Annual Report • Mar 15, 2012
Annual Report
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CVRNo.49619812
MANAGEMENT'S REVIEW ThisdocumentisatranslationoftheDanishAnnualReport. IncaseofinconsistencybetweentheDanishtextandthisEnglishtranslation,theDanishtextshallprevail.
| Income statement (DKKm) | 2011* | 2010* | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|
| Revenue | 1,309.8 | 1,185.5 | 1,068.0 | 1,439.5 | 1,850.2 |
| Gross profit | 282.3 | 237.6 | 247.7 | 437.3 | 652.0 |
| Profit before depreciation, amortisation and financial items (EBITDA) |
91.5 | (4.8) | 1.0 | 135.5 | 347.1 |
| Operating profit (EBIT) | (10.5) | (245.4) | (205.3) | 19.0 | 222.4 |
| Net financing costs | (42.3) | (29.1) | (58.3) | (17.6) | (17.4) |
| Profit before tax | (52.8) | (274.5) | (263.5) | 1.4 | 205.1 |
| Profit for the year from continuing operations | (68.9) | (262.9) | - | - | - |
| Profit for the year from discontinued operations | (48.6) | (7.6) | - | - | - |
| Profit for the year | (117.5) | (270.5) | (232.5) | 1.7 | 157.5 |
| Balance sheet – assets (DKKm) | |||||
| Non-current assets | 1,173.2 | 1,359.2 | 1,495.4 | 1,558.9 | 1,361.7 |
| Current assets | 407.5 | 294.9 | 359.6 | 363.9 | 422.1 |
| Total assets | 1,580.7 | 1,654.1 | 1,855.0 | 1,922.8 | 1,783.7 |
| Balance sheet – equity and liabilities (DKKm) | |||||
| Share capital | 490.5 | 490.5 | 490.5 | 109.0 | 116.0 |
| Equity | 553.5 | 725.6 | 958.2 | 743.2 | 990.3 |
| Non-current liabilities | 755.9 | 759.0 | 749.6 | 1,015.7 | 180.0 |
| Current liabilities | 271.3 | 169.6 | 147.2 | 163.9 | 613.4 |
| Total equity and liabilities | 1,580.7 | 1,654.1 | 1,855.0 | 1,922.8 | 1,783.7 |
| Cash flow (DKKm) | |||||
| Cash flow from operating activities | 42.9 | 46.4 | (41.7) | 60.8 | 266.5 |
| Cash flow from investing activities | (32.2) | (31.8) | (119.4) | (476.9) | (259.5) |
| Free cash flow | 10.8 | 14.6 | (161.1) | (416.1) | 7.0 |
| Investments and debt (DKKm) | |||||
| Investments in non-current assets during the period | 36.9 | 35.2 | 104.6 | 492.7 | 263.0 |
| Interest-bearing debt (net) | 628.5 | 613.6 | 595.8 | 863.0 | 380.8 |
| Financial ratios | |||||
| Gross margin | 21.6% | 20.0% | 23.2% | 30.4% | 33.2% |
| Operating margin (EBITA margin) | (0.8%) | (10.4%) | (11.3%) | 1.3% | 12.5% |
| Return on invested capital (ROIC) | (0.8%) | (8.9%) | (7.2%) | 1.2% | 16.1% |
| Return on equity | (18.4%) | (32.1%) | (27.3%) | 0.2% | 16.9% |
| Solvency ratio | 35.0% | 43.9% | 51.7% | 38.7% | 55.5% |
| Net interest-bearing debt/EBITDA | 6.9 | (127.2) | 595.8 | 6.4 | 1.1 |
| Average number of shares outstanding | 9,789,511 | 9,789,511 | 1,432,844 | 1,090,436 | 1,146,072 |
| Adjusted average number of shares outstanding | 9,789,511 | 9,789,511 | 2,457,792 | 2,180,872 | 2,292,144 |
| Share price, year-end (DKK) | 42 | 53 | 63 | 304 | 1,362 |
| Book value per share, year-end (DKK) | 56 | 74 | 98 | 682 | 854 |
| Price/book value | 0.8 | 0.7 | 0.6 | 0.4 | 1.6 |
| Price-earnings ratio (PE) | (3.5) | (1.9) | (0.7) | 199.9 | 9.9 |
| Earnings per share (adjusted) | (12.0) | (27.6) | (94.6) | 0.8 | 68.7 |
| Diluted earnings per share (adjusted) | (12.0) | (27.6) | (94.6) | 0.8 | 68.5 |
| Dividend per share (adjusted) | 0 | 0 | 0 | 0 | 15.0 |
| Payout ratio | 0% | 0% | 0% | 0% | 22.1% |
| Average full-time equivalent staff | 1,084 | 1,156 | 1,238 | 1,282 | 1,379 |
*Figureshavebeenadjustedfordiscontinuedoperations.
Earnings per share and diluted earnings per share have been calculated in accordance with IAS 33 (note 11). The other financial ratios have been calculated in accordance with the Danish Society of Financial Analysts' 'Recommendations&Ratios 2010'.
Reference is made to definitions and concepts in note1'Accounting policies'.
EBITDA was DKK 91.5 million, againstalossofDKK 4.8 million in 2010. EBITDA before special items was DKK 96.6 million. These results are in line with the most recently announced outlook for continuing operations, which was EBITDA before special items in the regionofDKK 95-100 million. Although 2011 broughtasubstantial improvement, earnings are stillnotsatisfactory.
There was growth in revenue in the first halfof2011but,as expected, this didnotcontinue at the same rate in the second half as escalating economic turmoil slowed growth in sales volumes.Averageselling prices rose in 2011. Price rises were achieved especially in Germany and Russia, resulting in higher averageprices in these markets than in 2010.
Earnings in 2011 were better than in 2010, aided by the successful implementationofthe efficiency programme launched in 2010 and expanded in 2011.H+H's selling costs, administrative expenses and production overheads have been optimised, and there has beenareduction in staff numbers. The focus has been on optimisationofproduction facilities and clear prioritisationof-H+H's business activities. Despite the improvement, earnings are stillnotsatisfactory.
The strategic plan covers the period from 2012 up to and including 2014, during which time the aim is to deliver satisfactory financial results and reduceH+H's debt levels.
In the lightofH+H's current financial performance and debt levels, the following overall guiding principles apply to 2012-2014 (the strategic planning period):
Within these guiding principles,H+Hshould be able to grow the top line by 30% with its existing production capacity, assuming geographically balanced market growth.
H+Hhas defined three strategic goals that need to be fulfilled within the time spanofthe strategic plan:
Read more aboutH+H's new strategy on pp 16-18.
On its own initiative and without the involvementofH+HInternational A/S, Xella International Holdings S.à.r.l. ("Xella") submitted apre-mergernotification withH+Hto the relevant competition authorities in the EU and Germany (due to the European Commission's referralofthe German partofthe matter to the German competition authority ("Bundeskartellamt")). Reference is made to prior company announcements.
During the evaluation period anofferfor commitments submitted by Xella to try to counter the negative competitive consequences in relation toamergerwas rejected by the Bundeskartellamt.
On 14 March 2012, the Bundeskartellamt issuedadecision in relation to Xella's notification whereby the Bundeskartellamt prohibitedapossiblemergerbetween Xella andH+Hwithin the German market.
Xella may appeal the decision by the Bundeskartellamt by bringing the decision before Oberlandesgericht Düsseldorf (Düsseldorf Higher Regional Court). Regardlessofapotential appeal from Xella,H+Hwill continue to pursue its strategy onastandalone basis as described in this annual report.
No events have occurred after the balance sheet date that will haveamaterial effect on the parent company's or theH+H-Group's financial position.
Five membersofthe BoardofDirectors were re-elected at the annual general meeting in April 2011, while one member chose notto stand again. Asaresult, the BoardofDirectors now has five members.
Michael Troensegaard Andersen took up his position as CEO with effect from4April 2011.
The BoardofDirectors will recommend at the annual general meeting on 18 April 2012 that no dividend be paid for the 2011 financial year.
In 2005-2009, H+H made major investments in Eastern Europe in particular, and this led toasubstantial increase in net interestbearing debt, especially in 2008-2009. Debt levels were largely unchanged in 2010 and 2011.
H+Hhad net interest-bearing debtofDKK 628.5 million at the endof2011, up DKK 14.9 million from the endof2010.Ifexchange rates had remained constant throughout the year, net interest-bearing debt would have been DKK 613.5 million.
AsaconsequenceofH+H's stabilising debt levels and the expected positive cash flow in the years ahead, in February 2012 the company decided to cut its borrowing costs by reducing the committed loan agreement with Danske Bank A/S by DKK 50 million to around DKK 800 million.
The new strategic planofH+Hhas enabled the company to extend its committed credit facility with Danske Bank A/S until 15 February 2015. The associated financial covenants have been adjusted at the same time.
The substantial investment in production capacity in recent years, coupled withasignificant decrease in revenue, has meant thatH+H's production capacity isnotbeing fully utilised. Asaresult, when markets turn and sales volumes rise again,H+Hwill be able to handle the increase in volumes with its existing production capacity.
EBITDA was DKK 91.5 million, againstalossofDKK 4.8 million in 2010. EBITDA before special items was DKK 96.6 million. These results are in line with the most recently announced outlook for continuing operations, which was EBITDA before special items in the regionofDKK 95-100 million. The original outlook for the year was DKK 100-140 million. Although 2011 broughtasubstantial improvement, earnings are stillnotsatisfactory.
Revenue from continuing operations was DKK 1,309.8 million (2010: DKK 1,185.5 million), an increaseof10.5%.H+Hretained or increased its market share in all markets.
Free cash flow was positive at DKK 10.8 million, which is in line with the most recently announced outlookofaround DKK 10-20 million. The original outlook for the year was DKK 20-60 million. Net interest-bearing debt amounted to DKK 628.5 million at the endofthe year.Ifexchange rates had remained constant throughout the year, debt would have been DKK 15.0 million lower.
Sales in Denmark reflected nascent optimism in the residential construction market and came out substantially higher than in 2010. The increase in activity in 2011 is unlikely to continue into 2012, however, and largely unchanged sales volumes are anticipated inamarket still dogged by uncertainty.
The German residential newbuild market expanded significantly in 2011, due partly to the downturn in construction in 2009 and 2010. Growth in completions is expected to slow in 2012butremain slightly positive.
Prices forH+H's products in Germany climbed in 2011 and are beginning to approach the levels seen before the economic crisis. Sales from the German factories to sister companies were slightly higher than in 2010. Gently rising sales and relatively stable prices are anticipated in 2012. For 2012 the focus remains on achieving higher prices aheadofincreasing market shares.
H+H's factory manufactures blocks and reinforced products, supplyingnotonly Finlandbutalso the Swedish market. There were very low levelsofbothcommercial and residential construction in Finland in 2011, and activity has remained subdued into 2012. The focus during the year will be onexpandingthe Finnish market to include constructionofapartments and moreofthe industrial segment.
Revenue rose slightly in 2011 inagently falling market,but-H+H's sales in the Netherlands are still relatively limited.Afurther increase is expected in 2012 despitea difficult market.
The last coupleofyears have seen healthy growth in residential and commercial construction, and the market is expected to be relatively flat in 2012. The Swedish krona appreciated against the euro in 2010 and 2011, making the company's products more competitive relative to locally manufactured substitute building materials.
The market was slightly positive in 2011, contracting in the first halfofthe year andexpandingin the second half.
Private and public housebuilding are expected to decline slightly in 2012 due to limited mortgage availability, cuts in public spending on social housing, and reducedbuyerconfidence due to fearsoffalling house prices and an uncertain employment outlook.
In termsofsalesofaircrete, however, this decline is expected to be offset by an increased shift from the constructionofapartments to the constructionofhouses, resulting in increased useofaircrete. All in all, sales volumes are expected to be largely unchanged from 2011.
As partofits continued focus on corebusiness,H+Hhas de cided to divest its Finnish subsidiaryJämerä-kivitalotOy, which designs and sells the constructionofaircrete houses for private individuals. As the company has been loss-making for anumber ofyears, the divestment will haveapositive effect onH+H's future earnings.Itis expected that the divestment can be completed by the endofthe third quarterof2012. Jämerä's activities are therefore nolongerreported as continuing operations.
Sales in the Czech Republic grew in 2011 despite very difficult market conditions, and sales volumes are expected to continue to rise gently in 2012. The Czech market is still under considerable
pressure and is expected to contract slightly in 2012. The Czech factory supplies the Czech, German and Slovak markets.
The Polish newbuild market was hit hard by the economic crisis, and the numberofstarts has been falling in recent years. There was alsoasmall increase in market share in 2011, as the focus in Poland is on raising prices aheadofmaintaining volumes, and there has been fierce price competition for aircrete. Slightly improved market conditions are anticipated in 2012.
The factory near StPetersburgin Russia was completed in late 2009, making 2011H+H's second year in the Russian market. The market expanded in 2011, and demand far outstripped supply forlongperiods. Prices in the aircrete market climbed asaresultofincreased demand and rising raw material costs.
Increased production and sales are anticipated in 2012.
H+Hbelieves that the Eastern European market will be attractive for the Group in future, with good growth potential despite the economic crisis.
| Segment information for continuing operations | |||||||
|---|---|---|---|---|---|---|---|
| Amounts in DKK million | 2011 | 2010 | 2011 | 2010 | |||
| WesternEurope | EasternEurope | ||||||
| Revenue | 928.5 | 810.8 | 381.3 | 374.7 | |||
| EBITDA | 93.2 | 37.6 | 11.3 | (6.0) | |||
| Depreciation | (58.9) | (71.5) | (42.9) | (46.3) | |||
| EBITA | 34.3 | (33.9) | (31.6) | (52.3) | |||
| EBIT | 34.3 | (34.1) | (31.6) (172.3) | ||||
| Profit before tax* | 17.5 | (49.2) | (68.7) (209.8) | ||||
| Non-current assets | 792.9 | 607.0 | 635.5 | 733.6 | |||
| Investments in intangible assets and property, plant and equipment |
23.4 | 15.3 | 11.4 | 15.6 | |||
| Assets | 1,144.8 | 854.2 | 739.1 | 820.4 | |||
| Equity | 478.6 | 289.0 | 263.8 | 63.8 | |||
| Liabilities | 666.2 | 565.2 | 475.3 | 756.6 | |||
| Average full-time equivalent staff | 498 | 495 | 572 | 645 |
*TheH+HGroup's consolidated profit before tax, management fee etc.
Further information about the Group's segments is disclosed in note 3.
An increase in earnings is anticipated in 2012, with EBITDA for continuing operations in the regionofDKK 110-140 million before special items.
Free cash flow is expected to be positive in the region DKK 0-20 million before disposalofassets.
Total investments are expected to be in the regionofDKK 50 million.
These expectations forH+H's financial performance in 2012 are based on the following specific assumptions:
The expectations forH+H's financial performance are based on some general assumptions.
Management believes that the most significant assumptions underlyingH+H's expectations relate to:
Management's expectations are associated with considerable uncertainty. No assurance can therefore be given that the assumptions on which the financial expectations are based will hold.
H+HInternational A/S is only obliged to update and adjust the expectations presented where so required by Danish legislation, including the Danish Securities Trading Act, or the rules for issuers on NASDAQ OMX Copenhagen.
EBITDA was DKK 91.5 million, againstalossofDKK 4.8 million in 2010. EBITDA before special items was DKK 96.6 million. These results are in line with the most recently announced outlook for continuing operations, which was EBITDA before special items in the regionofDKK 95-100 million. The original outlook for the year was DKK 100-140 million. Although 2011 broughtasubstantial improvement, earnings are stillnotsatisfactory.
Earnings were boosted byageneral rise in prices for the company's products,butthis was largely offset by much higher prices than expected for rawmaterials,primarily energy, and transport, which hadanegative impact on earnings.Apurchasingproject has been launched to counter the rise in raw material and distribution costs, and is expected to have its full impact in 2012.
Earnings were boosted by the implementationofthe first phase ofH+H's Lean project, which brought savingsofmore than DKK 25 million, in line with expectations. The project will continue in 2012 and is expected to have roughly the same impact as in 2011. Finally, earnings were also boosted by stringent managementofselling costs and administrative expenses, which fell by 18,1% from 2010, substantially more than originally anticipated.
Revenue from continuing operations was DKK 1,309.8 million (2010: DKK 1,185.5 million), an increaseofDKK 124.3 million or 10.5%. Changes in exchange rates hadanegative impact on revenueofDKK 7.9 million. The increase in revenue was due to slightly higher volumes and generally rising selling prices. Particularly large price increases were achieved in Germany and Russia.
Sales were satisfactory in most markets, driven by substantial growth in the first halfofthe year,butthere was more subdued growth in the second half as escalating economic turmoil slowed growth in sales volumes.
In the Western European segment, revenue grew by DKK 117.7 million, includinganegative exchange rate effectofDKK 1.8 million. Sales volumes in Western Europe were substantially up on 2010, due mainly to growth in Germany, Denmark and Sweden, where revenue rose significantly, while there was relatively limited growth in volumes in the UK and Finland.H+Hhas maintained or increased its market shares.Averageprices were somewhat higher than in 2010, withasubstantial increase in Germany.
Prices rose slightly in theothermarkets, with the exceptionofthe UK where prices fell slightly, due mainly to changes in customer and product mix.
In the Eastern European segment, revenue grew by DKK 6.6 million, includinganegative exchange rate effectofDKK 6.1 million. Sales volumes in Eastern Europe were up on 2010, with higher sales in Russia and the Czech Republicbutlower sales in Poland. The decrease in Poland was due toaslight contractionofinternal sales to the Baltic States, Slovakia and Ukraine.
Total production costs were higher in 2011 than in 2010, due primarily to larger production volumes in response to increased sales. Prices for rawmaterials,primarily energy, and transport rose much further than expected, leading to higher direct production costsbutwere partly offset by cost savings achieved by improvements in the production due to the Lean programme.
Awide rangeofcost savings was made in production during the year as partofH+H's Excellence programme, with the result that averageunit production cost was maintained at the same level as in 2010, despite significant price increases for raw materials and energy. Withacontinued focus on the Excellence programme, it is expected that theaverageunit production cost will remain largely unchanged also in 2012, despite increasing input costs.
Otherexternal expenses were 17.0% lower than in 2010 due to stringent managementofselling costs and administrative expenses. The numberoffull-time employees in sales and ad ministration was reduced by 31 gross, relative to 2010.
Depreciation and amortisation for the year totalled DKK 101.9 million.
H+Hdidnotrecognise any impairment losses in 2011, whereas in 2010 it was decided to write down the Russian factory by DKK 120 million due to lower capacity utilisation and lower prices than originally anticipated.
2011 brought special itemsofDKK 5.1 million, consisting primarilyoflegal fees for dealings with the competition authorities in connection with Xella International Holdings S.à.r.l.'smergernotification targetingH+HInternational A/S, extra energy tax
related to 2008 and 2009 and severance costs, compared with DKK 140.3 million in 2010.
| Special items | ||
|---|---|---|
| Amounts in DKK million | 2011 | 2010 |
| Impairment losses on non-current assets and provision for onerous contract |
- | 121.7 |
| Costs in connection with competition case | 1.5 | - |
| Additional energy tax related to 2008 and 2009 |
2.4 | - |
| Termination costs | 1.7 | 13.4 |
| Shutdown expenses in Norway, Ukraine and the Baltic States |
- | 5.2 |
| Other items | (0.5) | - |
| Total | 5.1 | 140.3 |
In the income statement, special items in 2011 have been recognised underotheroperatingexpenses (DKK 5.1 million).
Financial income and expenses amounted toanet chargeof-DKK 42.3 million, up DKK 13.2 million on 2010. The rise is due to exchange gains which increased financial income by DKK 13.9 million in 2010. Interest expenses fell slightly in 2011 compared with 2010.
Anegative figureofDKK 16.1 million has been recognised for 2011 (2010: negative by DKK 11.6 million).
As partofits continued focus on core business andadesire to reduce interest-bearing debt,H+Haims to sell someofits nonstrategic assets in the first halfof2012. Variousplotsofland in Poland,asand pit in Germany, anofficeproperty in Denmark, aplotofland in the UK and unused production equipment were therefore readied for sale during the second quarterof2011 and classified as assets held for sale.
Aconditional purchase agreement for theofficeproperty in Denmark was signed in the third quarterof2011. The proceeds from the sale will be around DKK 7.5 million and will be received from thebuyerin the first quarterof2012 in connection with the handoverofthe property, which is being sold for more than DKK 1.8 million above its book value,ofwhich DKK 0.5 million was recognised in 2011.
As partofH+H's continued focus on corebusiness,the Board ofDirectors decided in the third quarterof2011 to divest the
Finnish subsidiaryJämerä-kivitalotOy, which designs and sells the constructionofaircrete houses for private individuals. As the company has been loss-making foranumberofyears, the divestment will haveapositive effect onH+H's future earnings. The divestment is under way and is expected to be completed by the endofthe third quarterof2012. Jämerä-kivitalot Oy has therefore been reclassified asadiscontinuing operation.
Investments totalled DKK 36.9 million in 2011 (2010: DKK 35.2 million) and consistedofinvestments in maintenance and the rolloutofanew ERP system in the Group.
As in 2010, no financing costs or own costs were capitalised.
Free cash flow from continuing operations was positive in 2011 at DKK 10.8 million, which is in line with the most recently an nounced expectationofaround DKK 10-20 million. The original expectation for the year was in the regionofDKK 20-60 million.
Net interest-bearing debt amounted to DKK 628.5 million at the endofthe year (2010: DKK 613.6 million), an increaseofDKK 14.9 million.Ifexchange rates had remained constant throughout the year, net interest-bearing debt would have been DKK 613.5 million.
Cash flow fromoperatingactivities was DKK 43 million (2010: DKK 46 million). EBITDA contributed DKK 120.3 million (2010: DKK 85.8 million), including an improvement in working capital ofDKK 29.0 million (2010: DKK 90.7 million).
Cash flow from investing activities totalled DKK 32.2 million (2010: DKK 31.8 million), including proceedsofDKK 4.7 million (2010: DKK 3.3 million) from the disposalofnon-current assets.
H+H's equity fell by DKK 172.1 million to DKK 553.5 million during the year. With total assetsofDKK 1,580.7 million, this gives an equity ratioof35%.
The loss for the year reduced equity by DKK 117.5 million, while foreign exchange adjustmentsofinvestments in subsidiaries etc. decreased equity by DKK 55.4 million.
| Changes in equity | ||
|---|---|---|
| Amounts in DKK million | 2011 | 2010 |
| Balance at1January | 725.6 | 958.2 |
| Profit for the year | (117.5) | (270.5) |
| Treasury shares, net | 0 | 0 |
| Foreign exchange adjustments in subsidiaries |
(55.4) | 37.7 |
| Other adjustments | 0.8 | 0.2 |
| Balance at 31 December | 553.5 | 725.6 |
The BoardofDirectors will recommend at the annual general meeting on 18 April 2012 that no dividend be paid for the 2011 financial year.
To be market leader and preferred supplierofinnovative, sustainable and cost-efficient aircrete building solutions.
H+Hwill complete its turnaround and operate mainly in markets where it can obtainanumber1or2market position.
To supply value-added and innovative aircrete solutions for buildings in Europe in profitable partnerships withdistributors, contractors and housebuilders.
H+H's business model is focused on increasing sales and market share in existing markets through superior products as well asawell-defined sales and marketing process to secure profit across the value chain.
The European economy's recovery has run outofsteam as the eurozone crisis and stalling global recovery take their toll.
Forecasts for GDP growth were revised downwards during 2011, and even with these weaker projections the risk remains on the downside. This risk is due toahigher levelofuncertainty than in mid-2011 and centres around the abilityofthe eurozone to solve the debt crisis.Consumersand investors are awareofthis uncertainty and are adjusting their spending and investment patterns accordingly.
Construction levels in some countries, including Poland, the Czech Republic, Finland and the UK, are at such low levels that growth is still to be expected, and even in the eventofarecession it is hard to see these markets declining. Inothercountries, such as Germany, the Netherlands, Denmark and Sweden, where there has been arecovery, the markets are expected to be fairly flat, and in the eventofanew recession it must to be expected that prices and volumes will showadownward trend. Significant
growth is expected in Russia due to continued domestic growth and the drive to increase standardsofliving.
Overall market trends:
Asaconsequenceofthe financial crisis,H+Hdiscontinued its activities in Ukraine, the Baltic States and Norway, leaving only Slovakia and the Netherlands/Belgium as additional markets supporting volumes at its plants in the Czech Republic and Germany, respectively.
In its current markets,H+His maintainingahigh market share and is considered among the top three suppliers.
Since early 2011 there has beenaspecific focus on raising prices in all markets, and significant improvements have been achieved.
H+H's capacity utilisation is rising asaresult ofincreasing volumes, which has generally hadapositive impact on earnings and, in some markets, selling prices,butwith variations between countries.
In Germany (Denmark, Sweden, Netherlands/Belgium),H+Hgenerally operated at high capacity throughout 2011, and capacity in Russia was under severe strain from June onwards. In Finland, Poland, the Czech Republic and the UK, however, there is still overcapacity.
In all markets except the UK and Poland,H+Hhas managed over the years to introduce 100% thin-joint technology for masonry blocks, bringing significant improvements in building speed and working environment.
Reinforced elements account for an important partofsales in Finland, Sweden, Denmark and Germany and are an integrated partofH+H's system sales.
The strategic plan covers the period from 2012 up to and including2014 (the strategic planning period), during which time the aim is to deliver satisfactory financial results and reduceH+H's debt levels.
In the lightofH+H's current financial performance and debt levels, the following overall guiding principles apply to the planning period:
Within these guiding principles,H+Hshould be able to grow the top line by 30% with its existing production capacity, assuming geographically balanced market growth.
