Haniel half-year financial report 2016 / Consolidated interim financial statements / Selected explanatory notes 45 Selected explanatory notes Accounting principles The consolidated interim financial statements of Franz Haniel & Cie. GmbH, Duisburg, as at 30 June 2016 were prepared in accordance with the International Financial Reporting Standards (IFRSs) in effect on the reporting date and adopted by the Commission of the European Union. The consolidated interim financial statements have been prepared in accordance with IAS 34 and the further provisions relating to interim financial reporting. With the exception of the amendments and revisions described below, the accounting policies applied correspond to those applied in preparing the consolidated financial statements as at 31 December 2015. Please refer to the consolidated financial statements of Franz Haniel & Cie. GmbH as at 31 December 2015 for further information on the individual accounting policies applied. Neither the consolidated interim financial statements nor the Haniel Group interim management report have been audited or reviewed. New accounting standards and interpretations The following standards and interpretations that were revised or newly-issued by the International Accounting Standards Board (IASB) or the IFRS Interpretations Committee (IFRS IC), as adopted by the Commission of the European Union, were applicable for the first time beginning with the 2016 financial year: Amendments to IFRS 11 (2014): Accounting for Acquisitions of Interests in Joint Operations Amendments to IAS 1 (2014): Disclosure Initiative Amendments to IAS 16 and IAS 38 (2014): Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to IAS 16 and IAS 41 (2014): Agriculture: Bearer Plants Amendments to IAS 19 (2013): Defined Benefit Plans Employee Contributions Amendments to IAS 27 (2014): Equity Method in Separate Financial Statements Annual Improvements to IFRSs 2010-2012 Cycle (2013) Annual Improvements to IFRSs 2012-2014 Cycle (2014) The first-time application of the new or revised standards in the reporting period did not give rise to any effects on the presentation of the Haniel Group s net assets, financial position, and results of operations. Scope of consolidation Aside from Franz Haniel & Cie. GmbH, 190 domestic and foreign companies were included in full in the consolidated financial statements as at 31 December 2015. In the reporting period, the number of subsidiaries changed as follows: Additions due to acquisition of shares or obtaining control 16 Additions due to new company formation 5 Disposals due to sale of shares or loss of control 0 Disposals due to mergers or liquidation 0 Accordingly, in addition to Franz Haniel & Cie. GmbH, a total of 211 subsidiaries are included in the consolidated interim financial statements as at 30 June 2016. Of that figure, 34 companies belong to the BekaertDeslee division, 41 to CWS-boco, 49 to ELG and 77 to TAKKT. 10 subsidiaries are allocated to the Holding and other companies segment.
46 Haniel half-year financial report 2016/ Consolidated interim financial statements / Selected explanatory notes Business combinations Haniel obtained control over 3 companies or groups of companies in the BekaertDeslee, CWS-boco and TAKKT divisions during the reporting period. In total, 16 individual firms were acquired. A 100 per cent interest was acquired in each of these companies. Of the companies or groups of companies acquired, the acquisition of the DesleeClama Group as at 29 February 2016 in the Bekaert Textiles division classifies as material from the Haniel Group s perspective. DesleeClama is a leading and established company for the development and manufacturing of mattress textiles, and is domiciled in Zonnebeke, Belgium. Since acquiring the DesleeClama Group, the division has been operating under the new name BekaertDeslee. The merger of the two companies serves to strengthen the division s global market position for the long-term. The total assets and liabilities acquired through business combinations in the reporting period are comprised as follows: Fair values EUR million DesleeClama Other acquisitions Total Assets Property, plant and equipment 42 42 Intangible assets 40 2 42 Deferred taxes 1 1 Inventories 21 21 Trade receivables 20 20 Cash and cash equivalents 4 4 Other assets 10 10 138 2 140 Liabilities Financial liabilities 40 40 Deferred taxes 16 16 Trade payables and similar liabilities 16 16 Income tax liabilities 1 1 Other liabilities 5 5 78 0 78 The gross contractual amount of the acquired trade receivables is EUR 21 million. Taking into account the expectation that an amount of EUR 1 million will not be recoverable, the fair value of the acquired trade receivables amounts to EUR 20 million.
Haniel half-year financial report 2016 / Consolidated interim financial statements / Selected explanatory notes 47 The consideration transferred for the business combinations and the resulting goodwill are presented in the table below: EUR million DesleeClama Other acquisitions Total Consideration paid 88 1 89 Contingent consideration 1 1 Cash and cash equivalents acquired 4 4 Consideration transferred 92 2 94 Net assets acquired 60 2 62 Goodwill 32 0 32 The reported goodwill essentially represents the future prospects accompanying the business combinations and the expertise of the workforce acquired. The recognised goodwill is not tax deductible. The transaction costs incurred in the context of the business combinations totalled EUR 1 million and are included in other operating expenses. The transaction costs related primarily to the acquisition of DesleeClama. Contingent consideration was agreed for one of the business combinations. At the acquisition date, this contingent consideration was recognised as a liability with a fair value of EUR 1 million. The final amount of this contingent consideration depends on whether the acquired company meets certain revenue targets in financial year 2016. At present, the possible payments range between EUR 0 million and EUR 1 million. The companies or groups of companies acquired contributed EUR 37 million to revenue and EUR 1 million to profit after taxes during the reporting period. Of those amounts, EUR 34 million and EUR 1 million, respectively, were attributable to DesleeClama. If each of the companies had been acquired with effect from the beginning of the reporting period, they would have contributed EUR 54 million to revenue and EUR 2 million to profit after taxes. DesleeClama would have contributed EUR 51 million to revenue and EUR 2 million to profit after taxes.
