(42) Management of financial risks
Market fluctuations with respect to foreign exchange and interest rates represent significant profit and cash flow risks for the Group. The Group aggregates these Group-wide risks and steers them centrally, partly by using derivatives. To estimate existing risks of foreign exchange and interest rate fluctuations, the Group uses scenario analyses. The Group is not subject to any material risk concentration from financial transactions.
The Group uses marketable forward exchange contracts, options, and interest swaps as hedging instruments. The strategy to hedge interest rate and foreign exchange rate fluctuations arising from forecast transactions and transactions already recognized in the balance sheet is set by a risk committee, which meets on a regular basis. The use of derivatives is regulated by extensive guidelines and subject to ongoing risk controls by Group Treasury. Speculation is prohibited. The strict separation of functions between trading, settlement, and control functions is ensured. Derivatives are only entered into with banks that have a good credit rating. Related default risks are continuously monitored.
The Report on Risks and Opportunities included in the combined management report provides further information on the management of financial risks.
Foreign exchange risks
Owing to the international nature of its business, the Group is exposed to transactional foreign exchange risks within the scope of both its business activities and financing activities. Foreign exchange risks are continuously analyzed and different hedging strategies used to limit or eliminate these risks.
A more rule-based hedging approach was gradually introduced for hedging foreign exchange risks as of the beginning of fiscal 2019. The entire foreign exchange exposure is divided into several defined risk levels and systematically hedged using suitable hedging instruments. The number of currencies included in hedging was also expanded. Hedging is performed based on a regularly reviewed basket of currencies. As part of the new hedging concept, the time horizon for hedging was reduced from a maximum of 36 months to 12 months. The new hedging concept aims to ensure a consistent hedging quality at lower costs.
Foreign exchange risks from the following transactions are hedged using foreign exchange contracts and currency options applying hedge accounting:
- Forecast transactions in non-functional currency, the expected probability of which is very high for the next 12 months,
- Firm purchase commitments over the next 12 months in non-functional currency.
Foreign exchange risks from the following transactions are economically hedged through the use of foreign exchange contracts and currency options:
- Intragroup financing in non-functional currency,
- Receivables from and liabilities to third parties in non-functional currency.
The following table shows the net exposure and the effects of transactional exchange rate movements of the key currencies against the euro in relation to the net income and equity of the Group on the balance sheet date:
€ million |
|
|
|
USD |
|
CHF |
|
CNY |
|
TWD |
|
JPY |
|
KRW |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net exposure |
|
|
|
457 |
|
-280 |
|
407 |
|
65 |
|
98 |
|
73 |
Exchange rate -10% (appreciation vs. €) |
|
Consolidated income statement |
|
46 |
|
-28 |
|
41 |
|
7 |
|
10 |
|
7 |
|
|
Equity |
|
-119 |
|
40 |
|
-62 |
|
-18 |
|
-9 |
|
-21 |
Exchange rate +10% (depreciation vs. €) |
|
Consolidated income statement |
|
-46 |
|
28 |
|
-41 |
|
-7 |
|
-10 |
|
-7 |
|
|
Equity |
|
115 |
|
-33 |
|
64 |
|
17 |
|
8 |
|
17 |
€ million |
|
|
|
USD |
|
CHF |
|
CNY |
|
TWD |
|
JPY |
|
KRW |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net exposure |
|
|
|
802 |
|
-493 |
|
933 |
|
200 |
|
39 |
|
284 |
Exchange rate -10% (appreciation vs. €) |
|
Consolidated income statement |
|
80 |
|
-49 |
|
93 |
|
20 |
|
4 |
|
28 |
|
|
Equity |
|
-114 |
|
6 |
|
-8 |
|
-12 |
|
-10 |
|
-10 |
Exchange rate +10% (depreciation vs. €) |
|
Consolidated income statement |
|
-80 |
|
49 |
|
-93 |
|
-20 |
|
-4 |
|
-28 |
|
|
Equity |
|
83 |
|
-5 |
|
14 |
|
8 |
|
7 |
|
7 |
In this presentation, effects of cash flow hedges are taken into consideration in the equity of the Group. The net exposure of each of the above currencies consisted of the following components:
- Planned cash flows in the next 12 months in the respective currency less
- The nominal values of hedging instruments of these planned cash flows.
The planned cash flows in the next 12 months are usually hedged at a ratio of 25% to 90% in line with the risk management strategy and depending on market development. As in the previous year, balance sheet items in the above currencies were economically hedged by derivatives in full if they did not correspond to the functional currency of the respective subsidiary. Accordingly, they do not affect the net exposure presented above.
The impact of cash flow hedge accounting for forecast transactions in foreign currency was as follows for the major currencies:
€ million |
|
USD |
|
CHF |
|
CNY |
|
TWD |
|
JPY |
|
KRW |
||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Notional amount |
|
1,802 |
|
358 |
|
1,071 |
|
257 |
|
97 |
|
295 |
||||
thereof: current |
|
1,802 |
|
358 |
|
1,071 |
|
257 |
|
97 |
|
295 |
||||
thereof: non-current |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
||||
Fair Value of the hedging instrument |
|
65 |
|
-2 |
|
-9 |
|
3 |
|
2 |
|
-5 |
||||
thereof: positive market values |
|
71 |
|
– |
|
6 |
|
3 |
|
2 |
|
3 |
||||
thereof: negative market values |
|
-7 |
|
-2 |
|
-15 |
|
– |
|
– |
|
-8 |
||||
Maturity profile |
|
January 2021 – December 2021 |
|
January 2021 – December 2021 |
|
January 2021 – December 2021 |
|
January 2021 – December 2021 |
|
January 2021 – December 2021 |
|
January 2021 – December 2021 |
||||
Hedge ratio1 |
|
1:1 |
|
1:1 |
|
1:1 |
|
1:1 |
|
1:1 |
|
1:1 |
||||
Change in value of outstanding hedging instruments since January 1, 2020 |
|
65 |
|
-2 |
|
-9 |
|
3 |
|
2 |
|
-5 |
||||
Change in value of hedged item used to determine hedge effectiveness since January 1, 2020 |
|
-65 |
|
2 |
|
9 |
|
-3 |
|
-2 |
|
5 |
||||
Weighted average hedging rate |
|
1.17 |
|
1.08 |
|
8.25 |
|
33.55 |
|
124.20 |
|
1,379.00 |
||||
|
€ million |
|
USD |
|
CHF |
|
CNY |
|
TWD |
|
JPY |
|
KRW |
||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Notional amount |
|
1,794 |
|
55 |
|
392 |
|
151 |
|
139 |
|
165 |
||||
thereof: current |
|
1,794 |
|
55 |
|
392 |
|
151 |
|
139 |
|
163 |
||||
thereof: non-current |
|
– |
|
– |
|
– |
|
– |
|
– |
|
2 |
||||
Fair value of the hedging instrument |
|
-28 |
|
2 |
|
– |
|
-6 |
|
-2 |
|
-4 |
||||
thereof: positive market values |
|
2 |
|
2 |
|
– |
|
– |
|
– |
|
– |
||||
thereof: negative market values |
|
-31 |
|
– |
|
– |
|
-6 |
|
-3 |
|
-4 |
||||
Maturity profile |
|
January 2020 – December 2020 |
|
January 2020 – December 2020 |
|
January 2020 – December 2020 |
|
January 2020 – December 2020 |
|
January 2020 – December 2020 |
|
January 2020 – January 2021 |
||||
Hedge ratio1 |
|
1:1 |
|
1:1 |
|
1:1 |
|
1:1 |
|
1:1 |
|
1:1 |
||||
Change in value of outstanding hedging instruments since January 1, 2019 |
|
-11 |
|
2 |
|
– |
|
-2 |
|
-1 |
|
– |
||||
Change in value of hedged item used to determine hedge effectiveness since January 1, 2019 |
|
11 |
|
-2 |
|
– |
|
2 |
|
1 |
|
– |
||||
Weighted average hedging rate |
|
1.19 |
|
1.12 |
|
8.08 |
|
36.24 |
|
127.40 |
|
1,378.90 |
||||
|
In addition to the transactional foreign exchange risks described previously, the Group was exposed to currency translation risks since many of the Group’s subsidiaries are located outside the eurozone and have functional currencies other than the reporting currency. Exchange differences resulting from translation of the assets and liabilities of these companies into euros, the reporting currency, are recognized in equity.
Interest rate risks
The Group’s net exposure to interest rate changes comprised the following:
€ million |
|
Dec. 31, 2020 |
|
Dec. 31, 2019 |
---|---|---|---|---|
Short-term or variable interest rate monetary deposits |
|
1,368 |
|
811 |
Short-term or variable interest rate monetary borrowings |
|
-2,607 |
|
-4,761 |
Net interest rate exposure |
|
-1,240 |
|
-3,950 |
The effects of a parallel shift in the yield curve by +100 or -100 basis points on the consolidated income statement as well as on equity relative to all short-term or variable monetary deposits and monetary borrowings within the scope of IAS 32, except contingent considerations, are presented in the following table. In the event of a downward shift, the interest rate for instruments subject to a contractual interest rate floor of zero percent was limited accordingly.
€ million |
|
2020 |
|
2019 |
||||
---|---|---|---|---|---|---|---|---|
Change in market interest rate |
|
+ 100 basis points |
|
– 100 basis points |
|
+ 100 basis points |
|
– 100 basis points |
Effects on consolidated income statement |
|
-21 |
|
11 |
|
-23 |
|
11 |
Effects on equity (other comprehensive income) |
|
– |
|
– |
|
– |
|
– |
The Group does not expect the IBOR reform to have a significant impact neither on interest rate risk nor net assets, financial position or results of operations.
Share price risks
The shares in publicly listed companies amounting to € 244 million (December 31, 2019: € 209 million) are generally exposed to a risk of fluctuations in fair value. A 10% change in the price of these financial instruments would impact Group equity by € 24 million (2019: € 21 million). This change in value would be recognized in Group equity.
Electricity price risks
On October 15, 2020, the Group concluded a virtual power purchase agreement with a wind energy project developer in the United States for an expected project capacity of 50 megawatts. The wind farm is scheduled to be commissioned in 2022. The Group will receive renewable energy certificates (RECs) for the quantities of electricity produced. As the agreement is designed as a contract for difference, it fulfills the definition of a derivative financial instrument and is measured at fair value through profit or loss in accordance with IFRS 9. The agreement had a carrying amount of € 8 million at the reporting date. A change in the significant valuation parameters would have had the following effect on fair value:
|
|
Change in expected future electricity prices |
|
Change in expected annual production volume |
|
Change in cost of capital after tax |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
percentage points |
|
percentage points |
|
percentage points |
||||||
€ million |
|
+10 |
|
-10 |
|
+10 |
|
-10 |
|
+1 |
|
-1 |
Change in the fair value of the virtual power purchase agreement |
|
3 |
|
-3 |
|
1 |
|
-1 |
|
-1 |
|
1 |
Around 40% of the expected production volume under the virtual power purchase agreement is hedged via a separate hedging instrument.
Liquidity risks
The risk that the Group cannot meet its payment obligations resulting from financial liabilities, is limited by establishing the required financial flexibility and by Group-wide cash management. Information on issued bonds and other sources of financing can be found in Note (37) “Financial debt/capital management”.
Liquidity risks are monitored and reported to management on a regular basis.
The following liquidity risk analysis presents the contractual cash flows such as repayments and interest on financial liabilities and the net cash flows of derivatives with a negative fair value:
|
|
|
|
Cash flows < 1 year |
|
Cash flows 1 – 5 years |
|
Cash flows > 5 years |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
€ million |
|
Carrying amount |
|
Interest |
|
Repayment |
|
Interest |
|
Repayment |
|
Interest |
|
Repayment |
Subsequent measurement at amortized cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds and commercial paper |
|
9,642 |
|
-167 |
|
-517 |
|
-478 |
|
-5,014 |
|
-189 |
|
-4,150 |
Bank loans |
|
1,085 |
|
-5 |
|
-835 |
|
-1 |
|
-250 |
|
– |
|
– |
Trade accounts payable |
|
1,768 |
|
– |
|
-1,768 |
|
– |
|
– |
|
– |
|
– |
Liabilities to related parties |
|
1,375 |
|
– |
|
-1,375 |
|
– |
|
– |
|
– |
|
– |
Other financial liabilities |
|
439 |
|
– |
|
-405 |
|
– |
|
-34 |
|
– |
|
– |
Loans from third parties and other financial debt |
|
58 |
|
-4 |
|
-15 |
|
-16 |
|
-42 |
|
– |
|
– |
Subsequent measurement at fair value through profit or loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent considerations |
|
26 |
|
– |
|
– |
|
– |
|
-26 |
|
– |
|
– |
Derivatives without a hedging relationship |
|
104 |
|
-15 |
|
-62 |
|
-15 |
|
– |
|
– |
|
– |
Derivatives with a hedging relationship |
|
45 |
|
– |
|
-46 |
|
– |
|
– |
|
– |
|
– |
Refund liabilities |
|
666 |
|
– |
|
-666 |
|
– |
|
– |
|
– |
|
– |
Lease liabilities |
|
438 |
|
-8 |
|
-110 |
|
-16 |
|
-246 |
|
-7 |
|
-81 |
|
|
15,646 |
|
-199 |
|
-5,799 |
|
-526 |
|
-5,612 |
|
-196 |
|
-4,231 |
|
|
|
|
Cash flows < 1 year |
|
Cash flows 1 – 5 years |
|
Cash flows > 5 years |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
€ million |
|
Carrying amount |
|
Interest |
|
Repayment |
|
Interest |
|
Repayment |
|
Interest |
|
Repayment |
Subsequent measurement at amortized cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds and commercial paper |
|
10,059 |
|
-120 |
|
-2,224 |
|
-519 |
|
-4,042 |
|
-223 |
|
-3,828 |
Bank loans |
|
1,587 |
|
-25 |
|
-1,337 |
|
-1 |
|
-250 |
|
– |
|
– |
Trade accounts payable |
|
2,054 |
|
– |
|
-2,054 |
|
– |
|
– |
|
– |
|
– |
Liabilities to related parties |
|
1,320 |
|
– |
|
-1,320 |
|
– |
|
– |
|
– |
|
– |
Other financial liabilities |
|
596 |
|
– |
|
-569 |
|
– |
|
-27 |
|
– |
|
– |
Loans from third parties and other financial debt |
|
97 |
|
-1 |
|
-53 |
|
-8 |
|
-44 |
|
– |
|
– |
Subsequent measurement at fair value through profit or loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent considerations |
|
16 |
|
– |
|
– |
|
– |
|
-16 |
|
– |
|
– |
Derivatives without a hedging relationship |
|
76 |
|
-15 |
|
-19 |
|
-29 |
|
– |
|
– |
|
– |
Derivatives with a hedging relationship |
|
46 |
|
– |
|
-46 |
|
– |
|
– |
|
– |
|
– |
Refund liabilities |
|
565 |
|
– |
|
-565 |
|
– |
|
– |
|
– |
|
– |
Finance lease liabilities |
|
567 |
|
-12 |
|
-119 |
|
-30 |
|
-319 |
|
-20 |
|
-189 |
|
|
16,982 |
|
-174 |
|
-8,305 |
|
-587 |
|
-4,698 |
|
-243 |
|
-4,017 |
Credit risks
Credit risk for the Group means the risk of a financial loss if a customer or other contract partner is not able to meet its contractual payment obligations. The Group is exposed to credit risks mainly due to existing trade accounts receivable, other receivables, other debt instruments, derivatives, and contract assets.
Credit risks are continuously monitored by credit management. It additionally carries out the management of risks arising from extending credit to customers, suppliers, and in the course of other business relationships.
The Group analyzes all financial assets that are more than 90 days past due and examines whether the credit risk has risen significantly and, as a result, there is objective evidence of impairment requiring the recognition of additional risk provisions.
Accounting and measurement policies
Credit risks
Impairment of trade accounts receivable and contract assets
The Group uses the simplified impairment model for trade accounts receivable subsequently measured at amortized cost and contract assets, pursuant to which any credit losses expected to occur over the entire lifetime of an asset are taken into account. In order to measure expected credit risks, the assets are grouped based of the existing credit risk structure and the respective maturity structure.
The customer groups with comparable default risks to be considered are determined according to the specific business sector and the place of business of the respective customers.
The expected credit loss rates used in the simplified impairment model are derived on the basis of past experience and current macroeconomic expectations. In doing so, country-specific ratings are taken into consideration since many of the Group’s customers depend directly or indirectly on the economic trends in the country where their place of business is located (public and private healthcare systems, universities and research companies from within the pharmaceutical industry as well as industries subsidized under development plans, particularly in Asia). These country ratings are aggregated into three separate rating groups. Under the impairment model, past default rates and country ratings are used as an approximation of the defaults to be expected in the future.
Accordingly, when a country’s rating changes, the historical default rates of the rating group to which the respective country has been re-allocated have to be applied, rather than the historical default rates of the previous rating group.
