Covestro reported that its business performance was impacted by global challenges in fiscal 2022. In particular, the sharp rise in energy and raw material prices during the year, especially in Europe, put a strain on the company. This was compounded by continuing adverse effects caused by the pandemic in China, high inflation and an overall slowdown in global economic growth.   

Despite lower sales volumes as a consequence of the recessionary environment, Covestro’s Group sales grew by 13.0% to EUR 18.0 billion (previous year: EUR 15.9 billion), the highest-ever figure in the Group’s history. A key factor in that was a considerably higher selling price level.

High energy and raw material prices and slackening demand in the course of the year impacted the Group’s EBITDA. It fell in full-year 2022 by 47.6% over the prior-year figure to EUR 1.6 billion (previous year: EUR 3.1 billion).

Solid balance sheet despite negative net income

Net income declined to EUR -272 million (previous year: EUR 1.6 billion), in particular as a result of exceptional impairments of noncurrent assets totaling EUR 463 million and impairment losses on deferred tax assets from tax loss carryforwards totaling EUR 255 million.

In spite of the challenging economic environment, Covestro achieved a positive free operating cash flow (FOCF) of EUR 138 million thanks to strong working capital management. ROCE above WACC in full-year 2022 was -5 percentage points (previous year: 12.9 percentage points).

The nonfinancial key management indicator for reducing greenhouse gas emissions improved by 9.6% to 4.7 million metric tons of CO2 equivalents (previous year: 5.2 million metric tons).

“As expected, the global crises adversely affected our business performance and, due to the resultant exceptional impairments, meant that we posted negative net income for the first time,” said Dr. Thomas Toepfer, CFO of Covestro. “Yet at the same time we see that Covestro has a solid balance sheet and a stable liquidity position."

Challenging environment for both segments; EBITDA at Solutions & Specialties rises

Sales in the Performance Materials segment in fiscal 2022 increased by 11.7% compared to the prior-year period and were EUR 9.1 billion (previous year: EUR 8.1 billion), in particular as a result of a rise in the selling price level.

EBITDA fell by 63.0% over the prior-year period to EUR 951 million (previous year: EUR 2.6 billion), mainly due to lower margins as a result of higher raw material and energy prices coupled with a decline in sales volumes. As a consequence of the decline in EBITDA, the segment’s FOCF also fell by 60.8% to EUR 544 million (previous year: EUR 1.4 billion).

Sales in the Solutions & Specialties segment in fiscal 2022 grew by 13.3% to EUR 8.6 billion (previous year: EUR 7.6 billion), in particular as a result of a rise in the selling price level.

EBITDA at Solutions & Specialties increased by 9.9% over the prior-year period to EUR 825 million (previous year: EUR 751 million). A contributing factor here was the fact that integration of the RFM business was accomplished even faster than planned, and lower nonrecurring expenses and higher synergy effects had a positive impact on earnings.

The segment’s FOCF increased by 34.5% over the prior-year period to EUR 195 million (previous year: EUR 145 million), mainly due to the increase in EBITDA.

Outlook for 2023: economic conditions remain challenging

In view of the challenging and uncertain economic and geopolitical conditions that will persist in 2023, Covestro for now has decided to classify its outlook for fiscal 2023 on a qualified-comparative basis at this time.

It expects EBITDA of the Covestro Group and the Performance Materials segment to be well below that of the previous year. Covestro expects EBITDA at the Solutions & Specialties segment to be around that for 20223.

The company assumes that FOCF at Group level and for the Performance Materials segment will be significantly below the figure for the year 2022. However, the company projects FOCF in the Solutions & Specialties segment to be significantly higher than in 2022.

Furthermore, it anticipates that ROCE above WACC will be significantly down on the previous year and expects greenhouse gas emissions measured as CO2 equivalents to be around the 2022 level. Covestro expects that EBITDA for the first quarter of 2023 will be EUR 100 million to EUR 150 million.