Notes to the Consolidated Financial Statements of the Covestro Group – Principles and Methods

5. Changes in the Scope of Consolidation

5.1 Scope of Consolidation and Investments

As of December 31, 2022, the scope of consolidation comprised Covestro AG and 60 (previous year: 66) consolidated companies.

Effective January 14, 2022, the purchase agreement for the 30% of the shares in Japan Fine Coatings Co., Ltd., Ibaraki (Japan), previously held by the former joint venture partner JSR Corporation, Tokyo (Japan), was signed and executed. Covestro is now sole owner of the company.

Covestro Invest GmbH, Leverkusen (Germany), was consolidated for the first time effective April 1, 2022. This company had previously been classified as an immaterial subsidiary. The purpose of Covestro Invest GmbH is to acquire, hold, and manage the company’s investments, provide services for third parties, especially within the scope of intragroup management of investments, in each case insofar as these do not constitute activities requiring authorization under the German Banking Act (KWG), and the assumption of personal liability and management functions for commercial partnerships.

The decrease in the number of consolidated companies in the reporting year 2022 is primarily attributable to intragroup mergers of consolidated companies, which were transferred in connection with the acquisition of the Resins & Functional Materials (RFM) business from Koninklijke DSM N.V., Heerlen (Netherlands). As of June 1, 2022, Covestro Coating Resins B.V., Zwolle (Netherlands), Covestro Desotech B.V., Hoek van Holland (Netherlands), and Covestro Resins B.V., Zwolle (Netherlands) were merged into Covestro (Netherlands) B.V., Geleen (Netherlands), and Covestro Coating Resins, Inc., Wilmington, Massachusetts (USA), and Covestro Desotech Inc., Elgin, Illinois (USA), were merged into Covestro LLC, Pittsburgh, Pennsylvania (USA). In addition, Covestro Coating Resins Spain S.L., Barcelona (Spain) was merged into Covestro, S.L., Barcelona (Spain), while Covestro Resins (ROA) Ltd., Taipei City (Taiwan, Greater China), was merged into Covestro (Taiwan) Ltd., Kaohsiung City (Taiwan, Greater China).

As of July 1, 2022, the consolidated company Covestro GmbH, Leverkusen (Germany), was merged with Covestro Deutschland AG, Leverkusen (Germany).

Covestro Polymers (Zhuhai) Company Limited, Zhuhai (China), was consolidated for the first time with effect from September 30, 2022.

The scope of consolidation includes the joint operation LyondellBasell Covestro Manufacturing Maasvlakte V.O.F, Rotterdam (Netherlands), as of December 31, 2022, which is unchanged from the previous year. Pursuant to IFRS 11 (Joint Arrangements), Covestro’s shares of this company’s assets, liabilities, revenues, and expenses are included in the consolidated financial statements in accordance with Covestro’s rights and obligations. The main purpose of LyondellBasell Covestro Manufacturing Maasvlakte V.O.F is the joint production of propylene oxide (PO) for Covestro and its partner LyondellBasell.

Additionally, two (previous year: two) associated companies are accounted for in the consolidated financial statements using the equity method.

Eight (previous year: ten) subsidiaries and two (previous year: two) associated companies that in aggregate are immaterial to the Covestro Group’s net assets, financial position, and results of operations are not consolidated but recognized at cost. The immaterial subsidiaries each accounted for no more than 0.1% of Group sales, equity, or total assets in the reporting year 2022.

The information on the companies included in the consolidated financial statements and on the Covestro Group’s shareholdings pursuant to Section 313 (2) of the German Commercial Code (HGB) and the list of domestic subsidiaries that made use of the exemption provisions pursuant to Sections 264 (3) and 264b of the German Commercial Code (HGB) in fiscal 2022 are components of the consolidated financial statements submitted for publication to Germany’s Federal Gazette (Bundesanzeiger).

The disclosures on shareholdings in accordance with the requirements of Section 313 (2) HGB are shown in the following tables. The first table contains the following fully consolidated companies:

According to IFRS 10 (Consolidated Financial Statements), Covestro’s interest in the amount of 50% in Covestro Eternal Resins (Kunshan) Co., Ltd., Kunshan (China), is classified as a fully consolidated company due to the 57% share of voting rights.

In addition, the following joint operation have been included in the consolidated financial statements in line with Covestro’s shares of its assets, liabilities, revenues and expenses:

The following associated companies are accounted for in the consolidated financial statements using the equity method:

The following subsidiaries were included in the consolidated financial statements at amortized cost due to their immateriality:

The following associated companies were recognized at cost due to their immateriality:

The 41.2% interest in Crime Science Technology, Lille (France), is classified as a debt instrument in accordance with IAS 32 (Financial Instruments: Presentation) and is measured at fair value through profit or loss in accordance with IFRS 9 (Financial Instruments).

The following fully consolidated domestic subsidiaries made use of the exemption provisions pursuant to Section 264 (3) of the German Commercial Code (HGB) and Section 264b of the German Commercial Code (HGB) in fiscal 2022:

5.2 Acquisitions and Divestitures

Acquisitions

No reportable acquisitions were made in the reporting year 2022.

Divestitures

On August 5, 2022, Covestro signed an agreement for the sale of assets and liabilities (disposal group) of the additive manufacturing business to Stratasys, a U.S.-Israeli manufacturer of 3D printers and 3D production systems. The business sold by Covestro includes employees, research and development facilities, production units, and offices in the Netherlands, the United States, China, Japan, Germany, and the United Kingdom as well as access to a large network of partners around the world. The portfolio also includes products that are part of the Resins & Functional Materials business (RFM) acquired from Koninklijke DSM N.V., Heerlen (Netherlands), in fiscal 2021. The additive manufacturing business, which is part of the Solutions & Specialties segment, offers material solutions for common polymer 3D printing processes. Covestro’s decision to sell the additive manufacturing business is consistent with the optimization of its portfolio to make its organization more efficient and allow the company to sharpen its focus on the extensive range of offerings for customers in its main customer industries. The selling price amounts to €43 million and an additional payment for certain assets, less any liabilities transferred. In addition, the agreement specifies a variable earn-out payment which depends on the achievement of various success factors. The transaction is structured as an asset deal. In connection with the sale, noncurrent assets and inventories of €18 million and liabilities of €2 million were classified as held for sale in accordance with IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations). The sale is expected to close in the second quarter of 2023.