 KHD Humboldt Wedag International AGKölnHalf-year Financial Report 2017ISIN: DE0006578008 GERMAN SECURITIES IDENTIFICATION NUMBER (WKN): 657800 Stock Exchange Symbol: KWG www.khd.com Summary of the First Half Year 2017
Key Figures at a Glancescroll
scroll
*
Including intercompany loans of € 100 million, thereof € 50 million with entitlement
to call for early repayment by giving 30 days' notice Please note that differences may occur for amounts and ratios rounded as all amounts
have been rounded according to normal commercial practice. MANAGEMENT REPORT TO THE INTERIM GROUP FINANCIAL STATEMENTS AS OF JUNE 30, 2017Fundamental Group PrinciplesKHD Humboldt Wedag International AG (hereinafter also referred to as "KHD" or the
"Group") made no fundamental changes to its business model, strategy or management
system (see combined management report of December 31, 2016, pp. 15-22) during the
first half-year 2017. In addition to continued expansion of business activities in
the Plant Services segment, the focus is on strengthening the Capex segment by further
expansion of sales activities, increasing competitiveness, supporting a culture of
excellence and performance, and targeted research and development activities. Management, monitoring and reporting within the Group continue to be based on financial
indicators. With respect to the basic determination and calculation of these financial
performance indicators, reference is made to the combined management report of December
31, 2016, page 19 et seq. The significant performance indicators of the Group are:
For Group management purposes, KHD adjusts the EBIT as necessary with regard to special
effects. The adjusted EBIT as of June 30, 2017 is determined as follows: scroll
In addition to the idle capacity costs of € 3.0 million (previous year: € 3.8 million)
due to under-utilization of existing capacities, the adjustments include expenses
related to headcount reduction measures in the amount of € 1.3 million. Management and SupervisionManagement BoardMr. Yizhen Zhu, who has been a Management Board member for many years, resigned from
his office effective June 30, 2017. The Supervisory Board appointed Mr. Dian Xie to
the Management Board, effective July 1, 2017. Mr. Xie has many years of management
experience in the areas of business development, sales and project execution. Supervisory BoardAfter many years of service, Ms. Eliza Suk Ching Yuen resigned from her office as
member of the Supervisory Board as of the conclusion of the annual general meeting
on May 23, 2017. Based on the amendments to the articles of association decided at
the annual general meeting, the Supervisory Board of KHD now consists of three people.
Members of the Supervisory Board are the Chairman, Mr. Gerhard Beinhauer, the Deputy
Chairman, Mr. Da Hua, and Ms. Yiqiong Zhang. Economic ReportMarket EnvironmentThe International Monetary Fund (IMF) has now increased the outlook for global growth
for 2017 to 3.5% (previous year: 3.1%). Due to the weak forecasts for some of the
large economies, growth expectations for the developing countries as a whole have
decreased. The situation in the raw materials markets, including the cutbacks in oil
production, continues to have an adverse effect. In contrast, growth in industrialized
countries is expected to increase due to the continuance of low interest rates and
reinforced cyclical momentum. According to an analysis by HSBC Global Research, global cement consumption increased
only moderately in 2016. A stronger increase in demand is predicted for 2017 because
growth in cement consumption in emerging countries is expected to nearly double in
comparison with the previous year. According to CW Research, KHD's core markets demonstrate differing tendencies with
respect to expected cement consumption:
Overall Assessment of the Economic SituationEconomic development as measured by revenue, and particularly with respect to profitability,
was unsatisfactory in the first half-year 2017. However, the significant performance
indicators, with the exception of revenue, are within the scope of planning. In contrast
to previous years, order intake demonstrated considerable improvement. Revenue of € 48.7 million was significantly lower than the previous year's value and
below the budgeted value. The reason for the drop in revenue was primarily the low
order backlog at the beginning of the financial year. In the current reporting period, KHD's adjusted gross profit amounts to € 8.0 million.
