Summary of significant accounting and valuation policies

PCC Societas Europaea (PCC SE) is a non-listed corporation under European law headquartered in Duisburg and the parent company of the PCC Group. Its address is Moerser Str. 149, 47198 Duisburg, Germany. PCC SE is recorded in the Commercial Register of Duisburg District Court under reference HRB 19088.

The consolidated financial statements of PCC SE have been prepared in accordance with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and the Interpretations issued by the IFRS Interpretations Committee (IFRS IC), which had been adopted by the European Commission for use in the EU by the reporting date and whose application was mandatory as of December 31, 2022. In addition, the requirements of Section 315e (3) HGB (German Commercial Code) in conjunction with Section 315e (1) HGB have been observed. The consolidated financial statements are based on the going concern principle. The reporting date for the preparation of the consolidated financial statements is December 31, 2022, which is also the reporting date for the annual financial statements of PCC SE. The fiscal year of the Group corresponds to the calendar year.

The annual financial statements and subgroup financial statements of the subsidiaries included in the consolidated financial statements have also been prepared as at this reporting date. The financial statements of PCC SE and those of the consolidated subsidiaries have been prepared in accordance with uniform accounting and valuation policies.

The consolidated financial statements have been prepared in euros. The reporting currency is the euro. Unless otherwise indicated, all amounts are stated in thousands of euros (€ k); rounding differences may therefore arise.

Individual items of the balance sheet and the statement of income of the PCC Group have been partially aggregated in the interests of clarity. These items are explained in the Notes to the financial statements. The consolidated statement of income has been prepared using the nature of expense method.

In accordance with IAS 1.60, the PCC Group presents current and non-current assets and current and non-current liabilities in the balance sheet as separate classification groups, some of which are additionally broken down by their respective maturities as of December 31, 2022, in the Notes.

The Executive Board of PCC SE finalized these financial statements in their meeting of April 27, 2023, whereupon they were presented to the Supervisory Board for examination and approval, and then released to the operator of the German Federal Gazette for publication.

The amendments to IFRS 3 Business Combinations include an update of the reference to the revised 2018 Conceptual Framework and an addition to IFRS 3 to require an acquirer to apply IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies instead of the Conceptual Framework to identify liabilities assumed in a business combination. In addition, IFRS 3 has been amended to state that an acquirer shall explicitly not recognize contingent assets.

The amendments to IAS 16 Property, Plant and Equipment prohibit the deduction from the cost of an item of property, plant and equipment of proceeds arising from the disposal of goods produced with the item before it is brought to its intended condition. Instead, the cost of production and the proceeds from the disposal of such goods are recognized through profit or loss.

The amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets relate to the definition of fulfillment costs in respect of onerous contracts. The definition has been clarified to the effect that settlement costs comprise the costs directly associated with the contract. These consist of the additional costs incurred by an entity in connection with the contract (e.g. direct labor and material costs) and the costs directly attributable to the contract (e.g. pro rata depreciation of property, plant and equipment used in the performance of the contract).

The annual improvements to IFRSs include a number of minor amendments to various standards to clarify existing requirements and correct existing inconsistencies.

The accounting standards listed in the table that are to be applied for the first time have no material impact on the consolidated financial statements of PCC SE.

The IASB has published the following standards and interpretations or amendments thereto that were not yet effective in fiscal 2022. Some of these standards and interpretations have not yet been endorsed by the EU and will not be applied by the PCC Group. The PCC Group is currently assessing the extent to which new standards and interpretations that are not yet mandatory will have an impact on the consolidated financial statements. It is currently expected that the standards and interpretations listed that are not yet mandatory will not have any material impact on the consolidated financial statements.

The consolidated financial statements of the PCC Group cover PCC SE and all material subsidiaries. Subsidiaries and associates regarded individually and in aggregate as being immaterial in terms of portraying a true and fair view of the net assets, financial position and results of operations of the Group have been omitted from the consolidation process and are recognized as financial investments in equity instruments. For a detailed schedule of shareholdings in accordance with Section 313 (2) HGB (German Commercial Code), please refer Note (44).

In fiscal 2022, PCC Chemicals Corporation, Wilmington, Delaware, USA, was added to the scope of consolidation in the Holding & Projects segment. CATCH66 GmbH, Duisburg, Germany, was merged with PCC SE following the discontinuation of its business operations. In addition, PCC Specialties GmbH was renamed PCC Thorion GmbH; the business purpose of this affiliate was changed, and its registered office relocated to Duisburg.

