Business Development of the Covestro Group

Results of operations

In the third quarter of 2019, the Group’s core volumes were 5.3% higher than in the prior-year quarter. The Polycarbonates and Polyurethanes segments saw volume growth of 9.3% and 5.1%, respectively, whereas volumes in the Coatings, Adhesives, Specialties segment declined by 4.0%.

Group sales amounted to €3,162 million, down 14.6% from the prior-year quarter (previous year: €3,702 million). The main factor here was the decline in selling prices, which had a negative impact of 18.5% on sales. This development was attributable mainly to the Polyurethanes and Polycarbonates segments. Total volumes increased sales by 2.1%. The exchange rate trend also impacted sales, which improved by 1.9%. In contrast, the change in the portfolio reduced sales by 0.1%. The sale of the U.S. polycarbonate sheets business in the third quarter of 2018 had a negative effect on sales, while the gradual acquisition of shares of Japan-based DIC Covestro Polymer Ltd. in the second quarter of 2019 had a positive effect.

All segments saw sales drop in the third quarter of 2019. The Polyurethanes segment’s sales were down by 20.1% to €1,478 million (previous year: €1,849 million) and the Polycarbonates segment saw sales decrease by 13.2% to €901 million (previous year: €1,038 million). In the Coatings, Adhesives, Specialties segment, sales declined by 3.0% to €588 million (previous year: €606 million).

The Group’s EBITDA declined by 50.5% to €425 million in the third quarter of 2019 (previous year: €859 million), in particular due to significantly lower margins. In contrast, higher volumes, a decrease in provisions for short-term variable compensation, and the effects of applying the new financial reporting standard IFRS 16 (Leases) had a positive effect on EBITDA.

EBITDA in the Polyurethanes segment decreased by 54.6% to €196 million (previous year: €432 million), and in the Polycarbonates segment it was down 58.1% to €132 million (previous year: €315 million). In the Coatings, Adhesives, Specialties segment, EBITDA declined by 11.9% to €111 million (previous year: €126 million).

In the third quarter of 2019, the Covestro Group’s EBIT decreased by 68.7% to €221 million (previous year: €707 million).

Financial position

Operating cash flows decreased against the prior-year quarter, reaching €462 million (previous year: €766 million), largely due to the significant drop in EBITDA. Lower income tax payments had a positive effect on cash flow.

Free operating cash flow declined to €243 million in the third quarter of 2019 (previous year: €578 million). This was mainly due to decreased cash inflows from operating activities and the planned increase in cash outflows for additions to property, plant, equipment and intangible assets.

Net Financial Debt

 

 

 

 

 

 

 

Dec. 31, 20181

 

Sep. 30, 2019

 

 

€ million

 

€ million

1

Reference information was not restated; see section “Changes in Accounting as a Result of the Initial Application of IFRS 16.”

2

As of September 31, 2019, this also contains the lease liabilities from initial application of IFRS 16.

Bonds

 

996

 

997

Liabilities to banks

 

24

 

14

Lease liabilities2

 

193

 

814

Liabilities from derivatives

 

12

 

20

Receivables from derivatives

 

(12)

 

(12)

Financial liabilities

 

1,213

 

1,833

Cash and cash equivalents

 

(865)

 

(422)

Net financial debt

 

348

 

1,411

In comparison with December 31, 2018, the Covestro Group’s net financial debt increased by €1,063 million to reach €1,411 million as of September 30, 2019. This rise was mainly attributable to the initial application of the IFRS 16 financial reporting standard and the resulting increase in lease liabilities. The decline in cash and cash equivalents is largely due to a reduction in cash inflows from operating activities and an increase in cash outflows for additions to property, plant, equipment and intangible assets.