Half-Year Financial Report 2016

Transcription

1 Half-Year Financial Report 2016

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3 The Haniel Group Haniel Group interim management report Consolidated interim financial statements Responsibility statement Additional information Contact Publication details

4 Haniel Key Figures SUMMARY OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS EUR million 1st half-year st half-year 2016 Change Revenue 1,982 1,800-9% Operating profit % Profit before taxes >+100% Profit after taxes >+100% Haniel cash flow %

5 Buy & build strategy successful Encouraging growth in all Haniel Group earnings figures Bekaert Textiles integrates DesleeClama Sales initiative stimulates growth at CWS-boco Revenue weighed down by cyclical ELG business Strong revenue and earnings growth at TAKKT Investment result lifted by Metro Haniel establishes Schacht One digital unit and invests in digital- focussed venture capital funds

6 6 Haniel half-year financial report 2016 / The Haniel Group Franz Haniel & Cie. GmbH The Franz Haniel & Cie. Holding Company is a tradition-steeped German family-equity company. It maintains a diversified portfolio and pursues a longterm investment strategy as a value developer. Its objective is to continually increase the value of the Company while also strengthening its social and environmental values. The Company has always been headquartered in Duisburg-Ruhrort, where it has been shaping the future since BekaertDeslee BekaertDeslee is the leading specialist for the development and manufacturing of woven and knitted mattress textiles. EQUITY INTEREST 100% EUR million 30 Jun. 2015* 30 Jun Revenue Operating profit 2 10 Employees (average headcount) 1,498 2,337 CWS-boco CWS-boco ranks among the leading international full-service providers of washroom hygiene products, dust control mats, workwear and textile services. EQUITY INTEREST 100% EUR million 30 Jun Jun Revenue Operating profit Employees (average headcount) 7,574 7,608 * Bekaert Textiles was acquired by Franz Haniel & Cie. GmbH in the first half of These figures therefore relate exclusively to June 2015.

7 Haniel half-year financial report 2016 / The Haniel Group 7 ELG ELG is a global leader in the trading, processing and recycling of raw materials for the stainless steel industry as well as high performance materials such as superalloys, titanium and carbon fibres. EQUITY INTEREST 100% EUR million 30 Jun Jun Revenue 1, Operating profit 11 2 Employees (average headcount) 1,301 1,188 TAKKT TAKKT bundles a portfolio of B2B direct marketing specialists for business equipment in Europe and North America in a single company. EQUITY INTEREST 50.25% EUR million 30 Jun Jun Revenue Operating profit Employees (average headcount) 2,348 2,485 METRO GROUP METRO GROUP is among the premier international merchandisers. EQUITY INTEREST 25.00% EUR million 30 Jun Jun Haniel investment result

8 8 Haniel Group Interim Management Report

9 Group structure and business models Report on business situation Haniel Group 12 Revenue and earnings performance 14 Financial position 17 Assets and liabilities 18 Employees Holding Company Franz Haniel & Cie. BekaertDeslee CWS-boco ELG TAKKT METRO GROUP Report on expected developments

10 10 Haniel half-year financial report 2016 / Haniel Group interim management report / Group structure and business models Group structure and business models The Haniel Group combines four divisions and one financial investment. Franz Haniel & Cie. GmbH functions as a strategic management holding company and is responsible for portfolio management. The operating business is in the hands of the five investments, which act independently of one another and which each occupy a leading market position. Holding Company designs the portfolio Franz Haniel & Cie. GmbH is a tradition-steeped German family-equity company whose objective is to sustainably increase the value of its investment portfolio over the long term. Since the family shareholders have provided equity for an unlimited term, Haniel can pursue a longterm investment strategy. This strategy is aimed towards generating returns which permanently exceed the cost of capital. Haniel strives to achieve this economic goal in harmony with ecological and social goals. The Company is pursuing this goal by following the guiding principle of the honourable businessman. In addition, capital and management are separated at Haniel: Although the Company is 100 per cent family owned, no member of the Haniel family works at the Company. Haniel is family equity. Family equity combines the best of both worlds, uniting the professionalism of private equity with the values of a family-owned business. When structuring the portfolio, Haniel concentrates on business models that are supported by global megatrends and therefore have a high potential for increases in value over the long term. Promising markets and business models are analysed continually in order to detect growth opportunities. In February 2016, the Bekaert Textiles division which has been part of the Haniel Group since June 2015 acquired the DesleeClama Group, significantly expanding its global market position. As a consequence, the company has since traded as BekaertDeslee. The Holding Company actively supports the corresponding integration measures. This once again demonstrates Haniel s buy & build approach: to acquire new divisions and promote their growth, both organically and through their own acquisitions. Haniel as strategic catalyst In addition to portfolio management, the Holding Company is also responsible for setting strategic guidelines for the operating divisions in this respect the Holding Company considers itself as a strategic catalyst. Strategic initiatives are agreed on in discussion with the Haniel portfolio Divisions Financial investment BekaertDeslee CWS-boco ELG TAKKT METRO GROUP Equity interest 100% Equity interest 100% Equity interest 100% Equity interest 50.25% Equity interest 25.00% BekaertDeslee is the leading specialist for the development and manufacturing of woven and knitted mattress textiles. CWS-boco ranks among the leading international full-service providers of washroom hygiene products, dust control mats, workwear and textile services. ELG is a global leader in the trading, processing and recycling of raw materials for the stainless steel industry as well as high performance materials such as superalloys, titanium and carbon fibres. TAKKT bundles a portfolio of B2B direct marketing specialists for business equipment in Europe and North America in a single company. METRO GROUP is among the premier international merchandisers.

