Financial risk management and derivative financial instruments
In the course of its operating activities, the Group is exposed in the area of finance to credit, liquidity and market risks. The market risks mainly relate to interest rate and exchange rate changes. Credit risk
The credit risk is related to the deterioration of the economic situation of Ströer’s customers and counterparties. This brings about the risk of a partial or full default on contractually agreed pay- ments as well as the risk of credit-related impairment losses on financial assets. Excluding securities, the maximum risk of default equates to the carrying amount.
Credit risks mainly result from trade receivables. To manage the credit risk, the receivables portfolio is monitored on an ongoing basis. Customers intending to enter into transactions with large business volumes undergo a creditworthiness check beforehand; credit risk is at a level customary for the industry. Bad debt allowances are charged to account for the residual risk. The Ströer Group is exposed to a lesser extent to credit risks arising from other financial assets that mainly relate to cash and cash equivalents and derivative financial instruments.
As part of the risk management process, the functional departments regularly analyze whether in particular credit risk concentrations have arisen from the build-up of receivables with comparable features. The Group has defined similar features as a high amount of receivables accumulated against a single debtor or group of related debtors. As of the reporting date of 31 December 2013, no such risk concentrations involving significant amounts were evident.
In EUR k Fair value
Derivative Nominal volume End of term 31 Dec 2013 31 Dec 2012 Cash flow hedge Stand-alone
Interest rate swap 70,000 April 2013 0 – 1,252 0 70,000
Interest rate swap 40,000 January 2015 – 2,533 – 4,094 0 40,000
Interest rate risk
The Ströer Group is mainly exposed to interest rate risks in connection with non-current floating-rate financial liabilities and existing cash and cash equivalents. The liability bears a floating rate of interest. The interest rate trend is monitored regularly to enable a swift response to changes. Hedging meas- ures are coordinated and executed centrally. As in the prior year, there are no interest rate hedges in a hedge relationship.
The nominal and market values of interest rate swaps existing as of the reporting date that are treated as stand-alone instruments are as follows:
The market values of the interest rate swaps due in more than one year are recognized under non- current financial liabilities in the statement of financial position with the exception of accrued interest.
The interest rate swaps are valued as of the relevant reporting date using current yield curves by means of a discounted cash flow method.
In fiscal year 2013, no remeasurement gains on interest rate swaps were taken to equity (prior year: EUR 1,123k). Due to the dedesignation of hedges with a nominal volume of EUR 300,000k, the total amount of EUR 4,900k was derecognized from equity in the course of the prior year.
There was no close-out for the remaining interest rate swaps that are not in a hedging relationship and also no offsetting transaction concluded, meaning there is an interest rate risk for the remaining term of these interest rate swaps (a liquidity risk as well as market value risk). The stand-alone swaps are not part of a hedge pursuant to IAS 39 or part of an economic hedging relationship.
This exposure may have an impact on post-tax profit as well as cash flows depending on how the interest rate develops in the future. Both these items could develop positively if the interest rate were to rise faster than the rate expected by the market as of the reporting date, while a slower rise could have a negative impact.
The sensitivity analysis of the interest rate risk shows the effect of an upward shift in the yield curve by 100 bp and a downward shift by 25 bp, ceteris paribus, on the profit or loss for the period. The yield curve was only shifted down 25 bp as the Group believes that this decrease corresponds to the maximum interest rate risk arising from the current low interest rate level. The analysis relates to stand-alone derivatives, floating-rate financial liabilities and existing cash and cash equivalents. The results are summarized in the table below:
Currency risk
Following the designation of the group refinancing carried out in Turkey and Poland as net invest- ments as defined by IAS 21 with the exception of the translation of the operating results of these segments into euros, currency risk is of minor significance for the Ströer Group. The designation as net investments was made in fiscal year 2013. The functional currency of the foreign operations is the local currency.
Currency risks arising on monetary financial instruments that are not denominated in the functional currencies of the individual Ströer group entities were included in the sensitivity analysis. Effects from the translation of foreign currency financial statements of foreign operations into the group reporting currency (euro) are not included in the sensitivity analysis in accordance with IFRS 7. A 10% increase / decrease in the value of the euro against the Turkish lira as of 31 December 2013 would decrease/increase the profit or loss for the period by EUR 18k (prior year: EUR 4,461k). A 10% increase / decrease in the value of the euro against the Polish zloty would decrease / increase the profit or loss for the period by EUR 1,082k (prior year: EUR 3,444k). The designation of the euro- denominated loans as a net investment in a foreign operation (IAS 21) was considered in this analysis, which was performed on the assumption that all other variables, in particular interest rates, remain unchanged and is based on the foreign currency positions as of the reporting date.
