Interim / Quarterly Report • Aug 22, 2018
Interim / Quarterly Report
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| EUR millions | 1/1 - 6/30/2018 | 1/1 - 6/30/2017 |
|---|---|---|
| Consolidated revenues | 121.0 | 128.3 |
| Earnings from core business activities before depreciation and amortization (EBITDA) |
7.7 | 7.9 |
| Earnings before interest and income taxes (EBIT) | 0.9 | 0.5 |
| Consolidated loss for the year | -0.1 | -1.3 |
| Free cash flow | -23.1 | -24.2 |
| Earnings per share (diluted in EUR) | 0.0 | 0.0 |
| 6/30/2018 | 12/31/2017 | |
| Total assets | 210.5 | 226.9 |
| Consolidated equity | 23.6 | 24.1 |
| Equity ratio (in %) | 11.2 | 10.6 |
| Number of employees | 855 | 930 |
| The Gigaset Share | Q2 / 2018 | Q2 / 2017 |
|---|---|---|
| Closing price in EUR (at the end of the period) | 0.60 | 0.79 |
| Peak price in EUR (in the period) | 0.79 | 0.85 |
| Lowest price in EUR (in the period) | 0.54 | 0.71 |
| Number of shares in circulation (at the end of the period) | 132,455,896 | 132,455,896 |
| Market capitalization in EUR million (at the end of the period) | 80.17 | 104.64 |
The quarterly report is not audited. This report is not an interim financial report in accordance with IAS 34 or financial statements in accordance with IAS 1. It was prepared based on the accounting policies applied for the most recent consolidated financial statements. Comparative information with respect to financial year 2017 was not adjusted for new accounting standards; see Section 4 "Changes in accounting treatment as a result of the first-time application of IFRS 15 and IFRS 9".
The quarterly report includes statements and information regarding Gigaset AG relating to future periods.
The statements regarding the future represent estimates that were made based on all information available when the report was prepared. If the assumptions underlying the forecasts should prove inaccurate, the actual developments and results can deviate from current expectations. The Company does not accept any responsibility to update the statements included in this report outside of the provisions governing publication stipulated under the law.
Amounts included in tables and percentages (monetary units, percentages) can differentiate from the mathematically correct values due to rounding differences.
Gigaset AG is a global enterprise operating in the area of telecommunications. The Company, with its headquarters in Munich, main production site in Bocholt, and software development in Wroclaw, Poland, is the market leader in Europe with its specially-developed and manufactured cordless telephones based on the Digital Enhanced Cordless Telecommunications (DECT) Standard. As a premium vendor, the Company has a market presence in approximately 70 countries. As of June 30, 2018, Gigaset has roughly 855 employees.
As part of the introduction of a new family brand architecture with a stronger market focus, Gigaset is renaming its business segments with the 2018 halfyearly financial statements:
The Group is broadly positioned on the market with operations in the four segments: Phones, Professional, Smart Home and Smartphones. The core business is established in the Phones segment and focuses on DECT cordless telephones. In this context, the Gigaset brand stands for high-quality, functional, and visually attractive telecommunications products.
Observed on a global basis, the Company is divided into regional segments. Most of its revenues are generated in Europe, in particular in Germany, France, Italy, and the Netherlands.
Gigaset is Europe's market leader in the area of DECT telephony. DECT is worldwide the most successful telecommunications standard for cordless telephones. Gigaset had made a key contribution to shaping this standard in the 1990s. Since then, the Company has held on to its position as the largest vendor in the European market. High market penetration is a key factor behind the Company's success. Nearly all of the Company's products are manufactured in the highly automated plant in Bocholt, Germany.
Gigaset has also been active in the segment for mobile devices since the end of 2016. The Company has since then positioned itself in the entry-level segment for smartphones and taken up prices from EUR 119.00 to EUR 299.00 over various product points. The goal of the current product strategy is to approach the market successively from the entry-level segment and to win over the trust and interest of customers with feature-rich smartphones at attractive prices (value-for-money products). An important part of this strategy is the promise of the familiar Gigaset quality also with smartphones. With the introduction of the GS185 in May 2018 – the first smartphone that is produced in Germany – the Company has taken a major step in this direction and created a new unique selling point for its product offering.
Gigaset entered the Smart Home market already in 2012. Security and alarm solutions are developed and marketed for private households in the Smart Home segment. Gigaset relies on a modular, sensor-based system that enables users to maintain a constant connection with their home via smartphone and supported by the cloud. The system makes it possible to react immediately to unforeseen events, for example burglaries, fire, or water damage. The portfolio of sensors is continuously expanded, while on the software side progress is being made with the integration of third-party systems such as Philips Hue, Amazon Echo, or Google Assistant in order to increase the users' comfort.
The Professional segment offers business customers a range of corded desk telephones and mobile components. The operations are focused on small and medium-sized enterprises (SMEs). The level of consultation for commercial products requires that they be distributed exclusively over systems vendors (value-added resellers, VaR). Gigaset's professional solutions are marketed exclusively in European markets. Here as well, Germany, France, Italy, and the Netherlands represent the most important sales markets. The Professional segment is the Company's second-largest sales pillar.
According to the Economic Outlook of the Kiel Institute for the World Economy, the recovery of the global economy lost momentum at the beginning of the year. The moderate pace of expansion at the beginning of the year can be attributed in particular to special factors and underscores the underlying economic dynamic; consequently, the institute expects a more robust increase in production again for the second half of the year. In the advanced economies, an increased utilization of capacities can be observed with this pace of expansion. Thus, the increase in prices in the advanced economies will accelerate not only temporarily due to the sharp rise in the price of oil, but also in its underlying trend, because core inflation is likely to rise gradually. Risks for the global economy arise in particular from two dimensions: On the one hand from the trade disputes with the United States, where it could come to a spiral of action and reaction that noticeably puts the brakes on global activities, while on the other hand from the political uncertainties in the euro zone, to which the change of government in Italy in particular has contributed. Ultimately, the risk remains that the capital markets could suddenly become unsettled in the course of the impending normalization of monetary policy with the consequence of episodic adjustments in asset prices, returns, and exchange rates1 . The increase in global production, calculated on the basis of purchasing power parities, will decrease slightly from 3.9 percent to 3.8 percent in 2018. In 2019, the growth rate is expected to again decrease somewhat to 3.6 percent.
The market for cordless telephones in Germany decreased by 4.7% with respect to unit volume in the first half of 2018 compared with the first half of 2017. Based on revenues, the market decrease amounts to 2.8% year-on-year. Gigaset increased its very good share of this market to 45.1% in terms of units.
The market for cordless telephones in France decreased by 9.4% with respect to revenues in the first half of 2018 compared with the first half of 2017. However, Gigaset held on to its position in this difficult environment by increasing its market share by 5.9% in the first half of 2018 compared with the first half of 2017.
The market in the most important European markets observed by Gigaset (Germany, France, Italy, and the Netherlands) shrank by 5.7% with respect to revenues in the first half of 2018 compared with the first half of 2017. Overall, Gigaset defended its market share in terms of units and revenues and - at 40.8% and 42.9% respectively - remains the European market leader. The expansion of the HX portfolio on the basis of IP technology as well as addressing demographic issues (aging society) by means of a corresponding portfolio for people in the second half of their life under the Signet "life series" are of particular importance for Gigaset.
1 (Source: European Information Technology Observatory (EITO); gfu)
GfK's point-of-sales data revealed global sales volume totaling 1.46 billion smartphones for the full year 20173 . For 2018, GfK expects stagnation. In the first quarter of 2018, worldwide demand fell by 2% to 347 million units. However, an increase of 21% with respect to the average sales price in the same period provided for strong revenue growth4 .
The global market for Smart Home systems and services showed total revenue of just under EUR 23 billion in 2017. Global annual revenue grew by 33%, so that total worldwide revenue is forecast to be EUR 71 billion for 2021. The Smart Home market is divided into the categories of Home Automation, Home Entertainment, Assisted Living, Energy Management, and Building Security. The market for Assisted Living is particularly important. According to a current study, an annual growth rate of over 56% by 2021 is forecast5 .
The telecommunications market for business customers is characterized by a persistent trend in favor of IP-based communications and telephony, given a simultaneous increase in cloud-based communications systems. In the long term, it is expected that successive crowding out of traditional transmission technologies will take place by 2022 and the use of IP or cloud-based systems will increase to approximately 72% based on a total volume of around 130 million terminals6 . The market for multi-cell communications systems on the basis of VoWLAN (Voice over Wireless LAN) is also of special interest. Over the course of time, an anticipated market value of EUR 34 million will be reached in 20227 . This positive development also opens up opportunities for Gigaset to increase the range of implementation possibilities for the portfolio with future product offerings.
8 Outlook
2 (Source: European Information Technology Observatory (EITO); gfu)
Gigaset was able to defend its premium position over the competition. In the EU4 market, the targets for the first half of 2018 were met. Gigaset's market share was 42.9%. The average sales price of the product portfolio in the first half of 2018 was on average EUR 2.00 higher than that of the competitors.
Gigaset addressed the market for DECT cordless telephones in particular in the areas of IP telephony (HX portfolio) and an expanded offering for people in the second half of their life (Gigaset life series). With both product ranges, the Company is addressing infrastructural and social changes in Germany and in Europe. The goal is to gain additional market share vis-à-vis the competition and to expand the position on the market.
Revenues with smartphones increased to EUR 5.46 million in the first half of 2018 compared with the first half of the previous year. In Germany, the smartphone models GS270 and GS370 are available in nearly all network operatorindependent distribution channels. The devices were likewise introduced to Europe's other core markets. Gigaset expects a positive impact on revenues in the second half of 2018 with the introduction of the new models GS100, GS180, and GS185 in May of this year as well as the announcement that the model GS185 is the first smartphone to be manufactured in Germany.
Rrevenues in the first half of 2018 rose by 19% compared with the first half of 20178 .
Since May 2018, Gigaset addressed the Smart Home market with four new product bundles each at a price of EUR 79.00. The goal is to attract new customers and to increase the number of users of the cloud. The four bundles serve different scenarios covering home comfort and security. The bundle campaign will last until September 2018 and is receiving extensive communications support. Numerous dealers and retailers have also added the new bundles to their inventory.
Revenues in the Professional segment increased by a total of around 12% in the first half of 2018 compared with the first half of the previous year. The sales volume of DECT-based cordless consumer devices for professional use increased slightly in the first half of the year. For example, revenues posted an increase of around 1.8% compared with the first half of 2017. The rising sales volume of IP-based single and multi-cell systems (N series) contributed more clearly to the positive revenue trend based on a product-related increase in revenues of approximately 43% compared with the first half of 2017. The greatest contributions to revenues in the first half of 2018 were made by the regions of Germany, France, and Italy8 .
8 Gigaset (2018) - Board
7
9 Finace Report: 20180716_NSR per Segment per Hub and Product class Q2
The first half of the year showed an overall encouraging trend for shares of Gigaset AG. Although the share price ended the first day of the year still at EUR 0.552, it hit the ground running on the next day. Supported by positive corporate reports, the share climbed to its all-time high of EUR 0.79 at the beginning of February. However, the Gigaset share had difficulty avoiding the strong turbulence on the stock market over the further course of the month and the price level decreased again to EUR 0.632. After the uneasiness on the financial markets had calmed, shares of Gigaset AG also rose again and once again reached a value of EUR 0.774 in March. The share price eventually stabilized at the level of EUR 0.70. The increasing uncertainty of stock market participants was reflected in the final third of the reporting period in the increased volatility, which also affected the Gigaset share. Consequently, it ended the first half of 2018 nearly unchanged at EUR 0.605. After the remarkable development in the comparison period 2017, the average Xetra daily volumes decreased from 28,304 shares in the first half of 2017 to 24,789 shares in 2018. At 26.49%, there was no change with respect to free float according to the definition provided by Deutsche Börse AG. Due to the low free float, the Gigaset share is subject to greater price fluctuations, even due to smaller transactions.
The Gigaset Group had generated revenues of EUR 121.0 million in the first six months of financial year 2018 (prior year: EUR 128.3 million) in an industry environment that continues to be challenging. This constitutes a decrease in revenues of 5.6%, whereby revenues from core business activities were subject to the usual seasonal fluctuations in the consumer business.
The decrease in revenues in the first half of 2018 can be attributed to a further decrease of EUR 12.3 million or 12.5% to EUR 85.8 million in the Phones segment. In the Professional segment, revenues of EUR 28.4 million were realized in the first half of 2018. This corresponded to an increase of 12.0% in revenues compared with the previous year. Revenues in the Smart Home segment increased year-on-year by 19.0% to EUR 1.4 million. At EUR 5.4 million, revenues in the Smartphones segment in the first half of the year clearly exceeded sales for the first half of the previous year (prior year: EUR 3.7 million). The margin quality improved across all segments, despite a decrease in revenues of 5.6%.
| Revenues in € millions | H1 2018 | H1 2017 | Change |
|---|---|---|---|
| Phones | 85.8 | 98.1 | -12.5 % |
| Professional | 28.4 | 25.4 | 12.0 % |
| Smartphones | 5.4 | 3.7 | 44.5 % |
| Smart Home | 1.4 | 1.1 | 19.0 % |
| Gigaset Total | 121.0 | 128.3 | -5.6 % |
The decrease in revenues in the Phones segment followed the general market trend in Europe. However, Gigaset increased its market share by 3.8% in terms of units and by 1.6% based on revenues in the market for cordless telephones in the EU4 area, whereby the market share was increased by 6.7% in terms of units and by 5.9% based on revenues in France. Gigaset also expanded its share of the market in Italy (by 6.4% in terms of units and by 5.3% based on revenues). In the Netherlands, the market share increased by 4.7% in terms of units and by 2.0% based on revenues. Thus, Gigaset also continued to underscore its premium position in the EU4 area with a market share of 40.8% in terms of units and 42.9% based on revenues.
Growth in the Smartphones segment continued in the first half of 2018. Gigaset intends to further expand its position in the smartphone market in financial year 2018.
A positive trend was recorded in the Smart Home segment compared with the previous year. The market for Smart Home systems & services in Western Europe is still considered to be promising.
The Professional segment posted a positive performance, whereby in particular the increase in revenues in Italy, Spain, and Germany had a significant influence on this with a total increase of EUR 2.7 million. The focus currently lies on further expanding the market position by expanding the product portfolio.
Revenues by sales region developed as follows:
| Revenues in € millions | H1 2018 | H1 2017 | Change |
|---|---|---|---|
| Germany | 63.4 | 67.4 | -5.8% |
| Europe (excluding Germany) | 49.1 | 49.8 | -1.5% |
| Rest of World | 8.5 | 11.1 | -23.4% |
| Gigaset Total | 121.0 | 128.3 | -5.6% |
pared with the previous year from EUR 64.4 million to EUR 62.5 million. The gross profit margin increased in the first half of 2018 to 51.6% compared with 50.2% in the first half of the previous year.
At EUR 5.2 million, other own work capitalized exceeded the previous year's level by EUR 0.5 million and mainly included costs related to the development of new products.
Other operating income amounts to EUR 6.3 million (prior year: EUR 7.9 million).
At EUR 30.9 million, personnel expenses for wages, salaries, social security contributions and old age pensions were down 10.7% compared with the first half of 2017 (EUR 34.6 million.). The decrease could be attributed to the restructuring initiated at the end of 2015. The personnel cost rate decreased to 25.6% (prior year: 27.0%).
Other operating expenses increased to EUR 35.4 million in the first half of 2018 after amounting to EUR 34.5 million in the first half of 2017. The increase resulted mainly from the higher marketing and hospitality expenses in the amount of EUR 2.0 million and increased expenses from the loaning of employees in the amount of EUR 0.5 million to be seen alongside reduced tax expenses of EUR 0.4 million, EUR 0.4 million less in license fees and lower consulting fees in the amount of EUR 0.3 million.
At EUR 7.7 million, earnings before interest, taxes, depreciation, amortization and impairment losses (EBITDA) were slightly lower than in the first half of 2017 (EUR 7.9 million). Taking into account depreciation and amortization in the amount of EUR 6.8 million (prior year: EUR 7.3 million), earnings before interest and taxes (EBIT) amounted to EUR 0.9 million (prior year: EUR 0.5 million).
The decrease in revenues in Germany can be attributed largely to the negative market growth in the Phones segment. Nevertheless, the solid performance in the Professional segment attenuated the effects. The market decline in the Phones segment is also being felt all over Europe. The other segments are being further expanded in order to offset the decline in this segment.
Revenues by geographical region developed as follows:
| Revenues in € millions | H1 2018 | H1 2017 | Change |
|---|---|---|---|
| Germany | 50.9 | 56.2 | -9.4% |
| Europe (excluding Germany) | 62.4 | 64.0 | -2.5% |
| Rest of World | 7.7 | 8.1 | -4.9% |
| Gigaset Total | 121.0 | 128.3 | -5.6% |
The cost of materials for raw materials, merchandise, finished goods and purchased services was EUR 61.1 million in the first half of 2018 – a decrease of 4.5% compared with the prior-year comparative value of EUR 64.0 million. The cost of materials rate decreased from 49.8% to 48.4%, including changes in inventories.
Gross profit, comprising revenues less the cost of material and including the change in the portfolio of finished work and work in progress decreased com-
EBIT in connection with net financial income in the amount of EUR -0.4 million (prior year: EUR -0.5 million) led to a result from ordinary activities of EUR 0.5 million (prior year: EUR 0.0 million).
The consolidated loss for the year amounted to EUR -0.1 million as of June 30, 2018 (prior year: EUR -1.3 million).
This resulted in earnings per share of EUR 0.00 (basic/diluted) (prior year: EUR -0.01 (basic/diluted)).
| Cashflow in € millions | H1 2018 | H1 2017 |
|---|---|---|
| Cash flows from operating activities | -17.1 | -18.6 |
| Cash flows from investing activities | -6.1 | -5.5 |
| Free cash flow | -23.1 | -24.2 |
| Cash flows from financing activities | 5.0 | 0.0 |
In the first half of the year, the Gigaset Group had to record a cash outflow from continuing operations in the amount of EUR -17.1 million (prior year: EUR -18.6 million). The cash outflow typical for the first half of the year was characterized by the seasonal business. Whereas the decrease in cash resources was greatest in the first quarter due to the repayment of liabilities to suppliers resulting from the Christmas shopping season, cash requirements are lower in the second quarter. Net cash inflows are traditionally generated in the second half of the year during the Christmas shopping season. The lower cash outflows from continuing operations compared with the first half of the previous year was characterized in particular by the increase in the factoring volume.
Cash outflows from investing activities amounted to EUR -6.1 million and thus exceeded the previous year's level of EUR -5.5 million. The clear majority of the payments in the current and past fiscal year constituted capital expenditures in noncurrent assets.
Thus, free cash flow amounted to EUR -23.1 million compared to EUR -24.2 million in the previous fiscal year.
Cash inflows from financing activities amounted to EUR 5.0 million as of June 30, 2018 (prior year: EUR 0.0 million). Cash inflows included the first payment of a credit facility made on June 28, 2018. Gigaset signed a new credit facility in the amount of up to EUR 20.0 million in April 2018.
Please refer to the cash flow statement presented in the notes for a detailed presentation of changes in cash and cash equivalents.
The cash flow included changes in exchange rates in the amount of EUR -0.1 million (prior year: EUR -0.1 million).
Cash and cash equivalents amounted to EUR 30.8 million as of June 30, 2018 (prior year: EUR 23.2 million).
The Gigaset Group's total assets amounted to EUR 210.5 million as of June 30, 2018, and therefore decreased by 7.2% compared with December 31, 2017.
Noncurrent assets increased by EUR 0.2 million to EUR 85.1 million compared with December 31, 2017. Depreciation and disposals exceeded capital expenditures in property, plant and equipment; as a result, property, plant and equip-
ment decreased by EUR 1.4 million to EUR 21.9 million. In contrast, intangible assets increased by EUR 0.7 million to EUR 30.8 million, since the investment volume exceeded amortization charges. Deferred tax assets amounted to EUR 14.0 million as of the reporting date June 30, 2018, after amounting to EUR 13.1 million on December 31, 2017.
Current assets represented 59.6% of total assets. Compared with December 31, 2017, they decreased by EUR 16.5 million and amounted to EUR 125.4 million. Inventories increased by EUR 8.5 million to EUR 35.2 million. Gigaset's warehouses are normally at their lowest level at year-end after the Christmas shopping season and are consequently restocked over the course of the year. Trade receivables decreased by EUR 0.8 million to EUR 39.1 million. Other assets decreased by EUR 5.7 million to EUR 19.9 million. The portfolio of cash and cash equivalents decreased from EUR 49.1 million to now EUR 30.8 million compared with December 31, 2017. Please refer to the statement of cash flows in the notes for a breakdown of changes in cash and cash equivalents.
The Gigaset Group's equity amounted to around EUR 23.6 million as of June 30, 2018, and is thus EUR 0.5 million lower than at the beginning of the year. This corresponded to an equity ratio of 11.2%. Due to the decrease in the discount rate from 1.85% to now 1.83% for the pension obligations accounted for, a net actuarial loss of EUR -0.7 million was recognized directly in equity. Furthermore, changes in exchange rates in the amount of EUR -0.5 million were recognized directly in equity. Cash flow hedging resulted in gains of EUR 1.4 million that were recognized directly in equity. In addition, equity was impacted by the consolidated net loss of EUR -0.1 million for the financial year.
Total liabilities amounted to EUR 186.9 million and therefore were EUR 15.9 million lower than at the beginning of the year and 49.0% of which are current.
Noncurrent liabilities mainly included pension obligations, financial liabilities, and deferred tax liabilities as well as noncurrent provisions for personnel expenses and provisions for guarantees. Noncurrent liabilities increased by EUR 6.6 million to EUR 95.3 million. The increase in noncurrent liabilities could be attributed mainly to the drawdown of the credit facility in the amount of EUR 5.0 million.
At EUR 91.6 million, current liabilities were around 19.7% lower than at the end of the year on December 31, 2017. The decrease in provisions of EUR 4.6 million resulted primarily from lower provisions for volume discounts in the amount of EUR 1.5 million and the reduction of provisions for licenses in the amount of EUR 1.2 million. Trade payables decreased seasonally from EUR 56.1 million to EUR 44.0 million.
As a general rule, all entrepreneurial activities involve risk. This includes the risk that corporate goals will not be achieved due to external or internal events as well as a result of actions and decisions; in extreme cases, a company's ability to continue as a going concern can be jeopardized. Gigaset's risk policy consists of taking advantage of existing opportunities and limiting the associated risks with the use of appropriate instruments.
Detailed information regarding Gigaset's opportunities and risks is presented in Gigaset's 2017 Annual Report. There were no significant changes in the first half of 2018.
The process of the Group-wide, systematic risk management system is described in detail in Gigaset AG's combined management report in the 2017 Annual Report.
There were no significant events after June 30, 2018 to report.
The Kiel Institute for the World Economy (IfW) is downgrading its outlook and expects a slightly weakened expansion of the global economy. The increase in global production, calculated based on purchasing power parities, is estimated to be 3.6 percent. Thus, the forecasts for 2018 and 2019 were each lowered by 0.2 percentage points.
Furthermore, the institute expects that the utilization of capacities in the advanced economies will increase. The economy in the United States should also pick up momentum, whereas the upswing in the euro zone will continue at a slower pace. In the European context, the economy in the United Kingdom will be burdened by Brexit-related uncertainty. Internationally, a gradual decline in production growth is expected for China. The economic recovery in the remaining emerging markets continues, while the risks are simultaneously increasing. The largest risk for the global economy remains trade policy risks due to an increasing agitation characterized by protectionism in important economies.
The Group expects that the market for DECT cordless telephones will continue to decline worldwide in the future due to increased competition and as a result of the growing share of mobile communication. It is likewise assumed that the price level will decrease on the whole over the next few years.
Gigaset expects further rising sales volume for its products. This is also indicated in a current study of expected smartphone sales volumes until 2021 by Statista. The statistic provides a forecast until 2021, according to which the sales volume should be around 1.71 billion devices in 202110.
Gigaset expects that Smart Home applications will develop more modestly than forecasted also in the foreseeable future. Nevertheless, individual studies and forecasts impart confidence. Current statistics from Statista show a forecast for revenues in the Smart Home Building Security segment in Germany until 2022. According to these statistics, revenues in this segment, which represents the majority of the portfolio of Gigaset's solutions, will be around EUR 474 million in Germany in 2018 and increase to around EUR 904 million by 202211.
Gigaset expects a further increase in significance for IP and cloud-based telephony in the area of business customer telephony. In Europe, the share of IP connections will grow steadily on the basis of installed telephony systems and further crowd out traditional transmission technology. Traditional (TDM-based) connections are expected to only constitute around 31% in 202112. In addition to the stationary IP systems, in particular cloud-based telecommunication solutions are recording clear growth in the installed basis. Forecasts show a growth of these telecommunication solutions in the European context. In 2021, the installed basis will amount to an estimated 32.3 million IP connections13.
10 Statista 2018 – IDC: Forecast regarding the sales volume of smartphones worldwide from 2010 to 2021 (in millions of units)
The market as a whole for cordless telephones in Europe further declined in the first half of 2018 by just under 5.7% based on revenues in the markets observed by Gigaset. This trend is expected to continue also in the coming years, because experts assume that the market in the area of cordless telephony will further decline. However, the goal is to stabilize the business with cordless telephones for Gigaset and to secure it also over the next few years as a source of revenues.
As planned, the development of Gigaset in the first half of the year was characterized both by a decrease in revenues in the Phones segment as well as by the successful expansion of the Professional, Smart Home and Smartphones segments. These segments should offset the loss of revenues in the Phones segment and generate new growth also in the future.
The overall plan is to broaden the Company's operating base. The Professional segment has grown continuously in recent years. Distribution and in particular distribution partnerships are to be further intensified in 2018. In the Smart Home segment, focused marketing strategies that should help to generate further revenue growth are planned for the second half of 2018. In addition, new customer groups and sales opportunities should be developed thanks to the expansion of the portfolio into new areas. The youngest segment, Smartphones, has likewise already become an important source of revenues for Gigaset. The production of smartphones in Germany presented in June/July 2018 aroused widespread interest on the part of the press, customers, and partners. The goal is to intensify the operations also here and to develop new sources of sales.
The restructuring, which was largely completed in 2017, led to a further reduction of personnel and overhead costs in the first half of 2018 compared with the previous year. At the same time, Gigaset systematically hired more employees in the first half of the year. Thanks to the investment security achieved in the first half of the year with the successful raising of financing for capital expenditures, Gigaset will further expand the costs for the development of marketing in the second half of the year in order to press ahead with the introduction of a new series of products. In total, a slight increase in personnel expenses as well as other expenses is expected for the second half of the year.
Gigaset hedged a large part of the U.S. dollar risk for 2018. In addition, the forecast is based on a USD/EUR exchange rate of 1.17. As a rule, this hedged exchange rate was slightly exceeded in the first half of the year as a result of the currency market trend.
The Company currently finances itself primarily from its operating business. Until May 31, 2018, Gigaset was free from financial liabilities. In May 2018, Gigaset Communications GmbH, Bocholt, a subsidiary of Gigaset AG, entered into a loan agreement with a German regional bank as the syndicate manager with a term of 4.5 years and a total commitment of up to EUR 20 million. This financing is intended to be used to expand the product portfolio in order to develop new revenue potential. At the end of June 2018, already 5 million euros in investment funds had been drawn down.
The Company's strategy to secure its financial stability remains conservative. According to its planning, Gigaset expects that a sizable, positive portfolio of cash and cash equivalents will be available, even taking into account all outstanding payment obligations at the end of the year.
Gigaset is placing its focus on the reorientation of the Company also in 2018. This means gaining market share in the Phones business, expanding revenues in the Professional segment, further expanding the Company's own smartphone business in the Smartphones segment and the expansion of Smart Home. Expenditures in the area of marketing and for capital expenditures will play a key role again also in 2018. The Group therefore expects the following for the financial year:
• An increase in revenues compared with 2017 in the high single-digit millions through the smartphone business and the expansion of the new business segments, whereby the expectation is for an increase in revenues in the mid-to-high millions in the Germany segment, declining revenues in the mid-millions in Europe, and an increase in the mid-to-high millions in the 'Rest of World' segment.
• The Company expects earnings from core business activities before depreciation and amortization of between EUR 20 million and EUR 28 million. The operating performance is characterized by further declining gross profits in the Phones segment, rising gross profits in the Professional and Smart Home segments, and an expansion of expenses for development and marketing.
• Due to the substantial capital expenditures and subsequent expenditures for the social compensation plan and amounts set aside for risks arising from prior-year tax audits, the Company expects a negative free cash flow in the mid-single-digit millions.
Gigaset AG Executive Board
Klaus Weßing Stephan Mathys
| € thousands | 1/1 - 6/30/2018 | 1/1 - 6/30/2017 |
|---|---|---|
| Revenues | 121,031 | 128,263 |
| Change in inventories of finished goods and work in progress | 2,583 | 95 |
| Cost of materials | -61,129 | -63,996 |
| Gross profit | 62,485 | 64,362 |
| Other own work capitalized | 5,165 | 4,704 |
| Other operating income | 6,347 | 7,949 |
| Personnel expenses | -30,938 | -34,639 |
| Other operating expenses | -35,400 | -34,498 |
| EBITDA | 7,659 | 7,878 |
| Depreciation and amortization | -6,794 | -7,337 |
| EBIT | 865 | 541 |
| Other interest and similar income | 157 | 31 |
| Interest and similar expenses | -555 | -554 |
| Net financial income | -398 | -523 |
| Result from ordinary activities | 467 | 18 |
| Income taxes | -612 | -1,271 |
| Consolidated net loss for the financial year | -145 | -1,253 |
| Earnings per ordinary share | ||
| - undiluted in EUR | 0.00 | -0.01 |
| - diluted in EUR | 0.00 | -0.01 |
Consolidated statement of comprehensive
Consolidated statement of financial position
Change in consolidated equity Consolidated statement of cash flows
| € thousands | 4/1 - 6/30/2018 | 4/1 - 6/30/2017 |
|---|---|---|
| Revenues | 69,911 | 69,835 |
| Change in inventories of finished goods and work in progress | 1,111 | 1,040 |
| Cost of materials | -34,946 | -36,898 |
| Gross profit | 36,076 | 33,977 |
| Other own work capitalized | 2,646 | 2,391 |
| Other operating income | 3,454 | 3,170 |
| Personnel expenses | -15,994 | -16,383 |
| Other operating expenses | -20,169 | -18,844 |
| EBITDA | 6,013 | 4,311 |
| Depreciation and amortization | -3,479 | -3,357 |
| EBIT | 2,534 | 954 |
| Other interest and similar income | 8 | 27 |
| Interest and similar expenses | -283 | -296 |
| Net financial income | -275 | -269 |
| Result from ordinary activities | 2,259 | 685 |
| Income taxes | -879 | -423 |
| Consolidated net profit for the financial year | 1,380 | 262 |
| Earnings per ordinary share | ||
| - undiluted in EUR | 0.01 | 0.00 |
| - diluted in EUR | 0.01 | 0.00 |
Consolidated statement of comprehensive
Consolidated statement of financial position
Change in consolidated equity Consolidated statement of cash flows
| € thousands | 1/1 - 6/30/2018 | 1/1 - 6/30/2017 |
|---|---|---|
| Consolidated net loss for the financial year | -145 | -1,253 |
| Items that may subsequently be reclassified to profit or loss | ||
| Currency translation differences | -467 | -195 |
| Cash flow hedges | 1,997 | -3,997 |
| Income taxes recognized on these items | -629 | 1,239 |
| Items that will not subsequently be reclassified to profit or loss | ||
| Revaluation effect, net liability under defined benefit plans | -1,009 | 4,609 |
| Income taxes recognized on this item | 321 | -1,466 |
| Total changes recognized in other comprehensive income | 213 | 190 |
| Total recognized income and expense | 68 | -1,063 |
Income statement
Consolidated statement of comprehensive
Consolidated statement of financial position
Change in consolidated equity Consolidated statement of cash flows
| € thousands | 4/1 - 6/30/2018 | 4/1 - 6/30/2017 |
|---|---|---|
| Consolidated net profit for the financial year | 1,380 | 262 |
| Items that may subsequently be reclassified to profit or loss | ||
| Currency translation differences | -242 | -173 |
| Cash flow hedges | 1,501 | -2,524 |
| Income taxes recognized on these items | -478 | 782 |
| Items that will not subsequently be reclassified to profit or loss | ||
