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 operating segments and assesses their performance. The reportable segments and regions are identified, and the disclosures selected, in line with the internal financial reporting system (management approach). They are based on the same accounting policies outlined in the consolidated financial statements as of December 31, 2020.

As of June 30, 2021, the Covestro Group comprises three reportable segments with the following activities:

Polyurethanes

The Polyurethanes segment develops, produces and markets high-quality precursors for polyurethanes. These precursors are diphenylmethane diisocyanate (MDI), toluene diisocyanate (TDI), and polyether polyols. Rigid foam based on MDI is used mainly in the construction industry as an insulating material as well as along the entire refrigeration chain. Flexible polyurethane foam based on TDI is used primarily in the furniture and automotive industries (e.g., in upholstered furniture, mattresses and car seats). The segment operates production facilities worldwide. Formulating and supplying customized polyurethane systems takes place primarily in the APAC region.

Polycarbonates

The Polycarbonates segment develops, produces and markets the high-performance plastic polycarbonate in the form of granules, composite materials and semifinished products. The material is used primarily in the automotive industry (e.g., in the vehicle interior and for vehicle lighting) and in the construction industry (e.g., for roof structures). It is also used in the electrical and electronics industry (e.g., for connectors and laptop cases), the medical technology industry and the lighting industry (e.g., for LED components). The Covestro Group produces polycarbonate all around the world and processes it at compounding centers to meet specific customer requirements.

Coatings, Adhesives, Specialties

The Coatings, Adhesives, Specialties segment develops, produces and markets Covestro’s precursors for coatings, adhesives and sealants as well as specialties — primarily for polyurethane systems. They include polymer materials and aqueous dispersions based on the isocyanates HDI and IPDI, which are produced at facilities located throughout the world. The main areas of application are automotive and transportation, infrastructure and construction, wood processing, and furniture. The specialties comprise elastomers, high-quality films and precursors for the cosmetics, textiles and health care industries. On April 1, 2021, Covestro additionally completed the acquisition of the Resins & Functional Materials (RFM) business from Koninklijke DSM N.V., Heerlen (Netherlands). The Completion of this acquisition of RFM in the Coatings, Adhesives, Specialties segment makes Covestro one of the world’s leading suppliers of sustainable coating resins.

Business activities that cannot be allocated to any of the aforementioned segments are reported under “All other segments.” The external sales from these activities are generated mainly from by-products of chlorine production and use.

The costs of Corporate Center functions, higher or lower expenses for long-term stock-based compensation arising from fluctuations in the performance of Covestro AG stock, as well as one-time costs in the course of the LEAP transformation program are presented in the segment reporting as “Corporate Center and reconciliation.”

The segment data is calculated as follows:

• EBIT and EBITDA are not defined in the International Financial Reporting Standards. EBIT is equal to income after income taxes plus financial result and income taxes. EBITDA is the EBIT as reported in the income statement plus depreciation and impairment losses on property, plant and equipment, and amortization and impairment losses on intangible assets, less impairment loss reversals.
• Trade working capital includes inventories plus trade accounts receivable and contract assets, less trade accounts payable, contract liabilities and refund liabilities.

The following tables show the segment reporting data for the second quarter and for the first half year (as of June 30), respectively:

Information on geographical areas

The following tables show information by geographical area. The EMLA region consists of Europe, the Middle East, Latin America except Mexico, and Africa. Mexico forms together with the United States and Canada 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: