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Capital Structure, Investments, and Financing Activities

(43) Information on fair value measurement

Accounting and measurement policies
Information on fair value measurement

The measurement techniques and main input factors used to determine the fair value of financial instruments are as follows:

Fair value determined by official prices and quoted market values (Level 1)

 

 

Financial instruments concerned

 

Description of the measurement technique

 

Main input factors used to determine fair values

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Subsequent measurement at fair value through other comprehensive income

 

 

 

 

 

 

Equity instruments

 

Shares

 

Derived from active market

 

Quoted prices in an active market

Other debt instruments

 

Bonds

 

 

 

Other short-term cash investments

 

 

Subsequent measurement at fair value through profit or loss

 

 

 

 

 

 

Other debt instruments

 

Publicly-traded funds

 

Derived from active market

 

Quoted prices in an active market

 

Other short-term cash investments

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Subsequent measurement at amortized cost

 

 

 

 

 

 

Financial debt

 

Bonds

 

Derived from active market

 

Quoted prices in an active market
Fair value determined using input factors observable in the market (Level 2)

 

 

Financial instruments concerned

 

Description of the measurement technique

 

Main input factors used to determine fair values

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Subsequent measurement at fair value through profit or loss

 

 

 

 

 

 

Derivatives (without a hedging relationship)

 

Forward exchange contracts and currency options

 

Use of recognized actuarial methods

 

Spot and forward rates observable on the market as well as exchange rate volatilities

 

Interest rate swaps

 

 

Interest rate curves available on the market

Derivatives (with a hedging relationship)

 

Forward exchange contracts and currency options

 

Use of recognized actuarial methods

 

Spot and forward rates observable on the market as well as exchange rate volatilities

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Subsequent measurement at fair value through profit or loss

 

 

 

 

 

 

Derivatives (without a hedging relationship)

 

Forward exchange contracts and currency options

 

Use of recognized actuarial methods

 

Spot and forward rates observable on the market as well as exchange rate volatilities

 

Interest rate swaps

 

 

Interest rate curves available on the market

Derivatives (with a hedging relationship)

 

Forward exchange contracts and currency options

 

Use of recognized actuarial methods

 

Spot and forward rates observable on the market as well as exchange rate volatilities

 

 

 

 

 

 

 

Subsequent measurement at amortized cost

 

 

 

 

 

 

Financial liabilities

 

Liabilities to banks and other loan liabilities

 

Discounting of future cash flows

 

Interest rates observable on the market
Fair value determined using input factors unobservable in the market (Level 3)

 

 

Financial instruments concerned

 

Description of the measurement technique

 

Main input factors used to determine fair values

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Subsequent measurement at fair value through other comprehensive income

 

 

 

 

 

 

Equity instruments

 

Equity investments in unlisted companies

 

Discounting of expected future cash flows

 

Expected cash flows from recent business planning, average cost of capital, expected long-term growth rate

 

 

Derived from observable prices within the scope of equity refinancing sufficiently close to the balance sheet date, considered risk allowances

 

Observable prices derived from equity refinancing

 

 

Cost-based determination

 

Acquisition cost

Trade and other receivables

 

Trade accounts receivable that are intended for sale due to a factoring agreement

 

Nominal value less factoring fees

 

Nominal value of potentially sold trade accounts receivable, average fees for sales of trade accounts receivable

Subsequent measurement at fair value through profit or loss

 

 

 

 

 

 

Derivatives (without a hedging relationship)

 

Virtual power purchase agreements

 

Discounting of expected future cash flows

 

Electricity future price curves, expected electricity production volumes, discount factors

Contingent consideration

 

Contingent considerations from the sale of businesses or shares in corporations

 

Discounting of probability-weighted future milestone payments and license fees

 

Sales planning, milestone payments, probabilities of regulatory and commercial events, discount rates

Other debt instruments

 

Loans with variable repayments

 

Discounting of expected
future cash flows

 

Expected cash flows from recent business planning, discount rates

 

Interests in unlisted funds

 

Consideration of the fair value of companies in which the funds are invested

 

Net asset values of the fund interests

 

Bonds with embedded settlement option for equity in an unlisted company

 

Use of recognized actuarial methods

 

