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Haniel Group: Financial position

Haniel took advantage of the attractive capital market environment to issue an exchangeable bond linked to Metro shares. In addition, the Metro investment was reduced further. Haniel acquired the new Bekaert Textiles division with the proceeds and also expanded its financial leeway for future transactions.

 

Financial governance between the Holding Company and the divisions
The ultimate objective of financial management is to cover the financing and liquidity needs at all times while maintaining entrepreneurial independence and limiting financial risks. The Holding Company prescribes principles to the divisions in order to establish minimum organisational requirements and to govern the structure of key financial management processes, including financial risk management. These directives are documented in guidelines for the treasury departments of the Holding Company and the divisions. The Holding Company and the divisions use this basis to identify, analyse and evaluate the financial risks that each operating business is responsible for – in particular liquidity, credit, interest rate and currency risks – and take measures to avoid or limit these risks. In addition, the Holding Company sets the financing and financial risk management strategy and approves the financial counterparties and financial instruments used, as well as limits and reports.

While staying within these guidelines, the divisions manage their own financing based on their own financial and liquidity planning. Cash management is also the responsibility of the divisions. In order to leverage economies of scale, the Holding Company and its finance companies support the divisions and, together with partner banks, offer cash pools in various countries. Combining central directives with the autonomy of the divisions in terms of their financing takes into account both the different levels of investment by the Holding Company in the divisions as well as the divisions’ individual requirements for financial management.

Trusting cooperation with financing partners
As a family business with stable but limited equity financing, access to sources of debt capital are of high importance to Haniel. Accordingly, a good reputation with financial partners is essential. A significant aspect of this is providing rating agencies and business partners with timely and transparent information and the equal treatment of banks and investors with respect to material contractual components. Only if this is ensured can a company earn a high degree of trust from banks and investors as a long-standing and reliable business partner, such as Haniel has enjoyed for many years.

Investment grade rating from Scope rating agency
A stable good rating is evidence of the corresponding creditworthiness and creates transparency that is necessary for a trusting relationship with financing partners. For that reason, the Haniel Holding Company voluntarily submits to external ratings. Material factors influencing the rating include the market value gearing and the cash cover. Market value gearing is the ratio of net financial debt to the value of Haniel’s investment portfolio. Cash cover indicators give the ratio of cash inflows to cash outflows at the level of the Haniel Holding Company. For example, total cash cover is calculated as the ratio between cash inflows from dividends and profit transfers and the outflows for ongoing Holding Company costs, interest and dividends to the Haniel family. In addition, the number and weight of the individual equity investments in the Haniel investment portfolio influence the rating.

Standard & Poor’s and Moody’s had already raised their ratings to BB+ and Ba1, respectively, in 2013. In 2014, Standard & Poor’s added a positive outlook to its opinion and confirmed it in the first half of 2015. The European rating agency Scope evaluated Haniel for the first time in February 2016, classifying it as investment grade at BBB-. This vindicates the Haniel Holding Company’s goal of a stable investment grade rating.

Broad-based financing
Diversification of financing is a significant core element of financial management in the Haniel Group. The use of various financing instruments with a broad range of business partners not only ensures access to liquidity at all times, it also reduces the dependency on individual financial instruments and business partners. In addition, the Group can respond flexibly to developments on the capital markets and in the banking sector. Binding commitments for credit facilities which are, however, utilised to only a limited extent, are an expression of the effort to obtain secure and independent financing. The Haniel Group has used and unused credit facilities on the scale of EUR 2.0 billion.

In addition to bank loans, the Haniel Group also obtains financing regularly on the capital market using bonds, commercial paper and promissory loan notes. To that end, the Haniel Holding Company updates its commercial paper programme at longer intervals and its debt issuance programme (still in the amount of EUR 2.0 billion) annually. Based on information contained therein, bonds can be placed very flexibly in terms of the timing and amount and adjusted to the respective market conditions.

A balanced maturity structure with appropriate long-term financing ensures additional financing security. The financial liabilities reported in the Haniel Group’s Statement of financial position were EUR 1,680 million as at 31 December 2015. Of that amount, EUR 643 million is due in less than one year, EUR 914 million is due in one to five years, and EUR 123 million is due in more than five years. The majority of liabilities are denominated in euros. Liabilities in foreign currencies are primarily in US dollars.

Attractive financing terms secured
Haniel used two measures in the financial year just ended to further expand its financial leeway: First, the Holding Company further reduced the weighting of the Metro investment in Haniel’s portfolio and released financial resources through the disposal of Metro shares. Second, the highly favourable capital market environment was leveraged to issue an exchangeable bond linked to Metro shares. The non-interest bearing bond will secure attractive financing conditions for Haniel over the next five years. The reduction of the shares in the METRO GROUP financial investment and the placement of the exchangeable bond linked to Metro shares brought in EUR 1.0 billion for Haniel in 2015. Haniel used a portion of the proceeds from these transactions to acquire the Bekaert Textiles division.