31 Dec 2013 31 Dec 2012
In EUR k + 100 bp – 25 bp + 100 bp – 25 bp
Contractual maturity of financial liabilities including interest payments as of 31 Dec 2013
In EUR k Carrying amount Up to 1 year 1 to 3 years 3 to 5 years More than 5 years Total
Financial liabilities 369,203 65,957 55,273 284,957 2,717 408,904
Trade payables 107,928 107,928 0 0 0 107,928
Derivatives not in a hedging
relationship 2,533 1,711 828 0 0 2,539
Obligation to purchase treasury
shares 21,724 7,360 6,988 8,512 0 22,860
Total 501,388 182,956 63,089 293,469 2,717 542,231
Contractual maturity of financial liabilities including interest payments as of 31 Dec 2012
In EUR k Carrying amount Up to 1 year 1 to 3 years 3 to 5 years More than 5 years Total
Financial liabilities 325,592 28,699 49,141 297,546 5,125 380,511
Trade payables 80,466 80,466 0 0 0 80,466
Derivatives not in a hedging
relationship 5,346 2,855 2,505 0 0 5,360
Obligation to purchase treasury
shares 11,598 8,998 2,600 0 0 11,598
Total 423,002 121,018 54,246 297,546 5,125 477,935
Liquidity risk
The liquidity risk is defined as the risk that Ströer AG will not have sufficient funds to settle its pay- ment obligations. The liquidity risk is countered through systematic liquidity management. A liquidity forecast for a fixed planning horizon and the unutilized credit lines in place ensure that the Group has adequate liquidity at all times. The following table shows the liquidity situation and the contractual maturity dates for the payments due under financial liabilities as of 31 December 2013 (the expected cash flows for derivatives were forecast on the basis of the yield curve as of 31 December 2013):
Additional disclosures on financial instruments
The following table presents the carrying amount and fair value of the financial instruments included in the individual items of the statement of financial position, broken down by class and measure- ment category according to IAS 39.
Carrying amount in accordance to IAS 39 In EUR k Measurement category pursuant to IAS 39 Carrying amount as of
31 Dec 2013 Amortizedcost
Fair value recognized directly in equity Fair value through profit or loss Fair value as of 31 Dec 2013 Assets Cash L&R 43,149 43,149 43,149
Trade receivables L&R 88,884 88,884 88,884
Other non-current financial assets L&R 1,181 1,181 1,181
Other current financial assets L&R 10,210 10,210 10,210
Available-for-sale financial assets afs 173 173 n.a.
Equity and liabilities
Trade payables AC 107,928 107,928 107,928
Non-current financial liabilities AC 336,001 332,072 3,9292) 336,001
Current financial liabilities AC 33,203 21,056 12,1472) 33,203
Derivatives not in a hedging
relationship (Level 2) FVTPL 2,533 2,533 2,533
Obligation to purchase
treasury shares (Level 3) AC 21,724 2,600 19,124 0 21,724
Thereof aggregated by measurement category pursuant to IAS 39:
Loans and receivables L&R 143,424 143,424 143,424
Available-for-sale financial assets afs 173 173 n.a.
Financial liabilities measured at
amortized cost AC 498,856 463,656 19,124 16,076 498,856
Financial liabilities at fair value
through profit or loss FVTPL 2,533 2,533 2,533
1) Fair value before deferred taxes 2) Earn-out liabilities (Level 3)
Carrying amount in accordance to IAS 39 In EUR k Measurement category pursuant to IAS 39 Carrying amount as of
31 Dec 2012 Amortizedcost
Fair value recognized directly in equity Fair value through profit or loss Fair value as of 31 Dec 2012 Assets Cash L&R 23,466 23,466 23,466
Trade receivables L&R 65,706 65,706 65,706
Other non-current financial assets L&R 2,008 2,008 2,008
Other current financial assets L&R 11,080 11,080 11,080
Available-for-sale financial assets afs 101 101 n.a.
