6. Critical accounting estimates and judgments

Estimates with regard to the future and discretionary decisions are continuously assessed by the Group and are based on empirical values and assumptions that are deemed appropriate under the given circumstances.

The resulting accounting estimates will, by definition, seldom equal the respective actual results.

According to scientific findings, global climate change will impact the global economy in many ways. Business models and competitive advantages can be sustainably influenced by climate change. Due to increasingly tightly interconnected global supply and value chains, the industry is particularly affected by potential risks and damage. In order to take account of the resulting economic uncertainties and volatilities, NORMA Group conducts an analysis of potential opportunities and risks for its company structure and future sales markets and takes these considerations into account when preparing the Consolidated Financial Statements.

Risks and uncertainties arising from climate change could affect the following areas of the Consolidated Financial Statements in particular:

•Impairment of non-financial assets: The uncertainties related to climate change could result in changes in cash flow projections or the level of risk associated with achieving those cash flows.

•Useful lives of assets: Climate-change-related factors could result in assets becoming physically unusable or commercially obsolete sooner than anticipated.

•Realization of deferred tax assets: The uncertainties related to climate change could lead to changes in projected future taxable profits.

The impact of the ongoing war in Ukraine, the conflict in the Middle East and the other macroeconomic risks (e.g., from inflation, the economy, interest rate policy, supply chain problems) on NORMA Group is complex and results mainly from the increase in energy and raw material prices as well as supply bottlenecks. The escalation of these conflicts would further increase the risk of a global economic downturn, which in combination with continued inflation and rising interest rates could lead to a significant decline in consumption.

In order to take account of the resulting economic uncertainties and volatilities, NORMA Group conducts an analysis of potential opportunities and risks for its company structure and future sales markets and takes these considerations into account when preparing the Consolidated Financial Statements.

The risks and uncertainties arising from the war in Ukraine and the other macroeconomic risks could have the following consequences:

•    Volatility on the raw material markets

•Margin reductions to the extent that price increases cannot be passed on immediately to customers

•Changes in interest rates in various countries

•Growing volatility of foreign currency exchange rates

•Declining and volatile share prices

•Deteriorating creditworthiness, payment defaults or late payments

These factors can impact the fair value and carrying amount of assets and liabilities as well as cash flow forecasts, in particular on the measurement of pension provisions, the discount rate for goodwill impairment testing purposes and the recoverability of deferred tax assets.

Material accounting-related estimates

Estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year were not identified.

Significant discretionary decisions

Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgments are required in determining the worldwide liabilities for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters differs from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. As at December 31, 2023, income tax liabilities amounted to EUR 6,799 thousand (Dec 31, 2022: EUR 6,992 thousand) and the deferred tax liabilities amounted to EUR 40,132 thousand (Dec 31, 2022: EUR 52,851 thousand). Deferred tax assets are recognized if sufficient taxable income is available in the future. Among other factors, the planned results from operating activities, the effects on earnings from the reversal of taxable temporary differences and possible tax strategies that NORMA Group would pursue are taken into account. Based on the taxable income generated in past periods and the planned future taxable income, NORMA Group assesses the recoverability of deferred tax assets at each balance sheet date. Since future business developments are uncertain and partly beyond NORMA Group’s control, assumptions are required to estimate future taxable income and the timing of the realization of deferred tax assets. Estimates are adjusted in the period in which there are sufficient indications for an adjustment.

Reverse factoring agreements – presentation of amounts in connection with the supply chain financing agreement in the balance sheet and cash flow statement

The Group participates in a supply chain financing agreement (SCF) under which suppliers can choose to receive earlier payment of their invoices from a bank by selling their receivables from the Group (factoring). In this agreement, the bank agrees to pay invoice amounts owed by the Group to participating suppliers and to receive compensation from the Group at a later date. The purpose of this agreement is to facilitate efficient payment processes and to enable willing suppliers to sell their receivables from the Group to a bank before the due date. The Group has not derecognized the original liabilities subject to this agreement, as neither a legal exemption was obtained nor was the liability significantly changed by entering into the agreement. From a Group perspective, the agreement does not significantly extend the payment deadline compared to normal deadlines with other non-participating suppliers. The amounts factored by suppliers are therefore reported under trade payables, as the nature and function of the financial liability correspond to other trade payables.  NOTE 21. (e) i – TRADE AND OTHER PAYABLES

The cash flows from the reverse factoring programs for the settlement of the original trade accounts payable are presented under cash flow from operating activities, as this corresponds to the economic substance of the transactions.   NOTE 29 – INFORMATION ON THE CONSOLIDATED STATEMENT OF CASH FLOWS