Therefore, the adjusted gross profit was significantly above last year's level and
reached approximately the value budgeted for the first half-year 2017. In the reporting
period, the adjusted EBIT of € -9.8 million also improved considerably in comparison
with the previous year's value of € -15.0 million and is within the outlook for the
2017 financial year published with the Group Annual Report. The unadjusted EBIT also
improved in comparison with the previous year's value by € 4.7 million from € -18.8
million to € -14.1 million. Cash flow from operating activities reached a value of € -2.1 million (previous year:
€ -52.0 million), which corresponds entirely with the submitted outlook. In spite of the continuing unfavorable market conditions and margin situation, the
KHD Group is convinced that, particularly due to considerable growth in business volume,
a successful economic turnaround will be achieved in the medium term. Business DevelopmentIn the first half-year 2017, order intake was € 79.3 million. This is considerably
higher than the level reached in the previous year (€ 19.3 million). Although the
order intake is within the scope of the outlook published together with the Group
Annual Report, the customers' investment decisions and the delays in customers' investment
decisions have nevertheless had a negative impact. Orders of € 60.8 million were placed in the Capex segment in the first half-year (previous
year: € 1.7 million). This value is considerably higher than the previous year's value
and it is within the scope of the published outlook. In the Plant Services segment,
the order intake of € 18.5 million (previous year: € 17.6 million) slightly exceeded
the previous year's value and met the budget target. In comparison with the Capex
business area, the Parts & Services business is relatively consistent and contributed
23.3% to order intake. Based on the order intake volume achieved in the first half-year and taking the progress
in execution of existing projects into consideration, the order backlog as of June
30, 2017 increased - compared with the figure of December 31, 2016 - by € 19.2 million
to € 150.7 million. In contrast to the previous year, in this reporting period adjustments
caused by the reduction or cancellation of order values (€ -9.7 million; previous
year: € -6.5 million) and effects of exchange rate fluctuations (€ -1.6 million; previous
year: € -3.3 million) are no longer reported within order intake, but instead as changes
to the opening balance of the order backlog. In spite of the increased order intake,
the current order backlog is still not sufficient to ensure full utilization of existing
capacities. However, KHD expects that due to continued order intake in the financial
year, the utilization of capacities will improve significantly starting from the 2018
financial year onwards. Group Earning SituationKHD's revenue, amounting to € 48.7 million, is considerably lower than the figure
for the previous year (€ 66.6 million). Significant contributions to revenue came
primarily from projects in India and North America. The main reason for the decrease
of 26.9% is the low order backlog at the beginning of the financial year. The gross profit for the first half-year 2017 was € 5.0 million (previous year: €
-2.1 million). Cost of sales include € 3.0 million (previous year: € 3.8 million)
of idle capacity costs due to under-utilization of existing capacities. Because these
costs are not directly associated with the revenues recognized, they were corrected
when determining the adjusted gross profit. The adjusted gross profit for the first
half-year 2017 was € 8.0 million (previous year: € 1.7 million). In comparison with
the previous year, the adjusted gross profit increased considerably, but it is still
at an unsatisfactory level due to the low business volume. Moreover, the order backlog
continues to be characterized by projects won in a highly competitive environment
with strong margin pressure. In contrast to the first six months of the financial year 2016, sales expenses increased
by 21.0%, from € 6.2 million to € 7.5 million. In the context of the ongoing difficulties
in the market environment, KHD consciously continued to invest in the expansion of
sales activities in the 2017 financial year. From KHD's perspective, significant prerequisites
for improving order intake include intensifying customer contacts and working on promising
project tenders, even in markets that were previously not as intensively followed.
For this reason, in addition to the activities in KHD's core markets, sales activities
in the future-oriented Sub-Saharan African markets and in Southeast Asia were promoted.
In comparison with the previous year, general and administrative expenses of € 7.2
million (previous year: € 8.1 million) have decreased by 11.1%. This reduction is
in no small part due to the success of active cost management, including the implementation
of headcount reduction measures. Other expenses increased from € 4.5 million to €
5.8 million. Besides € 1.2 million in expenses for research and development (previous
year: € 1.8 million) and expenses for headcount reduction measures of € 1.3 million,
other expenses also include, in particular, exchange rate effects of € 2.8 million
(previous year: € 1.3 million). From an economic perspective, other income resulting
from the effects of currency exchange rates on the foreign currency receivables (€
0.5 million, previous year: € 1.3 million) and the income from fair value adjustments
of foreign exchange forward contracts (€ 0.7 million; previous year: € 0.5 million)
should be offset against the expenses from exchange rate effects. Expenses related
to headcount reduction measures were considered as a onetime impact in the determination
of the adjusted EBIT. Earnings before interest and taxes (EBIT) improved from € -18.8 million in the previous
year to € -14.1 million. Particularly the low sales volume and the related unsatisfactory
gross profit, together with the idle capacity costs and expenses related to headcount
reduction resulted in earnings that are still unsatisfactory. Despite the improvement
in the absolute value of the EBIT, the EBIT margin decreased from -28.3% in the previous
year to -29.0%. The adjusted EBIT (after eliminating idle capacity costs and expenses
related to headcount reduction) improved from € -15.0 million to € -9.8.million. The net finance income of the Group increased by € 1.0 million from € 3.4 million
to € 4.4 million. Finance income of € 4.9 million (previous year: € 4.1 million),
which includes interest received in the amount of € 3.0 million from two loans in
the total amount of € 100.0 million extended to AVIC International (HK) Group Ltd.
