Opportunities and Risks

Geopolitical risks ramped up considerably in the first quarter of 2022, particularly due to the war waged by Russia against Ukraine. This conflict has the potential to negatively affect the supply of crude oil as well as natural gas and result in a significant increase in the prices of energy and petrochemical derivatives, the most important raw materials for our products. In contrast to the presentation in the Annual Report 2021, we have therefore identified another material individual risk for Covestro in the risk category production/value chain. If supplies of natural gas were to become scarce or halt entirely, this could necessitate the closure of certain production facilities, entire plants or product lines in the EMLA region. This could in turn result in production outages of certain chemical precursors, intermediates and by-products that are needed at other sites in the region.

In particular, the increasingly tight economic sanctions and export controls imposed on Russia and certain Russian companies and individuals as well as the associated countermeasures by the governments of Russia and other countries have sharply curtailed economic activity in these countries. Moreover, they have amplified volatility and uncertainty on global financial markets and have had an adverse impact on the business activities of Covestro’s customers. The economic sanctions and export controls may exacerbate the growing inflationary trend, further increase energy and raw material prices and negatively affect global supply chains. The impact of volatility in energy and raw material prices on sales and EBITDA depend on the extent to which Covestro is in the position to pass higher raw material prices on to customers through higher selling prices without notable delays. This ability depends primarily on a stable demand situation.

Several teams of experts in the company are monitoring the current situation closely, studying the consequences of the war in detail and working on mitigation plans. The possible impacts are being analyzed continually, and these analyses are integrated into existing processes to also monitor factors such as risk bearing capacity.

As a result of the assessment of the aforementioned risks as well as with regard to the Covestro Group’s other opportunity or risk factors, no material changes have been made to the presentation of risk categories in the Annual Report 2021. At the time this Quarterly Statement was prepared, there were no risks that could endanger the Group’s continued existence.