Impairment losses and reversals of impairment losses

The general descriptions of plans and models—as specified in Note 11., Impairment losses and re­versal of impairment losses, of the Annual Report 2020/21—still apply.

Impairment tests of cash generating units or groups of cash generating units containing goodwill

Impairment losses

In the business year 2020/21, an impairment loss of EUR 25.0 million on the goodwill of the Metal Engineering Division’s Tubulars unit to which goodwill had been allocated was recognized in other operating expenses as of September 30, 2020; this unit engages in the production of high quality seamless tubes. Negative developments in the selling environment, particularly the sharp drop in both crude oil prices and production rates that continued to intensify on account of the COVID-19 crisis, led to substantially lower forecasts of revenue and earnings. The expected future cash flows under­lying the impairment test as of September 30, 2020—especially those related to the detailed planning period—thus were lower than those underlying the impairment test as of March 31, 2020. The recover­able amount (value in use) for this unit was EUR 249.7 million as of September 30, 2020.

The fifth plan year was used to calculate the perpetual annuity based on a growth rate of 1.33%. The after-tax WACC was 6.21%; the pre-tax WACC was 7.58%.

In the second half of 2020/21, a recovery in sales has already started again resulting in a significant excess of the carrying amount as of March 31, 2021.

Impairment test of cash generating units that have no goodwill and of other assets

In the business year 2020/21, a total of USD 190.5 million (EUR 167.6 million as of September 30, 2020) in impairment losses on “Land, land rights, and buildings” as well as “Plant and equipment” were recognized in other operating expenses for the Texas cash generating unit of the Steel Division, which consists of a single facility and produces hot briquetted iron (HBI). Economic developments owing to the COVID-19 crisis led to an adjustment of the short-term earnings forecasts that is greater than the adjustment taken as of March 31, 2020. The HBI spot market price disintegrated to a much greater degree than anticipated due to the deteriorating scrap/iron ore price ratio. The strong price sensitivity of the HBI spot market prices as well as the expectation that volatilities in the raw materials markets would continue unabated also led to the reversal particularly of the medium-term earnings forecasts and the cash flows for the Texas unit. The recoverable amount (value in use) for this unit was EUR 447.8 million as of September 30, 2020. An after-tax discount rate of 6.79% was applied; the pre-tax WACC was 7.98%.

In the business year 2020/21, a total of EUR 8.6 million in impairment losses on “Land, land rights, and buildings” and “Plant and equipment” were recognized in other operating expenses (of which EUR 5.9 million had already been recognized as of September 30, 2020) for the Special Wire cash generating unit of the Metal Engineering Division, which comprises a single facility and focuses on the production of special wire (fine wire). This impairment loss initially stemmed from the reduction in quantities purchased by the unit’s main customer, partly due to COVID-19; in turn, this triggered both lower capacity utilization and higher price pressures, in turn further lowering sales and thus also future earnings and cash flow forecasts. The recoverable amount (value in use) for this unit was EUR 18.0 million as of March 31, 2021; it was determined on the basis of estimated net sales proceeds. These comprised the current individual sales proceeds of the assets and the carrying amount of working capital.

Hot Forming is a cash generating unit of the Metal Forming Division’s Automotive Components business unit. It comprises two plants in Germany and the United States and uses hot forming to develop metal pressed parts for the automotive industry.

The current sensitivities for the Hot Forming unit, whose performance is affected by the current ­challenges in the automotive industry—particularly the shortage of semiconductors for electronic components—are shown.

The discount rate and the cash flows are the most important forward-looking assumptions. There is the risk that any change in these assumptions will necessitate a material adjustment of the carrying amounts in the future. An increase in the after-tax discount rate by one percentage point and/or a decrease in the cash flows by 10% would trigger the following reductions in the carrying amounts:

As of September 30, 2021, no impairment losses were recognized for cash generating units that have no goodwill and other assets. For all other disclosures related to cash generating units that have no goodwill, see the Consolidated Financial Statements as of March 31, 2021.