Estimates and assumptions, discretionary judgements
Due to the Covid-19 pandemic, particular challenges arose in with regards to estimates and assumptions. The operational business was largely unaffected by Covid-19 until the end of February 2020. At the beginning of the crisis in Europe triggered by the pandemic, METRO was initially able to more than compensate for the loss of sales and earnings of some customer groups (particularly hospitality industry customers) through positive sales and earnings effects in other customer groups (particularly through inventory purchases by SCO customers). Since mid-March 2020, however, the overall development in terms of sales and earnings has been clearly negative due to the pandemic and the regulatory measures imposed in many countries. Public life in many countries where METRO operates has been severely restricted as a result of these measures – in particular, the measures had a significant negative impact on some of our customer groups (especially hospitality industry customers) and, consequently also on our business. The situation did not stabilise until the 2nd half of the financial year – and even then just at a low level. At this stage, it is not possible to make a reliable estimate of how long the pandemic and the associated restrictions on public life will last and how long it will take to return to normal.
Estimates and assumptions
The preparation of these consolidated financial statements was based on estimates and assumptions, taking into account the changes in the business environment described above, which affected the disclosure and amount of assets and liabilities, income and expenses and contingent liabilities. Estimates and underlying assumptions with major effects were particularly made in connection with the Covid-19 pandemic with respect to the following circumstances:
- Ad hoc impairment testing of assets with and without a definite useful life, including goodwill, and a sensitivity analysis. Due to unstable political developments and regulatory restrictions as a result of the Covid-19 pandemic, the ad hoc impairment test of goodwill for the Classic Fine Foods Group in particular resulted in a shortfall, which was recognised as part of an impairment. Otherwise, potential short-term impairments to earnings have no impact on the existing carrying amounts of goodwill.
- Recoverability of receivables – in particular trade receivables and receivables due from suppliers. Increased specific bad debt allowances were provided for when measuring receivables, particularly in units with longer payment terms and a high exposure to the HoReCa sector. In addition, the future element in the general risk provision was increased in accordance with IFRS 9.
- Measurement of inventories, particularly with regard to write-downs to lower net realisable values.
- Calculation of provisions for performance-based remuneration components. Provisions for performance-based remuneration components were also calculated on the basis of corporate planning using current market parameters such as the performance of share prices and benchmark indices.
In addition, information on estimates and underlying assumptions with significant effects on these consolidated financial statements relates to the following circumstances or is included in the following notes:
- Uniform group-wide determination of expected useful lives for assets with a definite useful life (no. 15 – depreciation/amortisation/impairment losses, no. 20 – other intangible assets and no. 21 – property, plant and equipment)
- Ad hoc impairment testing of assets with a definite useful life (no. 15 – depreciation/amortisation/impairment losses, no. 20 – other intangible assets and no. 21 – property, plant and equipment)
- Recoverability of receivables due from suppliers with respect to considerations from suppliers (no. 24 – other financial and other non-financial assets)
- Recognition of consideration from suppliers on an accrual basis and their presentation in the income statement (no. 24 – other financial and other non-financial assets)
- Ability to realise future deferred tax assets – particularly from tax loss carry-forwards (no. 25 – deferred tax assets/deferred tax liabilities)
- Measurement of inventories; inventories were examined thoroughly to determine whether fresh goods could still be sold during existing shutdown phases, and additional risk provisions were made where necessary (no. 26 – inventories)
- Determination of provisions for post-employment benefits plans (no. 32 – provisions for post-employment benefits plans and similar obligations)
- Determination of other provisions and other liabilities – for example, for performance obligations, restructuring, warranties, taxes and risks emerging from legal proceedings and litigation as well as risks from completed transactions (no. 33 – other provisions (non-current)/provisions (current), no. 37 – other financial and other non-financial liabilities)
- Determination of lease terms, taking into account relevant facts and circumstances relating to economic incentives affecting the likelihood of tenants exercising renewal options or not exercising termination options as well as determination of the marginal interest rate (no. 21 – property, plant and equipment)
Although great care has been taken in making these estimates and assumptions, actual measurements may deviate from them in individual cases and especially considering Covid-19-related uncertainties. The estimates and assumptions used in the consolidated financial statements are regularly reviewed. Changes are taken into account at the time new information becomes available.
Information on the key judgements that materially affected the amounts reported in these consolidated financial statements relates to the following circumstances or note disclosures:
- Determination whether METRO is the principal or agent in sales transactions (no. 1 – revenue)
- Determination of the group of investments accounted for at equity by assessing the material influence