H+Hhas defined three strategic goals that need to be fulfilled within the time spanofthe strategic plan:
Actions to fulfil these goals are organised into five strategic focus areas:
The Build with ease approach is unique in its markets and is driving value forH+H:
H+Hbuilds partnerships. Builders' merchants are important as sales drivers for the bulkofthebusiness,andH+Hshould offerthem sales support.
H+Hacts as advisor and intermediary between contractors, developers,housebuilders,installers and architects and seeks to drive the sales process for large orders/contracts.
Local adaptation will depend on differences in building traditions and sophistication as well as differences in sales and distribution structure.
H+H works systematically on identifying and evaluating risks related to its business activities. Where feasible and appropriate, action to counter or limit the effectsofthese risks is taken on an ongoingbasis.
H+H's activities focus on the manufacture and saleofaircrete products in Western and Eastern Europe. Sales relate primarily to in-house production and only toalesser extent to goods for resale. Products are sold mainly to local markets close to the manufacturing facilities and normally only transported overlongdistances to markets where there is no locally produced aircrete.
With significant operational gearing in the formofheavy capital expenditure and fixed costs, fluctuations in demand haveanoticeable effect on H+H's financial performance. In the last few years, H+H's gross margin has been around 21%ofrevenue. Allotherthings being equal, if revenue were to fall by 100, this would have an immediate adverse effectof21 on earnings before tax, before any adjustments to staff and fixed costs.
H+H's sales go predominantly to new dense low-rise housing, making H+H particularly vulnerable to fluctuations in the levelofactivity in this building segment. H+H is striving to expand the market for aircrete to include buildings otherthan dense low-rise housing toagreater extent, such as apartments and commercial buildings.
Alarge proportionofsales are made via annual framework agreements with housebuilders and builders' merchants.Somesales are made without framework agreements being entered into. Selling prices for salesnotsubject to framework agreements can be highly volatile. Framework agreements typically include price levels and indicationsofanticipated demand. Actual sales depend on the levelofbuilding activity achieved by housebuildersand the actual sales recorded by builders' merchants. Order books in H+H's largest markets are very modest. Sales visibility beyond one to two weeks ahead is consequently poor and primarily based on reports from customers and on various external indicators such as trends in building permits and mortgage approvals. Visibility is further restricted by the fact that H+H's products are used mainly in the initial phasesofthe building process.Aboom oraslowdown in construction activity is therefore rapidly reflected in H+H's sales.
Developments in the global economy, and in particular the construction sector, haveasignificant direct and indirect impact on H+H. Developments in recent years have led to sharply rising unemployment,agrowing numberofbusiness failures, and falling consumer spending, and it has become considerably more difficult to access finance for newbuilding and refurbishment. The effect is global and has hit many countries, sectors and industries, including the primary geographical markets to which mostofthe Group's revenue relates.
Ifthe economic turmoil that erupted in the second halfof2011 evolves intoafull-blown credit crisis where mortgage availability for residential construction dries up as it did in 2008, this will haveamajor impact on H+H's sales volumes, albeitnotto anywhere near the same degree as in 2008 and 2009 because the markets have yet to recover from the previous economic downturn.
H+H focuses on keeping its production plant in 24-hour operation, with the optionofreducing the numberofshifts in response toadownturn in demand. Where possible, non-core activities such as logistics are outsourced with relatively short notice periods.
H+H's aircrete products and building systems are sold mainly in the local markets in which the factories are located. H+H's competitors areotherlocal manufacturersofaircrete products and manufacturersofotherproducts that can be used in competition with aircrete.
H+H has builtastrong market position relative to otheraircrete manufacturers and is known asasupplierofhigh-quality products. This position has been achieved via strong, locally based sales organisations. H+H generally differentiates itself fromotheraircrete manufacturers by being more solution-oriented. Through dialogue with its customers, H+Hofferssolutions that have advantages for customers in the formoflower total costs and/ or shorter building times. H+H's factories manufacture standard products, and it is important that the factories operate with high capacity utilisation, giving the lowest possible unit costs. This is paramount in order to ensure that H+H can always compete on price in all markets.
The competitive climate has become increasingly fierce during the economic crisis and has generally led to lower prices for H+H's products, although prices improved in 2011.
The construction industry is relatively conservative, which means that aircrete's market share relative toothertypesofbuilding
material is reasonably stable, although minor shifts occur on an ongoingbasis.
H+H strives continuously to raise awarenessofits products and the advantages they have overotherbuilding systems. H+H believes that aircrete's properties are so unique that aircrete will continue to enjoyastrong position in future.
The principal raw materials used in the productionofaircrete products are cement, lime, water and sand orpulverisedfuel ash, as well as reinforcing steel, along with considerable energy consumption during production. Transport costs also account for asubstantial proportionofproduct costs. In the eventofsignificant increases in the pricesofthe raw materials and energy used in production or in transport costs, and H+H being unable to offset this by raising the pricesofits products, this may have an adverse impact on H+H's profitability.
H+H has historicallyexperiencedconsiderable volatility in raw material, energy and transport costs, including in 2011, and is consequently exposed to price fluctuations.
Cement costs account for roughly one-thirdoftotal raw material consumption, excluding energy, and around 10-12%ofrevenue.
Costs for energy consumption in production correspond to around 10-12%ofrevenue. The productionofsteam for the autoclaving process accounts for asubstantial partofenergy consumption. The primary energy sources are gas and electricity. H+H strives continuously to reduce energy consumption.
H+H presents its consolidated financial statements in Danish kroner. Mostofthe Group's products are produced and sold abroad. Sales in markets outside Denmark accounted for more than 90%ofconsolidated revenue in the 2011 financial year, with Germany, the UK and Poland as the largest markets.
H+H's net inflows are denominated mainly in EUR, GBP and PLN, and its principal exposure is currently related to these currencies. The main net exposure in termsofoutflows is also to EUR, GBP and PLN. In addition, H+H is increasingly exposed to CZK and RUB. H+H has considerable net investments in subsidiaries abroad, including in non-euro countries, resulting inahigher currency exposure. The associated foreign exchange adjustments are taken to consolidated equity.
H+H mainly has net investments in the following currencies: EUR, GBP, PLN, CZK and RUB.
H+H doesnotengagein currency speculation. The individual H+H companies arenotauthorised to take positions in foreign currencies unless commercially warranted, and commercial positions abovealimited ceiling must be hedged. Conversely, it is H+H's policy to accept unhedged currency exposure to subsidiaries and their results, although such risk is minimised withaview to financial strength and taxes.
H+H's currency risks werenothedged with financial instruments at the balance sheet date, with the exceptionofasmall SEK/EUR hedgecoveringthe Swedish subsidiary's purchasesofgoods in Germany.
In 2005-2009, H+H made major investments in Eastern Europe in particular, and this led toasubstantial increase in net interestbearing debt, especially in 2008-2009.
In future, H+H will operate withaconsiderable levelofdebt financing. At the endof2011, H+H's net interest-bearing debt stood at DKK 628.5 million, up DKK 14.9 million from the endof-2010.
H+H hasacommitted loan agreement with Danske Bank A/S corresponding to around DKK 800 million, which is committed until 15 Feburary 2015, and in addition to thisashort-term DKK 50 million uncommitted credit line.
The new strategic planofH+Hhas enabled the company to extend its committed credit facility with Danske Bank A/S until 15 February 2015. The associated financial covenants have been adjusted at the same time.
H+H will continue to be dependent on debt financing in the coming years. Maintenanceofthe committed credit facilities is conditional upon compliance withanumberoffinancial covenants.Ifearnings suffer becauseofthe impacts described under 'Market risks' and 'Financial risks', this could result in abreachofthe financial covenants. Financial covenants are described in note 25. The loan agreements can also be terminated by Danske Bank A/S without notice if investorsotherthan Scandinavian institutional investors (defined in the agreements as Danish, Swedish, Norwegian and Finnish financial institutions operatingin financial markets and subject to public supervision) individually or through coordinated collaboration gain control
ofmore than one-thirdofthe shares or more than one-thirdofthe total numberofvotingrights carried by the shares in H+H International A/S.
The effective interest rate for H+H in 2011 was around 5.2% (2010: 5.6%), partly reflecting the interest rate levelsofthe individual currencies. The effective interest rate for 2012 is expected to be slightly lower than in 2011.
With the expected development in net interest-bearing debt,a 1percentagepoint change in the interest rate would affect earnings before tax in 2012 by around DKK6million. H+H International A/S's interest-bearing financial assets consist mainly ofloans to subsidiaries, while its interest-bearing liabilities consist ofbank overdrafts.
H+H invoices the majorityofits sales throughanumberofbuilders' merchants across more thanadozen countries. This reduces the Group's credit exposure to contractors and housebuilders,butconsequently increases its credit exposure to builders' merchants. In keeping with H+H's credit policy, all major customers are credit-rated internally onaregular basis, butH+H is still exposed to the riskofbad debts. H+H insures its largest trade receivablesbutnotsmaller ones.
H+HInternational A/S has share capital withanominal value ofDKK 490,500,000 and carryingatotalof98,100,000votes, divided into 9,810,000 shares each withanominal valueofDKK 50 and carrying 10 votes.
As at1January 2012,H+HInternational A/S had 2,993 registered shareholders (corresponding to 75%ofthe share capital), including 159 foreign shareholders, and the company held 20,489 treasury shares.
MembersofH+HInternational A/S's BoardofDirectors and Executive Board are included in the company's insider register. These persons and persons connected to them are only allowed tobuyand sell shares in the company during the four weeks immediately after each preliminary announcementoffinancial statements.Ifin possessionofinside information, such persons are prohibited from trading even during this period for aslongas this inside information exists. The company maynotbuyor sell its own shares during the three-week period immediately preceding each preliminary announcementoffinancial statements and the company maynottrade whilst in possessionofinside information.
The BoardofDirectors and Executive Board regularly evaluate the capital structure on the basisofexpected cash flows with aview to ensuring an appropriate balance between adequate future financial flexibility andareasonable return to shareholders.
H+HInternational A/S had an equity ratioof35% at the endof-2011, compared with 43.9% at the endof2010. The company's interest-bearing debt totalled DKK 628.5 million at the endof-2011, compared with DKK 613.6 million at the endof2010.
In November 2011, the BoardofDirectorsofH+HInternational A/S discussed the company's capital structure and concluded that the current structure is acceptable, even though reducing
gearing toalevelofmaximum2times EBITDA is partof-H+H's strategy. The BoardofDirectors regularly assesses the company's capital structure in the lightofits earnings, debt, loan covenants etc.
H+HInternational A/S's shares are listed on NASDAQ OMX Copenhagen (ticker code HH, ISIN DK0015202451). The company hasasingle share class, and the BoardofDirectors is ofthe opinion that the shares' listing increases the company's options when it comes to raising new capital.
The company's share price fell by around 20% to DKK 42per-DKK 50 share in 2011. By wayofcomparison, the OMXC20 index lost around 15%.
Turnover in 2011 was 3,370,560 shares atatotal priceofDKK 176.5 million.
All major investment projects were completed in 2009, and investments were kept at low levels in 2010 and 2011. In the current trading environment,H+Hexpects investmentsofaround DKK 50 million in 2012. However,H+HInternational A/S's net interest-bearing debt is still relatively high compared withH+H's current revenue and earnings levels, and it is still uncertain when and how quickly these will return to stable growth.
Given the loss before tax for 2011ofDKK 117.5 million and given the above uncertainty with respect toH+H's future earnings, the BoardofDirectors will recommend at the annual general meeting on 18 April 2012 that no dividend be paid for the 2011 financial year.Itshould also be noted that, under the termsofH+H-International A/S's loan agreements with Danske Bank A/S, the BoardofDirectors is subject to an obligation to the effect that any proposed resolution concerning the distributionofdividends foragiven financial year mustnotexceed 50%ofthe company's profit after tax in the financial year in question.
Despite recent years' negative results asaconsequence ofthe economic crisis, it is stillanatural overall objective forH+HInternational A/S to generateacompetitive return for its shareholders in the formofshare price appreciation and the distributionofdividends and/or reductionofshare capital through the buyback and cancellationofshares in the company.
The purposeofH+HInternational A/S's financial communications andotherIR activities is to seekavaluationofthe company's shares that constantly reflectsH+H's current situation and expectations and to achieve adequate liquidity in trading in the shares.
All communications reflect the requirements that the information must be open, honest and timely. The main financial communications are via the annual report, interim financial reports and othercompany announcements.H+HInternational A/S is also in regular dialogue with professional and private investors, analysts and the business press. This dialogue takes the formofindividual presentations to major investors or presentations to groups ofinvestors. The company isnotnormally available for dialogue about financial matters in the three-week period leading up to the presentationoffinancial statements.
Relevant investor information is available on the company's website www.HplusH.com. Enquiries concerning IR issues should be addressed to CFO Niels Eldrup Meidahl at shareholder@HplusH. com or by telephone on +45 35 27 02 00.
