DMG MORI CO., LTD. Consolidated Financial Statements
DMG MORI CO., LTD.
Fiscal year ended 31 December 2023
with Independent Auditor's Report
DMG MORI CO., LTD. Consolidated Financial Statements
Fiscal year ended 31 December 2023
Contents
Consolidated Financial Statements
Independent Auditor's Report
Consolidated Statement of Financial Position ………………………………………………………………………………… 1
Consolidated Statement of Profit or Loss ……………………………………………………………………………………… 3
Consolidated Statement of Comprehensive Income ………………………………………………………………………… 4
Consolidated Statement of Changes in Equity ………………………………………………………………………………… 5
Consolidated Statement of Cash Flows ………………………………………………………………………………………… 8
Notes to Consolidated Financial Statements ………………………………………………………………………………… 10
Independent Auditor's Report
The Board of Directors
DMG MORI CO., LTD.
The Audit of the Consolidated Financial Statements
Opinion
We have audited the accompanying consolidated financial statements of DMG MORI CO., LTD. (the Company) and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2023, and the consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for the year then ended, and notes to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2023, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor's opinion thereon, and we do not provide a separate opinion on these matters.
Valuation of goodwill and other intangible assets with indefinite useful lives arising on business combination with DMG MORI AKTIEGESELLSCHAFT ("DMG MORI AG") | |
Description of Key Audit Matter | Auditor's Response |
As described in Note 11, "Goodwill and Other Intangible Assets," to the consolidated financial statements, the Company recorded goodwill of ¥85,587 million and other intangible assets with indefinite useful lives (mainly trademarks) of ¥40,738 million as of December 31, 2023, of which goodwill and other intangible assets with indefinite useful lives of ¥82,105 million and ¥40,738 million respectively were arose on the business combination with DMG MORI AG. The amount of forementioned goodwill and other intangible assets with indefinite useful lives represent 65.9% of total of goodwill and other intangible assets in the consolidated statement of financial position and 16.0% of total assets of the Group. The Company allocates the carrying amounts of goodwill and other intangible assets with indefinite useful lives arising on the business combination with DMG MORI AG to the group of cash generating units ("CGUs"), such as Machine Tools and Industrial Services, and performs impairment testing annually. The recoverable amount of goodwill and other intangible assets with indefinite useful lives is measured based on value in use of the CGU or group of CGUs to which they are allocated. As a result of the impairment test, the Company did not recognize an impairment loss for the year ended December 31, 2023 as the value in use exceeded the carrying amount. The value in use is calculated by discounting the estimated future cash flows based on the five-year business plan approved by management, using the pre-tax discount rate of 10.8%, which considering the corresponding pre-tax WACC for similar industries and reflecting current market assessments of the time value of money and specific risks. For the period subsequent to the period covered by the business plan, the Company calculates the terminal value using 2.0% as the growth rate determined in consideration of the conditions of the country and industry to which the group of CGUs belongs. | The audit procedures we performed to assess the valuation of goodwill and other intangible assets with indefinite useful lives arose on the business combination with DMG MORI AG included the following, among others: ・We assessed the design and operating effectiveness of the Company's internal control for determining whether impairment loss should be recognized with regard to the valuation of goodwill and other intangible assets with indefinite useful lives. ・We compared the estimated future cash flows with the business plan approved by management to evaluate the consistency. ・We compared the Company's business plan for prior years with actual results to evaluate the effectiveness of management's estimation process. ・With the involvement of the valuation specialists from our network firm, we assessed the reasonableness of the valuation methodologies for value in use. ・We made inquiries with management about alternative assumptions and results to enhance our understanding of the degree of uncertainty with regard to management's estimate. ・We assessed the growth rate of sales revenues, which serves as the basis of the business plan, by making inquiries about the rational for management determination, performing a trend analysis based on past performance, and conducting a comparison analysis and sensitivity analysis of the outcome with the growth rate. In addition, we conducted a comparison analysis involving the capital expenditure demand forecast in the machine tool market prepared by third parties with the growth rate. ・We assessed the operating profit ratio which serves as the basis of the business plan, by making inquiries about the rational for management determination and conducting a trend analysis based on past performance. |
The key assumptions used for the calculation of value in use are the growth rate of sales revenues, operating profit ratio incorporated in the business plan, the growth rate for the period subsequent to the period covered by the business plan and pre-tax discount rate used in the calculation of present value. The above key assumptions, such as the growth rate of sales revenues tends to be affected significantly by any increase or decrease in capital expenditure demand in the machine tool market, and the operating profit ratio is affected by the aforementioned factor as well as rising costs due to inflation. Furthermore, the pre-tax discount rate is determined based on considerations to the future interest rate trend, along with selections regarding the calculation method and input data, and therefore a high level of expertise relating to the evaluation and significant judgments made by management are required. Therefore, we determined that the valuation of goodwill and other intangible assets with indefinite useful lives arising on business combination with DMG MORI AG to be a key audit matters due to its high level of uncertainly and subjective judgments by management. | ・With the involvement of valuation specialists from our network firm, we assessed the growth rates for the period subsequent to the period covered by the business plan and the pre-tax discount rate by evaluating the consistency of the inputs used in the calculations with publicly available data. In addition, we conducted a sensitivity analysis. |