Interest rates observable on the market

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Subsequent measurement at fair value through profit or loss

 

 

 

 

 

 

Derivatives (without a hedging relationship)

 

Hedging instrument for virtual power purchase agreements

 

Use of recognized actuarial methods

 

Electricity future price curves, expected electricity production volumes, discount factors

Contingent consideration

 

Contingent considerations from the purchase of businesses

 

Discounting of probability-weighted future milestone payments and license fees

 

Sales planning,milestone payments,probabilities of regulatory and commercial events, discount rates

Counterparty credit risk is taken into consideration for measurements of financial instruments at fair value. In the case of non-derivative financial instruments, such as other liabilities or interest-bearing securities, this is reflected using risk premiums on the discount rate, while discounts on market value (credit valuation adjustments and debit valuation adjustments) are used for derivatives. Transfers between the individual hierarchy levels at fair value are made at the end of the month in which the triggering event – for example an initial public offering – took place.

Assets from contingent considerations (Level 3)

The fair values of assets from contingent considerations are calculated by weighting the expected future cash flows from milestone payments and royalties using their probability of occurrence and discounting them. The main parameters when determining contingent considerations are:

  • the estimated probability of reaching the individual milestone events,
  • the underlying sales planning used to derive royalties, and
  • the discount factor used.

When determining the probability of occurrence of the individual milestone events in connection with the development of drug candidates, the focus is on empirically available probabilities of success of development programs in comparable phases of clinical development in the relevant therapeutic areas. To determine the sales plan, internal sales plans and sales plans of external industry services are used. The discount rate (after tax) of 6.6% as of December 31, 2023 (December 31, 2022: 6.3% to 7.3%) was calculated using the weighted average cost of capital.

Income and expenses from the discounting of probability-weighted future milestone payments and license fees and from changes in discount rates are reported in the financial result.

Significant discretionary decisions and sources of estimation uncertainty
Equity investments in unlisted companies

Determining the parameters that are to be included in discounted cash-flow-methods and deriving the fair value from observable prices within the scope of equity refinancing are both subject to discretionary decisions and estimation uncertainty.

Assets from contingent consideration

The calculation of the fair value of assets from contingent considerations is subject to significant discretionary judgment.

The most significant contingent consideration was the future purchase price claim from the sale of the biosimilars business to a subsidiary of Fresenius SE & Co. KGaA, Bad Homburg vor der Höhe, Germany, on August 31, 2017. It was calculated by an external valuation expert on initial recognition in 2017 and continued on this basis. As of December 31, 2023, the carrying amount was € 118 million (December 31, 2022: € 219 million).

If, in the context of determining the fair value of this contingent consideration at the balance sheet date, the probability of approval as well as the discount factor of the most important development programs had been estimated to be lower or higher, this would have led to the following changes in the measurement and the corresponding effects on the profit before income tax:

December 31, 2023

 

 

 

 

Change in probability of regulatory approval

€ million

 

 

 

-10%

 

unchanged

 

10%

Change of discount rate

 

6.1%

 

-3

 

3

 

9

 

6.6% (unchanged)

 

-6

 

–

 

6

 

7.1%

 

-8

 

-3

 

3
December 31, 2022

 

 

 

 

Change in probability of regulatory approval

€ million

 

 

 

-10%

 

unchanged

 

10%

Change of discount rate

 

5.8%

 

-18

 

3

 

24

 

6.3% (unchanged)

 

-21

 

–

 

20

 

6.8%

 

-24

 

-3

 

17

The following table presents the carrying amounts and the fair values of the individual financial assets and liabilities as of December 31, 2023, for each individual financial instrument class pursuant to IFRS 9:

December 31, 2023

 

 

 

 

Carrying amount

 

Fair value1

 

 

€ million

 

Consoli­dated notes

 

Current

 

Non-current

 

Total

 

Fair value deter­mined by official prices and quoted market values (Level 1)

 

Fair value deter­mined using input factors observable in the market (Level 2)

 

Fair value deter­mined using input factors not observable in the market (Level 3)

 

Total

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsequent measurement at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

35

 

1,982

 

–

 

1,982

 

 

 

 

 

 

 

 

