The consolidated financial statements are generally prepared based on historical cost. A material exception to that are the (derivative) financial instruments measured at fair value.
Property, plant and equipment (tangible assets) are recognised at cost less depreciation and, if applicable, impairment losses. If the reasons for an impairment loss no longer exist, appropriate reversals are recognised, provided that the resulting carrying amount does not exceed the depreciated cost of the asset. The cost of internally generated property, plant and equipment includes direct costs as well as directly attributable overheads. Allocable borrowing costs are recognised in the cost of qualifying assets.
Property, plant and equipment, with the exception of land, are depreciated over their estimated useful lives using the straight-line method. Depreciation is based on the following useful lives:
|Buildings||5 to 50 years|
|Technical equipment and machinery||2 to 20 years|
|Operating and office equipment||2 to 20 years|
If, in the context of lease transactions, the Haniel Group, as a lessee, bears all material risks and rewards and is thus regarded as the beneficial owner, the requirements for finance leases under IAS 17 are met. In these cases, the relevant assets are capitalised at the lower of their fair value or the present value of the minimum lease payments, and depreciated on a straightline basis over the shorter of their useful life or the term of the lease. The present value of the payment obligations resulting from the future lease instalments is recognised under current and non-current financial liabilities. Call options exist at the end of the basic term of the lease, in line with general market terms, for the majority of buildings leased under finance lease agreements.
In addition to the finance leases, the Haniel Group has entered into lease agreements under which the lessor remains the beneficial owner of the leased assets (operating lease). Lease payments are recognised in profit or loss. The lease agreements contain common rental and preemption provisions for the respective items leased.
Purchased intangible assets are recognised at cost less amortisation and, if applicable, impairment losses. With the exception of goodwill, brand names and works of art with an indefinite life, all useful lives are definite. An indefinite useful life is attributable to the Company’s intention to continue using the relevant assets. Intangible assets with finite useful lives are generally amortised over their contractual or estimated useful lives using the straight-line method. This period is between 2 and 20 years. Internally generated intangible assets from which the Group is likely to benefit in future, and which can be measured reliably, are stated at their cost of production. The cost of production includes all costs directly attributable to the development process as well as appropriate portions of the attributable overheads. Attributable borrowing costs for qualifying assets are included. Research and development costs are treated as current expenses if the requirements for capitalisation of development costs under IAS 38 are not met.
In accordance with IAS 36, the carrying amount of goodwill is tested for impairment annually and upon the occurrence of triggering events, on the basis of cash-generating units or groups of units. The Haniel Group performs the regular impairment tests during the fourth quarter of each year. As at the reporting date, there were a total of 22 cash-generating units within the Haniel Group (previous year: 21). The increase resulted from the acquisition of Bekaert Textiles. In the context of the impairment tests, the carrying amounts of the individual or groups of cash-generating units are compared with their recoverable amount, which is equivalent to the higher of the value in use and the fair value less costs of disposal, determined in a second step if necessary. The fair value is the best estimate of the amount that an independent third party would pay for the (groups of) cash-generating units on the reporting date. Any disposal costs that would be incurred according to best estimate are deducted.
The value in use is measured based on detailed plans of the future cash flows, on the basis of the cash flows before interest and taxes, less maintenance and replacement investments and a perpetual annuity for the years after the detailed planning period. The detailed plans are generally based on five-year financial plans adopted by the responsible management and are used for internal purposes as well. The underlying sales trend and the operating profit margin constitute key planning assumptions. The detailed plans are formulated according to past developments and projected market trends. The perpetual annuity is calculated based on expected average market growth, while factoring in expected future company growth. The cash flows thus determined are discounted at a rate reflecting the weighted average cost of capital before taxes (WACC), assigned individually for each cash-generating unit or group of cash-generating units, to determine the value in use of the cash-generating unit. The average cost of capital is determined using market inputs as the weighted average of the costs of equity and debt. The cost of equity used reflects the risk-equivalent return expected from equity investors with respect to the cash-generating units. The calculation also factors in parameters specific to the business model and country-specific risk premiums that are derived based on external country ratings. The cost of debt used represents the long-term financing terms of companies with comparable creditworthiness.
If the recoverable amount is less than the carrying amount of the individual cash-generating unit or group of cash-generating units, an impairment loss with respect to goodwill is recognised in profit or loss and, if applicable, as well as to other assets of the unit.
