4.Segment and Regional Reporting

The Board of Management of Covestro AG, as the chief operating decision maker of the Covestro Group, allocates resources to the operating segments and assesses their performance. The reportable segments and regions are identified, and the disclosures selected, in line with the internal financial reporting system (management approach). These are based on the same accounting policies as described for the Covestro Group in note 3 “Accounting Policies and Valuation Principles.”

As of December 31, 2019, the Covestro Group comprises three reportable segments with the following activities:

Polyurethanes

The Polyurethanes segment develops, produces and markets high-quality precursors for polyurethanes. These precursors are toluene diisocyanate (), (MDI) and polyether polyol. Flexible polyurethane foam is used primarily in the furniture and automotive industries (e.g. in upholstered furniture, mattresses and car seats). Rigid foam is used mainly in the construction industry as an insulating material as well as along the entire refrigeration chain. The segment operates production facilities worldwide as well as systems houses for formulating and supplying customized polyurethane systems.

Polycarbonates

The Polycarbonates segment develops, produces and markets the high-performance plastic polycarbonate in the form of granules, composite materials and semifinished products (sheets). The material is used primarily in the automotive industry (e.g. in the passenger compartment and for vehicle lighting) and in the construction industry (e.g. for roof structures). It is also used in the electrical and electronics industry (e.g. for connector housings, computer cases and DVDs), the medical technology sector and the lighting industry (e.g. for LED components). The Covestro Group produces polycarbonate all around the world and processes it at compounding centers to meet specific customer requirements.

Coatings, Adhesives, Specialties

The Coatings, Adhesives, Specialties segment develops, produces and markets precursors for coatings, adhesives and sealants as well as specialties – primarily for polyurethane systems. They include polymer materials and aqueous dispersions based on the isocyanates and , which are produced at facilities located throughout the world. The main areas of application are automotive and transportation, infrastructure and construction, wood processing, and furniture. The specialties comprise elastomers, high-quality films and precursors for the cosmetics, textiles, and health care sectors.

Business activities that cannot be allocated to any of the aforementioned segments are reported under “All other segments”. The external sales from these activities are generated mainly from by-products of chlorine production and use.

The costs of Corporate Center functions and higher or lower expenses for long-term stock-based compensation arising from fluctuations in the performance of Covestro AG stock are presented in the segment reporting as “Corporate Center and reconciliation.”

The segment data are calculated as follows:

  • * refers to the core products in the Polyurethanes, Polycarbonates and Coatings, Adhesives, Specialties segments. It is calculated as the percentage change in externally sold volumes in thousand metric tons compared with the prior year. Covestro also takes advantage of business opportunities outside its core business, for example the sale of precursors and by-products such as hydrochloric acid, sodium hydroxide solution, and styrene. These transactions are not included in core volume growth.
  • and are not defined in the . EBIT is equal to income after income taxes plus financial result and income taxes. EBITDA is the EBIT as reported in the income statement plus depreciation and impairment losses on property, plant, and equipment and amortization and impairment losses on intangible assets, less impairment loss reversals.
  • is the operating cash flows less cash outflows for additions to property, plant, and equipment and intangible assets. As a component of operating cash flows, income taxes paid are not directly attributed to any particular unit of the company. For purposes of calculating operating cash flows, the income taxes paid of a reporting segment are determined according to the management approach by multiplying the effective tax rate (ETR) expected for the fiscal year by that segment’s EBIT.
  • Working capital comprises inventories plus trade accounts receivable, less trade accounts payable.

* Not an IFRS KPI, reported voluntarily

The following tables show the segment reporting data:

Key data by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other/ Consolidation

 

 

 

 

Polyure­thanes

 

Polycar­bonates

 

Coatings, Adhesives, Specialties

 

All other segments

 

Corporate Center and recon­ciliation

 

Covestro Group

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

1

Reference values calculated based on the definition of the core business effective March 31, 2019. Not an IFRS KPI, reported voluntarily

2019

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

5,779

 

3,473

 

2,369

 

791

 

 

12,412

Core volume growth1

 

+2.3%

 

+2.7%

 

–1.0%

 

 

 

 

 

+2.0%

EBITDA

 

648

 

536

 

469

 

13

 

(62)

 

1,604

EBIT

 

250

 

300

 

352

 

12

 

(62)

 

852

Free operating cash flow

 

32

 

404

 

191

 

(87)

 

(67)

 

473

Cash outflows for additions to property, plant and equipment and intangible assets

 

543

 

209

 

158

 

 

 

910

Depreciation, amortization and impairment losses

 

(398)

 

(236)

 

(117)

 

(1)

 

 

(752)

of which impairment losses

 

(5)

 

(22)

 

(1)

 

 

 

(28)

of which impairment loss reversals

 

 

1

 

 

 

 

1

Research and development expenses

 

(94)

 

(81)

 

(95)

 

3

 

1

 

(266)

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

7,362

 

4,051

 

2,361

 

842

 

 

14,616

Core volume growth1

 

+0.8%

 

+3.0%

 

+2.3%

 

 

 

 

 

+1.5%

EBITDA

 

1,763

 

1,036

 

464

 

9

 

(72)

 

3,200

EBIT

 

1,412

 

861

 

371

 

8

 

(72)

 

2,580

Free operating cash flow

 

972

 

468

 

203

 

93

 

(67)

 

1,669

Cash outflows for additions to property, plant and equipment and intangible assets

 

414

 

186

 

106

 

1

 

 

707

Depreciation, amortization and impairment losses

 

