Independent Auditor’s Report

To the Giesecke+Devrient Gesellschaft mit beschränkter Haftung, München

Opinions

 

 

We have audited the consolidated financial statements of Giesecke+Devrient Gesellschaft mit beschränkter Haftung, München and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2018, the consolidated statement of profit and loss, consolidated statement of changes in equity and consolidated statement of cash flows for the financial year from January 1, 2018 to December 31, 2018, and notes to the consolidated financial statements, including the recognition and measurement policies presented therein. In addition, we have audited the group management report of Giesecke+Devrient Gesellschaft mit beschränkter Haftung for the financial year from January 1, 2018 to December 31, 2018. In accordance with the German legal requirements we have not audited the content of those parts of the group management report listed in the appendix.

 

 

In our opinion, on the basis of the knowledge obtained in the audit,

 

  • the accompanying consolidated financial statements comply, in all material respects, with the requirements of German commercial law and give a true and fair view of the assets, liabilities, and financial position of the Group as at December 31, 2018, and of its financial performance for the financial year from January 1, 2018 to December 31, 2018 in compliance with German Legally Required Accounting Principles, and
  • the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this group management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our opinion on the group management report does not cover the content of “2.1.7 Declaration of Management and Governance” of the group management report.

 

Pursuant to Section 322 (3) sentence 1 HGB [Handelsgesetzbuch: German Commercial Code], we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the group management report.

  

Basis for the Opinions

 

We conducted our audit of the consolidated financial statements and of the group management report in accordance with Section 317 HGB and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our responsibilities under those requirements and principles are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions on the consolidated financial statements and on the group management report.

  

Other Information

 

Management is responsible for the other information. The other information comprises the unaudited content of “2.1.7 Declaration of Management and Governance” of the group management report.

Our opinions on the consolidated financial statements and on the group management report do not cover the other information, and consequently we do not express an opinion or any other form of assurance conclusion thereon.

 

In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information

 

  • is materially inconsistent with the consolidated financial statements, with the group management report or our knowledge obtained in the audit, or
  • otherwise appears to be materially misstated.

 

 

Responsibilities of Management and the Supervisory Board for the Consolidated Financial Statements and the Group Management Report

 

Management is responsible for the preparation of the consolidated financial statements that comply, in all material respects, with the requirements of German commercial law and that the consolidated financial statements, in compliance with German Legally Required Accounting Principles, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, management is responsible for such internal control as they, in accordance with German Legally Required Accounting Principles, have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting provided no actual or legal circumstances conflict therewith.

 

Furthermore, management is responsible for the preparation of the group management report that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, management is responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report. 

 

The Supervisory Board is responsible for supervising the process of financial reporting for preparation of the consolidated financial statements and the group management report.

 

 

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our opinions on the consolidated financial statements and on the group management report.

  

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this group management report.

 

We exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

  • Identify and assess the risks of material misstatement of the consolidated financial statements and of the group management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.
  • Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of these systems.
  • Evaluate the appropriateness of accounting policies used by management and the reasonableness of estimates made by management and related disclosures.
  • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the group management report or, if such disclosures are inadequate, to modify our respective opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.
  • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with German Legally Required Accounting Principles.
  • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express [audit] opinions on the consolidated financial statements and on the group management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our [audit] opinions.
  • Evaluate the consistency of the group management report with the consolidated financial statements, its conformity with [German] law, and the view of the Group’s position it provides.
  • Perform audit procedures on the prospective information presented by management in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by management as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

 

Munich, 26 March 2019


KPMG AG
Wirtschaftsprüfungsgesellschaft
[Original German version signed by:]

 

 

Huber
Wirtschaftsprüfer
[German Public Auditor]

 


Pfaff
Wirtschaftsprüfer
[German Public Auditor]

Consolidated Income Statement

for the Years Ended December 31, 2018 and 2017

EUR millionNote20182017
Net sales[15]2,246.0 2,136.4
Cost of goods sold(1,648.7)(1,531.1)
Gross profit597.3 605.3
Selling expenses(224.0)(220.0)
Research and development expenses(113.3)(125.7)
General and administrative expenses(155.4)(151.4)
Other operating income/(expenses), net11.4 30.1
Operating profit116.0 138.3
Share in earnings from equity investments[6]1.2 3.5
Other financial income/(expenses), net[17](14.7)(11.6)
Earnings before interest and income taxes102.5 130.2
Interest income[18]2.0 2.2
Interest expense[18](19.0)(19.6)
Earnings before income taxes85.5 112.8
Income taxes[19](35.3)(45.8)
Net income50.2 67.0
thereof apportioned to non-controlling interests7.1 6.6
thereof apportioned to the shareholders of Giesecke+Devrient GmbH43.1 60.4
50.2 67.0

Consolidated Statement of Comprehensive Income

for the Years Ended December 31, 2018 and 2017

EUR million20182017
Net income 50.2 67.0
Other comprehensive income
Items that will never be reclassified to the income statement
Actuarial gains and losses 14.5 5.8
Deferred taxes on actuarial gains and losses (4.6) (1.2)
9.9 4.6
Items that are or may be reclassified to the income statement
Currency effects from the translation of foreign operations (3.7) (21.1)
Effective part of fair value changes in cash flow hedges 0.1 0.2
Share of income and expenses recognized directly in equity resulting from the use of the equity method of accounting - (0.8)
(3.6) (21.7)
Other comprehensive income, net of tax 6.3 (17.1)
Total comprehensive income 56.5 49.9
thereof apportioned to non-controlling interests 7.6 6.0
thereof apportioned to the shareholders of Giesecke+Devrient GmbH 48.9 43.9
56.5 49.9

Consolidated Balance Sheet

as of December 31, 2018 and 2017

EUR millionNoteDec. 31, 2018 Dec. 31, 2017
ASSETS
Current assets
Cash and cash equivalents 429.3 210.7
Financial assets[2] 78.4 87.4
Accounts receivable trade and other receivables, net[3] 556.5 488.1
Inventories, net[4] 367.8 426.2
Income taxes receivable 30.5 30.4
Non-current assets held for sale[7, 8] 7.4 0.2
Other current assets[5] 49.9 40.0
Contract assets [23] 134.6 -
Total current assets 1,654.4 1,283.0
Non-current assets
Investments accounted for under the equity method[6] 12.6 18.8
Investments in other related parties[6] 9.0 -
Financial assets[2] 23.2 24.1
Accounts receivable trade and other receivables, net[3] 7.6 16.5
Intangible assets[7] 149.9 155.7
Property, plant and equipment[8] 463.1 471.2
Deferred tax assets[19] 152.2 163.6
Income taxes receivable 1.7 3.0
Other non-current assets 6.3 6.2
Contract assets[23] 12.4 -
Total non-current assets 838.0 859.1
Total assets 2,492.4 2,142.1
EUR millionNote Dec. 31, 2018 Dec. 31, 2017
LIABILITIES AND EQUITY
Current liabilities
Accounts payable trade and other accounts payable[10] 373.5 456.8
Provisions[11] 88.2 97.0
Financial liabilities[13] 63.2 75.5
Finance lease obligations[9] 0.5 3.2
Accrual for income taxes and income taxes payable 37.4 38.0
Other current liabilities[12] 129.2 132.9
Contract liabilities[23] 236.6 -
Total current liabilities 928.6 803.4
Non-current liabilities
Accounts payable trade and other accounts payable[10] - 25.5
Provisions[11] 11.4 10.3
Financial liabilities[13] 444.0 250.6
Finance lease obligations[9] 2.4 0.1
Pensions and related liabilities[14] 586.3 594.0
Deferred tax liabilities[19] 11.9 9.3
Other non-current liabilities 8.3 7.0
Contract liabilities[23] 9.6 -
Total non-current liabilities 1,073.9 896.8
Equity
Capital stock[20] 25.8 25.8
Additional paid-in capital[20] 29.5 29.5
Retained earnings[20] 448.3 399.9
Accumulated income and expenses recognized directly in equity 7.1 11.0
Treasury stock[20] (60.1) (60.1)
Non-controlling interests 39.3 35.8
Total equity 489.9 441.9
Total liabilities and equity 2,492.4 2,142.1

Consolidated Statement of Cash Flows

for the Years Ended December 31, 2018 and 2017

EUR millionCapital
stock
Additional paid-in capitalRetained
earnings
Accumulated income and expenses recognized directly in equity resulting from currency translationsAccumulated income and expenses resulting from cash flow hedgesTreasury
stock
SubtotalNon-controlling interestsTotal
Balance as of January 1, 2017 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
Impact of first time adoption of new standards (IFRS 9/15)1 - - 19.7 - - - 19.7 0.3 20.0
Adjusted balance as of January 1, 2018 25.8 29.5 419.6 11.1 (0.1) (60.1) 425.8 36.1 461.9
Net income - - 43.1 - - - 43.1 7.1 50.2
Other comprehensive income - - 9.7 (4.0) 0.1 - 5.8 0.5 6.3
Total comprehensive income - - 52.8 (4.0) 0.1 - 48.9 7.6 56.5
Additions due to changes in consolidation structure - - - - - - - 1.8 1.8
Payments apportioned to non-controlling interests - - - - - - - 0.5 0.5
Dividends paid - - (24.1) - - - (24.1) (6.7) (30.8)
Balance as of December 31, 2018 25.8 29.5 448.3 7.1 0.0 (60.1) 450.6 39.3 489.9

Consolidated Statement of Changes in Equity

for the Years Ended December 31, 2018 and 2017

EUR million20182017
Cash flows from operating activities
Earnings before interest and income taxes 102.5 130.2
Adjustments to reconcile earnings before interest and income taxes to cash provided by operations
Depreciation, amortization and impairment/recoveries 118.2 110.6
(Gain)/loss on sale and disposal of intangible assets and property, plant and equipment (0.7) (15.8)
(Gain)/loss on the purchase of shares in associated companies and joint ventures (0.7) -
Undistributed earnings in associated companies and joint ventures excluding dividend payments 0.3 (3.5)
Dividends received from associated companies and joint ventures 2.5 2.2
Change in operating assets and liabilities
(Increase)/decrease in investments in trading securities 12.4 (10.0)
(Increase)/decrease in accounts receivable trade and other accounts receivable, net (59.2) (30.8)
(Increase)/decrease in prepaid expenses and other assets (11.5) (11.0)
(Increase)/decrease in contract assets (44.0) -
(Increase)/decrease in non-current assets held for sale 0.2 -
(Increase)/decrease in inventories, net (36.3) (41.8)
Increase/(decrease) in accounts payable trade and other accounts payable 79.5 18.6
Increase/(decrease) in provisions (9.0) (29.6)
Increase/(decrease) in pensions and related liabilities (5.3) (4.1)
Increase/(decrease) in other liabilities 1.9 10.2
Increase/(decrease) in contract liabilities 76.7 -
Income taxes paid, net (34.2) (42.2)
Interest received 2.0 2.2
Interest paid (6.7) (7.5)
Net cash provided by operating activities 188.6 77.7
Cash flows from investing activities
(Increase)/decrease in short-term investments (0.1) 0.3
Additions to and prepayments on intangible assets (29.2) (25.3)
Additions to and prepayments on property, plant and equipment (79.2) (71.7)
Capital increase in and founding of associated companies and joint ventures (7,3)
Capital increase in investments in related companies (9.0) -
Acquisitions, net of cash acquired (7.3) 4.4
Proceeds from the sale/purchase of investment securities (0.9) -
Loans to associated companies - (0.7)
Payments received on loans to associated companies - 0.4
Proceeds from sale of intangible assets 0.1 -
Proceeds from sale of property, plant and equipment 6.1 22.6
Proceeds from sale of equity investments 2.5 -
Net cash used in investing activities (117.0) (77.3)
Free Cashflow¹ 71.6 0.4
Cash flows from financing activities
Proceeds from issuance of long-term debt 210.3 82.4
Proceeds from issuance of long-term debt from the Giesecke+Devrient Foundation 0.3 0.8
Proceeds from issuance of short-term debt from MC Familiengesellschaft mbH 15.5 15.4
Repayment of long-term debt (29.3) (50.5)
Repayment of long-term debt from the Giesecke+Devrient Foundation - (0.8)
Repayment of short-term debt from MC Familiengesellschaft mbH (5.4) (17.7)
Payments on finance lease obligations (3.4) (2.6)
Net (decrease)/increase in short-term debt and borrowings (10.0) (33.8)
Dividends paid to shareholders (24.1) (14.2)
Cash received from non-controlling interests 0.5 0.3
Dividends paid to non-controlling interests (6.7) (2.2)
Net cash from used in financing activities 147.7 (22.9)
Effect of exchange rates on cash and cash equivalents (0.8) (10.4)
Net increase/(decrease) in cash and cash equivalents 218.5 (32.9)
Cash and cash equivalents at beginning of the year 210.7 243.6
Cash and cash equivalents at end of the year 429.3 210.7

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
(until April 1, 2018)
Neuried

Ralf Gerlach1
Gilching

Peter Hanke1
Pirna

Astrid Meier1
Munich

Claudia Scheck1
Königsmoos

Dr. Walter Schlebusch
(since April 1, 2018)
Munich

Verena von Mitschke-Collande
Tutzing

Monika Wächter1
(until December 31, 2018)
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
(until April 1, 2018)
Neuried

Prof. Dr. Gabi Dreo Rodosek
Haar

Dr. Walter Schlebusch
Munich

Stefan Winners
Munich

 

 

Management Board

Ralf Wintergerst
(Group CEO, Giesecke+Devrient)

Dr. Peter Zattler
(Group CFO, Giesecke+Devrient)

 

 

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, 2018, G+D had subsidiaries in 32 countries and 11,389 employees worldwide, including 7,247 outside Germany.