Trade and other receivables (excluding leasing receivables)

 

25

 

3,973

 

25

 

3,998

 

 

 

 

 

 

 

 

Other debt instruments

 

36

 

201

 

4

 

204

 

 

 

 

 

 

 

 

Subsequent measurement at fair value through other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity instruments

 

36

 

–

 

643

 

643

 

207

 

–

 

436

 

643

Trade and other receivables

 

25

 

25

 

–

 

25

 

–

 

–

 

25

 

25

Other debt instruments

 

36

 

198

 

1

 

199

 

199

 

–

 

–

 

199

Subsequent measurement at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent considerations

 

36

 

–

 

125

 

125

 

–

 

–

 

125

 

125

Other debt instruments

 

36

 

33

 

161

 

194

 

98

 

–

 

95

 

194

Derivatives without a hedging relationship

 

36, 39

 

30

 

47

 

77

 

–

 

27

 

50

 

77

Derivatives with a hedging relationship

 

36, 39

 

37

 

–

 

37

 

–

 

37

 

–

 

37

Lease receivables
(measured in accordance with IFRS 16)2

 

25

 

6

 

3

 

9

 

 

 

 

 

 

 

 

Total

 

 

 

6,485

 

1,008

 

7,493

 

505

 

65

 

731

 

1,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsequent measurement at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade payables and other liabilities

 

30

 

2,545

 

–

 

2,545

 

 

 

 

 

 

 

 

Financial debt

 

37

 

503

 

8,846

 

9,349

 

7,367

 

2,665

 

–

 

10,032

Other financial liabilities

 

38

 

998

 

127

 

1,125

 

 

 

 

 

 

 

 

Subsequent measurement at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent considerations

 

38

 

–

 

2

 

2

 

–

 

–

 

2

 

2

Derivatives without a hedging relationship

 

37, 38, 39

 

79

 

18

 

96

 

–

 

77

 

20

 

96

Derivatives with a hedging relationship

 

38, 39

 

5

 

–

 

5

 

–

 

5

 

–

 

5

Refund liabilities

 

9

 

877

 

–

 

877

 

 

 

 

 

 

 

 

Lease liabilities
(measured in accordance with IFRS 16)2

 

37

 

122

 

393

 

515

 

 

 

 

 

 

 

 

Total

 

 

 

5,129

 

9,387

 

14,515

 

7,367

 

2,747

 

22

 

10,136

1

The simplification option under IFRS 7.29(a) was used for disclosures of certain fair values. IFRS 7.29(d) explicitly does not require disclosure of the fair value of lease liabilities.

2

Measurements within the scope of IFRS 16 are exempted from the requirements of IFRS 13 (IFRS 13.6(b)).

The following table presents the carrying amounts and the fair values of the individual financial assets and liabilities as of December 31, 2022, for each individual financial instrument class pursuant to IFRS 9:

December 31, 2022

 

 

 

 

Carrying amount

 

Fair value1

 

 

€ million

 

Consoli­dated notes

 

Current

 

Non-current

 

Total

 

Fair value deter­mined by official prices and quoted market values (Level 1)

 

Fair value deter­mined using input factors observable in the market (Level 2)

 

Fair value deter­mined using input factors not observable in the market (Level 3)

 

Total

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsequent measurement at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

35

 

1,854

 

–

 

1,854

 

 

 

 

 

 

 

 

Trade accounts receivable and other receivable
(excluding leasing receivables)

 

25

 

4,087

 

25

 

4,112

 

 

 

 

 

 

 

 

Other debt instruments

 

36

 

122

 

4

 

126

 

 

 

 

 

 

 

 

Subsequent measurement at fair value through other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity instruments

 

36

 

–

 

516

 

516

 

102

 

–

 

415

 

516

Trade accounts receivable and other receivable

 

25

 

22

 

–

 

22

 

–

 

–

 

22

 

22

Debt instruments

 

36

 

80

 

1

 

81

 

81

 

–

 

–

 

81

Subsequent measurement at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

36

 

14

 

235

 

250

 

–

 

–

 

250

 

250

Other debt instruments

 

36

 

28

 

154

 

182

 

89

 

–

 

93

 

182

Derivatives without a hedging relationship

 