The table below summarises the parameters applied to determine the values in use in the context of the regular impairment tests for each segment as well as for cash-generating units with significant goodwill:
cost of capital
|Goodwill as at
31 Dec. 2015
|Bekaert Textiles||8.5 to 10.9||2.0||119|
|CWS-boco||7.0 to 9.5||1.5||277|
|of which CWS-boco Germany||8.8||1.5||207|
|ELG||11.4 to 12.6||0.0 to 4.5||96|
|TAKKT||8.0 to 9.3||1.0 to 2.0||620|
|of which Specialties Group||9.2||2.0||233|
|of which Packaging Solutions Group||8.0||2.0||153|
In addition to goodwill, the Haniel Group also has EUR 95 million (previous year: EUR 52 million) in other intangible assets with indefinite useful lives. These relate predominantly to brand names acquired through business combinations. They are subject to impairment testing at the level of the cash-generating units.
As in the previous year, no impairment of goodwill was recognised pursuant to IAS 36 as a result of the regular impairment tests during the financial year based on the calculated values in use.
The evidence for recoverability at all cash-generating units is based on the value in use. The values in use as determined in the course of the regular impairment tests were checked for plausibility using scenarios relating to key assumptions. No hypothetical need for an impairment loss resulted from these analyses, whether due to a 0.5 percentage points increase in the weighted average cost of capital before taxes, as deemed feasible by the management, or due to a 0.25 percentage points decrease in the growth rates after the detailed planning period. The same applies to a 5 per cent across-the-board reduction in cash flows before interest and taxes in the perpetual annuity.
Associates and joint ventures are accounted for using the equity method defined in IAS 28 and IFRS 11, respectively. Based on the acquisition cost of the shares in associates and joint ventures at the date of acquisition, the carrying amount of the investments is increased or decreased by the Haniel Group’s share of the post-acquisition profits or losses of the investment and other equity changes in the investment. Goodwill included in the carrying amount and determined in accordance with the full consolidation principles is not amortised. An impairment test is conducted if there is objective evidence, as defined in IAS 39, of a possible impairment of the total carrying amount of the investment.
Alongside loans, the financial assets primarily include investments and securities. Loans are initially recognised at fair value plus transaction costs and subsequently measured at amortised cost by applying the effective interest rate method. If there is objective evidence within the meaning of IAS 39 that assets are impaired, they are written down to the lower present value of the expected cash flows, based on the original effective interest rate.
With regard to investments and securities, a distinction is made in accordance with IAS 39 between those that are available for sale, those held at fair value through profit or loss, and those that are held to maturity. The classification is determined at the date of acquisition and reviewed as at each reporting date. In addition to non-listed investments, investment funds, and listed bonds that are not necessarily intended to be held to maturity are in particular classified as available for sale. Regular way sales and purchases of financial assets of all categories are recognised as at the settlement date.
Available for sale financial assets are initially recognised at fair value plus transaction costs and subsequently shown at their respective fair values on the reporting date (see note 27 for the determination of fair values). The resulting unrealised gains and losses are recognised in other comprehensive income, taking deferred taxes into account. If no active market is available and a fair value cannot be reliably measured, the assets are shown at cost. If there is a material indication that assets may be impaired, they are written down through profit or loss. If the reasons for the impairment no longer exist, appropriate reversals of impairment losses are recognised. In the case of equity instruments, these reversals are recognised in other comprehensive income; in the case of debt instruments, they are recognised in profit or loss, provided that the conditions of IAS 39 are fulfilled. If these assets are sold, the cumulative gain or loss previously recognised in other comprehensive income is reversed to profit or loss.
Financial assets classified as at fair value through profit or loss are recognised using their fair value as at each reporting date. Any transaction costs are recognised in profit or loss upon posting. Fluctuations in fair value are recognised directly in the income statement.
Financial assets classified as held to maturity are initially recognised at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method. If there is objective evidence that assets are impaired, they are written down to the lower present value of the expected cash flows, based on the original effective interest rate.
Financial assets and liabilities are presented at net in the statement of financial position if there is a legal right to offset at the present time. In addition, there must be an intention to settle on a net basis or to realise the asset and settle the related liability simultaneously. Otherwise, the financial asset and liability are presented at gross in the statement of financial position.
Inventories are stated at cost in general. In addition to the direct material and production costs, production-related portions of the required material and production overheads, as well as depreciation of property, plant and equipment attributable to production, and amortisation of intangible assets are included. Borrowing costs are not taken into account. If acquisition or production costs exceed the net realisable value at the end of the financial year, inventories are written down accordingly. Depending on the specific circumstances of each division, different inventory cost formulas are applied. Normally, the costs of inventories are assigned by using a weighted average or a first-in, first-out (FIFO) cost formula. In addition, the standard cost method is also applied.
