26 Financial instruments and risk management

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assets and financial liabilities are recognized in the consolidated statement of financial position as of the date on which the Group becomes a contracting party to the financial instrument. Regular way purchases and sales of financial assets are generally recognized on the settlement date. As of the date of initial recognition, financial assets and financial liabilities are measured at fair value and classified in accordance with the provisions of IFRS 9 Financial Instruments.

Trade receivables are recognized when an unconditional right to consideration from the customer exists. Trade receivables that do not contain any significant financing component or for which the Group has applied the practical expedient, are measured at the transaction price determined in accordance with IFRS 15. For more details, please refer to the accounting methods in Note 5 “Revenue”.

Fair value generally corresponds to the market or quoted value. If no active market exists, fair value is calculated using generally accepted valuation techniques (for example, using the present value method or option pricing models). Amortized cost corresponds to the cost of the financial liabilities adjusted for repayments, impairment and the amortization of any discounts or premiums.

IFRS 9 divides financial assets into the following measurement categories:

• At amortized cost (AC)
• At fair value through profit or loss (FVPL)
• At fair value through other comprehensive income (FVOCI)

The classification and measurement of financial assets is based on the business model under which the Company holds the instruments, as well as on the specific features of the contractual cash flows from the individual instrument. Classification therefore depends on

• whether the underlying business model is aimed at holding financial assets to collect contractual cash flows (“hold” business model) and
• whether the contractual cash flows are solely payment of principal and interest (SPPI).

The business model is determined based on the corporate management of Carl Zeiss Meditec AG. To this end, the financial instruments are combined into groups, each of which has a consistent underlying business model. All business models that exist within the Carl Zeiss Meditec Group currently meet the criteria for the “hold” business model. The characteristics of the contractual cash flows are reviewed at the level of the individual financial instruments.

Financial assets whose contractual cash flows are solely payments of principal and interest on the principal amount and that are held under a “hold” business model are measured at amortized cost. These are trade receivables, cash and cash equivalents, bank balances, securities and other financial assets. The assets are subsequently measured using the effective interest method. Gains and losses from impairment or derecognition are recognized in the income statement.

Financial assets for which the cash flow condition is not fulfilled or which are held under the “Sell” business model are measured at fair value through profit or loss. Gains and losses from a change in fair value are recognized immediately in the income statement. By definition, this category also includes all derivatives with a positive market value.

For equity instruments, Carl Zeiss Meditec makes use of the option to recognize these financial instruments at fair value through other comprehensive income in individual cases. Currently this option is exercised for all major investments, as the current intention for all these investments is to hold them long term. Measurement at fair value is carried out using the discounted cash flow method.

Subsidiaries, associates and joint ventures, which are not consolidated for reasons of materiality, do not fall within the scope of IFRS 9 and IFRS 7.

Financial assets are subject to default risks, which are taken into account by the recognition of a loan loss provision or, in the case of losses already incurred, by the recognition of an impairment loss. Specific allowances and portfolio-based allowances based on the expected credit loss model are recognized to cover the default risk. The extent of expected losses is categorized according to a 3-stage model (general approach), depending on whether the default risk of a financial instrument has increased significantly since initial recognition. Objective evidence includes delay of payment by more than 90 days, information about financial difficulties of the debtor or insolvency proceedings filed against the debtor. The general approach is used to determine the expected credit losses for all assets except trade receivables.

The fair value of current trade receivables basically corresponds to their nominal value, due to their short-term nature. Non-current, non-interest-bearing receivables and loans are discounted according to normal market conditions. Interest amounts are recognized using the effective interest method.

The Company is a business group with global operations, and as such it is subject to the effects of exchange rate fluctuations. In order to hedge against this currency risk, it concludes currency forward contracts based on planned transactions in foreign currency. These contracts generally span a period of up to one year. In exceptional cases, however, longer terms may be used to secure intragroup loans. The main purpose of the derivative financial instruments is currency hedging. The rules of hedge accounting are not applied and the change in the fair values are accordingly recognized through profit or loss.

The Carl Zeiss Meditec Group exclusively holds currency forward contracts as derivative financial instruments for currency hedging and classifies these as assets and liabilities measured at fair value through profit or loss.

The Carl Zeiss Meditec Group operates a global financial risk management system, which encompasses all subsidiaries and is organized centrally at Group level. The prime objective of the financial risk management system is to provide the necessary liquidity for the operations of companies within the Group and to limit the financial risks.

Due to its use of a range of financial instruments, the Group is exposed to risks which arise particularly as a result of fluctuation in exchange rates, interest rates and changes in the creditworthiness of the contracting partners involved.