Equity and liabilities
Trade payables AC 80,466 80,466 80,466
Non-current financial liabilities AC 305,010 298,455 6,5552) 305,010
Current financial liabilities AC 20,582 19,915 6672) 20,582
Derivatives not in a hedging
relationship (Level 2) FVTPL 5,346 5,346 5,346
Obligation to purchase
treasury shares (Level 3) AC 11,598 8,579 3,019 0 11,598
Thereof aggregated by measurement category pursuant to IAS 39:
Loans and receivables L&R 102,260 102,260 102,260
Available-for-sale financial assets afs 101 101 n.a.
Financial liabilities measured at
amortized cost AC 417,656 407,415 3,019 7,222 417,656
Financial liabilities at fair value
through profit or loss FVTPL 5,346 5,346 5,346
Due to the short terms of cash and cash equivalents, trade receivables, trade payables, other financial assets and current financial liabilities, it is assumed that the fair values correspond to the carrying amounts.
The fair values of the liabilities to banks included in non-current financial liabilities are calculated as the present values of the estimated future cash flows taking into account Ströer’s own risk credit level (level 2 fair values). Market interest rates are used for discounting, in relation to the relevant maturity date. It is therefore assumed as of the reporting date that the carrying amount of the non-current financial liabilities is equal to the fair value.
The fair value hierarchy levels and their application to the Group’s assets and liabilities are described below.
Level 1: Listed market prices are available in active markets for identical assets or liabilities. Level 2: Quoted or market prices for similar financial instruments on an active market or for identical
or similar financial instruments on a market that is not active or inputs other than quoted prices that are based on observable market data.
Level 3: Valuation techniques that use inputs which are not based on observable market data. Changes in the assessment of the level to be used for measuring the assets and liabilities are made at the time any new facts are established. At present, derivative financial instruments are measured at fair value in the consolidated financial statements and are all classified as Level 2. Additionally, there are contingent purchase price liabilities from acquisitions as well as put options for shares in various group entities that are each classified as Level 3. These liabilities – which are tied to contractually agreed conditions – are remeasured as financial liabilities at fair value as of the reporting date on the basis of the measurement model laid down in the contract. The fair values of liabilities from contin- gent purchase price payments or to acquire non-controlling interests are determined on the basis of un observable inputs (discounted cash flows). The valuation model includes the EBITDA figures fore- cast for the interests concerned (which are probability-weighted in individual cases) as well as risk- adjusted interest rates in line with the underlying terms. The EBITDA figures result from the respective short and medium-term business planning and are estimated and, if appropriate, adjusted on a quarterly basis. The following table shows the changes in the liabilities classified as Level 3:
The remeasurement of the contingent purchase price liabilities led to expenses of EUR 0.9m that are reported in other operating expenses as well as interest expenses from write-ups of EUR 0.4m. In addition, the derecognition of an expired contingent purchase price liability led to income of EUR 1.9m that was reported in other operating income.
The valuation models are sensitive to the amount of the forecast and actual EBITDA figures. For example, if the respective EBITDA increased by 20% (or decreased by 20%), the fair values of the contingent purchase price liabilities would increase by EUR 200k (or decrease by EUR 3,910k). Liabilities from put options would rise by EUR 5,516k (or fall by EUR 4,289k). The valuation models are also sensitive to the discount rates used. However, due to the predominantly short terms, if the discount rate increased or decreased by 100 basis points, there would only be a marginal change in the liabilities. This also applies to the prior-year amounts.
In EUR k 1 Jan 2013 Additions Remeasurements Disposals 31 Dec 2013
Contingent purchase price liabilities 7,222 12,186 – 555 – 2,776 16,077
The following table shows the net gains and losses on financial instruments in the income state- ment, broken down by measurement category according to IAS 39 (excluding derivative financial instruments which are part of a hedge):
Net gains and losses resulting from financial assets and liabilities recognized at fair value through profit and loss include the gain or loss on the interest rate swaps classified as stand-alone derivatives. Net gains and losses on loans and receivables include the impairment losses (EUR 1,611k, prior year: EUR 1,708k), write-ups and exchange differences.
Net gains and losses on financial liabilities measured at amortized cost include effects from ex- change differences and the unwinding of the discount on loans.
The total interest income for financial assets or financial liabilities that are not at fair value through profit or loss came to EUR 661k in the fiscal year (prior year: EUR 691k). The total interest expense for financial assets or financial liabilities that are not at fair value through profit or loss came to EUR 15,981k in the fiscal year (prior year: EUR 37,821k).
37 Contingent liabilities and other financial obligations