The annual general meetingofH+HInternational A/S will be held on 18 April 2012 at2pm at Charlottehaven, Hjørringgade 12C, 2100 Copenhagen Ø, Denmark. Noticeofthe meeting will be sent by e-mail to registered shareholders whose e-mail address is entered in the company's registerofshareholders, and by post to registered shareholders who have asked the company in writing tonotifythem by post. The notice will also be published viaacompany announcement, on the company's website www.HplusH.com and on the Danish Business Authority's website www.cvr.dk.
Shareholders wishing to have their shares registered in their own name should contact their own depository bank or advise VP Securities A/S, Weidekampsgade 14, P.O. Box 4040, 2300 Copenhagen S, Denmark. Shareholders who are already registeredbutwish to enter or amend an e-mail address in order to
| 15 March 2012 | Annual Report 2011 |
|---|---|
| 18 April 2012 | Annual general meeting |
| 24 May 2012 | Interim financial report Q1 2012 |
| 23 August 2012 | Interim financial report H1 2012 |
| 21 November 2012 | Interim financial report Q3 2012 |
receive the company's noticesofgeneral meeting by e-mail can do so via theH+HShareholder Portal on the company's website at www.HplusH.com/shareholder_portal or by contacting the company's registrarComputershareA/S, Kongevejen 418, 2840 Holte, Denmark.
| Carnegie Bank | ||||
|---|---|---|---|---|
| Danske Markets Equities | ||||
| Handelsbanken Capital Markets | ||||
| SEB Enskilda, Equities, Research |
| tel. +45 32 88 04 65 Carnegie Bank Lars Corell Salomon [email protected] |
|
|---|---|
| tel. +45 45 12 80 59 Danske Markets Equities Kenneth Leiling [email protected] |
|
| tel. +45 33 41 86 12 Handelsbanken Capital Markets Fasial Kalim Ahmad [email protected] |
|
| tel. +45 33 28 33 12 SEB Enskilda, Equities, Research Michael Nass Nielsen [email protected] |
| 14 March 2012 | The German competition authority prohibitsamerger between Xella International Holdings S.à.r.l. andH+HInternational A/S |
|---|---|
| 5March 2012 | Change of Group management |
| 27 February 2012 | Extension of the investigation period for Xella's merger notification targetingH+H |
| 13 January 2012 | Extension of the investigation period for Xella's merger notification targetingH+H |
| 22 November 2011 | Interim financial report Q3 2011 |
| 28 October 2011 | Extension of the investigation period for Xella's merger notification targetingH+H |
| 24 August 2011 | Interim financial report H1 2011 |
| 1July 2011 | Xella International S.à.r.l. has withdrawn its merger notification with the Commission–the merger notification submitted to the federal cartel office in German has not been withdrawn |
| 1July 2011 | Preliminary assessment by the federal cartel office in Germany of Xella International Holdings S.à.r.l.'s merger notification targetingH+HInternational A/S |
| 26 May 2011 | Interim financial report Q1 2011 |
| 23 May 2011 | Share-based incentive programme for the Executive Board and key employees |
| 14 April 2011 | Articles of Association forH+HInternational A/S |
| 14 April 2011 | Business transacted at annual general meeting and first meeting of the Board of Directors |
| 21 March 2011 | Notice of annual general meeting ofH+HInternational A/S |
| 10 March 2011 | Annual Report 2010 |
| 31 January 2011 | New CEO of H+H International A/S |
| 28 January 2011 | Letter to the European Commission regarding Xella's announcement |
| 17 January 2011 | Leakage of Xella's intention to makeatakeover bid |
*Other company announcements concerning transactions by key management personnel and their connected persons involving H+H International A/S's shares and securities related to these are not included. All announcements can be viewed at www.HplusH.com.
Asacompany listed on NASDAQ OMX Copenhagen,H+H-International A/S is subject to the rules for issuersofshares on that exchange, including the obligation to comply with the Recommendations on Corporate Governanceofthe Committee on Corporate Governance in Denmark or explain why specific recommendations arenotcomplied with. The recommendations can be viewed on the Committee's website www.corporategovernance.dk.
In accordance with these recommendations,H+HInternational A/S reports the degree to which the company complied with the recommendations in 2011. The report takes the formofatable and comments relative to each individual recommendation. The corporate governance report for 2011 forms partofthe company's Statutory annual corporate governance statement, cf. section107bofthe Danish Financial Statements Act, which can be viewed on the company's website at www.HplusH.com/governance_statement.
The full statutory statement forms partofmanagement's review in the annual report for 2011. Besides the report on the company's corporate governance practices, the statutory statement includes two sections, 'Composition and functionofmanagement bodies' and 'Internal control and risk management systems for the financial reporting process', which are covered by the auditors' report in the annual report for 2011, whereas the otherinformation in the statutory statement isnotcovered by the auditors' report.
The BoardofDirectors isofthe opinion thatH+HInternational A/S essentially complies with the Recommendations on Corporate Governance as last revised in August 2011. However, the BoardofDirectors is aware that continued good corporate governance requires constant alignmentofmanagement and company practices, processes etc. in relation to the company's activities and the expectationsofexternal stakeholders such as shareholders, customers, suppliers and society in general.
H+H develops, manufactures and sells aircrete products for construction projects in Western and Eastern Europe and is responsible for doing this inasustainable manner–fromabusiness, work and environmental pointofview. This responsibility is an integral partofH+H's activities.
Aircrete is an extremely eco-friendly building material,notonly becauseofits excellent thermal insulation propertiesbutalso because it is easy on the environment during the production process. Mostofthe materials used in the productionofaircrete, such as lime and sand, are readily available, non-scarce natural resources, and pulverised fuel ash is used asaraw material in some countries. This ash isaresidual product frompowergeneration at coal-firedpowerstations. At the endoftheir life cycle, aircrete products can be reused, for example as road base.
H+H hasalongtraditionofsound ethical conduct and ensuring good health&safety and sustainability in its operations. As such, H+H has worked on CSR for many years in practice, despite nothaving formal, consistent CSR policies across the Group's companies. Action has been taken individually in the various countries on the basisoflocal legislation, trends and, to some extent, traditions.
In 2011, H+H began preparing and implementing general Group-wide CSR policies, initially in the areasofbusiness ethics and supply chain management. These policies will gradually be developed and extended, and policies on the environment and health&safety will follow.
H+H's work on these policies builds on the guiding principles for the CSR focus areasofenvironment, health&safety and business ethics presented below. Pursuant to section 99aofthe Danish Financial Statements Act, H+H International A/S also publishesamore detailed annual statement on its CSR policies, actions taken to implement these policies and the resultsofthese actions. The 2011 statement forms partofmanagement's review and can be found on the company's website at www.HplusH.com/csr_statement.
H+H is to work actively to reduce the environmental impactofits manufactureofaircrete, and H+H's production and products are always to comply with applicable requirements and standards.
H+H is to work actively to increase the sustainabilityofits business in the production, transport and recyclingofits products.
H+H's product development is to focus on further improving aircrete's positive environmental characteristics.
In 2011,anumberofactions have been taken to ensureareduced energy consumption therebycontributingto keeping the averageenergy consumptionperm3 aircrete produced below 1GJ.
H+H is to beasafe place to work and is always to comply with statutory health&safety requirementswhereverit does business.
H+H is to be an attractive and exciting place to work and able to attract skilled employees byofferingcompetitive termsofemployment and opportunities for personal and professional development.
H+H supports and respects internationally recognised human rights as set out in the Universal DeclarationofHuman Rights, includingbutnotlimited to:
H+H is to comply as far as possible with generally accepted principlesofgood corporate governance, and H+H International A/S is to publish an annual corporate governance report on its website www.HplusH.com.
H+H isnotto participate directly or indirectly in corruption, bribery or extortionofany kind.
H+H is to aspire to compliance with certain CSR-related minimum requirements on the partofallofits suppliers.
In 2012H+Hstarted to introduceaGroup-wide policy on supply chain management to be included in all new supply contracts as acondition for suppliers to do business withH+H.
The BoardofDirectors held seven meetings in 2011. Remunerationofthe individual membersofthe BoardofDirectors and the Executive Board for 2011 is presented in note 4.
During the winterof2011/2012, the BoardofDirectors undertookaself-evaluation based on input from each member's replies to aquestionnaire andasubsequent one-to-one session with the Chairman (in the Chairman's case, with the Deputy Chairman). The resultsofthis evaluation were discussed by the BoardofDirectors ataboard meeting. At the meeting the resultsofthe evaluation were considered in the lightofthe BoardofDirectors' competence profile (as published on the company's website), amongotherthings, and they will be used together with recommendations from the Nomination Committee to decide who to nominate as candidates for the BoardofDirectors at the company's annual general meeting on 18 April 2012. The resultofthe evaluation showed the numberofmeetings,the agenda, the time allocation and the board material and information provided to be adequate. The board members work well together, and collectively they represent the relevant competence areas. Individually, themembersare all found to be competent, and they all have ahigh attendance and act in an independent manner. The cooperation between the Boardof-Directors and the Executive Board is found to be honest, open, timely and well-functioning.
Industrial advisor.
Professional board member.
Executive Chairman, Home Builders Federation (UK).
President and CEO,HempelA/S.
■ Managing director, chairman or member of the boards of 12 companies in the Hempel Group.
■ Member of the board of KP Komponenter A/S.
Partner in the law firmGorrissen-
Federspiel.
■ Deputy chairman of the Association of Danish Law Firms (Danske Advokater).
■ Chairman of the board of SoundEar A/S.
Senior Vice President.
Senior Vice President.
The Executive Board and the BoardofDirectors have today discussed and approved the annual reportofH+HInternational A/S for the financial year 2011.
The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies.
Itis our opinion that the consolidated financial statements and the parent company financial statements giveatrue and fair viewofthe Group's and the parent company's financial position at 31 December 2011 andofthe resultsofthe Group's and the
company's operations and cash flows for the financial year 1January–31 December 2011.
In our opinion, the Management's review includesafair reviewofthe development in the parent company's and the Group's operations and financial conditions, the results for the year and the parent company's financial position, and the position asawhole for the entities included in the consolidated financial statements, as well asadescriptionofthe more significant risks and uncertainty factors that the parent company and the Group face.
We recommend that the annual report be approved at the annual general meeting.
Copenhagen, 15 March 2012
Executive Board
Michael Troensegaard Andersen CEO
Niels Eldrup Meidahl CFO
Board of Directors
Anders C Karlsson Chairman
Stewart A Baseley Pierre-Yves Jullien
Asbjørn Berge Deputy Chairman
Henrik Lind
We have audited the consolidated financial statements and the parent company financial statementsofH+HInternational A/S for the financial year1January–31 December 2011. The consolidated financial statements and the parent company financial statements comprise income statement, statementofcomprehensive income, balance sheet, statementofchanges in equity, cash flow statement andnotes,includingasummaryofsignificant accounting policies for the Group as well as for the parent company. The consolidated financial statements and the parent company financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies.
Management is responsible for the preparationofconsolidated financial statements and parent company financial statements that giveatrue and fair view in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies and for such internal control that Management determines is necessary to enable the preparationofconsolidated financial statements and parent company financial statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on the consolidated financial statements and the parent company financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the consolidated financial statements and the parent company financial statements are free from material misstatement.
Copenhagen, 15 March 2012
KPMG Statsautoriseret Revisionspartnerselskab An audit involvesperformingprocedures to obtain audit evidence for the amounts and disclosures in the consolidated financial statements and the parent company financial statements. The procedures selected depend on the auditors' judgement, including the assessmentofthe risksofmaterial misstatementofthe consolidated financial statements and the parent company financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Company's preparationofconsolidated financial statements and parent company financial statements that give atrue and fair view in order to design audit procedures that are appropriate in the circumstances,butnotfor the purposeofexpressingan opinion on the effectivenessofthe Company's internal control. An audit also includes evaluating the appropriatenessofaccounting policies used and the reasonableness ofaccounting estimates made by Management, as well as evaluating the overall presentationofthe consolidated financial statements and the parent company financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provideabasis for our opinion.
Our audit hasnotresulted in any qualification.
In our opinion, the consolidated financial statements and the parent company financial statements giveatrue and fair viewofthe Group's and the parent company's financial position at 31 December 2011 andofthe resultsofthe Group's and the parent company's operations and cash flows for the financial year1 January–31 December 2011 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies.