48 Haniel half-year financial report 2016 / Consolidated interim financial statements / Selected explanatory notes Contingent consideration recognised as a liability from business combinations developed as follows in the reporting period: EUR million As at 1 Jan. 12 Additions 1 Settlements Foreign exchange rate adjustments -1 Interest effect 1 Revaluations -8 As at 30 Jun. 5 The fair value of the contingent consideration is determined on the basis of revenue and earnings targets, taking into account long-term business planning. During the reporting period, the TAKKT division remeasured contingent consideration from business combinations of the previous year. The responsible management no longer believes that the ambitious growth and earnings figures on which the initial measurement of these contingent considerations had been based at first-time consolidation will be achieved. The remeasurement resulted in the recognition of EUR 8 million under other operating income during the reporting period. The possible payments, translated at closing rates, for the contingent consideration as at the reporting date range between EUR 0 million and EUR 20 million. The value of the contingent consideration is determined on a regular basis by qualified employees of the relevant units and discussed with the responsible management. Contingent liabilities The contingent liabilities have not changed significantly since 31 December 2015. Fair value measurement The table below shows the assets and liabilities measured at fair value in the statement of financial position as at 30 June 2016, classified by the following input levels: Level 1: Quoted prices in active markets for the identical asset or liability Level 2: Quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all significant inputs are based on observable market data Level 3: Valuation techniques for which significant inputs are not based on observable market data If assets and liabilities recurrently measured at fair value must be reclassified between the various levels because, for example, an asset is no longer traded in an active market or is traded for the first time, the reclassification is made at the end of the reporting period. No transfers between Levels 1 and 2 took place during the reporting period.
Haniel half-year financial report 2016 / Consolidated interim financial statements / Selected explanatory notes 49 EUR million Total 30 Jun. 2016 Level 1 Level 2 Level 3 Not measured at fair value Assets Recurring fair value measurement Non-current financial assets Financial assets available for sale 566 561 5 Financial assets measured at fair value through profit or loss 6 6 Current financial assets Financial assets available for sale 207 207 Cash and cash equivalents Money market funds 119 119 Other current assets Derivative financial instruments 3 3 Non-recurring fair value measurement Assets held for sale 0 Liabilities Recurring fair value measurement Other non-current liabilities Contingent consideration from business combinations 4 4 Other current liabilities Derivative financial instruments 49 49 Contingent consideration from business combinations 1 1
50 Haniel half-year financial report 2016 / Consolidated interim financial statements / Selected explanatory notes The table below shows the assets and liabilities measured at fair value in the statement of financial position as at 31 December 2015: EUR million Total 31 Dec. 2015 Level 1 Level 2 Level 3 Not measured at fair value Assets Recurring fair value measurement Non-current financial assets Financial assets available for sale 641 617 20 4 Financial assets measured at fair value through profit or loss 0 Current financial assets Financial assets available for sale 212 212 Cash and cash equivalents Money market funds 219 219 Other current assets Derivative financial instruments 8 8 Non-recurring fair value measurement Assets held for sale 2 2 Liabilities Recurring fair value measurement Other non-current liabilities Contingent consideration from business combinations 12 12 Other current liabilities Derivative financial instruments 52 52 Contingent consideration from business combinations 0 The financial assets available for sale category includes securities and investments in the amount of EUR 5 million (31 December 2015: EUR 4 million) that are recognised at amortised cost. These were primarily investments in non-listed companies. It is not possible to reliably measure the fair value of these investments for lack of an active market. The fair value of financial instruments traded in an active market (Level 1) is based on the quoted prices as at the reporting date. The fair values of assets and liabilities recurrently measured at fair value within Level 2 and Level 3 are determined using the DCF method. Expected future cash flows from the financial instruments are discounted using market interest rates with matching maturities. Haniel takes into account the creditworthiness of the respective borrower by determining Credit Value Adjustments (CVA) or Debt Value Adjustments (DVA) based on a premium/discount method. If available, the CVA or DVA is determined using observable market prices for credit derivatives.