The Company’s exposure to each of the risks listed above is described below. The possible concentration is also taken into account when considering individual risks. The Group’s objectives, strategies and procedures for controlling, and methods for measuring the risks are also described. The risk report within the management report also contains information about the risk management system.

Credit risk

The Group is exposed to a credit risk due to its business operations and financing activities. The following applies to all performance relationships underlying the primary financial instruments: depending on the type and level of the respective service, collateral is required, credit information/references are obtained and historical data from the previous business relationship is used, in particular regarding payment behavior, in order to minimize the credit risk. To the extent that credit risks can be identified for the individual financial assets, these risks are covered by valuation allowances. The maximum credit risk is reflected by the carrying amounts of the financial assets recognized in the statement of financial position.

The following table provides information on the remaining default risk of trade receivables:

Trade receivables also include leasing receivables in the amount of €11,297k (prior year: €9,644k).

Recognizable default risks are taken into account through specific valuation allowances on trade receivables and are included in the valuation allowances in the amount of €5,543k (prior year: €6,490k). No individual valuation allowances were made on receivables from related parties or treasury receivables.

The risks associated with trade receivables are adequately covered by valuation allowances. The valuation allowances were derived using historical default rates, taking forward-looking statements into account. The resulting valuation allowances developed as follows:

The table below shows the gross carrying amounts and the average default rates for trade receivables according to the expected credit loss model:

The measurement of the expected losses considered various macroeconomic forecasts to account for the deviation in the default risk expected by the market – compared with previous years. In general, a complete default is assumed after 365 days overdue. Adjustment of the forward-looking statements to the current environment had no material effect on the average default rates. An increase in this factor in the context of the credit risk by 2 percentage points would result in an increase in the valuation allowances in the low single-digit million range.

Liquidity risk

The liquidity risk of the Carl Zeiss Meditec Group is defined as not being able to meet its financial obligations (repayment of debt, interest payments). In order to ensure solvency and financial flexibility within the Group, Carl Zeiss Meditec AG forecasts, within a fixed planning period, the funds it will require using a cash forecast, and holds a corresponding liquidity reserve in the form of cash and unused lines of credit with the treasury of Carl Zeiss AG.

The following table shows the contractually agreed undiscounted cash outflows for non-derivative financial liabilities:

The table below shows the contractually agreed undiscounted cash outflows for derivative financial instruments with a negative market value:

Market risk

Currency risk

The currency risk for the Group in the sense of IFRS 7 results from its financial instruments, which arose from its business operations and investing and financing activities. The Company counters a risk that remains after compensation of payments made and received in the same foreign currency mainly by concluding simple currency forward contracts. These transactions mainly relate to the currencies listed in the following table. Carl Zeiss Meditec AG and its subsidiaries are linked to the currency hedging processes of Carl Zeiss AG, Oberkochen, via its treasury company, Carl Zeiss Financial Services GmbH. The total foreign currency payments made and received and reported to the treasury by the Group’s subsidiaries, generally on a monthly basis, are thus hedged against the euro by means of currency forward contracts at the rate fixed. Since this fiscal year, only transactions in the five foreign currencies with the highest turnover of the respective company have been hedged.

The average exchange rates of the currency forward contracts concluded for the major currencies are as follows:

Derivatives are recognized as freestanding derivatives. The nominal amounts and the market values of the derivative financial instruments are presented in the table below:

The carrying amounts of Carl Zeiss Meditec Group’s financial assets and liabilities denominated in foreign currencies reflect the level of risk exposure as of the end of the reporting period. The fair values are calculated exclusively using recognized actuarial methods (including the present value method or option pricing models) and based on publicly accessible market information.

The tables below provide an overview of the Company’s foreign currency financial instruments:

The previous table contains no intragroup assets or liabilities. These were merely taken into consideration for sensitivity analysis purposes. In order to better present the existing currency risks, the effects of hypothetical fluctuations in the relevant currencies on net income for the year and equity are presented below based on a currency sensitivity analysis. A hypothetical strengthening or weakening of the euro against the Group’s main foreign currencies by 10% as of the end of the reporting period – ceteris paribus – earnings before taxes and equity would have been affected as follows:

The most significant effect of currency risks resulted, as of 30 September 2025, from the asset-side and liabilities-side currency hedges in CNY, KRW, JPY and USD. The effects of currency risks shown in the items receivables from and liabilities to affiliated companies are also particularly attributable to CNY and USD. Effects on equity due to exchange rate fluctuations only arise due to the translation of the financial statements. In addition, fluctuations in the GBP and CAD by +10% or -10% would have affected the earnings on intragroup loans by €-2.6m or +€2.6m, respectively.

