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 at 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.

As in the previous year, the recoverable amount for all CGUs in the 2024 reporting year was determined on the basis of the fair value less costs of disposal, which was calculated using 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. For increased accuracy, the medium-term planning for all CGUs was extended by two years compared with the previous year and now covers a period of six years starting from the following year (2023: four years). In the Healthcare CGU, the transition to the terminal value takes place after six years starting from the following year (2023: four years). Due to extensive investments in the Life Science and Electronics CGUs, an additional two years (2023: four years) are planned for these CGUs after the medium-term planning period in line with business-specific assumptions before the transition to the terminal value takes place by applying a long-term growth rate.

Sales planning is based on internal past experience and largely non-observable input factors in the market, such as new products from the development pipeline, expected future market shares, selling prices and volumes and expansion investments. The profit margins used in planning are 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 (2023: 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. 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 30% (2023: around 31%).

The expected average net sales in the Healthcare CGU in connection with the calculation of fair value less costs of disposal were largely stable in the detailed planning period (2023: mid-single-digit percentage growth 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 applied in the period until the transition to the terminal value was around 31% (2023: 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 (2023: 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 as a result of extensive investments. 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 27% (2023: around 29%).

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.