The expected default rates used in the simplified impairment model for trade accounts receivable were analyzed and adjusted in the second quarter of fiscal 2020 in response to the impact of the Covid-19 pandemic. The adjustment was performed by updating the minimum default probabilities per aging category derived from market data based on the development of credit default swap prices. As part of the continuous monitoring of financial market data, credit default swap prices no longer indicated an increased credit risk in the fourth quarter of 2020; as a result, the adjustment made during the year was retracted.
If there is objective evidence that certain trade accounts receivable are fully or partially impaired, additional loss allowances are recognized to provide for expected credit losses.
A default generally exists when the debtor cannot fully meet its liabilities.
A debtor’s creditworthiness is assumed to be impaired if there are objective indications that the debtor is in financial difficulties, such as the disappearance of an active market for its products or impending insolvency. On initial recognition, the lifetime expected credit losses are deducted from the nominal amount of trade accounts receivable considered as originated credit-impaired financial assets.
Impairment of other receivables
The general three-stage impairment model and the simplified approach are used to recognize loss allowances of financial instruments included in other receivables. The individual credit rating of the contract partner is used to determine the impairment loss of other receivables.
Individual cases are also analyzed to ascertain whether objective findings suggest that the value of other receivables is impaired. Such suggestions may include, for example, economic difficulties of the debtor, contractual breaches or the renegotiation of contractual payment obligations. If the analysis concludes there is a substantially increased risk of default, the expected credit loss is calculated over the entire lifetime.
Impairment of other financial assets
Investments in debt instruments subsequently measured either at amortized cost or at fair value through other comprehensive income are primarily considered to be investments with low risk, meaning that the expected credit loss in the upcoming 12 months is used to determine the impairment loss.
For financial assets with only a minimal default risk, the rules concerning the mandatory recognition of a risk provision for the lifetime expected credit loss are not applied at initial recognition or during subsequent measurement. Therefore, no assessment of whether there has been a significant increase in the credit risk is carried out for such assets. The Group does not presume an increased credit risk as of the balance sheet date if the contract partner has an investment grade rating.
If there are indications that the debtor’s creditworthiness had worsened but that this was not yet reflected in its existing credit rating, the credit risk assessment is adjusted and the impairment allowances recognized for expected credit losses are increased. In all other cases, there are no new risk assessments as of the balance sheet date and the risk profile initially assumed is maintained.
Wherever a considerable increase in the default risk is assumed, the lifetime expected credit loss of the financial asset is considered.
On the balance sheet date, the theoretical maximum default risk for all items referenced above corresponds to the net carrying amounts less any compensation from credit insurance.
Significant discretionary decisions and sources of estimation uncertainty
Credit risks
Impairment of trade accounts receivable and contract assets
In terms of the impairment of trade accounts receivable and of contract assets, there is significant discretion and estimation uncertainty when it comes to
- the identification of customer groups with identical default risks,
- the identification of a substantial increase in the credit risk, and
- the calculation of the expected credit losses.
As of December 31, 2020, trade accounts receivable were impaired by 2.3% (December 31, 2019: 2.4%). If it had been necessary to recognize impairment on trade accounts receivable and contract assets at 10% higher as of the reporting date, this would have caused a € 7 million reduction in profit before tax (2019: € 8 million).
Impairment of other financial assets
Discretionary judgment is applied in determining individual impairment allowances.
The following table shows impairments for financial assets from operative transactions and contract assets as well as gains from their reversals recognized in the consolidated income statement:
€ million |
|
2020 |
|
2019 |
---|---|---|---|---|
Impairment losses |
|
-81 |
|
-95 |
of trade accounts receivable |
|
-78 |
|
-89 |
of contract assets |
|
– |
|
– |
of debt instruments subsequently measured at amortized cost |
|
-3 |
|
-5 |
of debt instruments subsequently measured at fair value through other comprehensive income |
|
– |
|
– |
Reversals of impairment losses |
|
75 |
|
87 |
of trade accounts receivable |
|
71 |
|
85 |
of contract assets |
|
– |
|
– |
of other debt instruments subsequently measured at amortized cost |
|
4 |
|
2 |
of other debt instruments subsequently measured at fair value through other comprehensive income |
|
– |
|
– |
Net impairment on financial assets |
|
-6 |
|
-8 |
The loss allowances and reversals recognized for trade accounts receivable as shown above applied entirely to receivables resulting from contracts with customers.