11 Haniel half-year financial report 2016 / Haniel Group interim management report / Group structure and business models 11 divisions; these are implemented by the divisions under their own responsibility. The divisional management teams report regularly to Haniel s Management Board on their progress. The Holding Company is also responsible for selecting and developing top executives for the divisions, providing the divisions with proven tools and offering selected services. The high relevance of digitalisation and the opportunities that it presents have motivated Haniel to provide a team of experts to support all divisions in their implementation of appropriate digitalisation projects. Since April 2016, these activities have been bundled in Schacht One GmbH which, with its headquarters in the Zollverein Coal Mine Industrial Complex with a rich tradition in Essen, builds on the dynamic for change and innovative spirit in Haniel s history. Haniel s specific role as an active investment holding company ensures that all divisions use their respective business models to contribute to the value enhancement of the investment portfolio in the best manner possible. No risks jeopardising the going concern assumption At present, no risks which may jeopardise the Group as a going concern have been identified, nor have notable risks exceeding those normally encountered in business. The risks and opportunities of future development discussed in detail starting on page 65 of the 2015 annual report remain relevant to the Haniel Group. For a discussion of expected developments in the current financial year, please refer to the report on expected developments starting on page 32 of this Half-year Financial Report.

12 12 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Haniel Group / Revenue and earnings performance Haniel Group Revenue and earnings performance Group revenue declined in the first six months of the financial year due to the continuing weak performance of the commodity markets in the ELG division, which had been expected. All other divisions saw growth in their contributions to revenue in the first half of In addition, the Haniel Group was able to generate encouraging growth in all earnings figures. REVENUE EUR million 1,982 1,800 OPERATING PROFIT EUR million -9% +6% Essentially stable market environment In the first months of 2016, the economic environment proved essentially stable in the markets relevant for the Haniel Group. There was slight growth in the developed economies, where the divisions are primarily active. In this regard, economic growth and the resultant stimuli for business development remained stronger in the US than in Europe. Europe continued to record stable growth following the moderate but constant recovery in the prior year. In Europe, the Haniel Group benefited in particular from the continuing steady growth in Germany. Global economic growth was also characterised by reduced momentum in the emerging markets and developing countries, particularly China. The uncertainties in the market environment were fuelled by the Brexit referendum in the United Kingdom on 23 June, which resulted in a vote to leave the European Union in the foreseeable future. A number of political developments and conflicts in the Arab world and in Africa also contributed to a worsening of the economic environment. In addition to the macroeconomic environment, the conditions in the stainless steel market segment are of great significance to the Haniel Group. These conditions were substantially worse in the first half of 2016 than in the previous year. A major cause of this was the sustained economic cooling in China. Dampened economic expectations and the worldwide oversupply of primary nickel resulted in a persistent price decline for nickel, the most significant price driver in stainless steel. On average, prices were down 37 per cent year on year. However, there was also a year-on-year decrease in the commodity prices relevant for the ELG division, e.g. iron, chrome and titanium. 30 Jun Jun Jun Jun Although the positive economic trend in the US and Germany had a positive effect on the Haniel Group s revenue and earnings performance, the negative conditions in the stainless steel and superalloy market segments and the reduced momentum in the emerging markets and developing countries had offsetting effects. Revenue boosted by acquisitions During the first half of 2016, the Haniel Group recorded a 9 per cent decline in revenue, to EUR 1,800 million. This is attributable solely to ELG. The significantly lower prices for all relevant commodities in particular the considerable drop in nickel prices and the reduced output tonnage due to the difficult market environment affected this development. Revenue was primarily boosted by the positive contribution made by the BekaertDeslee division, which covered an entire half-year period for the first time. The newly acquired division had only been included in the figures for one month during the same period of the previous year. Bekaert Textiles acquisition of the DesleeClama Group in February 2016 also made a positive contribution to revenue growth in the four months that followed. TAKKT s acquisitions of Post-Up Stand and BiGDUG also contributed to additional revenue, as did other smaller acquisitions by CWS-boco in the previous year. Organic growth in the TAKKT and CWS-boco divisions was also encouraging. Currency translation effects only had a minor impact. Adjusted for business combinations and disposals as well as currency

