If, in the future, estimates and assumptions, which are based on management’s best judgment at the date of the financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the year in which the circumstances change. 3.2 Critical Judgments in Applying the Entity’s Accounting Policies In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimates, which have the most significant effect on the amounts recognised in the consolidated financial statements: – Computer software and Enterprise Resource Planning: Computer software is internally developed programmes or modifications that result in new or in substantial improvements of existing IT systems and applications. Enterprise Resource Planning relates to the implementation of an ERP system that is changing the way the business is done in the areas of Finance, Supply Chain and Compliance. The Group has determined that the development phase of internally developed software and the ERP business transformations will provide future economic benefits to the Group and meet the criterion of intangible assets (Note 22); and – Internal developments on formulas, technologies and products: The outcome of these developments depends on their final formulation and application, which varies to meet customer needs, and consequently the future economic benefits of these developments are not certain. Thus the criteria for the recognition as an asset of the internal developments on formulas, technologies and products are generally not met. The expenditures on these activities are recognised as expense in the period in which they are incurred. 4. Foreign Exchange Rates Foreign currency to Swiss francs exchange rates ISO code Units 31 Dec 2021 Average 2021 31 Dec 2020 Average 2020 31 Dec 2019 Average 2019 Dollar USD 1 0.91 0.91 0.88 0.94 0.97 0.99 Euro EUR 1 1.04 1.08 1.08 1.07 1.09 1.11 Pound GBP 1 1.23 1.26 1.21 1.21 1.28 1.27 Yen JPY 100 0.79 0.83 0.86 0.88 0.89 0.91 Singapore dollar SGD 1 0.68 0.68 0.67 0.68 0.72 0.73 Real BRL 1 0.16 0.17 0.17 0.18 0.24 0.25 Renminbi CNY 1 0.14 0.14 0.14 0.14 0.14 0.14 Mexican peso MXN 100 4.45 4.49 4.44 4.37 5.13 5.13 Rupiah IDR 10,000 0.64 0.64 0.63 0.64 0.70 0.70 5. Financial Risk Management 5.1 Capital Management The objective of the Group when managing capital is to maintain the ability to continue as a going concern whilst maximising shareholder value through an optimal balance of debt and equity. In order to maintain or adjust the capital structure, management may issue or reimburse debt, propose to adjust the amounts distributed to the shareholders, return capital to shareholders, issue new shares and cancel shares through share buyback programmes. The Group monitors its capital structure using a number of classic measures, mainly Leverage and Net Debt to EBITDA. The Group is committed to maintaining an investment grade credit profile, as defined by external rating agencies. The Leverage ratio is defined as net debt divided by the sum of net debt and equity. The Net Debt to EBITDA ratio is defined as follows: – Net debt is calculated as the total of the consolidated short-term and long-term debt, less cash and cash equivalents. 57 Givaudan — 2021 Governance, Compensation and Financial Report Governance Report Compensation Report Consolidated Financial Report Statutory Financial Report Appendix Notes to the consolidated financial statements