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Significant accounting policies
Kendrion N.V. is domiciled in the Netherlands. The Company’s registered offi ce is Utrechtseweg 33, 3704 HA Zeist. The consolidated fi nancial statements of the Company for the year ended 31 December 2009 comprise the Company and its subsidiaries (together referred to as the ‘Group’). The Group is involved in the design, manufacturing and sale of high-quality electromagnetic systems and components.
The consolidated fi nancial statements were authorised for issue by the Executive Board on 24 February 2010.
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Statement of compliance
The consolidated fi nancial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations of the standards adopted by the International Accounting Standards Board (IASB) and
endorsed by the EU (hereinafter referred to as EU-IFRS) as per 31 December 2009.
The company fi nancial statements are part of the 2009 fi nancial statements of Kendrion N.V. With regard to the company income statement of Kendrion N.V., the Company has made use of the option provided by Section 402 of Book 2 of the Netherlands Civil Code.
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Basis of measurement
The fi nancial statements are presented in millions of euros, the euro also being the Company’s functional currency.
The fi nancial statements have been prepared on a historical cost basis except that: z derivative fi nancial instruments are stated at fair value;
z liabilities arising from cash-settled share-based payments arrangements are stated at fair value.
The methods used to measure the fair values are discussed further in Note 14.
The preparation of the fi nancial statements in conformity with EU-IFRS requires the Executive Board to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are considered reasonable in the circumstances, the results of which form the basis of making the judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Changes in estimation methods and the impact thereof are outlined in the notes to the relevant item.
Judgements made by the Executive Board in the application of EU-IFRS that have a signifi cant effect on the fi nancial statements and estimates with a signifi cant risk of material adjustment in the next year are included in the following notes:
z Note 20 – business combinations
z Note 2 – measurement of the recoverable amount of cash-generating units containing goodwill z Note 4 – utilisation of deferred tax assets
z Note 11 – measurement of defi ned benefi t obligations z Note 12 – provisions
z Note 17 – contingent liabilities
z Note 14 – valuation of fi nancial instruments
The accounting policies set out below have been applied consistently to all periods presented in these consolidated fi nancial statements and by the Group entities. Certain comparative amounts have been reclassifi ed to match the presentation in the current fi nancial year. The statement of comprehensive income has been revised in 2008 such that the operation classifi ed as held for sale during the course of that accounting period has also been presented as though it had been treated as such from the beginning of the comparative period (as stated in Note 19).
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Changes in accounting policies
Overview
As of 1 January 2009, the Group has changed its accounting policies in respect of: z determination and presentation of operating segments;
z presentation of fi nancial statements.
Determination and presentation of operating segments
The Group continues to determine and present operating segments based on the information that is provided internally to the Board, the Group’s chief operating decision-maker. This is in conformity with IFRS 8 – Operating Segments. Previously, operating segments were determined and presented in accordance with IAS 14 – Segment Reporting. The new accounting policy in respect of segment operating disclosures is presented in Note 18. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on earnings per share.
Presentation of financial statements
The Group applies the revised IAS 1 – Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Group presents all owner changes in equity in the consolidated statement of changes in equity, while all non-owner changes in equity are presented in the consolidated statement of comprehensive income.
Comparative information has been restated to conform to the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.
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Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The fi nancial statements of subsidiaries are included in the consolidated fi nancial statements from the date that control commences until the date that control ceases. The shares of third parties in shareholders’ equity and results are stated separately. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group.
(ii) Composition of the Group
2009
On 5 February 2009 the European Competition Authority’s gave approval for the sale of the Vink Group to Edmundson Distribution Limited. The sale was completed on 12 February 2009.
2008
In 2008 the 51% participating interest in Linnig de México S.A. de C.V. was expanded from 51% to 100%.
On 25 August 2008 Kendrion reached agreement with the owners of Tri-Tech LLC for the acquisition of all shares in this company.
On 22 December 2008 Kendrion sold all shares in Servico NV to Robert Bosch GmbH.
(iii) Transactions eliminated on consolidation
Intragroup balances and transactions, as well as any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated fi nancial statements. Unrealised gains arising from transactions with equity-accounted entities are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
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Foreign currency
(i) Foreign currency transactions
Transactions expressed in non-euro zone currencies are translated into euros at exchange rates at the date of the transaction. Monetary assets and liabilities denominated in non-euro zone currencies at the reporting date are translated into euros at the exchange rate at that date. Non-monetary assets and liabilities denominated in currencies that are measured at historical cost are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in the non-euro zone currencies that are measured at fair value and are translated in euros against the exchange rates which were valid at the dates that the fair values were set. Currency differences arising on translation are recognised in the statement of comprehensive income, except loans considered to be part of the net investment, or qualifying cash fl ow hedges which are recognised directly in the translation reserve.
(ii) Non-euro zone operations
The assets and liabilities of non-euro zone operations, including goodwill and fair value adjustments arising on the moment of acquisition, are translated into euros at exchange rates at the reporting date. The income and expenses of non-euro zone operations are translated into euros at rates approximating the exchange rates at the date of the transaction. Foreign currency differences are recognised directly in the translation reserve.
On the partial or complete sale of a foreign operation the related amount is transferred from the translation reserve to the profi t or loss.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a non-euro zone operation, of which the settlement is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a non-euro zone operation and are recognised directly in equity in the translation reserve.
