13. Noncurrent Assets

13.1 Goodwill and Other Intangible Assets

In the reporting year, impairment losses of €43⁠ ⁠million were recognized on acquired goodwill. These resulted primarily from the impairment tests on cash-generating units. As in the previous year, no impairment loss reversals were recognized.

See note⁠ ⁠13.3 “Impairment Testing.”

In the previous year, impairment losses of €27⁠ ⁠million had been recognized on other intangible assets, in particular patents and technologies. These were primarily due to impairment testing of cash-generating units in the previous year.

13.2 Property, Plant and Equipment

In the reporting year, impairment losses of €182⁠ ⁠million were recognized on property, plant and equipment. These were primarily due to impairment testing of cash-generating units. As in the previous year, no impairment losses were reversed in the reporting year.

See note⁠ ⁠13.3 “Impairment Testing.”

Borrowing costs of €18⁠ ⁠million (previous year: €15⁠ ⁠million) were capitalized as part of the cost of qualifying assets under property, plant and equipment in the reporting year. The capitalization rate applied amounted to 2.9% on average (previous year: 2.9%).

In the previous year, impairment losses of €115⁠ ⁠million were recognized on property, plant and equipment. These were primarily due to impairment testing of cash-generating units in the previous year.

13.2.1 Leasing

Covestro as Lessee

The recognized right-of-use assets from leases are reported under property, plant and equipment.

Right-of-use assets relate mainly to leases for production and logistics infrastructure and real estate leases. Leases for production and logistics infrastructure are mainly related to the rental of tanks and containers as well as rail tank cars. For tanks and containers, the average lease term is 13⁠ ⁠years (previous year: 16⁠ ⁠years) and for rail tank cars, 13⁠ ⁠years (previous year: 14⁠ ⁠years). Leases of real estate, particularly buildings, are for an average lease term of 19⁠ ⁠years (previous year: 18⁠ ⁠years). Some of the underlying leases include variable lease payments as well as options to extend or terminate the lease.

See note⁠ ⁠3 “Accounting Policies.”

The following table presents the amounts recognized in the statement of cash flows and the income statement for all leases:

As of December⁠ ⁠31, 2025, the lease commitments for short-term leases not recognized in the statement of financial position amount to €6⁠ ⁠million (previous year: €7⁠ ⁠million).

Further information on the liabilities arising from leases and details on payments from leases are described in the following notes:

See note⁠ ⁠21 “Financing and Financial Debt.”

See note⁠ ⁠27 “Notes to the Statement of Cash Flows.”

Covestro as Lessor

In the reporting year, income generated from operating leases under IFRS⁠ ⁠16 (Leases) was €9⁠ ⁠million (previous year: €7⁠ ⁠million). These are mainly related to real estate. In addition, lease payments from rentals of €4⁠ ⁠million (previous year: €4⁠ ⁠million) are expected to be received in the following year, not including the investment property as outlined below. Lease payments totaling €3⁠ ⁠million are expected to be received in the period from 2027⁠–⁠2030, and lease payments totaling €1⁠ ⁠million after the year⁠ ⁠2030.

At Covestro, risks from leasing out real estate are usually limited by building insurance policies and by the contractual obligation of the tenant to return the property to its original condition. In addition, contractual agreements provide for price adjustment mechanisms based primarily on the relevant consumer price indices.

13.2.2 Investment Property

The total carrying amount of investment property as of December⁠ ⁠31, 2025, was €20⁠ ⁠million (previous year: €21⁠ ⁠million), and its fair value totaled €145⁠ ⁠million (previous year: €158⁠ ⁠million). Rental income from investment property was €15⁠ ⁠million (previous year: €16⁠ ⁠million) and the operating expenses directly allocable to this property amounted to €8⁠ ⁠million (previous year: €10⁠ ⁠million). In the reporting period and in the previous year, no material operating expenses were recognized for investment property not generating any rental income.

Rental income generated from the leasing of properties classified as investment properties stemmed in part from contracts for hereditary building rights and leases granted by the Covestro Group. These contracts with a weighted average remaining term of 34⁠ ⁠years relate to space used by companies in the chemical industry and contractual partners of Covestro at production sites in Germany. Based on current rental prices, around €6⁠ ⁠million in rental income will be received annually from these long-term contracts in the coming years.

13.3 Impairment Testing

If there are indications that an individual asset that does not constitute goodwill may be impaired, the recoverable amount is compared to the carrying amount to determine whether it is higher or lower. If the recoverable amount does not exceed the respective carrying amount, an impairment loss is recognized in profit or loss in the amount of the difference between the carrying amount and the recoverable amount. An impairment loss is reversed in profit or loss if the reasons for impairment no longer apply. Impairment losses and any impairment loss reversals are recognized in the functional cost in the same way as depreciation and amortization, depending on the use of the respective assets.

In addition to impairment testing of individual items of property, plant and equipment and other intangible assets, cash-generating units are globally tested if there is indication of impairment. Goodwill is tested for impairment in the fourth quarter at the level of (groups of) cash-generating units. As a rule, Covestro considers strategic business entities to be cash-generating units. They represent the reporting level below the seven business entities that form the two reportable segments, Performance Materials and Solutions & Specialties. If the annual impairment test of goodwill is performed at the level of groups of cash-generating units or if a business entity comprises only one cash-generating unit, the level tested is the relevant business entity.

If recognizing an impairment loss is required at the level of a CGU or group of CGUs, goodwill is written down first. In cases where the necessary impairment loss exceeds the goodwill written down, the remaining charge is distributed across other noncurrent, nonfinancial assets in proportion to their carrying amount. However, no individual asset is written down below its recoverable amount. Impairment losses on goodwill are reported in other operating expenses.

