(18) Goodwill
Accounting and measurement policies
Goodwill
In the course of business combinations, goodwill is recognized on the acquisition date. The option to measure non-controlling interests at fair value on the date of their acquisition (full goodwill method) is not utilized.
The purpose of impairment testing in accordance with IAS 36 is to ensure that the carrying amount of assets in the balance sheet is not higher than their recoverable amount. The recoverable amount is the higher of the fair value less costs of disposal and the value in use.
Method for impairment testing
Impairment testing for goodwill takes place at the level of the Life Science, Healthcare and Electronics business sectors. These groups of cash-generating units (CGUs) are the lowest level at which goodwill at the Group is monitored for internal management purposes.
Impairment testing is performed on a scheduled basis in the third quarter of every year and on an ad hoc basis where there are indications of impairment. The existence of indications of impairment is monitored using various factors such as changes in medium-term planning, analyst forecasts, validation multiples, and the Group’s average market capitalization compared to its balance sheet equity.
As in the previous year, the recoverable amount for all CGUs in the 2025 reporting year was determined on the basis of the fair value less costs of disposal, which was calculated using the discounted cash flow method (Level 3 in the IFRS 13 fair value hierarchy).
In calculating the fair value, the expected post-tax cash flows are derived until 2030 from the medium-term plans prepared by the business sectors (as in the previous year). In the Healthcare CGU, the transition to the terminal value takes place after that (as in the previous year). Due to extensive investments in the Life Science and Electronics CGUs, an additional two years (2024: two years) are planned for these CGUs after the medium-term planning period in line with business-specific assumptions before the transition to the terminal value takes place by applying a long-term growth rate.
Sales planning is based on internal past experience and largely non-observable input factors in the market, such as new products from the development pipeline, expected future market shares, selling prices and volumes and expansion investments. The profit margins used in planning are based on past experiences adjusted for expected profitability developments.
The discount factors after taxes are derived on the basis of the following input parameters:
Risk-free interest rate |
|
Derived from the returns of long-term government bonds based on the Svensson method |
|---|---|---|
Beta factor |
|
Derived from the respective business sector-specific peer group |
Market risk premium |
|
Based on a combination of different estimating methods; e.g. historical and implied stock yields |
Cost of debt and capital structure |
|
Derived from the market data of the respective peer group companies |
The long-term growth rate after the detailed planning period is determined taking into account expected long-term growth and long-term inflation expectations.
Significant measurement assumptions
In the Life Science CGU, the expected average sales growth in the period until the transition to the terminal value was a higher single-digit percentage, as in the previous year. The sales expectation for the Life Science CGU is supported primarily by the anticipated long-term positive development in the Process Solutions business unit, based on ongoing high market growth. Taking into account Group costs allocated on a pro rata basis, the EBITDA pre margin applied in the period until the transition to the terminal value was around 29% (2024: around 30%).
The expected sales growth in the Healthcare CGU in connection with the calculation of fair value less costs of disposal was on average in the mid-single-digit percentage range in the detailed planning period (2024: largely stable average net sales). The stronger growth is primarily attributable to the increase in sales expected from the acquisition of SpringWorks Therapeutics, Inc., United States. Additionally, the sales performance reflects the probability of regulatory approval of drug candidates in the existing research and development programs. Taking into account Group costs allocated on a pro rata basis, the EBITDA pre margin applied in the period until the transition to the terminal value was around 32% (2024: around 31%).
The calculation of the recoverable amount of the Electronics CGU included the expected average sales growth in the period until the transition to the terminal value at a higher single-digit percentage, as in the previous year. The sales expectation for the Electronics CGU is primarily based on the long-term growth trend in the market for semiconductor materials and positive sales contributions as a result of extensive investments. Taking into account Group costs allocated on a pro rata basis, the EBITDA pre margin applied in the period until the transition to the terminal value was around 28% (2024: around 27%).
The additional significant value-relevant assumptions underlying the goodwill impairment tests are quantified below.
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|
Long-term growth rate |
|
Weighted cost of capital after tax |
||||
|---|---|---|---|---|---|---|---|---|
in % |
|
2025 |
|
2024 |
|
2025 |
|
2024 |
Life Science |
|
2.00% |
|
2.00% |
|
8.4% |
|
8.3% |
Healthcare |
|
1.00% |
|
1.00% |
|
6.6% |
|
6.3% |
Electronics |
|
2.00% |
|
2.00% |
|
8.7% |
|
7.6% |
Net cash flows were discounted using the cost of capital after taxes.
