Auditor’s Report

We have audited the consolidated financial statements prepared by Giesecke & Devrient Gesellschaft mit beschränkter Haftung, Munich, comprising the consolidated balance sheet as of December 31, 2017, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and notes to the consolidated financial statements for the year then ended, together with the Group management report for the financial year from January 1 to December 31, 2017. The preparation of the consolidated financial statements and the Group management report in accordance with IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315 e (1) of the German Commercial Code [HGB] are the responsibility of the company’s management. Our responsibility is to express an opinion on the consolidated financial statements and on the Group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with Section 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the German Institute of Public Auditors [IDW]. Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the Group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the Group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and Group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs as adopted by the EU, the additional requirements of German commercial law pursuant to Section 315 e (1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The Group management report is consistent with the con- solidated financial statements, complies with the German statutory requirements, and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.

 

Munich, March 28, 2018

KPMG AG
Wirtschaftsprüfungsgesellschaft

[original German version signed by:]

 

Huber                          Christoph
Wirtschaftsprüfer       Wirtschaftsprüferin

[German Public Auditor] [German Public Auditor]

Consolidated Income Statement

for the Years Ended December 31, 2017 and 2016

EUR millionNote20172016
Net sales152,136.4 2,089.0 
Cost of goods sold(1,531.1)(1,499.8)
Gross profit605.3 589.2 
Selling expenses(220.0)(206.6)
Research and development expenses(125.7)(111.5)
General and administrative expenses(151.4)(148.9)
Other operating income/(expenses), net30.1 0.3 
Operating profit138.3 122.5 
Share in earnings from equity investments63.5 1.3 
Other financial income/(expenses), net17(11.6)(4.6)
Earnings before interest and income taxes130.2 119.2 
Interest income182.2 2.3 
Interest expense18(19.6)(23.1)
Earnings before income taxes112.8 98.4 
Income taxes19(45.8)(45.9)
Net income67.0 52.5 
thereof apportioned to non-controlling interests6.6 5.3 
thereof apportioned to the shareholders of Giesecke & Devrient GmbH60.4 47.2 
67.0 52.5 

Consolidated Statement of Comprehensive Income

for the Years Ended December 31, 2017 and 2016

EUR million20172016
Net income 67.0  52.5 
Other comprehensive income
Items that will never be reclassified to the income statement 
Actuarial gains and losses  5.8  (57.5)
Deferred taxes on actuarial gains and losses  (1.2) 17.7 
 4.6  (39.8)
Items that are or may be reclassified to the income statement 
Currency effects from the translation of foreign operations (21.1) 4.1 
Effective part of fair value changes in cash flow hedges 0.2  0.2 
Share of income and expenses recognized directly in equity resulting from the use of the equity method of accounting (0.8) (0.9)
 (21.7) 3.4 
Other comprehensive income, net of tax (17.1) (36.4)
Total comprehensive income 49.9  16.1 
thereof apportioned to non-controlling interests 6.0  5.1 
thereof apportioned to the shareholders of Giesecke & Devrient GmbH 43.9  11.0 
 49.9  16.1 

Consolidated Balance Sheet

as of December 31, 2017 and 2016

EUR millionNoteDec. 31, 2017Dec. 31, 2016
Assets
Current assets
Cash and cash equivalents 210.7  243.6 
Financial assets2 87.4  74.3 
Accounts receivable trade and other receivables, net3 488.1  460.6 
Inventories, net4 426.2  394.4 
Income taxes receivable 30.4  32.9 
Non-current assets held for sale 0.2 
Other current assets5 40.0  34.4 
Total current assets 1,283.0  1,240.2 
Non-current assets
Investments accounted for under the equity method6 18.8  13.2 
Financial assets2 24.1  21.2 
Accounts receivable trade and other receivables, net3 16.5  8.3 
Intangible assets7 155.7  158.0 
Property, plant and equipment8 471.2  495.9 
Deferred tax assets19 163.6  165.2 
Income taxes receivable 3.0  2.9 
Other non-current assets 6.2  5.0 
Total non-current assets 859.1  869.7 
Total assets 2,142.1  2,109.9 
Liabilities and Equity
Current liabilities
Accounts payable trade and other accounts payable10 456.8  419.8 
Provisions11 97.0  121.0 
Financial liabilities13 75.5  127.0 
Finance lease obligations9 3.2  2.6 
Accrual for income taxes and income taxes payable 38.0  38.7 
Other current liabilities12 132.9  122.7 
Total current liabilities 803.4  831.8 
Non-current liabilities
Accounts payable trade and other accounts payable10 25.5  48.2 
Provisions11 10.3  10.9 
Financial liabilities13 250.6  203.1 
Finance lease obligations9 0.1  3.3 
Pensions and related liabilities14 594.0  586.8 
Deferred tax liabilities19 9.3  6.3 
Other non-current liabilities 7.0  11.2 
Total non-current liabilities 896.8  869.8 
Equity
Capital stock20 25.8  25.8 
Additional paid-in capital20 29.5  29.5 
Retained earnings20 399.9  349.6 
Accumulated income and expenses recognized directly in equity 11.0  32.1 
Treasury stock20 (60.1) (60.1)
Non-controlling interests 35.8  31.4 
Total equity 441.9  408.3 
Total liabilities and equity 2,142.1  2,109.9 

Consolidated Statement of Changes in Equity   

for the Years Ended December 31, 2017 and 2016

EUR millionCapital stockAdditional paid-in capitalRetained earningsAccumulated income and expenses recognized directly in equity resulting from currency translationsAccumulated income and expenses resulting from cash flow hedgesTreasury stockSubtotal Non-controlling interestsTotal
Balance as of January 1, 2016 25.8  29.5  344.6  29.3  (0.5) (60.1) 368.6  31.1  399.7 
Net income 47.2  47.2  5.3  52.5 
Other comprehensive income (39.5) 3.1  0.2  (36.2) (0.2) (36.4)
Total comprehensive income 7.7  3.1  0.2  11.0  5.1  16.1 
Sale of non-controlling interests (see Note 25) 3.8  3.8  (3.1) 0.7 
Dividends paid (6.5) (6.5) (1.7) (8.2)
Balance as of December 31, 2016 25.8  29.5  349.6  32.4  (0.3) (60.1) 376.9  31.4  408.3 
Net income 60.4  60.4  6.6  67.0 
Other comprehensive income 4.6  (21.3) 0.2  (16.5) (0.6) (17.1)
Total comprehensive income 65.0  (21.3) 0.2  43.9  6.0  49.9 
Payments apportioned to non-controlling interests (0.5) (0.5) 0.6  0.1 
Dividends paid (14.2) (14.2) (2.2) (16.4)
Balance as of December 31, 2017 25.8  29.5  399.9  11.1  (0.1) (60.1) 406.1  35.8  441.9 

Consolidated Statement of Cash Flows

for the Years Ended December 31, 2017 and 2016

EUR million20172016
Cash flows from operating activities
Earnings before interest and income taxes 130.2  119.2 
Adjustments to reconcile earnings before interest and income taxes to cash provided by operations
Depreciation, amortization and impairment/recoveries 110.6  107.0 
(Gain)/loss on sale of investments, net (0.7)
(Gain)/loss on sale and disposal of intangible assets and property, plant and equipment (15.8) 0.2 
Undistributed earnings in associated companies and joint ventures excluding dividend payments (3.5) (0.5)
Dividends received from associated companies and joint ventures 2.2  1.3 
Change in operating assets and liabilities
(Increase)/decrease in investments in trading securities (10.0) 5.4 
(Increase)/decrease in accounts receivable trade and other accounts receivable, net (30.8) (43.8)
(Increase)/decrease in prepaid expenses and other assets (11.0) 0.4 
(Increase)/decrease in inventories, net (41.8) 32.3 
Increase/(decrease) in accounts payable trade and other accounts payable 18.6  (47.8)
Increase/(decrease) in provisions (29.6) (30.9)
Increase/(decrease) in pensions and related liabilities (4.1) (2.7)
Increase/(decrease) in other liabilities 10.2  (3.3)
Income taxes paid, net (42.2) (40.3)
Interest received 2.2  2.3 
Interest paid (7.5) (9.5)
Net cash provided by operating activities 77.7  88.6 
Cash flows from investing activities
(Increase)/decrease in short-term investments 0.3  (1.9)
Additions to and prepayments on intangible assets  (25.3) (17.1)
Additions to and prepayments on property, plant and equipment (71.7) (84.2)
Proceeds from investment grants, net 1.0 
Capital increase in and founding of associated companies and joint ventures (7.3) (3.3)
Acquisitions, net of cash acquired  4.4  0.5 
Proceeds from the sale/purchase of available-for-sale securities (1.6)
Loans to associated companies (0.7) (1.0)
Payments received on loans to associated companies 0.4 
Proceeds from sale of property, plant and equipment 22.6  1.8 
Net cash used in investing activities  (77.3) (105.8)
Free Cashflow ¹ 0.4  (17.2)
Cash flows from financing activities
Proceeds from issuance of long-term debt 82.4  6.8 
Proceeds from issuance of long-term debt from the Giesecke+Devrient Foundation 0.8  – 
Proceeds from issuance of short-term debt from MC Familiengesellschaft mbH 15.4  7.6 
Repayment of long-term debt (50.5) (57.0)
Repayment of long-term debt from the Giesecke+Devrient Foundation (0.8)
Repayment of short-term debt from MC Familiengesellschaft mbH (17.7)
Payments on finance lease obligations (2.6) (2.4)
Net (decrease)/increase in short-term debt and borrowings (33.8) 21.5 
Dividends paid to shareholders (14.2) (6.5)
Cash received from non-controlling interests 0.3 
Dividends paid to non-controlling interests (2.2) (1.7)
Net cash used in financing activities (22.9) (31.7)
Effect of exchange rates on cash and cash equivalents (10.4) (0.7)
Net increase/(decrease) in cash and cash equivalents (32.9) (49.6)
Cash and cash equivalents at beginning of the year 243.6  293.2 
Cash and cash equivalents at end of the year 210.7  243.6 

Corporate Bodies

  

Supervisory Board

Prof. Klaus Josef Lutz
(Chairman) Munich

Walter Bogner1
(Deputy Chairman) Dachau

Achim Berg
Hennef-Rott

Prof. Dr. Gabi Dreo Rodosek
Haar

Georg Fahrenschon
Neuried

Ralf Gerlach1
Gilching

Peter Hanke1
Pirna

Astrid Meier1
Munich

Claudia Scheck1
Königsmoos

Verena von Mitschke-Collande
Tutzing

Monika Wächter1
Gmund

Stefan Winners
Munich

 

1 Employee representatives

Advisory Board

Prof. Klaus Josef Lutz
(Chairman) Munich

Verena von Mitschke-Collande
(Deputy Chairman) Tutzing

Achim Berg
Hennef-Rott

Georg Fahrenschon
Neuried

Prof. Dr. Gabi Dreo Rodosek
Haar

Dr. Walter Schlebusch
(since January 1, 2017) Munich

Stefan Winners
Munich

Management Board

Ralf Wintergerst
(Chairman and CEO of Giesecke & Devrient GmbH)

Dr. Peter Zattler
(CFO of Giesecke & Devrient GmbH)

Stefan Auerbach
(until April 6, 2017)

Hans Wolfgang Kunz
(until June 30, 2017)

Notes to Consolidated Financial Statements

for the Years Ended December 31, 2017 and 2016

1 Summary of Significant Accounting Policies and Practices

 

A Description of Business

 

Giesecke & Devrient Gesellschaft mit beschränkter Haftung and subsidiaries (“G+D”or “Giesecke+Devrient”) is in the business of printing banknotes and securities, as well as the development and production of security paper and currency automation equipment. Giesecke+Devrient also develops and manufactures magnetic stripe cards and smartcards mainly for the telecommunications, banking, and health services industries. A further field of business includes security-related solutions for governments and public authorities, ranging from ID cards and travel documents to e-government solutions. New technologies comprise network solutions and secure mobile transaction solutions as well as a software system for mobile devices.

Giesecke+Devrient, headquartered in Prinzregentenstraße 159, 81677 Munich, Germany, is entered in the Commercial Register of the Munich District Court Dept. B under the number 4619. G+D has a strong international orientation with Germany being one of its major markets. Other key markets include the United States, Canada and China. As of December 31, 2017, G+D had subsidiaries in 32 countries and 11,600 employees worldwide, including 7,613 outside Germany.

The consolidated financial statements were approved by the Management Board on March 28, 2018.

B Basis of Presentation


The consolidated financial statements as of December 31, 2017 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

MC Familiengesellschaft mbH was founded in 2012. MC Familiengesellschaft mbH became the Group parent company and prepared statutory consolidated financial statements in accordance with IFRS as of December 31, 2017.

It is possible that some figures do not precisely add up to the totals due to rounding differences.
  

C Consolidated Group and Principles of Consolidation 

 

Consolidated Group

All material G+D subsidiaries, joint ventures and associates are included in the consolidated financial statements.

Affiliated companies are companies that are controlled by the Group. The Group controls a company if it is exposed to or has rights to variable returns from its involvement in the company and has the ability to affect the amount of these returns by using its power. Financial statements of subsidiaries are included from the time the Group obtains control and ceases when the Group loses control. Non-controlling interests are to be valued with the respective share of the net assets of the company acquired that can be identified at the date of acquisition. Changes in the ownership interest in a subsidiary that do not result in losing control, are to be accounted for as equity transactions.

Interests of the Group that are accounted for according to the equity method comprise interests in associated companies and joint ventures. Associated companies are companies in which the Group has significant influence, but which the Group does not control or jointly control in respect of financial and business policies. A joint venture is an arrangement whereby the Group has joint control of the arrangement and has rights to the net assets but does not have rights in assets and obligations for the liabilities of the arrangement.

The consolidated Group comprises 17 domestic and 55 foreign subsidiaries which are fully consolidated. Giesecke+Devrient has had a holding structure since January 2017, in which the divisions are fully consolidated as legally independent subgroups. The change in the Group structure as illustrated in section one of the Group management report has no impact on the consolidated financial statements. Although Giesecke+Devrient has less than half of the voting rights in Veridos Matsoukis S.A. Security Printing, Athens (36%), management has determined that G+D controls this company. This assessment is on the basis that G+D owns the majority of the voting rights in Veridos GmbH, Berlin, which in turn holds the majority of the voting rights in Veridos Matsoukis S.A. Security Printing, Athens. Additionally, seven joint ventures and/or associated companies are accounted for under the equity method. Giesecke+Devrient holds 16.29% of the equity shares and voting rights in Hansol Secure Co., Ltd., Seoul and 14,3% of the equity shares and voting rights in finally safe GmbH, Essen. The Group has classified its influence in Hansol Secure Co., Ltd., Seoul and finally safe GmbH, Essen as significant since Giesecke+Devrient has rights of co-determination in excess of its ownership percentage in material resolutions. The consolidated financial statements include all material companies which are presented in the schedule of shareholdings (see Note 37 “Shareholdings”).
 

Consolidated Group and Principles of Consolidation

The financial statements of the companies included in the consolidated financial statements are prepared using uniform accounting policies in accordance with IFRS.

Income and expenses, receivables, payables and provisions, as well as intragroup profits between companies included in the consolidated financial statements are eliminated.

A subsidiary is deconsolidated from the date it is no longer controlled by G+D.

Investments in joint ventures and associates accounted for using the equity method are initially recognized at cost and adjusted accordingly in subsequent periods. Intragroup profits from transactions with these companies are eliminated in proportion to the acquirer’s interest.

Under IFRS, all business combinations are accounted for using the acquisition method. The acquirer allocates the cost of a business combination by recognizing the acquiree’s identifiable assets, liabilities, and contingent liabilities that satisfy the recognition criteria at their fair value on the date control over the entity is obtained (acquisition date). The full amounts of identifiable assets and liabilities and contingent liabilities irrespective of the company’s ownership interest are recognized at their fair values. Any excess of the purchase price over the fair value of the identifiable assets, liabilities, and contingent liabilities less any minority interests is recognized as goodwill. Where the fair value exceeds the purchase price, the resulting amount is recorded in the income statement.

Non-controlling interests are measured at the fair value of the proportionate identifiable net assets. In a business combination achieved in stages, interests held at the time of transfer of control are revalued and the resulting gain or loss is recognized in profit or loss. An adjustment of conditional purchase price components that were reported as liability at the acquisition date is recognized in profit or loss for business combinations. Transaction costs are recognized as expenses at the time they are incurred.

After having gained control of a subsidiary, the difference between the purchase price and the proportionate share of equity for additional shares acquired is charged against retained earnings. Transactions which do not result in loss of control have no impact on the income statement and are recorded as equity transactions.

Remaining interests are measured at fair value at the time of loss of control. In the case of non-controlling interests, the reporting of negative balances is permitted, i.e. future losses are allocated in proportion to the participation without restriction.
  

D Use of Estimates


The preparation of the accompanying financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period.

Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements and those through which a considerable risk can arise or a material adjustment will be required within the fiscal year ending on December 31, 2017, is included in the following notes:

  • Note 1 (j) “Goodwill and Other Intangible Assets”
  • Note 1 (n) “Provisions”
  • Note 19 “Income Taxes”
  • Note 24 “Business Combinations”
     

E Foreign Currency Translation


Transactions in foreign currency are translated into euros using the exchange rate on the date of the transaction. At the balance sheet date, monetary assets and liabilities are remeasured using the closing rate. Non-monetary assets and liabilities denominated in foreign currency are translated using the historical exchange rate as of the date of the transaction

The individual functional currency of each of the Group companies is the currency of the primary economic environment in which the entity operates. The assets and liabilities of foreign subsidiaries with functional currencies other than the euro are translated using period-end exchange rates, while the revenues and expenses are translated using average exchange rates during the period. Differences arising from the translation of assets and liabilities in comparison with the translation of the prior periods are included in cumulative translation adjustment and reported as a separate component of equity.