(351)

 

(175)

 

(93)

 

(1)

 

 

(620)

of which impairment losses

 

(2)

 

(4)

 

(1)

 

 

 

(7)

of which impairment loss reversals

 

 

 

 

 

 

Research and development expenses

 

(102)

 

(79)

 

(90)

 

(6)

 

1

 

(276)

Working capital by segment

 

 

 

 

 

 

 

Dec. 31, 2018

 

Dec. 31, 2019

 

 

€ million

 

€ million

Polyurethanes

 

1,018

 

860

Polycarbonates

 

769

 

562

Coatings, Adhesives, Specialties

 

500

 

485

Total of reportable segments

 

2,287

 

1,907

All other segments

 

85

 

73

Corporate Center

 

(10)

 

(10)

Working capital

 

2,362

 

1,970

of which inventories

 

2,213

 

1,916

of which trade accounts receivable

 

1,786

 

1,561

of which trade accounts payable

 

(1,637)

 

(1,507)

Information by geographical areas

The following table shows information by geographical area. The region consists of Europe, the Middle East, Africa and Latin America except Mexico, which together with the United States and Canada forms the region. The region includes Asia and the Pacific region.

Regional reporting1

 

 

 

 

 

 

 

 

 

 

 

EMLA

 

NAFTA

 

APAC

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

1

No further presentation of interregional sales is provided, as these are neither reported separately to, nor do they influence the EBIT and EBITDA reported to the Board of Management of Covestro AG.

2019

 

 

 

 

 

 

 

 

Sales (external) by market

 

5,289

 

3,141

 

3,982

 

12,412

Sales (external) by point of origin

 

5,239

 

3,209

 

3,964

 

12,412

 

 

 

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

Sales (external) by market

 

6,284

 

3,469

 

4,863

 

14,616

Sales (external) by point of origin

 

6,234

 

3,555

 

4,828

 

14,616

The following table provides a breakdown by countries of external sales by market and of property, plant and equipment as well as intangible assets:

Sales (external) by market and property, plant and equipment and intangible assets by country

 

 

 

 

 

 

 

Sales (external) by market

 

Property, plant and equipment and intangible assets

 

 

€ million

 

€ million

2019

 

 

 

 

Germany

 

1,557

 

1,834

United States

 

2,604

 

1,298

China

 

2,456

 

1,429

Other

 

5,795

 

1,103

Total

 

12,412

 

5,664

 

 

 

 

 

2018

 

 

 

 

Germany

 

1,783

 

1,361

United States

 

2,850

 

1,093

China

 

3,106

 

1,479

Other

 

6,877

 

809

Total

 

14,616

 

4,742

Information on major customers

Revenues from transactions with a single customer in no case exceeded 10% of Covestro Group sales in fiscal 2019 or the previous year.

Reconciliation

The following table shows the reconciliation of EBITDA of the segments to income before income taxes of the Group:

Reconciliation of segments’ EBITDA to group income before income taxes

 

 

 

 

 

 

 

2018

 

2019

 

 

€ million

 

€ million

EBITDA of reportable segments

 

3,263

 

1,653

EBITDA of all other segments

 

9

 

13

EBITDA of Corporate Center

 

(72)

 

(62)

EBITDA

 

3,200

 

1,604

Depreciation, amortization, impairment losses and impairment loss reversals of reportable segments

 

(619)

 

(751)

Depreciation, amortization, impairment losses and impairment loss reversals of all other segments

 

(1)

 

(1)

Depreciation, amortization, impairment losses and impairment loss reversals

 

(620)

 

(752)

EBIT of reportable segments

 

2,644

 

902

EBIT of all other segments

 

8

 

12

EBIT of Corporate Center

 

(72)

 

(62)

EBIT

 

2,580

 

852

Financial result

 

(104)

 

(91)

Income before income taxes

 

2,476

 

761

TDI/toluylene diisoycanate
A chemical compound from the class of aromatic isocyanates, primarily used in polyurethane foams and coating systems
MDI/diphenylmethane diisocyanate
A chemical compound from the class of aromatic isocyanates, primarily used in polyurethane foams
HDI/hexamethylediisocyanate
A chemical compound from the class of aliphatic isocyanates, primarily used in polyurethane coating systems
IPDI/isophorone diisocyanate
A chemical compound from the class of aliphatic isocyanates, primarily used in polyurethane coating systems
Core volume growth
Core volume growth refers to the core products in the Polyurethanes, Polycarbonates and Coatings, Adhesives, Specialties segments. It is calculated as the percentage change in externally sold volumes in thousand metric tons compared with the prior year. Covestro also takes advantage of business opportunities outside its core business, for example the sale of precursors and by-products such as hydrochloric acid, sodium hydroxide solution and styrene. These transactions are not included in core volume growth.
EBIT/earnings before interest and taxes
Income after income taxes plus financial result and income tax expense
EBITDA/earnings before interest, taxes, depreciation and amortization
EBIT plus depreciation and amortization of property, plant, equipment, and intangible assets
IFRSs/International Financial Reporting Standards
International accounting standards as endorsed by the European Union
FOCF/free operating cash flow
Operating cash flows (pursuant to IAS 7) less cash outflows for additions to property, plant, equipment and intangible assets
EMLA
Comprises all countries in Europe, the Middle East, Africa and Latin America (excluding Mexico) in which Covestro is active
NAFTA
Region comprising the United States, Canada and Mexico in which Covestro is active
APAC
Comprises all countries in the Asia and Pacific region in which Covestro is active