(AVIC HK) in the 2014 financial year, is offset by finance expenses of € 0.5 million
(previous year: € 0.7 million) For the most part, the increase of € 0.8 million in
finance income results from the interest earned on payment agreements concluded in
2016 for receivables due from AVIC Beijing. The reason for the decrease in finance
expense by € 0.2 million is primarily due to the reduction of the interest rate applied
for the measurement of pension benefit obligations. The Group net result for the period was € -10.8 million (previous year: € -17.3 million),
which translates into diluted and basic earnings per share of € -0.22 (previous year:
€ -0.35). Segment Earnings SituationRevenue in the Capex segment in the six-month period reached only € 29.9 million (previous
year: € 47.3 million). The considerable reduction in revenue in the Capex segment
is the result of the low order backlog at the beginning of the financial year. The
relatively stable business in the Plant Services segment achieved revenues of € 18.8
million (previous year: € 19.3 million), just slightly below the comparable figure
from the previous year. The Capex segment achieved a break-even gross profit in the reporting period. Although
this represented a considerable increase over the disappointing value of the previous
year, € -8.2 million, the gross profit margin in the Capex segment remained unsatisfactory
due to the execution of projects with low margins. In the Plant Services segment,
a gross profit of € 5.0 million was achieved (previous year: € 6.1 million). As the
idle capacity costs incurred apply only to the Capex segment, the adjusted gross profit
for this segment amounts to € 3.0 million (previous year: € -4.4 million). As a result,
the adjusted gross profit margin in the Capex segment was 10.0% (previous year: -9.3%),
achieving a positive value for the first time after several reporting periods. The
Plant Services segment achieved a positive gross profit margin of 26.5% (previous
year: 31.6%). In the reporting period, EBIT in the Capex segment was € -15.5 million, a considerable
improvement with respect to the previous year's figure of € -21.4 million. However,
EBIT in the segment remains at an unsatisfactory level and reflects the difficult
economic environment of recent years as well as special effects resulting from idle
capacity costs due to under-utilization of existing capacities and expenses related
to headcount reduction measures. EBIT in the Plant Services segment of € 1.4 million
decreased in comparison with the previous year's figure (€ 2.6 million) in particular
due to the tough competitive conditions as well as the lower revenue volume. Consequently,
EBIT from Plant Services could offset the significantly negative result of the Capex
segment only to a limited degree. Financial Position and Net Assets
LiquidityKHD's total cash and cash equivalents remained nearly constant in the first half-year
2017. As of June 30, 2017, the cash and cash equivalents amounted to € 76.9 million
(end of 2016: € 78.1 million). Following the considerable cash outflows in operational
business in previous periods, the cash flow from operating activities of € -2.1 million
(previous year: € -52.0 million) was at a nearly break-even level. For further details regarding operative cash flow, see the following table: scroll
The cash flow from investing activities of € 2.3 million (previous year: € 2.5 million)
primarily includes interest payments from the loans extended to AVIC HK. Taking the
effects of currency exchange rates in the amount of € -1.1 million into consideration,
cash and cash equivalents as of June 30, 2017 now total € 76.9 million (December 31,
2016: € 78.0 million). Total AssetsIn comparison with the figure as at the end of 2016 (€ 330.1 million), the balance
sheet total was reduced by € 37.0 million to € 293.1 million. This was primarily the
result of the decrease in non-current and current trade receivables and other receivables
of € 10.1 million and € 26.4 million, respectively. Other current and non-current
assets differed only slightly. FinancingOn the liabilities side, non-current liabilities remained unchanged for the most part
in comparison with the figure as of December 31, 2016, but current liabilities decreased
with respect to the end of 2016 (€ 106.1 million) by € 23.9 million to € 82.2 million.
