Notes to the Consolidated Financial Statements of the Covestro Group – Notes to the Statement of Financial Position

14. Property, Plant and Equipment

In the reporting year, impairment losses of €383 million (previous year: €4 million) were recognized on property, plant and equipment. These are primarily attributable to the impairment testing performed in the reporting year, which is explained in greater detail in section “Impairment Testing” in note 3 “Accounting Policies and Valuation Principles.” Impairment loss reversals of €1 million (previous year: €3 million) were also recognized. 

Covestro is increasingly investing in projects that drive success and progress in achieving a circular economy and climate neutrality. To this end, the company continued to pursue various investment projects in the areas of pollution prevention and control, energy efficiency improvements, and recycling management in the reporting year, with a particular focus on technical equipment and machinery. Examples include investments in the new chloralkali production plant in Tarragona (Spain), the existing chloralkali production plant in Dormagen (Germany), and the company’s first own plant for the mechanical recycling of polycarbonates in Shanghai (China).

Borrowing costs of €3 million (previous year: €3 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 1.7% on average (previous year: 1.8%).

The acquisition of the Resins & Functional Materials (RFM) business from Koninklijke DSM N.V., Heerlen (Netherlands), resulted in significant additions to property, plant and equipment in the reporting year 2021.

14.1  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 16 years (previous year: 16 years) and for rail tank cars, 11 years (previous year: 12 years). Leases for renting real estate, particularly buildings, are for an average lease term of 15 years (previous year: 14 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 and Valuation Principles.”

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

As of December 31, 2022, the lease commitments for short-term leases not recognized in the statement of financial position amount to €6 million (previous year: €6 million).

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

• Note 22 “Financing and Financial Liabilities.”
• Note 27 “Notes to the Statement of Cash Flows.”

Covestro as Lessor

In the reporting year, leasing income generated from lease contracts under IFRS 16 (Leases) was €8 million (previous year: €8 million). These are mainly related to real estate. In addition, lease payments from rentals of €5 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 €5 million are expected to be received in the period from 2024–2027, and lease payments totaling €3 million after the year 2027.

At Covestro, risks from renting 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 consumer price index.

14.2 Investment Property

The total carrying amount of investment property as of December 31, 2022, amounted to €21 million (previous year: €23 million), and its fair value totaled €141 million (previous year: €223 million). Rental income from investment property was €17 million (previous year: €13 million) and the operating expenses directly allocable to this property amounted to €11 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 33 years relate to space used by companies and contractual partners in the chemical industry at production sites in Germany. Based on current rental prices, around €5 million in compensation will be received annually from these long-term contracts for the use of this space in the coming years.