For significant currencies, the average and closing rates for the fiscal years ended December 31 are as follows:
 

1 euro equals X units of foreign currencyRates – December 31, 2017Rates – December 31, 2016
AverageClosingAverageClosing
US dollar – USD1.12931.19931.10661.0541
Australian dollar – AUD1.47291.53461.48861.4596
British pound – GBP0.87610.88720.81890.8562
Canadian dollar – CAD1.42641.50441.44961.4202
Chinese renminbi – RMB7.66447.80397.36647.3188
Swedish krona – SEK9.63699.84389.46739.5525

F Financial Instruments


A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assets include, in particular, cash and cash equivalents, accounts receivable trade, loans, other receivables, marketable securities, and derivative financial instruments.

For regular-way purchases and sales of all categories of financial assets, with the exception of derivative financial instruments, the date of initial recognition in the balance sheet or of derecognition is the settlement date, i.e. the date on which an asset is delivered to or by an entity. The trade date is determinant for derivative financial instruments.

Financial liabilities include accounts payable trade, liabilities to banks, finance lease obligations, and derivative financial liabilities.

Financial assets and liabilities are generally measured at fair value on initial recognition. Financial assets, which are not valued at fair value through profit or loss, include the direct acquisition costs. The fair value is the estimate of the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (i.e. to estimate an exit price).

A financial asset is derecognized when the contractual rights to the cash flows relating to the financial asset expire, that is, when the asset is realized, forfeited or is no longer under the control of the company. Up to now, G+D has not exercised the right to record financial assets as financial assets measured at fair value through profit or loss at the time of initial recognition. The measurement category “held-to-maturity investments” is also not used. Interest income was not recorded on impaired financial assets.
 

Cash and Cash Equivalents/Short-term Investments

Giesecke+Devrient considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. These are valued at amortized cost.

Highly liquid commercial paper with an original maturity up to three months is also classified as cash and cash equivalents and is measured at fair value.

Short-term investments with durations between three months and one year are classified as current financial assets.
  

Accounts Receivable Trade and Other Receivables, net

Accounts receivable trade and other receivables, net are allocated to the category “loans and receivables”. They are measured at fair value at the time of initial recognition, which represents the acquisition costs at the date of acquisition. The valuation at subsequent balance sheet dates is at amortized cost. At the same time, credit risk impairments in the form of specific allowances for doubtful accounts are carried out. Specific defaults lead to derecognition of the receivables affected. In addition, lump-sum specific allowances are also recorded. The indication of a possible impairment begins when the agreed payment terms are exceeded, moreover when the start of insolvency proceedings or similar becomes known. Allowances on accounts receivable trade and other receivables are recorded in separate allowance accounts.

Income and expenses in connection with the recognition and reversal of specific allowances, lump-sum specific allowances, as well as direct derecognitions of receivables are recorded in selling expenses. Non- and low-interest-bearing non-current receivables are recorded at the present value of the expected future cash flows when the interest effect is material. For such amounts, the subsequent valuation is made using the effective interest method. Assets are classified as non-current when the remaining duration at the balance sheet date exceeds 12 months.
 

Marketable Securities and Investments

G+D’s marketable securities are classified as trading or available-for-sale securities and are stated at fair value as determined by the most recently traded price of each security at the balance sheet date. The trading securities contain shares in a closed and fully consolidated special fund, which invests in publicly traded equity and debt securities and common stocks in Nxt-ID, Inc. The available-for-sale securities comprise shares in investment funds, which serve as insolvency insurance to cover the provision for preretirement part-time working arrangements and preferred stocks in Nxt-ID, Inc. Highly liquid commercial paper with an original maturity of up to three months is classified as cash and cash equivalents and is measured at fair value.

Unrealized gains and losses on trading securities are included in income on a current basis.

Unrealized gains and losses on available-for-sale securities are included in accumulated income and expenses recognized directly in equity. Impairments are recognized through profit and loss on other than temporary declines in value. An impairment is recorded on equity securities when there is a permanent or significant reduction in the fair value below the original acquisition costs. For debt securities, an impairment is recorded when there is a considerable decline in the creditworthiness of the debtor. If, in a subsequent period, the fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognized, the impairment loss shall be reversed in the income statement (for equity securities the reversal is recognized directly in equity).

Equity investments in other related companies are recognized at cost, since an active market price does not exist and their fair market value cannot be reliably determined.
   

Other Financial Assets

With the exception of derivative financial instruments, other financial assets recognized as assets are allocated to the measurement category “loans and receivables”. The valuation is in accordance with the explanation provided for accounts receivable trade and other receivables, net. If there are indications of an impairment for financial assets which are valued at amortized cost, an impairment is carried out to the extent of the lowest possible realizable amount. Irrecoverable financial assets are derecognized. An impairment is reversed when the reasons for the impairment recorded no longer prevail.
  

Financial Liabilities

With the exception of derivative financial instruments, financial liabilities recorded as liabilities are allocated to the measurement category “financial liabilities measured at amortized cost”. The initial valuation of these financial liabilities is at fair value and in subsequent periods at amortized cost using the effective interest method. Transaction costs are deducted from the acquisition costs, in as much as they are directly attributable. Liabilities are classified as non-current when the remaining maturity as of the balance sheet date exceeds 12 months.

The valuation of accounts payable trade is in accordance with the procedures noted previously for financial liabilities.

A financial liability is derecognized when the underlying obligation relating to the liability is fulfilled, terminated or extinguished.

Giesecke+Devrient has not made use of the option to designate financial liabilities as financial liabilities measured at fair value through profit or loss at the time of initial recognition in the balance sheet.
  

Derivative Financial Instruments

Derivative financial instruments are used to manage the foreign currency exposure incurred in the normal course of business in the form of forward exchange contracts.

Currency risks from contracts with a nominal volume exceeding USD10.0 million are generally secured via forward exchange contracts within the scope of a micro hedge and presented as fair value hedges in the balance sheet. If the conditions for hedge accounting in accordance with IAS 39 are fulfilled, Giesecke+Devrient classifies and documents the hedge as a fair value hedge during the period. A fair value hedge is a hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment. Documentation of the hedging relationship includes the objectives and strategy of the company’s risk management, the nature of the hedging activity, the risk covered by the hedge, a description of the hedge instrument and the hedged item, as well as a description of the method used in measuring its effectiveness. The hedge is expected to be highly effective in offsetting changes in fair value attributable to the hedged risk and is assessed on an ongoing basis throughout the financial period for which the hedge was designated. Changes in fair value of the derivatives, as well as changes in the market values of their corresponding hedged items, are recognized in net financial income. The fair values of the hedged items are recognized as current financial assets and current financial liabilities. If derivative financial instruments no longer meet the criteria for hedge accounting, they are classified as held for trading.

USD cash flows are monthly forecasted on a rolling basis over a twelve month period. If the net exposure between USD cash inflows and outflows is above USD15.0 million for more than three months, hedge accounting via a foreign currency forward contract with matched maturities is entered into. These are recorded as cash flow hedges in the financial statements. Forecasted cash flows are hedged by means of a cash flow hedge. The documentation for hedge accounting includes the goals and the strategy of risk management, the nature of the hedging activity, the hedged risk, the designation of the hedging instrument and the underlying transactions, as well as a description of the method to measure its effectiveness. In terms of achieving compensation of risks from fair value changes relating to the hedged risk, the hedged relationships are considered as highly effective. They are regularly reviewed to check whether they were highly effective for the reporting period for which they were designated. The portion of the changes in the fair value of derivatives which qualify as effective hedges is recognized in changes in income directly in equity. The ineffective portion is recognized in the income statement in financial result, net. The fair values of the underlying transactions are recorded as current financial assets and current financial liabilities in the balance sheet. The amounts recognized as changes in income directly in equity are reclassified from equity to the profit and loss statement in the period in which the hedged forecasted cash flows have an impact on the income statement. If the requirements for hedge accounting are no longer fulfilled, the derivative financial instruments are no longer treated as hedge accounting and are classified as held for trading.

G+D does not otherwise apply hedge accounting in managing foreign currency exposure. These derivative financial instruments therefore qualify as “held-for-trading” and are recorded at fair value at the balance sheet date as either an asset or a liability. Changes in fair value are recognized in the income statement as financial income or expense. The fair market values of forward exchange contracts are calculated on the basis of the applicable spot market rates as well as the forward contract premium or discount compared to the contracted forward contract rate.

Giesecke+Devrient identifies derivative instruments embedded in host contracts and accounts for them separately according to the provisions of IAS 39 “Financial Instruments: Recognition and Measurement”. These derivatives consist solely of foreign currency derivatives embedded in certain firm sales and purchase contracts denominated in a currency that is neither the functional currency of G+D nor of the contractual counterparty and which is also not a currency in which transactions are commonly denominated in the jurisdiction in which the transaction is to occur.

The fair values of the external and embedded foreign currency derivatives are recorded as current financial assets and liabilities in the balance sheet.

In fiscal year 2011, derivative financial instruments were used for the purpose of hedging interest rate risks the first time. Effective January 1, 2012, G+D applies hedge accounting for derivative financial instruments for the purpose of hedging interest rate risks. Giesecke+Devrient applies hedge accounting in the form of a cash flow hedge for an interest rate swap and a cross currency swap to secure interest and currency exchange rate risks. A cash flow hedge secures expected future cash flows. Documentation of the hedge relationship includes the objectives and strategy of the company’s risk management, the nature of the hedging activity, the risk covered by the hedge, a description of the hedge instrument and the hedged item, as well as a description of the method used in measuring its effectiveness. With regard to the hedged risk, the hedging relationships are expected to be highly effective in offsetting risks arising from changes in the fair value and are regularly assessed to determine whether they have been highly effective throughout the financial reporting periods for which they were designated. Changes in the fair value of these derivatives that qualify as an effective hedge are recognized as other earnings with no effect in the profit and loss. The ineffective portion is recognized as financial or interest income (net) in the profit and loss. The fair values of the underlying transactions are recognized as current and non-current financial assets and as current and non-current other liabilities as well as financial debt in the balance sheet. The amounts which were recognized in other comprehensive income are reclassified from equity to the profit and loss in the period in which the expected hedged cash flows influence the profit and loss. If derivative financial instruments no longer meet the criteria for hedge accounting, they are classified as held for trading. The market value of the hedge is calculated based on PAR FX-Forward rates at the balance sheet date within an effective interest rate model.

The relevant classes of financial instruments used by G+D include the measurement categories in accordance with IAS 39, cash and cash equivalents, short-term investments, receivables and payables from construction contracts, as well as finance lease obligations, financial guarantees and derivative financial instruments that are eligible for hedge accounting.

G Risk Management and Foreign Currency Exposure Policies


Risk management for the entire Group is coordinated centrally. Policies for risk management, foreign currency exposure, and documentation requirements are set forth in guidelines and procedures issued by the corporate treasury department. These guidelines are examined and updated on a regular basis. The approval of the guidelines is the responsibility of management.

Derivative financial instruments are used by G+D solely to reduce the risks inherent within its worldwide business. As such, Giesecke+Devrient does not hold or issue derivative financial instruments for speculative purposes.

Refer to Note 22 “Financial Risk” for additional related disclosures.
 

H Inventories


Inventories are carried at cost. Cost is determined using the weighted average, FIFO (first-in first-out) or standard cost method. Finished goods and work-in-progress inventories include direct material, labor, and manufacturing overhead costs, which are based on the normal capacity of the production facilities. Items in inventory are written down at the balance sheet date if their net realizable value is lower than their carrying amount.
 

I Non-current Assets Held for Sale


Non-current assets are classified as held for sale if they are available for immediate sale in their present condition, subject only to terms that are usual and customary for sales of such assets and their sale is highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell.
 

J Goodwill and Other Intangible Assets


Intangible assets consist of purchased intangible assets, such as standard software, licenses, patents, water rights, know-how, goodwill, and internally developed intangible assets.

Intangible assets with definite useful lives are valued at cost and are amortized on a straight-line basis over their estimated economic useful lives.

Development costs are capitalized when the requirements of IAS 38, “Intangible Assets”, are fulfilled. Capitalized development costs recognized include production costs less accumulated depreciation and impairments. Production costs comprise direct material and personnel costs as well as directly attributable material and manufacturing overhead costs and production-related depreciation. Borrowing costs that are directly attributable to a qualifying asset are capitalized. Such costs are amortized on a straight-line basis over the estimated economic useful lives. Research costs are expensed in the period in which they are incurred.

The useful lives of intangible assets with definite useful lives are generally as follows:
  

Years
Capitalized development costs/ Technology3–10
Software, rights, customer base etc.2–15

 

Goodwill is not amortized but rather tested at least annually for impairment. Reversals of impairments on goodwill are not permitted.

At least once a year, Giesecke+Devrient evaluates the recoverability of goodwill at the cash-generating unit (CGU) level or group of CGUs applying a one-step impairment test. Where the recoverable amount (value in use equal to the present value of future cash flows) of the CGU or group of CGUs, to which the goodwill was allocated, is less than the carrying amount, an impairment loss is recognized. If the impairment loss exceeds the goodwill of the CGU, the excess is allocated to the other assets (generally property, plant and equipment and intangible assets) of the CGU or group of CGUs pro rata on the basis of the carrying amount of each asset.

The most critical assumptions in the calculation of the fair value less costs to sell and the calculation of the value in use are based on include estimated growth rates, weighted average capital costs and tax rates. Such premises, as well as the underlying methodology, can materially influence the respective values and therefore impact the determination of a potential impairment of the goodwill. As far as property, plant and equipment, as well as intangible assets, are tested for impairment, the determination of the recoverable amount is based on estimates of the management.
 

K Property, Plant and Equipment


Property, plant and equipment are valued at cost less accumulated depreciation. Depreciation of property, plant and equipment is calculated on the straight-line method over the estimated economic useful lives of the assets. Depreciation on an asset commences once it has been placed in service.

The cost of self-constructed property, plant and equipment comprises the direct cost of materials and direct manufacturing expenses, plus appropriate allocations of material and manufacturing overheads as well as production and output-related general and administrative costs. Borrowing costs that are directly attributable to a qualifying asset are capitalized.

The acquisition or manufacturing costs also include estimated dismantling and removal costs as well as costs relating to the restoration of the location to its original state.

Any investment allowances or grants received reduce the acquisition or manufacturing costs of the assets for which they were granted.

If an item of property, plant and equipment is comprised of several components with differing useful lives, the separate components are depreciated over the individual useful lives. Expenses for the day-to-day repair and maintenance of property, plant and equipment are normally charged against income.

Estimated economic useful lives of G+D’s property, plant and equipment are as follows:
  

Years
Buildingsup to 50
Technical equipment and machinery2–23
Other plant and office equipment2–23

L Impairment of Intangible Assets and Property, Plant and Equipment


Impairment of other intangible assets and items of property, plant and equipment is identified by comparing the carrying amount with the recoverable amount (the higher of fair value less costs to sell and value in use). If no future cash flows generated independently of other assets can be allocated to the individual assets, recoverability is tested on the basis of the cash-generating unit to which the assets can be allocated. Impairment losses are reversed, with the exception of goodwill, if the reasons for recognizing the original impairment loss no longer apply.
 

M Leasing


When concluding an agreement, the Group determines whether such an agreement is or contains a lease.

Beneficial ownership of leased assets is attributed to the contracting party in the lease, to which substantially all risks and rewards incidental to ownership of the asset are transferred.

If substantially all the risks and rewards are attributable to the lessor (operating lease), the leased asset is recognized by the lessor. Measurement of the leased asset is then governed by the accounting policies applicable to that asset. During the term of the lease, the operating lease payments are recognized in the income statement by the lessor and the lessee.

If substantially all the risks and rewards incidental to ownership of the leased asset are transferred to the lessee (finance lease), the lessee must recognize the leased asset. At the commencement of the lease term, the leased asset is measured at fair value or the lower present value of the future lease payments and depreciated over the shorter of the estimated economic useful life and the lease term. The lessee recognizes a lease liability at the commencement of the lease term. In subsequent periods, the lease liability is reduced using the effective interest method and the carrying amount is adjusted accordingly.
 

N Provisions

 

Pension Provisions and Similar Obligations

Obligations for pensions and other postretirement benefits and related expenses and income are determined in accordance with actuarial measurements. These measurements are based on key assumptions, including discount rates, salary trends, pension trends, biometric probabilities and assumptions about the trend of health insurance benefits. The discount factors applied reflect the interest rates achieved at the balance sheet date for senior, fixed-interest bonds with commensurate maturities. As a result of a fluctuating market and economic situation, the underlying assumptions may deviate from the actual development, which can have a significant impact on the obligations for pensions and other postretirement benefits upon termination of employment.

Pension provisions under defined benefit plans are measured in accordance with the projected unit credit method. Thereby, not only the pensions and acquired expectancies known about at the reporting date but also increase in compensation and pensions expected in the future are taken into account. Actuarial gains or losses and other re-measurements of the net obligation are determined at the reporting date and recorded through other comprehensive income (changes in equity not affecting profit or loss for the period).

In order to determine the discount rate for the measurement of the pension provisions and similar obligations, Giesecke+Devrient uses the Mercer Pension Discount Yield Curve Method. This is a method for determining the interest rate that conforms with IAS 19. The new method is based on a selection of AA-rated corporate bonds in accordance with Bloomberg analyses. Net interest expense, i.e. the interest portion of the allocation to the provision less the expected return on plan assets, is reported in interest expense. The amount payable in conjunction with defined contribution plans is reported as an expense.

When the benefits of a plan change or a plan is cut, the resulting change in the relevant past service performance or the gain or loss from the curtailment is immediately recognized in the income statement. The Group recognizes gains and losses from the settlement of a defined benefit pension plan at the time of settlement.
 

Pre-retirement Part-time Work Agreements

An obligation under pre-retirement part-time work is recognized from the point in time at which the employee is entitled under an individual agreement to the premature termination of his employment. For pre-retirement part-time work agreements in conjunction with the block model, the continuously accruing settlement arrears and the obligation to pay top-up amounts are measured separately. Both obligations are recorded in installments applying actuarial principles from the start of the active phase until the end of the employment phase. In the passive phase, the present value of the future payments is provided. The net interest portion included in the pre-retirement part-time work expenses is reported as interest expense.

Product Warranties

A provision for the expected warranty-related costs is established when the product is sold. Estimates for accrued warranty costs are primarily based on historical experience.
 

Provision for Restructuring Costs

A provision for restructuring costs is recorded where a legal or constructive obligation exists. A constructive obligation for restructuring costs arises only when there is a detailed formal plan identifying key features of the plan and its implementation and a valid expectation on the part of those affected, either by starting to implement the plan or announcing its main features to those affected by it. A restructuring provision should include only the direct expenditures arising from the restructuring, which are those that are both necessarily entailed by the restructuring and not associated with the ongoing activities of G+D.
 

Provision for Onerous Contracts

The calculation of provisions for onerous contracts is to a significant extent based on estimates. Such estimates are mainly related to the status of the projects, the fulfillment of the services requested, changes regarding the volume of the projects, the update of budgeted costs as well as applied customized and runtime-specific discount rates.

Giesecke+Devrient records provisions for onerous contracts for contracts in which the unavoidable costs of meeting the obligations exceed the expected benefits. The unavoidable costs under a contract reflect the minimum net costs of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it. Before a separate provision for an onerous contract is established, any impairment loss that has occurred on assets dedicated to that contract is recognized.
 

Other Provisions

Other provisions are recognized where there are legal or constructive obligations to third parties on the basis of past transactions or events that will probably require an outflow of resources to settle, and this outflow can be reliably measured. They are carried at their expected settlement amount, taking into account all identifiable risks, and may not be offset against potential reimbursements, for example, via insurance claims. The settlement amount is calculated on the basis of the best estimate. Provisions are discounted where the effect of the time value of money is material.

Changes in estimates of the amount and timing of payments or changes in the discount rate applied in measuring provisions for decommissioning, restoration, and similar obligations are recognized in the same amount for the related asset. Where the decrease in the amount of a provision is greater than the carrying amount of the related asset, the excess is recognized immediately in profit or loss.
 

O Recognition of Revenue, Interest and Dividends


Revenue is generally recognized when a product is shipped and title is transferred to the customer or services are performed. If product sales require customer acceptance, revenues are recognized generally upon acceptance by the customer. For arrangements requiring installation of a product at the customer location, where installation is essential to the functionality of the product, revenue is recognized when the product is delivered and installed at the customer location.

In certain instances, G+D is the general contractor concerning the construction of paper mills, special facilities (e.g. production of security products), and personalization centers. The fulfillment of these types of contracts usually extends over a long period and can last up to several years until final completion. For construction contracts, the percentage-of-completion method is applied, provided that the revenue and expenses can be estimated reliably. The percentage of completion is generally determined using the output method (e.g. agreed milestones) or the cost-to-cost method. Profit recognized in the period is calculated by multiplying the contract revenues and costs by the percentage of completion less the results recognized in prior periods.

For long-term customer contracts in which the major components consist of the production, modification, or customizing of software, the percentage-of-completion method is also used for revenue recognition.

Giesecke+Devrient has contractual arrangements in which it performs multiple revenue-generating activities, mainly for cards, passports and ID documents. For arrangements involving multiple revenuegenerating activities (e.g. the delivery of card bodies and personalization services) the  immediate recognition of revenue is only possible under certain circumstances. In these cases, the revenue allocation is based upon the relative fair values of the individual components of the total arrangement. The amount allocable to the delivered elements is limited to the amount that is not contingent upon delivery of additional elements.

Interest is recognized using the effective interest method. Dividends are recognized when the shareholder’s right to receive payment is established.
 

P Grants


Where grants are received for certain assets, they are offset against the acquisition or manufacturing costs of the related assets and therefore reduce the acquisition costs. The grants/allowances are released to the income statement in installments in the form of a reduction in depreciation expense.

Other types of grants are recorded in the income statement in the period in which the entitlement arises.
 

Q Deferred Taxes


Deferred tax assets and liabilities are recognized for temporary differences between the carrying amounts in the consolidated balance sheet and the tax base, as well as for tax loss carryforwards that are expected to reduce tax expense in future periods.
 

R Statement of Cash Flows


The statement of cash flows is prepared in accordance with IAS 7 and shows the cash inflows and outflows during the fiscal year classified by cash flows from operating activities, investing activities and financing activities. The cash flows from operating activities are presented using the indirect method, in which earnings are adjusted for non-cash transactions. Moreover, items attributable to cash flows from investing activities and financing activities are eliminated. Cash flows from interest received and interest paid, as well as dividends received, are allocated to cash flows from operating activities. Cash outflows for the acquisition of additional shares in affiliated companies under common control are classified as cash flows from financing activities.

The cash flow funds comprise the balance sheet line item “cash and cash equivalents”. Cash and cash equivalents include cash on hand and cash at banks, as well as cash from funds and investments with an original maturity of up to three months.
 

S Change in Accounting and Valuation Policies


The amendment to IAS 7 “Disclosure Initiative” improves information about changes in the company’s debt position. The company discloses changes in such financial liabilities resulting from cash received and cash paid which are shown in the cash flow statement under cash flows from financing activities. Related financial assets are also included in the disclosures (for example, assets from hedges).

Changes affecting cash, changes resulting from the acquisition or disposal of companies, exchange rate related changes, changes in fair values and other changes are to be disclosed.

The disclosures are presented in the form of a reconciliation from the opening balance in the balance sheet to the ending balance in the balance sheet. Applying these changes did not have a material impact on the consolidated financial statements of G+D.

The amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”clarify the recognition of deferred tax assets for unrealized losses on debt instruments measured at fair value. Applying these changes did not have a material impact on the consolidated financial statements of G+D.

Within the scope of the “Annual Improvement” project (2014 –2016), three IFRS standards were amended, of which only the following was applicable in 2017:

IFRS 12 clarifies that IFRS 12 disclosures generally also apply to investments in subsidiaries, joint ventures or associates which are classified as held for sale within the scope of IFRS 5; an exception to this are the disclosures in accordance with IFRS 12.B10 – B16 (Financial Information). Applying these changes did not have a material impact on the consolidated financial statements of G+D.

The IASB has published a number of further announcements. The recently implemented standards, as well as those yet to be implemented, have had no major impact on the consolidated financial statements of G+D.
 

T New and Changed Accounting Pronouncements


In addition to the new standards and interpretations listed below which may have a significant influence on the consolidated financial statements, a series of further standards and interpretations were passed which are not expected to have a significant effect on the consolidated financial statements:
 

Endorsed by the EU

IFRS 9 which was issued in July 2014 replaces the existing guidelines in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidelines on the classification and measurement of financial instruments, including a new model of expected credit losses to calculate the impairment of financial assets, as well as the new general accounting standards for hedge accounting. It also adopts guidance for the recognition and derecognition of financial instruments from IAS 39. These changes become effective for the first time in fiscal years which begin on or after January 1, 2018. The standard was endorsed by the European Union. G+D is currently examining the effects of its application on the consolidated financial statements.

In May 2014, the IASB published the new Standard IFRS 15 „Revenue from Contracts with Customers”. The objective of the new standard is to consolidate the vast number of accounting rules which were part of diverse standards and Interpretations relating to revenue recognition up till now.

Simultaneously, basic uniform principles are being determined that are applicable for all branches and all kinds of revenue transactions. In April 2016, some clarifications to IFRS 15 were published which mainly concern the identification of separate performance obligations and the differentiation between principal and agent.

IFRS 15 is to be applied for the first time for the fiscal year beginning on or after January 1, 2018. The Group will apply IFRS 15 for the first time for the fiscal year beginning on January 1, 2018 (year of transition to IFRS 15). The Group will adopt the modified retrospective method for the transition to IFRS 15 with the cumulative effect recognized on January 1, 2018. Consequently, the Group will not apply the requirements of IFRS 15 in each comparative period. In doing so, the Group will make use of practical simplifications relating to IFRS 15. In this context, it is foreseen explicitly not to restate such contracts on January 1, 2018 that begin and were fulfilled within the same fiscal year or which were fully performed on January 1, 2018.

Product sales in the business sectors Currency Technology and Mobile Security are currently recognized as revenue with the delivery of products to the customer. This is defined as the point in time in which the customer accepts the products and the related risks and rewards.

In accordance with IFRS 15, revenue is recognized when the customer gains control of the asset. In several contracts for the sale of customer specific products such as banknotes and bank cards, the Group already transfers the power of control during the production phase. Revenues relating to such contracts are realized during the production phase.

The Group estimates that this will lead to revenue recognition – as well as the associated costs – for such contracts over time which means before the delivery to the customer.

The increased scope for judgements relating to variable consideration affects the determination of amount and timing of revenue recognition across all business fields.

Above all, the required disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers enhanced extensively with IFRS 15.

The project of implementing the new standard has not yet been finalized. During the period of first time adoption, it is expected that the change from realizing revenue at a point in time to over time will lead to an increase in equity.

IFRS 16 introduces a uniform accounting model whereby leases are to be recorded in the balance sheet of the lessee. A lessee records a right-of-use asset which represents the right to use the underlying asset as well as a lease liability for lease payments obligations. There are exceptions for short-term leases and leases relating to low-value assets. The accounting by the lessor is comparable to the current standard – that is to say that the lessor still continues to classify lease arrangements as finance or operating leases.

IFRS 16 replaces the existing guidance on leases including IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease.

The standard is to be applied for the first time in the first reporting period of a fiscal year beginning on or after January 1, 2019. Early adoption is permitted for companies that apply IFRS 15 Revenues from Contracts with Customers at the time of initial application of IFRS 16 or before. G+D is currently examining the effects of its application on the consolidated financial statements.

The respective standards will be adopted when they become obligatory.
 

2 Financial Assets


Financial assets are comprised of the following as of December 31, 2017 and 2016:
  

EUR millionDec. 31, 2017Dec. 31, 2016
Current
Short-term investments (> 3 months and < 1year)0.91.2
Trading securities72.661.8
Available-for-sale securities9.39.3
Derivative financial instruments4.61.6
Loans receivable from joint ventures0.4
87.474.3
Non-current
Cash surrender value of reinsurance21.120.6
Loans receivable from associated companies1.30.6
Available-for-sale securities1.7
24.121.2

Available-for-sale securities have been recorded at fair value in the amount of EUR11.0 million as of December 31, 2017 and EUR 9.3 million as of December 31, 2016. The fair value represents the fair market value.
 

3 Accounts Receivable Trade and Other Accounts Receivable, net


Accounts receivable trade and other accounts receivable, net are comprised of the following as of December 31, 2017 and 2016:
 

EUR millionDec. 31, 2017Dec. 31, 2016
Current
Accounts receivable trade445.3397.8
Accounts receivable from joint ventures and associated companies7.36.1
Accounts receivable from related parties0.10.5
Accounts receivable from MC Familiengesellschaft mbH0.1
Other15.518.4
Prepayments34.249.3
502.4472.2
Allowance for doubtful accounts(14.3)(11.6)
488.1460.6
Non-current
Accounts receivable trade13.25.8
Prepayments on property, plant and equipment3.32.5
16.58.3

Aging structure of accounts receivable trade and other accounts receivable (excluding prepayments) as of December 31, 2017:
 

EUR millionNot past duePast due 1-30 daysPast due 31-90 daysPast due 91-180 daysPast due 181-360 daysPast due more than 360 daysTotal
Accounts receivable346.351.721.520.923.917.1481.4
Less allowance for doubtful accounts(0.3)(1.7)(12.3)(14.3)
Accounts receivable, net346.351.721.220.922.24.8467.1

Aging structure of accounts receivable trade and other accounts receivable (excluding prepayments) as of December 31, 2016:
 

EUR millionNot past duePast due 1-30 daysPast due 31-90 daysPast due 91-180 daysPast due 181-360 daysPast due more than 360 daysTotal
Accounts receivable302.251.435.820.710.18.5428.7
Less allowance for doubtful accounts(0.1)(2.1)(3.4)(6.0)(11.6)
Accounts receivable, net302.151.435.818.66.72.5417.1

The following table serves as a summary of the development of the specific allowances for doubtful accounts:
 

EUR million20172016
January 111.69.0
Changes in consolidation structure0.20.1
Additions (through profit or loss)6.25.7
Recoveries (through profit or loss)(2.7)(1.7)
Utilization(1.3)(1.3)
Transfers0.7
Currency effects(0.4)(0.2)
December 3114.311.6

The specific allowances for doubtful accounts relate to several customers that disclosed that due to their economic circumstances they would not be able to settle the outstanding balances.

The accounts receivable trade and other receivables which have neither been provided for nor are past due as of the balance sheet date amounted to EUR 346.3 million and EUR 302.1 million as of December 31, 2017 and 2016. G+D anticipates that the full amount of the accounts receivable which have neither been provided for nor are past due are collectable. There is no indication that the debtors will not be able to meet their payment obligations. This estimate is based on the payment history as well as extensive analysis relating to the customer default risk.

Allowances for doubtful accounts on accounts receivable from joint ventures, associated companies, as well as related parties were not recorded.

The Group entered into a service concession arrangement regarding the construction and operation of a joint factory for the production of identification cards and passports (BOT model = Build-Operate-Transfer) with a foreign authority in 2015. In addition to the one year construction phase, it also provides for a ten year operational phase.

A common investment budget was established for the construction of the factory. The Group bears 60% of the budget and the contract partner 40%. The significant tasks of the Group are the initial planning of the factory, the provision of the necessary machinery, the establishment of the production, as well as the provision of cash (construction phase). The Group is responsible for the business operations for a period of 10 years (with a possibility of extension for another five years), whereas the contractual partners are entitled to the EBITDA of the factory in proportion to their investment share (60 /40). The EBITDA is distributed on a yearly basis. The contract partner guaranteed a minimum order quantity of identification cards and passports for each year of the operational phase.
 
The Group is responsible for maintaining the operational readiness of the factory during the operational phase. The ownership of the factory is transferred to the grantor after the termination of the operational period.

The service concession arrangement is categorized as a financial asset model.

In 2015, a cash payment of EUR 2.7 million was made within the scope of the construction phase which was recorded as deferred charges in accounts receivable trade and other accounts receivable. As this cash payment has not been utilized yet, these remain unchanged within deferred charges as of December 31, 2017. Due to a prolonged selection process for suitable land which was decided by year-end, the construction phase could not be completed as of December 31, 2017. Therefore, an extension of the original 12 month construction phase was agreed with the contractual partner in fiscal year 2017. In 2017, Veridos continuously rendered services for the construction of the card factory. For this purpose, accounts receivable and sales revenues were recorded in the amount of EUR 7.1 million. These accounts receivable were recorded as non-current accounts receivable trade since the revenues can only be recorded within the operational phase. In fiscal year 2017, Veridos did not record any net income or expense as the sales revenues were equal to the corresponding expenses.
   

4 Inventories, net


Inventories are comprised of the following as of December 31, 2017 and 2016:
 

EUR millionDec. 31, 2017Dec. 31, 2016
Raw materials139.4118.7
Work in process163.5152.0
Finished goods52.662.6
Merchandise21.014.1
Spare parts, modules, sensors – Currency Management Solutions49.747.0
426.2394.4

In fiscal years 2017 and 2016, write-downs on inventory amounted to EUR 26.8 million and EUR19.2 million, respectively.

The carrying value of inventory which serves as collateral for financial liabilities (see Note 13 “Financial Liabilities”) amounted to EUR 0.0 million and EUR 6.1 million as of December 31, 2017 and 2016, respectively.
 

5 Other Current Assets

 

EUR millionDec. 31, 2017Dec. 31, 2016
Taxes receivable (other than income taxes)25.120.0
Restricted cash6.96.8
Gross amount due from customers for contract work (see Note 23 “Construction Contracts”)0.6
Other7.47.6
40.034.4

6 Investments


Investments include the following:
 

EUR millionDec. 31, 2017Dec. 31, 2016
Investments accounted for under the equity method18.813.2
18.813.2

In fiscal year 2015, investments included a 50% share in CI Tech Components AG. A business unit of this company was transferred to CI Tech Sensors AG in fiscal year 2016 in which G+D initially also held an investment of 50%. In the course of an exchange of shares, G+D acquired an additional 25% in CI Tech Components AG by giving up 25% in CI Tech Sensors AG (see Note 24 “Business Combinations“). CI Tech Components AG therefore became a fully consolidated investment. As part of the investments accounted for under the equity method, only the 25% share in CI Tech Sensors AG is remaining.

In fiscal year 2016, investments included a 49% share in EPC Electronic Payment Cards Gesellschaft für Kartenmanagement mbH (EPC). In accordance with the contract from February 20, 2017, the remainder of the shares were purchased. Thus, EPC is fully consolidated in the consolidated financial statements of G+D (see Note 24 “Business Combinations”).

The following investments (see Note1c “Consolidated Group and Principles of Consolidation“) are accounted for using the equity method of accounting:
 

Interest in the company
Name of the joint venture
Shenzen Giesecke & Devrient Currency Automation Systems Co. Ltd., China50.00 %
E-Kart Elektronik Kart Sistemleri Sanayi ve Ticaret Anonim Sirketi, Turkey50.00 %
CI Tech Sensors AG, Switzerland25.00 %
Name of the associated company
Emirates German Security Printing L.L.C., United Arab Emirates29.40 %
Netset Global Solutions d.o.o., Serbia24.00 %
Hansol Secure Co., Ltd., Korea16.29 %
finally safe GmbH, Germany14.30 %

Shenzen Giesecke & Devrient Currency Automation Systems Co. Ltd. sells and installs banknote processing systems.

E-Kart Elektronik Kart Sistemleri Sanayi ve Ticaret Anonim Sirketi manufactures and sells cards, card systems, and card-based solutions.

CI Tech Sensors AG develops, produces and markets compact sensors for the reliable authentication and feature recognition of bank notes worldwide.

Emirates German Security Printing L.L.C. merchandises and sells security devices in the United Arab Emirates and other states of the Arabian Peninsula.

Netset Global Solutions d.o.o. develops specialized information systems with integrated information protection for electronic identification, for large national registers, for smart card applications and cryptographic solutions.

Hansol Secure Co., Ltd. is a smartcard manufacturer in the NFC /LTE USIM and Security Platform solution industry.

Finally safe GmbH is responsible for the development of technology, products and services in the field of internet early warning and air picture systems in connection with downstream systems as well as their successful market positioning.