Trade and other payables decreased by € 4.6 million to € 40.5 million and commitments
under construction contracts decreased by € 15.8 million to € 19.5 million. The reason
for this decrease in current liabilities is primarily the reduced business volume
caused by the low order intake of the previous periods. The net working capital - the difference between current assets (less cash and cash
equivalents and loans with a residual term of less than one year) and current liabilities
-decreased slightly from the figure reported on December 31, 2016 (€ 13.4 million)
to € 10.4 million. Trade receivables dropped considerably in the reporting period,
but at the same time, current liabilities decreased as well, so that the two opposing
effects on the net working capital nearly balanced out. Equity decreased by € 12.5 million from € 172.2 million to € 159.7 million. The reasons
for this reduction were currency translation differences recognized in equity of €
1.7 million and the distinctly negative group net result for the period in the amount
of € -10.8 million. Despite the reduction in equity, the equity ratio is at a very
solid level and increased to 54.5%. Non-Financial Performance IndicatorsNon-financial performance indicators include mainly employee development, customer
satisfaction, the impact of our products on the environment, product quality, and
individual employee-related indicators. Target achievement in relation to non-financial performance indicators is measured
with the help of various instruments, such as annual employee appraisals or the systematic
measuring of emissions values and energy consumption of individual products. Value-oriented
management in the KHD Group means that, for example, customer satisfaction or the
minimization of our products' impact on the environment is more important than short-term
profit maximization. The expenses for research and development in the KHD Group were € 1.2 million in the first half-year 2017 (previous year: € 1.8 million), remaining at a high level with respect to revenue. Despite the current unsatisfactory profitability situation, KHD invested in the further development of its technology for cement plants. In addition to improving significant plant components, the primary focus of research and development (R&D) is improving the efficiency of cement plants. Other crucial R&D topics include developing environmentally friendly products and solution concepts, with a particular emphasis on energy efficiency and emissions reduction, as well as using alternative fuels in cement plants. An important goal is to continue minimizing the CO2 footprint associated with cement production. The KHD Group had 681 employees (excluding trainees) at the end of June 2017 (end
of 2016: 707). The headcount reduction primarily related to employees at the Group's
location in Cologne. In order to regain competitiveness and improve the economic basis
of KHD's business, cost-cutting measures in the form of headcount reductions were
introduced and implemented. Report on Events after the Reporting PeriodEffective June 22, 2017, KHD concluded a loan contract for € 50.0 million with AVIC
International Kairong Limited (AVIC Kairong), Hong Kong, as the borrower. This loan
replaces another loan granted to AVIC HK three years ago, which was due for repayment
on July 22, 2017. The conditions as well as the collateral security of the loan granted
to AVIC Kairong correspond in all significant points with those for the loan granted
to AVIC HK. This new loan has a term of three years and the loan is due for repayment
on July 22, 2020. KHD has the right to demand early repayment of the loan at any time
before the due date with a notice period of 30 days. Effective July 19, 2017, Humboldt Wedag GmbH, Cologne, a subsidiary of KHD Humboldt
Wedag International AG, signed contracts for a total value of more than € 80 million
regarding the supply of equipment, the execution of civil and erection work as well
as supervision services for a cement plant in the western Sub-Sahara region. The contracts
will be booked as order intake as soon as the pre-conditions for commencing project
execution are fulfilled. The Supervisory Board appointed Mr. Dian Xie to the Management Board, effective July
1, 2017. Mr. Xie has many years of management experience in the areas of business
development, sales and project execution. There were no further significant developments or events of particular importance
after the balance sheet date of June 30, 2017. Risk and Opportunities ReportKHD's approach to risk management ensures that changes in the risk position are promptly
identified. To the extent required, provisions are set up for specific risks. The
risks identified do not pose a threat to the KHD Group as a going concern, either
individually or in combination. In comparison with the balance sheet date in 2016, there has been no significant change
as of the date of this Half-Year Report in the assessment of risks and opportunities. For a detailed description of the risks and opportunities, please refer to the relevant
section in KHD Group's combined management report as of December 31, 2016 (page 53
et seq. of the Group Annual Report). OutlookAccording to the market research institute CW Research, global cement consumption
is expected to increase as a result of the ongoing worldwide macroeconomic recovery.
Nevertheless, for 2017 and 2018 cement demand will continue to be negatively affected
in some large markets such as Brazil and Russia. As the global macroeconomic and political situation remains challenging, only a moderate
increase in cement consumption is expected. Global cement consumption is expected
to increase by 2% compared to last year and is expected to reach a total of 4.2 billion
tons in 2017. In the long run, however, demographic trends and necessary investments
in the construction and expansion of infrastructure in developing and emerging countries
will remain the most significant drivers of growth in the cement industry. As there is a strong dependency on order intake, the degree of uncertainty associated
with the outlook is particularly high. This is also highlighted in the section titled
'Opportunities and Risks Relating to the Outlook for the 2017 Financial Year' in the
combined management report of December 31, 2016 (page 70 et seq. of the Group Annual
Report). To a large extent, the KHD Group confirms the outlook provided for the 2017 financial
year in the 2016 Group Annual Report. This means that KHD continues to expect an order
intake and order backlog for the 2017 financial year that will be considerably higher
than the previous year's figures (€ 83.0 million and € 131.5 million, respectively),
and that as a result, capacity utilization should be improved significantly starting
from the 2018 financial year onwards. However, due to delays in order intake, the reduction in order values, and customer
changes to project execution schedules, revenue for the 2017 financial year will be
about 20% lower than the previous year's value. KHD confirms the outlook for EBIT and the EBIT margin. This means that a significantly
negative EBIT is expected in the 2017 financial year, though it will improve considerably
compared with the previous year's figure (€ -33.2 million). Due to cash inflow from payment of receivables, improvements in the management of
the working capital, and advance payments related to expected order intake, the KHD
Group expects that no significant cash outflows will affect the operating cash flow
for the entire 2017 financial year, despite the currently negative earnings situation. Despite the considerably negative impacts resulting from the profit situation in the
2017 financial year, our outlook shows that KHD's financial and net asset position
will remain stable. As the liquidity situation and the high equity ratio remain at
a comfortable level, this provides us with the flexibility to successfully cope with
difficult market phases as well as the current, unsatisfactory earnings situation.
In spite of the unfavorable market and margin situation, KHD is convinced that the
Group will achieve a successful economic turnaround in the medium term. We will continue
to develop our service and product portfolio and use opportunities for internal and
external growth. Opportunities and Risks Relating to the Outlook for the Second Half-Year 2017While the risk management system in principle is oriented toward the medium and long
term, special consideration in the forecast process is given to the opportunities
and risks that can have an effect within the forecast period. Due to the special characteristics
of long-term plant engineering, risks and opportunities can also lead to significant
deviations from planned figures in short-term outlook. Significant risks and opportunities regarding the forecast values exist for order
intake, particularly in the Capex segment. The awarding of individual large contracts
to the KHD Group can significantly affect the order intake in the second half of the
2017 financial year. Despite close collaboration with customers during the tendering
process, customer investment decisions and the awarding of individual projects to
the KHD Group can only be forecast with substantial uncertainty, which can lead to
either a higher or lower order intake. The revenue and earnings forecast is mainly based on the order backlog in the Capex
segment and on the planning of the relatively stable business in the Plant Services
segment. The risks and opportunities relating to the planned revenue and earnings
figures are nevertheless significant in the second half-year of the financial year
2017 as well, since delays or accelerations in project execution, postponement of
awarding projects included in planned order intake and unexpected movements in gross
profit of individual projects can affect these figures. Cologne, Germany, August 11, 2017 The Management Board scroll
INTERIM GROUP FINANCIAL STATEMENT1 GROUP INCOME STATEMENT of KHD Humboldt Wedag International AG for the Period from January 1 to June 30, 2017scroll
scroll
2 GROUP STATEMENT OF COMPREHENSIVE INCOME for KHD Humboldt Wedag International AG for the Period from January 1 to June 30, 2017scroll
As in the previous year, no income taxes on currency translation differences were
applicable. There are no deferred tax assets or liabilities related to actuarial gains
and losses (previous year: deferred tax assets in the amount of € 701 thousand). 3 GROUP BALANCE SHEET of KHD Humboldt Wedag International AG as of June 30, 2017
ASSETSscroll
EQUITY AND LIABILITIESscroll
4 GROUP STATEMENT OF CASH FLOW for KHD Humboldt Wedag International AG for the Period from January 1 to June 30, 2017scroll
scroll
scroll
5 GROUP STATEMENT OF CHANGES IN EQUITY of KHD Humboldt Wedag International AG for the Period from January 1 to June 30, 2017scroll
scroll
6 NOTES TO THE GROUP FINANCIAL STATEMENTS of KHD Humboldt Wedag International AG as of June 30, 20171. Group structure and affiliated companiesKHD Humboldt Wedag International AG ("KHD" or "Group") is one of the world's leading
providers of equipment and services for cement producers. In its capacity as the managing
holding company of the Group, KHD holds a 100% interest in KHD Humboldt Wedag GmbH,
Cologne/Germany on June 30, 2017, unchanged since December 31, 2016. The core business
areas of KHD's 13 Group companies are industrial plant engineering and providing related
services. The strategic and operational focus of the Group entities is on planning
and constructing plants for the cement industry and providing a comprehensive range
of services. 2. Reporting principlesThe interim financial statements of KHD are prepared using uniform accounting principles.