| Revaluation effect, net liability under defined benefit plans | -1,009 | 4,251 |
| Income taxes recognized on this item | 321 | -1,352 |
| Total changes recognized in other comprehensive income | 93 | 984 |
| Total recognized income and expense | 1,473 | 1,246 |
Financial statements
Income statement
Consolidated statement of comprehensive
Consolidated statement of financial position
Change in consolidated equity Consolidated statement of cash flows
| € thousands | 6/30/2018 | 12/31/2017 |
|---|---|---|
| ASSETS | ||
| Noncurrent assets | ||
| Intangible assets | 30,790 | 30,083 |
| Property, plant and equipment | 21,865 | 23,313 |
| Financial assets | 18,386 | 18,386 |
| Deferred tax assets | 14,040 | 13,137 |
| Total noncurrent assets | 85,081 | 84,919 |
| Current assets | ||
| Inventories | 35,218 | 26,733 |
| Trade receivables | 39,096 | 39,921 |
| Other assets | 19,935 | 25,678 |
| Tax refund claims | 351 | 513 |
| Cash and cash equivalents | 30,845 | 49,097 |
| Total current assets | 125,445 | 141,942 |
Total equity & liabilities 210,526 226,861
Income statement
Consolidated statement of comprehensive
Change in consolidated equity Consolidated statement of cash flows
Consolidated statement of comprehensive
Change in consolidated equity Consolidated statement of cash flows
| € thousands | 6/30/2018 | 12/31/2017 |
|---|---|---|
| EQUITY & LIABILITIES | ||
| Equity | ||
| Subscribed capital | 132,456 | 132,456 |
| Share premium | 86,076 | 86,076 |
| Retained earnings | 68,979 | 68,979 |
| Accumulated other comprehensive income | -263,876 | -263,423 |
| Total equity | 23,635 | 24,088 |
| Noncurrent liabilities | ||
| Pension obligations | 82,587 | 81,432 |
| Provisions | 4,552 | 5,609 |
| Financial liabilities | 5,000 | 0 |
| Other liabilities | 1 | 9 |
| Deferred tax liabilities | 3,188 | 1,663 |
| Total noncurrent liabilities | 95,328 | 88,713 |
| Current liabilities | ||
| Provisions | 17,728 | 22,291 |
| Trade payables | 44,030 | 56,114 |
| Tax liabilities | 14,039 | 17,166 |
| Other liabilities | 15,766 | 18,489 |
| Total current liabilities | 91,563 | 114,060 |
| Total equity & liabilities | 210,526 | 226,861 |
| € thousands | Subscribed capital |
Share premium |
Revenue reserves |
Accumulated other comprehensive income |
Consolidated equity |
|
|---|---|---|---|---|---|---|
| December 31, 2016 | 132,456 | 86,076 | 68,979 | -269,669 | 17,842 | |
| 1 | Consolidated loss 2017 | 0 | 0 | 0 | -1,253 | -1,253 |
| 2 | Currency translation differences | 0 | 0 | 0 | -195 | -195 |
| 3 | Cash flow hedges | 0 | 0 | 0 | -2,758 | -2,758 |
| 4 | Revaluation effects, net liability under defined benefit plans |
0 | 0 | 0 | 3,143 | 3,143 |
| 5 | Total changes recognized in other comprehensive income |
0 | 0 | 0 | 190 | 190 |
| 6 | Total net income (1+5) | 0 | 0 | 0 | -1,063 | -1,063 |
| June 30, 2017 | 132,456 | 86,076 | 68,979 | -270,732 | 16,779 | |
| December 31, 2017 | 132,456 | 86,076 | 68,979 | -263,423 | 24,088 | |
| Adjustments IFRS 9 / IFRS 15 | 0 | 0 | 0 | -521 | -521 | |
| January 1, 2018 | 132,456 | 86,076 | 68,979 | -263,944 | 23,567 | |
| 1 | Consolidated loss 2018 | 0 | 0 | 0 | -145 | -145 |
| 2 | Currency translation differences | 0 | 0 | 0 | -467 | -467 |
| 3 | Cash flow hedges | 0 | 0 | 0 | 1,368 | 1,368 |
| 4 | Revaluation effects, net liability under defined benefit plans |
0 | 0 | 0 | -688 | -688 |
| 5 | Total changes recognized in other comprehensive income |
0 | 0 | 0 | 213 | 213 |
| 6 | Total net income (1+5) | 0 | 0 | 0 | 68 | 68 |
| June 30, 2018 | 132,456 | 86,076 | 68,979 | -263,876 | 23,635 |
Financial statements
Consolidated statement of comprehensive
Consolidated statement of financial position
Consolidated statement of cash flows
| € thousands | 1/1 - 6/30/2018 | 1/1 - 6/30/2017 |
|---|---|---|
| Result from ordinary activities | 467 | 18 |
| Depreciation of property, plant and equipment and amortization of intangible assets | 6,794 | 7,337 |
| Increase (+)/decrease (-) in pension provisions | 146 | 1,000 |
| Gain (-)/loss (+) from the sale of noncurrent assets | 2 | -29 |
| Gain (-)/loss (+) from currency translation | 172 | 421 |
| Net interest income | 398 | 523 |
| Interest received | 137 | 7 |
| Interest paid | -188 | -181 |
| Income taxes paid | -3,611 | -2,057 |
| Increase (-)/decrease (+) in inventories | -8,485 | -5,512 |
| Increase (-)/decrease (+) in trade receivables and other receivables | 8,044 | -7,933 |
| Increase (+)/decrease (-) in trade payables, other liabilities and other provisions | -20,782 | -12,105 |
| Increase (+)/decrease (-) in other items of the statement of financial position | -187 | -125 |
| Cash inflow (+)/outflow (-) from continuing operations (net cash flow) | -17,093 | -18,636 |
| Proceeds from the disposal of noncurrent assets | 0 | 29 |
| Disbursements for capital expenditures in noncurrent assets | -6,055 | -5,567 |
| Cash inflow (+)/outflow (-) from investing activities | -6,055 | -5,538 |
Financial statements
Income statement
Consolidated statement of comprehensive
Consolidated statement of financial position
Change in consolidated equity
Consolidated statement of cash flows
Consolidated statement of comprehensive
Consolidated statement of financial position
Change in consolidated equity
Consolidated statement of cash flows
| € thousands | 1/1 - 6/30/2018 | 1/1 - 6/30/2017 |
|---|---|---|
| Free cash flow | -23,148 | -24,174 |
| Cash inflow from the raising of noncurrent financial liabilities | 5,000 | 0 |
| Cash inflow (+)/outflow (-) from financing activities | 5,000 | 0 |
| Cash and cash equivalents at the beginning of the period | 44,542 | 39,993 |
| Changes due to exchange rate differences | -104 | -148 |
| Cash and cash equivalents at the beginning of the period measured at the closing rate of the prior year | 44,646 | 40,141 |
| Increase (-)/decrease (+) in restricted cash | 927 | 2,497 |
| Change in cash and cash equivalents | -18,148 | -24,174 |
| Cash funds at the end of the period | 27,321 | 18,316 |
| Restricted cash | 3,524 | 4,852 |
| Cash and cash equivalents reported on the statement of financial position | 30,845 | 23,168 |
The preparation of Gigaset AG's consolidated financial statements as of June 30, 2018, and the presentation of comparative figures from the prior year was carried out in compliance with the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) adopted and published by the International Accounting Standards Board (IASB) and their interpretation by the Standard Interpretations Committee (SIC) and International Financial Reporting Standards Interpretations Committee (IFRS IC) as they apply in the EU. Accordingly, this unaudited and unreviewed Interim Financial Report as of June 30, 2018, was prepared in accordance with IAS 34. All Standards applicable as of June 30, 2018, whose application is mandatory were taken into account and provide a true and fair view of the Gigaset Group's financial position, financial performance and cash flows.
The notes to the 2017 consolidated financial statements apply accordingly in particular with respect to the significant accounting policies adopted. Material changes as a result of the newly applicable standards IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers are explained separately in Section 3, Changes in accounting treatment as a result of the first-time application of IFRS 15 and IFRS 9. The consolidated financial statements are prepared under the premise that the Company will continue as a going concern.
In addition, the following standards and interpretations, which were amended or newly issued by the IASB, had to be applied beginning with the 2018 fiscal year:
• IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, and Clarifications to IFRS 15 Revenue from Contracts with Customers
See Section 3, Changes in accounting treatment as a result of the first-time application of IFRS 15 and IFRS 9.
• IFRS 2 Share-based Payment – Classification and Measurement of Sharebased Payment Transactions
The amendments to IFRS 2 include clarifications regarding three regulatory areas:
The new provisions apply for fiscal years beginning on or after January 1, 2018. The amendments had no effect on the consolidated financial statements.
• IAS 40 Investment Property – Transfers of Investment Property
The amendment of IAS 40 serves to clarify the cases in which the classification of property as "investment property" begins or ends if the property is still under construction or in development. Due to the exhaustive nature of the list previously shown in the standard, the classification of properties under construction was previously not clearly governed. The list is not explicitly non-exhaustive, so that now properties under construction can be subsumed under the regulation. The new provisions apply for fiscal years beginning on or after January 1, 2018. The amendments had no effect on the consolidated financial statements.
• Annual Improvements to IFRSs 2014–2016 Cycle
The Annual Improvements (2014–2016 Cycle) relate to clarifications within the following standards:
The new provisions apply for fiscal years beginning on or after January 1, 2018. The amendments had no effect on the consolidated financial statements.
• IFRS 4 Insurance Contracts – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
Until the effective date of the new standard for insurance contracts, IFRS 17 Insurance Contracts, the amendments to IFRS 4 include two possible voluntarily applicable methods of avoiding certain balance sheet consequences that arise from the divergence of the date of first-time application of IFRS 9 and IFRS 17 (postponement of the first-time application of IFRS 9 or a transition process that leads to an analogous presentation of amounts to be reported in profit or loss as if the previously applicable provisions of IAS 39 had been applied). The new provisions apply for fiscal years beginning on or after January 1, 2018. The amendments had no effect on the consolidated financial statements.
• IFRIC 22 Foreign Currency Transactions and Advance Consideration
The interpretation clarifies how to determine the date of a transaction for the purpose of determining the exchange rate to use when translating transactions in foreign currencies that include advance payments paid or received. The exchange rate for the underlying asset, income or expense is determined accordingly based on the date on which the asset or liability resulting from the advance payment is recognized for the first time. The new provisions apply for fiscal years beginning on or after January 1, 2018. The amendments had no effect on the consolidated financial statements.
The following standards and interpretations already adopted, revised, or newly issued by the IASB were not yet required to be applied in fiscal year 2018:
| Standards | Application requirement for Gigaset starting |
Adopted by EU Commission |
|
|---|---|---|---|
| Various | Yearly Improvements to International Financial Reporting Standards (2015–2017 Cycle) (Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes, and IAS 23 Borrowing Costs) |
1/1/2019 | No |
| IFRS 16 |
Leases | 1/1/2019 | Yes |
| IFRS 9 |
Financial Instruments – Prepayment Features with Negative Compensation | 1/1/2019 | Yes |
| IAS 28 | Long-term Interests in Associates and Joint Ventures | 1/1/2019 | No |
| IAS 19 | Employee Benefits – Plan Amendment, Curtailment or Settlement | 1/1/2019 | No |
| Conceptual Framework |
Amendments to References to the Conceptual Framework in IFRS Standards |
1/1/2020 | No |
| IFRS 17 |
Insurance Contracts | 1/1/2021 | No |
| IFRS 10 / IAS 28 |
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture | undetermined | No |
| Interpretations | |||
| IFRIC 23 |
Uncertainty over Income Tax Treatments | 1/1/2019 | No |
In October 2015, the EFRAG (European Financial Reporting Advisory Group) announced that the European Commission would not recommend the adoption of IFRS 14 Regulatory Deferral Accounts into EU law. The reason for its nonadoption is the strictly limited group of entities to which this interim standard applies. For Gigaset, compliance with IFRS 14 - which would have had to be applied beginning on January 1, 2016 -would not have had any effect on the accounting treatment.
