Key Assumptions and Estimates

The preparation of the consolidated financial statements requires estimates and assumptions on the part of the Executive Board that affect the reported amount of assets, liabilities, income and expense in the consolidated financial statement as well as the disclosure of other financial liabilities and contingent liabilities. Reasonable allowance is made for existing uncertainties when calculating values. The actual earnings may, however, differ from these estimates. All estimates and assumptions are made to the best of our knowledge and belief in order to provide a true and fair picture of the earnings, assets, financial position of the Group.

The most important future-based assumptions as well as other significant sources of uncertainty in the estimates existing on the balance sheet date, as a result of which there is a considerable risk that it will be necessary to make a significant adjustment to carrying amounts of assets and liabilities within the next fiscal year, are explained below.

The impairment test for goodwill, other intangible assets and property, plant and equipment requires estimates of future cash flows from assets or the cash generating unit to determine the value in use as well as the selection of an appropriate discount rate to determine the present value of these cash flows. For estimates of future cash flows, long-term income forecasts are to be made in the context of economic setting and the development of the industry.

The scheduled depreciation of property, plant and equipment requires estimates and assumptions when determining the standardised useful life of assets for the Group as a whole.

Relevant assessments are required to measure the deferred tax assets and liabilities of the Group. In particular, the deferred tax assets on unused tax losses require estimates of the amount and dates of future taxable income as well as the future tax planning strategies. If there is doubt about the feasibility of the unused tax losses, these are not recognised or adjusted.

Inventories include valuation allowances to the lower net realisable value. The amount of the valuation allowances requires estimates and assumptions about the sales revenues likely to be generated.

In the case of bad debts, valuation allowances are made in order to account for expected losses resulting from customers' inability to pay. The structure of due dates for the net claims, experience of the derecognition of debts in the past, an estimate of the customer's creditworthiness as well as changes in payment performance form the basis for the assessment of the appropriateness of valuation allowances on bad debt.

The valuation of pension obligations is based on assumptions about the future development of certain factors. These factors include, among others, actuarial assumptions such as, for example, the discount rate, expected increases in the value of plan assets, expected salary and pension increases, mortality rates and the earliest retirement age. Due to the long-term nature of such plans, such estimates are subject to considerable uncertainties.

The recognition and valuation of provisions are connected with estimates to a significant extent. The assessment of the quantification of the possible sum of payment obligations is based on the respective situation and circumstances. Provisions are created for obligations where there is a risk of losses, losses are probable and their sum can be reliably estimated.

To determine whether an agreement constitutes a leasing relationship, it is necessary to assess whether the fulfilment of the contractual agreement depends on the use of a certain asset or certain assets and on whether the agreement grants the right to use the asset.