The interim financial statements of KHD and of the subsidiaries that are included
in the consolidated financial statements were prepared in accordance with International
Financial Reporting Standards (IFRS) and the related interpretations of the International
Accounting Standards Board (IASB), as applicable pursuant to Regulation No. 1606/2002
of the European Parliament and Council concerning the application of International
Accounting Standards in the EU for interim financial reporting. In accordance with
IAS 34, this interim report does not contain all of the information and notes to the
financial statements that the IFRS requires for consolidated financial statements
at the end of a financial year. These consolidated financial statements and the Group management report for the first
half-year 2017 were neither audited pursuant to Section 317 of the German Commercial
Code (HGB) nor were they subjected to an auditor's review. The accounting and measurement methods applied in these interim financial statements
are consistent with those applied as of December 31, 2016, unless changes are described.
The methods are described in detail in KHD's Group Annual Report on the IFRS consolidated
financial statements as of December 31, 2016 on page 80 et seq. These interim consolidated financial statements give a true and fair view of the net
assets, financial position and result of operations during the reporting period. The preparation of interim financial statements requires that estimates are used and
assumptions are made that have an impact on the assets, liabilities, provisions, deferred
tax assets and liabilities, as well as income and expenses. Over time, the estimates
and assumptions can change and significantly affect the net assets, financial position
and result of operations of KHD. Although the estimates and assumptions are made carefully
and conscientiously, it cannot be excluded that the actual amounts might deviate from
the estimates used in the interim financial statements. The assumptions and estimates apply for the most part to the group-wide determination
of economic useful life, the assumption used as basis for the impairment test of the
goodwill, the measurement of provisions, the usability of tax loss carryforwards as
well as the estimation of project costs and the percentage of completion in case of
construction contracts. The KHD Group operates in the area of plant engineering and construction and determines
the result of construction contracts according to the percentage of completion (PoC)
method based on the stage of completion. The PoC method leads to recognition of profit
based on the stage of completion corresponding to the proportion of contract costs
incurred to the estimated total contract costs. Expected losses from construction
contracts are immediately recorded as an expense. With this method, the estimate of
the stage of completion is particularly important; moreover, it can include estimates
with regard to the scope of deliveries and services required to meet the contractual
obligations. These significant estimates also include the overall project costs, the
overall contract revenues, the contract risks and other relevant figures. According
to the PoC method, changes in estimates can lead to an increase or decrease in revenue. These interim consolidated financial statements have been prepared in euro. All amounts,
including figures used for comparison, are stated in thousands of euros (€ thousand).
All amounts have been rounded in accordance with standard commercial practice. 3. Applying new or revised International Financial Reporting StandardsIn the reporting period, the Group applied all International Accounting Standards
Board (IASB) standards and International Financial Reporting Interpretations Committee
(IFRIC) interpretations required to be applied, provided that the standards and interpretations
have already been adopted by the European Union (EU). The following standards and/or changes to standards were published by the IASB during
the reporting period.