Credit risks from trade accounts receivable
The credit risk from trade accounts receivable is largely impacted by the specific circumstances of individual customers. The Group also considers additional factors such as the general default risk in the respective industry and country in which the customer operates.
The credit risk of customers is assessed using established credit management processes that take individual customer risks into account. This is done in particular by analyzing the aging structure of trade accounts receivable.
The Group continuously reviews and monitors open positions of all its customers in the corresponding countries and takes steps to-mitigate risks if necessary.
The table below contains an overview of the credit risk by business sector and country rating established by leading rating agencies as of December 31, 2020:
€ million |
|
Healthcare |
|
Life Science |
|
Performance Materials |
|
Group |
---|---|---|---|---|---|---|---|---|
External credit rating of at least AA- or comparable |
|
781 |
|
996 |
|
481 |
|
2,257 |
External credit rating of at least BBB- or comparable |
|
260 |
|
136 |
|
13 |
|
410 |
External credit rating lower than BBB- or comparable |
|
425 |
|
31 |
|
2 |
|
458 |
Trade accounts receivable before loss allowances |
|
1,466 |
|
1,163 |
|
496 |
|
3,125 |
€ million |
|
Healthcare |
|
Life Science |
|
Performance Materials |
|
Group |
---|---|---|---|---|---|---|---|---|
External credit rating of at least AA- or comparable |
|
763 |
|
883 |
|
526 |
|
2,172 |
External credit rating of at least BBB- or comparable |
|
278 |
|
164 |
|
20 |
|
463 |
External credit rating lower than BBB- or comparable |
|
573 |
|
42 |
|
2 |
|
617 |
Trade accounts receivable before loss allowances |
|
1,614 |
|
1,089 |
|
548 |
|
3,251 |
Goods were generally sold under retention of title so that a reimbursement claim exists in the event of default. Other guarantees generally were not demanded. The scope of credit-insured receivables was immaterial for the Group.
Loss allowances based on expected credit losses for trade accounts receivable as of December 31, 2020, were as follows:
€ million |
|
Not yet due |
|
Up to 90 days past due |
|
Up to 180 days past due |
|
Up to 360 days past due |
|
More than 360 days past due |
|
Total |
---|---|---|---|---|---|---|---|---|---|---|---|---|
Expected loss rate |
|
0.4% |
|
2.2% |
|
3.7% |
|
17.7% |
|
62.9% |
|
|
Trade accounts receivable before loss allowances |
|
2,633 |
|
312 |
|
56 |
|
57 |
|
68 |
|
3,125 |
thereof: credit impaired |
|
7 |
|
6 |
|
– |
|
5 |
|
42 |
|
59 |
Loss allowances |
|
-11 |
|
-7 |
|
-2 |
|
-10 |
|
-43 |
|
-73 |
thereof: credit impaired |
|
-3 |
|
-3 |
|
– |
|
-3 |
|
-39 |
|
-49 |
Prior to the recognition of additional impairment losses, purchased or originated credit impaired (POCI) trade accounts receivable totaled € 4 million as of December 31, 2020 (December 31, 2019: € 3 million). Additional impairment losses amounting to € 1 million were recognized after initial recognition (December 31, 2019: € 0 million). These POCI receivables are included in the credit impaired trade accounts receivable shown in the provision matrices.
The POCI receivables were measured at fair value on initial recognition by deducting the expected credit losses from their nominal amounts. The undiscounted expected credit losses deducted in fiscal 2020 amounted to € 17 million (2019: € 3 million). This amount related to all trade accounts receivable classified as credit impaired on initial recognition and recognized for the first time in the fiscal year, some of which have already been settled.
Loss allowances based on expected credit losses for trade accounts receivable as of December 31, 2019, were as follows:
€ million |
|
Not yet due |
|
Up to 90 days past due |
|
Up to 180 days past due |
|
Up to 360 days past due |
|
More than 360 days past due |
|
Total |
---|---|---|---|---|---|---|---|---|---|---|---|---|
Expected loss rate |
|
0.6% |
|
1.9% |
|
6.1% |
|
11.1% |
|
41.3% |
|
|
Trade accounts receivable before loss allowances |
|
2,669 |
|
367 |
|
59 |
|
43 |
|
112 |
|
3,251 |
thereof: credit impaired |
|
5 |
|
1 |
|
2 |
|
3 |
|
42 |
|
53 |
Loss allowances |
|
-16 |
|
-7 |
|
-4 |
|
-5 |
|
-46 |
|
-77 |
thereof: credit impaired |
|
-2 |
|
-1 |
|
-1 |
|
-2 |
|
-41 |
|
-47 |
Credit risks from other receivables
Gross other receivables amounted to € 196 million as of December 31, 2020 (December 31, 2019: € 340 million). Other receivables in the amount of € 194 million were allocated to Level 1 of the general three-level impairment model (December 31, 2019: € 339 million), meaning that the credit loss expected in the next twelve months was used to determine the amount of impairment when examining the individual credit risk of the respective contract partner. The following table shows the impairment losses recognized for other receivables.
