Report on Economic Position – Results of Operations, Financial Position, and Net Assets of the Covestro Group

Results of Operations

Covestro Group
Quarterly sales

€ million

Covestro Group
Quarterly EBITDA

€ million

Sales

In fiscal 2022, Group sales were up by 13.0% to €17,968 million (previous year: €15,903 million), the highest ever recorded in Group’s history. This was mainly due to a considerably higher selling price level, which had a positive impact on sales amounting to 10.1%. Moreover, changes in exchange rates had a positive effect of 5.9% on sales. The portfolio change resulting from the acquisition of the Resins & Functional Materials (RFM) business from Koninklijke DSM N.V., Heerlen (Netherlands), in the second quarter of 2021 had the effect of increasing sales by 2.0%. In contrast, the change in total volumes sold had a negative effect of 5.0% on sales.

Sales in both segments were up in fiscal 2022. In the Performance Materials segment, sales rose 11.7% to €9,095 million (previous year: €8,142 million), while the Solutions & Specialties segment’s sales increased 13.3% to €8,558 million (previous year: €7,554 million).

In the EMLA region, sales climbed by 10.5% to €7,600 million (previous year: €6,876 million). Sales rose by 30.6% to €4,639 million (previous year: €3,553 million) in the NA region, and by 4.7% to €5,729 million (previous year: €5,474 million) in the APAC region.

Sales by segment and region

€ million, prior-year figures in brackets

EBIT

There was a 34.2% rise in cost of goods sold – especially due to higher raw material and energy costs and the impairment losses on property, plant and equipment – to €15,404 million (previous year: €11,475 million); as a result, the ratio of cost of goods sold to sales increased to 85.7% (previous year: 72.2%).

Gross profit fell 42.1% to €2,564 million (previous year: €4,428 million), driven by the above-mentioned increase in raw material and energy costs, which could be passed on to customers only in part, the impairment losses mentioned earlier, and a decline in total volumes sold. On the other hand, the rise in the selling price level and positive effects of exchange rate movements boosted earnings.

Selling expenses were up 12.3% to €1,604 million (previous year: €1,428 million); the figure included impairment losses on intangible assets in the reporting year. The ratio of selling expenses to sales was 8.9% (previous year: 9.0%). Research and development (R&D) expenses were up 5.9% to €361 million (previous year: €341 million). As a share of sales, this produced an R&D ratio of 2.0% (previous year: 2.1%). General administration expenses were down 14.9% to €353 million (previous year: €415 million), for a ratio of administration expenses to sales of 2.0% (previous year: 2.6%).

Lower provisions for variable compensation of €472 million boosted earnings. Another positive effect on earnings (€71 million) came from business development subsidies received in China. In connection with the acquisition of RFM, lower nonrecurring expenses and higher positive synergy effects than in the previous year, thanks in particular to an efficiency boost in sales, administration, and procurement activities had a positive effect on earnings in the mid-double-digit euro range.

Other operating income exceeded other operating expenses by €21 million (previous year: €18 million), although this item had included acquired goodwill.

EBIT declined 88.2% to €267 million (previous year: €2,262 million). The EBIT margin retreated to 1.5% (previous year: 14.2%).

EBITDA

Depreciation, amortization, impairment losses, and impairment loss reversals rose by 64% to €1,350 million in fiscal 2022 (previous year: €823 million), of which €1,194 million (previous year: €760 million) was attributable to property, plant and equipment and €156 million (previous year: €63 million) to intangible assets. This included €463 million (previous year: €5 million) in impairment losses and €1 million (previous year: €3 million) in reversals of impairment losses. The impairment losses were primarily recognized following impairment tests triggered by the deterioration of business prospects because of the energy crisis and the decline in demand.

EBITDA decreased 47.6% year-over-year in the full-year period, declining to €1,617 million (previous year: €3,085 million). This was attributable to the 63.0% fall in EBITDA, to €951 million (previous year: €2,572 million), in the Performance Materials segment. In contrast, the Solutions & Specialties segment’s EBITDA rose by 9.9% to €825 million (previous year: €751 million).

Net Income

In the fiscal year, the financial result stood at €–137 million (previous year: €–77 million) and largely consisted of net interest expense of €61 million (previous year: €41 million). In view of the financial result, income before income taxes went down to €130 million (previous year: €2,185 million). Income tax expense amounted to €411 million (previous year: €566 million). A decline due to the change in income was set against impairment losses on, or the non-recognition of, deferred tax assets on tax loss carryforwards in an amount of €255 million. After income taxes and noncontrolling interests, the net loss amounted to €272 million (previous year: net income of €1,616 million).

Return on Capital Employed (ROCE) above Weighted Average Cost of Capital (WACC)

The Covestro Group’s NOPAT totaled €200 million (previous year: €1,676 million), and average capital employed amounted to €9,785 million (previous year: €8,598 million). The resulting ROCE was 2.0% (previous year: 19.5%), significantly lower than the increased WACC of 7.0% (previous year: 6.6%).

• Additional information on the calculation of indicators is available in “Key Management Indicators.”