General Disclosures

(3) Discretionary decisions and sources of estimation uncertainty

Dealing with discretionary decisions and sources of estimation uncertainty

The preparation of the consolidated financial statements requires the Group to make discretionary decisions on the applicable accounting and measurement policies as well as estimates to a certain extent. The discretionary scope and estimation uncertainty are assessed in a Group-specific manner. Discretion describes the need to make assumptions concerning recognition or measurement when applying accounting policies. Sources of estimation uncertainty relate to the selection of the valuation techniques to be applied and the input factors used therein. The degree of estimation uncertainty may vary considerably depending on the availability and reliability of the input factors.

Increased uncertainty due to the macroeconomic situation

The dynamic development of the macroeconomic environment means that the degree of uncertainty in the preparation of the consolidated financial statements is considerably higher than was typically the case in the past. In particular, uncertainties include the development of inflation, the development of interest rates, geopolitical challenges, trade restrictions and sanctions. This applies in particular to the recoverability of non-financial assets. Based on the information currently available, there is no evidence of significant impairment losses to date. Furthermore, as in previous years, there are no grounds to suggest that the going concern assumption should not have been applied in preparing the consolidated financial statements.

Impact of inflation

Inflation has led to an increase in procurement costs, especially for logistics services, materials and energy (see Note (10) “Cost of sales” and (11) “Marketing and selling expenses”). As in the previous year, the cost of purchasing natural gas and electricity came to a low triple-digit million euro amount for the Group in fiscal 2022. The higher level of procurement costs resulted in an increase in the carrying amount of raw materials and supplies as well as work in progress reported in inventories. The Group raised its prices in order to offset these increased procurement costs. It is typically easier to pass on price increases in the Life Science and Electronics business sectors than in the price-regulated environment of the Healthcare business sector. Furthermore, the assumptions concerning the long-term salary and pension trends applied in calculating pension obligations were reviewed and adjusted to reflect the development of inflation. This resulted in an increase in the defined benefit obligation in connection with the measurement of defined benefit pension plans (see Note (33) “Provisions for employee benefits”).

Impact of higher interest rates

The increase in interest rates had an impact on the measurement of provisions for defined benefit pension plans (see Note (33) “Provisions for employee benefits”) and other non-current provisions (see Note (27) “Other provisions”) in particular, leading to substantial reductions in the amount of the respective obligations.

The higher interest rates also resulted in a rise in the discount rates applied in performing impairment testing and determining the fair values of financial and non-financial assets (see Note (18) “Goodwill” and Note (43) “Information on fair value measurement” in particular).

Direct impact of the war in Ukraine

To date, the war in Ukraine has not had any material effects on the Group’s net assets, financial position or results of operations owing to its limited business volume in Russia, Ukraine, Belarus, and the Republic of Moldova. In fiscal 2022 and 2021 alike, the total share of Group net sales generated in the aforementioned countries amounted to less than 1.5%. These sales were attributable almost exclusively to the Healthcare business sector as well as the Life Science business sector in connection with the provision of medical care. With the exception of Russia, the Group does not have any subsidiaries of its own in this region. Trade receivables from customers in Russia, Ukraine, Belarus and the Republic of Moldova are partly covered by credit insurance. The payment behavior of customers in the affected region is being monitored very closely. There were no notable loss allowances as of December 31, 2022. To date, local payments to customers and employees in Russia as well as international payments with Russia have been ensured without restriction.

Impact of trade restrictions, sanctions and supply chain bottlenecks

Some inventories were increased in order to limit the risks in connection with supply chain disruption. Accordingly, there is a heightened risk of subsequent write-downs if it is not possible to process or sell these inventories. Furthermore, the impact of the trade restrictions concerning semiconductors that were imposed between the United States of America and China in the fourth quarter of 2022 was examined with a view to the recoverability of assets that could be affected. No impairment losses have been recognized to date. However, there is considerable uncertainty with regard to future developments.

Increased uncertainty due to climate risks

As a globally active science and technology group, the Group is subject to transition-related and physical climate risks that could have a potentially negative impact on its net assets, financial position, and results of operations and lead to increased estimation uncertainty in its accounting.

Physical climate risks describe the risks that could result from longer-term changes in the general climatic conditions. To determine the physical climate risk exposure, significant Group locations are subject to a structured climate risk analysis as part of a project aimed at implementing the recommendations of the “Task Force on Climate-Related Financial Disclosures” (TCFD). This involves simulating the long-term impact of various warming scenarios on the locations analyzed. The potential financial consequences of climate-related natural events, such as flooding, torrential rainfall and hurricanes, are covered by insurance policies to an appropriate extent. Based on the information currently available, physical climate risks are not currently expected to have any direct accounting impact.

Transition-related climate risks describe the consequences for companies as a result of the transition to a sustainable economic system. The Group has set itself the goal of reducing its direct (Scope 1) and indirect (Scope 2) greenhouse gas emissions by 50% in the period from 2020 to 2030. This will be achieved by lowering process-related emissions, implementing energy efficiency measures, and increasingly purchasing electricity from renewable sources (see the disclosures in Note (42) “Management of financial risks” on a virtual power purchase agreement with a wind energy project developer in the United States). The Group also plans to reduce the indirect emissions along the entire value chain (Scope 3) in terms of metric kilotons of CO₂ equivalents per euro of gross profit by 52% by 2030 and to achieve climate-neutral business operations along the entire value chain (Scope 1-3) by 2040. In April 2022, the Science Based Targets Initiative confirmed that the targets for 2030 and the necessary measures support the ambitions of the Science Based Targets Initiative and the Paris Agreement to limit global warming to 1.5 °C.

The most significant transition-related climate risks to the net assets, financial position, and results of operations are in the Electronics business sector, which is responsible for well in excess of half of the Group’s direct (Scope 1) and indirect (Scope 2) greenhouse gas emissions. The majority of the greenhouse gas emissions in this business sector take the form of process-related emissions resulting from the production of specialty gases for the semiconductor and electronics industries. In order to achieve the climate goals it has adopted, the Group intends to reduce the emissions in its business with these specialty gases by making technological improvements to the production process in particular. Based on the information currently available, the implementation of the Group’s sustainability strategy is not expected to result in a significant decline in net sales in this business. There have been no indications of impairment of the assets concerned to date, nor has it been necessary to adjust their remaining useful lives.

Overview of significant discretionary decisions and sources of estimation uncertainty

The accounting matters with the most significant discretionary decisions as well as the most comprehensive assumptions relating to the future and sources of estimation uncertainty are described below: