Results of Operations and Financial Position of the Covestro Group

Results of operations

The results of operations continued to be impacted by the consequences of the coronavirus pandemic in the third quarter of 2020. In the course of the quarter, we saw demand for our products recover, albeit to different degrees in various regions and industries.

The Group's core volumes sold increased by 3.0% in the third quarter of 2020 compared with the prior-year quarter. After a substantial decline in volumes in the second quarter of 2020, the third quarter saw a strong recovery driven by volume growth in the APAC region and especially in China. The Polyurethanes and Polycarbonates segments reported increases in core volumes sold of 4.3% and 3.6%, respectively. In the Coatings, Adhesives, Specialties segment, core volumes sold dropped 6.9% from the prior-year quarter.

Group sales amounted to €2,760 million, down 12.7% from the prior-year quarter (previous year: €3,162 million). The main factor here was a decline in selling prices, which had a negative impact of 9.0% on sales. This development was chiefly due to the increased competitive pressure in the Polyurethanes and Polycarbonates segments. Total volumes sold lifted sales slightly, by 1.0%. Exchange rate movements had a negative impact of 3.3% on sales, primarily because of the development of the U.S. dollar and the Chinese renminbi. In addition, the change in the portfolio resulted in an overall reduction in sales of 1.4%: The sale of the European polyurethane systems house business in the fourth quarter of 2019 as well as the European polycarbonate sheets business in the first quarter of 2020 adversely affected third quarter sales in 2020.

All segments saw sales decline in the third quarter of 2020. In the Polyurethanes segment, sales sank 11.0% to €1,315 million (previous year: €1,478 million), while the Polycarbonates segment’s sales decreased 11.1% to €801 million (previous year: €901 million). Sales in the Coatings, Adhesives, Specialties segment declined by 15.8% to €495 million (previous year: €588 million).

The Group’s EBITDA improved by 7.3% to €456 million in the third quarter of 2020 (previous year: €425 million), primarily due to a lower level of costs attributable mainly to cost-cutting measures. In addition, the decline in selling prices compared with the previous year was largely balanced out by lower raw material prices. The effect of total volumes sold reduced earnings, however, chiefly on account of a decrease in non-core volumes sold.

In contrast to the decline in sales, EBITDA rose by 12.2% in the Polyurethanes segment to €220 million (previous year: €196 million) and by 12.1% in the Polycarbonates segment to €148 million (previous year: €132 million). EBITDA in the Coatings, Adhesives, Specialties segment was down by 10.8% to €99 million (previous year: €111 million).

The Covestro Group's EBIT was up by 19.9% to €265 million in the third quarter of 2020 (previous year: €221 million).

Financial position

Operating cash flows increased compared with the prior-year quarter, rising 16.5% to €538 million (previous year: €462 million). The key driver here was the improvement in EBITDA. Whereas effects from changes in working capital remained almost neutral, lower income tax payments had a positive effect.

Free operating cash flow rose by 48.6% in the third quarter of 2020 to €361 million (previous year: €243 million). This development resulted from an increase in operating cash flows and reduced cash outflows for additions to property, plant and equipment, as planned.

In comparison with December 31, 2019, the Covestro Group’s financial debt increased by €1,183 million to €2,920 million as of September 30, 2020. The increase was due to the assumption of a loan from the European Investment Bank (EIB) in the first quarter of 2020 in the amount of €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. Short-term loans assumed in the first quarter of 2020 totaling €500 million were repaid in full by the end of the third quarter of 2020.

In contrast, current financial assets increased to €593 million. These were held in the form of money market funds totaling €428 million and short-term bank deposits amounting to €165 million.