The recoverable amount of a CGU or group of CGUs is equal to the fair value less costs of disposal. This calculation is based on the present value of the future cash flows since no market price can be determined for the individual units. The forecasts of future cash flows for determining the recoverable amount are based on the Covestro Group’s current planning, which generally extends over five years. In certain cases, shorter or longer planning horizons are also considered if advisable due to CGU-specific assumptions underlying the planning. Assumptions made for purposes of forecasting cash flows mainly concern future selling prices and sales volumes, costs, market growth rates, economic cycles, and exchange rates. These assumptions are based on the Group’s own estimates and external sources of information. Where the recoverable amount is the fair value less costs of disposal, this is measured from the viewpoint of an independent market participant. Cash flows beyond the detailed planning period are determined on the basis of the respective individual growth rates derived from market information and the associated long-term business expectations. The measurement of fair value less costs of disposal is based on unobservable inputs (“Level 3” of the fair value hierarchy).

The net cash inflows are discounted at the weighted average cost of capital (WACC), which is calculated as the weighted average cost of equity and cost of debt. To take into account the risk and return profile of the Covestro Group, an after-tax cost of capital is calculated, and a specific capital structure is defined via benchmarking against comparable companies in the same industry sector (“peer group”). The cost of equity corresponds to the return expected by shareholders, while the cost of debt is based on the terms at which the peer group can obtain long-term financing. Both components are derived from capital market information.

The monitoring and management structure for recognized goodwill and the capital cost factors and growth rates used in annual impairment testing are presented in the following table for each CGU or group of CGUs. The growth assumptions reflect, in particular, economic cycles over several years as well as expectations for capacity and the market for each unit to be tested.

¹ The business entity level is used for impairment testing of recognized goodwill if this is performed at the level of groups of cash-generating units. At the level of the strategic business area as a cash-generating unit, the central impairment test is performed on property, plant and equipment and other intangible assets, as well as any directly allocated goodwill. If a business entity comprises only a single strategic business area, the level tested is designated as a strategic business area

Due to the ongoing challenging economic conditions and a deterioration in the business outlook in certain areas in comparison to the prior year, impairment testing was carried out at the level of the cash-generating unit in the fourth quarter. These tests indicated that the recoverable amount of the cash-generating units SPET and SPCS in the Performance Materials segment and TMDI in the Solutions & Specialties segment was lower than the relevant carrying amounts. In consequence, impairment losses of €204⁠ ⁠million were recognized in the fourth quarter of 2025 as a result of the central impairment tests. These expenses were recognized in cost of goods sold (€158⁠ ⁠million), selling expenses (€2⁠ ⁠million), and research and development expenses (€2⁠ ⁠million) as well as in other operating expenses (€42⁠ ⁠million).

The results of these impairment tests are presented in the following:

The recognized impairment losses are attributable in particular to reduced business expectations in light of the persistently difficult supply and demand situation in large parts of the chemical industry, which was reflected in the corporate planning underlying the measurement model for forecasting future cash flows. In the case of SPET, low demand combined with increased supply is leading to high price pressure, which is having a lasting impact on achievable operating margins. As before, the key planning assumption is that the current unsustainable price levels will stabilize at a low level within the planning period. In the case of SPCS, increased competitive pressure as a result of additional production capacity available on the market and the resulting oversupply is leading to reduced business expectations, which are impacting the forecast margins. Within the detailed planning period, a reduction in sales volumes to external customers and an increase in Covestro’s internal use of SPCS products were assumed, in each case in the mid-single-digit percentage range p.a. on average. The key planning assumption is that this portfolio effect, combined with a partial recovery of the currently unsustainable price levels, will result in an approximate doubling of the operating margin within the detailed planning period. In the case of TMDI, increasing commoditization of the business is leading to increased competitive pressure, and heightened geopolitical tensions are reducing long-term expectations. Key planning assumptions include a return to normal of the current unsustainable price levels at a low level within the planning period, as well as long-term sales volumes roughly on a level with the current fiscal year.

The carrying amount of the CA business entity includes a considerable proportion of goodwill valued at €517⁠ ⁠million. The impairment test was based on a detailed planning period of 5 years, in which it was assumed that there would be average volume increases in the mid-single-digit percentage range and above-average EBITDA growth. The key planning assumption is that Covestro’s market share can be expanded.

Taking into account the impairment of individual property, plant and equipment and other intangible assets, impairment losses in fiscal⁠ ⁠2025 totaled €226⁠ ⁠million (previous year: €142⁠ ⁠million). Of this amount, €4⁠ ⁠million (previous year: €79⁠ ⁠million) was attributable to the Solutions & Specialties segment and €221⁠ ⁠million (previous year: €63⁠ ⁠million) to the Performance Materials segment. In the future, changes in assumptions or circumstances could require adjustments leading to additional impairment losses or, in the case of items other than goodwill, to reversals of impairment losses if developments run counter to expectations. The sensitivity analysis for all tested cash-generating units assumed a linear 10% reduction in future free operating cash flow, a 10% increase in WACC, or a one percentage point reduction in the long-term growth rate. In the case of CA, the business unit to which goodwill is allocated, a partial failure to meet growth targets was also simulated. Except for the cash-generating units that were subject to impairment in previous fiscal years and whose carrying amount was confirmed by testing in fiscal⁠ ⁠2025, no carrying amount would exceed the recoverable amount in these scenarios of the tested unit. These areas do not include any recognized goodwill. However, the gradual normalization of the economic situation assumed for the determination of the recoverable amount of the individual cash-generating units, in particular the imbalance of global supply and demand, and capacity utilization at Covestro’s own plants, can materially affect the recoverability of the individual cash-generating units in the next fiscal year and lead to reversals of impairment losses or, in case of a deviation, to additional impairment losses.