Annual report 2014

Haniel Group: Financial position

The disposal of the Celesio division has enabled the Haniel Group to further reduce its net financial liabilities. The company now has a broad liquidity base. Thus, there is sufficient latitude available to again invest in new profitable business divisions at any time.

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 fully consolidated divisions. The divisions use this basis to identify, analyse and evaluate the financial risks that the 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 while maintaining equal treatment with respect to financial information and material contractual components. Only if this is ensured a company can 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.

IMPROVED RATING OUTLOOK

A stable good rating is evidence of the corresponding creditworthiness and creates transparency that is necessary for a trusting relationship with financing partners. For that reason, Haniel voluntarily submits to external ratings. The rating agencies’ classifications of the Haniel Holding Company are based in particular on the market value gearing, which is the ratio between Net financial liabilities at the Holding Company level and the value of the investment portfolio, as well as the cash flows at the Holding Company level. In addition, the number and weight of the individual equity investments in the Haniel investment portfolio influence the Rating. Thanks in particular to the significantly lower net financial liabilities, Haniel successfully reduced its market value gearing as at 31 December 2014.

The improved market value gearing had a positive impact on the classification by the rating agencies. While the long-term ratings from Standard & Poor’s and Moody’s were left at BB+ and Ba1, respectively, following the recent increase in the second half of 2013, Standard & Poor’s has already factored in the significantly more favourable financial conditions and raised its outlook to “positive”. Moody’s continues to assess the rating of Franz Haniel & Cie. GmbH as “stable”. The improved outlook for Haniel is another important step toward the desired stable investment grade rating.

BROAD-BASED FINANCING

Diversification of financing is a significant core element of financial management. The use of various financing instruments with a broad range of business partners not only ensures access to liquidity at all times, it also reduces the dependency on individual financial instruments and business partners. In addition, the Group can respond flexibly to developments on the capital markets and in the banking sector. Binding commitments for credit facilities which are, however, utilised to only a limited extent, are an expression of the effort to obtain secure and independent financing. The Haniel Group has used and unused credit facilities on the scale of EUR 2.2 billion.

Additional financing security is ensured by a balanced maturity structure with appropriate long-term financing, in particular in the form of corporate bonds. The financial liabilities reported in the Haniel Group’s Statement of Financial Position were EUR 1,468 million as at 31 December 2014. Of that amount, EUR 392 million is due in less than one year, EUR 970 million is due in one to five years, and EUR 106 million is due in more than five years. The majority of liabilities are denominated in euros. Liabilities in foreign currencies are primarily in US dollars.

In addition to bank loans, Haniel also obtains financing regularly on the capital market using bonds, commercial paper and promissory loan notes. To that end, the Haniel Holding Company updates its commercial paper programme at longer intervals and its debt issuance programme in the current 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.

In 2014 the Haniel Holding Company used proceeds from the Celesio disposal to redeem bonds with a principal amount of EUR 413 million. These redemptions, as well as the scheduled repayment of a bond in October, reduced the carrying amount of outstanding bonds in the Haniel Group from EUR 1.3 billion as at 31 December 2013 to EUR 0.5 billion at year’s end 2014. In addition, the CWS-boco, ELG and TAKKT divisions have increasingly financed themselves on the market for promissory loan notes in recent years, thus broadening their financing base. The value of promissory loan notes, commercial paper and other securitised debt in the Haniel Group amounted to EUR 0.2 billion at year’s end. In addition, the CWS-boco and ELG divisions maintain programmes for the continual sale of trade receivables to third parties.

NET FINANCIAL LIABILITIES SIGNIFICANTLY REDUCED

The disposal of the Celesio division in February 2014 and the proceeds of EUR 1,999 million resulted in a substantial reduction in the Group’s debt: net financial liabilities, i.e., financial liabilities less cash and cash equivalents, fell within the Group from EUR 3,843 million at the end of 2013 to EUR 1,358 million as at 31 December 2014.

At the level of the Haniel Holding Company, net financial liabilities fell from EUR 1,586 million to EUR 647 million. Financial assets, including current and non-current receivables from affiliated companies, amounted to EUR 737 million. That figure primarily includes financial assets with short and medium terms which the Haniel Holding Company intends to use for future acquisitions. As the financial assets are greater than the net financial liabilities, the Haniel Holding Company is de facto debt-free.

HANIEL CASH FLOW DECLINES

Haniel uses the performance indicator Haniel cash flow to assess the strength of its liquidity position in its current business activities. This indicator reveals the extent to which Haniel generates sufficient financial resources through its current business activities to secure funding both for its current net assets* as well as its investing activities. Haniel cash flow fell from EUR 562 million to EUR 175 million in 2014 – as anticipated in the previous year. The causes of this decline were rooted in lower earnings contributions from Celesio’s operating activities, as the division was only included in 2014 prior to the date on which the disposal was completed. In addition, Haniel cash flow was lower because, unlike in the previous year, the METRO GROUP did not distribute a dividend in 2014 due to its short financial year, which comprised only nine months.

FRANZ HANIEL & CIE. GMBH

Cash flows from operating activities, which supplement Haniel cash flow in depicting the change in current net assets, amounted to EUR -135 million in 2014, and were thus lower than the Haniel cash flow. This is attributable to the fact that financial resources were tied up as a result of the increase in current net assets. At ELG in particular, inventories and trade receivables increased as expected, primarily as a result of the higher prices for nickel and greater output tonnage. In the previous year, cash flows from operating activities amounted to EUR 660 million, which was substantially higher than the Haniel cash flow. This was due to a reduction in inventories in terms of value and volume at ELG in 2013.

EUR million 2013 2014
Haniel cash flow 562 175
Cash flow from operating activities 660 -135
Cash flow from investing activities 309 779
Cash flow from financing activities -964 -1,093

HIGH CASH FLOW FROM DIVESTMENTS

Cash flow from investing activities, i.e., the net outlays for capital expenditure and proceeds from divesting activities, amounted to EUR 779 million in 2014. Payments for investments in property, plant and equipment, intangible assets and business acquisitions amounted to EUR 770 million. That figure primarily included payments for financial assets by the Haniel Holding Company following the disposal of Celesio, as well as investments in property, plant and equipment and other assets by the divisions. Proceeds from divestment activities amounted to EUR 1,549 million in 2014. That amount primarily consisted of the proceeds from the disposal of the Celesio division, less cash and cash equivalents disposed of by the Haniel Group.

In the previous year, cash flows from investing activities amounted to EUR 309 million. That figure included EUR 298 million in payments, primarily for investments by the divisions in property, plant and equipment. Proceeds from divestment activities amounted to EUR 607 million in the previous year and were thus already high; that figure included in particular inflows of cash at the Haniel Holding Company level from disposal of shares in METRO AG and two investment funds.

Cash flows from financing activities amounted to EUR -1,093 million, compared with EUR -964 million in 2013. That figure includes the scheduled repayment and redemption of bonds with a total principal amount of EUR 849 million and the distribution of dividends to the shareholders of Franz Haniel & Cie. GmbH amounting to EUR 30 million. In the previous year, Haniel also significantly reduced its debt, although it did not distribute any dividends to the shareholders of the Holding Company.

* Net current assets consist essentially of trade receivables and inventories less trade payables.