In fiscal 2020, the nominal amount of one other receivable classified as credit impaired on initial recognition was reduced in full by expected credit losses in the amount of € 4 million (2019: € 0 million). This meant that the balance sheet as of December 31, 2020 did not include any other receivables that were already classified as credit impaired on initial recognition.
Credit risks from other financial assets
The Group limits credit risks from other financial assets by concluding contracts almost exclusively with contract partners whose creditworthiness is good. The credit risk from financial contracts is monitored daily on the basis of market information on credit default swap rates and fortnightly on the basis of rating information.
Impairment losses on financial assets developed as follows:
€ million |
|
Jan. 1 |
|
Additions |
|
Derecognition |
|
Utilizations |
|
Reclassification within levels |
|
Effects of currency translation |
|
Changes in scope of consolidation |
|
Dec. 31 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Subsequent measurement at amortized cost |
|
-81 |
|
-81 |
|
75 |
|
7 |
|
– |
|
5 |
|
– |
|
-76 |
Trade and other receivables (including current leasing receivables) |
|
-77 |
|
-78 |
|
71 |
|
6 |
|
– |
|
5 |
|
– |
|
-73 |
thereof: Level 1/2 |
|
-30 |
|
-64 |
|
66 |
|
– |
|
2 |
|
2 |
|
– |
|
-24 |
thereof: Level 3 |
|
-47 |
|
-13 |
|
5 |
|
6 |
|
-2 |
|
3 |
|
– |
|
-48 |
thereof: POCI |
|
– |
|
-1 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
-1 |
Contract Assets |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
-1 |
thereof: Level 1/2 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
-1 |
thereof: Level 3 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
Other Receivables (including non-current leasing receivables) |
|
-4 |
|
-3 |
|
4 |
|
– |
|
– |
|
– |
|
– |
|
-2 |
thereof: Level 1 |
|
-3 |
|
-2 |
|
4 |
|
– |
|
– |
|
– |
|
– |
|
-1 |
thereof: Level 2 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
thereof: Level 3 |
|
-1 |
|
-1 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
-2 |
Loss allowances for financial assets |
|
-81 |
|
-81 |
|
75 |
|
7 |
|
– |
|
5 |
|
– |
|
-76 |
€ million |
|
Jan. 1 |
|
Additions |
|
Derecognition |
|
Utilizations |
|
Reclassification within levels |
|
Effects of currency translation |
|
Changes in scope of consolidation |
|
Dec. 31 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Subsequent measurement at amortized cost |
|
-76 |
|
-95 |
|
87 |
|
7 |
|
– |
|
-1 |
|
-3 |
|
-81 |
Trade and other receivables (including current leasing receivables) |
|
-73 |
|
-89 |
|
85 |
|
7 |
|
– |
|
-3 |
|
-3 |
|
-77 |
thereof: Level 1/2 |
|
-28 |
|
-82 |
|
80 |
|
– |
|
3 |
|
-1 |
|
-2 |
|
-30 |
thereof: Level 3 |
|
-45 |
|
-8 |
|
5 |
|
7 |
|
-3 |
|
-2 |
|
-1 |
|
-47 |
thereof: POCI |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
Other Receivables (including non-current leasing receivables) |
|
-3 |
|
-5 |
|
1 |
|
– |
|
– |
|
2 |
|
– |
|
-4 |
thereof: Level 1 |
|
-2 |
|
-4 |
|
1 |
|
– |
|
– |
|
2 |
|
– |
|
-3 |
thereof: Level 2 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
thereof: Level 3 |
|
– |
|
-1 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
-1 |
Loss allowances for financial assets |
|
-76 |
|
-95 |
|
87 |
|
7 |
|
– |
|
-1 |
|
-3 |
|
-81 |