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 reportable segments and assesses their performance. The reportable segments are identified, and the disclosures selected, in line with the internal financial reporting system (management approach).

The Group restructured its organization and reporting as of July 1, 2021. The Group’s three reportable segments to date (Polyurethanes (PUR), Polycarbonates (PCS) and Coatings, Adhesives, Specialties (CAS)) have been replaced with two new reportable segments: Performance Materials (PM) and Solutions & Specialties (S & S). The reference information was also restated based on the new structure.

The segments pursue the following activities:

Performance Materials

The Performance Materials segment focuses on developing, producing, and reliably supplying high-performance materials such as standard polyurethanes and polycarbonates, as well as base chemicals. These include i.a. (MDI), (TDI), long-chain polyols, and polycarbonate resins. Those materials are used in sectors such as the furniture and wood processing industry, the construction industry as well as the automotive and transportation industry. These materials are used in roof structures, insulation for buildings and refrigerators, mattresses, and car seats, among other applications.

Solutions & Specialties

The Solutions & Specialties segment consolidates Covestro’s solutions and specialties businesses, and combines chemical products with application technology services. A fast pace of innovation is a key success factor since customer requirements change quickly. Covestro’s Solutions & Specialties business comprises a variety of polymer products including polycarbonates, precursors for coatings and adhesives, MDI specialties and polyols, thermoplastic polyurethanes, specialty films, and elastomers. They are used in sectors such as the automotive and transportation industry; the electrical, electronics and household appliances industry; the construction industry; and the healthcare industry. These materials include composite resins for wind turbine rotor blades; precursors for coatings and adhesives; laptop cases; floodlights; and high-quality specialty films.

Business activities that cannot be allocated to any of the aforementioned segments, costs associated with central corporate functions, and higher or lower expenses resulting from more or less favorable Covestro share performance as part of long-term variable compensation are reported in “Others/ Consolidation.” External sales are generated primarily from the sale of energy, site management services, and rentals and leasing.

As a rule, the segment data is calculated in accordance with the (IFRSs) listed in note 3 “Accounting Policies and Valuation Principles” with the following exceptions:

  • Intersegment sales are based on arm’s length transactions between the units that make up Covestro’s segments.
  • Property, plant and equipment and intangible assets, except goodwill, including noncurrent assets used jointly by both segments and the associated depreciation, amortization, and impairment losses are allocated according to a principle based on major use. An explanation of the approach and effects of global impairment testing of goodwill is provided in note 3 “Accounting Policies and Valuation Principles.
  • * refers to the core products in the Performance Materials and Solutions & Specialties segments. It is calculated as the percentage change in externally sold volumes 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. Such transactions are not included in core volume growth.
  • and are not defined in the IFRSs. EBIT is equal to income after income taxes plus financial result and income taxes. EBITDA is EBIT plus amortization and impairment losses on intangible assets, and depreciation and impairment losses on property, plant and equipment, less impairment loss reversals.
  • , which is not defined in the IFRSs either, equals cash flows from operating activities less cash outflows for additions to property, plant, equipment and intangible assets. The income taxes paid that make up part of cash flows from operating activities are not directly allocated to any of the company’s units. For purposes of calculating cash flows from operating activities, the income taxes paid of a reportable 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.
  • Trade working capital comprises inventories, trade accounts receivable, and contract assets, less trade accounts payable, contract liabilities, and refund liabilities.

EBIT, EBITDA, and free operating cash flow per segment include intersegment sales and, in each case, the effects of the aforementioned allocation of property, plant and equipment and intangible assets, including noncurrent assets used jointly by both segments, and the associated depreciation, amortization, impairment losses, and impairment loss reversals.

* Not an IFRS indicator; reported voluntarily.

The following tables show the segment reporting data:

Key data by segment1

 

 

 

 

 

 

 

 

 

 

 

Performance Materials

 

Solutions & Specialties

 

Others/Consolidation

 

Covestro Group

 

 

€ million

 

€ million

 

€ million

 

€ million

2021

 

 

 

 

 

 

 

 

Sales (external)

 

8,142

 

7,554

 

207

 

15,903

Intersegment sales2

 

2,195

 

27

 

(2,222)

 

Sales (total)2

 

10,337

 

7,581

 

(2,015)

 

15,903

Core volume growth3

 

+0.3%

 

+26.0%

 

 

 

+10.0%

EBITDA2, 4

 

2,572

 

751

 

(238)

 

3,085

EBIT2, 4

 

2,003

 

503

 

(244)

 

2,262

Free operating cash flow2

 

1,387

 

145

 

(103)

 

1,429

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

 

488

 

273

 

3

 

764

Depreciation, amortization and impairment losses

 

(569)

 

(248)

 

(6)

 

(823)

of which impairment losses

 

(3)

 

(2)

 

 

(5)

of which impairment loss reversals

 

3

 

 

 

3

Research and development expenses

 

(104)

 

(227)

 

(10)

 

(341)

 

 