Trade receivables and other current assets are, in the case of loans and receivables, initially recognised at fair value plus transaction costs and subsequently measured at amortised cost. Valuation allowances are determined to take into account existing risks.
Tax assets and tax liabilities are recognised at the amount expected to be reimbursed from or paid to the tax authorities.
Derivative financial instruments, such as forward contracts, options and swaps, are generally used for hedging purposes to minimise exchange rate, interest rate and other market price risks arising from the operating business and/ or from the associated financing requirements. Under IAS 39, all derivative financial instruments must be recognised at their fair values, irrespective of the purpose or intention for which they were concluded. Changes in the fair values of derivative financial instruments to which hedge accounting applies are reported either in the income statement (fair value hedge) or, in the case of a cash flow hedge, in other comprehensive income, taking deferred taxes into account.
Derivatives used to hedge items in the statement of financial position are referred to as fair value hedges. The gains and losses from the fair value measurement of the derivatives and the underlying hedged items are recognised in profit or loss. Derivatives used to hedge against future cash flow risks from existing or planned transactions are referred to as cash flow hedges. The changes in fair values of the derivatives attributable to the effective portion of the hedge are initially reported in other comprehensive income. A transfer to the income statement is made at the time the hedged item impacts profit or loss. The changes in the fair values of the derivatives attributable to the ineffective portion of the hedge are immediately recognised in the income statement. In cases where hedge accounting is not applied, the changes in the fair value of derivative financial instruments are immediately recognised in profit or loss.
Non-current assets and groups of assets are classified as held for sale if their carrying amounts are mainly derived from their potential sale and not from their ongoing use. This condition is deemed to be fulfilled if, among other things, the sale is highly probable, the asset or the group of assets is available for immediate sale and the sale is expected to be completed within one year starting from the time of the classification.
Non-current assets and groups of assets classified as held for sale are no longer depreciated as from the reclassification date but measured at the lower of the carrying amount and the fair value less costs to sell. These fair values are normally determined based on concluded purchase contracts or purchase price offers that are already sufficiently specific. Assets and groups of assets and their respective liabilities (disposal groups) held for sale are shown separately from other assets and liabilities in the statement of financial position, each as a separate current item, as from the reclassification date. The previous year’s figures in the statement of financial position are not adjusted to reflect reclassifications. If the disposal group comprises a material business segment or operation, the profit or loss after taxes from discontinued operations is reported separately in the income statement. The previous year’s income statement is adjusted accordingly. The profit after taxes from discontinued operations comprises the operation’s current earnings, the result of the measurement described above, and the gain or loss on disposal. In the statement of cash flows, the incoming and outgoing payments of the discontinued operations are presented together with the corresponding payments of the continuing operations.
Deferred tax assets and liabilities are recognised for temporary differences between the values in the tax balance sheets of the individual companies and the carrying amounts in the consolidated statement of financial position – with the exception of goodwill that is not deductible for tax purposes – as well as for tax loss carryforwards. Deferred tax assets are recognised only if their realisation is ensured with reasonable certainty. Deferred taxes are determined on the basis of the tax rates that will be in effect in future under current legislation. Deferred taxes are offset in accordance with IAS 12 if there is a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority for the same taxable entity.
In accordance with IAS 19, provisions for pensions and similar obligations are determined using the actuarial projected unit credit method. In addition to biometric calculation principles, this method primarily takes into account the current long-term capital market interest rate as well as assumptions about future increases in salaries and pensions. Remeasurements are recognised directly in other comprehensive income in their full amount. These amounts are not reclassified to profit or loss. Remeasurements comprise actuarial gains and losses as well as the difference between the actual return on plan assets and the expected return recognised in net interest expense. In addition, effects from an asset ceiling may be included in the remeasurement. The net interest expense presented in the finance costs includes the expense from compounding the present value of defined benefit obligations and the expected return on plan assets.
With the exception of provisions for personnel calculated in accordance with IAS 19 or IFRS 2, all other provisions are recognised on the basis of IAS 37 if there is a present legal or constructive obligation as a result of past business transactions or events. The outflow of resources embodying economic benefits required to settle the obligation must be probable, and it must be possible to estimate the amount reliably. Provisions with a maturity of more than one year are discounted at market interest rates that are in line with the risk and the period until settlement.