Pursuant to the Danish Financial Statements Act, we have read the Management's review. We havenotperformed any further procedures in addition to the auditofthe consolidated financial statements and the parent company financial statements. On this basis, it is our opinion that the information provided in the Management's review is consistent with the consolidated financial statements and the parent company financial statements.
| Group | Parent company | |||||
|---|---|---|---|---|---|---|
| Note (DKK '000) | 2011 | 2010 | 2011 | 2010 | ||
| 3 | Revenue | 1,309,753 | 1,185,468 | 0 | 0 | |
| 4, 15 Production costs | (1,027,451) | (947,883) | 0 | 0 | ||
| Gross profit | 282,302 | 237,585 | 0 | 0 | ||
| 4 | Other external expenses | (194,954) | (234,818) | (26,713) | (37,134) | |
| 5 | Other operating income and expenses | 4,107 | (7,590) | 13,872 | 14,907 | |
| Profit before depreciation, amortisation and financial items (EBITDA) |
91,455 | (4,823) | (12,841) | (22,227) | ||
| 6 | Depreciation | (101,938) | (118,912) | (283) | (950) | |
| 7 | Impairment losses | 0 | (121,697) | (354,204) | (43,167) | |
| Operating profit (EBIT) | (10,483) | (245,432) | (367,328) | (66,344) | ||
| 8 | Financial income | 1,360 | 14,981 | 32,575 | 44,404 | |
| 9 | Financial expenses | (43,680) | (44,036) | (38,208) | (26,320) | |
| Profit before tax | (52,803) | (274,487) | (372,961) | (48,260) | ||
| 10 | Tax on profit from continuing operations | (16,094) | 11,571 | 1,509 | (9,500) | |
| Profit for the year from continuing operations | (68,897) | (262,916) | (371,452) | (57,760) | ||
| 23 | Profit for the year from discontinued operations | (48,637) | (7,562) | 0 | 0 | |
| Profit for the year | (117,534) | (270,478) | (371,452) | (57,760) | ||
| Distribution of profit | ||||||
| Retained earnings | (117,534) | (270,478) | (371,452) | (57,760) | ||
| Dividend for the year of DKK0per nominalshare of DKK 50 (2010: DKK 0) |
0 | 0 | 0 | 0 | ||
| Total | (117,534) | (270,478) | (371,452) | (57,760) | ||
| 11 | Earnings per share (EPS-Basic) | (12.01) | (27.63) | |||
| 11 | Diluted earnings per share (EPS-D) | (12.01) | (27.63) | |||
| 11 | Earnings per share from continuing operations (EPS-Basic) | (7.04) | (26.86) | |||
| 11 | Diluted earnings per share from continuing operations (EPS-D) |
(7.04) | (26.86) |
| Group | Parent company | |||||
|---|---|---|---|---|---|---|
| Note (DKK '000) | 2011 | 2010 | 2011 | 2010 | ||
| Profit for the year | (117,534) | (270,478) | (371,452) | (57,760) | ||
| Other comprehensive income | ||||||
| Foreign exchange adjustments, foreign companies | (56,602) | 41,057 | 0 | 0 | ||
| Tax on other comprehensive income | 1,228 | (3,365) | 0 | 0 | ||
| Other comprehensive income after tax | (55,374) | 37,692 | 0 | 0 | ||
| Total comprehensive income | (172,908) | (232,786) | (371,452) | (57,760) | ||
| Attributable to: | ||||||
| Shareholders in H+H International A/S | (172,908) | (232,786) | (371,452) | (57,760) | ||
| Non-controlling interests | 0 | 0 | 0 | 0 | ||
| (172,908) | (232,786) | (371,452) | (57,760) |
| Group | Parent company | |||||
|---|---|---|---|---|---|---|
| Note (DKK '000) | 2011 | 2010 | 2011 | 2010 | ||
| Non-current assets | ||||||
| Intangible assets | ||||||
| Goodwill | 81,773 | 88,388 | 0 | 0 | ||
| Other intangible assets | 13,337 | 28,207 | 6,262 | 6,445 | ||
| 12 | 95,110 | 116,595 | 6,262 | 6,445 | ||
| Property, plant and equipment | ||||||
| Land and buildings | 398,202 | 467,789 | 0 | 0 | ||
| Plant and machinery | 507,637 | 560,231 | 0 | 0 | ||
| Fixtures and fittings, tools and equipment | 123,504 | 137,187 | 588 | 897 | ||
| Property, plant and equipment under construction | 8,358 | 22,183 | 0 | 0 | ||
| 12 | 1,037,701 | 1,187,390 | 588 | 897 | ||
| Other non-current assets | ||||||
| 13 | Deferred tax assets | 40,350 | 55,183 | 0 | 0 | |
| 14 | Investments in subsidiaries | 0 | 0 | 1,034,408 | 1,129,072 | |
| Receivables from subsidiaries | 0 | 0 | 382,339 | 649,808 | ||
| 40,350 | 55,183 | 1,416,747 | 1,778,880 | |||
| Total non-current assets | 1,173,161 | 1,359,168 | 1,423,597 | 1,786,222 | ||
| Current assets | ||||||
| 15 | Inventories | 190,991 | 181,779 | 0 | 0 | |
| 16 | Receivables from sale of goods | 87,821 | 78,275 | 0 | 0 | |
| Tax receivable | 386 | 599 | 0 | 0 | ||
| 16 | Other receivables | 11,684 | 12,180 | 677 | 1,117 | |
| Prepayments | 5,207 | 9,039 | 0 | 0 | ||
| Cash and cash equivalents | 19,855 | 13,062 | 18 | 19 | ||
| 315,944 | 294,934 | 695 | 1,136 | |||
| 23 | Assets held for sale | 91,597 | 0 | 0 | 0 | |
| Total current assets | 407,541 | 294,934 | 695 | 1,136 | ||
| TOTAL ASSETS | 1,580,702 | 1,654,102 | 1,424,292 | 1,787,358 |
| Group | Parent company | |||||
|---|---|---|---|---|---|---|
| Note (DKK '000) | 2011 | 2010 | 2011 | 2010 | ||
| Equity | ||||||
| Share capital | 490,500 | 490,500 | 490,500 | 490,500 | ||
| Translation reserve | (125,277) | (69,903) | 0 | 0 | ||
| Retained earnings | 188,228 | 304,955 | 580,491 | 951,136 | ||
| Proposed dividend | 0 | 0 | 0 | 0 | ||
| Shareholders in H+H International A/S's share of equity | 553,451 | 725,552 | 1,070,991 | 1,441,636 | ||
| Non-controlling interests | 0 | 0 | 0 | 0 | ||
| Total equity | 553,451 | 725,552 | 1,070,991 | 1,441,636 | ||
| Liabilities | ||||||
| Non-current liabilities | ||||||
| 18 | Pension obligations | 65,457 | 80,585 | 0 | 0 | |
| 19 | Other provisions | 7,725 | 20,137 | 0 | 0 | |
| 13 | Deferred tax liabilities | 34,428 | 32,085 | 7,264 | 8,773 | |
| 20 | Credit institutions | 648,307 | 626,174 | 275,531 | 286,643 | |
| Total non-current liabilities | 755,917 | 758,981 | 282,795 | 295,416 | ||
| Current liabilities | ||||||
| 20 | Credit institutions | 88 | 493 | 9 | 23 | |
| Trade payables | 130,867 | 72,193 | 1,819 | 2,872 | ||
| Income tax | 710 | 12,876 | 0 | 0 | ||
| Payables to subsidiaries | 0 | 0 | 58,736 | 34,961 | ||
| Other payables | 74,159 | 84,007 | 9,942 | 12,450 | ||
| 205,824 | 169,569 | 70,506 | 50,306 | |||
| 23 | Liabilities relating to assets held for sale | 65,510 | 0 | 0 | 0 | |
| Total current liabilities | 271,334 | 169,569 | 70,506 | 50,306 | ||
| Total liabilities | 1,027,251 | 928,550 | 353,301 | 345,722 | ||
| TOTAL EQUITY AND LIABILITIES | 1,580,702 | 1,654,102 | 1,424,292 | 1,787,358 |
| Group | Parent company | ||||
|---|---|---|---|---|---|
| Note (DKK '000) | 2011 | 2010 | 2011 | 2010 | |
| Operating activities | |||||
| Operating profit | (10,483) | (245,432) | (367,328) | (66,344) | |
| Financial items | (42,319) | (40,647) | (5,633) | 18,084 | |
| Depreciation, amortisation and impairment losses | 101,938 | 240,609 | 354,487 | 44,117 | |
| Other adjustments | 2,453 | (3,934) | 583 | (2,462) | |
| Change in inventories | (13,439) | 34,055 | 0 | 0 | |
| Change in receivables | (17,639) | 46,641 | 440 | 128 | |
| Change in trade payables and other payables | 60,048 | 9,966 | (3,562) | 7,036 | |
| Change in provisions | (21,194) | 5,259 | 0 | 0 | |
| Income tax paid | (16,420) | (76) | 0 | 0 | |
| 42,945 | 46,441 | (21,013) | 559 | ||
| Investing activities | |||||
| Sale of property, plant and equipment | 4,710 | 3,338 | 2,137 | 594 | |
| Capital contributions to subsidiaries | 0 | 0 | (232,721) | 0 | |
| Sale of subsidiary | 0 | 0 | 252,764 | 0 | |
| Acquisition of property, plant and equipment and intangible assets | (36,889) | (35,177) | (1,928) | (3,922) | |
| Property, plant and equipment and intangible assets held under finance leases |
0 | 0 | (211) | 220 | |
| (32,179) | (31,839) | 20,041 | (3,108) | ||
| Free cash flow | 10,766 | 14,602 | (972) | (2,549) | |
| Financing activities | |||||
| Paid expenses in connection with share issue | 0 | (3,942) | 0 | (3,942) | |
| Change in intragroup balances | 0 | 0 | 11,886 | 31,464 | |
| Raising of long-term debt | 281,697 | 23,174 | 0 | 0 | |
| Reduction of long-term debt | (265,069) | (29,032) | (10,915) | (24,986) | |
| 16,628 | (9,800) | 971 | 2,536 | ||
| Cash flow from discontinued operations | (17,404) | (9,849) | 0 | 0 | |
| Cash flow for the year | 9,990 | (5,047) | (1) | (13) | |
| Cash and cash equivalents at1January | 13,062 | 17,625 | 19 | 32 | |
| Foreign exchange adjustments of cash and cash equivalents | (598) | 484 | 0 | 0 | |
| Cash and cash equivalents at 31 December 2011 | 22,454 | 13,062 | 18 | 19 | |
| Cash and cash equivalents at 31 December 2011, continuing operations |
19,855 | ||||
| Cash and cash equivalents at 31 December 2011, discontinued operations |
2,599 | ||||
| 22,454 |
| Group | ||||||||
|---|---|---|---|---|---|---|---|---|
| (DKK '000) | ||||||||
| Share capital |
Translation reserve |
Hedging reserve |
Retained earnings |
Proposed dividend |
Total | Non control ling interests |
Total | |
| Equity at 1 January 2010 | 490,500 | (107,595) | 0 | 575,235 | 0 | 958,140 | 21 | 958,161 |
| Profit for the year | 0 | 0 | 0 | (270,478) | 0 | (270,478) | 0 | (270,478) |
| Other comprehensive income in 2010 |
||||||||
| Foreign exchange adjustments, foreign companies |
0 | 41,057 | 0 | 0 | 0 | 41,057 | 0 | 41,057 |
| Tax on other comprehensive income |
0 | (3,365) | 0 | 0 | 0 | (3,365) | 0 | (3,365) |
| Net gains recognised directly in equity |
0 | 37,692 | 0 | 0 | 0 | 37,692 | 0 | 37,692 |
| Total comprehensive income | 0 | 37,692 | 0 | (270,478) | 0 | (232,786) | 0 | (232,786) |
| Expenses in connection with share issue |
0 | 0 | 0 | (311) | 0 | (311) | 0 | (311) |
| Share-based payment | 0 | 0 | 0 | 509 | 0 | 509 | 0 | 509 |
| Purchase of non-controlling interests |
0 | 0 | 0 | 0 | 0 | 0 | (21) | (21) |
| Total changes in equity in 2010 | 0 | 37,692 | 0 | (270,280) | 0 | (232,588) | (21) | (232,609) |
| Equity at 31 December 2010 | 490,500 | (69,903) | 0 | 304,955 | 0 | 725,552 | 0 | 725,552 |
| Profit for the year | 0 | 0 | 0 | (117,534) | 0 | (117,534) | 0 | (117,534) |
| Other comprehensive income in 2011 |
||||||||
| Foreign exchange adjustments, foreign companies |
0 | (56,602) | 0 | 0 | 0 | (56,602) | 0 | (56,602) |
| Tax on other comprehensive income |
0 | 1,228 | 0 | 0 | 0 | 1,228 | 0 | 1,228 |
| Net gains recognised directly in equity |
0 | (55,374) | 0 | 0 | 0 | (55,374) | 0 | (55,374) |
| Total comprehensive income | 0 | (55,374) | 0 | (117,534) | 0 | (172,908) | 0 | (172,908) |
| Share-based payment | 0 | 0 | 0 | 807 | 0 | 807 | 0 | 807 |
| Total changes in equity in 2011 | 0 | (55,374) | 0 | (116,727) | 0 (172,101) | 0 | (172,101) | |
| Equity at 31 December 2011 | 490,500 | (125,277) | 0 | 188,228 | 0 | 553,451 | 0 | 553,451 |
| Parent company | ||||||||
|---|---|---|---|---|---|---|---|---|
| (DKK '000) | ||||||||
| Share capital | Hedging reserve |
Retained earnings |
Proposed dividend |
Total | ||||
| Equity at 1 January 2010 | 490,500 | 0 | 1,008,698 | 0 | 1,499,198 | |||
| Profit for the year | 0 | 0 | (57,760) | 0 | (57,760) | |||
| Other comprehensive income in 2010 | 0 | 0 | 0 | 0 | ||||
| Total comprehensive income | 0 | 0 | (57,760) | 0 | (57,760) | |||
| Expenses in connection with share issue | 0 | 0 | (311) | 0 | (311) | |||
| Share-based payment | 0 | 0 | 509 | 0 | 509 | |||
| Total changes in equity in 2010 | 0 | 0 | (57,562) | 0 | (57,562) | |||
| Equity at 31 December 2010 | 490,500 | 0 | 951,136 | 0 | 1,441,636 | |||
| Profit for the year | 0 | 0 | (371,452) | 0 | (371,452) | |||
| Other comprehensive income in 2011 | 0 | 0 | 0 | 0 | 0 | |||
| Total comprehensive income | 0 | 0 | (371,452) | 0 | (371,452) | |||
| Share-based payment | 0 | 0 | 807 | 0 | 807 | |||
| Total changes in equity in 2011 | 0 | 0 | (370,645) | 0 | (370,645) | |||
| Equity at 31 December 2011 | 490,500 | 0 | 580,491 | 0 | 1,070,991 |
| 1 | Accounting policies42 | |
|---|---|---|
| 2 | Management's estimates and judgements54 | |
| 3 | Segmentinformation56 | |
| 4 | Staff costs 58 | |
| 5 | Otheroperatingincome and expenses61 | |
| 6 | Depreciation and amortisation61 | |
| 7 | Impairment losses62 | |
| 8 | Financial income62 | |
| 9 | Financialexpenses62 | |
| 10 | Tax63 | |
| 11 | Earningspershare 64 | |
| 12 | Intangible assets and property, plant and equipment64 | |
| 13 | Deferred tax68 | |
| 14 | Investments in subsidiaries69 | |
| 15 | Inventories/production costs70 | |
| 16 | Receivables70 | |
| 17 | Share capital and treasury shares72 | |
| 18 | Pension obligations73 | |
| 19 | Otherprovisions76 | |
| 20 | Credit institutions77 | |
| 21 | Contingent liabilities78 | |
| 22 | Auditors' remuneration78 | |
| 23 | Discontinuing operations and assets held for sale79 | |
| 24 | Related parties80 | |
| 25 | Financial instruments and financial risks81 | |
| 26 | Management's holdingsofshares inH+HInternational A/S87 | |
| 27 | Major shareholders and shareholder groups87 | |
| 28 | Events after the balance sheet date 88 |
H+HInternational A/S isapublic limited company registered in Denmark. The annual report for the period1January–31 December 2011 comprisesboththe consolidated financial statementsofH+HInternational A/S and its subsidiaries (theH+HGroup) and separate financial statements for the parent company.