 

The consolidated financial statements were approved by the Management Board on March 26, 2019.

 

 

B Basis of Presentation

 

The consolidated financial statements as of December 31, 2018 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, 2018.

 

Some figures may not precisely add up in total due to rounding differences.

 

 

C Consolidated Group and Principles of Consolidation

 

Consolidated Group

All material G+D subsidiaries, joint ventures and associated companies 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 valued at 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 loss of control are accounted for as equity transactions. 

 

Group interests that are accounted for in accordance with the equity method comprise shares in associated companies and joint ventures. Associated companies are companies in which the Group has significant influence but does not control or jointly control with respect to 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 instead of rights to the assets and obligations for the liabilities of the arrangement. 

 

The consolidated Group comprises 21 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. Although Giesecke+Devrient has less than half of the voting rights in Veridos Matsoukis S.A. Security Printing, Athens (36%) and in E-SEEK Inc., San Diego (45%), management has determined that G+D controls these companies. 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 and in E-SEEK Inc., San Diego. Additionally, six 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. The Group has classified its influence in Hansol Secure Co., Ltd., Seoul 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”).

 

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 associated companies 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 a 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, reporting negative balances are permitted, i.e. future losses are allocated in proportion to the participation without restriction.

 

 

D Use of Estimates

 

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 estimation uncertainties and where critical judgment 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, 2018 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 period-end exchange rate. Non-monetary assets and liabilities denominated in foreign currency are translated using the historical exchange rates as of the date of the transaction. 

 

The individual functional currency for each of the Group companies is the currency in 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.

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

 

 

 

1 euro equals X units of foreign currencyRates – December 31, 2018Rates – December 31, 2017
AverageClosingAverageClosing
US dollar - USD1.18151.14541.12931.1993
Australian dollar - AUD1.57991.62151.47291.5346
British pound - GBP0.88470.90270.87610.8872
Canadian dollar - CAD1.53021.56021.46441.5039
Chinese renminbi - RMB7.83747.87787.62647.8044
Swedish krona - SEK10.256710.27739.63699.8438

F Financial Instruments

 

A financial instrument is a contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in 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 financial institutions, finance lease obligations, and derivative financial liabilities.

 

Financial assets and liabilities are generally measured at fair value at initial recognition. Accounts receivable trade that do not have a significant financing component are initially recognized at their transaction price. 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).

 

After initial recognition, financial assets are classified at either amortized cost, at fair value through other comprehensive income (FVOCI) or at fair value through profit or loss (FVTPL) under IFRS 9. 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. G+D did not record interest income 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 a duration 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 “at amortized cost”. They are measured at their transaction price at the time of initial recognition. The valuation at subsequent balance sheet dates is at amortized cost. The valuation is based on the business model in which accounts receivable are managed and their contractual cash flow characteristics.

 

For doubtful accounts, credit risk impairments in the form of specific allowances are carried out. Specific defaults lead to derecognition of the receivables affected. In addition, with the implementation of IFRS 9, lifetime expected credit losses are calculated on a collective basis on the remaining balance on accounts receivable trade third party balances not subject to specific allowances. G+D first records impairments on an individual basis and then on a collective basis on the remaining balance of estimated credit losses in accordance with IFRS 9. Allowances on accounts receivable trade and other receivables are recorded in separate allowance accounts.

 

The Group uses the simplified approach to calculate expected credit losses on accounts receivable trade using a provision matrix that includes an analysis of historical data over the past five years and current observable data. Based upon the analysis of historical data as well as reasonable and supportable information regarding accounts receivable more than one year past-due, G+D has assumed rebuttable rates equal to 90% for all subgroup HUBs. The analysis therefore assumes a non-rebuttable rate of 10% - being those receivables not expected to be recovered. The non-rebuttable rate is then reduced by a recovery rate of 25% which represents the write-off portion expected to be collected in the event of insolvency proceedings. The calculation of collective allowances for the individual G+D companies incorporates the customer payment patterns which have been derived from the average ageing of accounts receivable trade third parties over the last five years as of December 31.

 

Income and expenses in connection with the recognition and reversal of specific allowances and allowances on a collective basis, as well as direct derecognitions of receivables are recorded in selling expenses and, if significant, in a separate line item in the income statement as a result of the introduction of IFRS 9. Non- and low-interest-bearing non-current receivables are recorded at the present value of the expected future cash flows when the interest impact is material. For such amounts, the subsequent valuation is made applying 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 securities or as held-to-collect and sell securities. The classification under IFRS 9 is based on the business model in which a financial asset is managed and its contractual cash flow characteristics. G+D has made use of the option of designating financial assets as measured at fair value through profit or loss at initial recognition. Investment funds classified as held-to-collect and sell are designated as measured at fair value through profit or loss because they are managed on a fair value basis. Held- to-collect and sell securities comprise shares in investment funds which serve as insolvency insurance to cover the provision for pre-retirement part-time working arrangements and preferred stocks in Nxt-ID, Inc. Trading securities include 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. These trading securities are measured at fair value through profit or loss as determined by the most recently traded price of each security at the balance sheet date. Highly liquid commercial paper with an original maturity of up to three months is classified as cash and cash equivalents and is measured at amortized cost.

 

Unrealized gains and losses on trading securities and held-to-collect and sell securities (investment securities) are included in net income on a current basis.

 

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. 

 

Other financial assets

With the exception of derivative financial instruments, other financial assets recognized as assets are allocated to the measurement category “at amortized cost”. The valuation is in accordance with the explanation provided for accounts receivable trade and other receivables, net. Impairments on financial assets are recognized using the impairment model for expected credit losses. 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 to the extent to which 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. 

 

G+D has made use of the option to continue applying hedge accounting requirements of IAS 39.

 

Currency risks from contracts with a nominal volume exceeding USD 10.0 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. 

 

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 in accordance with the provisions of IFRS 9 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 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. 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 in other comprehensive income 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 liabilities 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 affect 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 IFRS 9, cash and cash equivalents, short-term investments, 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 global 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 upon include estimated growth rates, weighted average capital costs and tax rates. Such assumptions, as well as the underlying methodology, can materially influence the respective values and therefore impact the determination of a potential impairment of the goodwill. Where property, plant and equipment and intangible assets are included in the goodwill impairment tests, the determination of the recoverable amount is based on management estimates.

 

 

 

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 a straight-line basis over the estimated economic useful lives of the assets. Depreciation of 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.

 

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 their 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. With the exception of goodwill, impairment losses are reversed 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 the lower of its fair value or the 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 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 remeasurements 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 curtailed 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 for pre-retirement part-time working arrangements is recognized from the point in time at which the employee is entitled under an individual agreement to the premature termination of employment. For pre-retirement part-time working arrangements in connection with the block model, the outstanding obligation for work performed by the employee during the work phase 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 working arrangement expenses is reported as interest expense. 

 

Product warranties

A provision for the expected warranty-related costs is established when the product is sold. Estimates of 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 great 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 recorded 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. Non-current provisions are discounted where the effect of the time value of money is material. 

 

Changes in the interest rate or the amount and timing of payments applied in measuring provisions for decommissioning, restoration, and similar obligations are recognized in the same amount as the related assets to be considered. 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

 

IFRS 15 is to be applied for the first time for fiscal years beginning on or after January 1, 2018. The Group applies IFRS 15 for the first time for the fiscal year beginning on January 1, 2018 (year of transition to IFRS 15). In the previous year, revenue was recognized in accordance with IAS 11 Construction Contracts and IAS 18 Revenue. The Group adopted 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 for each comparative period. In doing so, the Group will make use of the practical simplifications relating to IFRS 15. In this context, such contracts that began and were fulfilled within the same fiscal year or which were fully performed on January 1, 2018 were not restated on January 1, 2018.

 

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, especially in the cards, passports and ID business, the Group transfers control during the production phase. Revenues relating to such contracts are realized based upon the percentage of completion of the products and therefore before the delivery of the assets to the customer.  

 

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 revenue is recorded over time 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, revenue is generally recognized upon customer acceptance as the percentage of completion cannot be reliable determined.

 

Giesecke+Devrient has contractual arrangements in which it performs multiple revenue-generating activities, for example, the delivery of card bodies and personalization services. Revenue allocation is based upon the relative stand-alone selling prices of the individual components of the total arrangement

 

Across all business units, the increased scope of estimations referring to variable consideration affects the amount and the timing of revenue recognition.

 

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 of 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 on 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 in accordance with the liability method.

 

 

R Statement of Cash Flows

 

The statement of cash flows is prepared in accordance with IAS 7 and indicates the cash inflows and outflows during the fiscal year classified by cash flows from operating activities, investing activities and financing activities. 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

 

IFRS 15 Revenue from Contracts with Customers

 

In the context of the adoption of IFRS 15 on January 1, 2018, Revenue from Contracts with Customers, G+D changed its accounting methods relating to revenue recognition. For the new accounting policies, refer to the related notes under 1 (o) “Recognition of Revenue, Interest and Dividends”.

The following tables summarize the effects of the introduction of IFRS 15 for the year ending December 31, 2018:

 

 

Consolidated Balance Sheet
EUR millionDecember 31, 2018
As reportedAdjustmentsBalances without adoption of
IFRS 15
Current assets
Inventories, net 367.8 126.7 494.5
Other current assets 49.9 8.2 58.1
Contract assets 134.6 (134.6)
Other 1,102.1 1,102.1
Total current assets 1,654.4 0.3 1,654.7
Non-current assets
Investments 21.6 21.6
Deferred tax assets 152.2 11.2 163.4
Other non-current assets 6.3 12.8 19.1
Contract assets 12.4 (12.4)
Other 645.5 645.5
Total non-current assets 838.0 11.6 849.6
Total assets 2,492.4 11.9 2,504.3
Current liabilities
Accounts payable trade and other accounts payable 373.5 280.5 654.0
Contract liabilities 236.6 (236.6)
Other 318.5 318.5
Total current liabilities 928.6 43.9 972.5
Non-current liablities
Deferred tax liabilities 11.9 (0.7) 11.2
Accounts payable trade and other accounts payable 9.6 9.6
Contract liabilities 9.6 (9.6)
Other 1,052.4 1,052.4
Total non-current liabilities 1,073.9 (0.7) 1,073.2
Equity
Retained earnings 448.3 (30.5) 417.8
Non-controlling interests 39.3 (0.8) 38.5
Other 2.3 2.3
Total equity 489.9 (31.3) 458.6
Total liabilities and equity 2,492.4 11.9 2,504.3
Consolidated Income Statement
EUR million2018
As reportedAdjustments"Balances without adoption of IFRS 15
Net sales 2,246.0 (44.2) 2,201.8
Cost of goods sold (1,648.7) 31.0 (1,617.7)
Income taxes (35.3) 3.0 (32.3)
Other (511.8) (511.8)
Net income 50.2 (10.2) 40.0

Due to the change of recognizing revenue at point in time to over time relating to contracts for customer specific assets, a pre-tax effect of 26.7 million EUR was recorded. This applies in particular to products in the subgroup Mobile Security and the division Banknote Solutions as these products are already equipped with customer specific security features during one of the first steps in the production process. After deducting the deferred tax effect in the amount of 6.4 million EUR, the effect on retained earnings as of January 1, 2018 amounts to 20.3 million EUR. As a result, an effect in the amount of 0.4 million EUR was realized in equity apportioned to non-controlling interests.

 

In the following table, the order backlog as of December 31 is allocated to the G+D relevant time bands:

 

 

EUR million20192020>2020
Order backlog 1,004.8 383.3 275.0

The transaction prices mentioned in the table comprise all consideration agreed in the customer contracts.

 

IFRS 9 Financial Instruments

 

The Group has adopted IFRS 9 for the first time as of January 1, 2018. 

 

Due to the transition method adopted by G+D in applying this standard, the comparative information has not been restated to reflect the requirements of the new standard in the present financial statements, except certain hedges and impairment losses on accounts receivable trade and contract assets recognized separately. 

 

The effects of the initial application of the standard mainly result from the increase in impairment losses on financial assets.

 

IFRS 9 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. 

 

As a result of the adoption of IFRS 9, G+D has applied subsequent amendments to IAS 1 Presentation of Financial Statements, which require impairment of financial assets to be presented in a separate line item in the income statement. Due to immateriality, G+D did not present the impairments on accounts receivable in a separate line item in the income statement in fiscal year 2018, but reported these amounts directly in selling expenses. Impairments losses on other financial assets are recorded in the financial result, similar to the presentation under IAS 39 and not presented separately in the income statement due to materiality considerations. 

 

Additionally, the Group has adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that are applied to disclosures in 2018 but generally have not been applied to comparative information. 

 

Classification and measurement of financial assets and financial liabilities 

IFRS 9 contains three general classification categories for financial assets: measured at amortized cost, at fair value through other comprehensive income (FVOCI) and at fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification. 

IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. 

 

The adoption of IFRS 9 has not had a significant effect on the G+D’s accounting policies related to financial liabilities and derivative financial instruments.

 

For the new accounting policies, refer to the related notes under 1 (f) "Financial Instruments". For an explanation of the original measurement categories under IAS 39 and the new measurement categories under IFRS 9, as well as the transition of the carrying amounts of financial assets under IAS 39 to the carrying amounts under IFRS 9 at the transaction date, refer to Note 21 “Financial Instruments”

 

Impairment of financial assets 

IFRS 9 replaces the “incurred loss” model in IAS 39 with an “expected credit loss” (ECL) model. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognized earlier than under IAS 39. 

 

The Group has determined that the application of IFRS 9’s impairment requirements as of January 1, 2018 results in an additional allowance for impairment as follows:

 

 

 


EUR million
Loss allowance as of December 31, 2017 under IAS 39 14.3
Additional impairment recognized as of Janaury 1, 2018 on: Accounts receivable trade third parties 1.3
Loss allowance as of January 1, 2018 under IFRS 9 15.6

For additional information on the Group’s determination of impairments, refer to Note 3 “Accounts Receivable Trade and Other Accounts Receivable, net”.

 

Transition

G+D has made use of the exemption to refrain from adjusting comparative information for previous periods concerning changes in classification and measurement (including impairment). Therefore, the comparative periods were only adjusted for the retrospective application of the approach for hedging costs for forward points. Differences between the carrying amounts of financial assets and financial liabilities due to the application of IFRS 9 are generally recognized in retained earnings and other reserves as of January 1, 2018. In this respect, the information presented for 2017 generally does not meet the requirements of IFRS 9, but rather those of IAS 39.

 

The following assessments were made on the basis of facts and circumstances existing at the time of initial application:

  • Determination of the business model in which a financial asset is held.
  • Determination relating to certain financial assets and financial liabilities designated at fair value through profit or loss.

 

As of January 1, 2018, all hedging relationships designated in accordance with IAS 39 as of December 31, 2017 fulfilled the criteria for hedge accounting under IFRS 9 and are therefore considered continuing hedging relationships.

 

Further changes in Accounting and Valuation Policies

  

Within the scope of the "Annual Improvement" project (2014-2016), three IFRS standards were amended, of which only the amendments to IFRS 1 and IAS 28 was applicable in 2018:

 

IAS 28 clarifies that the option of measuring an investment in an associated company or joint venture that is held by a venture capital company or a another qualifying entity can be exercised differently depending on the respective investment. 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 standard 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:

 

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.

 

The first time application of the standard will be mandatory in the reporting period of the fiscal year beginning on January 1, 2019. The project of implementing the new standard has not yet been finalized. The recognition of right-of-use assets and lease liabilities described above is expected to result in a significant increase in non-current assets and liabilities in the period of initial recognition.

 

 

2 Financial Assets

 

Financial assets are comprised of the following as of December 31, 2018 and 2017:

 

 

 

EUR millionDecember 31, 2018December 31, 2017
Current
Short-term investments (> 3 months and < 1 year) 0.9 0.9
Trading securities 61.9 72.6
Investment securities 10.2 9.3
Derivative financial instruments 5.4 4.6
78.4 87.4
Non-current
Cash surrender value of reinsurance 21.4 21.1
Loans receivable from associated companies 1.3
Investment securities 1.8 1.7
23.2 24.1

Investment securities have been recorded at fair value in the amount of EUR 12.0 million as of December 31, 2018 and EUR 11.0 million as of December 31, 2017. 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 comprise the following as of December 31, 2018 and 2017:

 

 

EUR millionDecember 31, 2018December 31, 2017
Current
Accounts receivable trade 467.8 445.3
Accounts receivable from joint ventures and associated companies 7.8 7.3
Accounts receivable from related parties 0.5 0.1
Other 17.9 15.5
Prepayments 71.5 34.2
565.5 502.4
Allowance for doubtful accounts (9.0) (14.3)
556.5 488.1
Non-current
Accounts receivable trade 4.2 13.2
Prepayments on property, plant and equipment 3.4 3.3
7.6 16.5

Aging structure of accounts receivable trade and other accounts receivable (excluding prepayments) as of December 31, 2018:

 

 

EUR millionNot past duepast due
1 - 30
days
past due
31 - 90
days
past due
91 - 180
days
past due
181 - 360
days
past due
more than
360 days
Total
Accounts receivable 351.8 56.3 40.9 16.3 19.9 13.0 498.2
Less allowance for doubtful accounts (0.2) (0.1) (0.2) (0.1) (0.2) (8.2) (9.0)
Average credit losses in %–0.1–0.2–0.5–0.6–1.0–63.1–1.8
Accounts receivable, net351.656.240.716.219.74.8489.2

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

 

 

EUR millionNot past
due
past due
1 - 30
days
past due
31 - 90
days
past due
91 - 180
days
past due
181 - 360
days
past due
more than
360 days
Total
Accounts receivable 346.3 51.7 21.5 20.9 23.9 17.1 481.4
Less allowance for doubtful accounts (0.3) (1.7) (12.3) (14.3)
Accounts receivable, net 346.3 51.7 21.2 20.9 22.2 4.8 467.1

The development of the specific allowances and allowances for expected credit losses for accounts receivable trade and other receivables is as follows:

 

 

EUR million20182017
Specific allowanceGeneral allowanceTotalSpecific allowance
January 1 13.0 1.3 14.3 11.6
Changes in consolidation structure 1.3 1.3 0.2
Additions (through profit or loss) 1.4 1.4 2.8 6.2
Recoveries (through profit or loss) (7.9) (0.6) (8.5) (2.7)
Utilization (0.9) (0.9) (1.3)
Transfers 0.7
Currency effects (0.4)
December 31 6.9 2.1 9.0 14.3

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

 

Additional impairment losses for general allowances are the result of the application of the impairment requirements of IFRS 9 as of January 1, 2018. For additional information relating to the measurement of expected credit losses on a collective basis – see Note 1 (f) “Financial Instruments”, Accounts receivable trade and other receivables, net. 

 

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 351.6 million and EUR 346.3 million as of December 31, 2018 and 2017. G+D anticipates that the full amount of accounts receivable which have neither been provided for nor are past due are collectible. 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. 

 

In 2015, the Group entered into a service concession arrangement with a foreign authority for the construction and operation of a common factory for the production of identification cards and passports (BOT model = Build-Operate-Transfer). 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 major tasks of the Group are the initial planning of the factory, the procurement of the machinery required, the construction of the production plant, as well as the cash funding (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 shares (60/40) to be distributed on a yearly basis. The contract partner has 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, 2018.

 

The selection process for suitable land was completed and decided at the end of 2017. In 2018, G+D continuously rendered services for the construction of the card factory. Accounts receivable in the amount of EUR 12.4 million were recorded as non-current contract assets, since the revenues cannot be realized until the operational phase. 

 

In fiscal year 2018, G+D did not record any net income or expense as the revenues were equal to the corresponding expenses.

 

 

4 Inventories, net

 

Inventories are comprised of the following as of December 31, 2018 and 2017:

 

 

EUR millionDecember 31, 2018December 31, 2017
Raw materials 141.9 139.4
Work in process 135.7 163.5
Finished goods 5.0 52.6
Merchandise 28.8 21.0
Spare parts, modules, sensors - Currency Management Solutions 56.4 49.7
367.8 426.2

In fiscal years 2018 and 2017, write-downs on inventory amounted to EUR 24.1 million and EUR 26.8 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 as of December 31, 2018 and 2017, respectively.

 

 

5 Other Current Assets

 

 

 

EUR millionDecember 31, 2018December 31, 2017
Taxes receivable (other than income taxes) 35.5 25.1
Restricted cash 8.9 6.9
Gross amount due from customers for contract work 0.6
Other 5.5 7.4
49.9 40.0

6 Investments

 

Investments include the following:

EUR millionDecember 31, 2018December 31, 2017
Investments accounted for under the equity method 12.6 18.8
Investments in other related parties 9.0
21.6 18.8

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 Note 1 c “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 %
Uganda Security Printing Company Ltd., Uganda29.40 %
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 %

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.

 

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.

 

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 in exchange 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 traded shares in Nxt-ID, Inc. are classified as trading securities and the preferred shares as available-for-sale securities. Accordingly, the shares are measured at fair value.

 

Effective September 30, 2018, G+D sold the investment in CI Tech Sensors AG, Burgdorf, Switzerland, at a selling price in the amount of EUR 2.5 million. The net gain from the sale is 0.7 million EUR and is included within share in earnings from equity investments in the income statement.

 

Effective January 15, 2018, G+D acquired 10% of the shares in Verimi GmbH, Frankfurt at a purchase price of EUR 0.2 million. As G+D classifies its influence on Verimi GmbH as not significant, this investment is classified as an investment in other related parties. As of December 31, 2018, G+D owned 6.06% of the shares in Verimi GmbH.

 

Effective May 4, 2018, G+D acquired 12% of the shares in IDnow GmbH, Munich at a purchase price of EUR 4.0 million. As G+D classifies its influence on IDnow GmbH as not significant this investment is classified as an investment in other related parties.

 

Effective October 23, 2018, G+D along with Uganda Security Printing and Publishing Corporation as well the ministry of finance planning & economic development in Uganda founded the joint venture Uganda Security Printing Company Ltd. Uganda Security Printing Company Ltd. which produces passports and ID documents for the local market.

 

Effective October 1, 2018, G+D acquired additional shares in finally safe GmbH. As a result, G+D assumed control (see Note 24 “Business Combinations”).

 

 

Joint Ventures and associated companies

 

The following table summarizes the financial information for material joint ventures and associated companies based on their 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
Shenzen Giesecke & Devrient Currency Automation Systems Co. Ltd.CI Tech Sensors AGHansol Secure Co., Ltd.
201820172018201720182017
Revenues 21.6 24.3 30.7 30.1 10.3 10.1
Profit from continuing operations 3.7 5.0 (1.5) 1.5 (3.8) 4.7
thereof depreciation and amortization (0.5) (0.3) (1.5) (0.2) (0.2)
thereof income taxes (1.4) (1.5) (0.2) (0.2) (1.6) (0.1)
Other comprehensive income (0.1) (0.7) 0.3 (0.4) (0.7)
Total comprehensive income 3.6 4.3 (1.2) 1.5 (4.2) 4.0
Group's share of total comprehensive income 1.8 2.2 (0.3) 0.4 (0.7) 0.7
Continuation of purchase price allocation (incl. CTA) (0.8) (0.9) (0.2) (0.2)
Elimination of intercompany profits 0.5 (0.4)
Group's share of total comprehensive income 2.3 1.8 (1.1) (0.5) (0.9) 0.5
Dividends received during the year (2.1) (1.8) (0.4) (0.5)
Current assets 16.3 18.2 15.3 16.4 20.6
thereof cash and cash equivalents 6.5 10.5 1.2 1.2 2.0
Non-current assets 4.0 4.3 1.3 2.6 2.9
Current liabilities (8.9) (10.5) (4.5) (1.8) (2.1)
Non-current liabilities (3.8) (0.1)
Net assets 11.4 12.0 8.3 17.2 21.3
Group's share of net assets 5.7 6.0 2.1 2.8 3.5
Elimination of intercompany profits (0.6) (0.1)
Assets from purchase price allocation (incl. CTA) 2.1 3.1 3.2
Carrying amount of interest in joint venture at year end 5.1 5.9 4.2 5.9 6.7

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 millionDecember 31, 2018December 31, 2017
Carrying amount of interest in non-material associated companies 0.2 0.4
Share of
Gain/(Loss) from continuing operations1 (0.2)
Total comprehensive income (0.2)

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 millionDecember 31, 2018December 31, 2017
Carrying amount of interest in non-material associated companies 1.4 1.6
Share of
Gain/(Loss) from continuing operations1 (0.2)
Total comprehensive income (0.2)

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, 2017 42.0 88.9 150.6 56.6 338.1
Additions 1.4 10.9 12.4 24.7
Transfers 0.1 (1.2) 1.1
Additions due to business combinations 1.0 0.1 1.1 2.2
Disposals (2.6) (2.6)
Foreign currency effects (1.7) (2.3) (1.0) (1.0) (6.0)
December 31, 2017 42.8 96.3 160.6 56.7 356.4
January 1, 2018 42.8 96.3 160.6 56.7 356.4
Additions 0.3 16.5 12.4 29.2
Transfers 0.5 (4.2) 2.0 (1.7)
Additions due to business combinations 2.3 1.3 4.1 7.7
Disposals (15.6) (2.5) (4.5) (22.6)
Foreign currency effects (0.1) 0.1 (0.5) (1.6) (2.1)
December 31, 2018 30.2 107.5 170.0 59.2 366.9

The additions in 2018 and 2017 comprise self-constructed intangible assets in the amount of EUR 22.5 million and EUR 16.7 million, respectively.