Haniel half-year financial report 2016 / Consolidated interim financial statements / Selected explanatory notes 51 The following table presents a detailed reconciliation of the assets and liabilities recurrently measured at fair value within Level 3, excluding contingent consideration from business combinations. This reconciliation relates to venture capital funds in the Holding and other companies segment which are managed on a fair value basis. The venture capital funds are measured in accordance with the adjusted net asset method. Under this method, the fair values of the individual investments are measured by the funds on the basis of recognised valuation methods before being aggregated and adjusted by an appropriate illiquidity discount for the overall fund. EUR million 2016 2015 As at 1 Jan. 0 0 Foreign exchange rate adjustments 0 0 Change in the scope of consolidation 0 0 Additions 7 0 Fair value changes recognised in profit or loss -1 0 Disposals 0 0 Transfers into Level 3 0 0 Transfers out of Level 3 0 0 As at 30 Jun. 6 0 Unrealised gains or losses recognised in profit or loss relating to those financial instruments held at the reporting date -1 0 The table below shows the fair values of the financial instruments as at 30 June 2016 that are not recognised at fair value in the statement of financial position: Carrying amounts Fair value EUR million Level 1 Level 2 Level 3 Assets Non-current financial assets Other securities 10 10 Loans 13 15 Liabilities Financial liabilities Liabilities due to banks 262 263 Bonds, commercial paper and other securitised debt 1,081 479 662 Liabilities to shareholders 154 159 Lease liabilities 41 53 Other financial liabilities 99 103 Other non-current liabilities Purchase price liabilities (not contingent) 3 3
52 Haniel half-year financial report 2016 / Consolidated interim financial statements / Selected explanatory notes The table below shows the fair values of the financial instruments as at 31 December 2015 that were not recognised at fair value in the statement of financial position: Carrying amounts Fair value EUR million Level 1 Level 2 Level 3 Assets Non-current financial assets Other securities 5 5 Loans 13 15 Liabilities Financial liabilities Liabilities due to banks 310 311 Bonds, commercial paper and other securitised debt 1,091 503 655 Liabilities to shareholders 148 155 Lease liabilities 34 45 Other financial liabilities 97 102 Other non-current liabilities Purchase price liabilities (not contingent) 3 3 The fair value of financial instruments traded in an active market (Level 1) is based on the quoted prices as at the reporting date. The fair values for Levels 2 and 3 are measured analogously to the method for assets and liabilities recurrently measured at fair value using the DCF method. Notes to the statement of cash flows The statement of cash flows shows the changes in the Haniel Group s cash and cash equivalents in the course of the reporting period resulting from cash inflows and outflows. The statement of cash flows is divided into cash flow from operating, investing and financing activities. The cash and cash equivalents reported at the reporting date are the total of bank balances with an original maturity of less than three months, cash on hand and cheques, and money market funds, and are identical to the cash and cash equivalents reported in the statement of financial position. The cash flow from operating activities is determined indirectly on the basis of the profit after taxes and essentially contains sales-related payments, dividends from investments accounted for at equity, interest paid and received as well as tax payments. Haniel s internal cash earnings indicator used for management purposes, Haniel cash flow, is shown as a separate line item. Haniel cash flow is the profit after taxes, adjusted for all material non-cash income and expenses, and non-recurring, non-operating income and expenses, plus other cash components. Haniel cash flow consequently corresponds to the cash flow from operating activities excluding changes in current net assets.
Haniel half-year financial report 2016 / Consolidated interim financial statements / Selected explanatory notes 53 The cash flow from investing activities includes payments for purchases and disposals of individual assets as well as for consolidated companies and other business units. In the previous financial year, the proceeds from the disposal of property, plant and equipment, intangible assets and other assets included proceeds from the disposal of 16.25 million ordinary shares in METRO AG. In addition to payments for business combinations conducted in the reporting period, the payments for acquisitions of consolidated companies and other business units in the previous year included a EUR 53 million payment to settle a purchase price liability relating to a previous business combination in the TAKKT division. The cash flow from financing activities comprises payments in connection with shareholder transactions as well as financial liabilities. The shareholder transactions essentially include payments to shareholders and payments from changes in shares in companies already consolidated. Payments to shareholders comprise dividend payments to the shareholders of Franz Haniel & Cie. GmbH in the amount of EUR 50 million (previous year: EUR 40 million) and payments for the purchase of treasury shares in the amount of EUR 3 million (previous year: EUR 0 million). In the previous year Haniel issued an exchangeable bond linked to ordinary shares in METRO AG with a nominal amount of EUR 500 million and a 5-year term. The right of the bondholders to exchange the bond for shares is reported separately from the actual bond under other current liabilities in the statement of financial position as a derivative financial instrument carried at fair value. The bond itself is reported under current financial liabilities in accordance with IAS 1.69(d). All of the proceeds from issuance of the exchangeable bond, including transaction costs, were reported in the previous year under proceeds from issuance of financial liabilities. Notes to the segment reporting In the segment reporting, the reportable segments are the four divisions, the investment in METRO AG accounted for at equity and the Holding and other companies segment. The Holding and other companies segment essentially comprises the Franz Haniel & Cie. GmbH and its financing companies, excluding the Metro investment. The segments are defined using the management approach, taking internal monitoring and reporting, as well as the organisational structure, into account. The same accounting standards are used for segment reporting and for the consolidated interim financial statements. Events after the reporting date No reportable events took place after the reporting date.
54 Haniel half-year financial report 2016 / Responsibility statement Responsibility statement To the best of our knowledge, and in accordance with the applicable accounting principles for interim financial reporting, the consolidated interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Group interim management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group for the remaining months of the financial year. Duisburg, 26 August 2016 The Management Board Gemkow Funck