13 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Haniel Group / Revenue and earnings performance 13 translation effects, the Haniel Group s revenue was down year on year by 16 per cent. Buy & build strategy a success: BekaertDeslee division makes a positive contribution to revenue and earnings growth. Operating profit improved In the first half of 2016, the Haniel Group s profit was boosted by the fact that the new BekaertDeslee division was included for the first time over six months. However, growth at TAKKT also made a significant contribution. CWS-boco also generated slightly higher operating profit. The reduction in output tonnage and the significant drop in the price of nickel meant a considerably weaker operating profit for ELG than in the first half of In the aggregate, however, ELG s deficit was more than offset; as a consequence, operating profit amounted to an encouraging EUR 115 million in the first half of 2016, up on the prior-year figure of EUR 109 million. Profit before taxes significantly higher Profit before taxes increased significantly from EUR 13 million to EUR 57 million. In addition to the improved operating profit, this is attributable in particular to a higher investment result and an improved result from financing activities. The investment result improved from EUR -60 million in the same period of the previous year to EUR -31 million in the first half of This was caused by the METRO GROUP, which firstly reported a year-on-year increase in operating profit due to lower one-off factors, and secondly generated improved net financial income. By contrast, the METRO GROUP s less favourable tax result as against the first half of 2015 had an adverse effect. With a view to the negative investment result, it should be taken into account that the essentially positive contribution to earnings from the METRO GROUP regularly does not occur until the Christmas season during the fourth quarter of Haniel s financial year. The result from financing activities, comprising the finance costs and other net financial income, amounted to EUR -27 million in the reporting period. In the same period of the previous year, this figure had amounted to EUR -36 million. A significant reason for this improvement was the year-on-year decrease in finance costs due to the lower level of indebtedness. Haniel thus continued to benefit from the systematic debt reduction. Significant rise in profit after taxes With a slight drop in the tax expense, the growth in profit before taxes had a significant impact on profit after taxes. This rebounded from EUR -21 million in the prior-year period to EUR 25 million in the first half of 2016, an improvement of EUR 46 million. PROFIT BEFORE TAXES EUR million >+100% >+100% PROFIT AFTER TAXES EUR million Jun Jun Jun Jun. 2016

14 14 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Haniel Group / Financial position Haniel Group Financial position Haniel s financial strategy is bearing fruit: after European rating agency Scope had already classified Haniel as investment grade, Standard & Poor s followed suit and raised its rating. Both ratings take account of Haniel s sustained conservative financial policy: the Holding Company remains de facto debt-free and is thus well equipped for further investments to expand its portfolio. Financial governance between the Holding Company and the divisions The ultimate objective of financial management is to cover the financing and liquidity needs at all times while maintaining entrepreneurial independence and limiting financial risks. The Holding Company prescribes principles to the divisions in order to establish minimum organisational requirements and to govern the structure of key financial management processes, including financial risk management. These directives are documented in guidelines for the treasury departments of the Holding Company and the divisions. The Holding Company and the divisions use this basis to identify, analyse and evaluate the financial risks that each operating business is responsible for in particular liquidity, credit, interest rate and currency risks and take measures to avoid or limit these risks. In addition, the Holding Company sets the financing and financial risk management strategy and approves the financial counterparties and financial instruments used, as well as limits and reports. While staying within these guidelines, the divisions manage their own financing based on their own financial and liquidity planning. Cash management is also the responsibility of the divisions. In order to leverage economies of scale, the Holding Company and its finance companies support the divisions and, together with partner banks, offer cash pools in various countries. Combining central directives with the autonomy of the divisions in terms of their financing takes into account both the different levels of investment by the Holding Company in the divisions as well as the divisions individual requirements for financial management. Trusting cooperation with financing partners As a family business with stable but limited equity financing, access to sources of debt capital are of high importance to Haniel. Accordingly, a good reputation with financial partners is essential. A significant aspect of this is providing rating agencies and business partners with timely and transparent information and the equal treatment of banks and investors. Only if this is ensured can a company earn a high degree of trust from banks and investors as a long-standing and reliable business partner, such as Haniel has enjoyed for many years. Scope and S&P affirm investment grade rating Haniel submits itself to external rating assessments voluntarily, thus ensuring broad access to capital markets. European rating agency Scope assessed Haniel s creditworthiness for the first time in February The future-oriented approach used for the analysis convinced Haniel to provide the Scope rating to its investors as a further opinion. Haniel received a long-term issuer rating of BBB- with a stable outlook, with Scope therefore classifying it as investment grade. In April 2016, Standard & Poor s (S&P) raised its Long and Short Term Corporate Credit Rating from BB+/B (positive outlook) to BBB-/A-3 (stable outlook). This improved rating also corresponds to an investment grade rating. Both ratings are a result of Haniel s sustained conservative financial policy. This is distinguished by a moderate target net financial debt level of EUR 1 billion at the level of the Holding Company coupled with a solid longterm financing structure. The improvement in the rating also marked a positive assessment of Haniel s cautious financial investment policy and its prudent approach to investments. The ratings improvements were also supported by the sound development of the total cash cover and market value gearing, key figures which are crucial to the rating. Total cash cover is calculated as the ratio of proceeds from dividends and profit transfers to payments for current costs incurred by the Holding Company, as well as interest and dividends to the Haniel family. Market value gearing corresponds to the ratio of net debt to the value of the Haniel investment portfolio. It amounted to 17 per cent as at the 30 June 2016 reporting date and was thus within very comfortable territory.

15 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Haniel Group / Financial position 15 Broad-based financing The Haniel Group s financial management relies on diversification of financing: various financing instruments with a broad range of business partners ensure access to liquidity at all times and reduce the dependency on individual financial instruments and business partners. Overall, the Haniel Group had used and unused credit facilities on the scale of EUR 2 billion at the end of the first half of This exemplifies the active pursuit of security and independence. A balanced maturity profile with an appropriate, longterm orientation guarantees additional financial stability. A further key pillar of financial management is the ability to obtain funding on the capital market. To that end, the Holding Company updates its commercial paper programme at longer intervals and its debt issuance programme (still in the amount of EUR 2 billion) annually. Based on information contained therein, bonds can be placed very flexibly in terms of the timing and amount and adjusted to the respective market conditions. Overall, the financial liabilities reported in the Haniel Group s Statement of Financial Position were EUR 1,637 million as at 30 June Of that amount, EUR 597 million has a maturity of more than one year. Of the EUR 1,040 million in liabilities reported as current liabilities, EUR 473 million were attributable to the exchangeable bond linked to ordinary shares in METRO AG. Although HANIEL CASH FLOW EUR million +14% CAPITAL EXPENDITURE EUR million -64% Jun Jun Jun Jun this only reaches maturity in 2020, it is reported as a current liability due to the right of the bondholders to exchange the bond for shares, which can be exercised at any time. The value of outstanding bonds as at 30 June 2016 remained level with the figure of EUR 0.9 billion recorded at the end of In addition, the CWS-boco, ELG and TAKKT divisions have also financed themselves on the market for promissory notes in recent years, thus broadening their financing base. As at 30 June 2016, the value of promissory note loans, commercial paper and other securitised liabilities in the Haniel Group remained unchanged as against 31 December 2015, at EUR 0.2 billion. In addition, the BekaertDeslee, CWS-boco and ELG divisions maintain programmes for the continual sale of trade receivables to third parties. Solid financial buffer despite increased net debt The net financial liabilities of the Haniel Group, i.e., financial liabilities less cash and cash equivalents, increased slightly to EUR 1,393 million as at 30 June 2016 compared to EUR 1,338 million at the end of The Haniel Group s net financial position also rose, increasing to EUR 546 million in the first half of 2016 versus EUR 445 million as at 31 December The net financial position equals the net financial liabilities less the investment position of the Holding Company excluding current and non-current receivables from affiliated companies. The rise in both net financial debt and the net financial position is due in particular to the use of financial resources for the DesleeClama Group acquisition. At the level of the Holding Company, net financial liabilities also increased, rising from EUR 849 million as of 31 December 2015 to EUR 960 million as of 30 June This is also due to the fact that the Holding Company provided the divisions with financial resources, thus reducing its own cash and cash equivalents. Thanks to the financial support provided by the Holding Company, the Bekaert Textiles division acquired last year was able to complete the above-mentioned DesleeClama Group acquisition and further accelerate its growth. The net debt is offset by a portfolio of financial assets that will be used in the coming years to acquire additional divisions as well as to redeem outstanding bonds.

16 16 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Haniel Group / Financial position Including current and non-current receivables from affiliated companies, the Holding Company had financial assets valued at EUR 1,226 million as at 30 June Since financial assets continue to exceed net financial debt, the Holding Company remains de facto debt-free and has a solid financial buffer. Haniel cash flow increases further The Haniel Group uses the performance indicator Haniel cash flow to assess the strength of its liquidity position in its current business activities. Haniel cash flow is first and foremost available for the purpose of financing current net assets* and investments. In the first half of 2016, Haniel cash flow increased from EUR 204 million in the prior-year period to EUR 233 million. This was primarily due to the encouraging performance in the operating business in almost all divisions. Cash flow from operating activities, which supplement Haniel cash flow in depicting the change in current net assets, amounted to EUR 164 million in the first half of 2016, and were thus lower than Haniel cash flow. This is mainly attributable to the increase in trade receivables due to lower sales of receivables at CWS-boco and higher tax receivables. In the same period of the previous year, cash flow from operating activities amounted to EUR 243 million, which was higher than the Haniel cash flow. This is attributable to the fact that financial resources were freed up as a result of the decrease in current net assets. In turn, this was due primarily to a lower price for nickel and reduced output tonnages at ELG, which resulted in declining inventories and reduced trade receivables. DesleeClama Group acquisition as largest single investment Cash flow from investing activities, i.e. the net outlays for capital expenditure and proceeds from divesting activities, amounted to EUR -123 million in the first half of Payments for investments amounted to EUR 275 million, which includes the DesleeClama Group acquisition as the largest single investment. This figure also includes acquisitions of financial investments by the Holding Company in addition to the divisions investments in intangible assets and in property, plant and equipment. The payments compare to proceeds from divestment activities amounting to EUR 152 million. These were primarily attributable to the sale of financial investments by the Holding Company. During the same period of the previous year, cash flow from investing activities had amounted to EUR -218 million. This included higher payments with the figure of EUR 754 million in comparison with the first half of 2016 primarily for the Holding Company s acquisition activities and those of the divisions, their investments in intangible assets and in property, plant and equipment, and the Holding Company s financial investments. In the prior-year period, the payments compared to likewise higher proceeds from divestment activities amounting to EUR 536 million. In the first half of 2015, that figure primarily consisted of a cash inflow from the disposal of Metro shares. Cash flow from financing activities amounted to EUR -137 million, as against EUR 253 million in the first half of A dividend in the amount of EUR 50 million was paid out to the shareholders of Franz Haniel & Cie. GmbH in 2016, and debt was repaid, primarily at TAKKT and ELG. In the prior-year period, cash inflows from financing activities exceeded the corresponding cash outflows due to the fact that Haniel had generated a high cash inflow from the issue of the exchangeable bond linked to Metro shares. EUR million 30. Jun Jun Haniel cash flow Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities * Net current assets consist essentially of trade receivables and inventories less trade payables.

17 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Haniel Group / Assets and liabilities 17 Haniel Group Assets and liabilities Even after the DesleeClama Group acquisition, the Haniel Group continues to boast a very solid balance sheet. The equity ratio remains high, underscoring the investment potential at Haniel s disposal. Lower total assets The Haniel Group s total assets declined from EUR 6,847 million as at 31 December 2015 to EUR 6,726 million as at 30 June This was reflected above all in non-current assets, which declined from EUR 5,237 million as at 31 December 2015 to EUR 5,129 million. The primary cause was the lower carrying amount of the Metro investment due to the dividend payment. The acquisition of the DesleeClama Group caused a rise in intangible assets and property, plant and equipment, which increased non-current assets. A portion of the Holding Company s cash and cash equivalents was used to finance the DesleeClama Group acquisition; by contrast, the firsttime inclusion of the company increased current assets, which remained stable year on year. ratio remained almost constant at 60 per cent. This sustained high level underscores Haniel s investment potential. Non-current liabilities declined to EUR 1,198 million, primarily due to the reclassification of the Holding Company s bonds that mature in By contrast, current liabilities increased from EUR 1,105 million as at 31 December 2015 to EUR 1,493 million, primarily due to the reclassification of these bonds. Recognised investments down on high prior-year figure The Haniel Group s recognised investments declined from EUR 616 million in the same period of the previous year to EUR 283 million in the first half of This decrease was caused by the high level of recognised investments in the previous year, which was primarily due to the acquisition of the new Bekaert Textiles division. This was partly offset in the first half of 2016 by lower acquisition volumes due to the DesleeClama Group acquisition. High equity ratio underscores investment potential Equity declined slightly from EUR 4,169 million as at 31 December 2015 to EUR 4,035 million as at 30 June This was caused by negative measurement effects for pensions and currency translation. Despite the decrease, the lower total assets meant that the equity Consolidated statement of financial position ASSET STRUCTURE EUR million EQUITY AND LIABILITY STRUCTURE EUR million 6,847 6,726 6,847 6,726 24% 24% Current assets 16% 22% Current liabilities 76% 76% Non-current assets 23% 18% Non-current liabilities 61% 60% Equity 31 Dec Jun Dec Jun. 2016

18 18 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Haniel Group / Employees Haniel Group Employees The number of employees in the Haniel Group increased in the first half of 2016, primarily as a result of the Group s acquisition activity. The Haniel Group s average headcount amounted to 13,829 in the first half of The number of employees in the Haniel Group increased by 7 per cent, in particular due to the acquisition of DesleeClama by the Bekaert Textiles division. As a result, the number of employees in the Haniel Group averaged 13,829 in the first half of 2016, compared with 12,930 at the end of The global headcount in the BekaertDeslee division, which has been operating under this name since March 2016, averaged 2,337 in the first half of The average number of employees at CWS-boco was 7,608 in the first half of 2016, versus an average of 7,563 employees in the previous year. The slight increase was primarily due to the strengthening of the sales function, which was systematically pursued as part of the sales initiative. The average number of employees at TAKKT increased slightly from 2,403 in the previous year to 2,485; this was due to the positive business development and the expansion of the digital activities. It was only offset to a limited extent by the decision to withdraw from China in the first half of Digitalisation is also affecting human resource requirements: key positions such as Chief Digital Officer or Senior Digital Advisor were created and newly filled. Digitalisation will give rise to a qualitative change in human resources requirements in the foreseeable future. In addition, the business culture primarily the means of cooperation will be subject to lasting change. In addition to establishing its own digital unit, Schacht One, Haniel has organised training and initiatives to promote dialogue as a first step toward address this trend. The average headcount at ELG decreased from 1,282 in the previous year to 1,188 in the first half of In the stainless steel business, the division further adapted its capacities to the tense market situation. EMPLOYEES Average headcount +7% 12,930 13, Dec Jun. 2016

19 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Haniel Group / Holding Company Franz Haniel & Cie. 19 Holding Company Franz Haniel & Cie. The Holding Company* successfully enhanced the portfolio in the first half of 2016 and provided key momentum for further development: the family equity company supported its market-leading Bekaert Textiles division, which was acquired in 2015, in its own acquisition and integration of the DesleeClama Group. The Schacht One digital unit and the investments in digital-focused venture capital funds will provide new momentum to further develop the value of the portfolio. Portfolio successfully enhanced The Holding Company supported Bekaert Textiles, a leading specialist for the development and manufacturing of mattress textiles that it had acquired in June 2015, in acquiring the DesleeClama Group, financing the acquisition and in the subsequent integration process. This supplementary acquisition enabled the company to consolidate its position in established markets and expand its position in new regions. The division has been operating under the name BekaertDeslee since March Following the successful portfolio measures initiated in the first half of 2016, more than EUR 1.0 billion is intended to be invested to acquire further new divisions. As a familyequity company, Haniel pursues a long-term investment approach. Its focus lies on well-positioned medium-sized companies which operate in attractive niches which can expand their market-leading position with the help of Haniel, contributing to the diversification of the portfolio. In addition, Haniel gives preference to the acquisition of controlling interests in non-listed companies, which can also take place in stages. In line with Haniel s objective of being enkelfähig, the only candidates for acquisition are companies which already make a positive contribution to the environment and society through their sustainable actions, or which will be able to do so in the future. The intention is to invest more than EUR 1.0 billion in acquiring further new divisions. Haniel will continue to find the right companies by patiently and prudently weighing the options as they arise the Bekaert Textiles acquisition and its expansion to include the DesleeClama Group illustrates this approach. Strategic momentum for investments and future value growth In the first half of the year, the Holding Company launched several forward-looking initiatives aimed at developing the future value of the portfolio. These are aligned with Haniel s objective of acting as a value developer for the investments and keeping both value and values in view. The Holding Company established Schacht One, Haniel s own digital unit in the historic Zollverein Coal Mine Industrial Complex in Essen, to help implement the Digital Agenda at the investments. Schacht One will work together with the divisions to develop and directly assess the plausibility of innovative and radical user-oriented ideas and problem-solving approaches. If an approach meets with widespread user interest, an initial minimal viable product (MVP, i.e., an 80 per cent solution) will be developed and tested on the market. Following successful completion of the MVP phase, the product and new business is rapidly rolled out and integrated for scaling in the respective division. In addition, at the beginning of the year Haniel decided to invest up to EUR 50 million in selected venture capital funds, thereby making indirect investments in start-ups. Aside from pursuing entrepreneurial objectives, the aim is to create learning opportunities relating to new digital business models. For example, Haniel has invested in five different funds in recent months, which in turn invest in a number of new companies. This expertise can for example give rise to innovation processes at the divisions; it also provides momentum as Haniel continues to seek out new investments that will be successful in the long term. Responsibility for the region and society Together with the KfW Foundation, the Prof. Otto Beisheim Foundation and Social Impact ggmbh, Haniel established Social Impact Lab Duisburg. The incubator for social entrepreneurs supports business founders * Incl. the Holding Company s financing and service companies. You can find the financial statements of the Franz Haniel & Cie. subgroup under Creditor Relations at

