Financial Position and Net Assets of the Covestro Group

Financial Position

Cash flows from operating activities

In the second quarter of 2020, cash flows from operating activities rose to €171 million (previous year: €164 million). An increase in freed-up working capital and lower income tax payments were able to more than offset a decline in EBITDA. After deduction of cash outflows for additions to property, plant, equipment and intangible assets, free operating cash flow totaled €24 million (previous year: minus €55 million).

At €61 million, cash flows from operating activities in the first six months of 2020 fell below the prior-year figure of €284 million. After deduction of cash outflows for additions to property, plant, equipment, and intangible assets totaling €286 million (previous year: €384 million), free operating cash flows amounted to minus €225 million (previous year: minus €100 million).

Covestro applied a simplification rule at the segment level in calculating the income taxes paid as a component of operating cash flows.

The difference between the income tax payments of the reportable operating segments and the actual income taxes paid by the Covestro Group are taken into account in the segment reporting in “Other/consolidation”. Cash flows from operating activities of €61 million comprise the cash flows from operating activities of the reportable operating segments (PUR: minus €79 million, PCS: €103 million, CAS: €134 million) and “Other/consolidation” (minus €97 million), which includes a difference of minus €92 million.

Cash flows from investing activities

In the second quarter of 2020, cash outflows for investing activities came to €660 million (previous year: cash outflows of €184 million). This item comprised investments in money market funds of €530 million and cash outflows for additions to property, plant, equipment and intangible assets of €147 million (previous year: €219 million).

Cash outflows for investing activities in the first half of 2020 totaled €792 million (previous year: cash outflows of €373 million). This item mainly comprises the investment in the aforementioned money market funds as well as cash outflows for additions to property, plant, equipment and intangible assets of €286 million (previous year: €384 million).

Cash flows from financing activities

The Covestro Group saw cash inflows from financing activities amounting to €795 million in the second quarter of 2020 (previous year: cash outflows of €109 million), mainly due to the issue of bonds totaling €1 billion. Furthermore, Covestro repaid a loan amounting to €125 million obtained in the first quarter of 2020.

In the first six months of 2020, cash inflows from financing activities totaled €1,494 million (previous year: cash outflows of €143 million). These comprise short-term loans assumed in the first quarter of 2020 in the total amount of €500 million, €125 million of which was repaid in the second quarter of 2020; a loan from the European Investment Bank (EIB) amounting to €225 million; and the aforementioned bonds issued in the second quarter of 2020 (see below the explanation of net financial debt).

Compared with December 31, 2019, the Covestro Group’s net financial debt increased by €305 million to €1,294 million as of June 30, 2020.

Financial debt in the first  half of 2020 rose by €1,591 million to €3,328 million. The rise was attributable to increased liabilities to banks from short-term loans obtained in the first quarter of 2020 totaling €500 million and a loan from the EIB totaling €225 million for research and development. The focus here is, in particular, on sustainability and the circular economy in the European Union. On June 5, 2020, Covestro also successfully placed a total of €1.0 billion in euro bonds on the capital market. This enables Covestro to significantly extend the average maturity of the bond portfolio. The proceeds of the bonds placed will be used to further reinforce Covestro's liquidity in view of the economic effects of the coronavirus pandemic and to provide liquid funds to repay the existing bond maturing in fiscal 2021. The bonds mature in February 2026 and June 2030 and carry coupon rates of 0.875% and 1.375%, respectively. On the other hand, a €125 million loan from the first quarter of 2020 was repaid.

Moreover, cash and cash equivalents of €530 million were invested in money market funds.

Effective March 17, 2020, Covestro obtained a new syndicated revolving credit facility totaling €2.5 billion with a term of five years, including two options for extending the term by one year in each case. An important new feature of the credit line is its link to an ESG (environment, social, governance) rating: The lower (higher) the externally calculated ESG score is, the lower (higher) the interest component of the credit facility. The new facility replaces the existing revolving credit line of €1.5 billion and, like it, functions as a backup liquidity reserve.

Net Assets

Compared with December 31, 2019, total assets increased by €971 million to €12,489 million as of June 30, 2020.

Noncurrent assets remained largely stable at €6,774 million (December 31, 2019: €6,791 million). Current assets increased by €988 million to €5,715 million (December 31, 2019: €4,727 million), mostly due to an increase in cash and cash equivalents resulting from the aforementioned financing measures as well as the investment in money market funds, which led to an increase in other financial assets. In the second quarter of 2020, these increases stood in contrast to a sales-driven decline in trade accounts receivable and other receivables.

Equity remained stable compared to December 31, 2019, at €5,254 million.

Noncurrent liabilities rose by €1,086 million to €5,215 million as of June 30, 2020 (December 31, 2019: €4,129 million). This is largely attributable to the increase in noncurrent financial liabilities by €1,216 million to €2,817 million (December 31, 2019: €1,601 million), which resulted from the newly issued euro bonds and the loan obtained from the EIB. In contrast, provisions for pensions and other post-employment benefits were down by €84 million to €1,881 million (December 31, 2019: €1,965 million). Current liabilities fell by €115 million to €2,020 million as of the reporting date (December 31, 2019: €2,135 million). The drivers of this development were the decline in trade accounts payable, which stood in contrast with the increase in current financial liabilities resulting from the short-term loans obtained.