Interest rate risk

The Group holds interest-bearing financial instruments primarily in the form of short-term cash and cash equivalents, loans and receivables from financial settlements – mainly from Carl Zeiss Group Cash Management, Carl Zeiss Financial Services GmbH. The Carl Zeiss Meditec Group also holds non-current, interest-bearing financial receivables and liabilities and leasing receivables and liabilities. In the past fiscal year, Carl Zeiss Meditec AG has also received a long-term loan from the ZEISS Group in the amount of €400,000k, which has a fixed interest rate and therefore carries no interest rate risk.

An interest rate sensitivity analysis is based on the following assumptions: changes in market interest rates on primary financial instruments with fixed interest rates will only have an effect on income if these are measured at fair value. As a result, all financial instruments carried at amortized cost with fixed interest are not subject to any risks of interest rate fluctuation in terms of IFRS 7. In addition, forex derivatives are not subject to any major risk of interest rate changes and thus do not impact interest rate sensitivities.

As of the end of the reporting period, the Company mainly holds fixed-interest financial instruments measured at fair value. The general interest rate risk is countered as part of overall financial risk management, by regularly monitoring significant items and their inherent interest rate risks with the aim of limiting these, if necessary. At the present time, this risk can be considered negligible.

Carrying amounts and fair values by category

The following table shows the carrying amounts, corresponding to the fair values in all items, of the recognized financial instruments by measurement category.

For a comparison of the valuation categories with the items in the statement of financial position the following reclassifications should be noted:

Fair value measurement

Financial instruments are measured at fair value based on a three-level fair value hierarchy:

Level 1: The fair value is determined on the basis of quoted, unadjusted market prices on active markets.

Level 2: The fair value is determined on the basis of market data such as share prices, exchange rates or yield curves in accordance with market-related valuation methods (e.g. present value method or option pricing model).

Level 3: The fair value is determined using models based on unobservable market data (e.g. discounted cash flow method).

The decision on classification is made on the reporting date. The interest rates applied across the various maturities and foreign currencies range from +0.5% to +4.2% (prior year: -0.3% to +16.2%).

The following table shows the fair values of the financial instruments and the respective classification:

The development of financial instruments allocated to level 3 of the fair value hierarchy is presented in the table below:

The financial assets allocated to level 3 include investments that are allocated to both the “at fair value through profit or loss” and the “at fair value through other comprehensive income” valuation categories and whose value amounted to €0k, as in the prior year. Also new this year are loans to a supplier whose repayment is linked to certain revenue targets and whose interest rate is variably linked to Euribor. Both the planned revenue figures and the probability of default used in the valuation represent unobservable input factors. An upward or downward fluctuation in the interest rate by 1 percentage point would reduce or increase the contingent considerations by an amount under €1m. A 15% reduction in the planned revenue would lead to an increase in the probability of default in the lower single-digit million range.

At the beginning of this fiscal year, level 3 also included options that were acquired as part of the acquisition of the shares in Vibrosonic GmbH and entitled the holder to acquire further shares. Due to project delays, the options were not exercised and were valued at €0 as at 30 September 2025. The effect was recognized through profit or loss in the other financial result.

The financial liabilities assigned to level 3 include contingent purchase price obligations from the acquisitions of Preceyes B.V., Kogent Surgical LLC, Audioptics Medical Inc. as well as InfiniteVision Optics S.A.S., which was acquired in an asset deal. The change in fair value recognized through profit or loss includes, on the one hand, the annual compounding of these liabilities, and, on the other hand, the adjustment of the capital costs for the measurement of the liabilities. Both effects are recognized in the interest expense. In addition, income from the remeasurement of contingent purchase price obligations, which is also part of the change in fair value through profit or loss presented here, was recognized in the other financial result.

The fair value of the contingent considerations was determined on the basis of the criteria agreed in the purchase agreement and the probable achievement of the target expected according to the current status and discounted at a standard market interest rate. An upward or downward fluctuation in the interest rate by 1 percentage point would reduce or increase the contingent considerations, respectively, in the lower single-digit-million range. A delay in the achievement of targets linked to milestones, accompanied by a simultaneous reduction in the planned revenue targets by 15%, would reduce the obligations by approximately €16m.

Net income

The following table shows the distribution of income from interest, the subsequent valuation of financial instruments at fair value, and from currency translation among the individual categories of financial instruments in accordance with IFRS 9, and how the respective net result is calculated.

The interest from financial instruments is recognized under interest income. The effects of currency translation are recognized together with the fair value measurement of the currency forward contracts under the item foreign currency gains (+) / losses (-), net, in the income statement. The Carl Zeiss Meditec Group carries the other components of the net result recognized through profit or loss under “Other financial result”, with the exception of the valuation allowances on trade receivables and receivables from related parties, which are allocated to the valuation category financial assets measured at amortized cost and are reported under selling costs.