Due to an ongoing research project, the mandatory first-time application of the amendments to IFRS 10 and IAS 28 with respect to the sale or contribution of assets between an investor and its associate or joint venture was postponed indefinitely by the standard setter. Therefore, the endorsement was also postponed indefinitely.
IFRS 16 will replace the previous standard IAS 17. As a general rule, assets must be capitalized in the future in the lessee's statement of financial position for the acquired usage rights for all leases and liabilities are to be recognized for the payment obligations. Previously, operating leases were only disclosed in the notes (see Gigaset AG's 2017 Annual Report, Notes to the consolidated financial statements, Note 31 Other financial obligations). These relate mainly to rental, lease, and service agreements. There are exemptions for short-term leases and contracts of low value. Therefore, the extent to which assets or liabilities result from the other financial obligations cannot be estimated at this time, nor can the extent to which this would impact the income statement and/or cash flow statement.
The Company will not apply the new standard IFRS 16 early, but instead will take it into account accordingly beginning with the date of mandatory first-time application.
The effects of the first-time application of the other revised and/or new standards and interpretations whose application is not required until fiscal year 2019 or later cannot be reliably estimated at this time.
Further information regarding published, but not yet applicable standards, interpretations and amendments as well as disclosures regarding the recognition and measurement of items of the statement of financial position as well as regarding discretionary decisions and estimation uncertainties can be found on page 87 ff. in the Section entitled "Accounting principles" in the Notes to the consolidated financial statements in the 2017 Annual Report.
The classification of the income statement was changed compared with the previous year. The previously presented breakdown of the operating result in earnings from core business activities before and/or after depreciation and amortization and an additional ordinary result was omitted. With the subtotals EBITDA (earnings before interest, taxes, depreciation, amortization and impairment losses) and EBIT (earnings before interest and taxes) now shown, the classification is adjusted by the omission of the breakdown described above to a more conventional hierarchical structure, thereby increasing the comparability with other financial statements.
| € (000) | 1/1-6/30/2017 Structure in the published 2017 half yearly financial report |
|
|---|---|---|
| 1 | Revenues | 128,263 |
| 2 | Change in inventories of finished goods and work in progress |
95 |
| 3 | Cost of materials | -63,996 |
| Gross profit | 64,362 | |
| 4 | Other own work capitalized | 4,704 |
| 5 | Other income from core business activities | 1,754 |
| 6 | Personnel expenses before restructuring | -34,639 |
| 7 | Other expenses from core business activities | -30,438 |
| Earnings from core business activities before depreciation and amortization/EBITDA |
5,743 | |
| 8 | Depreciation and amortization | -7,337 |
| Earnings from core business activities after depreciation and amortization |
-1,594 | |
| 9 | Additional ordinary income | 3,390 |
| 10 | Additional ordinary expenses | -1,253 |
| 11 | Personnel expenses from restructuring | 0 |
| 12 | Exchange rate gains | 2,805 |
| 13 | Exchange rate losses | -2,807 |
| € (000) | 1/1-6/30/2017 New structure in the 2018 half-yearly financial report |
|
|---|---|---|
| 1 | Revenues | 128,263 |
| 2 | Change in inventories of finished goods and work in progress |
95 |
| 3 | Cost of materials | -63,996 |
| Gross profit | 64,362 | |
| 4 | Other own work capitalized | 4,704 |
| 5, 9, 12 | Other operating income | 7,949 |
| 6, 11 | Personnel expenses | -34,639 |
| 7, 10, 13 | Other operating expenses | -34,498 |
| EBITDA | 7,878 |
|---|---|
| 8 Depreciation and amortization |
-7,337 |
| Ergebnis des Kerngeschäfts nach planmäßigen |
| € (000) | 1/1-6/30/2017 Structure in the published 2017 half yearly financial report |
|
|---|---|---|
| 14 | Impairment losses | 0 |
| Additional ordinary result | 2,135 | |
| Operating result | 541 | |
| 15 | Other interest and similar income | 31 |
| 16 | Interest and similar expenses | -554 |
| Net financial income | -523 | |
| Result from ordinary activities | 18 | |
| 17 | Income taxes | -1,271 |
| Consolidated net profit for the financial year | -1,253 | |
| Earnings per ordinary share | ||
| - undiluted in EUR | -0.01 | |
| - diluted in EUR | -0.01 |
The current line item Other operating income (EUR 7,949 thousand) includes the previously presented line items Other income from core business activities (EUR 1,754 thousand), Additional ordinary income (EUR 3,390 thousand) and Exchange rate gains (EUR 2,805 thousand). The line item Personnel expenses (EUR -34,639 thousand) includes the previous Personnel expenses before re-
| € (000) | 1/1-6/30/2017 New structure in the 2018 half-yearly financial report |
|
|---|---|---|
| 14 | Impairment losses | 0 |
| EBIT | 541 | |
| 15 | Other interest and similar income | 31 |
| 16 | Interest and similar expenses | -554 |
| Net financial income | -523 | |
| Result from ordinary activities | 18 | |
| 17 | Income taxes | -1,271 |
| Consolidated net profit for the financial year | -1,253 | |
| Earnings per ordinary share | ||
| - undiluted in EUR | -0.01 | |
| - diluted in EUR | -0.01 | |
structuring (EUR -34,639 thousand) as well as Personnel expenses from restructuring (EUR 0 thousand). The line item Other operating expenses (EUR -34,498 thousand) consolidates the previous line items Other expenses from core business activities (EUR -30,438 thousand), Additional ordinary expenses (EUR -1,253 thousand) and Exchange rate losses (EUR -2,807 thousand).
The new accounting standard IFRS 15, Revenue from Contracts with Customers, has been applied since January 1, 2018. IFRS 15 replaces the standards IAS 11 and IAS 18 as well as the interpretations IFRIC 13, 15, 18 and SIC-31. Gigaset makes use of the opportunity to apply IFRS 15 based on a modified retrospective approach in which it is not necessary to adjust prior year values. Such amounts continue to be presented in adherence to the standards IAS 11 and IAS 18 (for further details see the Notes to the consolidated financial statements part A "General information and presentation of the consolidated financial statements" of the 2017 Annual Report). The cumulative effect of the first-time application of IFRS 15 was recorded in equity in the amount of EUR 0.6 million as of January 1, 2018.
In the case of discount agreements, the new provisions of IFRS 15 result in the application of variable consideration at the time in which the price concession is expected to be taken advantage of. Marketing activities that represent consideration as defined in IFRS 15 to be paid by the customer are shown as an expense. Gigaset is obligated to remit copyright levies to the Central Organisation for Private Recording Rights (Zentralstelle für Private Überspielungsrechte) (ZPÜ). Since the amounts in question were collected in the interest of third parties, they are not to be included in the transaction price. Therefore, the copyright levy amounts are no longer to be shown in revenues. Based on the business model, the majority of payment obligations relate to a specific time.
The new accounting standard IFRS 9, Financial Instruments, has been applied since January 1, 2018, and replaces the previous regulations regarding financial instruments. The Group makes use of the exception in which comparative information for prior periods with respect to changes in classification and measurement (including impairment) does not have to be adjusted (for further details see the Notes to the consolidated financial statements part A "General information and presentation of the consolidated financial statements" of the 2017 Annual Report).
The first-time application of this standard has an effect on group companies that make use of factoring. Trade receivables that are not sold are assigned to the category Fair Value Through Profit or Loss (FVPL) since the majority of the receivables in these subportfolios are sold; consequently there can be no presumption of an intention to hold, nor of the utilization of a business model involving a mix of holding and sales. This does not lead to any effects from the fair value measurement, since the receivables are current and it can be assumed that the market value and the nominal value correspond as a rule. Significant changes in value due to defaults would naturally reduce the market value, but any such impacts have already been recognized through profit or loss as impairment losses. The effect of the first-time application of IFRS 9 results from the reversal of impairment losses recognized on a group basis as of December 31, 2017, for the group companies that use factoring. The trade receivables not sub-
ject to factoring are measured at amortized cost. The impairments are determined using an impairment model based on a simplified approach in which it is not necessary to assign levels. However, in contrast to the previous accounting treatment, expected credit losses are also anticipated under IFRS 9 and risk provisions can be correspondingly recognized. The effects on hedge accounting are immaterial, since the prospective effectiveness of the hedging relationships for currency risk is given. The investment in Gigaset Mobile Pte. Ltd. is measured at fair value through other comprehensive income (FVOCI without recycling) under the rules of IFRS 9.
Disclosures required under IFRS 7 and IFRS 13 made in connection with the introduction of IFRS 9 are presented in Section 6 Financial assets and liabilities.
Changes in valuation allowances result from the reclassification of receivables from the IAS 39 category Loans and Receivables (LaR) to the IFRS 9 category Fair Value through Profit and Loss (FVPL); as a result, the valuation allowance on January 1, 2018, is EUR 60 thousand lower than the amount shown on December 31, 2017.
Gigaset uses the modified retrospective approach of IFRS 15, whereby it is not necessary to adjust the prior-year figures; however, the effects on the income statement of the previous year are explained to achieve a better understanding. In accordance with IFRS 9, the exception is applied according to which comparative information for preceding periods regarding changes in classification and measurement (including impairment) is not to be adjusted. Reclassifications and adjustments from the first-time application of IFRS 15 and IFRS 9 are therefore recognized in the opening balance sheet as of January 1, 2018. The following table shows the adjustments for every individual line item.
| 12/31/2017 according to the |
1/1/2018 | |||
|---|---|---|---|---|
| Balance 7/19/2018 in € (000) | 2017 Annual Report |
IFRS 9 | IFRS 15 | in consideration of IFRS 9 and IFRS 15 |
| ASSETS | ||||
| Noncurrent assets | ||||
| Intangible assets | 30,083 | 30,083 | ||
| Property, plant and equipment | 23,313 | 23,313 | ||
| Financial assets | 18,386 | 18,386 | ||
| Deferred tax assets | 13,137 | 13,137 | ||
| Total noncurrent assets | 84,919 | 0 | 0 | 84,919 |
| Current assets | ||||
| Inventories | 26,733 | 26,733 | ||
| Trade receivables | 39,921 | 60 | -581 | 39,400 |
| Other assets | 25,678 | 25,678 | ||
| Tax refund claims | 513 | 513 | ||
| Cash and cash equivalents | 49,097 | 49,097 | ||
| Total current assets | 141,942 | 60 | -581 | 141,421 |
| Total assets | 226,861 | 60 | -581 | 226,340 |
| Balance 7/19/2018 in € (000) | 12/31/2017 according to the 2017 Annual Report |
IFRS 9 | IFRS 15 | 1/1/2018 in consideration of IFRS 9 and IFRS 15 |
|---|---|---|---|---|
| EQUITY & LIABILITIES | ||||
| Equity | ||||
| Subscribed capital | 132,456 | 132,456 | ||
| Share premium | 86,076 | 86,076 | ||
| Retained earnings | 68,979 | 68,979 | ||
| Accumulated other comprehensive income | -263,423 | 60 | -581 | -263,944 |
| Total equity | 24,088 | 60 | -581 | 23,567 |
| Noncurrent liabilities | ||||
| Pension obligations | 81,432 | 81,432 | ||
| Provisions | 5,609 | 5,609 | ||
| Other liabilities | 9 | 9 | ||
| Deferred tax liabilities | 1,663 | 1,663 | ||
| Total noncurrent liabilities | 88,713 | 0 | 0 | 88,713 |
| Current liabilities | ||||
| Provisions | 22,291 | 22,291 | ||
| Trade payables | 56,114 | 56,114 | ||
| Tax liabilities | 17,166 | 17,166 | ||
| Other liabilities | 18,489 | 18,489 | ||
| Total current liabilities | 114,060 | 0 | 0 | 114,060 |
| Total equity & liabilities | 226,861 | 60 | -581 | 226,340 |
Under IFRS 15, accounting early for the price concession in the expected amount of EUR 0.3 million and EUR 0.1 million in copyright levies not to be included in the transaction price has the effect of reducing revenues. The marketing activities, which represent consideration to be paid by the customer within the meaning of IFRS 15, are shown in the amount of EUR 0.2 million and thus have the effect of increasing revenues. In accordance with IFRS 9, trade receivables not subject to factoring are determined using a simplified approach on the basis of an impairment model. The application of this model resulted in a postive effect of EUR 0.1 million as of June 30, 2018, for the Group companies that do not use factoring. The following table provides an overview of the aforementioned effects on the income statement and the consolidated statement of comprehensive income from the first-time application of the standards IFRS 9 and IFRS 15.