The annual reportofH+HInternational A/S for 2011 has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements for annual reports oflisted companies.
The BoardofDirectors and Executive Board discussed and approved the annual reportofH+HInternational A/S for 2011 on 14 March2012. The annual report will beputbeforeH+HInternational A/S's shareholders for approval at the annual generalmeetingon 18 April 2012.
The annual report is presented in DKK rounded to the nearest DKK 1,000.
The annual report hasbeenprepared using the historical cost principle. However, recognised derivatives are measured at fair value, and non-current assets and disposal groups classified as held for sale are measured at the lower oftheir carrying amount before the reclassification and fair value less selling costs.
The accounting policies set out below have been applied consistently during the financial year and to the comparative figures.
There have been no changes to the accounting policies compared with last year, except for implementationofnew accounting standards.
H+HInternational A/S has adopted the new or revised and amended International Financial Reporting Standards (IFRSs) issued byIASBand endorsed by the European Union effective for the financial year 2011. Based on an analysis carried out byH+HInternational A/S, the applicationofthe new IFRSs hasnothadamaterial impact on the consolidated financial statements in 2011 and we donotanticipate any significant impact on future periods from the adoptionofthese new IFRSs.
In addition to the above,IASBhas issuedanumberofnew or amended standards and interpretations (IFRSs) which have been endorsed by the European Unionbutnotyet come into effect.H+HInternational A/S has thoroughly assessed the impactofthese IFRSs that arenotyet effective.
The amendments toIAS19 Employee benefits which will be implemented on1January 2013 are expected to haveamaterial effect on the consolidated financial statements. The effect on equityof unrecognised actuarial losses calculated at 31 December 2011 is areductionofDKK 98 million.
The consolidated financial statements include the parent companyH+HInternational A/S and subsidiaries in which H+HInternational A/S has controlofthe subsidiary's financial andoperatingpolicies so as to obtain returns orotherbenefits from the subsidiary's activities. Control exists when H+HInternational A/S holds or has the ability to exercise, directly or indirectly, more than 50%ofthevotingrights or otherwisehas controlofthe subsidiary in question.
The consolidated financial statements have been prepared by aggregationofthe parent company's and the individual subsidiaries' financial statements, applying theH+HGroup's accounting policies. Intragroup income and expenses, shareholdings, balances and dividends as well as realised and unrealised gains arising from intragroup transactions are eliminated on consolidation.
Investments in subsidiaries are offset against the proportionate shareofthe fair valueofthe subsidiaries' identifiable net assets and recognised contingent liabilities at the dateofacquisition.
Entities acquired or formed during the year are recognised in the consolidated financial statements from the dateofacquisition. Entities disposedofor wound up during the year are recognised in the consolidated income statement up to the dateofdisposal. Comparative figures arenotrestated to reflect acquisitions.
On the acquisitionofentities whereby the parent company obtains controlofthe acquiree, the purchase method is applied. The acquirees' identifiable assets, liabilities and contingent liabilities are measured at fair value at the dateofacquisition. Identifiable intangible assets are recognised if they are separable or arise fromacontractual right. Deferred tax on the restatements made is recognised.
The acquisition date is the date on whichH+HInternational A/S obtains controlofthe acquiree.
Any excess of, on the one hand, the consideration transferred, the recognised amountofnon-controlling interests in the acquiree, and the fair valueofany previously held equity interests, and, on theother,the fair valueofthe identifiable assets acquired and liabilities and contingent liabilities assumed is recognised as goodwill under intangible assets.
Goodwill isnotamortised, but tested at least annually for impairment. The first impairment test is carried out before the endofthe yearofacquisition. On acquisition, goodwill is allocated to thecash-generatingunits which subsequently form the basis for impairment testing. Goodwill and fair value adjustments in connection with the acquisitionofaforeign entity withafunctional currencyotherthan theH+H-Group's presentation currency are accounted for as assets and liabilitiesbelongingto the foreign entity and translated on initial recognition into the foreign entity's functional currency at the exchange rate at the transaction date. Any excessofthe fair value over the costofacquisition (negative goodwill) is recognised in the income statement at the date ofacquisition.
The consideration for an entity consistsofthe fair valueofthe agreed consideration in the formofassets given, liabilities assumed and equity instruments issued.Ifpartofthe consideration is contingent on future events or fulfilmentofagreed terms and conditions, this part is recognised at fair
value at the acquisition date. Costs attributable to business combinations are recognised directly in the income statement when incurred.
Should there be uncertainty about the identification or measurementofthe assets acquired, the liabilities and contingent liabilities assumed, or the calculationofthe consideration transferred, these are recognised initially on the basisofprovisional values. Should the identification or measurementofthe consideration transferred, the assets acquired or the liabilities and contingent liabilities assumed on initial recognition prove incorrect, the amounts (including goodwill) may be adjusted with retrospective effect for up to 12 months from the acquisition date, and the comparative figures restated accordingly. After this, no adjustments may be made. Changes in estimated contingent consideration are generally recognised directly in the income statement.
Gains or losses on disposal or winding-upofsubsidiaries are determined as the difference between proceeds on disposal and the carrying amountofnet assets including goodwill at the dateofdisposal and selling costs or winding-up costs.
For each entity included in the consolidated financial statements,afunctional currency has been determined. The functional currency of an entity is the currency of the primary economic environment in which the entity operates. Transactions in currencies other than the functional currency are accounted for as transactions in foreign currencies.
On initial recognition, transactions denominated in foreign currencies are translated into the functional currency at the exchange rates at the transaction date. Foreign exchange differences arising between the exchange rates at the transaction date and at the date of payment are recognised in the income statement as financial income or financial expenses.
Receivables, payables and other monetary items denominated in foreign currencies are translated into the functional currency at the exchange rates at the balance sheet date. The difference between the exchange rate at the balance sheet date and the exchange rate at the date at which the receivable or payable arose or the exchange rate used in the last annual report is recognised in the income statement as financial income or financial expenses.
On the recognition in the consolidated financial statements of foreign entities withafunctional currency other than DKK, the income statements are translated at the exchange rates at the transaction date and the balance sheet items are translated at the exchange rates at the balance sheet date. An average exchange rate for each month is used as the exchange rate at the transaction date to the extent that this does not give asignificantly different view. Foreign exchange differences arising on translation of the opening equity of foreign entities at the exchange rates at the balance sheet date, and on translation of the income statements from the exchange rates at the transaction date to the exchange rates at the balance sheet date, are recognised directly in equity underaseparate translation reserve. These differences are allocated between the parent company shareholders' share of equity and noncontrolling interests' share of equity.
Foreign exchange adjustments of balances considered part of the overall net investment in entities withafunctional currency other than DKK are recognised in the consolidated financial statements directly in equity underaseparate translation reserve. Correspondingly, foreign exchange gains and losses on that part of loans and derivative financial instruments entered into to hedge the net investment in such entities which effectively hedges against corresponding exchange gains/losses on the net investment in the entity are recognised directly in equity underaseparate translation reserve.
On the complete or partial disposal ofaforeign operation, or on the repayment of balances that are considered part of the net investment, the share of the cumulative exchange adjustments that is recognised directly in equity and attributable to this is recognised in the income statement when the gain or loss on disposal is recognised. On the disposal of partially owned foreign subsidiaries, the part of the translation reserve attributable to non-controlling interests is not transferred to the income statement.
On the partial disposal of foreign subsidiaries without loss of control,aproportionate share of the translation reserve is transferred from the parent company shareholders' share of equity to non-controlling interests' share of equity.
The repayment of balances that are considered part of the net investment is not itself considered to constitute partial disposal of the subsidiary.
Derivative financial instruments are recognised from the trade date and measured in the balance sheet at fair value. Positive and negative fair valuesofderivative financial instruments are recognised asotherreceivables andotherpayables respectively, andoffsettingofpositive and negative fair values is only effected if the entity is permitted to and intends to settle several financial instruments net in cash. Fair valuesofderivative financial instruments are determined on the basisofcurrent market data and recognised valuation methods.
Fair value hedges. Changes in the fair valueofderivative financial instruments designated as and qualifying for recognition as hedgesofthe fair valueofarecognised asset or liability are recognised in the income statement together with changes in the valueofthe hedged asset or liability to the extentofthe hedged risk. Hedgesofthe valueoffuture cash flows from contracts concluded (firm commitments) are accounted for as fair value hedges, except in the caseofforeign currency hedging.
That partofaderivative financial instrument that isnotpart ofahedging relationship is presented under financial items.
Cash flow hedges. Changes in the portionofthe fair value ofderivative financial instruments designated as and qualifying for recognition as hedgesoffuture cash flows and providing an effective hedge against changes in the valueofthe hedged item are recognised in equity underaseparate hedging reserve until the hedged cash flows affect the income statement. The resulting gain or loss is then transferred from equity and recognised in the same item as the hedged item.
Ifthe hedging instrument nolongermeets the criteria for hedge accounting, the hedging relationship is discontinued prospectively. The cumulative gain or loss recognised in equity is transferred to the income statement when the hedged cash flows affect the income statement.
Ifthe hedged cash flows are nolongerexpected to be realised, the cumulative gain or loss is recognised immediately in the income statement.
That partofaderivative financial instrument that isnotpart ofahedging relationship is presented under financial items.
Hedges of a net investment. Changes in the fair valueofderivative financial instruments that are used to hedge net investments in foreign Group entities and that provide an effective hedge against changes in foreign exchange rates in these Group entities are recognised in the consolidated financial statements directly in equity underaseparate translation reserve.
That partofaderivative financial instrument that isnotpart ofahedging relationship is presented under financial items.
Other derivative financial instruments. For derivative financial instruments that donotqualify for hedge accounting, changes in fair value are recognised in the income statement under financial items onacontinuing basis.
Some contracts have terms and conditions equivalent to derivative financial instruments. Such embedded financial instruments are recognised separately and measured at fair value onacontinuing basis if they differ significantly from the host contract, unless the entire combined contract is recognised and measured at fair value onacontinuing basis.
Revenue from the sale ofgoods for resale and finished goods is recognised in the income statement if delivery and transferofrisk to thebuyerhave taken place, and if the income can be measured reliably and is expected to be received.