 

 

EUR millionCustomer base/
Rights
Development
costs/
Technology
SoftwareGoodwillTotal
Accumulated amortization
January 1, 2017 37.2 44.5 98.4 180.1
Additions 1.6 6.8 15.5 23.9
Impairment losses 0.2 2.0 2.2
Disposals (2.6) (2.6)
Foreign currency effects (1.5) (0.7) (0.7) (2.9)
December 31, 2017 37.3 50.6 110.8 2.0 200.7
January 1, 2018 37.3 50.6 110.8 2.0 200.7
Additions 1.6 8.4 12.8 22.8
Transfers 0.5 (0.5)
Additions due to changes in consolidation structure 0.4 0.4
Impairment losses 16.6 16.6
Disposals (15.6) (2.5) (4.4) (22.5)
Foreign currency effects (0.1) (0.1) (0.8) (1.0)
December 31, 2018 24.1 73.0 117.9 2.0 217.0
Carrying value
January 1, 2017 4.8 44.4 52.2 56.6 158.0
December 31, 2017 5.5 45.7 49.8 54.7 155.7
December 31, 2018 6.1 34.5 52.1 57.2 149.9

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

 

 

EUR million20182017
Cost of goods sold 11.6 8.7
Selling expenses 0.9 0.8
Research and development expenses 0.2 0.4
General and administrative expenses 10.1 14.0
22.8 23.9

In fiscal years 2018 and 2017, impairment losses in the amount of EUR 16.6 million and EUR 0.2 million were recorded on capitalized development costs and software. Impairment losses in fiscal year 2018 amounting to EUR 16.6 million were recorded in cost of goods sold and resulted primarily from restructuring measures. In fiscal year 2017, impairment losses in the amount of EUR 0.2 million were recorded in general and administrative expenses. The impairment was based on the assumption that there was no further value in use as the software was replaced. 

 

 

In fiscal year 2018, development costs with a book value of EUR 0.9 million were reclassified from intangible assets to non-current assets held for sale. The reclassification is based on a management decision to sell these development activities. An active program to locate a buyer was initiated by the end of the fiscal year 2018. 

 

In connection with the planned closure of a Canadian subsidiary, the full amount of the goodwill (EUR 2.0 million) was impaired in 2017.

 

The goodwill from CI Tech Components AG in the amount of EUR 14.0 million (prior year EUR 14.0 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 5.2 million (prior year EUR 4.0 million) was assigned to the “secunet” CGU. In fiscal year 2018, there was an increase in goodwill in the amount of EUR 1.2 million. This increase results from additional shares acquired in connection with a share deal in the former associated company finally safe 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) and the goodwill from Veridos GmbH in the amount of EUR 4.4 million (prior year EUR 4.4 million) as well as the goodwill from E-SEEK Inc. in the amount of EUR 2.6 million recognized within the acquisition of the companies 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 28.5 million (prior year EUR 29.7 million) is in the business sector “Mobile Security” and assigned to the divisions and thereby CGUs “Financial Solutions”, “Connectivity & Devices” and “Cyber Security”. Management steers the goodwill on the level of the new CGUs. The allocation of the goodwill was based on the present value of the planned revenues in the amount of EUR 6.9 million (prior year EUR 7.2 million) in the CGU “Financial Solutions”, EUR 19.7 million (prior year EUR 20.5 million) in the CGU “Connectivity & Devices” and EUR 1.9 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 (prior year EUR 0.5 million) was allocated to the CGU “Financial Solutions”.

 

In performing the impairment tests for goodwill, the recoverable amount of the CGU 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. 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 8.4% during the planning period. The cash flows for the CGUs “Financial Solutions”, “Connectivity & Devices” and “Cyber Security” were determined using the planning premises of average EBITDA margins of 6.6%, 6.9% and 7.9% during the planning period and perpetual growth rates of 2.4%, respectively. The cash flows for the CGU “Currency Management Solutions” were determined using the planning premises of average EBITDA margin of 9.8% during the planning period and perpetual growth rate of 0.0%.

 

In discounting the cash flows of the “secunet” CGU, pre-tax interest rate of 10.5% was used in 2018 and 2017. For the CGU “Currency Management Solutions”, a pre-tax interest rate of 10.7% was applied in 2018 and 2017. In discounting the cash flows of the “Veridos” CGU, a pre-tax interest rate of 10.3% was applied in 2018 and 2017. In discounting the cash flows of the “Financial Solutions“, “Connectivity & Devices“ and “Cyber Security” CGUs, a pre-tax interest rate of 11.4% was used in 2018 and 2017. Impairments on goodwill were not recorded in fiscal years 2018 and 2017.

A sensitivity analysis was carried out for the goodwill in the CGU “Veridos”. An increase in the interest rate from 10.3% to 13.7% ceteris paribus as of December 31, 2018 would result in a first time impairment loss. A reduction in the cash flows for the terminal value ceteris paribus from EUR 21.7 million to EUR 13.5 million as of December 31, 2018 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 11.9% as of December 31, 2018 for “Financial Solutions”, from 11.4% to 11.8% for “Connectivity & Devices” and from 11.4% to 12.3% for “Cyber Security” would result in a first-time impairment losses, respectively. A reduction in the cash flows for the terminal value ceteris paribus from EUR 23.3 million to EUR 21.5 million as of December 31, 2018 for “Financial Solutions”, from EUR 18.5 million to EUR 17.4 million for “Connectivity & Devices” and from EUR 8.2 million to EUR 7.2 million for “Cyber Security” would result in an impairment loss, respectively.

 

No intangible assets serve as collateral for financial liabilities (see Note 13 “Financial Liabilities”) as of December 31, 2018 and 2017, respectively.

 

 

8 Property, Plant and Equipment

 

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

 

 

EUR millionLand and
buildings¹
Technical
equipment
and
machinery¹
Other plant
and
office
equipment¹
Construction
in process
Total
Costs
January 1, 2017 451.7 725.9 233.0 12.8 1,423.4
Additions 8.4 28.2 22.1 7.8 66.5
Transfers 2.8 39.7 (27.9) (11.2) 3.4
Additions due to changes in consolidation structure 3.6 3.6 0.8 8.0
Disposals (7.3) (14.3) (11.7) (33.3)
Foreign currency effects (4.5) (15.3) (5.8) (0.1) (25.7)
December 31, 2017 454.7 767.8 210.5 9.3 1,442.3
January 1, 2018 454.7 767.8 210.5 9.3 1,442.3
Additions 4.8 32.0 18.7 15.6 71.1
Transfers (23.0) 10.6 (0.4) (4.6) (17.4)
Additions due to changes in consolidation structure 0.1 0.1
Disposals (0.9) (53.5) (21.3) (75.7)
Foreign currency effects 0.2 (2.8) 0.1 (2.5)
December 31, 2018 435.8 754.1 207.7 20.3 1,417.9
EUR millionLand and
buildings¹
Technical
equipment
and
machinery¹
Other plant
and
office
equipment¹
Construction
in process
Total
Accumulated depreciation
January 1, 2017 225.7 530.1 171.7 927.5
Additions 11.7 48.4 18.8 78.9
Transfers 0.6 22.8 (23.4)
Additions due to changes in consolidation structure 1.5 1.6 0.6 3.7
Impairment losses 4.2 1.2 0.5 5.9
Disposals (2.5) (13.8) (11.4) (27.7)
Foreign currency effects (2.4) (10.6) (4.2) (17.2)
December 31, 2017 238.8 579.7 152.6 971.1
January 1, 2018 238.8 579.7 152.6 971.1
Additions 11.6 48.8 19.3 79.7
Transfers (17.3) (0.3) (0.7) (18.3)
Additions due to changes in consolidation structure 0.1 0.1
Disposals (0.8) (54.0) (21.1) (75.9)
Foreign currency effects (2.0) 0.1 (1.9)
December 31, 2018 232.3 572.2 150.3 954.8
Carrying value
January 1, 2017 226.0 195.8 61.3 12.8 495.9
December 31, 2017 215.9 188.1 57.9 9.3 471.2
December 31, 2018 203.5 181.9 57.4 20.3 463.1

In fiscal years 2018 and 2017, Giesecke+Devrient recorded impairments amounting to EUR 0.0 million and EUR 1.9 million on property, plant and equipment in cost of goods. In 2018, impairments amounting to EUR 0.0 million were recorded in general and administrative expenses (previous year EUR 4.1 million). The impairments recorded by Giesecke+Devrient in 2017 mainly comprise a planned site closure which resulted in an extraordinary 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, income was not received by G+D and it was assumed that the property would have to 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 7.0%.

 

In fiscal year 2018, land and buildings with a book value of EUR 6.5 million were reclassified from property, plant and equipment to non-current assets held for sale. The reclassification is based on a management decision to sell these assets. An active program to locate a buyer was initiated by the end of the fiscal year 2018.

The carrying value of property, plant and equipment which serves as collateral for financial liabilities (see Note 13 “Financial Liabilities”) amounted to EUR 9.0 million and EUR 8.4 million as of December 31, 2018 and 2017, respectively. 

 

Commitments for the purchase of property, plant and equipment amounted to EUR 24.9 million and EUR 7.6 million as of December 31, 2018 and 2017, 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, 2018 and 2017, the carrying values of buildings, machinery and equipment recorded under finance leases were as follows:

 

 

EUR millionDecember 31, 2018December 31, 2017
Buildings 6.5
Machinery and equipment 2.7 0.1
2.7 6.6

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 14 years. Rental expenses for operating leases amounted to EUR 29.0 million and EUR 29.6 million in 2018 and 2017, 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 year 0.6 22.8
Between one and five years 2.7 46.7
More than five years 14.2
Total minimum lease payments 3.3 83.7
Less amount representing interest (at rates up to 10.3%) (0.4)
Present value of net minimum finance lease payments 2.9

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

 

 

EUR million Finance
leases
Less than one year 0.5
Between one and five years 2.4
Present value of net minimum finance lease payments 2.9

Future minimum lease payments on non-cancelable operating leases include lease agreements with related parties in the amount of EUR 1.1 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 lease terms, including short-term, until December 31, 2019 and accounted for 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 lease liabilities, refer to Note 13 “Financial Liabilities”.

 

 

10 Accounts Payable Trade and Other Accounts Payable

 

 

EUR millionDecember 31, 2018December 31, 2017
Current
Accounts payable trade due to third parties 371.0 291.2
Accounts payable due to associated companies and joint ventures 1.0 0.9
Accounts payable to shareholders 0.2 0.2
Other similar liabilities 1.3 1.4
Deposits received/deferred income 163.1
373.5 456.8
Non-current
Deposits received/deferred income 25.5
25.5

11 Provisions

 

 

EUR millionWarrantiesPersonnel-
related costs
Licenses
and patent
infringements
Onerous
contracts
RestructuringOtherTotal
January 1, 2018 47.5 14.9 3.7 5.6 9.8 25.8 107.3
Additions 18.9 4.7 0.5 6.5 4.7 8.8 44.1
Transfers 0.1 0.1
Additions due to changes in consolidation structure 1.3 1.3 2.6
Interest component 0.1 0.1
Utilization (4.6) (4.9) (0.2) (4.8) (7.3) (7.6) (29.4)
Release (11.0) (2.9) (0.9) (1.3) (9.0) (25.1)
Foreign currency effects (0.1) (0.1)
December 31, 2018 50.8 14.9 1.1 7.7 5.9 19.2 99.6
thereof current 50.8 9.4 1.1 7.7 5.9 13.3 88.2
thereof non-current 5.5 5.9 11.4

Personnel-related provisions include obligations for pre-retirement part-time working arrangements and long-service awards. The interest component on pre-retirement part time working arrangements and long-service awards is included in interest expense. 