36,39

 

23

 

46

 

69

 

–

 

17

 

53

 

69

Derivatives with a hedging relationship

 

36,39

 

53

 

–

 

53

 

–

 

53

 

–

 

53

Finance lease receivables
(to be measured in accordance with IFRS 16)2

 

25

 

5

 

2

 

7

 

 

 

 

 

 

 

 

Total

 

 

 

6,289

 

984

 

7,273

 

271

 

70

 

833

 

1,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsequent measurement at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable3

 

30

 

2,499

 

–

 

2,499

 

 

 

 

 

 

 

 

Financial debt

 

37

 

1,073

 

8,834

 

9,907

 

7,989

 

1,188

 

–

 

9,177

Other financial liabilities4

 

38

 

1,119

 

118

 

1,237

 

 

 

 

 

 

 

 

Subsequent measurement at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

38

 

–

 

4

 

4

 

–

 

–

 

4

 

4

Derivatives without a hedging relationship

 

37,38,39

 

34

 

19

 

53

 

–

 

30

 

23

 

53

Derivatives with a hedging relationship

 

38,39

 

30

 

–

 

30

 

–

 

30

 

–

 

30

Refund liabilities

 

9

 

912

 

–

 

912

 

 

 

 

 

 

 

 

Finance lease liabilities
(to be measured in accordance with IFRS 16)2

 

37

 

125

 

366

 

491

 

 

 

 

 

 

 

 

Total

 

 

 

5,792

 

9,342

 

15,134

 

7,989

 

1,248

 

27

 

9,265

1

The simplification option under IFRS 7.29(a) was used for disclosures of certain fair values. IFRS 7.29(d) explicitly does not require disclosure of the fair value of lease liabilities.

2

Measurements within the scope of IFRS 16 are exempted from the requirements of IFRS 13 (IFRS 13.6(b)).

3

Previous year’s figures have been adjusted, see Note (6) “Acquisitions and Divestments”.

4

Previous year’s figures have been adjusted, see Note (2) “Reporting Principles”.

The changes in financial assets and liabilities for each of the individual classes of financial instruments allocated to Level 3 and measured at fair value were as follows in the previous year:

2022

 

 

Financial assets

 

Financial liabilities

 

 

 

 

Subsequent measurement at fair value through profit or loss

 

Subsequent measurement at fair value through other comprehensive income

 

Subsequent measurement at fair value through profit or loss

 

 

€ million

 

Other debt instru­ments

 

Contingent consider­ation

 

Derivatives without a hedging relation­ship

 

Equity instru­ments

 

Trade and other receivables

 

Contingent consider­ation

 

Derivatives without a hedging relation­ship

 

Total

Net carrying amounts as of Jan. 1, 2022

 

78

 

271

 

24

 

345

 

20

 

-39

 

-10

 

689

Additions

 

27

 

–

 

–

 

87

 

70

 

–

 

–

 

184

Transfers into Level 3 from Level 1/Level 2

 

–

 

–

 

–

 

–

 

–

 

–

 

–

 

–

Fair value changes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (+)/losses (-) recognized in the consolidated income statement (other operating result)

 

17

 

15

 

30

 

 

 

–

 

30

 

-13

 

79

thereof: attributable to assets/liabilities held as of the balance sheet date

 

17

 

7

 

30

 

 

 

–

 

4

 

-13

 

44

Gains (+)/losses (-) recognized in the consolidated income statement (financial income and expenses)

 

-4

 

10

 

1

 

 

 

–

 

-1

 

–

 

6

thereof: attributable to assets/liabilities held as of the balance sheet date

 

-4

 

9

 

1

 

 

 

–

 

–

 

–

 

6

Gains (+)/losses (-) recognized in other comprehensive income

 

 

 

 

 

 

 

-11

 

–

 

 

 

 

 

-11

Currency translation difference

 

2

 

–

 

2

 

-1

 

–

 

-3

 

–

 

–

Disposals

 

-21

 

-46

 

-4

 

-1

 

-68

 

10

 

–

 

-131

Transfers out of Level 3 into Level 1/Level 2

 

–

 

–

 

–

 

-11

 

–

 

–

 

–

 