The consolidated financial statements of the PCC Group include the separate financial statements of PCC SE and all material German and international subsidiaries over which PCC SE exercises control, prepared on the basis of uniform accounting and valuation policies.

The subsidiaries are fully consolidated from the date of acquisition. The date of acquisition is the date on which the parent company gained control of these Group companies. Subsidiaries are included in the consolidated financial statements until control of these companies is no longer exercised.

The acquisition of subsidiaries is accounted for using the purchase method. The consideration transferred in the course of a business combination is measured at fair value. This is determined from the aggregate of the fair values of the assets transferred, liabilities assumed from the former owners of the acquiree, and equity instruments issued by the Group in exchange for control of the acquiree. Any transaction costs associated with the business combination are recognized through profit or loss.

The purchase price is allocated to the acquired assets and liabilities at the date of initial consolidation. If this allocation results in a positive difference between the acquisition cost and the pro rata net assets acquired, this difference is capitalized as goodwill. In the event of a negative difference, this is immediately recognized as income in the statement of income. Any goodwill arising is tested for impairment at least once a year. Further details are provided in Note (19).

All intercompany receivables and payables as well as income and expenses are eliminated in the course of consolidation. Intercompany profits and losses, if material, are eliminated. Investments in associated companies and joint ventures accounted for using the equity method are recognized in the consolidated balance sheet at cost. In subsequent periods, the equity method carrying amount is adjusted to reflect the Group’s share of net income and dividends received. Any difference arising on initial consolidation is recognized using the equity method. The Group assesses at each reporting date whether there is any indication that an investment in an associate or joint venture may be impaired. If this is the case, the difference between the carrying amount and the recoverable amount is recognized as an impairment loss and included in “Result from investments accounted for using the equity method” in the consolidated statement of income.

Essentially, fiscal 2022 saw a continuation of the economic recovery that has followed the pandemic-related global slump in business activity of two years previous, albeit at a less pronounced rate than originally forecasted, with strict coronavirus restrictions and lockdowns in China slowing economic momentum and subduing global business development. High inflation rates put a brake on both private consumption and corporate investment. In addition, Russia’s war of aggression on Ukraine and the associated sanctions in particular exacerbated the pressure on raw material availability, transport routes and supply chain stability. Scarce raw materials, limited transport options from Asia to Europe and continuing high demand for industrial products led to very sharp price increases for chemical commodities.

The aforementioned factors exerted varying effects on the diversified business portfolio of the PCC Group. Overall, the Chemicals business proved to be extremely robust as a result of continued high demand and correspondingly high capacity utilization of production facilities, as well as in some cases high price levels for many of the chemical commodities produced. The price increases led to high revenues and earnings contributions on the sales side. On the purchasing side, persistently high prices combined with further increases in inventories – a precautionary measure implemented to counter continuing transport and supply chain problems – resulted in an increase in working capital.

However, selling prices for silicon metal (Silicon & Derivatives segment) came under pressure in the course of 2022. One reason for this was declining demand from the aluminum industry, which is heavily dependent on the automotive sector. Another lay in increasing volumes from China entering the European market, with customers delaying purchases in anticipation of falling prices. At the same time, raw material purchase prices, including for coal, and transportation costs rose sharply as a result of the war in Ukraine.

Conditions prevailing in the intermodal transport business generally remained strained in 2022. Aside from a continuing imbalance on the international container market, the primary reason lies in increased costs for the trucking of containers. In addition, the establishment of a regular transport connection from the Ukrainian-Polish border to Poland’s sea ports was inhibited due to the sometimes chaotic conditions in the border area and the partial congestion of said ports.

In view of the significant and continuing macroeconomic impact of the coronavirus pandemic and the war in Ukraine, Group management subjected the expected credit loss (ECL) model to a review and reassessment, taking into account all relevant factors. As in the previous year, the PCC Group did not incur any substantial bad debts in fiscal 2022. The activities of the PCC Group are not exposed to any significant individual sector risk, leaving customer credit risks as the primary factor in this regard. Consequently, the approach to determining default risk in respect of expected future bad debts remained unchanged. Trade accounts receivable are monitored on an ongoing basis and also increasingly with regard to potential pandemic-related defaults.

The major business units of the PCC Group carried out impairment tests on their assets and goodwill during the course of the fiscal year or as part of the preparation of their annual financial statements. These tests were prompted by changes in the market environment, currency developments and the associated updated budgets. Overall, this did not result in any significant need for impairment. The impairment losses recognized in the reporting year amounted to € 0.9 million (previous year: € 4.5 million).

Beyond the effects mentioned above, we did not identify any impact resulting from the coronavirus pandemic or the war in Ukraine on the net assets, financial position or results of operations of the PCC Group.

The development of the coronavirus pandemic remains dynamic. In addition, the war in Ukraine gives rise to political and economic risks that are beyond the control of the PCC Group. Both the further development of the coronavirus pandemic and the war in Ukraine may thus continue to give rise to increased risks in terms of value creation with, and the recoverability of, assets. The uncertainty that continues to prevail in the global economy could impact suppliers, customers and other business partners and lead, for example, to the disruption of supply chains, payment defaults or operational changes. The PCC Group will continue to carefully monitor the ensuing impacts. This also applies to the effects on inventories, trade accounts receivable and material assumptions relating to goodwill.

In accordance with IAS 16, property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Costs for the repair and maintenance of property, plant and equipment are generally expensed. Regular maintenance of major items of plant and equipment or the replacement of significant components is capitalized where an additional future benefit is expected. Scheduled straightline depreciation is based on the following useful lives:

For the useful lives of right-of-use assets, please refer to Note (21).

An item of property, plant and equipment is derecognized either upon disposal or when no further economic benefit is expected from its continued use. Any gain or loss arising on derecognition of the asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and is recognized in the statement of income in the period the asset is derecognized. Reversals of impairment losses are recognized in other operating income.

Residual values, useful lives and depreciation methods are reviewed at the end of each fiscal year and adjusted if necessary.

Acquired intangible assets are carried at cost less accumulated amortization and accumulated impairment losses. If the requirements for capitalization of internally generated intangible assets are met, these are also capitalized. Intangible assets are generally amortized on a straight-line basis over their estimated useful lives. Useful lives of between one and 42 years are assumed. With the exception of goodwill, intangible assets capitalized within the Group have finite useful lives. The intangible assets of the PCC Group mainly comprise concessions for the operation of technical facilities.

Research and development costs are accounted for in accordance with IAS 38 Intangible Assets. Research costs are expensed as incurred. Development costs are capitalized under certain conditions (see IAS 38.57) depending on the possible outcome of the development activities. Development costs of a project qualify for capitalization if the project is technically feasible and therefore internal use or sale of the asset is possible and there is also the intention and the means to complete and use or sell the asset. The assessment of this possible outcome requires significant assumptions by the respective management. Furthermore, the Group must demonstrate that the expenditure attributable to the intangible asset during its development can be reliably measured.

Inventories are those assets that are consumed in the production process or in the rendering of services (raw materials and supplies), that are in the process of production (work in progress) or that are held for sale in the ordinary course of business (finished goods and merchandise). They are initially recognized at acquisition or production cost. Inventories are subsequently measured at the lower of cost, determined using the first-in, first-out (FIFO) method or the weighted average cost method, and net realizable value, which is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Directly attributable borrowing costs incurred in the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset. They are capitalized until the asset is ready for its intended use. The relevant borrowing costs are recognized using the relevant interest rate. All other borrowing costs are expensed in the period in which they are incurred.

Financial assets and financial liabilities are recognized in the consolidated balance sheet once PCC SE or one of its subsidiaries becomes a party to a financial instrument. Financial assets are derecognized once the contractual rights to cash flows from the financial assets expire or the financial assets are transferred with all material risks and rewards. Financial liabilities are derecognized when the contractual obligations are discharged, canceled or expire. Regular-way purchases and sales of financial instruments are generally recognized on the transaction date, which is the date that the Group commits to purchase or sell the instrument.

In accordance with IFRS 9, financial assets and liabilities are classified into the following categories based on their nature and their intended use:

(a) Financial instruments measured at amortized cost (aC).
Financial assets are classified as aC if they are held within a business model that is designed to collect the contractual cash flows (strict business model condition). In addition, the asset must be structured in such a way that it only leads to fixed-term cash flows that represent interest and principal payments on the outstanding nominal amount (cash flow condition). Financial liabilities are generally classified as aC unless they are financial liabilities held exclusively for trading purposes, derivatives or liabilities for which the fair value option has been exercised. Within the PCC Group, the measurement category aC includes trade accounts receivable, as well as receivables and loans disclosed under other receivables and other assets, and other financial assets. Cash and cash equivalents are also included in this measurement category. All financial liabilities, with the exception of derivatives that are measured at fair value through profit or loss, are also measured at amortized cost. Financial assets and liabilities are initially measured at fair value, which is generally the nominal value of the receivable or the loan amount granted. Non-interest-bearing or low-interest-bearing non-current receivables and loans are carried at their present value. Transaction costs directly attributable to the acquisition or issue of financial assets and financial liabilities are added to the fair value of the financial assets or financial liabilities. Subsequent measurement of financial instruments classified as aC is at amortized cost using the effective interest method. Changes in value are recognized in the statement of income.