The issue of the exchangeable bond increased the carrying amount of the outstanding bonds in the Haniel Group from EUR 0.5 billion at the end of 2014 to EUR 0.9 billion as at 31 December 2015. In addition, the divisions have increasingly financed themselves on the market for promissory loan notes in recent years and thus broadened their financing base. At the end of 2015, the value of promissory loan notes, commercial paper and other securitised liabilities in the Haniel Group remained unchanged from the previous year’s value of EUR 0.2 billion. Additionally, the Bekaert Textiles, CWS-boco and ELG divisions maintain programmes for the continual sale of trade receivables to third parties.

Net financial position of the Group reduced
The net financial liabilities of the Haniel Group, i.e., financial liabilities less cash and cash equivalents, remained almost constant at EUR 1,338 million as at 31 December 2015 compared to EUR 1,358 million at the end of 2014. The increased debt from the issue of the exchangeable bond linked to Metro shares as at 31 December 2015 is offset by higher cash and cash equivalents from short-term, temporary investment despite the acquisition of the Bekaert Textiles division. These financial resources were proceeds from the bond issue and the sale of Metro shares. In addition, the decline in inventories and trade receivables in the ELG division resulted in a lower financing requirement and hence to lower financial liabilities.

The net financial position in the Haniel Group equals the net financial liabilities less the investment position of the Haniel Holding Company – excluding current and non-current receivables from affiliated companies. The net financial position declined from EUR 774 million to EUR 445 million due primarily to the Haniel Holding Company’s larger investment position as a result of the temporary investment of cash, in particular from the sale of the Metro shares, as well as from the issue of the exchangeable bond linked to Metro shares.

At the level of the Haniel Holding Company, net financial liabilities increased from EUR 647 million to EUR 849 million. This is offset by a portfolio of financial assets that will be used in the coming years to acquire additional divisions as well as to redeem outstanding bonds. Including current and non-current receivables from affiliated companies, the Haniel Holding Company had financial assets valued at EUR 1,158 million as at 31 December 2015. The Haniel Holding Company thus remains de facto debt-free and has a solid financial buffer.

Operating cash flow increased significantly
Haniel uses the performance indicator Haniel cash flow to assess the strength of its liquidity position in its current business activities. This indicator reveals the extent to which the Haniel Group generates sufficient financial resources through its current business activities to enable it to secure funding both for its current net assets* as well as its investing activities. Haniel cash flow increased from EUR 175 million in the previous year to EUR 329 million in 2015. One cause for the increase was that, in contrast to the previous year, the METRO GROUP paid out a dividend in 2015. Another contributor to the improvement in cash flow was the substantially lower finance costs as a result of the easing of the debt burden. In addition, the new Bekaert Textiles division is included for the first time and made a significant positive contribution to Haniel cash flow.

Cash flow from operating activities, which supplements Haniel cash flow in depicting the change in current net assets, amounted to EUR 451 million in 2015, and was thus higher than Haniel cash flow. This is attributable to the fact that the reduction of current net assets resulted in financial funds being freed up. A lower nickel price and a lower output tonnage in the ELG division in particular resulted in declining trade receivables and lower inventories. In the previous year, cash flow from operating activities amounted to EUR -135 million, less than the Haniel cash flow. This was due to the 2014 increase in inventories, in terms of value and volume, and trade receivables at ELG in particular.

EUR million 2014 2015
Haniel cash flow 175 329
Cash flow from operating activities -135 451
Cash flow from investing activities 779 -293
Cash flow from financing activities -1,093 72

Higher investments through acquisition of Bekaert Textiles
Cash flow from investing activities in the 2015 financial year amounted to EUR -293 million because the outflows for investing activities significantly exceeded the proceeds from divestment activities. Payments for investments in property, plant and equipment, intangible and other assets, as well as for business acquisitions amounted to EUR 1,058 million. In addition to the investments by the divisions in property, plant and equipment and intangible assets, that figure primarily includes the acquisition of the new Bekaert Textiles division as well as the acquisition of companies by TAKKT and CWSboco. In addition, the payments for financial assets by the Haniel Holding Company increased investments. The payments compare to proceeds from divestment activities amounting to EUR 765 million. These primarily consisted of the proceeds from the sale of Metro shares and financial assets of the Haniel Holding Company.

Divestments in the prior-year period substantially exceeded investments so that the cash flow from investing activities amounted to EUR 779 million. That figure included payments of EUR 770 million – primarily for financial assets through the Haniel Holding Company and for investments by the divisions in property, plant and equipment and intangible assets. The proceeds from divestment activities of EUR 1,549 million in the previous year were extremely high due primarily to the sale of the Celesio division.

Cash flow from financing activities amounted to EUR 72 million in the year under review. That figure includes proceeds from the issue of the exchangeable bond linked to Metro shares. That was offset by outflows from the repayment of current financial liabilities, in particular against the backdrop of ELG division’s lower financing requirement. The cash flow from financing activities also includes the payment of dividends to the shareholders of Franz Haniel & Cie. GmbH amounting to EUR 40 million – following EUR 30 million in the previous year. The cash flow from financing activities in the previous year of EUR -1,093 million contained the scheduled repayment and redemption of bonds with a total principal amount of EUR 849 million.

* Net current assets consist essentially of trade receivables and inventories less trade payables.