| 1/1-6/30/2018 before applica |
1/1-6/30/2018 before applica |
|||
|---|---|---|---|---|
| Income statement in € (000) | tion of IFRS 9 and IFRS 15 |
IFRS 9 | IFRS 15 | tion of IFRS 9 and IFRS 15 |
| Revenues | 121,286 | -255 | 121,031 | |
| Change in inventories of finished goods and work in progress | 2,583 | 2,583 | ||
| Cost of materials | -61,129 | -61,129 | ||
| Gross profit | 62,740 | 0 | -255 | 62,485 |
| Other own work capitalized | 5,165 | 5,165 | ||
| Other operating income | 6,347 | 6,347 | ||
| Personnel expenses | -30,938 | -30,938 | ||
| Other operating expenses | -35,391 | 78 | -87 | -35,400 |
| EBITDA | 7,923 | 78 | -342 | 7,659 |
| Depreciation and amortization | -6,794 | -6,794 | ||
| EBIT | 1,129 | 78 | -342 | 865 |
| Other interest and similar income | 157 | 157 | ||
| Interest and similar expenses | -555 | -555 | ||
| Net financial income | -398 | 0 | 0 | -398 |
| Result from ordinary activities | 731 | 78 | -342 | 467 |
| Income taxes | -696 | -25 | 109 | -612 |
| Consolidated net profit for the financial year | 35 | 53 | -233 | -145 |
| Earnings per ordinary share | ||||
| - undiluted in EUR | 0.00 | 0.00 | 0.00 | 0.00 |
| - diluted in EUR | 0.00 | 0.00 | 0.00 | 0.00 |
| in € (000) | 1/1-6/30/2018 before applica tion of IFRS 9 and IFRS 15 |
IFRS 9 | IFRS 15 | 1/1-6/30/2018 before applica tion of IFRS 9 and IFRS 15 |
|---|---|---|---|---|
| Consolidated profit/loss for the year | 35 | 53 | -233 | -145 |
| Items that may subsequently be reclassified to profit or loss | ||||
| Currency translation differences | -467 | -467 | ||
| Cash flow hedges | 1,997 | 1,997 | ||
| Income taxes recognized on this item | -629 | -629 | ||
| Items that will not subsequently be reclassified to profit or loss | ||||
| Revaluation effects, net liability under defined benefit plans | -1,009 | -1,009 | ||
| Income taxes recognized on this item | 321 | 321 | ||
| Total changes recognized in other comprehensive income | 213 | 0 | 0 | 213 |
| Total recognized income and expense | 248 | 53 | -233 | 68 |
Gigaset's core business is subject to distinct seasonal fluctuations due to regularly varying consumer behavior over the course of a calendar year. The highest sales are realized during the Christmas shopping season, which is why the fourth quarter is traditionally very strong. In contrast, the first quarter serves the restocking of warehouses following the Christmas business and in our experience fluctuates around the same level as the third quarter. Sales for the Christmas season are already affecting inventory levels in the warehouses of distributors and retailers beginning in the third quarter; however, July and August count among the weak summer months with a typically low propensity to spend on the part of consumers. In light of this, the third quarter is normally
The ongoing restructuring was continued as planned in the first half of 2018. The cash outflow by the end of the second quarter of 2018 as a result of these restructuring measures amounted to EUR 2.3 million (prior year: EUR 5.0 million) primarily due to the payment of settlements. EUR 0.2 million of the provisions was reversed to profit or loss. We expect an overall positive cash effect from the restructuring by the end of 2018, mainly due to savings from personnel costs.
weaker than the fourth. The second quarter is already characterized by seasonal consumer restraint in the early summer months of May and June; at the same time, distributors and retailers are adjusting their inventory levels to the weak summer months. Therefore, the second quarter is traditionally the weakest rev-
In addition to the traditional general seasonal fluctuations, there are country and region-specific seasonalities, such as sales promotions related to specific trade fairs (e.g. CEBIT, IFA), back-to-school activities, or the Chinese New Year.
enue quarter of the entire fiscal year.
As a result of the amended provisions of IFRS 9, additional disclosures are made in the following tables regarding the reconciliation of the values shown in the statement of financial position and measurement categories on December 31, 2017, in accordance with IAS 39 and the values shown in the statement of financial position and measurement categories on January 1, 2018, in accordance with IFRS 9.
There were no changes as a result of the assignment of financial liabilities to the measurement categories of IFRS 9. The description of measurement categories was updated to the wording of new standard. The reconciliation for the financial assets can be found in the following tables.
The analysis of the valuation allowances to be recognized shows that there are no significant differences between the previous method of calculation and the newly applicable provisions of IFRS 9 for trade receivables that remain in the category of amortized cost (AC) and consequently an adjustment was not to be recognized at the time of the transition to IFRS 9. This also applies to the valuation allowances determined for cash and cash equivalents.
| € (000) as of 6/30/2018 | Measure ment categories under IFRS 9 |
Carrying amount 2018 |
Fair value 2018 |
Amortized cost |
Fair value directly in equity without subsequent reclassification to the income statement |
Fair value directly in equity with subsequent reclassification to the income statement |
Fair value through profit or loss |
Hedge accounting |
Amount stated statement of financial position IAS 17 |
|---|---|---|---|---|---|---|---|---|---|
| Assets | |||||||||
| Noncurrent assets | |||||||||
| Financial assets | FVOCI | 18,386 | 18,386 | 18,386 | |||||
| Current assets | |||||||||
| Trade receivables | AC | 16,706 | 16,706 | 16,706 | |||||
| FVPL | 22,390 | 22,390 | 22,390 | ||||||
| Other assets | AC, FVPL | 11,583 | 11,583 | 9,876 | 330 | 1,377 | |||
| Cash and cash equivalents | AC | 30,845 | 30,845 | 30,845 |
| € (000) as of 6/30/2018 | Measure ment categories under IFRS 9 |
Carrying amount 2018 |
Fair value 2018 |
Amortized cost |
Fair value directly in equity without subsequent reclassification to the income statement |
Fair value directly in equity with subsequent reclassification to the income statement |
Fair value through profit or loss |
Hedge accounting |
Amount stated statement of financial position IAS 17 |
|---|---|---|---|---|---|---|---|---|---|
| Equity & Liabilities |
|||||||||
| Noncurrent liabilities | |||||||||
| Financial liabilities | AC | 5,000 | 5,000 | 5,000 | |||||
| Current liabilities | |||||||||
| Trade payables | AC | 44,030 | 44,030 | 44,030 | |||||
| Other liabilities | AC, FVPL | 38 | 38 | 28 | 10 | ||||
| Of which aggregated based on measurement categories under IAS 39 |
|||||||||
| Financial assets | |||||||||
| At amortized cost (AC) | 57,427 | 57,427 | |||||||
| At fair value through other comprehensive income (FVOCI) |
18,386 | 18,386 | |||||||
| At fair value through profit or loss (FVPL) |
22,720 | 22,720 | |||||||
| Financial assets (hedging) | 1,377 | 1,377 | |||||||
| Financial liabilities | |||||||||
| At amortized cost (AC) | 49,058 | 49,058 | |||||||
| At fair value through profit or loss (FVPL) |
0 | 0 | |||||||
| Financial liabilities (hedging) | 10 | 10 |
| Measurement base under IAS 39 | |||||||
|---|---|---|---|---|---|---|---|
| € (000) as of 12/31/2017 | Measurement categories under IAS 39 |
Carrying amount 2017 |
Fair value 2017 |
(Amortized) cost |
Fair value directly in equity |
Fair value through profit or loss |
Hedge accounting |
| Assets | |||||||
| Noncurrent assets | |||||||
| Financial assets | AfS | 18,386 | n/a | 18,386 | 0 | 0 | 0 |
| Current assets | |||||||
| Trade receivables | LaR | 39,921 | 39,921 | 39,921 | 0 | 0 | 0 |
| Other assets | LaR, FA-HfT | 16,337 | 16,337 | 16,336 | 0 | 1 | 0 |
| Cash and cash equivalents | LaR | 49,097 | 49,097 | 49,097 | 0 | 0 | 0 |
| Equity & Liabilities |
|||||||
| Current liabilities | |||||||
| Trade payables | FL-AC | 56,114 | 56,114 | 56,114 | 0 | 0 | 0 |
| Other liabilities | FL-AC, FL-HfT, Hedging |
2,408 | 2,408 | 266 | 0 | 459 | 1,683 |
| Of which aggregated based on measurement categories under IAS 39 |
|||||||
| Financial assets | |||||||
| Loans and receivables (LaR) | 105,354 | 105,354 | |||||
| Financial assets available for sale (Afs) | 18,386 | n/a | |||||
| Financial assets held for trading (FA-HfT) | 1 | 1 | |||||
| Derivatives (hedging) | 0 | 0 | |||||
| Financial liabilities | |||||||
| Measured at amortized cost (FL-AC) | 54,605 | 54,605 | |||||
| Financial liabilities held for trading (FL-HfT) | 459 | 459 | |||||
| Derivatives (hedging) | 1,683 | 1,683 |
| Reconciliation of financial assets from IAS 39 to IFRS 9 in € (000) |
Carrying amount 12/31/2017 (IAS 39) |
Reclassi fications1 |
Reclassifica tions to other comprehen sive income |
Remeasure ments2 |
Carrying amount 1/1/2018 (IFRS 9) |
Effect to be recognized in profit car ried forward 1/1/2018 |
Balance value adjust ments other comprehen sive income 1/1/2018 |
|---|---|---|---|---|---|---|---|
| At fair value through profit or loss (FVPL) | |||||||
| Closing balance IAS 39 | 1 | 1 | |||||
| Additions/disposals for IFRS 9 – At fair value through profit or loss (FVPL) |
|||||||
| Additions from IAS 39 – Loans and receivables (LaR) |
19,565 | -60 | 19,505 | -60 | |||
| 19,506 | -60 | 0 | |||||
| At fair value through other comprehensive income (FVOCI) |
|||||||
| Closing balance IAS 39 | 18,386 | 18,386 | |||||
| Additions/disposals for IFRS 9 – At fair value through other comprehensive income (FVOCI) |