Valuation of property, plant and equipment held by Russian subsidiaries | |
Description of Key Audit Matter | Auditor's Response |
As described in Note 10, "Property, Plant and Equipment", to the consolidated financial statements, the Company recorded property, plant and equipment of ¥189,231 million as of December 31, 2023, of which ¥3,221 million was held by Ulyanovsk Machine Tools ooo, a factory for the assembly of machine tools in Ulyanovsk, and ¥1,277 million was held by DMG MORI Rus ooo, a sales and service branch in Moscow (hereafter "Russian subsidiaries"). The Russian subsidiaries have suspended production at the factory and business activities at the sales and service branch due to the conflict between Russia and Ukraine that has been taking place since February 2022. Judging there was an | The audit procedures we performed to assess the valuation of property, plant and equipment held by Russian subsidiaries included the following, among others, with the involvement of the component auditor. ・With the involvement of valuation specialists from the component auditor's network firm and of our network firm, we assessed the reasonableness of the Company's valuation method used in the calculation of fair value less costs of disposal. ・(Scenario one) We obtained the appraisal report, which is used to estimate the sales prices of property, plant and equipment and evaluated its reasonableness. In addition, we |
indication that the assets may be impaired, the Company tested property, plant and equipment owned by the Russian subsidiaries for impairment as respective cash generating units. The recoverable amount of property, plant and equipment owned by the Russian subsidiaries is measured based on fair value less costs of disposal. As a result of the impairment test, the Company recognized the impairment loss of ¥1,559 million in total, including ¥753 million at Ulyanovsk Machine Tools ooo and ¥806 million at DMG MORI Rus ooo for the year ended December 31, 2023. Considering the scenarios including a valuation or a sale of the property, plant and equipment at fair value under the assumption that the Group withdraws its business (scenario one), the expropriation of the property, plant and equipment by the Russian government, the withdrawal of businesses and insurance claims made with the Federal German government (scenario two), and the case in which business restarts after a certain period under the assumption that future economic sanctions are lifted (scenarios three and four), the fair value less costs of disposal is calculated based on weighted average amount by multiplying the fair value less costs of disposal for each scenario with the respective probability of each scenario. The fair value less costs of disposal under each scenario is calculated by discounting estimated future cash flows under the scenario at 16.1%, which is the pre-tax discount rate reflecting current market assessment of time value of money and specific risks, excluding country risk in Russia. The fair value less costs of disposal calculated under scenarios one and two would have a significant impact on the estimated amount of future cash flows, and the key assumptions used in the estimation are the probability of each scenario and the pre-tax discount rate. The expropriation of shares of Ulyanovsk Machine Tools ooo by the Russian government after the year ended December 31, 2023, as described in Note 38, "Events after Reporting Period", to the consolidated financial statements has been treated as a non-adjusting event after | evaluated the appropriateness, competency and objectivity of the specialist used by the management. ・(Scenario two) We obtained and evaluated the legal opinion by the external legal counsel engaged by DMG MORI AG, the regional headquarter of the Russian subsidiaries regarding the reasonableness of the amount and the probability of compensation through the insurance claims made with the Federal German government. ・(Scenarios three and four) We made inquiries with management of DMG MORI AG about assumptions used in the estimated future cash flows, and compared them with the authorized business plan to evaluate the consistency. In addition, we conducted trend analysis and sensitivity analysis based on past performances. ・In order to evaluate the probability of each scenario, we made inquiries with management of DMG MORI AG about the basis, and discussed the current situation and outlook of Russian subsidiaries. In addition, we conducted sensitivity analysis. ・With the involvement of valuation specialists from the component auditor's network firm and of our network firm, we assessed the discount rate by evaluating consistency of input data used in the calculations with publicly available data. In addition, we conducted a sensitivity analysis. ・We assessed the related disclosure in Note 38, "Events after Reporting Period", to the consolidated financial statements to evaluate its consistency with the results of the procedures enumerated above, and by evaluating the adequacy of accounting treatment of this non-adjusting event after the reporting period and the related description in the footnotes. |
the reporting period by the Company and was not taken it into consideration in the estimation of future cash flow in the calculation of the fair value less costs of disposal.
