Results of Operations and Financial Position of the Covestro Group

Results of Operations

The business situation in the third quarter of 2021 improved further over the prior-year quarter, a development reflected above all in sales and earnings.

Core volumes sold by the Group saw year-over-year growth of 0.8%, mainly due to additional volumes from the the Resins & Functional Materials (RFM) business acquired from Koninklijke DSM N.V., Heerlen (Netherlands). However, our growth opportunities in the current quarter were curtailed by reduced product availability. Core volumes sold in the Performance Materials segment dropped by 11.6%, although core volumes sold were up 22.7% in the Solutions & Specialties segment.

In the third quarter of 2021, Group sales grew by 55.9% to €4,302 million (previous year: €2,760 million). The main factors here were higher average selling prices, which had a positive impact on sales amounting to 43.8%. Moreover, the portfolio change arising from the acquisition of the RFM business in the second quarter of 2021 and exchange rate movements had positive effects on sales of 10.5% and 1.6%, respectively. Changes in total volumes sold had no notable effect on sales.

In the third quarter of 2021, sales rose by 52.2% to €2,186 million (previous year: €1,436 million) in the Performance Materials segment and 60.6% to €2,069 million (previous year: €1,288 million) in the Solutions & Specialties segment.

The Group’s EBITDA in the third quarter of 2021 improved by 89.0% to €862 million (previous year: €456 million), largely on account of significantly higher margins in the Performance Materials segment. This was mainly due to an advantageous competitive situation and a higher selling price level, which more than offset the rise in raw material prices. However, higher provisions for variable compensation reduced earnings.

EBITDA in the Performance Materials segment increased to €755 million (previous year: €288 million). In the Solutions & Specialties segment, EBITDA was down to €173 million (previous year: €207 million).

The Covestro Group’s EBIT increased to €654 million in the third quarter of 2021 (previous year: €265 million).

Financial Position

Cash flows from operating activities increased compared with the prior-year quarter, rising to €564 million (previous year: €538 million). A higher EBITDA was the main factor here. Funds were tied up in working capital in contrast to funds freed up in the prior-year quarter. This, along with higher income tax payments, had a negative effect.

Free operating cash flow was up, amounting to €381 million in the third quarter of 2021 (previous year: €361 million), largely due to higher cash flows from operating activities.

The Covestro Group’s financial debt decreased by €414 million as of December 31, 2020, to €2,472 million as of September 30, 2021. This was mainly due to the early repayment of the €500 million euro bond maturing in October 2021.

Cash and cash equivalents declined in comparison with the figure on December 31, 2020, by €908 million to €496 million. This development was driven primarily by the net purchase price payments for the acquisition of the Resins & Functional Materials (RFM) business amounting to €1,469 million and the early repayment of the aforementioned bond. Moreover, cash and cash equivalents declined on account of cash outflows for additions to property, plant, equipment, and intangible assets of €472 million and dividend payments of €259 million. In contrast, positive cash flows from operating activities of €1,545 million, the net sale of money market fund units of €270 million, and net proceeds of short-term bank deposits of €136 million increased cash and cash equivalents. The redemption of short-term bank deposits and net sale of money market fund units in particular decreased current financial assets, which were down €406 million to €720 million.

Net financial debt grew by €900 million compared with the figure on December 31, 2020, to €1,256 million as of September 30, 2021.