 

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 millionDecember 31, 2018December 31, 2017
Payroll and social security taxes 94.9 97.2
Sales and other taxes 22.2 21.5
Gross amount due on construction contracts 3.2
Other liabilities 12.1 11.0
129.2 132.9

13 Financial Liabilities

 

Financial liabilities consist of the following as of December 31, 2018 and 2017:

 

 

EUR millionDecember 31, 2018December 31, 2017
Current
Short-term borrowings due to financial institutions 8.1 18.2
Short-term debt to MC Familiengesellschaft mbH 15.5 5.4
Short-term debt due to other third parties 11.2 11.2
Current portion of debt due to other third parties 0.3
Current portion of debt due to financial institutions 19.8 28.5
Current portion of debt due to Giesecke+Devrient Foundation 3.5
Accrued interest on debt to financial institutions 1.9 1.4
Other financial liabilities 2.5
Derivative financial instruments 6.4 4.8
Total current portion of financial liabilities 63.2 75.5
Non-current
Unsecured notes payable to financial institutions, interest rates 0.81 % to 3.42 %, due through November 30, 2028 429.9 248.5
Unsecured notes payable to Giesecke+Devrient Foundation, interest rate 2.52% due through December 1, 2022 21.0 20.7
Unsecured notes payable to other third parties, interest rate 2.65%, indefinte maturity date 2.6
Unsecured notes payable to other third parties, interest rates 0.18 % to 1.85 %, due through March 31, 2023 4.2 2.4
Mortgage notes payable to financial institutions, interest rate 1.55 %, due through March 31, 2023 9.0 8.4
Total 464.1 282.6
Less current portion of non-current financial liabilities (20.1) (32.0)
Total non-current portion of financial liabilities 444.0 250.6
Total financial liabilities 507.2 326.1

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

 

 

EUR million
2019 63.2
2020 37.5
2021 13.1
2022 138.8
2023 80.1
thereafter 174.5
507.2

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

 

 

EUR millionNon-current
borrowings
(incl. short-
term portion)
Current
borrowings
Derivative
financial
instruments
Other
financial
liabilities
Sum of
financial
liabilities
Finance lease¹
obligations
Total
Carrying value January 1, 2017 250.3 73.4 6.4 330.1 5.9 336.0
Payments during the period (51.3) (97.2) (148.5) (2.6) (151.1)
New borrowings 83.2 61.1 144.3 144.3
Total change in cash flow from financing activities 31.9 (36.1) (4.2) (2.6) (6.8)
Acquisitions 0.6 0.6 0.6
Other changes 0.6 2.5 3.1 3.1
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, 2017 282.6 36.2 4.8 2.5 326.1 3.3 329.4
Fair value December 31, 2017 281.5 36.2 4.8 2.5 325.0 3.3 328.3
Carrying value January 1, 2018 282.6 36.2 4.8 2.5 326.1 3.3 329.4
Repayments of the period (29.3) (18.1) (47.4) (3.4) (50.8)
New borrowings 210.6 18.3 228.9 228.9
New leases 3.0 3.0
Total change in cash flow from financing activities 181.3 0.2 181.5 (0.4) 181.1
Other changes 0.5 (2.5) (2.0) (2.0)
Fair value changes 1.6 1.6 1.6
Currency effects 0.2 (0.2)
Carrying value December 31, 2018 464.1 36.7 6.4 507.2 2.9 510.1
Fair value December 31, 2018 475.8 36.7 6.4 518.9 2.9 521.8

Lines of credit

 

Giesecke+Devrient maintains global credit facilities in the amount of EUR 830.8 million (prior year EUR 773.3 million). As of December 31, 2018, G+D used EUR 449.0 million (prior year EUR 278.4 million) of these facilities for bank guarantees, EUR 8.0 million (prior year EUR 22.2 million) for credit orders and EUR 11.2 million (prior year EUR 11.2 million) due to other third parties. Thus, EUR 362.6 million (prior year EUR 461.5 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 January 1, 2014, the existing defined contribution plan was terminated. For employees joining the company from January 1, 2014 on, an externally financed pension obligation was introduced. 

 

Total provisions for pensions and related liabilities

 

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

 

 

EUR millionDecember 31, 2018December 31, 2017
Pension benefits 583.6 592.3
Other postretirement benefits 2.1 1.2
Other 0.6 0.5
Total accrual for pension and related liabilities 586.3 594.0

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
December 31, 2018December 31, 2017December 31, 2018December 31, 2017
Change in defined benefit obligation
Defined benefit obligation at beginning of year 615.2 607.7 1.2 1.5
Foreign currency exchange rate differences 0.2 (1.8) (0.2)
Service cost 8.6 9.6 0.5 0.2
Interest cost 12.1 11.9 0.1 0.1
Past service cost 0.2 (1.1) 0.1 (0.5)
Curtailments (0.1) (1.1) (0.2)
Plan amendments 0.3 0.1 (0.3)
Plan participants' contributions 0.1 0.5 0.3
Additions/(disposals) due to changes in consolidation structure (0.3) 6.1
Actuarial (gains)/losses (14.5) (5.3) 0.1
due to demographic parameter changes 7.5 - 0.2
due to financial parameter changes (20.2) (3.2) (0.1)
due to experience adjustments (1.8) (2.1) (0.1)
Benefits paid (14.0) (12.4) (0.1)
Defined benefit obligation at end of year 607.6 615.2 2.1 1.2
Change in plan assets
Fair value of plan assets at beginning of year 22.9 22.9
Foreign currency exchange rate differences (1.1)
Actual return on plan assets (excluding expected interest income) (0.1) 0.1
Expected interest income 0.3 0.5
Additions/(disposals) due to changes in consolidation structure (0.1)
Employer contributions 1.6 1.4
Plan participants' contributions 0.1 0.2
Benefits paid (0.8) (1.0)
Fair value of plan assets at end of year 24.0 22.9
Net amount recognized at end of year 583.6 592.3 2.1 1.2

Net liability recorded

 

The development of the net liability recorded in fiscal years ended December 31, 2018 and 2017 is as follows:

 

 

EUR millionPension benefit plansOther postretirement benefit plans
December 31, 2018December 31, 2017December 31, 2018December 31, 2017
Net liability at beginning of year 592.3 584.8 1.2 1.5
Service cost 8.6 9.6 0.5 0.2
Past service cost 0.2 (1.1) 0.1 (0.5)
Curtailments (0.1) (1.1) (0.2)
Plan amendments 0.3 0.1 (0.3)
Interest expense/(income) 11.8 11.4 0.1 0.1
Additions/(disposals) due to changes in consolidation structure (0.3) 6.2
Actuarial (gains)/losses (14.5) (5.3) 0.1
due to demographic parameter changes 7.5 0.2
due to financial parameter changes (20.2) (3.2) (0.1)
due to experience adjustments (1.8) (2.1) (0.1)
Actual return on plan assets (excluding expected interest income) 0.1 (0.1)
Benefits paid (excluding plan settlements) (13.2) (11.4) (0.1)
Employer contributions (1.6) (1.4)
Plan participants' contributions 0.3 0.3
Foreign currency exchange rate differences 0.2 (0.7) (0.2)
Net liability at end of year 583.6 592.3 2.1 1.2

Plan assets

 

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

 

 

Information as % of plan assetsDecember 31, 2018December 31, 2017
Cash surrender value of reinsurance 30.6 30.4
Equity securities 10.4 9.4
Debt instruments 13.7 15.3
Real estate funds 7.7 7.7
Money market funds 34.4 33.5
Other 3.2 3.7
100.0 100.0

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.

There are no additions to plan assets planned for fiscal year 2019 (prior year EUR 0.6 million). 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 the pension plans exist. The weighted average assumptions for the calculation of the actuarial amounts are as follows:

 

 

%Pension benefit plansOther postretirement benefit plans
December 31, 2018December 31, 2017December 31, 2018December 31, 2017
Discount rate/expected return on plan assets 2.2 2.0 6.3 2.5
Rate of compensation increase 2.5 2.5 5.3 2.3
Rate of pension progression 1.5 1.4
Mortality tables:
GermanyRT Heubeck 2018 GRT Heubeck 2005 G
Canada2014 CPM table with mortality improvement scale CPM-B2014 CPM table with mortality improvement scale CPM-B
SwitzerlandBVG2015.GTBVG2015.GT

The rate of the expected long-term return on plan assets corresponds with the discount rate. The weighted average term for pension obligations amounts to 18.3 years (prior year 18.9 years) and 4.2 years for other benefit obligations (prior year 6.3 years).

 

Sensitivity analysis

 

The results of the sensitivity analyses for the significant actuarial assumptions for pension obligations as of December 31, 2018 and December 31, 2017 are as follows:

 

 

Change of Defined Benefit Obligation
EUR millionDecember 31, 2018December 31, 2017
Discount rate + 50 basis points (46.1) (51.3)
Discount rate - 50 basis points 57.0 60.4
Rate of pension progression + 25 basis points 14.1 14.1
Rate of pension progression - 25 basis points (12.5) (13.8)
Increase of 2 years in life expectancy 40.3 41.8

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 28.3 million and EUR 27.0 million were recorded in 2018 and 2017, respectively. Payments amounting to EUR 1.3 million and EUR 0.7 million were made for the newly established company pension plans in 2018 and 2017, respectively.

 

 

15 Revenue

 

Revenue is comprised of the following categories:

 

 

EUR million20182017
Sales of goods 1,857.6 1,825.8
Rendering of services 360.6 285.6
Royalties 27.8 25.0
2,246.0 2,136.4

The following table contains the revenue separated in subgroups, divisions and the time of revenue recognition:

 

 

EUR million20182017
Currency Technology 1,058.9 1,016.5
Banknote Solutions 576.5 569.0
Currency Management Solutions 482.4 447.5
Mobile Security 867.6 812.3
Veridos 180.2 167.3
secunet 163.3 158.3
Group internal (24.0) (18.0)
2,246.0 2,136.4

In the division Banknote Solutions and in the subgroups Mobile Security, Veridos and secunet, revenue is mainly recognized over time, whereas in the division Currency Management Solutions revenue is largely recognized at a point in time. 

 

 

16 Income and Expenses Relating to Other Periods

 

 

EUR million20182017
Income relating to other periods 30.5 60.7
Expenses relating to other periods (3.6) (1.9)
26.9 58.8

Income relating to other periods consists primarily of releases of warranty provisions included in cost of goods sold, releases of other provisions included in other operating income as well as reversals of impairments (see Note 3) recorded in selling expenses. For the most part, expenses relating to other periods comprises tax expense for prior periods.

 

 

17 Other Financial Income, net

 

 

EUR million20182017
Gains/(losses) from trading securities, net (6.2) 5.6
Foreign currency exchange gains/(losses), net (2.3) (14.8)
Gains/(losses) from derivative financial instruments, net (6.2) (2.4)
(14.7) (11.6)

The changes in net unrealized gains and losses on trading securities included in earnings during the fiscal years ending December 31, 2018 and 2017 were EUR -10.4 million and EUR 2.4 million, respectively.

 

 

18 Interest Income and Interest Expense

 

 

EUR million20182017
Interest income
Loans and receivables 0.1
Cash and cash equivalents/short-term investments 0.9 0.9
Trading securities 0.7 0.7
Interest derivatives 0.1
Receivables from associated companies and joint ventures 0.1
Other 0.4 0.3
2.0 2.2
Interest expense
Loans and receivables 0.7 0.7
Financial liabilities and finance lease obligations 5.7 5.0
Other provisions 0.1 0.1
Provisions for pensions 11.8 11.5
Taxes payable 0.3 0.1
Other 0.4 2.2
19.0 19.6

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

 

 

EUR million20182017
Interest income
Loans and receivables 0.2
Cash and cash equivalents/short-term investments 0.9 0.9
0.9 1.1
Interest expense
Loans and receivables 0.7 0.7
Financial liabilities measured at amortized cost 5.7 5.0
6.4 5.7

19 Income Taxes

 

Income tax expense

 

Income tax expense for fiscal years 2018 and 2017 is comprised of:

 

 

EUR million20182017
Current income tax
Current year income tax expense (32.2) (43.1)
Income tax expense for prior periods (2.0) (0.6)
(34.2) (43.7)
Deferred income tax
Gross expenditure from origination and reversal of temporary differences and tax loss carryforwards (1.0) (4.4)
Income tax expense from changes in tax rates and introduction of new taxes (1.1) (0.1)
Change in usability of tax loss carryforwards 1.0 2.4
(1.1) (2.1)
Income tax expense, net (35.3) (45.8)

In fiscal year 2018, 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 15.63%, resulting in a combined tax rate of 31.46%.

 

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 31.46% and 31.71% in 2018 and 2017, respectively.

 

 

EUR million20182017
Expected income tax expense (26.9) (35.8)
Foreign taxation differential 3.1 1.4
Non-deductible expenses (4.7) (2.3)
Changes in tax rates (1.1) (0.1)
Tax-free income 2.5 (0.8)
Additions due to tax risks and tax payments (refunds) for prior years (2.8) (0.7)
Changes in tax loss carryforwards 1.0 2.4
Withholding taxes (6.1) (8.0)
Other (0.3) (1.9)
Actual income tax expense (35.3) (45.8)

Deferred tax assets and liabilities

 

The gross values of deferred tax assets and liabilities as of December 31, 2018 and 2017 are attributable to the following balance sheet line items:

 

 

EUR millionAssetsLiabilitiesNet
December 31, 2018December 31, 2017December 31, 2018December 31, 2017December 31, 2018December 31, 2017
Financial assets (8.5) 0.5 (5.8) (7.1) (14.3) (6.6)
Accounts receivable trade and other receivables, net 9.6 5.5 (0.1) 9.6 5.4
Contract assets 0.1 (8.3) (8.2)
Inventories, net 63.2 21.9 (0.1) 63.2 21.8
Other assets 1.2 0.5 (20.8) (0.5) (19.6)
Intangible assets 13.6 8.7 (19.2) (15.1) (5.6) (6.4)
Property, plant and equipment 2.4 1.8 (13.5) (11.9) (11.1) (10.1)
Accounts payable trade and other accounts payable 0.6 0.9 (34.5) (12.6) (33.9) (11.7)
Contract liabilities (0.8) (0.8)
Provisions 22.6 20.5 (2.9) (3.4) 19.7 17.1
Financial liabilities 3.8 2.3 3.8 2.3
Finance lease obligations 0.8 0.1 0.8 0.1
Deposits received/deferred income 0.2 0.2 (1.3) (1.1) 0.2
Pensions and related liabilities 96.0 102.5 96.0 102.5
Other liabilities 0.8 4.0 (1.5) (1.4) (0.7) 2.6
Tax loss carryforwards 42.5 37.1 42.5 37.1
Deferred tax assets/(liabilities), gross 248.9 206.5 (108.6) (52.2) 140.3 154.3
Set-off of tax (96.7) (42.9) 96.7 42.9
Deferred tax assets/(liabilities), net 152.2 163.6 (11.9) (9.3) 140.3 154.3

