Results of Operations, Financial Position and Net Assets of Covestro AG

Covestro AG is the parent company and strategic management holding company of the Covestro Group. The principal management functions for the entire Group are performed by the Board of Management. These include strategic planning for the Group, resource allocation and executive and financial management. Covestro AG’s net assets, financial position and results of operations are largely determined by the business performance of its subsidiaries.

The financial statements of Covestro AG are prepared in accordance with the (HGB) and Stock Corporation Act (). The company, headquartered in Leverkusen (Germany), is registered in the commercial register of the Local Court of Cologne under No. HRB 85281.

There is a control and profit and loss transfer agreement between Covestro AG and Covestro Deutschland AG, Leverkusen. All profit not subject to a prohibition on transfer is transferred in full to Covestro AG at the end of the year, and losses are absorbed in full. Other retained earnings recognized during the term of the agreement must be released upon request by Covestro AG and used to compensate a net loss for the year or transferred as profit.

Results of Operations

Covestro AG Income Statements according to the German Commercial Code

 

 

 

 

 

 

 

2017

 

2018

 

 

€ million

 

€ million

Income from investments in affiliated companies

 

704

 

745

Interest expense

 

(14)

 

(18)

Other financial income

 

(4)

 

(6)

Net sales

 

26

 

23

Cost of services provided

 

(27)

 

(22)

General administration expenses

 

(64)

 

(79)

Other operating income

 

1

 

25

Other operating expenses

 

(3)

 

(1)

Income before income taxes

 

619

 

667

Income taxes

 

(131)

 

(171)

Net income

 

488

 

496

Retained earnings brought forward from prior year

 

 

3

Allocation to other retained earnings

 

(49)

 

(60)

Distributable profit

 

439

 

439

Covestro AG’s result after tax amounted to €496 million in the 2018 fiscal year, mainly due to income from investments in affiliated companies totaling €745 million. Income from investments in affiliated companies is solely attributable to income from the control and profit and loss transfer agreement with Covestro Deutschland AG.

General administration expenses totaling €79 million mainly consisted of personnel expenses for the employees of the holding company and members of the Board of Management. The year-on-year increase of €15 million is mainly attributable to higher expenses for strategic projects. Other operating income includes primarily income under the existing Contribution, Indemnification and Post-Formation Agreement and income from the reversal of provisions for obligations under this agreement. The interest result includes interest expense of €14 million for the bonds issued. Other income and expense items had no notable effect on earnings. The result of operations was €667 million and led to income taxes of €171 million. Taking into account the profit brought forward from the previous year and an allocation of €60 million to other retained earnings, there was a distributable profit of €439 million.

Our goal for the financial year 2018 is to generate that will again enable our stockholders to adequately participate in the Covestro Group’s earnings. The Board of Management and the Supervisory Board are proposing a dividend of € 2.40 per share carrying dividend rights for the 2018 fiscal year to the Annual General Meeting. That would amount to a year-on-year increase of € 0.20.

Net Assets and Financial Position

Covestro AG Statements of Financial Position according to the German Commercial Code

 

 

 

 

 

 

 

Dec. 31,2017

 

Dec. 31,2018

 

 

€ million

 

€ million

ASSETS

 

 

 

 

 

 

 

 

 

Noncurrent assets

 

1,767

 

1,767

Intangible assets, property, plant and equipment

 

1

 

1

Financial assets

 

1,766

 

1,766

 

 

 

 

 

Current assets

 

5,581

 

3,839

Trade accounts receivables

 

19

 

25

Receivables from affiliated companies

 

5,505

 

3,762

Other assets

 

57

 

52

 

 

 

 

 

Deferred charges

 

9

 

7

 

 

 

 

 

Excess of plan assets over pension liability

 

13

 

7

 

 

 

 

 

Total assets

 

7,370

 

5,620

 

 

 

 

 

 

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

 

 

Equity

 

5,686

 

4,444

 

 

 

 

 

Capital stock

 

203

 

183

Treasury shares

 

(2)

 

Issued capital

 

201

 

183

Capital reserves

 

4,777

 

3,493

Other retained earnings

 

269

 

329

Distributable profit

 

439

 

439

Provisions

 

140

 

160

 

 

 

 

 

Provisions for pensions

 

2

 

3

Provisions for taxes

 

79

 

108

Other provisions

 

59

 

49

Liabilities

 

1,544

 

1,016

Bonds

 

1,500

 

1,000

Trade accounts payables

 

7

 

10

Payables to affiliated companies

 

31

 

1

Other liabilities

 

6

 

5

 

 

 

 

 

Total equity and liabilities

 

7,370

 

5,620

Covestro AG had total assets of €5,620 million as of December 31, 2018. The net assets and financial position of Covestro AG are dominated by its role as a holding company in managing subsidiaries and financing corporate activities. This is primarily reflected in the levels of financial assets (31.4% of total assets) and receivables from (66.9% of total assets), and payables to, Group companies.

Receivables from affiliated companies declined by €1,743 million, mainly due to a corresponding decrease in an intercompany loan to Covestro Deutschland AG.

All receivables and other assets had maturities of less than one year.

Property, plant, equipment and intangible assets were of secondary importance. At €28 million, current other receivables, including deferred income, were also immaterial in relation to total assets. Other assets of €52 million mainly included income tax and VAT receivables.

Covestro AG’s equity amounted to €4,444 million (previous year: €5,686 million). This corresponds to an equity ratio of 79.1% (previous year: 77.2%). Changes in equity in fiscal year 2018 chiefly related to share buy-backs and the retirement of 19,500,000 no-par-value shares. In the 2018, Covestro AG acquired 18,260,077 treasury shares at a total cost of €1,310 million (excluding transaction costs). Covestro AG’s capital reserves decreased accordingly. On December 3, 2018, the Board of Management had resolved to retire 19,500,000 shares. The Company’s Articles of Incorporation were amended accordingly on December 7, 2018. This was set against an allocation of €60 million to retained earnings.

Moreover, the payment of dividends for fiscal 2017 in the amount of €436 million reduced equity.

Equity is set against provisions amounting to €160 million and other liabilities of €1,016 million. The 2016-2018 bond of €500 million was repaid by the due date in March 2018.

Provisions were made up of provisions for pensions and other post-employment benefits (€3 million), tax provisions (€108 million), and other provisions (€49 million). The bonds have the following maturities: €500 million is due for repayment within one to five years and €500 million is due in 2024. All other liabilities are due within one year.

HGB/German Commercial Code
Comprises much of the German accounting legislation
AktG/German Stock Corporation Act
Regulates the legal provisions pertaining to German stock corporations
Net income
Income after income taxes that is attributable to the stockholders