|||||||
| 18,386 | 0 | 0 | |||||
| At amortized cost (AC) | |||||||
| Closing balance IAS 39 | 105,354 | 105,354 | |||||
| Additions/disposals for IFRS 9 – At fair value through profit or loss (FVPL) |
|||||||
| Disposals from IAS 39 – Loans and receivables (LaR) |
-19,565 | -19,565 | |||||
| 85,789 | 0 | 0 | |||||
| Total | 123,741 | 0 | 0 | -60 | 123,681 | -60 | 0 |
1 Carrying amount under IAS 39 that was reclassified from an IAS 39 category to a new IFRS 9 category.
2 Resulting difference from the remeasurement of an IAS 39 instrument under the new IFRS 9 category.
| Classes financial instruments under IFRS 9 in € (000) | Measurement categories under IAS 39 |
Measurement categories under IFRS 9 |
Carrying amount 12/31/2017 IAS 39 |
Carrying amount 1/1/2018 IFRS 9 |
Difference |
|---|---|---|---|---|---|
| Assets | |||||
| Noncurrent assets | |||||
| Financial assets | AfS | FVOCI | 18,386 | 18,386 | 0 |
| Current assets | |||||
| Trade receivables | LaR | AC | 39,921 | 20,356 | -19,565 |
| FVPL | 19,505 | 19,505 | |||
| Other assets | LaR | AC | 16,336 | 16,336 | 0 |
| HfT | FVPL | 1 | 1 | 0 | |
| Cash and cash equivalents | LaR | AC | 49,097 | 49,097 | 0 |
| Equity & Liabilities |
|||||
| Current liabilities | |||||
| Trade payables | FL-AC | AC | 56,114 | 56,114 | 0 |
| Other liabilities | FL-AC | AC | 266 | 266 | 0 |
| FL-HfT | FVPL | 459 | 459 | 0 | |
| Hedge Accounting |
Hedge Accounting |
1,683 | 1,683 | 0 |
Loans and receivables (LaR) Financial assets available for sale (AfS) Financial assets held for trading (FA-HfT) Financial assets (hedge accounting)
Measured at amortized cost (FL-AC) Financial liabilities held for trading (FL-HfT) Other financial liabilities (hedge accounting)
At fair value through profit or loss (FVPL) At fair value through other comprehensive income (FVOCI) At amortized cost (AC) Financial assets (hedge accounting)
Measured at amortized cost (AC) At fair value through profit or loss (FVPL) Other financial liabilities (hedge accounting)
The fair values of financial assets and liabilities as of June 30 essentially correspond to the carrying amounts. Changes were made compared with December 31 of the previous year with respect to current financial assets and current financial liabilities due to the expiration of currency hedging transactions as well as the conclusion of new currency hedging transactions. However, the fair values of these items do not differ materially from their carrying amounts. At the end of June, a long-term loan was raised that was disbursed in the amount of EUR 5,000 thousand on June 30, 2018. No changes were made to financial assets and liabilities existing at this time compared with the end of the year with respect to measurement and the fair value hierarchy.
On the reporting date, foreign currency derivatives were presented under Other current assets with a fair value of EUR 1,707 thousand and under Other current liabilities with a fair value of EUR 10 thousand. As of December 31, 2017, the foreign currency derivatives were presented under Other current assets with a fair value of EUR 1 thousand and under Other current liabilities with a fair value of EUR 2,142 thousand.
As discussed in the 2017 consolidated financial statements, Gigaset applies the rules governing hedge accounting for the hedging of future purchases of merchandise. The currency futures contracts existing at this time for which hedge accounting was applied satisfy the requirements of IFRS 9 for cash flow hedges. The risk management strategies and hedging documentation are adapted to the provisions of IFRS 9. Thus, the hedging relationships existing at the end of 2017 are regarded as continuing hedging relationships. The effectiveness was assessed when the hedging relationships were designated on the basis of a prospective test of effectiveness. This led to the finding that the defined hedging relationships are to be regarded as effective.
In the current period, EUR 1,368 thousand (prior year: EUR -2,758 thousand) was recognized in equity taking deferred taxes into account.
As of the reporting period, there were 77 (December 31, 2017: 25) foreign currency derivatives, of which 50 (December 31, 2017: 24) foreign currency derivatives with a notional volume of USD 72.5 million (December 31, 2017: USD 68.5 million) were used to hedge the U.S. dollar exchange rate vis-à-vis the euro. For the hedging of the Turkish lira, there were 6 (December 31, 2017: 1) foreign currency derivatives with a notional volume of TRY 2.3 million (December 31, 2017: TRY 0.3 million). For the hedging of the Swiss franc, there were 17 (December 31, 2017: 0) foreign currency derivatives with a notional volume of CHF 8.0 million (December 31, 2017 CHF 0.0 million.). Of the existing foreign currency derivatives for the hedging of the U.S. dollar exchange rate, 50 (December 31, 2017: 18) were structured as "plain vanilla" currency forwards, 2 (December 31, 2017: 4) derivatives as "bonus eventual" currency forwards and 2 (December 31, 2017: 2) derivatives as TARF currencies forwards. The currency forwards for the hedging of the Swiss franc and the Turkish lira were structured as "plain vanilla" currency forwards.
The following tables present the fair values determined for the financial assets and liabilities based on hierarchy levels for the reporting date as well as for the comparison period in consideration of IFRS 9:
| 6/30/2018 | Level | |||
|---|---|---|---|---|
| € (000) | 1 | 2 | 3 | Total |
| Financial assets | ||||
| Noncurrent financial assets | 0 | 0 | 18,386 | 18,386 |
| Derivative financial instruments | 0 | 1,707 | 0 | 1,707 |
| Financial liabilities | ||||
| Financial liabilities | 0 | 5,000 | 0 | 5,000 |
| Derivative financial instruments | 0 | 10 | 0 | 10 |
| 1/1/2018 | Level | |||
|---|---|---|---|---|
| € (000) | 1 | 2 | 3 | Total |
| Financial assets | ||||
| Noncurrent financial assets | 0 | 0 | 18,386 | 18,386 |
| Derivative financial instruments | 0 | 1 | 0 | 1 |
| Financial liabilities | ||||
| Derivative financial instruments | 0 | 2,142 | 0 | 2,142 |
The fair value of derivative financial instruments was calculated using present value and option pricing models. To the extent possible, the relevant market prices and interest rates observed on the balance sheet date that were taken from generally accepted external sources were used as input parameters for these models. In accordance with IFRS 13, the determination of fair value is to be categorized within Level 2 of the fair value hierarchy.
Obligations under finance leases do not fall under the scope of application of IAS 39 and are therefore disclosed separately. However, as in the previous year, there were no liabilities under finance leases as of the reporting date. Thus, there are also no separate disclosures.
Noncurrent financial assets include the carrying amount of the interest in Gigaset Mobile Pte. Ltd., Singapore, which was assigned to the category At fair value through other comprehensive income (FVOCI). Based on the information available for the valuation, a multiple approach was used. Since no special peer group could be defined for Gigaset Mobile Pte. Ltd., Gigaset's peer group was applied. The fair value of Gigaset's 14.98% interest was determined based on a revenue multiple of 0.33 and average revenues for the years 2014 to 2017, whereby revenues for 2017 are not based on the Company's actual figures, but instead on the recently available values from the planning figures for Gigaset Mobile Pte. Ltd. In accordance with IFRS 13, the determination of fair value is to be categorized within Level 3 of the fair value hierarchy.
Cash and cash equivalents, trade receivables, and current financial assets have short remaining terms. Therefore, the carrying amounts as of the balance sheet date approximate the fair value.
Trade payables and current financial liabilities are due in full within one year. Therefore, the nominal value or repayment amount approximates the fair value.
The fair values of other non-current financial assets and liabilities with remaining terms of more than one year correspond to the present values of the payments associated with the assets and liabilities under consideration of the respectively current interest parameters, which reflect the currency, interest rate and partner-related changes in terms and conditions. In accordance with IFRS 13, the determination of fair value is to be categorized within Level 2 of the fair value hierarchy.
The pension obligations were adjusted on the basis of the current relevant interest rate level as of June 30, 2018, using an approximation method. Due to a decrease in the relevant interest rate level from 1.85% on December 31, 2017, to 1.83% on June 30, 2018, there was an increase in pension obligations from this effect in the amount of EUR 1,009 thousand and an increase in deferred tax assets in the amount of EUR 321 thousand.
Current provisions decreased compared with December 31, 2017, from EUR 22,291 thousand to EUR 17,728 thousand, which can be attributed mainly to the decrease of around EUR 2.5 million in restructuring provisions, the decrease of EUR 1.4 million in provisions for customer discounts, and the decrease of EUR 0.3 million in provisions for license fees. Noncurrent provisions decreased
primarily as a result of the decrease of EUR 1.1 million in the noncurrent portion of provisions for partial retirement obligations from EUR 5,609 thousand to EUR 4,552 thousand.
In April 2018, the Group signed a new credit facility in the amount of up to EUR 20.0 million. The funds available as a result are to be used both for financing capital expenditures as well as for covering the Company's financing needs. The first disbursement was received on June 28, 2018, in the amount of EUR 5.0 million. Beginning in January 2020, repayment of the outstanding loan amount will commence in 34 monthly installments. Interest payments are to be made at the end of each month. Accordingly, the current loan balance of EUR 5.0 million exhibits a time-to-maturity of over one year and less than five years.
The credit bears interest at a fixed rate, is denominated in euros, and is measured at amortized cost. Correspondingly, it has no effect on the position of the Group with respect to currency risk and the risk of changing interest rates.
Revenues are generated in the four segments: Phones, Professional, Smart Home, and Smartphones. The core business is established in the Phones segment and focuses on DECT cordless telephones. The Professional segment includes the corporate customer segment with an extensive offering of corded desk telephones and mobile components. The customers are small and medium-sized enterprises (SMEs). These commercial products are distributed exclusively over systems vendors (value-added resellers, VaR). The Smart Home segment sells security and alarm solutions for private households that enable users to maintain a constant connection with their home via smartphone and supported by the cloud. The Smartphone segment for mobile devices comprises a product portfolio ranging from the entry-level segment to feature-rich smartphones. Observed on a global basis, revenues are broken down by geographic segments that can be found in the segment reporting. Revenues are normally realized in the short term and the payment obligations relate to a specific time based on the current business model.
| Revenues in € millions | H1 2018 | H1 2017 | Change |
|---|---|---|---|
| Phones | 85.8 | 98.1 | -12.5% |
| Professional | 28.4 | 25.4 | 12.0% |
| Smartphones | 5.4 | 3.7 | 44.5% |
| Smart Home | 1.4 | 1.1 | 19.0% |
| Gigaset Total | 121.0 | 128.3 | -5.6% |
For further information regarding the individual product areas, please refer to the comments in the group management report.