In the context of a share exchange effective May 23, 2017, G+D received shares in Nxt-ID, Inc. with a fair value of EUR 2.8 million for its 19,93% share in Fit Pay, Inc. which had the same fair value (book value EUR 2.2 million). The resulting net gain in the amount of EUR 0.6 million was shown under investments accounted for under the equity method. The shares in Nxt-ID, Inc. are classified as trading securities for the stock traded shares and as available-for-sale securities for the preferred shares. Accordingly, the shares are stated at fair value.
  

Joint Ventures and Associated Companies


The following table summarizes the financial information for material joint ventures and associated companies as included in their own financial statements prepared in accordance with IFRS, adjusted for fair value adjustments at acquisition and differences in the Group accounting policies:
  

EUR millionJoint VentureAssociated company
Shenzhen Giesecke & Devrient Currency Automation Systems Co. LtdCI Tech Sensors AGHansol Secure Co., Ltd.
2017201620172016¹20172016
Revenues24.330.230.136.610.1
Profit from continuing operations5.03.71.51.24.7
thereof depreciation and amortization(0.3)(0.4)(1.5)(0.9)(0.2)
thereof interest income/(expense)(0.1)(0.1)
thereof income taxes(1.5)(1.3)(0.2)(0.3)(0.1)
Other comprehensive income(0.7)(0.4)(0.7)
Total comprehensive income4.33.31.51.24.0
Group’s share of total comprehensive income2.21.70.40.30.7
Continuation of purchase price allocation (incl. CTA)(0.9)(1.0)(0.2)
Elimination of intercompany profits(0.4)(0.5)
Group’s share of total comprehensive income1.81.2(0.5)0.70.5
Dividends received during the year(1.8)(1.3)(0.5)
Current assets18.219.115.318.420.6
thereof cash and cash equivalents10.57.71.21.22.0
Non-current assets4.34.21.32.02.9
Current liabilities(10.5)(12.0)(4.5)(6.8)(2.1)
thereof current financial liabilities(0.4)
Non-current liabilities(3.8)(5.0)(0.1)
thereof non-current financial liabilities
Net assets12.011.38.38.621.3
Group’s share of net assets6.05.72.12.23.5
Elimination of intercompany profits(0.1)(0.5)
Assets from purchase price allocation (incl. CTA)2.12.93.2
Carrying amount of interest in joint venture at year end5.95.24.25.16.7

Non-material Joint Ventures


The following table summarizes the financial information for the Group’s share in non-material joint ventures based on the amounts as reported in the Group’s financial statements:
 

EUR millionDec. 31, 2017Dec. 31, 2016
Carrying amount of interest in non-material associated companies0.4
Share of
Gain/(Loss) from continuing operations0.4(0.7)
Total comprehensive income0.4(0.7)

Non-material Associated Companies


The following table summarizes the financial information for the Group’s share in non-material associated companies based on the amounts as reported in the Group’s financial statements:
 

EUR millionDec. 31, 2017Dec. 31, 2016
Carrying amount of interest in non-material associated companies1.62.9
Share of
Gain/(Loss) from continuing operations(0.7)
Total comprehensive income(0.7)

7 Intangible Assets


A summary of the activity for goodwill and other intangible assets is as follows:
 

EUR millionCustomer base /
Rights
Development
costs /
Technology
SoftwareGoodwillTotal
Costs
January 1, 201640.062.7153.243.7299.6
Additions0.89.76.40.117.0
Additions due to business combinations0.917.114.032.0
Disposals(9.4)(9.4)
Foreign currency effects0.3(0.6)0.4(1.2)(1.1)
December 31, 201642.088.9150.656.6338.1
January 1, 201742.088.9150.656.6338.1
Additions1.410.912.424.7
Transfers0.1(1.2)1.1
Additions due to business combinations1.00.11.12.2
Disposals(2.6)(2.6)
Foreign currency effects(1.7)(2.3)(1.0)(1.0)(6.0)
December 31, 201742.896.3160.656.7356.4

The additions in 2017 and 2016 comprise self-constructed intangible assets in the amount of EUR16.7 million and EUR10.3 million, respectively.
 

EUR millionCustomer base /
Rights
Development
costs /
Technology
SoftwareGoodwillTotal
Accumulated amortization
January 1, 201636.138.986.4161.4
Additions0.94.921.126.9
Impairment losses1.11.1
Disposals(9.4)(9.4)
Foreign currency effects0.2(0.4)0.30.1
December 31, 201637.244.598.4180.1
January 1, 201737.244.598.4180.1
Additions1.66.815.523.9
Impairment losses0.22.02.2
Disposals(2.6)(2.6)
Foreign currency effects(1.5)(0.7)(0.7)(2.9)
December 31, 201737.350.6110.82.0200.7
Carrying value
January 1, 20163.923.866.843.7138.2
December 31, 20164.844.452.256.6158.0
December 31, 20175.545.749.854.7155.7

In 2016, G+D amended the accounting guidelines regarding capitalized development costs since the technical environment as well as the content of the projects changed significantly. This led to an increase in additions to capitalized development costs in the amount of EUR 3.7 million.


The amounts of amortization of intangible assets recorded in the functional areas of the income statement are as follows:
 

EUR million20172016
Cost of goods sold8.76.4
Selling expenses0.80.3
Research and development expenses0.40.4
General and administrative expenses14.019.8
23.926.9

In fiscal years 2017 and 2016, impairment losses in the amount of EUR 0.2 million and EUR1.1 million were recorded on software and capitalized development costs. Impairment losses amounting to EUR 0.2 million and EUR1.1 million were recorded in general and administrative expenses in the amount of EUR 0.2 million and EUR1.1 million in cost of goods sold, respectively. The impairment recorded on software in 2017 was based on the assumption that there was no further value in use as the software was replaced.

The goodwill of a Canadian subsidiary in the amount of EUR 2.0 million (prior year EUR 2.1 million) was allocated to the CGU “Banknote Solutions”. In connection with the planned closure of the site, the full amount of the goodwill was impaired in 2017.

The goodwill from CI Tech Components AG in the amount of EUR14.0 million (prior year EUR14.0 million) was allocated to the CGU “Currency Management Solutions“. As the CGU “Currency Management Solutions” business is mainly conducted in Euro, this goodwill is recorded in Euro. The goodwill from secunet AG in the amount of EUR 4.0 million (prior year EUR 3.4 million) was assigned to the “secunet” CGU. The increase in Goodwill in the amount of EUR 0.6 million compared to prior year represents the difference between the purchase price in the amount of EUR 0.8 million and the transferred assets which were acquired by secunet AG in connection with an asset deal from bintec elmeg security GmbH. Sensitivity analyses are not required since the recoverability of these goodwills is not deemed to be critical.

The goodwill from Veridos Matsoukis S.A. Security Printing in the amount of EUR 2.1 million (prior year EUR 2.1 million) as well as the goodwill from Veridos GmbH in the amount of EUR 4.4 million (prior year EUR 4.4 million) were allocated to the “Veridos” CGU. Due to strengthened convergence of the previously separated hardware- and solutions businesses to highly integrated customer solutions and uniform goods and services, the respective 3S businesses were reallocated to the MS divisions. The goodwill from Giesecke+Devrient Mobile Security Sweden AB in the amount of EUR 29.7 million (prior year EUR30.6 million) was assigned to the divisions and thereby to the CGUs “Financial Solutions”, “Connectivity & Devices” and “Cyber Security”. Management steers the goodwills on the level of the new CGUs. In the past, management steered the goodwills on the level below the respective divisions. The allocation of the goodwills was based on the present value of the planned revenues in the amount of EUR 7.2 million (prior year EUR 7.4 million) in the CGU “Financial Solutions”, EUR 20.5 million (prior year EUR 21.2 million) in the CGU “Connectivity & Devices” and EUR 2.0 million (prior year EUR 2.0 million) in the CGU “Cyber Security”. The goodwill acquired in the connection with the purchase of C.P.S. Technologies S.A.S. in the amount of EUR 0.5 million was allocated to the CGU “Financial Solutions”.

In performing the annual impairment tests for goodwill, the recoverable amount of the CGU or group of CGUs is based on the value in use. The value in use is the present value of the future cash flows expected to be derived from the CGU or a group of CGUs. Since 2014, the cash flow projections are based upon G+D’s five-year plans. The cash flows for the CGU “Veridos” were determined using the planning assumptions of an average EBITDA margin of 5.7% during the planning period and a perpetual growth rate of 1.0%. The cash flows for the CGUs “Financial Solutions”, “Connectivity & Devices” and “Cyber Security” were determined using the planning premises of average EBITDA margins of 6.9%, 8.3% and 10.1% during the planning period and perpetual growth rates of 1.0%, respectively. The cash flows for the CGU “Currency Management Solutions” were determined using the planning premises of average EBITDA margin of 10.1% during the planning period and perpetual growth rate of 0.0%.

In discounting the cash flows of the “secunet” CGU, pre-tax interest rates of 10.5% and 11.5% were used in 2017 and 2016, respectively. For the CGUs “Banknote Solutions” and “Currency Management Solutions“, a pre-tax interest rate of 10.7% was applied in 2017 and 9.6% in 2016, respectively. In discounting the cash flows of the “Veridos” CGU, pre-tax interest rates of 10.3% and 10.2% were applied in 2017 and 2016, respectively. In discounting the cash flows of the “Financial Solutions“ and “Connectivity & Devices“ CGUs, a pre-tax interest rate of 11.4% and 11.8% was used in 2017 and 2016, respectively. For the CGU “Cyber Security” pre-tax interest rates of 11.4% in 2017 and 12.1% in 2016 were applied. Impairments on goodwill were not recorded in fiscal years 2017 and 2016.

A sensitivity analysis was carried out for the goodwill in the CGU “Veridos”. An increase in the interest rate from 10.3% to 12.4% ceteris paribus as of December 31, 2017 would result in a first time impairment loss. A reduction in the cash flows for the terminal value ceteris paribus from EUR12.3 million to EUR 8.9 million as of December 31, 2017 would result in an impairment loss.

A sensitivity analysis was carried out for the goodwill in the CGUs “Financial Solutions”, “Connectivity & Devices” and “Cyber Security”. An increase in the interest rate ceteris paribus from 11.4% to 12.9% as of December 31, 2017 for “Financial Solutions”, from 11.4% to 14.2% for “Connectivity & Devices” and from 11.4% to 15.4% for “Cyber Security” would result in a first-time impairment loss. A reduction in the cash flows for the terminal value ceteris paribus from EUR 31.8 million to EUR 25.6 million as of December 31, 2017 for “Financial Solutions”, from EUR 27.1 million to EUR18.4 million for “Connectivity & Devices” and from EUR12.5 million to EUR 7.5 million for “Cyber Security” would result in an impairment loss.

No intangible assets serve as collateral for financial liabilities (see Note 13 “Financial Liabilities”) as of December 31, 2017 and 2016, respectively.
   

8 Property, Plant and Equipment


A summary of the activity for property, plant and equipment is as follows:
 

EUR millionLand and buildings ¹Technical equipment and machinery ¹Other plant and office equipment ¹Construction in processTotal
Costs
January 1, 2016439.7703.5216.419.11,378.7
Additions6.337.524.413.781.9
Transfers7.38.64.3(20.1)0.1
Additions due to changes in consolidation structure0.43.64.0
Disposals(2.0)(32.7)(15.4)(50.1)
Foreign currency effects0.48.6(0.3)0.18.8
December 31, 2016451.7725.9233.012.81,423.4
January 1, 2017451.7725.9233.012.81,423.4
Additions8.428.222.17.866.5
Transfers2.839.7(27.9)(11.2)3.4
Additions due to changes in consolidation structure3.63.60.88.0
Disposals(7.3)(14.3)(11.7)(33.3)
Foreign currency effects(4.5)(15.3)(5.8)(0.1)(25.7)
December 31, 2017454.7767.8210.59.31,442.3
EUR millionLand and buildings ¹Technical equipment and machinery ¹Other plant and office equipment ¹Construction in processTotal
Accumulated depreciation
January 1, 2016215.9510.7165.9892.5
Additions11.146.321.278.6
Transfers0.60.6
Impairment losses0.40.4
Disposals(1.8)(31.8)(15.2)(48.8)
Foreign currency effects(0.1)5.1(0.2)4.8
December 31, 2016225.7530.1171.7927.5
January 1, 2017225.7530.1171.7927.5
Additions11.748.418.878.9
Transfers0.622.8(23.4)
Additions due to changes in consolidation structure1.51.60.63.7
Impairment losses4.21.20.55.9
Disposals(2.5)(13.8)(11.4)(27.7)
Foreign currency effects(2.4)(10.6)(4.2)(17.2)
December 31, 2017238.8579.7152.6971.1
Carrying value
January 1, 2016223.8192.850.519.1486.2
December 31, 2016226.0195.861.312.8495.9
December 31, 2017215.9188.157.99.3471.2

In fiscal year 2016, G+D conducted an external review of the remaining useful lives of the buildings at the Munich headquarters. This resulted in an increase in the expected useful lives. The effect of these changes on the actual and expected depreciation expense in the current and coming years is as follows:
 

EUR million201620172018201920202021thereafter
(Decrease) Increase in depreciation expense(2.3)(2.1)(1.9)(1.9)(1.5)(1.5)11.2

In 2017, some of the land and buildings were sold to related parties which led to deviations in the depreciation expense shown in the table above.


In fiscal years 2017 and 2016, Giesecke+Devrient recorded impairments amounting to EUR1.9 million and EUR 0.3 million on property, plant and equipment in cost of goods sold as well as EUR 0.0 million and EUR 0.1 million in research and development expenses. In 2017, impairments amounting to EUR 4.1 million were recorded in general and administrative expenses (previous year EUR 0.0 million). The impairments recorded by Giesecke+Devrient in 2017 mainly comprise a planned site closure which resulted in an extra- ordinary depreciation expense. The impairments on land, buildings and machinery reflect the fair values. The fair value of the buildings was determined by external, independent real estate appraisers. In the chosen scenario, G+D does not currently receive any income from the property and it must be rented on the market in the future. The cash value method was therefore applied and the valuation technique was classified as fair value at level three. The discount rate is 7.00%.

The carrying value of property, plant and equipment, which serves as collateral for financial liabilities (see Note 13 “Financial Liabilities”), amounted to EUR 8.4 million and EUR 31.3 million as of December 31, 2017 and 2016, respectively.

Commitments for the purchase of property, plant and equipment amounted to EUR 7.6 million and EUR 8.3 million as of December 31, 2017 and 2016, respectively.
 

9 Leasing


Giesecke+Devrient has obligations under finance leases covering buildings and certain machinery and equipment that expire at various dates over the next five years.

As of December 31, 2017 and 2016, the carrying values of buildings, machinery and equipment recorded under finance leases were as follows:
 

EUR millionDec. 31, 2017Dec. 31, 2016
Buildings6.510.9
Machinery and equipment0.10.1
6.611.0

Depreciation on assets held under finance leases is included in depreciation expense.

Furthermore, Giesecke+Devrient has several non-cancelable operating leases for buildings, manufacturing facilities, electronic data processing equipment, motor vehicles and other office equipment which expire over the next 15 years. Rental expenses for operating leases during 2017 and 2016 amounted to EUR 29.6 million and EUR 29.6 million, respectively.

Future minimum lease payments on non-cancelable operating leases and future minimum finance lease payments amount to:
 

EUR millionFinance leases Operating leases
Less than one year3.334.0
Between one and five years0.190.3
More than five years29.2
Total minimum lease payments3.4153.5
Less amount representing interest (at rates up to 7.8%)(0.1)
Present value of net minimum finance lease payments3.3

The present value of net minimum finance lease liabilities is as follows:
 

EUR millionFinance leases
Less than one year3.2
Between one and five years0.1
Present value of net minimum finance lease payments3.3

The future minimum lease payments on non-cancelable operating leases include lease agreements with related parties in the amount of EUR 0.1 million.

As part of a sale and leaseback transaction in 2017, G+D sold part of its land and buildings to a related party at a sales price of EUR 20.7 million. This sale was carried out at fair value. The land and buildings are being leased by G+D at various, sometimes shorter, lease terms until December 31, 2019 as operating leases. In return, the reimbursement of part of the relocation costs of G+D as a variable lease payment was agreed. Relating to the sale of the building, refer to Note 8 “Property, Plant and Equipment” and Note 26 “Related Party Disclosures”.

Regarding the summary of the activity for property, plant and equipment, refer to Note 13 “Financial Liabilities”.
 

10 Accounts Payable Trade and Other Accounts Payable

 

EUR millionDec. 31, 2017Dec. 31, 2016
Current
Accounts payable trade due to third parties291.2251.1
Accounts payable due to associated companies and joint ventures0.98.5
Accounts payable to shareholders0.2
Other similar liabilities1.41.8
Deposits received/deferred income163.1158.4
456.8419.8
Non-current
Deposits received/deferred income25.548.2
25.548.2

11 Provisions

 

EUR millionWarrantiesPersonnelrelated costsLicenses and
patent infringements
Onerous contractsRestructuringOtherTotal
January 1, 201758.014.87.76.87.637.0131.9
Additions19.75.15.49.712.252.1
Additions due to changes in consolidation structure0.15.85.9
Interest component0.10.1
Utilization(6.7)(4.7)(0.1)(1.9)(5.4)(16.2)35.0
Release(23.3)(0.2)(3.4)(4.7)(2.1)(12.5)(46.2)
Foreign currency effects(0.3)(0.2)(0.5)(0.5)(1.5)
December 31, 201747.514.93.75.69.825.8107.3
thereof current47.59.73.75.69.820.797.0
thereof non-current5.25.110.3

Personnel-related provisions include provisions for pre-retirement part-time working arrangements and long-service awards. The interest component on pre-retirement part time working arrangements and the interest component on long-service awards are included in interest expenses.

Provisions for restructuring mainly consist of provisions relating to site closures abroad.

Other provisions include, in particular, provisions for penalties, withholding tax obligations, asset retirement obligations and litigation.
 

