Comparative Presentation of Annual Changes in Compensation and Earnings

Percentage changes always refer to the change from the respective previous year.

Earnings before interest, taxes, depreciation and amortization (EBITDA): EBIT plus depreciation, amortization, and impairment losses; less impairment loss reversals on intangible assets and property, plant and equipment.

Free operating cash flow (FOCF): cash flows from operating activities less cash outflows for additions to property, plant, equipment and intangible assets.

Return on capital employed (ROCE): ratio of EBIT after imputed income taxes to capital employed. An imputed tax rate of 25% has been used, e.g., for calculating ROCE, since the year 2022 (previous year: effective tax rate). If the effective tax rate of 316.2% had been used, imputed income taxes would have amounted to €844 million for the year 2022, resulting in net operating profit (NOPAT) of €–577 million. ROCE would consequently have amounted to –5.9%, and ROCE above WACC would have been –12.9% points. Since the criterion for the Board of Management and Supervisory Board to exercise discretion (ROCE above WACC < 0) for fiscal 2022 has been met for both tax rates, the change in the calculation of ROCE described here does not affect the decision on the payout of short-term variable compensation. Otherwise, as in previous years, the effective tax rate would have been used to calculate ROCE for variable compensation. The expected tax rate (applied since the year 2022) and the effective tax rate (applied to the previous year) are presented in note 11 “Taxes” in the Notes to the Consolidated Financial Statements in the Annual Report 2022.

Weighted average cost of capital (WACC): weighted average cost of capital reflecting the expected return on the company’s equity and debt capital. A figure of 7.0% has been taken into account for the year 2022 (2021: 6.6%). ROCE above WACC has been a key management indicator since the year 2022.

GHG emissions (Scope 1 and 2, GHG Protocol) at main production sites (responsible for more than 95% of our energy usage).

Until the year 2021, core volume growth, which refers to the core products in the operational reporting segments, was a key management indicator. 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. Retroactive calculation based on the definition of the core business as of March 31 of each subsequent year.