Results of Operations and Financial Position of the Covestro Group

Results of Operations

Business picked up again considerably in the first quarter of 2021 after the initial effects of the coronavirus pandemic led to a decline in demand in the prior-year quarter, particularly in the APAC region. As a result, the Group’s core volumes sold increased by 5.3%. In the automotive and transportation industry and the electrical, electronics and household appliances industry, growth was particularly significant. This is attributable mainly to a strong resurgence in demand in the APAC region, where a massive drop in volumes was recorded in the prior-year quarter due to the coronavirus pandemic. However, our growth opportunities in the quarter under review were limited due to unplanned weather-related production stoppages in the NA region and raw material bottlenecks, which led to an overall reduction in product availability. Core volumes sold in the Polyurethanes and Polycarbonates segments rose by 2.5% and 11.6%, respectively. In the Coatings, Adhesives, Specialties segment, core volumes sold were up by 7.1% over the prior-year quarter.

In the first quarter of 2021, Group sales were up by 18.8% to €3,307 million (previous year: €2,783 million). The main factors contributing to this result included a rise in average selling prices, which had a positive effect on sales amounting to 20.2%. This development was mainly driven by the advantageous competitive situation in the Polyurethanes and Polycarbonates segments. Total volumes sold had a positive effect on sales of 3.4%, while exchange rate movements had a negative impact amounting to 4.8%.

In the Polyurethanes segment, sales rose by 30.7% to €1,665 million (previous year: €1,274 million), and the Polycarbonates segment’s sales grew by 21.3% to €889 million (previous year: €733 million). In the Coatings, Adhesives, Specialties segment, sales increased by 4.0% to €595 million (previous year: €572 million).

The Group’s EBITDA in the first quarter of 2021 improved to €743 million (previous year: €254 million), largely on account of a considerably higher selling price level. Also contributing positively to earnings were the effect of total volumes sold and lower selling and general administrative costs, which were achieved mainly by implementing cost-cutting measures. Higher provisions for variable compensation and a temporary increase in cost of goods sold, mainly due to unplanned production stoppages, reduced earnings.

In the Polyurethanes segment, EBITDA rose to €443 million (previous year: €50 million), and the Polycarbonates segment’s EBITDA grew to €222 million (previous year: €109 million). In the Coatings, Adhesives, Specialties segment, EBITDA decreased by 12.3% to €114 million (previous year: €130 million).

The Covestro Group’s EBIT increased to €556 million in the first quarter of 2021 (previous year: €67 million).

Financial Position

At €428 million, cash flows from operating activities were up from the prior-year quarter (previous year: €–110 million), largely due to an increase in EBITDA. At the same time, lower income tax payments and an overall reduction in funds tied up in working capital compared with the prior-year quarter had a positive effect.

Free operating cash flow rose to €318 million in the first quarter of 2021 (previous year: €–249 million). This is attributable to the increase in cash flows from operating activities and reduction in cash outflows for additions to property, plant and equipment compared with the prior-year quarter.

In comparison with December 31, 2020, the Covestro Group’s financial debt increased slightly by €25 million to €2,911 million as of March 31, 2021.

Cash and cash equivalents rose in comparison with the figure on December 31, 2020, by €702 million to €2,106 million. In addition to positive cash flows from operating activities of €428 million, this was the result of short-term bank deposits totaling €355 million maturing and the sale of money market fund units totaling €61 million. In contrast, cash outflows for additions to property, plant, equipment and intangible assets at €110 million reduced cash and cash equivalents. This led to an overall drop in current financial assets by €416 million to €710 million.

The increased balance of cash and cash equivalents at the end of the quarter is earmarked for financing the price of acquiring the Resins & Functional Materials (RFM) business from Koninklijke DSM N.V., Heerlen (Netherlands).
See “Acquisitions.“

Net financial debt declined by €261 million compared with the figure on December 31, 2020, to €95 million as of March 31, 2021.