12 Other Current Liabilities

 

EUR millionDec. 31, 2017Dec. 31, 2016
Payroll and social security taxes97.293.5
Sales and other taxes21.521.4
Gross amount due to customers for contract work (see Note 23 “Construction Contracts”)3.2
Other liabilities11.07.8
132.9122.7

13 Financial Liabilities

 

Financial liabilities consist of the following as of December 31, 2017 and 2016:
 

EUR millionDec. 31, 2017Dec. 31, 2016
Current
Short-term borrowings due to financial institutions118.259.0
Short-term debt to MC Familiengesellschaft mbH5.47.6
Short-term debt due to other third parties11.26.0
Current portion of long-term debt due to financial institutions28.549.4
Current portion of long-term debt due to Giesecke & Devrient Foundation3.50.8
Accrued interest on debt to financial institutions1.40.8
Other financial liabilities2.5
Derivative financial instruments4.83.4
Total current portion of financial liabilities75.5127.0
Non-current
Unsecured notes payable to financial institutions, interest rates 1.05% to 3.50%, due through July 28, 2027248.5198.2
Unsecured notes payable to Giesecke & Devrient Foundation, interest rate 2.66% due through December 1, 202220.720.7
Unsecured notes payable to other third parties, interest rate 2.65%, indefinte maturity date2.62.3
Unsecured notes payable to other third parties, interest rates 0.18% to 1.25%, due through December 15, 20222.40.8
Mortgage notes payable to financial institutions, interest rate 3.15%, due through December 31, 20188.428.3
Derivative financial instruments3.0
Total282.6253.3
Less current portion of non-current financial liabilities(32.0)(50.2)
Total non-current portion of financial liabilities250.6203.1
Total financial liabilities326.1330.1

The aggregate maturities of financial liabilities for each of the following years are as follows:
 

EUR million
201875.5
201925.5
202035.4
202111.3
2022133.4
thereafter45.0
326.1

A summary of the activity for financial liabilities is as follows:
 

in Mio. EURNon-current borrowings (incl. short-term portionCurrent borrowingsDerivative financial instrumentsOther financial liabilitiesSum of financial liabilitiesFinance lease¹ obligations Total
Carrying value January 1, 2017250.373.46.4330.15.9336.0
Total changes in cash flows from financing activities
Repayments of the period(51.3)(97.2)(148.5)(2.6)(151.1)
New borrowings83.261.1144.3144.3
Total31,9(36.1)(4.2)(2.6)(6.8)
Acquisitions0.60.60.6
Other changes0.62.53.13.1
Fair value changes(1.3)(1.3)(1.3)
Currency effects(0.2)(1.7)(0.3)(2.2)(2.2)
Carrying value December 31, 2017282.636.24.82.5326.13.3329.4
Fair value December 31, 2017281.536.24.82.5325.03.3328.3

Lines of Credit


Giesecke+Devrient maintains global credit facilities in the amount of EUR 773.3 million (prior year EUR 828.4 million). As of December 31, 2017, G+D used EUR 278.4 million (prior year EUR 287.3 million) of these facilities for bank guarantee purposes, EUR 22.2 million (prior year EUR 59.0 million) for credit orders and EUR11.2 million (prior year EUR 6.0 million) for other third parties. Thus, EUR 461.5 million (prior year EUR 476.1 million) in credit lines were not used as of the reporting date.
 

14 Pensions and Related Liabilities

 

Description of the Plans


Giesecke+Devrient maintains defined benefit pension plans for a considerable number of employees in Germany and at a few subsidiaries abroad. This defined benefit pension plans charge the Group with actuarial risks such as longevity risks, currency exchange risks and interest rate risks.

In addition to the number of years of service, the defined benefit pension plans are based on the current salary received or are dependent on the final salary. For most of the employees who had employment contracts from January 1, 2002 onwards with a German Group company, the pension plan is based on pension components whose benefits are adjusted each year by 1%. Furthermore, employees in German Group companies are granted the right to use particular salary components for future pension payments.

The measurement date for the calculation of the DBO for the principal pension plans and the other key postretirement benefits is December 31.

Payment obligations exist for defined contribution state pension plans in Germany and abroad.

For new employees joining G+D after January1, 2014, the existing defined contribution plan was terminated. For employees joining the company from January1, 2014 on, an externally financed pension obligation was introduced.

Total Provisions for Pensions and Related Liabilities


The obligations under the Giesecke+Devrient pension plans and other postretirement benefit plans are comprised of the following:
  

EUR millionDec. 31, 2017Dec. 31, 2016
Pension benefits592.3584.8
Other postretirement benefits1.21.5
Other0.50.5
Total accrual for pension and related liabilities594.0586.8

 

Pensions and other Postretirement Benefits


Details of the changes in the defined benefit obligation, the current value of plan assets and the other postretirement benefits are summarized in the following tables:
 

EUR millionPension benefit plansOther postretirement benefit
plans
Dec. 31, 2017Dec. 31, 2016Dec. 31, 2017Dec. 31, 2016
Change in defined benefit obligation
Defined benefit obligation at beginning of year607.7526.21.51.2
Foreign currency exchange rate differences(1.8)0.8(0.2)
Service cost9.68.80.20.2
Interest cost11.913.40.10.1
Past service cost(1.1)(0.5)
Curtailments(1.1)(0.2)
Plan amendments(0.3)
Plan participants’ contributions0.50.1
Additions/(disposals) due to changes in consolidation structure6.112.7
Actuarial (gains)/losses(5.3)57.50.1
due to demographic parameter changes0.20.2
due to financial parameter changes(3.2)58.2(0.1)
due to experience adjustments(2.1)(0.9)(0.1)
Benefits paid(12.4)(11.8)
Defined benefit obligation at end of year615.2607.71.21.5
Change in plan assets
Fair value of plan assets at beginning of year22.913.8
Foreign currency exchange rate differences(1.1)0.4
Actual return on plan assets (excluding expected interest income)0.10.1
Expected interest income0.50.5
Additions/(disposals) due to changes in consolidation structure(0.1)7.6
Employer contributions1.41.0
Plan participants' contributions0.20.1
Benefits paid(1.0)(0.6)
Fair value of plan assets at end of year22.922.9
Net amount recognized at end of year592.3584.81.21.5

 

Net Liability Recorded


The development of the net liability recorded in fiscal years ended December 31, 2017 and 2016 is as follows:
 

EUR millionPension benefit plansOther postretirement benefit
plans
Dec. 31, 2017Dec. 31, 2016Dec. 31, 2017Dec. 31, 2016
Net liability at beginning of year584.8512.41.51.2
Service cost9.68.80.20.2
Past service cost(1.1)(0.5)
Curtailments(1.1)(0.2)
Plan amendments(0.3)
Interest expense/(income)11.412.90.10.1
Additions/(disposals) due to changes in consolidation structure6.25.1
Actuarial (gains)/losses(5.3)57.50.1
due to demographic parameter changes0.20.2
due to financial parameter changes(3.2)58.2(0.1)
due to experience adjustments(2.1)(0.9)(0.1)
Actual return on plan assets (excluding expected interest income)(0.1)(0.1)
Benefits paid (excluding plan settlements)(11.4)(11.2)
Employer contributions(1.4)(1.0)
Plan participants’ contributions0.3
Foreign currency exchange rate differences(0.7)0.4(0.2)
Net liability at end of year592.3584.81.21.5

 

Plan Assets


The plan assets were invested in the following classes of assets:
  

Information as % of plan assetsDec. 31, 2017Dec. 31, 2016
Cash surrender value of reinsurance30.431.1
Equity securities9.427.4
Debt instruments15.324.0
Real estate funds7.77.3
Money market funds33.56.3
Other3.73.9
100.0100.0

The majority of the plan assets are invested in money market funds and debt instruments and in the form of cash surrender value of reinsurance policies and shares in mutual funds for German companies. Furthermore, plan assets are invested in equity securities and real estate funds. The management and reinvestment are controlled by defined investment policies which foresee investment in high quality and diversified investment classes.

Additions to plan assets in the amount of EUR 0.6 million (prior year EUR 0.2 million) are planned for fiscal year 2018. There are no minimum funding requirements.

 

Actuarial Assumptions


The discount rates and percentages for salary and pension increases assumed in the determination of the future pension obligations fluctuate in accordance with the economic situation in the countries in which pension plans exist. The weighted average assumptions for the calculation of the actuarial amounts are as follows:
  

in %Pension benefit plansOther postretirement benefit plans
Dec. 31, 2017Dec. 31, 2016Dec. 31, 2017Dec. 31, 2016
Discount rate/expected return on plan assets2.02.02.57.2
Rate of compensation increase2.52.52.36.4
Rate of pension progression1.41.5
Mortality tables
GermanyRT Heubeck 2005 GRT Heubeck 2005 G
Canada2014 CPM table with mortality improvement scale CPM-B014 CPM table with mortality improvement scale CPM-B
SwitzerlandBVG2015.GTBVG2015.GT

The rate for the expected long-term return on plan assets corresponds with the discount rate. The weighted average term for pension obligations amounts to 18.9 years (prior year 19.7 years) and 6.3 years for other benefit obligations (prior year 10.6 years).

 

Sensitivity Analysis


The results of the sensitivity analyses for the significant actuarial assumptions for pension obligations as of December 31, 2017 and December 31, 2016 are as follows:
 

Change of Defined Benefit Obligation

EUR millionDec. 31, 2017Dec. 31, 2016
Discount rate 50 basis points(51.3)(53.9)
Discount rate −50 basis points60.461.3
Rate of pension progression 25 basis points14.114.2
Rate of pension progression −25 basis points(13.8)(14.3)
Increase of 2 years in life expectancy41.843.6

The assumptions for all sensitivity calculations were not performed jointly, but rather individually for each calculation assumption examined.

 

Contributions to Pension Plans


Contributions to state pension plans in the amount of EUR 27.0 million and EUR 25.6 million were recorded in 2017 and 2016, respectively. Payments amounting to EUR 0.7 million and EUR 0.4 million were made for the newly established company pension plans in 2017 and 2016, respectively.
 

15 Revenue


Revenue is comprised of the following categories:
 

EUR million20172016
Sales of goods1,825.81,793.4
Rendering of services285.6278.4
Royalties25.017.2
2,136.42,089.0

16 Income and Expenses Relating to Other Periods

 

EUR million20172016
Income relating to other periods60.735.9
Expenses relating to other periods(1.9)(6.1)
58.829.8

Income relating to other periods consists primarily of releases of warranty provisions included in cost of goods sold as well as gains from sale of property, plant and equipment (mainly from a real estate transaction, see Note 26) recorded in other operating income. The main portion of expenses relating to other periods comprises tax expenses for prior periods.
 

17 Other Financial Income, net

 

EUR million20172016
Gains/(losses) from trading securities, net5.6(0.4)
Foreign currency exchange gains/(losses), net(14.8)(2.8)
Gains/(losses) from derivative financial instruments, net(2.4)(1.4)
(11.6)(4.6)

The changes in net unrealized gains and losses on trading securities included in earnings during the fiscal years ending December 31, 2017 and 2016 were EUR 2.4 million and EUR−0.3 million, respectively.
  

18 Interest Income and Interest Expense

 

EUR million20172016
Interest income
Loans and receivables0.10.1
Cash and cash equivalents/short-term investments0.90.7
Trading securities0.70.7
Taxes receivable0.3
Interest derivatives0.10.1
Receivables from associated companies and joint ventures0.10.1
Other0.30.3
2.22.3
Interest expense
Loans and receivables0.70.7
Financial liabilities and finance lease obligations5.06.3
Other provisions0.10.2
Provisions for pensions11.512.9
Taxes payable0.10.1
Other2.22.9
19.623.1

Interest income and expense relating to financial assets and financial liabilities that are not valued at fair value are as follows:
 

EUR million20172016
Interest income
Loans and receivables0.20.2
Cash and cash equivalents/short-term investments0.90.7
1.10.9
Interest expense
Loans and receivables0.70.7
Financial liabilities measured at amortized cost5.06.3
5.77.0

19 Income Taxes

 

Income Tax Expense


Income tax expense for fiscal years 2017 and 2016 is comprised of:
 

EUR million20172016
Current income tax
Current year income tax expense(43.1)(34.4)
Income tax expense for prior periods(0.6)(5.1)
(43.7)(39.5)
Deferred income tax
Gross income from origination and reversal of temporary differences and tax loss carryforwards(4.4)3.4
Income tax expense from changes in tax rates and introduction of new taxes(0.1)(0.9)
Change in usability of tax loss carryforwards2.4(8.9)
(2.1)(6.4)
Income tax expense, net(45.8)(45.9)

For the fiscal year ended December 31, 2017, G+D was subject to German federal corporate tax at a base rate of 15% for the parent company plus a solidarity surcharge of 5.5% on federal corporate taxes payable. Hence, the statutory rate consisted of a federal corporate tax rate of 15.83% and trade tax of 15.88%, resulting in a combined tax rate of 31.71%.

Reconciliation between the Expected and Actual Income Tax Expense


Following is a reconciliation of the expected income tax expense to the actual income tax expense which was recorded. The calculation of the expected income tax expense is based on the multiplication of income before income tax at the German corporate combined statutory rate of 31.71% and 31.51% in 2017 and 2016, respectively.
 

EUR million20172016
Expected income tax expense(35.8)(31.0)
Foreign taxation differential1.44.1
Non-deductible expenses(2.3)(4.8)
Changes in tax rates(0.1)(0.9)
Tax-free income(0.8)1.3
Additions due to tax risks and tax payments (refunds) for prior years(0.7)
Changes in tax loss carryforwards2.4(8.9)
Withholding taxes(8.0)(4.8)
Other(1.9)(0.9)
Actual income tax expense(45.8)(45.9)

Deferred Tax Assets and Liabilities


The gross values of deferred tax assets and liabilities as of December 31, 2017 and 2016 are attributable to the following balance sheet line items:
 

EUR millionAssetsLiabilitiesNet
Dec. 31, 2017Dec. 31, 2016Dec. 31, 2017Dec. 31, 2016Dec. 31, 2017Dec. 31, 2016
Financial assets0.50.2(7.1)(3.3)(6.6)(3.1)
Accounts receivable trade and other receivables, net5.50.8(0.1)(0.9)5.4(0.1)
Inventories, net21.913.2(0.1)21.813.2
Other assets0.50.9(0.5)(0.3)0.6
Intangible assets8.79.3(15.1)(10.2)(6.4)(0.9)
Property, plant and equipment1.82.5(11.9)(14.8)(10.1)(12.3)
Accounts payable trade and other accounts payable0.90.9(12.6)(0.8)(11.7)0.1
Provisions20.523.3(3.4)(2.5)17.120.8
Financial liabilities2.31.12.31.1
Finance lease obligations0.10.20.10.2
Deposits received/deferred income0.20.50.20.5
Pensions and related liabilities102.5102.4102.5102.4
Other liabilities4.03.2(1.4)(1.8)2.61.4
Tax loss carryforwards37.135.037.135.0
Deferred tax assets/(liabilities), gross206.5193.5(52.2)(34.6)154.3158.9
Set-off of tax(42.9)(28.3)42.928.3
Deferred tax assets/(liabilities), net163.6165.2(9.3)(6.3)154.3158.9

The changes in deferred tax assets, net included in net income or other comprehensive income for fiscal years 2017 and 2016 are included in the following summary:
 

EUR million20172016
Deferred tax assets, net as of January 1158.9146.8
Changes affecting net income(2.1)(6.4)
Changes not affecting net income
Additions due to changes in consolidation structure(0.2)0.6
Changes in net deferred tax assets recognized in other comprehensive income resulting from deferred tax assets on actuarial gains and losses(1.2)17.7
Changes in net deferred tax assets recognized in other comprehensive income resulting from deferred tax assets on foreign currency translations(1.1)0.2
Deferred tax assets, net as of December 31154.3158.9

Deferred Tax Assets not Recorded in the Balance Sheet


The amount of deductible timing differences and tax loss carryforwards, for which deferred tax assets were not recorded, are as follows:
 

EUR million20172016
Gross amountTax effectGross amountTax effect
Deductible temporary differences16.54.05.81.8
Unused tax losses197.952.8198.754.0
214.456.8204.555.8

Unused tax loss carryforwards in the amount of EUR 3.1 million can be carried forward for a limited period in time. The remaining EUR194.8 million are available indefinitely.

Furthermore, deferred tax assets in the amount of EUR 37.1 million and EUR 35.0 million on tax loss carryforwards in the amount of EUR121.4 million and EUR116.7 million were recorded as of December 31, 2017 and 2016, respectively.

The determining factor in recognizing deferred tax assets is the probability of the reversal of the temporary differences which resulted in the recognition of the deferred tax assets and future taxable profit against which the unused tax losses can be utilized. This is dependent on future taxable profits arising in those periods in which taxable temporary differences reverse and tax losses carryforwards may be utilized. As of December 31, 2017, significant deferred tax assets were recorded on tax loss carryforwards by the following companies: Giesecke & Devrient GmbH, Munich, EUR 34.0 million and Giesecke+Devrient Mobile Security Sweden AB, Stockholm (formerly Giesecke & Devrient Nordic AB, Stockholm), EUR 2.8 million. The Swedish subsidiary generated losses in the preceding fiscal year. However, it expects material taxable gains as a result of the decentralization of the business in the future. In 2017, no such transactions were conducted. Expected taxable profits based on the forecasts for the next five years are recognized by the respective companies. Based upon the level of historical taxable income and projections of future taxable income, G+D believes that it is not probable that the benefits of deductible timing differences and carryforward tax losses in the amount of EUR 214.4 million and EUR 204.5 million will be realized and therefore has not recognized deferred tax assets for these amounts in 2017 and 2016.

Income Tax on Dividends

As of December 31, 2017 and 2016, G+D recorded deferred tax liabilities on cumulative earnings in subsidiaries and investments that are intended for distribution. Furthermore, deferred taxes were recorded on the taxable temporary differences relating to investments in associated companies and joint ventures. As of December 31, 2017 and 2016, the amount of these obligations was EUR 0.0 million and EUR 0.1 million, respectively.

The temporary differences relating to investments in subsidiaries for which deferred tax liabilities were not recorded amounted to EUR 0.0 million and EUR1.2 million as of December 31, 2017 and 2016, respectively.
  