20 20 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Haniel Group / Holding Company Franz Haniel & Cie. who want to use their ideas to solve pressing social challenges; it connects them with other stakeholders and establishes them in the region. The aim of spreading social innovations and establishing social enterprises is to create positive momentum for the ongoing structural transformation in the Rhine-Ruhr region. Haniel is making the Social Impact Lab premises available at its corporate location. In addition, a specialist offering such as a mentoring programme and specialist workshops with experts from Haniel promote an exchange of ideas between the start-up teams and Haniel employees. The Holding Company s employees benefit from the dialogue with the start-up teams, become familiar with their specific business culture and in doing so gain valuable motivation for their work at the Holding Company. Haniel does not just provide opportunities for founders of social enterprises, but also for refugees: as a founding member of We together The integration initiative of the German economy ( Wir zusammen Integrationsinitiativen der deutschen Wirtschaft ), Haniel was one of the first 35 companies to sign up to this initiative for the integration of refugees. The network has since grown to 96 companies. At its headquarters in Duisburg, Haniel coordinates directly with the city authorities to provide assistance when there are acute shortages in support, and assists the city in developing the organisation and warehousing logistics needed to support integration. There are also future plans to offer professional integration within the Haniel Group for refugees granted rights of residence, as well as cultural, general knowledge and language training, and care for children and young people. In cooperation with the project partners the Haniel Foundation, the start-up teams at the Social Impact Lab and the University of Duisburg-Essen Haniel supports numerous social entrepreneurship activities in the field of integration. Value of the portfolio increased The value of the investment portfolio amounted to EUR 4,985 million as at 30 June It was therefore higher than the EUR 4,887 million reported at the end of The value of the investment portfolio is calculated as the sum of the valuations of the divisions, the METRO GROUP financial investment, financial assets and other assets, less net financial liabilities at the Holding Company level. Listed divisions and the financial investment are valued on the basis of three-month average share prices, while the remainder of the divisions are valued on the basis of market multipliers, and for the financial assets on the basis of fair values as at the reporting date. The value of Haniel s investment portfolio increased slightly as against the prior year to EUR 4,985 million as at 30 June Haniel welcomes the strategic decision of Metro s management to raise internal value potential and supports the plans for a demerger at the METRO GROUP. This opens up the possibility of new growth and development opportunities for the financial investment. Financial assets higher than net financial liabilities The sale of Celesio, the reduction of the shares in the Metro investment and the placement of the exchangeable bond linked to Metro shares in recent years put the Holding Company in a distinctly comfortable financial situation. Therefore, Haniel invests predominantly in financial assets. As at 30 June 2016, taking into account current and non-current receivables from affiliated companies, there were financial assets valued at EUR 1,226 million versus net financial liabilities amounting to EUR 960 million. The exchangeable bond linked to Metro shares, which was issued in the previous year, is a key component of Haniel s financing. Haniel has therefore secured the outstanding financing terms in the current capital market environment until In addition to financing through the capital markets, this will be supplemented by existing, currently unused credit facilities at banks. However, the major part of financing is and remains the equity made permanently available by the Haniel family. The Holding Company thus retains a solid liquidity buffer, both for the expansion of the portfolio and for the redemption of bonds in the amount of EUR 257 million falling due in February Over the medium to long term, Haniel s goal remains to have some EUR 1 billion in net debt after acquiring new divisions. Investment grade rating received from Scope and S&P Haniel submits itself to external rating assessments voluntarily, thus ensuring broad access to capital

21 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Haniel Group / Holding Company Franz Haniel & Cie. 21 markets. European rating agency Scope assessed Haniel s creditworthiness for the first time in February The future-oriented approach used for the analysis convinced Haniel to offer the Scope rating to its investors as a further opinion. Haniel received a long-term issuer rating of BBB- with a stable outlook, with Scope therefore classifying it as investment grade. The rating is a consequence of Haniel s conservative investment strategy as a family equity company with comparatively low market value gearing (the ratio of net financial debt to the market value of the portfolio), which amounted to 17 per cent as at the 30 June 2016 reporting date and was thus within very comfortable territory. In addition, the Scope rating acknowledged Haniel s strong liquidity position and solid cash flow profile. In April 2016, Standard & Poor s Services (S&P) raised its Long and Short Term Corporate Credit Rating from BB+/B (positive outlook) to BBB-/A-3 (stable outlook). As a result, S&P again classified Haniel as investment grade. The improvement is a result of Haniel s ongoing conservative financial policy. This is distinguished by a moderate target net financial debt level of EUR 1 billion coupled with a solid long-term financing structure. The improvement in the rating also marked a positive assessment of Haniel s cautious financial investment policy and its prudent approach to investments. Moody s had already raised the rating to Ba1 with a stable outlook in the second half of This was also supported by the sound development of the total cash cover and market value gearing, key figures which are crucial to the rating. Total cash cover is calculated as the ratio of proceeds from dividends and profit transfers to payments for current costs incurred by the Holding Company, as well as interest and dividends to the Haniel family. Earnings contribution of the Holding Company down on prior year The amount contributed by the Holding Company to the Group s operating profit was down year on year in the first half of In the previous year, operating profit was boosted by higher gains from the reversal of provisions that were no longer needed.