Financial liabilities, with the exception of derivative financial instruments and financial liabilities held for trading, are initially recognised at fair value plus transaction costs and subsequently measured at amortised cost, using the effective interest rate method. Liabilities under finance leases are recognised in the amount of the present value of the future lease payments, taking into account the interest rate that was used as the basis at the time the lease was signed, as well as the repayments on principal made in the meantime.
Portions of assets and liabilities originally recognised as non-current with a remaining maturity of less than one year are generally reported under current items in the statement of financial position.
Revenue comprises revenues from the sale of products and services less discounts, rebates, and if necessary, deferred income from customer loyalty programmes. Revenue is realised at the time ownership and risks are transferred to the customer. Provisions are established to account for customers’ return rights. If amounts are collected as an agent for third parties, such amounts are not revenue because they do not represent an inflow of economic benefits. Only the compensation for brokering the business is accounted for as revenue in such transactions.
Other operating income is recognised if the economic benefits are probable and the amount can be reliably determined.
Dividends are recognised when a legal right to receive payment is established. Interest income and interest expenses not requiring capitalisation pursuant to IAS 23 are recognised in the proper period using the effective interest method.
In accordance with IAS 20, government grants are recognised at fair value only if there is reasonable assurance that the company will comply with the conditions attaching to them and that the grants will be received. Grants received as compensation for expenses are recognised as income in the same period in which such expenses are incurred. Grants received for the acquisition or production of assets are deferred as a general rule.
Advertising costs are expensed as soon as there is a right to access the advertising material or services were received in connection with the advertising activities.
The consolidated financial statements are prepared on the basis of certain assumptions and estimates which have an effect on the amount and presentation of the reported assets, liabilities, income, expenses and contingent liabilities. The assumptions and estimates primarily concern the items set forth below.
Goodwill arises in the course of business combinations. All identifiable assets, liabilities and contingent liabilities are measured at fair value upon first-time consolidation. The recognised fair values represent key estimates. If intangible assets are identified, the fair value is determined by recognised valuation methods depending on the type of asset. These valuations are closely related to the management’s assumptions concerning the future development of the assets and the applied discount rates. Similar assumptions are necessary in the accounting and valuation of investments accounted for at equity.
In addition to the determination of fair values of the assets, liabilities and contingent liabilities acquired, the valuation of contingent consideration for business combinations is based on estimates and assumptions made by the management regarding the future development of the acquired entity. If the actual development of the entity in the future deviates from the expected development, this may affect the amount of contingent consideration and the profit after taxes.
Impairment tests of goodwill, other intangible assets with indefinite useful lives and investments are based on forward- looking assumptions. Paying due regard to past developments and assumptions concerning the future development of markets, the test is generally performed on the basis of a five-year planning period. The key assumptions when assessing impairment are estimated growth rates after the detailed planning period, weighted average cost of capital and tax rates. Further key planning assumptions relate to the future sales trend and the operating profit margin. The premises above and the underlying calculation model can significantly influence the individual values and ultimately the amount of a possible impairment.
In the case of trade receivables, valuation allowances on doubtful debts rely to a large extent on estimates and assessments made on the basis of the relevant customer’s creditworthiness, the current economic developments and the analysis of historical losses on bad debts on a portfolio basis. Actual cash inflows may deviate from the carrying amounts recognised in respect of the receivables.
The key assumptions and estimates for the measurement of provisions, especially those for pensions, real estate, litigations, pending losses, those related to business combinations and disposals and restructuring measures, concern the probability of the provisions being used, the amount of the obligation and, in the case of non-current provisions, the interest rates applied. In addition, pension obligations under defined benefit plans require actuarial assumptions regarding salary growth and pension growth, life expectancies and employee turnover. The actual development, and hence actual payments due in the future, may deviate from the expected development and the recognised provisions.
Deferred tax assets and liabilities are measured on the basis of assumptions and estimates made by management. In addition to the interpretation of the tax regulations applicable to the taxable entity concerned, the key factor in the calculation of deferred tax assets in respect of temporary differences and tax loss carryforwards is an assessment of the likelihood that adequate taxable income will be generated in future or that appropriate tax strategies for utilising tax loss carryforwards will be implemented.
All assumptions and estimates are based on the circumstances prevailing on the reporting date. Future events and changes in general circumstances often give rise to differences between the actual amounts and the estimates. This also applies in particular to obligations whose existence, amount and timing of occurrence are uncertain. In case of differences, the assumptions and, if necessary, the carrying amounts of the assets and liabilities affected are adjusted accordingly.
At the time the consolidated financial statements were prepared, there was no indication of any material changes affecting the underlying assumptions and estimates.