20 Equity


As of December 31, 2017 and 2016, the nominal value of the treasury stock amounted to EUR 4.3 million, respectively.

Unappropriated reserves amounted to EUR 363.1 million and EUR 282.1 million as of December 31, 2017 and 2016, respectively.

With respect to capital management, the main objective of Giesecke+Devrient is to secure its continuation as well as generate shareholder value, i.e. in the form of dividend payments. As of December 31, 2017 and 2016, the equity ratio amounted to 20.6% and 19.4%, respectively. G+D is not subject to external minimum capital requirements.
 

21 Financial Instruments


The following table incorporates the carrying amounts and fair values of G+D’s financial instruments. The pure exit price is thereby understood as the fair value of a financial instrument. This is the price at which a transaction to sell an asset or to transfer a liability would take place under current market conditions.

The table does not contain information relating to fair values of financial assets or liabilities that are not valued at fair value if the carrying amount represents a reasonable approximation of the fair value.
  

EUR millionDec. 31, 2017Dec. 31, 2016
Carrying valueFair valueCarrying valueFair value
Cash and cash equivalents¹210.7243.6
Short-term investments0.81.2
Financial assets²
Trading securities72.672.661.861.8
Available-for-sale securities11.011.09.39.3
Derivative financial assets4.64.61.61.6
Loans receivable1.31.0
Total89.588.273.772.7
Accounts receivable trade and other receivables, net ³467.1417.1
Sonstige Vermögenswerte Other assets0.6
Non-current assets held for sale0.20.2
Total financial assets768.988.4735.672.7
EUR millionDec. 31, 2017Dec. 31, 2016
Carrying valueFair valueCarrying valueFair value
Accounts payable trade and other accounts payable ¹293.7261.4
Other current liabilities ²3.1
Financial liabilities
Financial liabilities measured at amortized cost318.8320.2323.7327.4
Derivative financial liabilities4.84.86.46.4
Other financial liabilities2.52.5
Total326.1327.5330.1333.8
Finance lease obligations3.43.45.93.7
Total financial liabilities626.3330.9597.4337.5

The carrying values represent cost or amortized cost. The carrying values of financial assets and financial liabilities summarized by the individual classes are as follows:
 

EUR millionDec. 31, 2017Dec. 31, 2016
Carrying valueFair valueCarrying valueFair value
Loans and receivables468.4418.1
Financial assets held for trading
Derivative financial assets4.64.61.61.6
Trading securities72.672.661.861.8
Total77.277.263.463.4
Available-for-sale securities11.011.09.39.3
Special classes
Cash and cash equivalents210.7243.6
Short-term investments0.81.2
Gross amount due from customers for contract work0.6
Non-current assets held for sale0.20.2
Financial assets768.988.4735.6
Financial liabilities measured at amortized cost
Financial liabilities318.8320.2323.7327.4
Gross amount due to customers for contract work3.1
Accounts payable293.7261.4
Total615.6320.2585.1327.4
Financial liabilities held for trading1.81.84.84.8
Other financial liabilities2.52.5
Derivative financial instruments included in hedge accounting3.03.01.61.6
Special class
Finance lease obligations3.43.45.93.7
Financial liabilities626.3330.9597.4337.5

The fair value of foreign currency forward contracts (including cross-currency-swap) and interest swaps is based on market comparisons since similar contracts are being traded on active markets. In 2017, there was a net change in the fair value in the amount of EUR−1.2 million. The fair value in the amount of EUR−1.8 million is recorded under current financial liabilities as of December 31, 2017. As of December 31, 2017 and 2016, these derivative financial instruments are stated at fair value and recorded on the balance sheet under current financial assets in the amount of EUR 4.6 million and EUR1.6 million and under current financial liabilities in the amount of EUR 4.8 million and EUR 3.4 million, respectively. The call and put option for the 25% share in CI Tech Sensors AG were valued via discounted cash flows that are expected from the investment. The predicted annual growth rate and EBITDA margin as well as the risk adjusted discount rate are considered to be the material unobservable input factors.

In 2017, there was a net change in the fair value in the amount of EUR−1.2 million. The fair value in the amount of EUR1.8 million is recorded under current financial liabilities as of December 31, 2017.

The nominal volume of foreign currency forward contracts entered into by Giesecke+Devrient as of December 31, 2017 amounted to:
 

million foreign currency unitsPurchase contractsSales contracts
US dollar30.049.1
British pound4.6
Canadian dollar23.7
Japanese yen192.3
Swedish krona36.6

 

Financial Instruments not Valued at Fair Value

 

Cash and cash equivalents, short-term investments, as well as the current portion of accounts receivable, other assets, loans, trade accounts payable and other accounts payable, and other liabilities

The carrying amounts of these financial instruments are considered to approximate fair value because of the relatively short period of time between origination and their expected realization.

 

Financial Instruments Valued at Fair Value


The fair values of non-derivative financial instruments for the individual classes are as follows:

Marketable Securities

Debt and equity securities are carried at fair value, which is based on quoted market prices at the balance sheet date.

Investments

If the fair value cannot be readily determined, investments are recorded at acquisition cost (“other related parties”). Investments in other related parties are generally recognized at the lower of their acquisition cost or recoverable amounts.

Non-current Financial Assets and Financial Liabilities as well as Finance Lease Obligations

The fair value is determined based on the amortized cost using the effective interest method. Under this method, the expected future cash flows are discounted using the prevailing market rate as of the balance sheet date for similar maturities and contracts.

As of December 31, 2017 and 2016, there were no significant differences between the fair values and the carrying values of non-current financial assets.

Impairment losses and reversals of impairment losses during fiscal years 2017 and 2016 related solely to financial assets in the class “loans and receivables”.
  

EUR million20172016
Impairment losses(6.5)(6.8)
Reversals of impairment losses2.33.0
(4.2)(3.8)

Net gains and losses from financial assets and liabilities by measurement category amounted to:
 

EUR million20172016
Loans and receivables(10.4)(6.2)
Financial assets and financial liabilities held for trading1.9(6.5)
Financial liabilities measured at amortized cost3.90.6
(4.6)(12.1)

Net gains and losses on loans and receivables consist of results from impairments, reversals of impairments and foreign currency exchange effects.

Net gains and losses on financial assets and liabilities measured at fair value contain results from changes in fair market values and adjustments on settlement of these financial instruments.

Net gains and losses from financial liabilities measured at amortized cost contain foreign currency exchange effects.

Derivative Financial Instruments within the Scope of Hedge Accounting

Operating segments apply hedge accounting for specific material pending transactions in foreign currency. The company utilizes forward exchange contracts on pending transactions to manage the foreign currency exposure on future cash flows resulting from significant orders in foreign currency exceeding USD10 million.

Fair Value Hedges

Since fiscal year 2009, pending transactions are hedged by using forward exchange contracts that are classified as foreign currency fair value hedges for future sales. Changes in market value of such trans- actions are recognized in financial result. Changes in derivatives were also recognized in financial income/ (expenses) resulting in valuation effects in the amount of EUR 4.7 million and EUR−0.4 million on hedging instruments and EUR−4.7 million and EUR 0.4 million on firm commitments in 2017 and 2016. The market value of the hedging instruments amounted to EUR−2.2 million as of December 31, 2017.

Cash Flow Hedges

In April 2012, all assets and liabilities were transferred from MC Vermögensverwaltung GmbH & Co. KG to Giesecke & Devrient GmbH. In connection with the contribution, a variable interest loan in the amount of EUR 46.4 million and a related interest rate swap were assumed. Linear principal payments on the loan are made quarterly. The final installment is due on December 31, 2018. By means of an interest rate swap, the variable interest rate was swapped into a fixed interest rate of 3.15%. At the time of contribution, a hedge relationship was determined between the loan and the interest rate swap and recognized as a cash flow hedge. The cash flow hedge is effective. The market value of the interest rate swap amounted to EUR−0.1 million and EUR−0.4 million as of December 31, 2017 and December 31, 2016. The fair value was determined using the market comparison method.

Calculation of the Fair Values of Financial Instruments

In the following table, financial instruments measured at fair value are allocated to levels in accordance with IFRS 7, “Financial Instruments: Disclosures”. Thereby, the fair value measurement of a financial instrument is allocated in its entirety to the level for which inputs are material to determine its fair value. On level 1, fair values are mainly determined by using quoted prices in active markets for identical financial assets or liabilities. The fair values on level 2 are determined via market comparison procedures based on observable quoted prices for similar financial assets or liabilities. Fair value measurements on level 3 are mainly based on unobservable market data. In 2016, Giesecke+Devrient determined fair values of financial instruments based on level 1, level 2 and level 3. The fair value measurement of level 3 was only used for the valuation of the call and put option relating to the shares in CI Tech Sensors AG in 2017. In 2017 and 2016, no material reclassifications between the levels were recorded.

Allocation of the fair value measurement of classes of financial assets and liabilities to levels in accordance with IFRS 13 as of December 31, 2017:
 

Classes of Financial Instruments

EUR millionDec. 31, 2017thereof fair value measurement at the end of the reporting period using
Level 1Level 2Level 3
Financial assets
Financial assets held for trading
Derivative financial instruments4.64.6
Trading securities72.672.6
Available-for-sale securities11.011.0
Financial liabilities
Financial liabilities held for trading
Derivative financial instruments4.83.01.8
Other financial liabilities2.52.5
Financial liabilities measured at amortized cost
Financial liabilities320.2320.2
Special class
Finance lease obligations3.43.4

Allocation of the fair value measurement classes of financial assets and liabilities to levels in accordance with IFRS 13 as of December 31, 2016:
  

Classes of Financial Instruments

EUR millionDec. 31, 2016thereof fair value measurement at the end of the reporting period using
Level 1Level 2Level 3
Financial assets
Financial assets held for trading
Derivative financial instruments1.61.6
Trading securities61.861.8
Available-for-sale securities9.39.3
Financial liabilities
Financial liabilities held for trading
Derivative financial instruments6.43.43.0
Financial liabilities measured at amortized cost
Financial liabilities327.4327.4
Special class
Finance lease obligations3.73.7

22 Financial Risk


Giesecke+Devrient is subject to typical liquidity risk, counterparty credit risk, and market risks stemming from changes to exchange rates, interest rates, and share prices. On the procurement side, these risks are associated with price rises in raw materials (particularly semiconductors and cotton). These risks can adversely impact our net assets, financial position, and results of operations and are primarily managed as part of the Group’s ongoing business and financing activities. Additionally, financial risks affecting the G+D Group and its operating subsidiaries are identified centrally on the basis of written guidelines and their management is also largely handled by Giesecke & Devrient GmbH. Financial risk forms part of the monthly risk reports submitted to the Management Board and is also included in regular reporting to the Supervisory and Advisory Boards.

If necessary, derivative financial instruments are used in relation to foreign currency and interest rates to hedge underlying transactions. In accordance with risk management standards applying to international banks, all trading activity is subject to financial monitoring that is independent of the Group’s treasury department.

Risk Measurement Methods


Risk positions (relating to foreign currency, interest rates, financial investment, and procurement) are monitored regularly using sensitivity analysis. The modified duration risk measure is used for interest rate risks associated with bond investments. This measure indicates the percentage by which the price of the bond changes if market interest rates move by one percentage point. The Value-at-Risk (VaR) measure is used for equity investments. Total risk comprises equity risk and specific risk. This measure indicates the maximum loss not exceeded for a specific equity position with a given probability of 95% and a holding period of 10 days.

Liquidity Risk


Minimizing liquidity risks has highest priority and is managed by holding a disposable liquidity reserve suitable to the size of the company. This means holding sufficient cash and unused credit lines with banks. Additionally financial instruments like an annual planning for all Group companies and short-term liquidity planning for the main Group companies are installed. These planning instruments are complemented by a centralized cash management based on a contractual agreement, which sees the main German and foreign Group companies participating in a cash pooling system.

In addition to the provision of sufficient cash, the Group holds cash credit lines of EUR 225.7 million on the balance sheet date of December 31, 2017 to cover fluctuations in operating activities. These cash credit lines are granted by blue chip banks and have been utilized with EUR18.3 million on the balance sheet date of December 31, 2017. The principal part here is a syndicated long term credit line of EUR180.0 million from consortium banks given to parent company Giesecke & Devrient GmbH running until May 2022, which was not used on December 31, 2017. In addition to that there are credit lines with other third parties of EUR11.2 million. This line was fully utilized by G+D with EUR11.2 million (previous year: EUR 6.0 million).

In addition, securities with a carrying and market value of EUR 83.6 million (previous year: EUR 71.1 million) were held within the G+D Group. Thereof EUR 9.3 million result from a reinsurance of claims for partial retirement. Besides this part most of them are realizable within three months. Financial investments with a maturity of longer than three months totaled EUR 0.8 million (previous year: EUR1.2 million). The following tables show the G+D Group’s contractually agreed (undiscounted) interest payments and repayments on the original financial liabilities, as well as derivative financial instruments with a negative fair value:
 

Information on Liquidity Risk at December 31, 2017

EUR millionCarrying valueGross outflowsUp to 1 year1-2 years2-3 years3-4 years4-5 yearsOver 5 years
RepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterest
Original financial liabilities
Accounts payable trade, financial liabilities, and financial lease obligations615.8641.6363.814.025.63.735.33.111.32.4133.42.345.01.8
Derivative financial liabilities
Derivative financial instruments4.84.84.8
Total620.6646.4368.614.025.63.735.33.111.32.4133.42.345.01.8

Information on Liquidity Risk at December 31, 2016

EUR millionCarrying valueGross outflowsUp to 1 year1-2 years2-3 years3-4 years4-5 yearsOver 5 years
RepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterest
Original financial liabilities
Accounts payable trade, financial liabilities, and financial lease obligations591.1601.6386.85.7161.64.210.21.026.50.42.10.13.0
Derivative financial liabilities
Derivative financial instruments6.46.43.43.0
Total597.5608.0390.25.7164.64.210.21.026.50.42.10.13.00.0

All financial instruments held as of December 31, 2017 and December 31, 2016 for which payments were already contractually agreed have been included. Target figures for future new liabilities are not included. Amounts in foreign currencies were translated at the closing rate applicable on the reporting date. Variable interest payments from financial instruments were determined by applying the last fixed interest rates before December 31, 2017 or December 31, 2016, respectively. Financial liabilities that are repayable at any time are always assigned to the earliest time period.
 

Default Risk


Giesecke+Devrient protects itself against the risk of bad debts through an internal system of assessing customers with regard to their payment ability. Based on a rating process, customers are assigned the category A, B, or C. Doubtful positions are strictly limited and agreed payment terms are closely monitored. Where customer creditworthiness is an issue, measures to secure payment, such as confirmed and unconfirmed letters of credit, are requested where possible to minimize credit risk. To fulfill reporting requirements in accordance with IFRS 7, the maximum credit risk with regard to loans and receivables to customers corresponds to the carrying value of these financial assets. With regard to financial guarantees, the maximum credit risk is the maximum amount that the Group would have to pay.

 

Market Risk

 

A Currency Risk

Due to its international focus, G+D has supply streams and cash flows in various currencies related to both import and export activities. Maintaining production locations worldwide is one response to foreign currency risk, as is netting imports and exports in the appropriate currency at Group level. The relevant currency risks and obligations (fixed contracts, orders) for the Group as a whole are identified centrally, aggregated, and netted as far as possible. The balance remaining from operations and financing activities within the Group as of the balance sheet date is fully covered on an ongoing basis using appropriate financial instruments, i.e. exclusively forward exchange contracts and swap transactions. In the main foreign currency, the US dollar, exports and imports virtually balance out over the year. Since fiscal 2011, therefore, US dollar risk has been identified based on rolling 12-month cash flow planning. Hedging would only take place if defined net threshold amounts were exceeded. Deviations between the import and export side in the course of the year are offset by currency swaps. Contracts with a value greater than USD10 million will continue to be hedged separately using forward exchange contracts and accounted for as fair value hedges.

The net assets associated with Group companies located outside the euro zone and translation risks relating to the sales and earnings of these companies are not hedged against exchange rate fluctuations.

At the balance sheet date of December 31, 2017 (2016), G+D was exposed to the following material net risks in foreign currencies (net exposure/value of financial derivatives greater than EUR 5.0 million):
  

Net Currency Exposure at December 31, 2017 (December 31, 2016)

Foreingn currency risk in EUR millionBRLCADGBPIRNRMBUSD
201720162017201620172016201720162017201620172016
Net exposure3.019.5(19.1)(13.5)(4.3)(7.9)3.311.018.435.3(0.6)29.3
Firm Comittment(19.0)(23.9)
Financial derivatives(15.8)(10.3)(5.2)(21.8)15.930.2

Intercompany receivables and payables in foreign currencies are included in the net risks. The effects of valuation as of the balance sheet date influence the consolidated income statement and are not eliminated.

Sensitivity analysis is used to determine the impact of hypothetical changes to the respective risk variables on income and total equity as of the balance sheet date. Only the main foreign currencies are considered.

Assuming that the euro had risen or fallen by 10% against the specified foreign currencies as of December 31, 2017 (2016), the effect on total equity and the income statement (without consideration of tax effects) is shown below. Differences arising from translating the financial statements into the reporting currency are not considered.

In the case of original financial instruments, effects exceeding EUR 2.0 million on total equity and the income statement only arise with two currencies.
 

Original Financial Instruments (Impact > EUR 2.0 million)

Impact in EUR millionEquityProfit/Loss
2017201620172016
–10%+10%–10%+10%–10%+10%–10% +10%
USD0.1(0.1)(2.9)2.90.1(0.1)(2.9)2.9
RMB(1.8)1.8(3.5)3.5(1.8)1.8(3.5)3.5

In the case of derivative financial instruments, effects exceeding EUR 2.0 million on total equity and the income statement likewise arise with the following currencies.

Derivative Financial Instruments (Impact > EUR 2.0 million)

Impact in EUR millionEquityProfit/Loss
2017201620172016
–10%+10%–10%+10%–10%+10%–10% +10%
USD1.4(1.8)2.7(3.4)1.4(1.8)2.7(3.4)
GBP(0.5)0.6(2.0)2.4(0.5)0.6(2.0)2.4

 

B Interest Rate Risk

The Group is primarily funded by way of bank loans and finance leases with interest rates that are fixed or variable until the end of the respective term. In contrast, most interest-rate-sensitive financial assets are subject to a variable interest rate. Cash and cash equivalents are excluded. Market interest rate changes therefore have an effect on Group earnings and equity.