The changes in deferred tax assets, net included in net income or other comprehensive income for fiscal years 2018 and 2017 are included in the following summary:

 

 

EUR million20182017
Deferred tax assets, net as of January 1 154.3 158.9
Changes affecting net income (1.1) (2.1)
Changes not affecting net income
Additions due to changes in consolidation structure (0.6) (0.2)
Changes in net deferred tax assets recognized in other comprehensive income resulting from the introduction of new accouniting standards (7.5)
Changes in net deferred tax assets recognized in other comprehensive income resulting from deferred tax assets on actuarial gains and losses (4.6) (1.2)
Changes in net deferred tax assets recognized in other comprehensive income resulting from deferred tax assets on foreign currency translations (0.2) (1.1)
Deferred tax assets, net as of December 31 140.3 154.3

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 million20182017
Gross amountTax effectGross amountTax effect
Deductible temporary differences 6.2 1.8 16.5 4.0
Unused tax losses 168.3 43.7 197.9 52.8
174.5 45.5 214.4 56.8

The unused tax losses expire as follows:

 

 

EUR million20182017
Gross amountExpiration dateGross amountExpiration date
Limited 13.4 2019-2037 3.1 2018-2023
Unlimited 154.9 194.8

Furthermore, deferred tax assets in the amount of EUR 42.5 million and EUR 37.1 million on tax loss carryforwards in the amount of EUR 147.0 million and EUR 121.4 million were recorded as of December 31, 2018 and 2017, 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 offset. 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, 2018, significant deferred tax assets were recorded on tax loss carryforwards by the following companies: Giesecke+Devrient GmbH, Munich, EUR 37.5 million, Giesecke+Devrient Mobile Security Sweden AB, Stockholm, EUR 2.7 million and Giesecke+Devrient Mobile Security Iberia S.A., Barcelona, EUR 1.1 million. 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 174.5 million and EUR 214.4 million will be realized and therefore has not recognized deferred tax assets for these amounts in 2018 and 2017.

 

Income tax on dividends

 

As of December 31, 2018 and 2017, 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, 2018 and 2017, the amount of these obligations was EUR 0.2 million and EUR 0.0 million, respectively. 

 

Temporary differences relating to investments in subsidiaries for which deferred tax liabilities were not recorded amounted to EUR 3.7 million and EUR 0.0 million as of December 31, 2018 and 2017, respectively.

 

 

20 Equity

 

As of December 31, 2018 and 2017, the nominal value of the treasury stock amounted to EUR 4.3 million, respectively. 

 

Unappropriated reserves amounted to EUR 410.7 million and EUR 363.1 million as of December 31, 2018 and 2017, 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, 2018 and 2017, the equity ratio amounted to 19.7% and 20.6%, respectively. G+D is not subject to external minimum capital requirements.

 

 

21 Financial Instruments

 

IFRS 9 Financial Instruments become effective for the first time in fiscal years which begin on or after January 1, 2018. G+D adopted IFRS 9 for the first time for the fiscal year beginning on January 1, 2018.

 

The following table and the accompanying notes below show the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group’s financial assets and financial liabilities as of January 1, 2018. The following table also 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 effects of adopting IFRS 9 on the carrying amounts of financial assets as of January 1, 2018 relate solely to the new impairment requirements. 

 

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 millionIAS 39IFRS 9IAS 39Retained earningsIFRS 9
NoteOriginal classificationNew classificationOriginal
carrying amount
Dec. 31, 2017
Original
fair value
Dec. 31, 2017
RemeasurementDeffered taxesNew
carrying amount
Jan. 1, 2018
Carrying amount
Dec. 31, 2018
Fair value Dec. 31, 2018
Financial assets
Loans and receivables¹(a) Loans and
receivables
Amortized
cost
468.4 (1.3) (0.5)467.1 489.2
Financial assets held for trading²
Derivative financial assets Held for
trading
Mandatorily at
FVTPL
4.64.64.6 5.4 5.4
Trading securities(b) Held for
trading
Mandatorily at
FVTPL
72.672.672.6 61.9 61.9
Total 77.277.2 67.3
Investment securities(c) Available for
sale
designated
FVTPL
11.011.011.0 12.0 12.0
Special classes
Cash and cash equivalents³(a) Loans and
receivables
Amortized
cost
210.7210.7 429.3
Short-term investments(a) Loans and
receivables
Amortized
cost
0.80.8 0.9
Contract assets⁴ N/A N/A0.6113.2 147.0
Non-current assets held for sale Held for
trading
Mandatorily at
FVTPL
0.20.20.2 7.4 7.4
Total financial assets 768.9 (1.3) (0.5) 880.2 1,153.1

a. Accounts receivable trade and other receivables, cash and cash equivalents and short-term investments that were classified as loans and receivables under IAS 39 are now classified at amortized cost. An increase of EUR 1.3 million in the allowance for impairment on accounts receivable trade was recognized in opening retained earnings as of January 1, 2018 on the transition to IFRS 9. 

 

b. Under IAS 39, these equity securities were designated as at FVTPL since they were managed on a fair value basis and their performance was monitored on this basis. These assets have been classified as mandatorily measured at FVTPL under IFRS 9. 

 

c. Marketable securities categorized as available-for-sale under IAS 39 are held by the Group’s treasury unit in a separate portfolio to provide interest income but may be sold to meet liquidity requirements arising in the normal course of business. Under IAS 39, these investment securities were designated as at FVTPL because they were managed on a fair value basis and their performance was monitored on this basis. These assets are therefore also classified as measured at FVTPL under IFRS 9. 

 

 

EUR millionIAS 39IFRS 9IAS 39IFRS 9
Original classificationNew
classification
Original
carrying amount
Dec. 31, 2017
Original
fair value Dec. 31, 2017
New
carrying amount
Jan. 1, 2018
Carrying amount
Dec. 31, 2018
Fair value
Dec. 31, 2018
Financial liabilities
Financial liabilities measured at amortized cost
Financial liabilities Other financial liabilities Other financial liabilities 318.8 320.2 318.8 500.8 502.2
Contract liabilities¹ N/A N/A 3.1 125.4 246.2
Accounts payable Other financial liabilities Other financial liabilities 293.7 293.7 373.5
Total 615.6 737.9 1,120.5
Derivative financial liabilities Fair value - hedging instrument Fair value - hedging instrument 4.8 4.8 4.8 6.4 6.4
Other financial liabilities Other financial liabilities Other financial liabilities 2.5 2.5 2.5
Special class
Lease obligations Other financial liabilities Other financial liabilities 3.4 3.4 3.4 2.9
Total financial liabilities 626.3 748.6 1,129.8

The fair value of foreign currency forward contracts is based on mark-to-market since similar contracts are being traded on active markets. In fiscal year 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 was recorded under current financial liabilities as of December 31, 2017. As of December 31, 2018 and 2017, these derivative financial instruments are stated at fair value and recorded on the balance sheet under current financial assets in the amount of EUR 5.4 million and EUR 4.6 million and under current financial liabilities in the amount of EUR 6.4 million and EUR 4.8 million, respectively. 

 

The nominal volume of foreign currency forward contracts entered into by Giesecke+Devrient as of December 31, 2018 amounted to:

 

 

million foreign currency unitsPurchase contractsSales contracts
US dollar 41.6 119.5
Australian dollar 2.2
British pound 4.2 2.4
Japanese yen 108.3
Hong Kong dollar 55.6
Swedish krona 91.4

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 using the “fair value option”.

 

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, 2018 and 2017, 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 2018 and 2017 related solely to financial assets in the class “loans and receivables”.

 

 

EUR million20182017
Impairment losses (4.0) (6.5)
Reversals of impairment losses 9.4 2.3
5.4 (4.2)

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

 

 

EUR million20182017
Financial assets measured at amortized cost 6.8 (10.4)
Financial assets and financial liabilities held for trading (8.9) 1.9
Financial liabilities measured at amortized cost (0.7) 3.9
(2.8) (4.6)

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 comprise foreign currency exchange effects. 

 

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. At level 1, fair values are mainly determined by using quoted prices from active markets for identical financial assets or liabilities. The fair values at level 2 are determined via market comparison procedures based on observable quoted prices for similar financial assets or liabilities. Fair value measurements at level 3 are mainly based on unobservable market data. In 2018, Giesecke+Devrient determined fair values of financial instruments based at 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 2018 and 2017, 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, 2018:

Classes of financial instruments
EUR millionthereof fair value measurement at the end of the reporting period using
December 31, 2018Level 1Level 2Level 3
Financial assets
Financial assets held for trading
Derivative financial instruments 5.4 5.4
Trading securities 61.9 61.9
Investment securities 12.0 12.0
Financial liabilities
Financial liabilities held for trading
Derivative financial instruments 6.4 6.4
Financial liabilities measured at amortized cost
Financial liabilities 502.2 502.2
Special class
Finance lease obligations 2.9 2.9

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

 

 

Classes of financial instruments
EUR millionthereof fair value measurement at the end of the reporting period using
December 31, 2017Level 1Level 2Level 3
Financial assets
Financial assets held for trading
Derivative financial instruments 4.6 4.6
Trading securities 72.6 72.6
Investment securities 11.0 11.0
Financial liabilities
Financial liabilities held for trading
Derivative financial instruments 4.8 3.0 1.8
Other financial liabilities 2.5 2.5
Financial liabilities measured at amortized cost
Financial liabilities 320.2 320.2
Special class
Finance lease obligations 3.4 3.4

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 managed as part of the Group’s ongoing business and financing activities. Additionally, financial risks affecting the Giesecke+Devrient 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. This measure indicates the maximum loss not exceeded for a specific equity position with a given probability of 95%, a 10-day holding period 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).

 

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 223.2 million (prior year EUR 225.7 million) on the balance sheet date of December 31, 2018 to cover fluctuations in operating activities. These cash credit lines are granted by blue chip banks and have been utilized with EUR 8.0 million (prior year 18.3 million) on the balance sheet date of December 31, 2018. The principal part here is a syndicated long term credit line of EUR 180.0 million from consortium banks given to parent company Giesecke+Devrient GmbH running until May 2022, which was not used on December 31, 2018 as well as in previous year. In addition, there are credit-lines with other third parties of EUR 11.2 million (prior year EUR 11.2 million). This line was fully utilized by G+D with EUR 11.2 million. 

 

In addition, securities with a carrying value and market value of EUR 72.1 million (prior year EUR 81.9 million) were held within the G+D Group. Thereof EUR 10.2 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 0.9 million (prior year EUR 0.8 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, 2018
EUR millionUp to 1 year1 - 2 years2 - 3 years3 - 4 years4 - 5 yearsover 5 years
Carrying valueGross outflowsRepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterest
Original financial liabilities
Accounts payable trade, financial liabilities, and financial lease obligations877.0912.0428.78.437.95.913.57.1139.25.881.23.1174.56.7
Derivative financial liabilities
Derivative financial instruments6.46.46.4
Total883.4918.4435.18.437.95.913.57.1139.25.881.23.1174.56.7
Information on Liquidity Risk at December 31, 2017
EUR millionUp to 1 year1 - 2 years2 - 3 years3 - 4 years4 - 5 yearsover 5 years
Carrying valueGross outflowsRepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterestRepaymentInterest
Original financial liabilities
Accounts payable trade, financial liabilities, and financial lease obligations 615.8 641.6 363.8 14.0 25.6 3.7 35.3 3.1 11.3 2.4 133.4 2.3 45.0 1.8
Derivative financial liabilities
Derivative financial instruments 4.8 4.8 4.8
Total 620.6 646.4 368.6 14.0 25.6 3.7 35.3 3.1 11.3 2.4 133.4 2.3 45.0 1.8

All financial instruments held as of December 31, 2018 and December 31, 2017 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, 2018 or December 31, 2017, 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 9, the maximum credit risk with regard to loans and receivables to customers corresponds to the carrying value of these financial assets.

 

Market Risk

 

A Currency Risk

Due to its international focus, Giesicke+Devrient 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, exclusively forward exchange contracts, swap transactions and collar options. In the main foreign currency, the US dollar, exports and imports virtually balance out over the year. Since fiscal year 2011, therefore, the US dollar risk has been identified based on rolling 12-months cash flow planning. Hedging would only take place if defined net threshold amounts were exceeded. Deviations between the import and export side during the year are offset by currency swaps. Contracts with a value greater than USD 10 million will still be hedged separately using forward exchange contracts and accounted for as fair value hedges.