Significant discretionary decisions and sources of estimation uncertainty
Goodwill
The determination of the recoverable amount is subject to discretion and significant estimation uncertainty. Assumptions regarding the amount of net cash flows, long-term growth rates and discount factors are considered a material source of estimation uncertainty due to their inherent uncertainty. Although the Group assumes that the assumptions applied in calculating the recoverable amount are appropriate, changes to these assumptions could result in goodwill impairment with an adverse impact on the net assets, financial position and results of operations. In the Electronics CGU in particular, there is a high degree of dependence on the assumptions concerning the long-term growth trend in the market for semiconductor materials.
As in the previous year, the recoverable amount in impairment testing in fiscal 2025 was well above the carrying amount of the respective CGU at more than 15% higher. Regardless of this, the results of the valuation were checked for plausibility against externally available “sum of the parts” calculations and validated using multiples based on peer group information.
In addition, sensitivity analyses of the key assumptions were performed as part of the scheduled impairment tests. The following table presents the minimum amount by which individual key assumptions could have changed when viewed in isolation before the impairment test triggered the recognition of an impairment loss.
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|
Decrease in net cash flows |
|
Decrease in long-term growth rate |
|
Increase in cost of capital after tax |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
% |
|
percentage points |
|
percentage points |
||||||
|
|
2025 |
|
2024 |
|
2025 |
|
2024 |
|
2025 |
|
2024 |
Life Science |
|
>10 |
|
>10 |
|
>2 |
|
>2 |
|
>2 |
|
>2 |
Healthcare |
|
>10 |
|
>10 |
|
>2 |
|
>2 |
|
>2 |
|
>2 |
Electronics |
|
>10 |
|
>10 |
|
>2 |
|
>2 |
|
>2 |
|
>2 |
The goodwill shown below mainly resulted from the following acquisitions: Versum Materials Inc., United States; Sigma-Aldrich Corporation, United States; AZ Electronic Materials S.A., Luxembourg; Millipore Corporation, United States; and Serono SA, Switzerland.
|
|
Goodwill |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
€ million |
|
Life Science |
|
Healthcare |
|
Electronics |
|
Total |
||||||
Net carrying amounts, Jan. 1, 20241 |
|
11,787 |
|
1,525 |
|
4,532 |
|
17,845 |
||||||
Additions due to business combinations2 |
|
439 |
|
– |
|
106 |
|
546 |
||||||
Disposals due to divestments/Reclassification to assets held for sale |
|
– |
|
– |
|
-162 |
|
-162 |
||||||
Transfers |
|
– |
|
– |
|
– |
|
– |
||||||
Impairment losses |
|
– |
|
– |
|
– |
|
– |
||||||
Currency translation difference |
|
665 |
|
– |
|
215 |
|
880 |
||||||
|
12,891 |
|
1,525 |
|
4,692 |
|
19,107 |
|||||||
|
|
|
|
|
|
|
|
|
||||||
Net carrying amounts, Jan. 1, 20251 |
|
12,891 |
|
1,525 |
|
4,692 |
|
19,107 |
||||||
Additions due to business combinations |
|
– |
|
580 |
|
– |
|
580 |
||||||
Disposals due to divestments/Reclassification to assets held for sale |
|
– |
|
– |
|
– |
|
– |
||||||
Transfers |
|
– |
|
– |
|
– |
|
– |
||||||
Impairment losses |
|
– |
|
– |
|
– |
|
– |
||||||
Currency translation difference |
|
-1,285 |
|
1 |
|
-469 |
|
-1,753 |
||||||
Net carrying amounts as of Dec. 31, 20251 |
|
11,605 |
|
2,107 |
|
4,223 |
|
17,934 |
||||||
|
||||||||||||||
The changes in goodwill caused by foreign exchange rates resulted almost exclusively from translating the goodwill from the acquisitions of Versum Materials, Inc., United States; the Sigma-Aldrich Corporation, United States; AZ Electronic Materials S.A., Luxembourg; and the Millipore Corporation, United States, which were mostly denominated in U.S. dollars.
As in the previous year, goodwill impairment testing did not give rise to the need to recognize any impairment losses in fiscal 2025. Net carrying amounts equal the gross amount.
The changes in the scope of consolidation in fiscal 2025 mainly resulted from the acquisition of SpringWorks Therapeutics, Inc., United States (see Note (6) Acquisitions and divestments).