At the balance sheet date of December 31, 2017 (2016), the values were as follows:
 

Interest Rate Risk: Financial Instruments

EUR millionEffective rate of interestTotal amountUp to 1 year1-2 years2-5 yearsOver 5 years
201720162017201620172016201720162017201620172016
Fixed-interest financial instruments
Financial liabilities (current and non-current) and financial lease obligations1.62.0302.4269.851.866.425.6161.6180.038.845.03.0
Variable-interest financial instruments
Financial liabilities5.33.018.359.018.359.0

Risks from interest rate changes are identified at regular intervals and included in risk reporting. Derivative financial instruments in the form of an interest rate swap have been used to manage interest rate risk for a variable interest loan.

This loan and associated interest rate swap were contributed to Giesecke & Devrient Gesellschaft mit beschränkter Haftung in 2012 and then transferred to the newly founded Giesecke & Devrient Grundstücksgesellschaft GmbH & Co. KG on December 31, 2015. At the time of contribution, a hedged relationship was designated between the loan and the interest rate swap, which has since then been accounted for as a cash flow hedge.

Sensitivity analysis of interest rate risk shows the effect of a change in market interest rates of 100 basis points (one percentage point) on the income statement (without consideration of tax effects) and on total equity. All other variables are assumed to be constant. Within the sensitivity analysis prescribed by IFRS 7, however, only the impact on net income and total equity is considered and not the impact on future cash flows. Deferred interest payments recognized as liabilities are therefore restated using the hypothetical market interest rate as of the balance sheet date.

The evaluation of the cash flow hedge accounting designated interest swap would result in an increase or a reduction of the total equity of EUR 0.0 million (2016: EUR 0.2 million) respectively EUR 0.0 million (2016: EUR−0.2 million).

The effect of a 100-basis-point change in market interest rates on net income and total equity as of December 31, 2017 (2016) is below EUR1.0 million for financial assets and the other financial liabilities, with the exception of bonds, and is therefore immaterial. For bonds, the following sensitivity analysis applies:
 

Modified Duration: Bonds

20172016
Bond holdingsEUR million32.324.3
Return%1.31.6
Durationyears4.65.6
Modified Duration%4.65.5
Potential loss/gainEUR million(1.5)(1.3)

The modified duration table indicates the change in total income from bonds if the market interest rate falls or rises by one percentage point.

The effect of a one-percentage-point rise in the market interest rate on net income (without consideration of tax effects) and total equity as of December 31, 2017 is EUR−1.5 million (previous year: EUR−1.3 million). A corresponding one-percentage-point decline in the market interest rate would have an equal but opposite impact on pre-tax earnings and total equity, assuming all other variables remained constant.

C Financial Investment Risk

Liquid cash of Giesecke & Devrient GmbH is exclusively held on current accounts due to the lack of positive interests for deposits. Sporadically, excess cash in foreign currencies is used for time deposits with first class banks. For all forms of investment, emphasis is placed on ensuring that the counterparty is robust and that the price risk is as low as possible.

As well as bank deposits, a significant amount is invested in a special fund with an established German investment management company in order to achieve higher returns. This investment is in a portfolio of blue chip bonds (government and corporate bonds) and equities (blue chip companies). This mix minimizes the related risk. Equities comprise a maximum of 40% of the total portfolio. The risk associated with this financial investment is stated monthly for equities using the Value-at-Risk (VaR) measure as provided by the investment management company responsible. As of December 31, 2017 (2016), the values were as follows:
 

Value-at-Risk: Equities

20172016
Equity holdingsEUR million33.131.2
VAR %2.26.1
Loss riskEUR million(0.7)(1.9)

VaR analysis is based on the assumption of a 10-day holding period, a 95% confidence interval, and a past observation period of 52 weeks. To calculate volatility and correlations, expected figures are used. These are dynamically derived from the relevant equity/bond structure (interest rate structure).

In addition to the special fund, G+D holds securities, which are recorded as available-for-sale securities. The carrying value as of December 31, 2017 was EUR11.0 million (previous year: EUR 9.3 million). The majority of these securities are holdings in investment funds, which serve as insolvency insurance to cover the provision for pensions and pre-retirement part-time working arrangements. No sensitivity analysis was performed on these holdings due to the very minor fluctuations in their value. G+D has not identified any concentration of risk as defined in IFRS 7.34.

The information in this section is disclosed in accordance with IFRS 7 “Financial Instruments: Disclosures”.
 

23 Construction Contracts


The details relating to construction contracts in progress are as follows:
 

EUR millionDec. 31, 2017Dec. 31, 2016
Costs incurred to date49.9
Recognized profits/(losses), net0.8
50.7
Progress billings(53.3)
(2.6)
Gross amount due from customers for contract work0.6
Gross amount due to customers for contract work(3.2)
(2.6)

Future receivables from and liabilities due to construction contracts are included under other current assets and under other current liabilities.

Contract revenues recognized in fiscal years 2017 and 2016 amounted to EUR 50.7 million and EUR 0.0 million.
  

24 Business Combinations

 

G+D includes the results of operations of the acquired business starting from the date of acquisition for business combinations. The net assets acquired are recorded at fair value at the date of acquisition. The excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired is recorded as goodwill in the accompanying consolidated balance sheet.

G+D held 50% of the shares in CI Tech Components AG until fiscal year 2016. The sensors business was transferred to CI Tech Sensors AG via a contribution in kind in 2016. Both G+D and the joint venture partner held half of the shares in that company.

There was an exchange of shares in which G+D received 25% of the shares in CI Tech Components AG in exchange for 25% of the shares in CI Tech Sensors AG. Thus, the share of equity in the G+D Group increased from 50% to 75%. On April 1, 2016 (time of acquisition), G+D assumed control over CI Tech Components AG.

CI Tech Components AG develops and sells machines for handling banknotes. The machines for handling banknotes are mainly utilized for automated cash registers, ticket vending machines and cash machines. Consequently, CI Tech Components AG is mainly a supplier of components for manufacturers of cash registers, ticket vending machines and cash machines. G+D obtained the strategic management of the module business and expects an increased market share as well as a decrease in costs due to economies of scale.

In connection with exchange of shares, the joint venture partners agreed on a call and put option for each of remaining 25% shares. The options can be exercised starting January 1, 2018. G+D has a purchase option (call option) and the joint venture partner has a right to sell the remaining 25% shares in CI Tech Components AG (inversely for 25% of the shares in CI Tech Sensors AG). For G+D, the joint venture partner’s put option represents an obligation to purchase equity instruments in the subsidiary in exchange for cash. According to the anticipated acquisition method, the present value of the preferential price was recorded as a financial liability and represents part of the consideration. Thus, G+D does not record a non-controlling interest in CI Tech Components AG.

The consideration transferred at the time of acquisition amounted to EUR 22.1 million and comprises the fair value of the existing 50% of the shares in CI Tech Components AG (EUR11.0 million), the fair value of the assets surrendered in the amount of EUR 5.5 million (25% of the shares in CI Tech Sensors AG), the financial liability in the amount of the present value of the preferential price of the put option of the non-controlling shareholder (EUR 2.5 million) and, in connection with the transaction, the fair value of the short position received on the joint venture partner’s call option for the remaining 25% of CI Tech Sensors AG (EUR 3.0 million). There was no material gain or loss from the revaluation of the existing shares.

The identifiable assets acquired and liabilities assumed consist of:
 

EUR million
Accounts receivable trade1.2
Other current assets2.7
Intangible assets18.0
Property, plant and equipment4.0
Deferred tax assets0.6
Liabilities12.9
Provisions5.5

Other current assets contain cash and cash equivalents amounting to EUR 0.5 million.

On April 1, 2016, the difference between the fair value of the consideration in the amount of EUR22.1 million and the fair value of the identifiable net assets of CI Tech Components AG amounting to EUR 8.1 million was recorded as goodwill in the amount of EUR14.0 million. Essentially, the goodwill is attributable to the skills of the CI Tech Components AG staff and the expected synergies. The goodwill recorded is not expected to be deductible for tax purposes.

Between the acquisition on April 1, 2016 and December 31, 2016, CI Tech Components AG contributed EUR 5.0 million in sales revenues and a net loss in the amount of EUR 3.0 million to the Group result. If the acquisition had occurred on January 1, 2016, the Group net income in fiscal year 2016 would have amounted to EUR 52.0 million and the Group sales revenues would have amounted to EUR 2,090.6 million.

Until the end of fiscal year 2016 G+D owned 49% of the shares in EPC Electronic Payment Cards GmbH & Co. KG (formerly EPC Electronic Payment Cards Gesellschaft für Kartenmanagement mbH), Gmund am Tegernsee. The strategic management of the joint venture was in the hands of Deutsche Sparkassen Verlag GmbH (DSV) which owned 51% of the shares. Being virtually the only customer in January 2017, DSV decided on a multi-customer strategy and canceled the existing contracts with EPC. Thus, EPC lost its basis for business. In order to avoid insolvency, G+D assumed the shares of DSV and commenced the termination of operations. As of December 31, 2016, G+D recorded a provision for the expenses relating to the closure of the business in the amount of EUR 6.0 million. Thereof, EUR 0.6 million was released in the first quarter based on new information.

In a contract dated February 20, 2017, G+D and the joint venture partner agreed to sell the remaining shares (51%) in EPC to G+D. Thus, the G+D Group owns 100% of the shares. The G+D Group assumed control over EPC as of April 1, 2017 and fully consolidates the company. A negative purchase price in the amount of EUR 3.3 million was agreed which G+D received in cash. Since the provision and negative purchase price are equal to the acquired net assets at acquisition date there is no remaining difference.

The identifiable assets acquired and liabilities assumed consist of:
  

EUR million
Cash and cash equivalents6.0
Accounts receivable trade and other current assets, net0.6
Inventories, net0.2
Property, plant and equipment0.8
Other non-current assets0.2
Accounts payable trade and other accounts payable0.2
Provisions10.6
Pensions and related liabilities5.7

In the period between the acquisition on April 1, 2017 and December 31, 2017, EPC contributed EUR 0.8 million in sales revenues and a net income in the amount of EUR 0.6 million to the Group result. If the acquisition had occurred on January 1, 2017, the Group net income in fiscal year 2017 would have amounted to EUR 67.7 million and the Group sales revenues would have amounted to EUR 2,138.8 million.

Effective June 26, 2017 (time of acquisition) Giesecke+Devrient acquired Procoin GmbH, a German provider for coin sorting, counting, and coin packaging machines as well as banknote counting devices. With the takeover, Giesecke+Devrient Technology GmbH is broadening its offer in the coin business and strengthening its position as the global market leader in automation of the cash cycle. Thereby, the company benefits from the wide range of products from Procoin as well as the strong distribution network in Europe. The consideration transferred for the shares in Procoin GmbH amounted to EUR 2.1 million and was paid in cash. In addition to the business combination, contingent consideration was agreed with the selling shareholder in the amount of EUR 0.3 million for the fulfillment of his management service agreement for the next three years. This consideration will be realized as expense pro rata and disclosed as other provision. The transferred consideration for the shares equals the fair value of identifiable net assets of Procoin GmbH at the time of acquisition in the amount of EUR 2.1 million.

The identifiable assets acquired and liabilities assumed consist of:
  

EUR million
Accounts receivable trade and other receivables, net1.7
Inventories, net1.1
Other current liabilities0.3
Intangible assets0.4
Accounts payable trade and other accounts payable0.6
Provisions0.2
Financial liabilities0.6

In the period between the acquisition on June 26, 2017 and December 31, 2017, Procoin GmbH contributed EUR 2.3 million in sales revenues and a net loss in the amount of EUR 0.4 million to the Group result. If the acquisition had occurred on January 1, 2017, the Group net income in fiscal year 2017 would have amounted to EUR 67.1 million and the Group sales revenues would have amounted to EUR 2,139.4 million.

Effective July 31, 2017, Giesecke+Devrient acquired the card personalization company C.P.S. Technologies S.A.S. and assumed control. The transferred consideration in the amount of EUR 3.8 million was paid in cash. Thereby, G+D completes its wide range of services for the French market. Giesecke+Devrient expects specific synergies for the French market from C.P.S. Technology’s technically high developed bank cards, personalization, and service management center. The company offers services in the fields of card personalization, customer mailing, high-quality packaging services, identity management,  transportation and loyalty services.

The difference between the fair value of the consideration in the amount of EUR 3.8 million and the fair value of the identifiable net assets of C.P.S. Technologies amounting to EUR 3.3 million at the time of acquisition was recorded as goodwill in the amount of EUR 0.5 million. The goodwill is essentially attributable to the skills of the C.P.S. staff and the expected synergies. The goodwill recorded is not expected to be deductible for tax purposes.

The identifiable assets acquired and liabilities assumed consist of:
  

EUR million
Cash and cash equivalents1.0
Accounts receivable trade and other receivables, net6.1
Inventories, net1.6
Other current assets0.6
Intangible assets0.8
Property, plant and equipment3.3
Deferred tax assets0.2
Accounts payable trade and other accounts payable6.7
Provisions0.1
Financial liabilities0.6
Other current liabilities2.3
Pensions and related liabilities0.3
Deferred tax liabilities0.4


In the period between August 1, 2017 and December 31, 2017, C.P.S. Technologies contributed EUR11.6 million in sales revenues and a net income in the amount of EUR1.1 million to the Group result. If the acquisition had occurred on January 1, 2017, the Group net income in fiscal year 2017 would have amounted to EUR 66.9 million and the Group sales revenues would have amounted to EUR 2,148.9 million.

In connection with the business combination, costs in the amount of EUR 0.5 million for legal consulting fees and for due diligence services were incurred. These costs were recorded as general and administrative expenses.

In March 2018 Veridos acquired shares in the company E-SEEK Inc., San Diego/USA. The acquisition date is March 27, 2018. Initially, Veridos acquires 75% of the shares in exchange for a purchase price of USD 7.9 million. In addition, the parties agreed on a conditional consideration for a maximum amount of USD1.5 million for a period of two years. The conditional consideration is dependent on the achievement of certain key figures (sales revenues, gross profit). Veridos receives a call option and the non-controlling shareholders receive a put option for the remaining 25% of the shares. Thus, G+D assumes control over E-SEEK Inc. and will fully consolidate the company in 2018.

E-SEEK Inc. develops and markets high definition verification devices for ID cards and driver’s licenses. The portfolio of products of E-SEEK Inc. represents an excellent enrichment for the business sector Veridos in the field of verification solutions. Veridos offers the customers complete solutions which allows for an efficient identification of citizens. These are deployed for border control systems and for instance at airports. Reading devices developed and marketed by E-SEEK Inc. are a significant component of the solution in connection with the documents and background systems developed by Veridos. Moreover, the business combination directly broadens the presence of Veridos in the North American market which is considered to be of strategic importance due to the high market volume.

As the acquisition date is shortly before the approval of the consolidated financial statements as of December 31, 2017, additional disclosures relating to this business combination will be made in the consolidated financial statements as of December 31, 2018.
 

25 Disclosures on Material Non-controlling Interests


The disclosures on material non-controlling interests (NCI) are as follows:
 

EUR millionVeridos Matsoukis S.A.
Security Printing

Athens
Giesecke & Devrient
Kabushiki Kaisha

Tokyo
Veridos GmbH ²
Berlin
Dec. 31, 2017Dec. 31, 2016Dec. 31, 2017Dec. 31, 2016Dec. 31, 2017Dec. 31, 2016
Capital shares NCI64.0%64.0%49.0%49.0%40.0%40.0%
Voting rights NCI64.0%64.0%49.0%49.0%40.0%40.0%
Profit/(loss) attributable to NCI0.20.12.00.70.41.6
Dividend paid to NCI(0.7)(0.4)
Share of equity relating to NCI3.53.35.34.39.38.3
Assets ¹17.616.613.99.0137.2103.8
thereof cash and cash equivalents ¹1.01.09.05.30.53.2
Liabilities ¹12.111.45.12.2106.075.1
Revenues ¹17.618.627.116.7128.3111.3
Other comprehensive income ¹(0.7)0.3(0.8)
Comprehensive income ¹0.30.23.51.70.84.1
EUR millionsecunet Security Networks AG
Essen
including subsidiaries
Giesecke & Devrient
Malaysia SDN BHD

Kuala Lumpur
Dec. 31, 2017Dec. 31, 2016Dec. 31, 2017Dec. 31, 2016
Capital shares NCI20.6%20.6%20.0%20.0%
Voting rights NCI20.6%20.6%20.0%20.0%
Profit/(loss) attributable to NCI3.31.90.40.6
Dividend paid to NCI(0.8)(0.5)(0.4)(0.4)
Share of equity relating to NCI12.19.69.39.3
Assets ¹133.399.157.958.7
thereof cash and cash equivalents ¹62.950.21.20.8
Liabilities ¹74.352.19.310.0
Revenues ¹158.3115.734.833.6
Other comprehensive income ¹(0.3)
Comprehensive income ¹15.99.21.92.9

On October 1, 2016, Veridos FZE was transferred to the Veridos subgroup. Due to the negative net assets of Veridos FZE, the non-controlling interests decreased by EUR 3.1 million and retained earnings increased by EUR 3.8 million.
 

26 Related Party Disclosure

 

Transactions with MC Familiengesellschaft mbH


Since 2012, MC Familiengesellschaft mbH is the Group parent company of Giesecke & Devrient Gesellschaft mit beschränkter Haftung.

In 2017, G+D received a loan from MC Familiengesellschaft mbH in the amount of EUR15.4 million. The duration of the loan was until January 2018 and was due at maturity. The interest rate was 1.2%. In December, a partial amount of EUR10.0 million was repaid early by G+D. The current loan balance amounts to EUR 5.4 million. Interest expense amounted to EUR 0.1 million in 2017 and 2016, respectively. As of December 31, 2017 and December 31, 2016, MC Familiengesellschaft mbH invested EUR 0.2 million and EUR 0.1 million at G+D by means of the intercompany cash pool account. As of December 31, 2017 and December 31, 2016, no further material transactions involving receivables and liabilities or expenses and income with MC Familiengesellschaft mbH existed.

