Estimates and assumptions
The preparation of these consolidated financial statements was based on estimates and assumptions, taking into account the current business environment, in particular the continuing war in Ukraine, 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 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.
- Recoverability of receivables – in particular trade receivables and receivables due from suppliers.
- Measurement of inventories, particularly with regard to write-downs to lower net realisable values.
For METRO Russia and METRO Ukraine, goodwill was already fully impaired as of 31 March 2022.
Additionally, impairment losses had been recognised in previous years and adjusted in the current year on tangible assets in stores in Ukraine that are geographically close to the crisis areas and whose sales and earnings expectations collapsed significantly at the outbreak of the war. They currently amount to between 30% and 100% of the remaining carrying amounts. Markets in Russia were likewise analysed and impaired as needed on the basis of current earnings expectations and real estate valuations in the previous year. On balance, adjustments for these effects had no measurable impact in the current financial year. After impairment, the carrying amount corresponds to the recoverable amount.
The valuation of inventories and receivables 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. 17 – goodwill and other intangible assets and no. 18 – property, plant and equipment).
- For the measurement of receivables, increased specific bad debt allowances were recognised in view of the current business situation in 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. 23 – trade receivables). For the risk assessment, the current political and economic conditions are continuously monitored.
- Pension provisions (no. 28 – provisions for post-employment benefits plans and similar obligations)
Management judgement
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. 42 – leases)