-11

Other

 

-7

 

–

 

–

 

7

 

–

 

–

 

–

 

–

Net carrying amounts as of Dec. 31, 2022

 

93

 

250

 

53

 

415

 

22

 

-4

 

-23

 

806

The changes in financial assets and liabilities for each of the individual classes of financial instruments allocated to Level 3 and measured at fair value were as follows in fiscal 2023:

2023

 

 

Financial assets

 

Financial liabilities

 

 

 

 

Subsequent measurement at fair value through profit or loss

 

Subsequent measurement at fair value through other comprehensive income

 

Subsequent measurement at fair value through profit or loss

 

 

€ million

 

Other debt instru­ments

 

Contingent consider­ation

 

Derivatives without a hedging relation­ship

 

Equity instru­ments

 

Trade and other receivables

 

Contingent consider­ation

 

Derivatives without a hedging relation­ship

 

Total

Net carrying amounts as of Jan. 1, 2023

 

93

 

250

 

53

 

415

 

22

 

-4

 

-23

 

806

Additions

 

21

 

–

 

–

 

59

 

72

 

–

 

–

 

152

Transfers into Level 3 from Level 1/Level 2

 

–

 

–

 

–

 

–

 

–

 

–

 

–

 

–

Fair value changes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (+)/losses (-) recognized in the consolidated income statement (other operating result)

 

10

 

56

 

2

 

 

 

–

 

–

 

1

 

69

thereof: attributable to assets/liabilities held as of the balance sheet date

 

10

 

6

 

-2

 

 

 

–

 

–

 

1

 

16

Gains (+)/losses (-) recognized in the consolidated income statement (financial income and expenses)

 

5

 

10

 

–

 

 

 

–

 

–

 

–

 

14

thereof: attributable to assets/liabilities held as of the balance sheet date

 

5

 

10

 

–

 

 

 

–

 

–

 

–

 

14

Gains (+)/losses (-) recognized in other comprehensive income

 

 

 

 

 

 

 

47

 

–

 

 

 

 

 

47

Currency translation difference

 

-2

 

–

 

-3

 

-1

 

–

 

–

 

–

 

-5

Disposals

 

-21

 

-190

 

-2

 

-29

 

-69

 

2

 

3

 

-307

Transfers out of Level 3 into Level 1/Level 2

 

–

 

–

 

–

 

-3

 

–

 

–

 

–

 

-3

Other

 

-11

 

–

 

–

 

-51

 

–

 

–

 

–

 

-62

Net carrying amounts as of Dec. 31, 2023

 

95

 

125

 

50

 

436

 

25

 

-2

 

-20

 

710

Disposals during the reporting period related in particular to payments received in connection with the contingent consideration arising from the sale of the biosimilars business to Fresenius SE & Co. KGaA, Bad Homburg vor der Höhe, as well as trade accounts receivable under factoring agreements. The reclassification of the fair value of Calypso Biotech B.V., Netherlands, to assets held for sale is included in the “Other” line item. The gains and losses from Level 3 assets recognized in other comprehensive income were reported in the consolidated statement of comprehensive income under the item “Fair value adjustments”.

The following equity instruments measured at fair value through other comprehensive income were disposed of in 2023 and 2022:

€ million

 

Reasons for the disposal

 

Fair value on the date of derecognition

 

The cumulative gain (+) or loss (-) on disposal recognized in other comprehensive income

 

Transfer of the cumulative gains (+) or losses (-) within group equity to retained earnings

20231

 

 

 

 

 

 

 

 

M Ventures Portfoliogesellschaften

 

Portfolio adjustment/restructuring and full acquisition by third parties

 

29

 

18

 

17

MoonLake Immunotherapeutics Ltd., Cayman Islands

 

Partial sale

 

11

 

10

 

10

 

 

 

 

 

 

 

 

 

20221

 

 

 

 

 

 

 

 

M Ventures Portfoliogesellschaften

 

Portfolio adjustment/restructuring and full acquisition by third parties

 

4

 

-19

 

-19

1

Disposals due to liquidations are not included.

M Ventures portfolio companies mainly include minority interests in listed and unlisted companies. The mandate of M Ventures is to invest in innovative technologies and products.

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