3. 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 segments pursue the following activities:

Performance Materials

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

Solutions & Specialties

The Solutions & Specialties segment comprises Covestro’s solutions and specialties business, in which chemical products are combined 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 solar panel frames, precursors for coatings and adhesives, laptop cases, floodlights, and electric vehicle batteries.

Business activities that cannot be allocated to any of the aforementioned segments are reported under “All other segments.” The external sales presented there are generated primarily from the sale of energy, site management services, and rentals and leasing.

Costs associated with central corporate functions, higher or lower expenses resulting from the variance between forecast and 100% target achievement as part of long-term variable compensation, the difference between the imputed income tax payments of the reportable operating segments and the actual income taxes paid by the Covestro Group, and intragroup reinsurance can be found in the segment reporting under “Reconciliation.”

As a rule, the segment data is calculated in accordance with the International Financial Reporting Standards (IFRSs) listed in note⁠ ⁠3 of the Annual Report 2024 “Accounting Policies and Valuation Principles” with the following specifics:

• Intersegment sales are generally based on arm’s length transactions between the units that make up Covestro’s segments. Market prices and, in exceptional cases, cost of goods sold serve as the settlement basis.
• EBIT and EBITDA 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.
• Trade working capital comprises inventories, trade accounts receivable, and contract assets, less trade accounts payable, contract liabilities, and refund liabilities.

The following tables show the reporting data by segment for the second quarter and for the first half year:

¹ The earnings of the Performance Materials and Solutions & Specialties reportable segments include the effect of intersegment sales on earnings.

¹ The earnings of the Performance Materials and Solutions & Specialties reportable segments include the effect of intersegment sales on earnings.

Compared to the prior-year period, EBIT at Group level was adversely impacted by expenses of €110⁠ ⁠million in connection with the transformation program STRONG. Of this amount, expenses of €101⁠ ⁠million were attributable to the Performance Materials segment; most of those expenses had been caused by the planned closure of the production facility at the Maasvlakte (Netherlands) site. Conversely, a €20⁠ ⁠million decline in expenses incurred for the transformation program STRONG in the Solutions & Specialties segment had the effect of increasing earnings. This movement had a negative impact on EBIT in “Others/Reconciliation” in an amount of €29⁠ ⁠million.

¹ The item includes contract assets, contract liabilities, and refund liabilities.

Information on Geographical Areas

The geographical areas comprise the EMLA, NA, and APAC regions. The EMLA region consists of Europe, the Middle East, Africa, and Latin America except Mexico, which together with the United States and Canada forms the NA region. The APAC region includes Asia and the Pacific region.

The following tables show the regional reporting data for the second quarter and for the first half year:

Reconciliation

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

The material items under “Reconciliation” are the payments for central corporate functions, intragroup reinsurance, and the higher performance of Covestro shares in the context of long-term variable compensation.