 

The net assets associated with Group companies located outside the Eurozone 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, 2018, 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, 2018
Foreign currency risk in EUR millionAUDCADGBPHKDINRRMBSEKUSD
2018201720182017201820172018201720182017201820172018201720182017
Net exposure 5.6 (3.9) (11.6) (19.1) (1.1) (4.3) 6.2 8.5 3.3 15.8 18.4 3.3 3.8 (34.0) (0.6)
Firm Comittment (41.7) (19.0)
Financial derivatives (1.4) (15.8) (2.0) (5.2) 6.2 8.9 3.7 68.0 15.9

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 analyses are used to determine the impact of hypothetical changes of 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, 2018 and December 31, 2017, respectively, the effects on total equity and the income statement (without consideration of tax effects) are 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 at December 31, 2018 (Impact > EUR 2 million)
Impact in EUR millionEquityProfit/Loss
2018201720182017
-10%+10%-10%+10%-10%+10%-10%+10%
USD 3.4 (3.4) 0.1 (0.1) 3.4 (3.4) 0.1 (0.1)

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 at December 31, 2018 (Impact > EUR 2 million)
Impact in EUR millionEquityProfit/Loss
2018201720182017
-10%+10%-10%+10%-10%+10%-10%+10%
USD 6.2 (7.6) 1.4 (1.8) 6.2 (7.6) 1.4 (1.8)

“Hedge Accounting” is used for certain significant pending transactions in foreign currencies, of the operative units of the company. The company uses in particular forward exchange contracts to limit the risk of fluctuations of future cash flows of these pending transactions. This approach relates to contracts in foreign currency with a value of more than USD 10 million.

 

Since fiscal year 2009 pending transactions are hedged with forward exchange contracts, which are classified as “Foreign Currency Fair Value Hedges” of future sales. The changes of the market values of these transactions are shown in the financial result. The changes of the derivative instruments are also shown in the financial result. This results in valuation effects of the hedge instruments of EUR -4.8 million and EUR 4.7 million and of the underlying transactions (“Firm Commitment”) of EUR 4.8 million and EUR -4.7 million for the fiscal years 2018 and 2017, respectively. The market value of the hedge instruments as of December 31, 2018 amounts to EUR -4.8 million.

 

Fair value hedges are used for larger single contracts, which at G+D usually are based on USD. The threshold of the underlying transaction is set at greater than USD 10 million. These single contracts are basically hedged with a forward exchange contract for the total volume relating to the different payment dates with an external certified counterparty (micro-hedge). The risk for G+D is that the amount of the contract in foreign currency can negatively develop against the Euro from the moment of signing of the contract until the payment date. This transaction risk is basically eliminated by this hedging strategy. To avoid substantial effects in the income statement through the valuation of these single transactions, hedge-accounting in the form of fair value hedges is applied in these cases, as well as the drafting of the respective documentation. 

 

The effectiveness of this fair value hedge is reviewed by monthly monitoring of the contract and alignment of the underlying transaction with the principal of the hedge (hedging instrument’s effectiveness). The dollar-offset-method is used for the measurement of effectiveness. In doing so the changes of the values of hedge and firm commitment at valuing with the rates as of date of effectiveness are put into relation with the rates as of the acquisition of firm commitment or the rate of hedging, respectively. This relation remains in a range of 80% to 125%. 

 

In the case of deviations by e.g. cancellations/increases or time delays the foreign exchange contract is adjusted to the current conditions on a timely basis.

 

The underlying transactions as well as the hedging instruments based on the balance sheet as of December 31, 2018 are as follows: 

 

 

Maturity and average forward contract rate (USD)
Maturity
Foreign currency risk< 1 year> 1 year
Forward exchange contracts
Net exposure (in EUR million)13.123.5
average EUR:USD forward contract rate1.411.32
Carrying amount of the hedged item
EUR million2018
Carrying amountAccumulated amount of fair value hedge adjustments included in the carrying amount of the hedged item recognised in the statement of financial positionLine item in the statement of financial position that includes the hedged itemChange in value of the hedged item used as the basis for recognising hedge ineffectiveness for the period
AssetsLiabilitiesAssetsLiabilities
Firm commitments59.824.54.60.2Other financial assets4.8
Carrying amount of the hedging instrument
EUR million2018
Nominal amountCarrying amountLine item in the statement of financial position that includes the hedging instrumentChange in fair value of the hedging instrument used as basis for recognising hedge ineffectiveness for the periodHedge ineffectiveness recognised in profit or lossLine item in the statement of comprehensive income that includes recognised hedge ineffectiveness
AssetsLiabilities
Forward exchange contracts36.80.04.8Other financial assets(4.8)0.0N/A
B Interest Rate Risk

The Group is primarily funded by way of bank loans 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, 2018, the values were as follows:

 

 

Interest Rate Risk: Financial Instruments at December 31, 2018
EUR millionEffective interest rateTotal amountUp to 1 year1 - 2 years2 - 5 yearsOver 5 years
201820172018201720182017201820172018201720182017
Fixed-interest financial instruments
Financial liabilities (current and non-current) and financial lease obligations 1.4 2.0 493.7 269.8 47.3 66.4 37.9 161.6 234.0 38.8 174.5 3.0
Variable-interest financial instruments
Financial liabilities 5.7 3.0 8.1 59.0 8.1 59.0

Risks from interest rate changes are identified on a regular basis and included in the risk reporting. Derivative financial instruments in the form of an interest rate swap have been used to manage interest rate risks for a variable interest loan. This loan and associated interest rate swap were contributed to Giesecke+Devrient GmbH by MC Vermögensverwaltung GmbH & Co. KG in 2012. Within this contribution a loan of EUR 46.6 million with a variable interest rate and the corresponding interest swap was taken over. The loan was repaid quarterly linearly. The last repayment was made on December 31, 2018. The variable interest rate was swapped into a fixed interest rate of 3.15%. At the time of contribution, a hedging relationship was designated between the loan and interest rate swap, which has since then been accounted for as a “cash flow hedge”. The cash flow hedge was effective during its term. The fair value was calculated on the basis of the market comparison method. The last repayment was done on December 31, 2018, so the interest swap expired at the end of 2018.  

 

The effect of a 100-basis-point change in market interest rates on net income and total equity as of December 31, 2018 is at EUR 1.1 million (prior year EUR 0.1 million) for financial assets and the other financial liabilities, with the exception of bonds. For bonds, the following sensitivity analysis applies:

 

 

Modified Duration: Bonds at December 31, 2018
20182017
Bond holdingsEUR million 28.2 32.3
Return% 2.1 1.3
Durationyears 3.8 4.6
Modified Duration% 3.8 4.6
Potential loss/gainEUR million (1.1) (1.5)

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, 2018 is EUR -1.1 million (prior year EUR -1.5 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 in EUR 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, focus is on ensuring that the counterparty is robust and that the price risk is as low as possible.

 

Besides bank deposits, as of December 31, 2018 an amount of EUR 61.5 million is invested in a special fund with an established German investment management company. This investment is in a portfolio of blue chip bonds (government and corporate bonds) and equities (blue chip companies). Equities comprise a maximum of 40% of the total portfolio, which minimizes the related risk. The risk associated with this financial investment is stated monthly for equities using the Value-at-Risk (VaR) method as provided by the investment management company. As of December 31, 2018, the values were as follows:

 

 

Value-at-Risk: Equities at December 31, 2018
20182017
Equity holdingsEUR million 27.7 33.1
VAR% 2.7 2.2
Potential loss/gainEUR million (0.7) (0.7)

In addition to the special fund, G+D holds securities, which are classified as available-for-sale securities. The carrying value as of December 31, 2018 was EUR 10.2 million (prior year EUR 11.0 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 Contract balances

 

Descriptions of significant changes in contract assets and contract liabilities:

 

 

EUR millionDecember 31, 2018December 31, 2017
Contract assets at the beginning of the period 113.2
Currency differences (0.3)
Transfers from contract assets recognized at the beginning of the period to receivables (79.3)
Changes in the measure of progress 113.4
Contract assets at the end of the period 147.0
Contract liabilities at the beginning of period 125.4
Currency differences 1.2
Revenue recognized that was included in the contract liability balance at the beginning of the period (112.8)
Prepayments received excluding revenue during the period 232.3
Increase/(decrease) due to changes in consolidation structure 0.1
Contract liabilities at the end of the period 246.2

 

The Group does not make use of the exemption option of IFRS 15.121. The transaction prices reported in accordance with IFRS 15.120 were not reduced by components that represent consideration from customer contracts.

 

 

24 Business Combinations

 

G+D recognizes 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. 

 

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, the basis of the business for EPC was omitted. 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 in 2017 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. As a result, 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 equivalents 6.0
Accounts receivable trade and other current assets, net 0.6
Inventories, net 0.2
Property, plant and equipment 0.8
Other non-current assets 0.2
Accounts payable trade and other accounts payable 0.2
Provisions 10.6
Pensions and related liabilities 5.7

In the period between the acquisition on April 1, 2017 and December 31, 2017, EPC contributed EUR 0.8 million in net sales and 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 net sales would have amounted to EUR 2,138.8 million.

 

Effective June 26, 2017 (time of acquisition) Giesecke+Devrient acquired 100% of the shares in 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 expanding its portfolio in the coin business and strengthening its position as the global market leader in cash cycle automation. 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 a management service agreement for the next three years. This consideration will be realized as expense pro rata and disclosed as other provisions. At the time of acquisition, the purchase price of the shares equals the fair value of the identifiable net assets of Procoin GmbH 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, net 1.7
Inventories, net 1.1
Other current liabilities 0.3
Intangible assets 0.4
Accounts payable trade and other accounts payable 0.6
Provisions 0.2
Financial liabilities 0.6

In the period between the acquisition on June 26, 2017 and December 31, 2017, Procoin GmbH contributed EUR 2.3 million in net sales 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 net sales 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 purchase price in the amount of EUR 3.8 million was paid in cash. Thereby, G+D rounds out 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 and amounted to EUR 0.5 million. The goodwill is essentially attributable to the skills of the C.P.S. workforce 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 equivalents 1.0
Accounts receivable trade and other receivables, net 6.1
Inventories, net 1.6
Other current assets 0.6
Intangible assets 0.8
Property, plant and equipment 3.3
Deferred tax assets 0.2
Accounts payable trade and other accounts payable 6.7
Provisions 0.1
Financial liabilities 0.6
Other current liabilities 2.3
Pensions and related liabilities 0.3
Deferred tax liabilities 0.4

In the period between August 1, 2017 and December 31, 2017, C.P.S. Technologies contributed EUR 11.6 million in net sales and net income in the amount of EUR 1.1 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 net sales would have amounted to EUR 2,148.9 million.

 

Costs in the amount of EUR 0.5 million for legal consulting fees and for due diligence services were incurred in connection with the business combination. 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 was March 27, 2018. Initially, Veridos acquired 75% of the shares at a purchase price of EUR 6.4 million. In addition, the parties agreed on conditional consideration for a maximum amount of USD 1.5 million for a period of two years. The conditional consideration is dependent on the achievement of certain key figures (net sales, gross profit). Veridos received a call option and the non-controlling shareholders received a put option for the remaining 25% of the shares. As G+D holds 60% in the shares of Veridos, G+D in turn holds 45% in the shares of E-SEEK Inc. Thus, G+D assumed control over E-SEEK Inc. and consolidate the company in full 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 thereby offers customers complete solutions which allows for an efficient identification of citizens. These are in place for instance for border control systems and 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 broadens the presence of Veridos in the North American market directly which is considered to be of strategic importance due to the high market volume.

 

The difference between the fair value of the consideration in the amount of EUR 6.4 million and the fair value of the identifiable net assets of E-SEEK Inc. amounting to EUR 3.4 million at the time of acquisition was recorded as goodwill in the amount of EUR 3.0 million. The goodwill is essentially attributable to the skills of the E-SEEK workforce 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 equivalents0.1
Accounts receivable trade and other receivables, net0.6
Inventories, net1.7
Other current financial liabilities1.7
Intangible assets1.9
Deferred tax assets0.4
Other current liabilities0.2
Deferred tax liabilities0.6

In the period between March 27, 2018 and December 31, 2018, E-SEEK Inc. contributed EUR 2.5 million in net sales and net income in the amount of EUR -0.3 million to the Group result. If the acquisition had occurred on January 1, 2018, the Group net income in fiscal year 2018 would have amounted to EUR 50.2 million and the Group net sales would have amounted to EUR 2,246.9 million.

  

Up until September 30, 2018, secunet held 36.68% of the shares in finally safe GmbH, Essen. This investment was recorded as an investment in associated companies. Effective October 1, 2018, secunet acquired an additional 21.8% of the shares in finally safe. As a consequence, secunet assumed control. The acquisition occurred in a two-step process. First, a loan from secunet to finally safe in the amount of EUR 0.7 million was converted into an investment. Furthermore, secunet made a cash contribution amounting to EUR 0.3 million. On November 27, 2018, secunet purchased an additional 4.8% of the shares via a cash contribution in the amount of EUR 0.3 million. Thus, secunet owns 63.28% of the shares in finally safe. As G+D holds 79.43% in the shares of secunet, G+D in turn holds 50.26% in the shares of finally safe. Thus, G+D assumed control over finally safe and fully consolidated the company in 2018.

 

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.

 

The difference between the fair value of the consideration in the amount of EUR 1.8 million and the fair value of the identifiable net assets of finally safe GmbH amounting to EUR 0.6 million at the time of acquisition was recorded as goodwill in the amount of EUR 1.2 million. The goodwill is essentially attributable to the skills of the finally safe workforce 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 equivalents0.3
Other current financial liabilities0.3
Intangible assets1.3
Accounts payable trade and other accounts payable0.1
Provisions0.1
Contract liabilities0.1
Deferred tax liabilities0.4

Finally safe GmbH has an immaterial effect on Group net sales and Group net income.