For further information regarding standards, interpretations and amendments that have
been published, but are not yet applicable, please see section 1 of the Group notes
to the Group Annual Report 2016. 4. ConsolidationSubsidiaries are the companies in which investments are held and in which KHD has
power over the investee, has an exposure to variable returns from its involvement
with the investee and has the ability to use its power over the investee to affect
the amount of KHD's returns. At KHD this is regularly the case when KHD holds, directly
or indirectly, more than 50% of the voting rights, or controls the business activities
in another manner. These companies are, as a general rule, consolidated. Subsidiaries
are consolidated from the date when actual control is transferred to KHD and are deconsolidated
from the date when control no longer exists. All intercompany transactions, balances,
and unrealized profits or losses on intra-Group transactions are eliminated. The accounting
and measurement principles applicable to subsidiaries pursuant to statutory law are
adjusted in order to ensure consistency with the accounting and valuation principles
of KHD. Non-controlling interests are presented and commented on separately. Besides KHD AG, the Group includes:scroll
scroll
scroll
5. Segment ReportingFor KHD, reporting is done in two separate segments. Segment reporting is oriented
towards internal Group management and control as well as internal financial reporting,
i.e. it is based on the management approach. The business activities of the two reportable
segments include the following activities and services:
Management and controlling of the KHD Group is based in particular on key figures
for the balance sheet and income statement. However, for the operating segments key
figures are determined only for the income statement and for order intake, but not
for the balance sheet. In its function as the chief operating decision maker, the
Management Board assesses the profitability of the segments based on the operating
result (earnings before interest and taxes - EBIT or rather adjusted EBIT). The following table provides an overview of the business for the 2017 and 2016 financial
half-years. scroll
The recognition and measurement principles used for the reportable segments are in
line with the IFRS principles described above that are used for the Group financial
statements. Revenue and segment-related expenses are directly allocated to the respective
segment. Expenses and income which cannot be allocated directly to the segments (e.g.
general and administrative expenses) are allocated to the segments using appropriate
allocation keys. In its segment reporting, the KHD Group reports only revenue from external customers,
i.e. revenue between the two segments is eliminated. Currently the segments do not
recognize revenue with the respective other segment. The following project data was allocated to the different geographical areas according
to the place of performance or delivery of the products and services. scroll
scroll
6. Construction contractsThe gross amount due from or due to customers for contract work is recognized at contract
cost incurred plus proportionate profits depending on the stage of completion less
progress billings and recognized contract losses. scroll
Of the revenue of € 48,747 thousand recognized in the reporting period (previous year,
as of June 30, 2016: € 66,567 thousand), € 29,298 thousand (previous year, as of June
30, 2016: € 54,331 thousand) is attributable to construction contracts for which revenue
was recognized on the basis of the stage of completion. The measurement of construction contracts is affected by estimations with respect
to project revenue and project costs. Here, particularly in terms of the additional
incurred costs up to completion and, therefore, the total project costs, changes in
estimates can occur. Changes in estimates for projects are recorded in the calculation
of the amount for earnings and expenses in the profit or loss for the period in which
the change was made as well as in the following periods. In this way, changes in estimates
have a direct effect on the recognized result from construction contracts. There were
no significant effects from changes in estimates in the first half-year of 2017. 7. Cash and Cash EquivalentsThe Group reports cash and cash equivalents in the amount of € 76,946 thousand (previous
year, as of Dec. 31, 2016: € 78,075 thousand). scroll
8. Other expensesscroll
Miscellaneous expenses in the reporting period include expenses associated with headcount
reduction measures in the amount of € 1,295 thousand. 9. Income tax expensesThe expenses booked in the first half-year 2017 for income taxes amounts to € 1,147
thousand (previous year, as of June 30, 2016: € 1,898 thousand). The income tax expense
is composed as follows: scroll
The taxes reported in the interim period are calculated using the estimated effective
tax rate of the respective KHD Group company. 10. Transactions with associated companies and personsAs defined by IAS 24, in addition to the subsidiaries of KHD, the related companies
also include those companies that have a controlling or joint management interest
in KHD or exercise considerable influence as well as those other related companies
of AVIC Group that are affiliated with these. As business transactions between KHD
and its consolidated subsidiaries were eliminated in the consolidation process, the
following presents only the transactions with respect to direct and indirect parent
companies of KHD and the other related companies or persons that were not eliminated. Relationships to parent entitiesThere has been a cooperation agreement with AVIC Beijing since 2010, reinforced since
February 2011 by the capital interest in KHD amounting to 20% that is held by Max
Glory Industries Limited (Max Glory), an AVIC Beijing group company. As a consequence
of a public takeover offer, AVIC Beijing further increased its indirect share in KHD
in the 2014 financial year. As of June 30, 2017, AVIC Beijing indirectly holds the
majority of KHD shares with 89.02%. Among others, the strategic partnership between
AVIC Beijing and KHD resulted in joint projects in Malaysia, Venezuela, Turkey and
the western SubSahara region. Relationships to other related entitiesThe cooperation between the KHD Group and the AVIC Group was expressed in the conclusion
of two loan contracts in the financial year 2014, each in an amount of € 50.0 million,
with AVIC International (HK) Group Ltd. as the borrower. The interest on the loans
amounts to 6% per annum. Both loans have a term of three years. For the loan extended
in June 2014, KHD has the right to demand loan repayment at any time before the due
date with a notification period of 30 days. The loans granted to AVIC HK are secured
by a corporate guarantee from AVIC. The following transactions took place with related companies in the first half-year
2017: Incomescroll
Income with indirect parent companies primarily relate to revenue from projects in
South America in which the cooperation partner AVIC Beijing is KHD's customer as well
as interest income on receivables due to a deferred payment agreement with AVIC Beijing.