Revenue is measured netofVAT and duties collected on behalfofthird parties. All typesofdiscount and rebate granted are recognised in revenue.
Production costs comprise costs incurred ingeneratingthe revenue for the year. The trading entities recognise cost ofsales and the producing entities' production costs, corresponding to revenue for the year. This includes the direct
and indirect costofraw materials and consumables, and wages and salaries.
Other external expenses coverotherexpenses, including purchasesofgoods and services that arenotdirectly attributable to production. Also included in this item are staff costs that arenotdirectly attributable to production.
Otherexternal expenses also include research and development costs that donotmeet the criteria for capitalisation.
Other operating income and expenses comprise items secondary to the entities' activities, such as gains and losses on disposalofproperty, plant and equipment. Gains and losses on disposalofintangible assets and property, plant and equipment are determined as the selling price less selling costs and the carrying amount at the dateofdisposal.
Financial income and expenses comprise interest income and expenses, capital gains and losses, and impairment losses relating to securities, payables and transactions denominated in foreign currencies, amortisationoffinancial assets and liabilities, including finance lease obligations, and surcharges and allowances under the tax prepayment scheme etc. Financial income and expenses also include realised and unrealised gains and losses relating to derivative financial instruments that cannot be designated as hedging transactions.
However, borrowing costs related to the financingofthe productionoftheH+HGroup's assets are recognised in the costofthe assets.
Dividends from investments in subsidiaries are credited to the parent company's income statement in the financial year in which they are declared.
Tax on profit comprises current tax and changes in deferred tax for the year. The portion that relates to profit for the year is recognised in the income statement, and the portion that relates to amounts recognised directly in equity is recognised directly in equity.
H+HInternational A/S is taxed jointly with all its Danish subsidiaries.The current Danish income tax is allocated among the jointly taxed companies in proportion to their taxable
income. Subsidiaries that utilise tax losses inothersubsidiaries pay joint taxation contributions to the parent company equivalent to the tax baseofthe utilised losses, while subsidiaries with tax losses that are utilised byothersubsidiaries receive joint taxation contributions from the parent company equivalent to the tax baseofthe tax losses utilised (full absorption). The jointly taxed companies are taxed under the tax prepayment scheme.
Where theH+HGroup receivesatax deduction in the calculationoftaxable income in Denmark or abroad asaresult ofshare-based payment schemes, the tax effectofthese schemes is recognised in tax on profit.Ifthe total deduction exceeds the total remuneration expense, the tax effectofthe excess deduction is recognised directly in equity.
Goodwill is recognised initially in the balance sheet at cost as described under Business combinations. Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill isnotamortised.
The carrying amountofgoodwill is allocated to theH+H-Group'scash-generatingunits at the dateofacquisition. The determinationofcash-generatingunits follows theH+H-Group's organisational and internal reporting structure.
Other intangible assets comprise development projects, patents, licences andotherintangible assets.
Development projects that are clearly defined and identifiable, and for which technical feasibility, adequate resources andapotential future market or an application in the entity can be demonstrated, and which the entity intends to manufacture, market or use, are recognised as intangible assets if the cost can be determined reliably and if there is reasonable certainty that the future earnings or the net selling price will cover production costs, selling costs, administrative expenses and development costs.Otherdevelopment costs are recognised in the income statement when incurred.
Recognised development costs are measured at cost less cumulative amortisation and impairment losses. Cost comprises salaries, amortisation andotherexpenses attributable to theH+HGroup's development activities and interest expenses on loans to finance the productionofdevelopment projects that relate to the production period.
On completionofthe development work, development projects are amortised onastraight-line basis over the estimated economic useful life from the date the asset is available for use. The amortisation period is normally 5-10 years. The amortisation base is reduced by any impairment losses.
Patents and licences are measured at cost less cumulative amortisation and impairment losses. Patents and licences are amortised onastraight-line basis over the shorterofthe remaining patent or contract period and the useful life. The amortisation base is reduced by any impairment losses.
Otherintangible assets are amortised onastraight-line basis over the expected useful livesofthe assets.
Property, plant and equipment. Land and buildings, plant and machinery, and fixtures andfittings,tools and equipment are measured at cost less accumulated depreciation and impairment losses.
Cost comprises purchase price and any costs directly attributable totheacquisition up tothedatetheasset is available for use. The cost of self-constructed assets comprises direct and indirect costsofmaterials,components, subsuppliers and labour. Cost is increased by estimated costs for dismantling and removal oftheasset and restoration costs, totheextent that they are recognised asaprovision, and interest expenses on loans tofinancetheproduction of property, plant and equipment that relate totheproduction period. Thecost ofacombined asset is divided into separate components that are depreciated separately ifthecomponents have different useful lives.
In the caseofassets held under finance leases, cost is determined at the lowerof the assets' fair value and the present valueofthe future minimum lease payments. In determining the present value, the interests rate implicit in the lease or theH+HGroup's incremental borrowing rate is used as the discount rate.
Subsequent costs, for example in connection with replacementofpartofan itemofproperty, plant or equipment, are recognised in the carrying amountofthe asset if it is probable that future economic benefits will flow to theH+H-Group from the expenses incurred. The replaced part is derecognised in the balance sheet, and the carrying amount is transferred to the income statement. Allotherexpenses for general repair and maintenance are recognised in the income statement as incurred.
Property, plant and equipment are depreciated onastraightline basis over the expected useful livesofthe assets as follows:
The depreciation base is determined taking into account the asset's residual value and is reduced by any impairment losses. The residual value is determined at the dateofacquisition and reviewed annually. Depreciation ceases if the residual valueofan asset exceeds its carrying amount.
The effect on depreciationofany changes in depreciation period or residual value is recognised prospectively asachange in accounting estimates.
financial statements. Investments in subsidiaries are measured at cost.Ifthere is any indicationofimpairment, an impairment test is carried out as described in theH+H-Group's accounting policies. Cost is written down to the recoverable amount whenever the carrying amount exceeds the recoverable amount.
Impairment of non-current assets. Goodwill and intangible assets with an indefinite useful life are tested for impairment annually, the first time before the endofthe yearofacquisition. Development projects in process are similarly tested for impairment annually.
The carrying amountofgoodwill is tested for impairment together with theothernon-current assetsofthe cashgeneratingunit to which the goodwill has been allocated, and written down to the recoverable amount in the income statement if the carrying amount exceeds the recoverable amount. Asarule, the recoverable amount is determined as the present valueofthe expected future net cash flows from the entity or activity(cash-generatingunit) to which the goodwill relates. Impairment losses relating to goodwill are recognised asaseparate line item in the income statement.
The carrying amountsofothernon-current assets are reviewed annually to determine whether there is any indicationofimpairment.Ifany such indication exists, the asset's recoverable amount is estimated. The recoverable amountofan asset is the higherofits fair value less expected disposal costs and its value in use. The value in use is determined as the present valueofexpected future cash flows from the asset or thecash-generatingunit to which the asset belongs.
An impairment loss is recognised whenever the carrying amountofan asset orcash-generatingunit exceeds its recoverable amount.
Impairment losses are recognised in the income statement under depreciation, amortisation and impairment losses.
Impairment losses relating to goodwill arenotreversed. Impairment losses relating tootherassets are reversed to the extent that the assumptions or estimates that led to the impairment loss have changed. Impairment losses are only reversed to the extent that the asset's new carrying amount doesnotexceed the value the asset would have had after depreciation/amortisation if no impairment losses had been charged.
Inventories are measured at cost using the FIFO method. Where the net realisable value is lower than the cost, inventories are written down to this lower value.
In the caseofgoods for resale, and raw materials and consumables, cost comprises purchase price plus expenses incurred in bringing the inventories to their existing location and condition.
In the caseoffinished goods and work in progress, cost comprises rawmaterials,consumables, direct labour, and production overheads. Production overheads comprise indirect materials and labour as well as maintenance and depreciationofthe machinery, factory buildings and equipment used in the production process, and the costoffactory administration and management.
The net realisable valueofinventories is determined as the selling price less any costsofcompletion and costs incurred to execute the sale. The net realisable value is determined on the basisofmarketability, obsolescence and developments in expected selling price.
Awrite-down for bad and doubtful debts is recorded if there is any objective evidence that an impairment loss onareceivable has been incurred.Ifobjective evidence ofimpairment exists, the impairment loss is determined individually. Receivables that have been foundnotto be individually impaired are tested for impairment in groups. Impairment losses are calculated as the difference between the carrying amount and the present valueofthe estimated future cashflows,including the realisable valueofany collateral received. The discount rate applied is the effective interest rateofthe individual receivable. Write-downs and losses on receivables are recognised asotherexternal expenses.
Receivables are measured at amortised cost, which in all material respects corresponds to the nominal value less write-downs for bad and doubtful debts.
Prepayments recognised under assets comprise expenses incurred in respectofsubsequent financial years. Prepayments are measured at amortised cost.
Proposed dividends are recognised asaliability at the dateofadoption at the annual general meeting (declaration date). The expected dividend for the year is disclosed asaseparate item under equity.
Treasury shares. Acquisition costs, disposal costs and dividends relating to treasury shares are recognised directly in retained earnings under equity. Capital reductions on the cancellationoftreasury shares reduce the share capital by
an amount equivalent to the nominal valueofthe shares. Proceeds from the saleoftreasury shares inH+HInternational A/S in connection with the exerciseofshare options are taken directly to equity.
Translation reserve. This comprises parent company shareholders' shareofforeign exchange differences arising on the translationoffinancial statementsofentities with afunctional currencyotherthan DKK, foreign exchange adjustments relating to assets and liabilities that form partoftheH+HGroup's net investment in such entities, and foreign exchange adjustments relating to hedging transactions that hedge theH+HGroup's net investment in such entities.
Hedging reserve. This comprises the accumulated net change in the fair valueofhedging transactions that qualify for designation as hedgesoffuture cashflows,and where the hedged transaction has yet to be realised.
Incentive schemes. TheH+HGroup's incentive schemes compriseashare option plan for senior executives andamatching share programme launched in June 2011.
The valueofservices rendered by employees in return for option and share grants is measured at the fair valueofthe options and shares.
For equity-settled share options, the grant date fair value is measured and recognised in the income statement as staff costs over the vesting periodofthe options and shares.
The costs are setoffdirectly against equity.
On initial recognitionofthe share options and shares,the numberofoptions and shares expected to vest is estimated, cf. the service condition described in note 4. The figure initially recognised is subsequently adjusted for changes in the estimateofthe numberofoptions and shares expected to vest, so that the total recognition is based on the actual numberofvested options and shares.
The fair value ofthe options and shares granted is estimated using an option pricing model. The calculation takes accountofthe terms and conditions attaching to the share options and shares granted.
Pension obligations. TheH+HGroup has entered into pension agreements and similar agreements with someofits employees.
Obligations relating to defined contribution plans are recognised in the income statement over the vesting period, and any contributions payable are recognised in the balance sheet asotherpayables.
In the caseofdefined benefit plans, the value in useoffuture benefits to be paid under the plan is determined actuarially on an annual basis. The value in use is determined on the basisofassumptions concerning future trends in factors such as salary levels, interest rates, inflation and mortality.
The value in use is determined only for the benefits attributable to service already rendered to theH+HGroup. The actuarially determined value in use less the fair valueofany plan assets is recognised in the balance sheet under pension obligations, except as stated below.
The pension cost for the year is recognised in the income statement based on actuarial estimates and the financial outlook at the startofthe year.Ifthe cumulative actuarial gains and losses at the startofafinancial year exceed the greaterofthe numerical valueof10%ofthe pension obligations and 10%ofthe fair valueofthe plan assets, the excess is recognised in the income statement. The amount in question is recognised in the income statement over the participating employees' expectedaverageremaining working lives with the company. The proportionofactuarial gains/losses that isnotrecognised is disclosed inanote.
In the caseofachange in benefits for employee service with the entity in priorperiods,achange in the actuarially determined value in use arises which is designated asahistorical cost. Historical costs are charged to the income statement immediately to the extent that the amended benefits have already vested.Ifnot,they are recognised in the income statement over the vesting period for the amended benefits.
Ifthe calculation results in plan assets exceeding liabilities to theH+HGroup, the recognised asset is limited to the net totalofany future refunds from the plan or reductions in future contributions to the plan.
Income tax and deferred tax. Current tax payable and receivable is recognised in the balance sheet as tax computed on the taxable income for the year, adjusted for tax on the taxable incomeofprior years and for tax paid on account.
Deferred tax is measured using the balance sheet liability method, providing for all temporary differences between the carrying amountsofassets and liabilities and the amounts used for taxation purposes. However, the following temporary differences arenotrecognised: goodwillnotdeductible for taxpurposes,officeproperties andotheritems–apart from business combinations–where temporary differences have arisen at the dateofacquisition that affect neither accounting nor taxable profit. Where alternative tax rules can be applied to compute the tax base, deferred tax is measured on the basisofmanagement's planned useofthe asset or settlementofthe liability respectively.
