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. Discretion describes the need to make assumptions concerning recognition or measurement when applying accounting policies. Sources of estimation uncertainty affecting the selection of the valuation techniques to be applied relate in particular to the parameters used therein. The discretionary scope and estimation uncertainty are assessed on a company-specific basis. In particular, the uncertainties described below are taken into account accordingly in the respective case. The degree of estimation uncertainty may vary considerably depending on the availability and reliability of the input factors.

Increased uncertainty due to the current macroeconomic and political environment

The weak macroeconomic development in many nations of Europe and in China, as well as political changes and the resulting potential macroeconomic and trade policy decisions, mean the degree of uncertainty in the preparation of the consolidated financial statements is high. Uncertainties included the impact of the significant rise in prices and interest rates on consumer behavior, changing political conditions in key economies, and the ongoing war in Ukraine as well as the conflict in the Middle East. Existing and potential trade restrictions and conflicts also played a significant role in this assessment.

This could have an impact on the recoverability of non-financial assets in particular. Based on the information currently available, however, no significant impairment losses have been identified to date. Above and beyond this, as in previous years, there are no material effects on the Group’s net assets, financial position or results of operations and no grounds to suggest that the going concern assumption should not have been applied in preparing the consolidated financial statements. The potential impact of changing conditions is continuously analyzed.

Impact of prices and interest rates

Inflation continued to slow in fiscal 2024 but remained at a high level. Additionally, wage and salary demands and settlements were higher in spite of the weak macroeconomic performance. Combined with weak economic development, this also impacted the financial scope available to key countries. 

Interest rates remained higher in fiscal 2024 than they had been in previous years. This again affected our customers’ refinancing costs, especially in the Life Science business sector, resulting in lower customer demand.

Current interest rates also meant the discount rates applied in performing impairment testing and determining the fair values of financial and non-financial assets remained higher than in previous years (see Note (18) “Goodwill”, and Note (43) “Information on fair value measurement”, in particular).

Direct impact of armed conflicts

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 2024 and 2023 alike, the total share of Group net sales generated in the aforementioned countries amounted to less than 1.5%. Furthermore, the conflict in the Middle East did not have a material impact on the Group’s net assets, financial position, and results of operations in the reporting period. In fiscal 2024 and 2023 alike, the share of Group net sales generated with customers in Israel and Lebanon was less than 1%.

Impact of trade restrictions, conflicts and sanctions

In the past, inventories were increased in order to limit the impact of supply chain disruption. This fundamentally entails a heightened risk of subsequent write-downs if it is not possible to process or sell these inventories. There remains considerable uncertainty with regard to future developments, including potential conflict-related sanctions and the future trade policy of countries such as the United States in particular.

Trade policy developments could impact goods movements and competitiveness in the short term and affect investment decisions in the medium term. The tension between the United States and China remains a significant risk, particularly for specific technologies such as semiconductors and biotech. The impact of the trade restrictions between the United States and China – in the area of semiconductor materials, in particular – has been examined since fiscal 2022. Although no impairment losses have been recognized to date, 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. To determine the potential impact of climate risks, a structured climate risk analysis was conducted as part of a project aimed at implementing the recommendations of the “Task Force on Climate-Related Financial Disclosures” (TCFD) with the support of an external consulting firm and an insurance company.

Reduction targets for greenhouse gas emissions

The Group has set itself the goal of reducing both its direct (Scope 1) and indirect (Scope 2) greenhouse gas emissions by 50% in the period from the 2020 base year to 2030. By 2030, 80% of its purchased electricity will come from renewable sources. 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. These goals are aimed at ensuring that the Group’s activities are aligned with the global efforts to limit global warming to 1.5°C as set out in the Paris Agreement.

• The goals described above are to be achieved through measures including:
• reduction in process emissions,
• increased purchase of electricity from renewable sources,
• energy and material efficiency measures,
• reduced emissions in the supply chain, and
• recognition of a shadow price for the CO₂ emissions of major projects.

Transition-related climate risks

Transition-related climate risks describe the consequences for companies as a result of the transition to a sustainable economic system.

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 these greenhouse gas emissions 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. The recoverability of the assets recognized in connection with these products depends on the successful implementation of the technological improvements in production, as they could largely prevent the risk of long-term price increases due to the increased pricing of greenhouse gas emissions. 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. There is significant estimation uncertainty due to the long-term nature of the underlying analyses and the high degree of uncertainty concerning future development.

The Group has concluded several virtual purchase agreements for the purchase of electricity from renewable energy sources as an additional measure to reduce climate risks, and it also intends to increasingly purchase such electricity physically. Thanks to the signature of two virtual power purchase agreements for the United States and three virtual power purchase agreements in Spain, significant contributions were made to the achievement of the climate targets (see the disclosures in Note (42) “Management of financial risks” on the existing virtual power purchase agreements with wind and solar farm project developers in the United States and Spain).

The Group participates in EU emissions trading and purchases emission certificates where the certificates allocated free of charge by the public authorities are not sufficient to cover the Group’s greenhouse gas emissions. The impact of this EU emissions trading is currently immaterial to the Group’s net assets, financial position and results of operations.

Physical climate risks

Physical climate risks describe the risks that could result from longer-term changes in the general climatic conditions. For example, physical climate risks can have an accounting impact in the form of the necessary shortening of the economic life of items of property, plant and equipment (“stranded assets”), the risk of operational disruption or increased future expenses due to necessary adaptations to safeguard sites. In determining physical climate risks, the long-term impact of climate change on the Group was simulated using global warming scenarios that took account of risks due to flood, fire, wind, extreme heat, precipitation, drought, extreme cold, thunderstorms, and hail. All in all, the identified physical climate risks have not led to any material direct accounting impact to date. However, there is significant estimation uncertainty due to the long-term nature of the underlying analyses and the high degree of uncertainty concerning future development.

Overview of significant discretionary decisions and sources of estimation uncertainty

The accounting matters involving the most significant discretionary decisions as well as the most comprehensive assumptions relating to the future and sources of estimation uncertainty in accordance with IAS 1.125 are described below: