7. Significant assumptions and estimates
Preparing the consolidated financial statements in accordance with IFRS requires management to make estimates and assess individual facts and circumstances. The estimates are made a going concern basis, based on past experience and other relevant factors.
The amounts which actually arise may differ from those resulting from estimates and assumptions.
The accounting and valuation principles applied are explained in Note 6. Material assumptions and estimates affect the following issues:
Business combinations
The fair value of the assets acquired and liabilities and contingent liabilities assumed as a result of business combinations must be estimated. For this purpose, HHLA either relies on the opinions of independent external experts or calculates the fair value internally using suitable calculation models which are normally based on discounted cash flows. Depending on the nature of the assets or the availability of information, market price, capital value and cost-oriented valuation methods may be applied.
Goodwill
The Group tests goodwill for impairment at least once a year. This requires an estimate of the fair value generally used at HHLA less the selling costs of the cash-generating units to which the goodwill has been allocated. To estimate the fair value less selling costs, the Group must forecast likely future cash flows from the cash-generating unit and choose an appropriate discount rate with which to calculate the present value of these cash flows. Unforeseeable changes may mean that the assumptions used during planning are no longer appropriate, making it necessary to adjust plans. An impairment loss could be incurred as a result. For more information, please refer to Note 22.
Investment property
The fair value of investment property must be disclosed in the Notes. HHLA carries out its own calculations to determine the fair value of this property. Industry-standard discounted cash flow methods are applied. The calculations are based on assumptions about applicable interest rates and the amount and timeframe of cash flows which these assets are expected to generate. Detailed information is available in Note 24.
Pension provisions
Actuarial opinions are commissioned annually to determine the expenses for pensions and similar obligations. These calculations include assumptions regarding demographic changes, salary and pension increases as well as interest, inflation and fluctuation rates. Since these assumptions are long-term in nature, the observations are assumed to be characterised by material uncertainties. More detailed information is available in Note 36.
Demolition obligations
Provisions for demolition obligations result from obligations to be met at the end of lease terms under long-term lease agreements with the Free and Hanseatic City of Hamburg. All HHLA Group companies in the Port of Hamburg are obliged to return leased land free of all buildings owned by them at the end of the lease term. To calculate the amount of the provision, it was assumed that the obligation would be carried out in full for all leased property, with the exception of buildings designated as historical landmarks in the Speicherstadt historical warehouse district. The calculations are based on assumptions concerning the amount of demolition work necessary, interest rates and inflation. For more information, please refer to Note 37.
Restructuring provisions
HHLA has formed provisions for restructuring as part of an efficiency programme in the Container segment. The measures reflected in the provision comprise the conclusion of phased early retirement contracts with a leave of absence during the active phase. The start of the active phase is contingent on a minimum length of service of five years. The measurement of the provision is largely determined by the number of employees to be considered, the overall scope of the phased early retirement model (which is structured as a block model) and the leave of absence period during the active phase. HHLA has made estimates based on announcements and implementation plans. More detailed information is available in Note 37.
Provisions for phased early retirement
All employees who have signed, or are expected to sign, an agreement are taken into consideration when recognising and measuring provisions for phased early retirement. The number of employees expected to sign is an estimate. The appraisal reports are also based on actuarial assumptions. For more information, please refer to Note 37.
Leases
Some lease agreements include renewal options. When determining contractual terms, all facts and circumstances offering an economic incentive to exercise renewal options are taken into consideration. Changes to the contractual term arising from the exercise of such options are factored into the contractual term if they are sufficiently certain. For more information, please refer to Note 45.
Non-current and current financial liabilities
This item includes liabilities from leases.
In the previous year, it also included financial settlement obligations to shareholders with non-controlling interests in consolidated subsidiaries. These liabilities existed because HHLA had a profit and loss transfer agreement with a subsidiary up until 31 December 2021, which entitled non-controlling interests to receive financial settlements. The parameters used to calculate this amount were subject to significant uncertainties which caused figures to fluctuate accordingly. More detailed information is available in Note 38.
Calculating fair value
The Group regularly reviews the fair value measured for financial and non-financial assets and liabilities.
It also regularly reviews key unobservable input factors and valuation adjustments. When the fair value of an asset or liability is calculated, the Group uses observable market data whenever possible. Based on the input factors used during valuation, the fair values calculated are classified as belonging to different levels of the fair value hierarchy:
|
|
Content and significance |
|---|---|---|
Level 1 |
|
Quoted prices (unadjusted) in active markets for identical assets and liabilities |
Level 2 |
|
Valuation parameters that are not quoted prices included in Level 1, but are observable for the asset or liability either directly (i.e. as a price) or indirectly (i.e. as a derivative of prices) |
Level 3 |
|
Valuation parameters for assets or liabilities that are not based on observable market data |
The Group records any transfers between the various levels of the fair value hierarchy at the end of the reporting period in which the amendment was made.
For details of the valuation methods and input parameters used to measure the fair value of the various assets and liabilities, please see Note 24 and Note 47.