Estimates and assumptions, discretionary judgements

Due to the Covid-19 pandemic, particular challenges arose with regards to estimates and assumptions. Public life in many countries where METRO operates has been severely restricted as a result of the pandemic and the associated regulatory 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 Q3 and especially Q4. However, it is currently not possible to make a reliable estimate as to whether significant public restrictions will be necessary again and how long it will subsequently 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 situations:

• Impairment testing of assets with and without a definite useful life, including goodwill, brand rights with indefinite useful lives, and customer bases, including a sensitivity analysis in each case. Meanwhile, 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.
• 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 plans 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)
• Indicator-based 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 considerations 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)
• Determination of provisions for post-employment benefits plans (no. 31 – 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. 32 – Other provisions (non-current)/provisions (current), no. 36 – 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 incremental borrowing 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.

Judgemental decisions

Information on the key judgemental decisions 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 – Sales revenues)
• Determination of the group of investments accounted for at equity by assessing the significant influence