(iii) Net investment in non-euro zone operations
Foreign currency differences arising on the translation of a fi nancial liability designated as a hedge of a net investment in a non-eurozone operation are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognised in the profi t or loss. When the hedged part of a net investment is disposed of, the associated cumulative amount in equity is transferred to the profi t or loss.
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Property, plant and equipment
(i) Owned assets
Items of property, plant and equipment are measured at cost or assumed cost less accumulated depreciation and accumulated impairment losses (see accounting policy j). The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and reinstating the site on which they are located, and a reasonable proportion of production overheads.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items.
(ii) Leased assets
Leases under which the Group assumes substantially all the risks and rewards of ownership are classifi ed as fi nance leases. Owner-occupied property acquired by way of fi nance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation (see below) and impairment losses (see accounting policy j).
(iii) Subsequent costs
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefi ts embodied within the part will fl ow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised as a charge in the statement of comprehensive income as incurred.
(iv) Depreciation
Depreciation is charged to the profi t or loss on a straight-line basis over the estimated useful life of each component of property, plant and equipment. Land is not depreciated.
Depreciation methods, useful lives and residual values are reviewed annually.
(v) Recognition of transaction results
Gains and losses on the disposal of property, plant and equipment are accounted for in other operating income.
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Intangible assets
(i) Goodwill
All business combinations are accounted for by the purchase method. Goodwill represents amounts arising on the acquisition of investments in subsidiaries, equity-accounted investments and joint ventures. In respect of business combinations that have occurred since 1 January 2004, goodwill represents the difference between the cost of the acquisition and the net fair value of the identifi able assets, liabilities and contingent liabilities acquired.
In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous GAAP.
Goodwill is carried at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment (see accounting policy j).
Negative goodwill arising on an acquisition is recognised directly in the profi t or loss.
(ii) Research and development
Expenditure on research activities undertaken with the prospect of gaining new scientifi c or technical knowledge and understanding is recognised in the profi t or loss as an expense as incurred.
(iii) Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see below) and accumulated impairment losses (see accounting policy j). Based on the purchase price allocation of acquisitions intangible assets are recognised which are part of the other intangible assets and relate to a.o. valued customer relations, trade names and technologies.
(iv) Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefi ts embodied in the specifi c asset to which it relates. All other expenditure is expensed as incurred.
(v) Amortisation
Amortisation is recognised in the profi t or loss on a straight-line basis over the estimated useful lives of the intangible assets unless such lives are indefi nite. Goodwill and other intangible assets with an indefi nite useful life are
systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use.
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Financial instruments and other investments
(i) Financial instruments
Non-derivative fi nancial instruments
Non-derivative fi nancial instruments comprise trade and other receivables, recognised interest bearing loans and borrowings, trade and other payables, cash and cash equivalents, and other non-derivative fi nancial instruments.
Non-derivative fi nancial instruments are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition non-derivative fi nancial instruments are measured as described below.
Trade and other receivables
Recognised interest-bearing loans and borrowings
After initial recognition, interest-bearing loans and borrowings are carried at amortised cost with any difference between the initial carrying amount and the redemption amount based on the effective interest method taken to the profi t or loss over the term of the loans.
Trade and other payables
Trade and other payables are carried at amortised cost.
Cash and cash equivalents
Cash and cash equivalents comprise cash and bank balances and other call deposits payable on demand. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents in the statement of cash fl ows and are measured at face value.
Other non-derivative fi nancial instruments
This concerns subordinated a loan granted to third parties. Other non-derivative fi nancial instruments are measured at amortised cost using the effective interest method, less any impairment losses.
Derivative fi nancial instruments
The Group holds derivative fi nancial instruments to hedge its foreign currency and interest-rate risk exposures. Derivatives are initially measured at fair value, with attributable transaction costs recognised in the statement of comprehensive income when incurred. Subsequent to initial recognition, derivatives are carried at fair value. Any changes are taken to the profi t or loss, unless the instruments are designated as cash fl ow hedges.
One embedded derivative was identifi ed and separated from the host contract and accounted for separately as a currency forward contract.
Changes in the fair value of a derivative hedging instrument designated as a cash fl ow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes are recognised in the profi t or loss.
If the hedging instrument no longer meets the criteria for a cash fl ow hedge, expires or is sold, then hedge accounting is discontinued prospectively. The cumulative result previously included in equity is recognised in the profi t or loss unless it is expected that the original hedged transaction will still take place. When the hedged position is a non-fi nancial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to the profi t or loss in the same period that the hedged position or transaction is recognised.
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Inventories
Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs to sell.
The cost of inventories of the Group is based on the weighted average cost and includes expenditure incurred in acquiring the inventories and bringing them to their current location and condition. The cost of inventories includes an appropriate share of overheads based on normal operating capacity.
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Impairment
(i) Financial assets
A fi nancial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A fi nancial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash fl ows of that asset.
An impairment loss in respect of a fi nancial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash fl ows discounted at the original effective interest rate.
Signifi cant fi nancial assets are tested for impairment on an individual basis. The remaining fi nancial assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised as a charge in the profi t or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For fi nancial assets measured at amortised cost, the reversal is recognised in the profi t or loss.
(ii) Non-financial assets
The carrying amounts of the Group’s non-fi nancial assets, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefi nite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash