Annual report 2014

Holding Franz Haniel & Cie.

FRANZ HANIEL & CIE. GMBH
The Haniel Holding Company* succeeded in creating new entrepreneurial leeway in 2014. Following the successful disposal of the Celesio division and the reduction in liabilities, the family-equity company concentrated on the structured search for new divisions

TRANSACTION PROCEEDS CREATE FINANCIAL LEEWAY

Haniel received EUR 1,999 million from the disposal of Celesio at the beginning of the financial year. That formed the basis for new entrepreneurial leeway. Among other things, Haniel used the proceeds from the Celesio transaction to repay bonds valued at EUR 436 million as scheduled and to redeem bonds with a principal amount of EUR 413 million early. These bond redemptions will also significantly reduce the Haniel Holding Company’s interest payments over the coming years, although this resulted in a one-off financial charge in 2014. In addition to the scheduled repayment and redemption of bonds, low risk, but currently low interest financial assets were acquired temporarily and the capital base of the divisions was strengthened for their further development.

Due to these actions, the net financial liabilities at the Holding Company level went from EUR 1,586 million at the end of 2013 to EUR 647 million as at 31 December 2014. Taking into account the current and non-current receivables from affiliated companies, these liabilities are offset by financial assets valued at EUR 737 million. The Haniel Holding Company is thus essentially debt-free. Thus, Haniel has created a solid liquidity buffer which will enable it to acquire new divisions.

STRUCTURED SEARCH FOR NEW BUSINESS DIVISIONS

As a family-equity company, Haniel pursues a long-term investment approach and makes capital available to future investments, for example for implementing growth strategies. Haniel’s investment filter is used to screen for well-positioned, small and medium-sized enterprises which operate in attractive niche sectors and can leverage Haniel’s support and expertise to expand their leading market position over the medium to long term. Their business activities should make a contribution to the diversification of the Haniel portfolio and promise an appropriate value contribution. In addition, Haniel gives preference to non-listed companies in which it can acquire a significant majority stake. 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. Based on these criteria, the Holding Company reviews all companies offered for purchase – as well as companies identified internally whose business models appear interesting for Haniel. In this connection, Haniel has analysed megatrends and, based on that analysis, defined search fields in which potentially interesting business models are carefully examined. During the course of the year the company has already examined a number of companies available for sale.

SOLID FINANCING SECURED

After the acquisition of new divisions, Haniel aims to have debt of around EUR 1 billion at the level of the Holding Company over the medium to long term, thus representing a considerably lower level than in the past years. Therefore, significantly lower lines of credit and capital market financing are necessary. Accordingly, the Group has already cut back considerably on both forms of financing, among others, by redeeming on schedule the 2009 issued bond in October 2014. In spite of the scheduled reduction of outstanding bonds, Haniel will continue to rely on the two proven cornerstones of financing – bank loans and bonds. However, the major part of financing is and remains the equity made permanently available by the Haniel family.

Haniel submits itself to external rating assessments voluntarily, thus ensuring broad access to capital markets. Standard & Poor’s and Moody’s have already raised their ratings in the second half of 2013 to BB+ and Ba1, respectively. Standard & Poor’s supplemented this during the first half of 2014 with a positive outlook. This reflects the expected expansion of the portfolio as well as conservative debt targets and is another step towards a stable investment-grade rating.

MARKET VALUE OF THE PORTFOLIO DECREASED

The value of the investment portfolio minus remaining net financial liabilities at the Holding Company level amounted to EUR 4,428 million as at 31 December 2014. At the end of 2013, it was EUR 5,320 million, primarily as a result of the higher Metro share price. The value of the investment portfolio is calculated as the sum of the valuations of the divisions, financial assets and non-current and current receivables from affiliated companies. Listed divisions are valued on the basis of three-month average share prices, while the remainder of divisions are valued on the basis of market multipliers. Despite the lower value of the investment portfolio, the important Rating input, the market value gearing – which is the ratio of the net financial liabilities to the market value of the investment portfolio – declined in 2014 because Haniel was able to use the proceeds from the Celesio disposal to significantly reduce net financial liabilities.

SIMPLIFICATION OF THE METRO SHAREHOLDING STRUCTURE

Haniel ended the pooling agreement with the Schmidt-Ruthenbeck family as of 31 October 2014. This agreement primarily served to pool voting rights and was a unique structure amongst well-known listed companies, which was effectively not required. This action did not change Haniel’s 30.01 per cent interest in the voting rights in METRO AG.

HANIEL HOLDING COMPANY INCREASES ITS EARNINGS CONTRIBUTION

The amount contributed by the Haniel Holding Company to opeRating profit improved in 2014 due to non-recurring income from the reversal of provisions no longer needed, among other items.

* Incl. the Holding Company’s financing and service companies. The separate financial statements of Franz Haniel & Cie. are published at www.haniel.de/en/creditor-relations/.