(b) Financial assets measured at fair value through other comprehensive income (FVtOCI)
Financial assets are classified as FVtOCI if they are held in a business model for the purpose of both collecting contractual cash flows and making sales (moderated business model condition). In addition, the asset must be structured in such a way that it only gives rise to fixed-term cash flows that represent interest payments and repayments of principal in relation to the provision of capital (cash flow condition). Equity instruments never satisfy the cash flow condition, but may be voluntarily measured as FVtOCI. Within the PCC Group, investments in subsidiaries that are not fully consolidated for reasons of materiality are allocated to the FVtOCI measurement category. This category also includes investments in associates and joint ventures that are included in the consolidated financial statements using the equity method. Financial liabilities may not be allocated to the FVtOCI category. They are initially recognized at fair value, which in most cases corresponds to cost. Transaction costs directly attributable to the acquisition or issuance of financial assets are added to the fair value of the financial assets. Changes in fair value on subsequent measurement are deferred directly in equity and only recognized in profit or loss on disposal (recycling). Conversely, amounts recognized for equity instruments remain in equity upon disposal of the financial instrument (no recycling).

(c) Financial instruments at fair value through profit or loss (FVtPL)
All financial instruments that do not meet the conditions for inclusion in the first two categories are generally allocated to the FVtPL category. These include equity instruments, unless they have been voluntarily allocated to the FVtOCI category, derivatives and all other financial instruments held for trading purposes. In addition, in certain cases, the fair value option for the classification of financial instruments can be exercised voluntarily, but then irrevocably. The initial and subsequent measurement of financial instruments in the FVtPL category is at fair value. Changes in value are recognized in the statement of income. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities are immediately recognized through profit or loss.

Financial assets and liabilities are offset and presented as a net amount in the balance sheet only when there is a legally enforceable right to settle on a net basis, or to realize the asset and settle the liability simultaneously.

An accounting provision for expected impairment losses is recognized in respect of financial assets measured at amortized cost. For trade accounts receivable, expected default rates are determined on the basis of historical defaults and future estimates (Stage 2 of the impairment model). In order to take into account the business model, the respective customer structure and the economic environment of the geographical region, specific default rates are determined for the individual Group companies. Additional differentiation is made by classifying the receivables portfolio on the basis of the length of time overdue. If there is objective evidence that trade receivables or other financial assets measured at amortized cost are impaired, they are tested individually for impairment (Stage 3 of the impairment model). This is the case, for example, if insolvency proceedings have been opened against the debtor of a receivable or there is other substantial evidence of impairment, such as a significant deterioration in creditworthiness. Impairment losses are recognized in an allowance account on the asset side of the balance sheet. The gross value and the allowance (value adjustment) are not derecognized until the receivable is uncollectible. For reasons of materiality, no expected impairment losses are recognized in respect of contract assets or other financial assets.

Derivative financial instruments are initially measured at the fair value attributable to them on the date on which the contract is entered into. Subsequent measurement is also at fair value as of the respective reporting date. The method of recognizing gains and losses depends on whether the derivative financial instrument has been designated as a hedging instrument and, if so, on the nature of the hedged item. The PCC Group designates certain derivative financial instruments either (a) as a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment (fair value hedge), (b) as a hedge of the exposure to variability in cash flows associated with a recognized asset or liability or an anticipated highly probable forecasted transaction (cash flow hedge), or (c) as a hedge of a net investment in a foreign operation (net investment hedge). In the year under review and in the previous year, the PCC Group only had cash flow hedges.

At the inception of the transaction, the Group documents the hedging relationship between the hedging instrument and the hedged item, the objective of its risk management and the underlying strategy for undertaking the hedge. In addition, at the inception of the hedge and on an ongoing basis, the Group documents its assessment of whether the derivatives that are used in hedging transactions extensively compensate for changes in fair values or cash flows of hedged items.