Giesecke & Devrient Gesellschaft mit beschränkter Haftung entered into a service contract with MC Familiengesellschaft mbH. G+D renders accounting/taxes, finance and IT-system services. The allocated fee is immaterial.

Transactions with MC Grundstücksgesellschaft mbH & Co. KG


In 2017, G+D sold part of its land and buildings to a parent-controlled company for EUR 20.7 million and realized a gain on sale in the amount of EUR16.1 million. Regarding the sale of the property and buildings refer to Note 8 “Property, Plant and Equipment”.

Transactions with Giesecke+Devrient Foundation


In fiscal year 2010, G+D established the Giesecke+Devrient Foundation. The grants amounted to EUR 0.3 million in fiscal years 2017 and 2016, respectively. In addition, the company maintains a loan from the Giesecke+Devrient Foundation in the amount of EUR 20.7 million as of December 31, 2017 and December 31, 2016. Interest expense amounted to EUR 0.6 million in 2017 and 2016, respectively (see Note 13 “Financial Liabilities”).

Transactions between Affiliated Companies and Joint Ventures and Associated Companies


Transactions were carried out between affiliated companies and joint ventures as well as associated companies. The following summary presents these transactions from the viewpoint of the affiliated companies:
   

EUR millionServices renderedServices received
2017201620172016
Joint ventures
Goods and services9.619.48.912.6
Dividends1.3
Other financial transactions2.20.20.10.3
11.820.99.012.9
Associated companies
Goods and services2.80.20.5
Other financial transactions0.1
2.90.20.5
14.721.19.512.9

Accounts receivable and accounts payable from joint ventures and associated companies are comprised of the following:
  

EUR millionDec. 31, 2017Dec. 31, 2016
Joint ventures
Loans receivable from joint ventures0.4
Accounts receivable from joint ventures4.65.9
Accounts payable to joint ventures0.98.5
Associated companies
Loans receivable from associated companies1.30.6
Accounts receivable from associated companies2.70.2

None of the balances from joint ventures and associated companies are secured.

Refer to Note 31 “Commitments and Contingent Liabilities” for commitments and contingent liabilities from joint ventures.

Transactions with Members of Key Management Personnel


The members of key management personnel include the members of the Management Board of Giesecke & Devrient GmbH, the parent company MC Familiengesellschaft mbH, the chairmen of the Management Boards of Giesecke+Devrient Currency Technology GmbH, Giesecke+Devrient Mobile Security GmbH and Veridos GmbH, the chairman of the board of directors of secunet Security Networks AG (equals to Group Executive Committee – GEC) as well as the members of the Supervisory Board and the Advisory Board of Giesecke & Devrient GmbH since these bodies are responsible for planning, managing and monitoring the Group activities.

Compensation of Key Management Personnel

The total compensation for active members of key management personnel amounted to EUR 7.7 million and EUR 7.8 million in 2017 and 2016, respectively.

In 2017 and 2016, the short term benefits amounted to EUR 5.5 million and EUR 5.6 million, respectively. Thereof, EUR 4.5 million (prior year EUR 4.7 million) are attributable to the GEC, EUR 0.4 million (prior year EUR 0.4 million) to the Supervisory Board, and EUR 0.6 million (prior year EUR 0.5 million) to the Advisory Board.

The past service cost for pensions for the GEC (benefits after termination of employment contract) amounted to EUR 0.4 million and EUR 0.5 million in 2017 and 2016, respectively.

Furthermore, long term benefits for active members of the GEC amounted to EUR1.1 million (prior year EUR1.7 million).

The compensation of the GEC also includes benefits from termination of an employment contract in the amount of EUR 0.7 million (prior year EUR 0.0 million).

In the current year, and, in so far as they already held their positions, also in the prior year, the GEC with exception of the chairman of the board of directors of secunet Security Networks AG obtained consent to receive 40% of their variable salary at the end of two additional years (deferral). The payment is based on the target achievement of average ROCE (return on capital employed) for fiscal years 2017 and 2016 and each of the two following years. The right to deferral only exists if employment persists or is terminated because of specific predetermined reasons. The related expense is included in other long term payments.

The consolidated financial statements include provisions for pensions for the GEC amounting to EUR 4.0 million and EUR 2.6 million as of December 31, 2017 and 2016, respectively, as well as provisions or payables relating to compensation for members of the key management personnel in the amount of EUR 4.9 million and EUR 4.1 million, respectively.

Total remuneration in accordance with commercial law of the Supervisory Board and the Advisory Board equals the mentioned short-term benefits. Total remuneration in accordance with commercial law of the active members of the Management Body of the parent company are not disclosed according to Section 315 e (1) in conjunction with Sections 314 (3) no. 2, 286 (4) no. 2 HGB.

Business Transactions with Members of Key Management Personnel or Other Related Parties

In the course of ordinary business activities, Giesecke+Devrient receives services and consultancy services from companies and personnel with connections to the members of the Supervisory Board and Advisory Board or to the shareholder as well as to the members of the Supervisory Board and the Advisory Board itself. Expenses to other related parties for consultancy services amounted to EUR 0.3 million and EUR 0.2 million in 2017 and 2016, respectively. The outstanding balances as of December 31, 2017 and December 31, 2016 amounted to less than EUR 0.1 million.

No prepayments or loans to members of key management personnel were granted in fiscal years 2017 and 2016.

Former Key Management Personnel of Giesecke & Devrient GmbH

Compensation to former members of the Management Board of the parent company and their survivors amounted to EUR 4.0 million and EUR1.8 million in 2017 and 2016, respectively. In 2017, this includes EUR 1.2 million for long-term variable compensation from a 2015 commitment.

Pension obligations to former members of the Management Board of the parent company and their survivors amounted to EUR 20.6 million and EUR 20.3 million as of December 31, 2017 and 2016, respectively.
 

27 Number of Employees


The average number of full-time equivalent employees (excluding trainees and employees on maternity leave):
 

20172016
Production7,3817,417
Sales1,3811,333
Research and development1,1451,173
Administration1,4661,384
11,37311,307

28 Personnel Expenses

 

EUR million20172016
Wages and salaries556.5545.5
Social security contributions90.588.1
Other personnel expenses11.010.0
658.0643.6

29 Disclosure in Accordance with Section 161 AktG


The consolidated financial statements include secunet AG, a publicly traded company. In accordance with §161 AktG (German Stock Corporation Act), the management of secunet AG has filed the required declaration and made it permanently available to the public on their website (http:// www.secunet.com).
 

30 Exemption from the Disclosure of the Annual Financial Statements and Management Report in Accordance with Section 264 / Section 264 b HGB


The following companies will exercise their right not to prepare annual financial statements as well as not to prepare management reports in accordance with the rules for corporate entities and certain registered partnerships as corporate entities (Section 264 (3) HGB) or partnerships that do not have an individual person either directly or indirectly as a general partner (“Kapitalgesellschaft und Co.”) (Section 264 b HGB). They also exercise their right not to have them audited or to disclose them:

  • Giesecke+Devrient Mobile Security GmbH, Munich
  • Giesecke+Devrient Currency Technology GmbH, Munich
  • Papierfabrik Louisenthal GmbH, Gmund am Tegernsee
  • Giesecke & Devrient 3S GmbH, Munich
  • Giesecke+Devrient Secure Data Management GmbH, Neustadt b. Coburg
  • MC Holding GmbH & Co. KG, Tutzing
  • Giesecke & Devrient Grundstücksgesellschaft mbH & Co. KG, Grünwald
  • Giesecke+Devrient advance52 GmbH, Munich
  • EPC Electronic Payment Cards GmbH & Co. KG, Gmund am Tegernsee

   

31 Commitments and Contingent Liabilities

 

Legal Proceedings/Contingent Liabilities

Giesecke+Devrient is involved in pending claims and legal proceedings arising in the ordinary course of business. Provisions have been made for estimated liabilities for certain items. G+D is of the opinion that the resolution of all such matters will not have a material impact on G+D’s net assets, results of operations and financial position.

Contingent liabilities in the amount of EUR 4.4 million as of December 31, 2017 (as of December 31, 2016: EUR 6.5 million) relating to tax risks outside Germany exist. As of December 31, 2017, additional contingent liabilities relating to legal disputes amounting to EUR 2.4 million (December 31, 2016: EUR 3.5 million) exist. G+D is of the opinion that claims relating to these tax risks and legal disputes are improbable.

Guarantees

Giesecke+Devrient does not hold material amounts of financial assets which serve as collateral for liabilities or contingent liabilities. Moreover, G+D does not hold collateral which it would be permitted to sell or repledge in the event of default by the owner of the collateral.

G+D has issued guarantees for deposits received in the amount of EUR105.2 million as of December 31, 2017 and EUR 80.5 million as of December 31, 2016.

Giesecke+Devrient guarantees indebtedness of a joint venture concerning contractual performance to third parties. These arrangements cover credit lines of the joint venture in the amount of up to EUR10.0 million in 2017 and 2016, respectively. Amounts relating to interest charges are also guaranteed. In the event of default of the joint venture, G+D is required to repay the borrowings covered by these guarantees. The maximum exposure relating to these guarantees amounted to EUR10.0 million as of December 31, 2017 and December 31, 2016, respectively.

Commitments

As of December 31, 2017, Giesecke+Devrient has material purchase commitments which mainly consist of short-term agreements that were entered into during the 2017 fiscal year for the purchase of supplies, inventories, property, plant and equipment, land, and services.

The aggregate amount of required payments for commitments as of December 31, 2017 is allocated to the respective years as follows:
   

EUR million
2018204.6
201914.1
20202.0
20210.7
20220.5
thereafter0.2
222.1

32 Grants


Grants from fiscal authorities and from the Sächsische Aufbaubank are primarily received by G+D for non-current assets. The grants are given under the condition of maintaining the non-current assets for at least five years. In fiscal years 2017 and 2016, Giesecke+Devrient recorded grants in the amount of EUR 0.0 million and EUR 2.6 million which were offset against the acquisition and manufacturing costs.

Furthermore, in fiscal years 2017 and 2016 G+D received other miscellaneous grants for operational investments in the amount of EUR 0.8 million and EUR1.3 million, which were recognized in income. At present, there is reasonable assurance that the attached conditions will be fulfilled.

 

33 Risks


Refer to section 3 of the Group management report, “Risk and Compliance Management”, for the related disclosures.
 

34 Audit Fees in Accordance with Section 314 (1) No. 9 HGB


The audit fees for KPMG AG for the fiscal year ended 2017 amounted to EUR 2.7 million. The break down into categories is as follows: a) fees for audit services EUR1.3 million, b) fees for audit-related services EUR 0.1 million, c) fees for tax-related services EUR 0.6 million and d) fees for all other services EUR 0.7 million.
 

35 Group to which the Company Belongs


MC Familiengesellschaft mbH is the parent company of the Giesecke+Devrient Group (see Note 26 “Related Party Disclosures”). As of December 31, 2017, consolidated financial statements and a group management report will be prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The consolidated financial statements of MC Familiengesellschaft mbH will be published electronically in the German Federal Gazette.
 

36 Events after the Balance Sheet Date


Regarding the purchase of the company E-SEEK Inc. in March 2018 refer to the disclosures in Note 24 “Business combinations”. There have been no further significant events after the balance sheet date which are expected to have a material impact on the net assets, financial position, and results of operations of the Group.
 

37 Shareholdings

 

Direct and Indirect Investments held by Giesecke & Devrient GmbH in Affiliated Companies

Shareholding in %
Giesecke+Devrient Mobile Security GmbH, Munich100.00
Giesecke+Devrient Currency Technology GmbH, Munich100.00
MC Holding GmbH & Co. KG, Tutzing100.00
Giesecke & Devrient Grundstücksgesellschaft mbH & Co. KG, Grünwald ¹100.00
Giesecke & Devrient Immobilien Verwaltungsgesellschaft mbH, Grünwald100.00
Papierfabrik Louisenthal GmbH, Gmund am Tegernsee100.00
Giesecke & Devrient 3S GmbH, Munich100.00
Giesecke+Devrient Secure Data Management GmbH, Neustadt b. Coburg100.00
Giesecke+Devrient advance52 GmbH, Munich100.00
EPC Electronic Payment Cards GmbH & Co. KG, Gmund am Tegernsee100.00
Procoin GmbH, Langen100.00
Giesecke & Devrient International Finance S.A., Luxembourg100.00
Giesecke + Devrient Mobile Security Iberia S.A., Barcelona100.00
Giesecke + Devrient Currency Technology Iberia S.L., Madrid100.00
Giesecke+Devrient Mobile Security GB Ltd, Wembley/Middlesex100.00
Giesecke+Devrient Currency Technology GB Ltd, Milton Keynes100.00
Giesecke+Devrient Currency Technology Switzerland AG, Burgdorf100.00
Giesecke+Devrient Mobile Security Slovakia, s.r.o., Nitra100.00
Giesecke+Devrient Mobile Security Italia S.R.L., Milan100.00
Giesecke+Devrient Currency Technology Italia S.R.L., Rome100.00
Giesecke+Devrient Mobile Security France S.A.S., Craponne100.00
Giesecke+Devrient Mobile Security Sweden AB, Stockholm100.00
Giesecke+Devrient Mobile Security Finland Oy, Helsinki100.00
Giesecke+Devrient Currency Technology Istanbul Ticaret ve Servis Limited Sirketi, Istanbul100.00
Giesecke+Devrient Mobile Security Russia, OOO, Moscow100.00
Giesecke+Devrient Currency Technology FZE, Dubai100.00
Giesecke+Devrient Mobile Security FZCO, Dubai100.00
Giesecke+Devrient Holding FZE, Dubai100.00
Giesecke & Devrient Egypt Ltd. i.L., Cairo100.00
Giesecke+Devrient Currency Technology Saudi Arabia, Riyadh100.00
Giesecke and Devrient Currency Technology South Africa (Pty) Ltd, Johannesburg100.00
Giesecke and Devrient Mobile Security Southern Africa (Pty) Ltd, Johannesburg100.00
Giesecke+Devrient Currency Technology Africa Limited, Lagos100.00
Giesecke+Devrient Currency Technology America, Inc., Dulles/Virginia100.00
Giesecke+Devrient Mobile Security America, Inc., Dulles/Virginia100.00
BA International, Inc., Ottawa/Ontario100.00
Giesecke+Devrient Mobile Security Canada, Inc., Toronto/Ontario100.00
Giesecke y Devrient de México S.A. de C.V., Mexico City100.00
Giesecke y Devrient Currency Technology de México, S.A. de C.V., Mexico City100.00
Giesecke+Devrient Mobile Security Brasil Indústria e Comércio de Smart Cards S/A, São Paulo100.00
Giesecke+Devrient Currency Technology Brasil Serviços e Comércio de Soluções Tecnológicas Ltda., São Paulo100.00
GyD Latinoamericana S.A., Buenos Aires100.00
Giesecke and Devrient Mobile Security Australia Pty Ltd, Knoxfield/Victoria100.00
Giesecke+Devrient Mobile Security Asia Pte. Ltd., Singapore100.00
Giesecke & Devrient Asia Pacific Banking Systems (Shanghai) Co. Ltd., Shanghai100.00
Giesecke & Devrient (China) Information Technologies Co., Ltd., Nanchang/Jiangxi100.00
Giesecke & Devrient Asia Pacific Ltd., Hong Kong100.00
Giesecke & Devrient India Private Limited, New Delhi100.00
Giesecke & Devrient MS India Private Limited, New Delhi100.00
Giesecke and Devrient Currency Technology Korea Co., Ltd., Seoul100.00
PT Giesecke & Devrient Indonesia, Jakarta100.00
PT Giesecke und Devrient Mobile Security Indonesia, Jakarta100.00
Giesecke & Devrient Egypt Services LLC i.L., Cairo99.00
Giesecke & Devrient LOMO, ZAO, St. Petersburg84.69
Giesecke & Devrient Malaysia SDN BHD, Kuala Lumpur80.00
secunet Security Networks AG, Essen79.43
secunet SwissIT AG, Solothurn79.43
secunet s.r.o., Prague79.43
Secunet Inc., Austin (shell company) ²79.43
secunet Service GmbH, Essen79.43
secunet International GmbH & Co. KG, Essen79.43
secunet International Management GmbH, Essen
79.43
CI Tech Components AG, Burgdorf75.00
Veridos GmbH, Berlin60.00
Veridos Canada Ltd., Toronto/Ontario60.00
Veridos America Inc., Wilmington/Delaware60.00
Veridos FZE, Dubai60.00
Firdaus Al Aman for general Trading, Baghdad60.00
Veridos Brasil Comércio de Smart Cards e Soluções para Identificação Segura e Autenticação Ltda., São Paulo60.00
Veridos México S.A. de C.V., Mexico City60.00
Giesecke & Devrient Kabushiki Kaisha, Tokyo51.00
Veridos Matsoukis S.A. Security Printing, Athens36.00

Investments held by Giesecke & Devrient GmbH in Associated Companies and Joint Ventures

Shareholding in %
E-Kart Elektronik Kart Sistemleri Sanayi ve Ticaret Anonim Sirketi, Gebze50.00
Shenzhen Giesecke & Devrient Currency Automation Systems Co. Ltd., Shenzhen50.00
Emirates German Security Printing L.L.C., Abu Dhabi29.40
CI Tech Sensors AG, Burgdorf25.00
Netset Global Solutions d.o.o., Belgrade24.00
Hansol Secure Co., Ltd., Seoul16.29
finally safe GmbH, Essen14.30

 

The affiliated company Giesecke+Devrient Mobile Security France S.A.S., Paris (formerly Giesecke & Devrient France S.A.S., Paris), was merged into Giesecke+Devrient Mobile Security France S.A.S., Craponne (formerly
C.P.S. Technologies S.A.S., Craponne).


Munich, March 28, 2018

Giesecke & Devrient GmbH
The Management Board


Ralf Wintergerst
Chairman

 

Dr. Peter Zattler

AUTO-SCROLL PAUSE