Covid-19 and the war in Ukraine
Financial year 2021/22 continued to be impacted by government measures associated with the Covid-19 pandemic, albeit to a significantly lesser extent, with each of METRO’s individual segments being affected to varying degrees. In addition, the war in Ukraine and the resulting consequences, such as the energy crisis and inflation, also have a particularly significant impact on the consolidated financial statements. METRO is represented in both Ukraine and Russia.
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 war in Ukraine and 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, if necessary including a sensitivity analysis. Meanwhile, short-term declines in 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.
In the ad hoc goodwill impairment test, the cumulative carrying amount of the group of cash-generating units is compared with the recoverable amount. The recoverable amount of a cash-generating unit is the higher of itsvalue in use or its fair value less costs of disposal. It is calculated from discounted future cash flows and the level 3 input parameters of the fair value hierarchy.
For METRO Russia and METRO Ukraine, goodwill was already fully impaired as of 31 March 2022.
Additionally, impairment losses between 50% and 100% were recognised on tangible assets in stores that are geographically close to the crisis areas and whose sales and earnings expectations have collapsed significantly. After impairment, the carrying amount corresponds to the recoverable amount.
The valuation of inventories considered risk provisions that were in line with the current business environment.
In addition to the issues resulting from the war in Ukraine, valuation adjustments may especially arise for the following items within the next financial year:
- Assets with and without a definite useful life, including goodwill, brand rights with indeterminable useful lives, and customer bases. Meanwhile, short-term declines in earnings have no impact on the existing carrying amounts of goodwill (no. 19 – goodwill, no. 20 – other intangible assets and no. 21 – property, plant and equipment)
- For the valuation of receivables, increased specific bad debt allowances have been made since the beginning of the Covid-19 pandemic, particularly in units with longer payment terms and a high exposure to the HoReCa sector. Furthermore, the future element was reflected in a risk-adequate amount as part of the general risk provisioning in accordance with IFRS 9 (no. 27 – trade receivables). The risk assessment is continuously monitored based on the consequences of the war in Ukraine, such as the energy crisis and inflation, as well as the development of government measures associated with Covid-19 and consumer behaviour in the HoReCa sector under the current political and economic environment.
- Pension provisions (no. 32 – provisions for post-employment benefits plans and similar obligations)
- Shares in WM Holding (HK) Limited (no. 30 – assets held for sale/liabilities related to assets held for sale) including the related put option (no. 24 – other financial and other non-financial assets)
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 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. 47 – leases)