 

On January 31, 2019 ,Giesecke+Devrient Currency Technology GmbH acquired all of the shares in the Dutch company Transtrack International B.V., Amsterdam at a purchase price of EUR 10.5 million. The date of the acquisition was January 1, 2019.

 

Transtrack is the market leader in the development of standard software solutions relating to the management, monitoring and efficiency of end-to-end cash supply chains. However, Transtrack specializes in customer-oriented and scalable software solutions for banks, cash transport providers and cash processing companies. This know-how constitutes an enrichment in the cash center automation sector for Giesecke+Devrient Currency Technology GmbH. Therefore, precise solutions in regard to the different modules of the cash circle can be provided. As an example, these modules can be applied in the route management of cash transports as well as in order management. In regards to the central and commercial bank business, the software solution has versatile applications and provides Giesecke+Devrient Currency Technology GmbH the opportunity to extend the customer portfolio and strengthen its position in the cash center solutions market.

 

 

25 Disclosures on Material Non-controlling Interests 

 

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

 

 

EUR millionGiesecke & Devrient Malaysia SDN BHD, Kuala LumpurGiesecke & Devrient Kabushiki Kaisha, TokyoVeridos Matsoukis S.A. Security Printing, Athens
December 31, 2018December 31, 2017December 31, 2018December 31, 2017December 31, 2018December 31, 2017
Capital shares NCI20.0 %20.0 %49.0 %49.0 %64.0 %64.0 %
Voting rights NCI20.0 %20.0 %49.0 %49.0 %64.0 %64.0 %
Profit/(loss) attributable to NCI 0.7 0.4 2.4 2.0 0.3 0.2
Dividend paid to NCI (2.8) (0.4) (2.0) (0.7)
Share of equity relating to NCI 7.2 9.3 6.3 5.3 4.2 3.5
Assets¹ 59.7 57.9 15.2 13.9 32.8 17.6
thereof cash and cash equivalents¹ 5.0 1.2 10.0 9.0 0.6 1.0
Liabilities¹ 21.5 9.3 4.4 5.1 25.9 12.1
Revenues¹ 37.3 34.8 28.6 27.1 23.8 17.6
Other comprehensive income¹ 0.6 (0.7)
Comprehensive income¹ 3.6 1.9 5.5 3.5 0.4 0.3
EUR millionVeridos GmbH, Berlin²secunet Security Networks AG, Essen including subsidiaries
December 31, 2018December 31, 2017December 31, 2018December 31, 2017
Capital shares NCI40.0 %40.0 %20.6 %20.6 %
Voting rights NCI40.0 %40.0 %20.6 %20.6 %
Profit/(loss) attributable to NCI (0.3) 0.4 3.6 3.3
Dividend paid to NCI (1.6) (0.8)
Share of equity relating to NCI 9.1 9.3 14.7 12.1
Assets¹ 174.3 137.2 143.7 133.3
thereof cash and cash equivalents1 2.8 0.5 56.1 62.9
Liabilities¹ 141.1 106.0 74.2 74.3
Revenues¹ 140.8 128.3 163.3 158.3
Other comprehensive income¹ 0.2 - (0.1) -
Comprehensive income¹ 1.9 0.8 17.7 15.9

26 Related Party Disclosures 

 

Transactions with MC Familiengesellschaft mbH

 

Since 2012, MC Familiengesellschaft mbH is the Group parent company of Giesecke+Devrient GmbH.

 

In 2017, G+D received a loan from MC Familiengesellschaft mbH in the amount of EUR 15.4 million. The duration of the loan was until January 2018 and was due at maturity. The interest rate was 1.2%. In December 2017, a partial amount of EUR 10.0 million was repaid early by G+D. The remaining balance amounted to EUR 5.4 million and was repaid in January 2018. In fiscal year 2018, G+D received a new loan in the amount of EUR 15.5 million with a duration until January 2019. Interest expense amounted to EUR 0.1 million in 2018 and 2017, respectively. As of December 31, 2018 and December 31, 2017, MC Familiengesellschaft mbH invested EUR 0.2 million at G+D by means of the intercompany cash pool account. As of December 31, 2018 and December 31, 2017, no further material transactions involving receivables and payables or income and expenses with MC Familiengesellschaft mbH existed.

 

Giesecke+Devrient GmbH 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 EUR 16.1 million. Regarding the sale of the property and buildings, refer to Note 8 “Property, Plant and Equipment”. In connection with this transaction, lease agreements were concluded with MC Grundstücksgesellschaft mbH & Co. KG. In fiscal year 2018, rental expenses from these leases amounted to EUR 1.7 million.

 

Transactions with Giesecke+Devrient Foundation

 

In fiscal year 2010, G+D established the Giesecke+Devrient Foundation. The company maintained a loan from the Giesecke+Devrient Foundation in the amount of EUR 21.0 million and EUR 20.7 million as of December 31, 2018 and 2017, respectively. The loan is due at maturity on December 1, 2022. Interest expense amounted to EUR 0.5 million and EUR 0.6 million in 2018 and 2017, respectively (see Note 13 “Financial Liabilities”). The grants amounted to EUR 0.3 million in fiscal years 2018 and 2017, respectively.

 

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
2018201720182017
Joint ventures
Goods and services 26.5 9.6 8.4 8.9
Other financial transactions 2.2 2.2 0.1 0.1
28.7 11.8 8.5 9.0
Associated companies
Goods and services 4.3 2.8 1.7 0.5
Other financial transactions 0.1
4.3 2.9 1.7 0.5
33.0 14.7 10.2 9.5

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

 

 

EUR millionDecember 31, 2018December 31, 2017
Joint ventures
Accounts receivable from joint ventures 3.5 4.6
Accounts payable to joint ventures 1.0 0.9
Associated companies
Loans receivable from associated companies 1.3
Accounts receivable from associated companies 4.3 2.7

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 7.0 million and EUR 7.7 million in 2018 and 2017, respectively.

 

In 2018 and 2017, the short-term benefits amounted to EUR 5.7 million and EUR 5.5 million, respectively. Thereof, EUR 4.8 million (prior year EUR 4.5 million) are attributable to the GEC, EUR 0.4 million (prior year EUR 0.4 million) to the supervisory board, and EUR 0.5 million (prior year EUR 0.6 million) to the advisory board.

 

The past service cost for pensions for the GEC (benefits after termination of employment contract) amounted to EUR 0.5 million and EUR 0.4 million in 2018 and 2017, respectively.

 

Furthermore, long term benefits for active members of the GEC amounted to EUR 0.8 million (prior year EUR 1.1 million). 

 

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

 

In the current reporting year, members of the GEC, with exception of the chairman of the board of directors of secunet Security Networks AG, are entitled to receive 40% of their variable salary at the end of two additional years (deferral) in so far as they already held their positions and obtained consent in the prior year. The payment is based on the achievement of target average ROCE (return on capital employed) for fiscal years 2018 and 2017 and each of the two following years. The right to deferral only exists if employment continues 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 4.1 million and EUR 4.0 million as of December 31, 2018 and 2017, respectively, as well as provisions or payables relating to compensation for members of key management personnel in the amount of EUR 5.2 million and EUR 4.9 million, respectively.

 

Total remuneration of the supervisory board and the advisory board in accordance with commercial law equals the stated short-term benefits. Total remuneration of the active members of the management body of the parent company in accordance with commercial law are not disclosed according to Section 315e (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 advisory 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 0.2 million and EUR 0.3 million in 2018 and 2017, respectively. The outstanding balances as of December 31, 2018 and December 31, 2017 amounted to less than EUR 0.1 million. No prepayments or loans to members of key management personnel were granted in fiscal years 2018 and 2017.

 

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 2.9 million and EUR 4.0 million in 2018 and 2017, respectively. In 2018, this includes EUR 1.0 million for long-term variable compensation from a 2016 commitment.

 

Pension obligations to former members of the management board of the parent company and their survivors amounted to EUR 19.0 million and EUR 20.6 million as of December 31, 2018 and 2017, respectively.

 

 

27 Number of Employees

 

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

 

 

20182017
Production 7,358 7,381
Sales 1,416 1,381
Research and development 1,161 1,145
Administration 1,533 1,466
11,469 11,373

28 Personnel Expenses 

 

 

EUR million20182017
Wages and salaries 579.6 556.5
Social security contributions 95.1 90.5
Other personnel expenses 11.9 11.0
686.6 658.0

29 Disclosure in accordance with Section 161 AktG

 

The consolidated financial statements include secunet AG, a publicly traded company. In accordance with Section 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 264b 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 regulations 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 264b 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 Professional Services 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
  • Giesecke+Devrient Ventures GmbH, Munich

 

 

 

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 believes 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 2.6 million as of December 31, 2018 (as of December 31, 2017: EUR 4.4 million) relating to tax risks outside Germany exist. As of December 31, 2018, additional contingent liabilities relating to legal disputes amounting to EUR 2.7 million (December 31, 2017: EUR 2.4 million) exist. G+D believes claims relating to these tax risks and legal disputes are improbable.

 

With regard to financial guarantees, the maximum credit risk is the maximum amount that the Group would have to pay.

 

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 EUR 211.6 million as of December 31, 2018 and EUR 105.2 million as of December 31, 2017.

 

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 EUR 10.0 million in 2018 and 2017, 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 EUR 10.0 million as of December 31, 2018 and December 31, 2017, respectively. 

 

Commitments

As of December 31, 2018, Giesecke+Devrient has material purchase commitments which mainly consist of short-term agreements that were entered into during the 2018 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, 2018 is allocated to the respective years as follows:

 

 

EUR million
2019326.2
2020124.6
202115.6
20221.4
20230.1
thereafter0.4
468.3

32 Grants

 

In fiscal years 2018 and 2017, G+D received other miscellaneous grants for operational investments in the amount of EUR 1.2 million and EUR 0.8 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 2018 amounted to EUR 2.5 million. The breakdown into categories is as follows: a) fees for audit services EUR 1.4 million, b) fees for audit-related services EUR 0.5 million, c) fees for tax-related services EUR 0.2 million and d) fees for all other services EUR 0.4 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, 2018, 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

 

Refer to the disclosures in Note 24 “Business combinations”, regarding the purchase of the company Transtrack International in January 2019. 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, Grünwald¹100.00
Giesecke & Devrient Immobilien Verwaltungsgesellschaft mbH, Grünwald100.00
Papierfabrik Louisenthal GmbH, Gmund am Tegernsee100.00
Giesecke+Devrient Professional Services GmbH, Munich100.00
Giesecke+Devrient Secure Data Management GmbH, Neustadt b. Coburg100.00
Giesecke+Devrient advance52 GmbH, Munich100.00
Giesecke+Devrient Ventures GmbH, Munich100.00
Giesecke+Devrient Immobilien Management GmbH, Munich100.00
EPC Electronic Payment Cards GmbH & Co. KG, Gmund am Tegernsee100.00
Procoin GmbH, Langen100.00
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
CI Tech Components 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/Virginia 100.00
Direct and indirect investments held by Giesecke+Devrient GmbH in affiliated companies
Shareholding in %
Giesecke+Devrient Mobile Security America, Inc., Dulles/Virginia 100.00
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. Petersburg 84.69
Giesecke & Devrient Malaysia SDN BHD, Kuala Lumpur80.00
secunet Security Networks AG, Essen79.43
secunet SwissIT AG, Solothurn100.00³
secunet s.r.o., Prague100.00³
Secunet Inc., Austin (shell company)²100.00³
secunet Service GmbH, Essen100.00³
secunet International GmbH & Co.KG, Essen100.00³
secunet International Management GmbH, Essen100.00³
Build38 GmbH, Munich70.00
Veridos GmbH, Berlin60.00
Veridos Canada Ltd., Toronto/Ontario100.00³
Veridos America Inc., Wilmington/Delaware100.00³
Veridos FZE, Dubai100.00³
Firdaus Al Aman for general Trading, Baghdad100.00³
Veridos Brasil Comércio de Smart Cards e Soluções para Identificação Segura e Autenticação Ltda., São Paulo100.00³
Veridos México S.A. de C.V., Mexico City100.00³
Giesecke & Devrient Kabushiki Kaisha, Tokyo51.00
finally safe GmbH, Essen63.28³
E-SEEK Inc., San Diego/California75.00³
Veridos Matsoukis S.A. Security Printing, Athens60.00³
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 Dhabi49.00³
Uganda Security Printing Company Ltd., Entebbe49.00³
Netset Global Solutions d.o.o., Belgrade40.00³
Hansol Secure Co., Ltd., Seoul16.29
Investments held by Giesecke+Devrient GmbH in other related parties
Shareholding in %
IDnow GmbH, Munich12.00
Verimi GmbH, Frankfurt am Main6.06

 

Munich, March 26, 2019

 

Giesecke+Devrient GmbH
The Management Board

 

 [original German version signed by:] [original German version signed by:]

R. Wintergerst           Dr. P. Zattler
Group CEO                Group CFO

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