Operating Assets, Liabilities, and Contingent Liabilities

Accounting and measurement policies

Goodwill

In the course of business combinations, goodwill is recognized on the acquisition date. The option to measure non-controlling interests at fair value on the date of their acquisition (full goodwill method) is not utilized.

The purpose of impairment testing in accordance with IAS 36 is to ensure that the carrying amount of assets in the balance sheet is not higher than their recoverable amount. The recoverable amount is the higher of the fair value less costs of disposal and the value in use.

Method for impairment testing

Impairment testing for goodwill takes place at the level of the Life Science, Healthcare, and Electronics business sectors. These groups of cash-generating units (CGUs) are the lowest level at which goodwill in the Group is monitored for internal management purposes.

Impairment testing is performed on a scheduled basis in the third quarter of every year and on an ad hoc basis where there are indications of impairment. The existence of indications of impairment is monitored using various factors such as changes in medium-term planning, analyst forecasts, validation multiples, and the Group’s average market capitalization compared to its balance sheet equity.

In the 2023 reporting year, the recoverable amount for all CGUs was primarily determined on the basis of the fair value less costs of disposal (2022: Life Science and Electronics on the basis of the fair value less costs of disposal; Healthcare on the basis of the value in use).

For both fair value less costs of disposal and value in use, the recoverable amount is calculated in accordance with the discounted cash flow method (Level 3 in the IFRS 13 fair value hierarchy).

In calculating the fair value, the expected post-tax cash flows are derived from the medium-term plans prepared by the business sectors. Due to extensive investments in the Life Science and Electronics CGUs, the fourth planning year after the detailed planning period for both of these CGUs is extrapolated for an additional four years in line with business-specific assumptions before being converted to the terminal value by applying a long-term growth rate. In the Healthcare CGU, the transition to the terminal value takes place after four years starting from the following year. Sales planning was based on internal past experience and largely non-observable input factors in the market, such as future market shares, selling prices and volumes, and new products from the development pipeline and expansion investments. Profit margins are based on past experience adjusted for expected profitability developments.

In calculating the value in use in the previous year, the most recent medium-term plan approved by the Executive Board, with a detailed planning period of four years starting from the following year, served as the basis for planning. Sales planning was based on past experience and assumptions regarding future market shares, selling prices, and volumes. Expected cash inflows and outflows from new products from the Healthcare development pipeline and expansion investments were not included in the calculation of value in use. Profit margins were based on past experience adjusted for expected profitability developments.

The discount factor after taxes is derived on the basis of the following input parameters:

The long-term growth rate after the detailed planning period is determined taking into account expected long-term growth and long-term inflation expectations.

Significant measurement assumptions

In the Life Science CGU, the expected average sales growth in the period until the transition to the terminal value was a higher single-digit percentage (2022: higher single-digit percentage). The sales expectation for the Life Science CGU is supported primarily by the anticipated long-term positive development in the Process Solutions and Life Science Services business units, based on ongoing high market growth and the continuing expansion of the portfolio and production capacities. Taking into account Group costs allocated on a pro rata basis, the EBITDA pre margin applied in the period until the transition to the terminal value was around 31% (2022: around 34%).

The expected average sales growth in the Healthcare CGU in connection with the calculation of fair value less costs of disposal amounted to a mid-single-digit percentage rate in the detailed planning period (2022: mid-single-digit percentage rate). The sales performance reflected the probability of regulatory approval of drug candidates in the existing research and development programs. Taking into account Group costs allocated on a pro rata basis, the EBITDA pre margin for fair value less costs of disposal applied in the period until the transition to the terminal value in the impairment test for fiscal 2023 was around 30%.

The calculation of the recoverable amount of the Electronics CGU included the expected average sales growth in the period until the transition to the terminal value at a higher single-digit percentage (2022: higher single-digit percentage). The sales expectation for the Electronics CGU is primarily based on the long-term growth trend in the market for semiconductor materials and positive sales contributions from the Level Up growth program with an initial investment volume exceeding € 3 billion by the end of 2025. Taking into account Group costs allocated on a pro rata basis, the EBITDA pre margin applied in the period until the transition to the terminal value in the impairment test for fiscal 2023 was around 29% (2022: around 30%).

The additional significant value-relevant assumptions underlying the goodwill impairment tests are quantified below.

Net cash flows were discounted using the cost of capital after taxes. For the calculation of the value in use, which was applied in the Healthcare business sector in the previous year, the cost of capital before taxes as shown below the table was derived iteratively.