DMG Mori : Consolidated Financial Statements for the Fiscal Year 2022 ended December 31, 2022

Consolidated Financial Statements

DMG MORI CO., LTD.

Fiscal year ended 31 December 2022 with Independent Auditor's Report

DMG MORI CO., LTD. Consolidated Financial Statements Fiscal year ended 31 December 2022

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 ........................................................................................................... 9

Notes to Consolidated Financial Statements .................................................................................................... 11

Independent Auditor's Report

The Board of Directors

DMG MORI CO., LTD.

Opinion

We have audited the accompanying consolidated financial statements of DMG MORI CO., LTD. (the Company) and its subsidiaries (collectively, the Group), which comprise the consolidated statement of financial position as at December 31, 2022, 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, 2022, 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 ¥76,842 million and other intangible assets with indefinite useful lives (mainly trademarks) of ¥36,679 million as of December 31, 2022, of which goodwill and other intangible assets with indefinite useful lives of ¥73,552 million and ¥33,847 million respectively were arose on the business combination with DMG MORI AG. The Company allocated 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 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. During the year ended December 31, 2022, the Company did not recognize an impairment loss 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 11.9%, 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 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 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 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 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 ¥162,965 million as of December 31, 2022, of which ¥4,763 million was held by Ulyanovsk Machine Tools ooo, a factory for the assembly of machine tools in Ulyanovsk, and ¥2,484 million was held by DMG MORI Rus ooo, a sales and service branch in Moscow (hereafter "Russian subsidiaries"). The Group has 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 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 impairment testing, the	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 evaluated the appropriateness, competency and objectivity of the specialist used by the management. ･ (Scenario two) We obtained and evaluated the opinion by the legal department at DMG MORI AG, the regional headquarter of the Russian subsidiaries regarding the reasonableness of the amount and the