(9) Net sales

Accounting and measurement policies

Nature and timing of revenue recognition

Net sales are recognized when (or as) the customer obtains control of the asset. For sales of goods, the customer typically obtains control as soon as delivery is made, given that the customer is generally not able to obtain any benefits from the asset before that point in time. To a lesser extent, the Group generates net sales from the sale of goods based on bill-and-hold arrangements. In these cases, net sales are recognized before the goods are delivered to the customer, as soon as the Group has invoiced the products and the additional criteria laid out in IFRS 15.B81 are fulfilled. In the case of equipment sales, the criteria for revenue recognition are only met after installation has been successfully completed – to the extent that the installation requires specialized knowledge, does not represent a clear ancillary service and the relevant equipment can only be used by the customer once successfully set up.

For service contracts, and customer-specific contract manufacturing of goods and equipment, the Group recognizes revenue over time based on the progress towards complete satisfaction of the performance obligation, if there is a contractual claim for payment against the customer for the services already performed. Input- and output-oriented methods are used to appropriately determine progress on a contract-specific basis. Specifically, this is largely performed on the basis of the costs incurred, the time elapsed, or the milestones achieved as of the reporting date.

Intellectual property is out-licensed to a limited extent in the Healthcare and Life Science business sectors. In the Healthcare business sector, these transactions do not usually form part of ordinary activities, meaning that the corresponding income is reported in other operating income (see Note (7) “Collaboration agreements” and Note (13) “Other operating income”).

Net sales from contracts comprising several separate performance obligations are recognized when the respective performance obligation has been fulfilled. This affects, in particular, the sale of goods in combination with services. Multiple-element arrangements of this nature exist to a limited extent in the Applied Solutions business unit in the Life Science business sector and in the Semiconductor Solutions business unit in the Performance Materials business sector.

Determining the transaction price

The Group grants customers various kinds of rebates and discounts. These, as well as anticipated customer refund claims, state compulsory charges, and rebates from health plans and programs are deducted from sales. The most significant portion of these deductions from sales is attributable to the Healthcare business sector.

Sales deductions provided on the invoice as price-reducing items, which will likely be applied by customers when making the respective payments, are recognized as reduction of trade accounts receivable. Expected refunds, such as bonus payments, reimbursements for rights of return, or rebates from health plans and programs, are recognized in the separate item “refund liabilities” on the consolidated balance sheet.

The measurement of sales deductions and refund liabilities resulting from expected rebates and discounts considers the following:

• past experience,
• pricing information, and
• expected sales volume growth rates.

The measurement of sales deductions and refund liabilities resulting from rights of return takes into account historical rates of return for individual product groups, information from distributors on inventory levels, and publicly available information on product sales from sector-specific service providers (in the Healthcare business sector).

Contractual payment terms

Given that the Group generates the large majority of its sales through transactions with simple structures, the company usually has an enforceable right to payment after the performance obligation has been fulfilled. The payment targets contractually agreed between Group and its customers usually range between 30 and 60 days. For some service contracts, the company receives the contractually agreed consideration before the service is delivered; in such cases, the consideration received is presented as a contract liability on the consolidated balance sheet until the revenue has been recognized.

Practical expedients

The Group uses the practical expedient of IFRS 15 in which the promised amount of consideration is not adjusted for the effects of a significant financing component if the period between the fulfillment of a performance obligation and the payment by the customer only amounts to up to one year.