The effective portion of changes in the fair value of derivatives designated as cash flow hedges is recognized in other comprehensive income. The ineffective portion of such changes in fair value is recognized directly through profit or loss. Amounts deferred in equity are reclassified to the statement of income in the period in which the hedged item affects profit or loss.

When a hedge expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the cumulative gain or loss existing in equity at that time remains in equity and is not recognized in the statement of income until the originally hedged future transaction occurs. If the future transaction is no longer expected to occur, the cumulative gain or loss recognized in equity is immediately transferred to the statement of income.

Trade accounts receivable are stated at amortized cost. Receivables sold under open factoring arrangements are derecognized at the time of purchase by the factor. Only the remaining pro rata amount that is not purchased continues to be recognized in receivables. In the case of silent factoring, the receivable is not derecognized until the factor makes payment. At the same time, a receivable is recognized in a settlement account with the factor under other assets.

Cash and cash equivalents comprise cash on hand, checks and bank balances with an original maturity of up to three months, as well as highly liquid short-term financial investments. They are measured at amortized cost.

Trade accounts payable, bank overdrafts and other liabilities are stated at their repayment amount.

Provisions are recognized when the Group has a present legal or constructive obligation to a third party as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Non-current provisions are recognized at the present value of future outflows of resources and accrue interest over the period until the expected claim is made.

The PCC Group recognizes deferred taxes in accordance with IAS 12 for differences between the carrying amounts of assets and liabilities in the balance sheet and their tax base. Deferred tax liabilities and deferred tax assets are essentially recognized for all taxable temporary differences. Deferred tax assets are recognized on unused tax losses carried forward only to the extent that it is probable that taxable profit will be available against which such claims can be utilized. The carrying amount of deferred income tax assets is examined on each closing date and reduced to the extent that it is no longer probable that sufficient income will be available against which the deferred tax asset can be wholly or partially realized. Deferred income tax claims not recognized in an earlier period are reassessed at each closing date and recognized to the extent that it currently appears probable that future taxable profits will allow realization of the deferred tax asset. Deferred tax liabilities and deferred tax assets are netted where there is a legally enforceable right to do so and where they involve the same tax jurisdiction. Current taxes are calculated on the basis of the taxable income of the company for the reporting period. The tax rates applied for each company are those applicable as of the closing date.

Lease agreements are accounted for in accordance with IFRS 16 Leases. A lease exists if a contract entitles the holder to use an identified asset for a specified period of time in return for payment of a consideration.

Leases in which the PCC Group is the lessee are accounted for using the rights-of-use model. For leases with a term of less than twelve months (short-term leases) and for leases involving low-value assets, the exemption per IFRS 16.5 is applied. The right-of-use asset and lease liability are not recognized for these leases. Instead, the payments are recognized as an expense in the statement of income on a straight-line basis. All contractually agreed payment obligations are included in the measurement of lease liabilities. Application of the exemption allowed under IFRS 16.15 eliminates the need to distinguish between lease payments and payments for non-lease components. The existing payment obligations are discounted at the PCC Group’s incremental borrowing rate where it is not possible to determine the implicit interest rate, and the present value thus determined is recognized as a lease liability. The corresponding right-of-use asset is recognized in the same amount. Initial direct costs and advance payments increase the acquisition value of the right of use, while lease incentives received reduce it. Subsequently, the right-of-use asset is amortized on a straight-line basis over the shorter of the lease term or the useful life of the underlying asset. The lease liability is amortized using the effective interest method.

Contractually defined renewal, extension, purchase and termination options ensure future operational flexibility for the PCC Group when entering into lease agreements, but also require discretionary decision-making. All current knowledge and future expectations that support the exercise or non-exercise of the options are taken into account when determining the lease term. If it can be assumed with reasonable certainty that the renewal option will be exercised, the imputed term also includes such additional periods. Changes of term are considered where, over time, a change occurs in the assessment of the likelihood that the existing option will be exercised or not exercised.

In accordance with IFRS 15, the PCC Group realizes its sales revenues mainly through the sale of self-manufactured chemical products, through the trading of chemical raw materials and commodities, and through the provision of comprehensive logistics and transport services. In addition, the Group generates sales from electricity generation and trading based on both conventional and renewable energy sources.

In recognizing revenue, the Group follows the five-step model of IFRS 15:

1. Identification of contracts with a customer
2. Identification of distinct performance obligations
3. Determination of the transaction price
4. Allocation of the transaction price to the distinct performance obligations
5. Revenue recognition on fulfillment of the distinct performance obligations

Revenue is recognized, net of sales taxes / value-added tax, discounts, allowances and rebates, when, or as, the customer obtains control of and benefits from the goods and / or services. The majority of the performance obligations of the PCC Group are performed at a point in time. The relatively minor recognition of revenue over a period of time occurs primarily in the sale of electricity and the rendering of services. In principle, the sales transactions of the PCC Group are not based on any significant financing component. The average payment term is 13 days.

The Group recognizes contractual liabilities in respect of performance obligations that have not yet been fulfilled but for which the customer has already provided consideration, and discloses these amounts under other liabilities in the balance sheet. However, when the Group satisfies a performance obligation, the Group recognizes the right to consideration as a contract asset in other receivables and other assets, unless said claim is not linked solely to the passage of time.

Interest income is recognized pro rata temporis using the effective interest method. Dividend income is recognized once the right to receive payment is established.

Government grants pursuant to IAS 20 are recognized in the consolidated financial statements of the PCC Group as deferred income to the extent that it is certain that the conditions attached to the grants will be fulfilled and that the grants will actually be received. The reversal is recognized in the statement of income under other operating income over the depreciable life of the related asset.

Expenditure on successful exploration wells and on non-successful development wells is capitalized in accordance with IFRS 6. These expenditures are generally recognized as assets under construction until exploration is completed. When a positive discovery is made and production begins, the expenditure is reclassified to plant and machinery. The capitalized expenses are amortized over the maximum number of production years determined by expert appraisal. Should an annual review of the discoveries result in a change in this period, the amortization period is adjusted accordingly. If, in subsequent periods, it is also determined that the finds are unusable, an impairment loss is recognized.

The consolidated financial statements are presented in euros, the functional currency of the parent company.

Each entity within the Group determines its own functional currency. Items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions are initially translated into the functional currency at the spot rate prevailing at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at each reporting date using the spot exchange rate at that date. All exchange differences are recognized through profit or loss. Exceptions to this rule are translation differences arising from foreign currency borrowings to the extent that they are accounted for as hedges of a net investment in a foreign operation. These are deferred directly in equity until the disposal of the net investment and are only recognized in the statement of income upon such disposal. Deferred taxes arising from the translation differences of these foreign currency loans are likewise recognized directly in equity.

For entities whose functional currency is the euro, non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate applicable at the date when the fair value was determined.

Any assets and liabilities resulting from the acquisition of a foreign operation are recognized as assets and liabilities of the foreign operation and translated at the closing spot rate. For entities whose functional currency is not the euro, the assets and liabilities of the foreign operation are translated into euro at the closing rate. Income and expenses are translated at the weighted average exchange rate for the fiscal year. The resulting translation differences are recognized as a separate component of equity. The cumulative amount recognized in equity for a foreign operation is released to income upon disposal of that foreign operation.

The exchange rates of the major currencies used in the consolidated financial statements are shown in the table opposite:

The preparation of the consolidated financial statements for the year ended December 31, 2022 in conformity with IFRSs requires management to make a number of judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and also the reported amounts of revenues and expenses during the reporting period. The main areas in which assumptions and estimates are used are in determining the useful lives of non-current assets and in the recognition and measurement of other provisions, pension provisions and corporate income taxes. Estimates are also used in determining lease terms and in calculating the discount rate in accounting for leases. Furthermore, in order to determine whether goodwill is impaired, it is necessary to determine the value-in-use of the cash-generating unit to which the goodwill is allocated. The calculation of the value-in-use requires an estimate of future cash flows from the cash-generating unit and a suitable discount rate for the present value calculation. In addition, such judgments, estimates and assumptions are subject to increased uncertainty due, in particular, to the significant volatility prevailing in the energy markets as a result of the war in Ukraine and the consequences of the coronavirus pandemic. Estimates are based on experience, empirical values and other assumptions that are believed to be reasonable under the circumstances. They are reviewed on an ongoing basis but may differ from actual outcomes and figures that come to light. In light of both the war in Ukraine and the coronavirus pandemic, it is difficult to predict the duration and extent of potential effects on the net assets, financial position, results of operations and cash flows. The carrying amounts of the items affected by estimates and assumptions can be found in the corresponding sections of these Notes or in the balance sheet.