 

 

 

 

 

 

 

2020

 

 

 

 

 

 

 

 

Sales (external)

 

5,468

 

5,060

 

178

 

10,706

Intersegment sales2

 

947

 

23

 

(970)

 

Sales (total)2

 

6,415

 

5,083

 

(792)

 

10,706

Core volume growth3

 

 

 

 

 

 

 

–5.6%

EBITDA2, 4

 

896

 

743

 

(167)

 

1,472

EBIT2, 4

 

323

 

545

 

(172)

 

696

Free operating cash flow2

 

176

 

446

 

(92)

 

530

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

 

498

 

203

 

3

 

704

Depreciation, amortization and impairment losses

 

(573)

 

(198)

 

(5)

 

(776)

of which impairment losses

 

(7)

 

(13)

 

 

(20)

of which impairment loss reversals

 

 

 

 

Research and development expenses

 

(82)

 

(173)

 

(7)

 

(262)

1

The reference information was calculated based on the new organizational and reporting structure as of July 1, 2021.

2

The values were recalculated retroactively as of October 1, 2021, based on a change in the underlying market prices for compensation for transactions between the Performance Materials and Solutions & Specialties segments and the reference information restated accordingly.

3

Reference values calculated on the basis of the definition of the core business effective March 31, 2021. Not an IFRS indicator; reported voluntarily. Reference information for the segments based on fiscal 2019 is not presented here due to the new organizational structure.

4

The earnings of the Performance Materials and Solutions & Specialties reportable segments include the effect on earnings of intersegment sales.

Trade working capital by segment1

 

 

 

 

 

 

 

Dec. 31, 2020

 

Dec. 31, 2021

 

 

€ million

 

€ million

Performance Materials

 

970

 

1,392

Solutions & Specialties

 

978

 

1,560

Total of reportable segments

 

1,948

 

2,952

Others/ Consolidation

 

1

 

Trade working capital

 

1,949

 

2,952

of which inventories

 

1,663

 

2,914

of which trade accounts receivable

 

1,593

 

2,343

of which trade accounts payable

 

(1,241)

 

(2,214)

of which IFRS 15 items2

 

(66)

 

(91)

1

The reference information was calculated based on the new organizational and reporting structure as of July 1, 2021.

2

The item includes contract assets, contract liabilities, and refund liabilities.

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

 

NA

 

APAC

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

2021

 

 

 

 

 

 

 

 

Sales (external) by market

 

6,876

 

3,553

 

5,474

 

15,903

Sales (external) by point of origin

 

6,914

 

3,617

 

5,372

 

15,903

 

 

 

 

 

 

 

 

 

2020

 

 

 

 

 

 

 

 

Sales (external) by market

 

4,600

 

2,554

 

3,552

 

10,706

Sales (external) by point of origin

 

4,554

 

2,613

 

3,539

 

10,706

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.

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

2021

 

 

 

 

Germany

 

1,918

 

2,091

United States

 

2,962

 

1,573

China

 

3,544

 

1,534

Other

 

7,479

 

2,297

Total

 

15,903

 

7,495

 

 

 

 

 

2020

 

 

 

 

Germany

 

1,342

 

1,925

United States

 

2,128

 

1,129

China

 

2,250

 

1,355

Other

 

4,986

 

1,130

Total

 

10,706

 

5,539

Information on Major Customers

Revenues from transactions with a single customer in no case exceeded 10% of Covestro Group sales in fiscal 2021 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 taxes1

 

 

 

 

 

 

 

2020

 

2021

 

 

€ million

 

€ million

EBITDA of reportable segments

 

1,639

 

3,323

EBITDA of Others/ Consolidation

 

(167)

 

(238)

EBITDA

 

1,472

 

3,085

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

 

(771)

 

(817)

Depreciation, amortization, impairment losses and impairment loss reversals of Others/ Consolidation

 

(5)

 

(6)

Depreciation, amortization, impairment losses and impairment loss reversals

 

(776)

 

(823)

EBIT of reportable segments

 

868

 

2,506

EBIT of Others/ Consolidation

 

(172)

 

(244)

EBIT

 

696

 

2,262

Financial result

 

(91)

 

(77)

Income before income taxes

 

605

 

2,185

1

The reference information was calculated based on the new organizational and reporting structure as of July 1, 2021.

MDI/diphenylmethane diisocyanate
A chemical compound from the class of aromatic isocyanates, primarily used in polyurethane foams
TDI/toluylene diisocyanate
A chemical compound from the class of aromatic isocyanates, primarily used in polyurethane foams and coating systems
IFRSs/International Financial Reporting Standards
International accounting standards as endorsed by the European Union respectively published by the IASB or the IFRS IC
Core volume growth
Core volume growth refers to the core products in the Performance Materials and Solutions & Specialties. It is calculated as the percentage change in externally sold volumes 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
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).
NA
Region comprising Canada, Mexico, and the United States.
APAC
Comprises all countries in the Asia and Pacific region.