Other operating income amounts to EUR 6,347 thousand after EUR 7,949 thousand in the previous year. Other operating income includes mainly realized and unrealized foreign currency gains in the amount of EUR 2,426 thousand (prior year: EUR 2,805 thousand), income from the reversal of provisions in the amount of EUR 1,412 thousand (prior year: EUR 1,810 thousand), income from recharging in the amount of EUR 689 thousand (prior year: EUR 1,221 thousand) and income from the reversal of valuation allowances in the amount of EUR 192 thousand (prior year: EUR 833 thousand). The EUR 1.6 million decrease in other operating income can be attributed mainly to EUR 0.5 million less in income from recharging, EUR 0.3 million less in income from the cancellation of liabilities, and EUR 0.6 million less than the previous year in income from the reversal of valuation allowances.
Personnel expenses decreased to EUR 30,938 thousand after EUR 34,639 thousand in the comparison period of the previous year due to the ongoing restructuring program in the first half of 2018.
Other operating expenses amount to EUR 35,400 thousand after EUR 34,498 thousand in the previous year. The increase of EUR 902 thousand in expenses compared with the previous year results primarily from the increase of EUR 1,951 thousand in marketing and hospitality expenses and an increase of EUR 477 thousand in expenses from the loaning of employees as well as lower expenses resulting from guarantee and service costs in the amount of EUR 523 thousand, lower other taxes in the amount of EUR 419 thousand and lower license fees in the amount of EUR 353 thousand.
10. Revenues
11. Other operating income
The presentation of segment reporting is based on geographic segments corresponding to the internal reporting. The holding company is presented separately from Gigaset's operating activities. Within the operating activities, the regions "Germany", "EU", and "Rest of World" are differentiated for the geographic areas. The reportable EU segment includes several geographic areas that were aggregated into this segment, including the geographic area "France" as a reportable segment. The individual segments were aggregated into the EU segment, because the products and services sold, the customer structures, the distribution structures, and the regulatory environment are comparable. With respect to economic criteria, the aggregation was carried out based on comparable gross margins in the individual geographic areas.
The geographic regions of Gigaset, whose main activities lie in the area of communications technology, include the following:
• Germany
The geographic area "Germany" includes the operating activities in Germany.
• EU
The geographic area "EU" includes the operating activities in Poland, United Kingdom, Austria, France, Italy, the Netherlands, Spain, and Sweden.
• Rest of World
The geographic area "Rest of World" includes the operating activities in Switzerland, Turkey, Russia, and China.
Transfer pricing between the segments corresponds to the prices that are also realized with third parties. The cost of administrative services is passed on by means of cost allocation.
The relevant net segment income was earnings from core business activities before depreciation and amortization until the end of May 2018. Beginning in June 2018, the relevant net segment income is EBITDA. Both performance metrics are presented due to the change in the current year.
Revenues are reported by country as part of internal segment reporting based both on the receiving units as well as on the registered office of the respective companies (i.e. country of domicile).
Revenues based on receiving units represent the revenues invoiced in the respective regions – independent of the registered office of the invoicing unit). For example, if a German company issues an invoice in the Netherlands, such revenues are allocated to the region of "Europe - EU (excluding Germany)" in the presentation based on receiving units. As described in the preceding paragraph, revenues in the following table are classified based on the regions of the receiving units as defined in IFRS 8.33 a) and are presented as follows for the current financial year and the comparison period:
| € (000) | 1/1-6/30 2018 | 1/1-6/30 2017 |
|---|---|---|
| Germany | 50,899 | 56,182 |
| Europe - EU (excluding Germany) | 55,408 | 53,869 |
| Europe - Other | 7,030 | 10,157 |
| Rest of World | 7,694 | 8,055 |
| Total | 121,031 | 128,263 |
15. Cash flow statement
The allocation to the individual geographical areas for the current segment reporting in the Group is also still based on the country in which the respective legal unit is domiciled. For example, if a German company issues an invoice in the Netherlands, such revenues are allocated to the region of Germany in the presentation based on country of domicile. The following tables present revenues based on the country of domicile. The relevant net segment income (earnings from core business activities before depreciation and amortization) is determined based on the results of the respective legal unit (country of domicile).
Until May 2018, the segment reporting was carried out analogous to the end of financial year 2017 in the following form (before the structure of the income statement was adjusted in the preparation period):
| € (000) January 1 – June 30, 2018 | Germany | EU | Rest of World | Gigaset Total | Holding | Group |
|---|---|---|---|---|---|---|
| Revenues | 59,672 | 49,059 | 12,300 | 121,031 | 0 | 121,031 |
| Earnings from core business activities before depreciation and amortization |
8,248 | -1,621 | 652 | 7,279 | -1,690 | 5,589 |
| Depreciation and amortization | -6,740 | -44 | -10 | -6,794 | 0 | -6,794 |
| Earnings from core business activities after depreciation and amortization |
1,508 | -1,665 | 642 | 485 | -1,690 | -1,205 |
| Additional ordinary result | 1,558 | 185 | 163 | 1,906 | 164 | 2,070 |
| Operating result | 3,066 | -1,480 | 805 | 2,391 | -1,526 | 865 |
| Other interest and similar income | 157 | |||||
| Interest and similar expenses | -555 | |||||
| Net financial income | -398 | |||||
| Result from ordinary activities | 467 | |||||
| Income taxes | -612 | |||||
| Consolidated net loss for the financial year | -145 |
15. Cash flow statement
| € (000) January 1 – June 30, 2017 | Germany | EU | Rest of World | Gigaset Total | Holding | Group |
|---|---|---|---|---|---|---|
| Revenues | 64,368 | 49,589 | 14,306 | 128,263 | 0 | 128,263 |
| Earnings from core business activities before depreciation and amortization |
8,235 | -350 | 136 | 8,021 | -2,278 | 5,743 |
| Depreciation and amortization | -7,289 | -37 | -11 | -7,337 | 0 | -7,337 |
| Earnings from core business activities after depreciation and amortization |
946 | -387 | 125 | 684 | -2,278 | -1,594 |
| Additional ordinary result | 790 | 1,011 | 224 | 2,025 | 110 | 2,135 |
| Operating result | 1,736 | 624 | 349 | 2,709 | -2,168 | 541 |
| Other interest and similar income | 31 | |||||
| Interest and similar expenses | -554 | |||||
| Net financial income | -523 | |||||
| Result from ordinary activities | 18 | |||||
| Income taxes | -1,271 | |||||
| Consolidated net loss for the financial year | -1,253 |
Due to the change in the structure of the income statement in the preparation phase of the consolidated financial statements for the half-year, the future segment reporting will be adjusted accordingly. For a better understanding of the financial statement data, it will be presented below already based on the new structure of the income statement.
15. Cash flow statement
| € (000) January 1 – June 30, 2018 | Germany | EU | Rest of World | Gigaset Total | Holding | Group |
|---|---|---|---|---|---|---|
| Revenues | 59,672 | 49,059 | 12,300 | 121,031 | 0 | 121,031 |
| Net segment income/EBITDA | 9,808 | -1,436 | 814 | 9,186 | -1,527 | 7,659 |
| Depreciation and amortization | -6,740 | -44 | -10 | -6,794 | 0 | -6,794 |
| EBIT | 3,068 | -1,480 | 804 | 2,392 | -1,527 | 865 |
| Other interest and similar income | 157 | |||||
| Interest and similar expenses | -555 | |||||
| Net financial income | -398 | |||||
| Result from ordinary activities | 467 | |||||
| Income taxes | -612 | |||||
| Consolidated net loss for the financial year | -145 |
| € (000) January 1 – June 30, 2017 | Germany | EU | Rest of World | Gigaset Total | Holding | Group |
|---|---|---|---|---|---|---|
| Revenues | 64,368 | 49,589 | 14,306 | 128,263 | 0 | 128,263 |
| Net segment income/EBITDA | 9,024 | 661 | 361 | 10,046 | -2,168 | 7,878 |
| Depreciation and amortization | -7,289 | -37 | -11 | -7,337 | 0 | -7,337 |
| EBIT | 1,736 | 624 | 349 | 2,709 | -2,168 | 541 |
| Other interest and similar income | 31 | |||||
| Interest and similar expenses | -554 | |||||
| Net financial income | -523 | |||||
| Result from ordinary activities | 18 | |||||
| Income taxes | -1,271 | |||||
| Consolidated net loss for the financial year | -1,253 |
15. Cash flow statement
The cash inflows from financing activities amount to EUR 5,000 thousand, resulting from a new credit facility. The financing activities do not include any non-cash transactions. There were also no changes in the basis of consolidation or currency effects that would have to be reflected in the cash inflows from financing activities.
In accordance with IAS 24, Related Party Disclosures, business relationships with Gigaset Mobile Pte. Ltd., Singapore, and its subsidiaries were to be shown as related party transactions starting in 2014. From the perspective of the Group, the transactions and/or net balances with the Gigaset Mobile Group comprised the following for the reporting period and/or as of the reporting date:
| in € (000) | Expenses 1/1- 6/30/2018 |
Sales/revenues 1/1-6/30/2018 |
Receivables 6/30/2018 |
Liabilities 6/30/2018 |
|---|---|---|---|---|
| Gigaset | 0 | 0 | 1,309 | 0 |
| Gigaset Mobile Group |
0 | 0 | 0 | 1,309 |
| in € (000) | Expenses 1/1- 6/30/2017 |
Sales/revenues 1/1-6/30/2017 |
Receivables 6/30/2017 |
Liabilities 6/30/2017 |
|---|---|---|---|---|
| Gigaset | 283 | 0 | 2,459 | 1,144 |
| Gigaset Mobile Group |
0 | 283 | 1,144 | 2,459 |
In accordance with IAS 24, Related Party Disclosures, the business relationships with Guangzhou Cyber Digital Technology Company Limited, Guangzhou/ China, are to be stated as business relationships with related parties starting in 2014. This company represents an Other related party in accordance with IAS
24.19 (g). From the perspective of the Group, no transactions were entered into for the reporting period:
| in € (000) | Expenses 1/1- 6/30/2018 |
Sales/revenues 1/1-6/30/2018 |
Receivables 6/30/2018 |
Liabilities 6/30/2018 |
|---|---|---|---|---|
| Gigaset | 0 | 0 | 1,397 | 347 |
| Guangzhou Cyber Digital Technology Company |
||||
| Limited | 0 | 0 | 347 | 1,397 |
| Expenses 1/1- 6/30/2017 |
Sales/rev enues 1/1- 6/30/2017 |
Receivables 6/30/2017 |
Liabilities 6/30/2017 |
Liabilities 6/30/2018 |
| Gigaset | 0 | 0 | 1,397 | 347 |
| Guangzhou Cyber Digital Technology |
Valuation allowances were recognized for the existing receivables. There was no collateral for the respective receivables.
There were no other significant transactions between the Group and its related parties other than the facts and circumstances described.
Please refer to the comments in the group management report regarding significant events after the reporting date.
"To the best of our knowledge, and in accordance with the applicable reporting principles, the interim consolidated financial statements give a true and fair view of the financial position, financial performance and cash flows of the Group, and the group interim management report provides a true and fair view of the development of the business, including the results of operations and the position of the Group as well as a description of the significant opportunities and risks associated with the expected development of the Group for the remaining months of the financial year."
Munich, August 22, 2018
The Executive Board of Gigaset AG
Klaus Weßing Stephan Mathys
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