million). In contrast to the prior-year quarter's tax expense amounting to €61 million, the second quarter of 2020 saw tax income of €32 million in line with earnings. This resulted in income after taxes of minus €53 million (previous year: €190 million). After noncontrolling interests, net income totaled minus €52 million (previous year: €189 million). Compared with the prior-year quarter, the earnings per share dropped to minus €0.28 (previous year: €1.03).

Cash flows from operating activities increased to €171 million (previous year: €164 million). The decline in EBITDA was mainly offset by lower income tax payments compared with the prior-year quarter as well as lower payments for short-term variable compensation.

In the second quarter of 2020, free operating cash flow rose to €24 million (previous year: minus €55 million). This was chiefly the result of a reduction in cash outflows for additions to property, plant, equipment and intangible assets, which decreased by 32.9% to €147 million (previous year: €219 million).

First half of 2020

The Group's core volumes in the first half of 2020 were down by 13.6%, primarily on account of the effects of the coronavirus pandemic. In the Coatings, Adhesives, Specialties segment and the Polyurethanes segment, volumes dropped by 15.2%, or 14.9%. Core volumes in the Polycarbonates segment fell by 9.8% compared with the prior-year period.

Group sales in the first six months of 2020 were down by 22.7% to €4,939 million (previous year: €6,386 million). This was mainly the result of lower total volumes, which reduced sales by 12.5%. Furthermore, a downturn in selling prices had a negative effect of 9.1%. Changes in exchange rates had a positive effect on sales amounting to 0.3%. In contrast, the change in the portfolio reduced sales by 1.4%.

All segments saw sales decline in the first half of 2020. Sales in the Polyurethanes segment were down by 26.2% to €2,187 million (previous year: €2,965 million), while in the Polycarbonates segment, sales fell by 21.4% to €1,381 million (previous year: €1,758 million), and in the Coatings, Adhesives, Specialties segment, they declined by 18.7% to €1,015 million (previous year: €1,248 million).

The Group’s EBITDA was down by 57.9% from the prior-year period, dropping from €901 million to €379 million in the first half of 2020. This was a result of a decline in earnings in all segments, particularly in the Polyurethanes segment.

Depreciation, amortization and impairment losses rose by 4.7% to €380 million in the first six months of 2020 (previous year: €363 million). This item comprised depreciation and impairment losses on property, plant and equipment of €369 million (previous year: €354 million) and amortization and impairment losses on intangible assets of €11 million (previous year: €9 million).

The Covestro Group’s EBIT fell to minus €1 million in the first half of 2020 (previous year: €538 million).

Including the financial result amounting to minus €56 million (previous year: minus €46 million), income before income taxes declined from the prior-year period to minus €57 million (previous year: €492 million). The tax expense in the first six months of 2019 totaled €122 million, while tax income amounted to €25 million in line with earnings in the first half-year of 2020. This produced income after taxes of minus €32 million (previous year: €370 million). After noncontrolling interests, net income totaled minus €32 million (previous year: €368 million). In the first half of 2020, earnings per share dropped to minus €0.17 (previous year: €2.01).

Cash flows from operating activities were down to €61 million in the first half of 2020 (previous year: €284 million), mostly due to the decline in EBITDA. In contrast, lower income tax payments and lower cash tied up in working capital had a positive effect.

In the first six months of 2020, free operating cash flow fell to minus €225 million (previous year: minus €100 million). The lower cash flows provided by operating activities were contrasted by lower cash outflows for additions to property, plant, equipment and intangible assets of €286 million (previous year: €384 million).