is Income from other affiliated companies exclusively comprises interest income from
the loans extended to AVIC HK in the amount of € 3,017 thousand. In the financial year, the expenses from transactions with related entities total
€ 0 thousand (previous year: € 25 thousand). Current assetsscroll
As of June 30, 2017, current assets due from the companies of the AVIC Group amounted
to € 119,334 thousand (previous year, as of December 31, 2016: € 115,032 thousand).
These assets result from payments made in advance, project receivables, refund claims
and interest claims in a total amount of € 19,104 thousand (previous year: € 14,802
thousand). Receivables due from AVIC HK in the amount of € 100,000 thousand consist
of two loans granted, which are reported under current assets because, according to
the contract, they are due for repayment within the 2017 financial year. Non-current assetsNo non-current assets due from affiliated companies are recorded as of June 30, 2017.
A non-current receivable due from an indirect parent company in the amount of € 7,676
thousand was reported under non-current assets as of December 31, 2016. Liabilitiesscroll
Liabilities due to affiliated companies in the amount of € 2,342 thousand (previous
year: € 2,141 thousand), which mainly affect project and financial obligations, are
reported as of June 30, 2017. 11. Additional Notes on Financial InstrumentsList of Financial Assets and Liabilities by Categoryscroll
scroll
scroll
scroll
As long as there is no explicit disclosure, the carrying amounts reported on June
30, 2017 correspond in general to the fair values. The fair values for the financial assets and liabilities held for trading purposes
and for the long term guaranteed loan to AVIC HK accounted for with respect to amortized
costs are classified within the hierarchy described below:
scroll
There was no reclassification between levels 1 and 2 in the current reporting period. 12. Other InformationWithin the scope of its normal business activities, the KHD Group has contingent liabilities
due to advance guarantees, performance bonds, and guarantees for warranty obligations.
The Group does not anticipate any material liabilities due to these commitments. The
arranged bank guarantee credit facilities allow individual KHD Group companies to
provide bank guarantees for its customers worldwide. Within the scope of these bank
guarantee credit facilities, the Group has provided bank guarantees in the amount
of € 26.8 million (previous year, as of Dec. 31, 2016: € 33.6 million). With respect to events that occurred after the closing date for the financial statements,
please refer to the corresponding section in the Management Report regarding the Interim
Group Financial Statements as of June 30, 2017. 13. Responsibility StatementTo the best of our knowledge we assure that, in accordance with the applicable reporting
standards for interim financial reporting, the interim consolidated financial statements,
in accordance with the accounting standards generally accepted in Germany, give a
true and fair view of the net assets, financial position, and result of operations
of the Group, and the interim Group management report includes a fair review of the
development and performance of the business and the position of the Group along with
a description of the principal opportunities and risks associated with the expected
development of the Group for the remainder of the financial year. In addition, we assure that the interim financial report complies with the regulations
of IAS 34, as well as the further applicable International Accounting Standards and
the applicable interpretations of the IFRS Interpretations Committee. Cologne, Germany, August 11, 2017 The Management Board scroll
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||