The probability of each scenario and valuation methods applied in the estimation of the fair value less costs of disposal of the property, plant and equipment of Russian subsidiaries include management's significant judgment after taking into consideration the uncertainties of the outlook of the situation between Russia and Ukraine. Therefore, we determined the valuation of property, plant and equipment held by Russian subsidiaries to be a key audit matter.
Other Information
The other information comprises the information included in the annual report (Yukashoken Hokokusho) that contains audited consolidated financial statements but does not include the consolidated financial statements and our auditor's report thereon. Management is responsible for preparation and disclosure of the other information. The Corporate Auditor and the Board of Corporate Auditors are responsible for overseeing the Group's reporting process of the other information.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of Management, the Corporate Auditor and the Board of Corporate Auditors for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern and disclosing, as required by IFRSs, matters related to going concern.
The Corporate Auditor and the Board of Corporate Auditors are responsible for overseeing the Group's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: ・Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
・Consider internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances for our risk assessments, while the purpose of the audit of the consolidated financial statements is not expressing an opinion on the effectiveness of the Group's internal control. ・Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
・Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
・Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation in accordance with IFRSs. ・Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Corporate Auditor and the Board of Corporate Auditors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Corporate Auditor and the Board of Corporate Auditors with a statement that we have complied with the ethical requirements regarding independence that are relevant to our audit of the consolidated financial statements in Japan, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied to reduce threats to an acceptable level.
From the matters communicated with the Corporate Auditor and the Board of Corporate Auditors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended December 31, 2023 are presented solely for convenience. Our audit also included the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 2 to the consolidated financial statements.
Fee-related Information
The fees for the audits of the financial statements of the Company and its subsidiaries and other services provided by us and other EY member firms for the year ended December 31, 2023 are ¥393 million and ¥356 million, respectively.
Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.
Ernst & Young ShinNihon LLC
Tokyo, Japan
March 28, 2024
/s/Yoshitomo Matsuura Designated Engagement Partner Certified Public Accountant /s/Hironori Ogawa
Designated Engagement Partner Certified Public Accountant
/s/Ryuichi Minami
Designated Engagement Partner Certified Public Accountant
Consolidated Statement of Financial Position
31 December 2023
Assets Current assets:
Cash and cash equivalents (Notes 7 and 24) Trade and other receivables (Notes 8, 24 and 25) Other financial assets (Notes 12 and 24) Inventories (Note 9)
Other current assets
Total current assets from continuing operations Assets held for sale
Total current assets
Non-current assets:
Property, plant and equipment (Note 10) Right-of-use assets (Note 17)
Goodwill (Note 11)
Other intangible assets (Note 11)
Other financial assets (Notes 12 and 24) Investments in associates and joint ventures (Note 13)
Deferred tax assets (Note 20) Other non-current assets Total non-current assets Total assets
¥
¥
See accompanying notes to consolidated financial statements.
- 1-
Millions of yen
2023
39,212 ¥
2022
36,992 $ 276,475
62,927
68,437 443,681
5,713
6,503 40,285
200,843
166,217
14,277
15,834
322,974
799
293,985 -
323,773
293,985
Thousands of U.S. dollars
2023
1,416,084
100,664
2,277,191
5,638
2,282,829
189,231
162,965
1,334,214
24,637
19,874 173,709
85,587
76,842 603,448
100,909
86,193 711,482
26,246
26,122 185,053
6,322
5,917 44,579
5,334
4,509 37,611
3,764
3,923 26,540
442,033
386,349
765,806
¥
680,334
3,116,639
$
5,399,469
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Disclaimer
DMG Mori Co. Ltd. published this content on 29 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 March 2024 03:05:05 UTC.