22 22 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Wholly-owned investment BekaertDeslee BekaertDeslee Bekaert Textiles has been a part of Haniel s portfolio of divisions since June In February 2016, the leading specialist for the development and manufacturing of woven and knitted mattress textiles acquired the DesleeClama Group, thus driving forward the long-term expansion of its global market position. The company now operates under the name BekaertDeslee. For the first time since its acquisition, the division has contributed revenue and profit to the Haniel Group over a complete half year. BekaertDeslee strengthened through acquisition BekaertDeslee is a growth-oriented company that seeks the long-term expansion of its global market position through both organic growth and acquisitions. The division significantly strengthened its leading position on the market in the first half of 2016, primarily through the acquisition of the DesleeClama Group. The DesleeClama Group, which is domiciled in Belgium like Bekaert Textiles, was formed in 1928 and has established a position in the development and manufacture of woven and knitted mattress textiles. In addition to certain European markets, the company has long served REVENUE EUR million >+100% Jun. 2015* 30 Jun REVENUE by sales region 45% Americas 40% Europe 15% Asia-Pacific 30 Jun international markets such as Indonesia and Brazil, where Bekaert Textiles had not been directly represented in the past. The combined company s broad market coverage and high degree of customer proximity give it a strong competitive position under the new name BekaertDeslee. They will make it possible for the company to further increase its responsiveness and delivery reliability for all customer groups once the integration has been completed. The division significantly strengthened its leading position on the market in the first half of 2016 through the acquisition of the DesleeClama Group. The two companies also complement each other in other ways: DesleeClama s great capacity for innovation meets the excellent design know-how of Bekaert Textiles. In addition, integration enables the division to achieve synergies particularly in the areas of procurement, production and administration. The division has been working with the Holding Company since February to advance the integration of Bekaert Textiles and DesleeClama. BekaertDeslee is focusing on completely merging the organisations on the one hand and has begun to optimise the global structure of its locations on the other. The first key corporate functions of the two companies have been merged. In addition, the division has begun to relocate DesleeClama s production activities in the United States to Bekaert Textiles existing production locations in the United States and Mexico. Cost initiatives successfully continued In the first half of 2016, BekaertDeslee successfully and systematically continued its work to implement both the procurement initiative and the Lean Manufacturing Initiative, both of which were launched in While the centralisation and standardisation of yarn purchasing enabled the division to reduce costs, the Lean Manufacturing Initiative is designed to improve production processes. The division has begun to expand both initiatives to DesleeClama and has already identified new potential for efficiency enhancement. * This figure relates exclusively to June 2015.

23 Haniel half-year financial report 2016 / Haniel Group interim management report / Report on business situation / Wholly-owned investment BekaertDeslee 23 Encouraging contributions to revenue and operating profit In the first half of 2016, BekaertDeslee generated EUR 146 million in revenue, compared to EUR 20 million in the first half of 2015, during which Bekaert Textiles had only contributed to revenue for a single month. The newly acquired DesleeClama Group also made a noteworthy contribution in this area during the period from March to June In particular, the growing demand for higher-quality knitted mattress textiles had a positive influence on revenue development. These products, which also generate higher margins, accounted for more than 50 per cent of overall revenue in the first half of The remaining revenue shares were attributable primarily to woven mattress textiles, but also to a small but rising extent to products with a greater depth of value added such as ready-made mattress covers. the division systematically focuses on the needs of its target groups from mattress manufacturers to retailers through to end consumers. At its core, the Digital Agenda represents the best-possible means to focus product innovation on customers to enable the company to make its business model fit for the future and to further develop it over the long term. BekaertDeslee s operating profit amounted to EUR 10 million in the first half of 2016, compared to EUR 2 million in the same period of the previous year. It should be noted that the operating profit was weighed down by the scheduled amortisation arising from the purchase price allocation amounting to EUR 5 million. Adjusted for this, the operating profit was EUR 15 million. Customer focus sharpened as part of the Digital Agenda In the first half of 2016, BekaertDeslee began to develop its own Digital Agenda. Under the Digital Agenda, OPERATING PROFIT EUR million >+100% 2 10 EMPLOYEES Average headcount +59% 1,466 2, Jun. 2015* 30 Jun Dec Jun * This figure relates exclusively to June 2015.