Deferred tax assets, including the tax baseoftax loss carry-forwards, are recognised asothernon-current assets at the value at which they are expected to be utilised either by elimination against tax on future earnings or by set-off against deferred tax liabilities within the same legal tax entity and jurisdiction.
Deferred tax assets and liabilities are offset if theH+H-Group hasalegally enforceable right to offset current tax liabilities and assets or intends to settle current tax liabilities and assets onanet basis or to realise tax assets and liabilities simultaneously.
Adjustmentofdeferred tax is made in respectofelimination ofunrealised intragroup profits and losses.
Deferred tax is measured on the basisofthe tax rules and at the tax rates that will apply under the legislation enacted at the balance sheet date in the respective countries when the deferred tax is expected to crystallise in the formofcurrent tax. Changes in deferred tax asaresultofchanges in tax rates are recognised in the income statement.
Under the joint taxation rules,H+HInternational A/S, as the administration company, becomes liable for the subsidiaries' income taxes to the tax authorities as the subsidiaries pay
their joint taxation contributions. Joint taxation contributions payable and receivable are recognised in the balance sheet underreceivables/payables from Group entities.
Provisions. Provisions are recognised when, asaresultofan event occurring before or at the balance sheet date, the H+HGroup hasalegal or constructive obligation, the settlementofwhich is expected to result in an outflow from the companyofresources embodying economic benefits.
The measurementofprovisions is based on management's bestestimateof the amount expected to be required to settle the obligation.
In connection with the measurement ofprovisions, the costs required to settle the obligation are discounted to net present value if this hasamaterial effect on the measurementofthe obligation.Apre-tax discount rate is applied that reflects society's general interest rate level plus the specific risks attaching to the provision. The changes in present values during the financial year are recognised under financial expenses.
Aprovision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data.
Aprovision for restructuring is recognised whenadetailed formal plan for the restructuring has been made public, no later than the balance sheet date, to those affected by the plan.
Aprovision for onerous contracts is recognised when the benefits expected to be derived by theH+HGroup fromacontract are lower than the unavoidable costofmeeting its obligations under the contract.
When theH+HGroup has an obligation to dismantle or remove an asset or restore the site on which the asset has been used,aprovision equivalent to the present valueofthe expected future expenses is recognised.
Leasing. Lease commitments are accounted for as commitments under finance leases and commitments under operating leases respectively.Alease isclassifiedasafinance lease
if it transfers substantially all the risks and rewards of ownership of the leased asset. Other leases areclassifiedas operating leases.
The accounting treatmentofassets held under finance leases and the associated liability is described in the sections on property, plant and equipment, and financial liabilities respectively.
Lease payments underoperatingleases are recognised in the income statement onastraight-line basis over the term ofthe lease.
Financial liabilities. Bank loans etc. are recognised at the dateofborrowing at the proceeds received netoftransaction costs incurred. In subsequentperiods,the financial liabilities are measured at amortised cost using the effective interest rate method. Accordingly, the difference between the proceeds and the nominal amount is recognised in the income statement under financial expenses over the termofthe loan.
Financial liabilities also include the capitalised residual obligation on finance leases, measured at amortised cost.
Otherliabilities are measured at amortised cost.
Assets held for sale. Assets held for sale comprise noncurrent assets and disposal groups which are intended for sale.Adisposal group isagroupofassets which will be disposedoftogether by meansofsale or similar inasingle transaction. Liabilities relating to assets held for sale are liabilities directly associated with these assets, which will be transferred at the timeofthe transaction. Assets are classified as'held for sale'if their carrying amount will primarily be recovered by meansofsale within 12 months in accordance withaformal plan rather than by meansofcontinued use.
Assets or disposal groups held for sale are measured at the lowerofthe carrying amount at the timeofclassification as'held for sale'and the fair value less selling costs. No depreciation or amortisation is applied to assets from the time they are classified as 'held for sale'.
Impairment losses arising in connection with initial classification as 'held for sale' and gains or losses on subsequent measurement at the lowerofcarrying amount and fair value less selling costs are recognised in the income statement under the items to which they relate. Gains and losses are disclosed in the notes.
Assets and associated liabilities are recorded separately in the balance sheet, and the main items are specified in the notes. The comparative figures in the balance sheet arenotrestated.
Presentation of discontinued operations. Discontinued operations make upasignificant partofthebusiness,the activities and cash flowsofwhich can be clearly separated from the restofthe business in operational and accounting terms and where the entity has either been disposed ofor has been classified as 'held for sale' and the sale is expected to be implemented within one year in accordance withaformal plan.
Profit after tax from discontinued operations, value adjustments after tax on associated assets and liabilities, and gains/losses on sale are presented inaseparate line in the income statement, and the comparative figures are restated. Revenue, expenses, value adjustments and tax on the discontinued operation are disclosed in the notes. Assets and associated liabilities for discontinued operations are recorded separately in the balance sheet without the comparative figures being restated, cf. 'Assets held for sale', and the main items are specified in the notes.
Cash flows fromoperating,investing and financing activities for the discontinued operations are disclosed inanote.
The cash flow statement shows the cash flows for the year, broken down byoperating,investing and financing activities, and the year's change in cash and cash equivalents as well as the cash and cash equivalents at the beginning and end ofthe year.
The cash flow effectofacquisitions and disposalsofentities is shown separately under cash flows from investing activities. Cash flows from acquisitionsofentities are recognised
in the cash flow statement from the dateofacquisition, and cash flows from disposalsofentities are recognised up to the dateofdisposal.
Cash flows in currenciesotherthan the functional currency are translated ataverageexchange rates, unless these deviate significantly from the rates at the transaction date.
Cash flows fromoperatingactivities are determined as pretax profit adjusted for non-cashoperatingitems, change in working capital, interest received and paid, and income tax paid.
Cash flows from investing activities comprise payments in connection with acquisitions and disposalsofentities and activities; acquisitions and disposalsofintangible assets, property, plant and equipment, andothernon-current assets; and acquisitions and disposalsofsecurities that are notrecognised as cash and cash equivalents.
Finance leases are accounted for as non-cash transactions.
Cash flows from financing activities comprise changes in the size or compositionofthe share capital and associated expenses as well as the raisingofloans, repayment ofinterest-bearing debt, repurchase and saleoftreasury shares, and paymentofdividends.
Cash flows relating to assets held under finance leases are recognised as paymentofinterest and repaymentofdebt.
Cash and cash equivalents comprise cash and securities withamaturityofless than three months at the timeofacquisition that are readily convertible to cash and are subject to an insignificant riskofchanges in value.
Segment information is prepared in accordance with the H+HGroup's accounting policies and internal financial reporting.
Segment revenue, segment expenses, segment assets and segment liabilities are those items that are directly attributable to the individual segment or can be allocated to the segment onareliable basis. Unallocated items comprise primarily assets, liabilities, income and expenses relating to theH+HGroup's administrative functions, investing activities etc.
Non-current segment assets are those non-current assets that are employed directly by the segment in itsoperatingactivities, including intangible assets and property, plant and equipment.
Current segment assets are those current assets that are employed directly by the segment in itsoperatingactivities, including inventories, trade receivables,otherreceivables, prepayments, and cash and cash equivalents.
Segment liabilities are those liabilities that result from the segment'soperatingactivities, including trade payables and otherpayables.
Earningspershare (EPS) and diluted earningspershare (EPS-D) are determined in accordance withIAS33.
Otherfinancial ratios have been prepared in accordance with the Danish SocietyofFinancial Analysts' 'Recommendations&Financial Ratios 2010'.
Gross margin Gross profit×100
Operating margin Operating profit×100
Return on invested capital (ROIC) Operating profit×100
Earnings per share (EPS-Basic) Profit
Price-earnings ratio (PE)
Profit Profit attributable to the shareholders in the parent company
Revenue
Revenue
Average invested capital
Average number of shares outstanding
Diluted earnings per share (EPS-D) Diluted earnings Diluted average number of shares outstanding
Return on equity Profit×100 Average equity excl. non-controlling interests
Solvency ratio Equity at year-end attributable to theH+HGroup×100 Total equity and liabilities, year-end
Book value per share, year-end H+HGroup equity, year-end Number of shares, year-end
Price/book value Share price Book value per share, year-end
Share price Earnings per share
Payout ratio Total dividend paid×100 Profit
Free cash flow The sum of cash flow from operating and investing activities
Determining the carrying amountsofsome assets and liabilities requires management to make judgements, estimates and assumptions concerning future events.
The estimates and assumptions made are based on historicalexperienceandotherfactors that are believed by management to be sound under the circumstances, butthat, by their nature, are uncertain and unpredictable. The assumptions may be incomplete or inaccurate, and unforeseen events or circumstances may occur. Moreover, theH+HGroup is subject to risks and uncertainties that may lead to the actual outcomesdifferingfrom these estimates. Particular risks to theH+HGroup are discussed in the management review on pages 14-16 and in note 25.
Itmay be necessary to change estimates made previously asaresultofchanges in the factors on which these were based or asaresultofnew knowledge or subsequent events.
Due to developments in the global economy and financial markets in 2011, the uncertainty related toanumberofkey assumptions concerning the future, including sales volume, credit risks, interest ratelevels and profitability etc., remained greater thanin the years before 2010.
Estimates that haveasignificant effect on the financial reporting are made in connection with, for example, the determinationofdepreciation, amortisation and impairment losses, provisions, fair values, contingent assets and liabil-ities, and pension obligations. TheH+HGroup will be dependent on debt financing in the coming years and maintenanceofthe committed credit facilities is conditional upon compliance withanumberoffinancial covenants; see note 25.
Impairment testing. Annual impairment testingofgoodwill and property, plant and equipment is based on the value in useofthe individualcash-generatingunit, using the discounted cash flow method. The calculation is based on budgets approved by management. Cash flows after the budget period are extrapolated using individual growth rates. The discount rate used for the calculation incorporates possible impactsoffuture risks.
The cash flows and growth rates take accountofexperience from previous years, and represent management's best estimateoffuture developments. In combination with the discount rate, however, these estimates may haveasignificant impact on the calculated values. Further information can be found in note 12. The total carrying amountofgoodwill at the endof2011 was DKK 82 million (2010: DKK 88 million). The total carrying amountofproperty, plant and equipment at the endof2011 was DKK 1,038 million (2010: DKK 1,187 million).
The assumptions used in connection with impairment testing may be summarised as follows:
| Czech | ||||||
|---|---|---|---|---|---|---|
| Poland* | Germany | UK | Russia | Republic | Finland | |
| Property, plant and equipment at 31 December 2011 |
237,538 | 260,159 | 224,120 | 182,152 | 149,662 | 15,694 |
| Estimated average annual growth in revenue 2012- 2017 (CAGR) |
8.3% | 6.5% | 10.2 | 17.9% | 9.9% | 3.1% |
| Estimated gross margin 2012-2017 | 14-27% | 25-27% | 18-22% | 24-28% | 25-35% | 18-20% |
| WACC | 10.4% | 6.6% | 8.4% | 17.8% | 8.4% | 7.9% |
*For Poland the forecast period has been extended to 2019. CAGR for the period 2012-2019 is 8.3%
Recovery of deferred tax assets. Deferred tax assets are recognised for all unutilised tax loss carry-forwards to the extent it is considered likely that the losses can be offset against taxable income in the foreseeable future. The amount recognised for deferred tax assets is based on estimatesofthe likely date and sizeoffuture tax loss carryforwards.
At 31 December 2011H+HInternational A/S assessed that tax loss carry-forwards totalling DKK 57 million could be realised within the foreseeable future.
Inventories. Estimation uncertainty relates to write-downs to net realisable value.
Inventories are generally written down in accordance with the Group's policies in this area, which comprise individual assessmentofinventories withaview to possible losses as aresultofobsolescence, poor quality and cyclical effects. Write-downsofDKK 6.5 million (2010: DKK 12.5 million) have been made in 2011; see note 15.
Receivables. Management currently makes estimates in assessing the recoverabilityofreceivables at the balance sheet date. The international financial situation means there is an increased riskoflosses on bad and doubtfuldebts, which has been taken into consideration in assessmentofwrite-downs at the balance sheet date and in the day-to-day management and controlofreceivables.
In particular, receivables denominated in RUB from customersin Russia totalling DKK 6.6 million are subject toahigher levelofuncertainty than normal; see note 16.
Defined benefit pension plans. The present valueofpension obligations depends on the actuarial assumptions made. These assumptions comprise the discount rate, the estimated return on plan assets, future salary increases, mortality and future developments in pension obligations.
All assumptions are reviewed at the reporting date. Any changes in the assumptions will affect the carrying amount ofthe pension obligations. Estimates regarding pension obligations are discussed in note 18.
Assets held for sale and discontinued operations. In the second quarterof2011, the BoardofDirectors announced its decision to divest various assets that are nolongercentral to theH+HGroup's strategy, and the subsidiary Jämeräkivitalot Oy wasputup for sale in the third quarterof2011.
As no binding sales agreement has yet been entered into, there is some uncertainty associated with measurement and recognition. Estimates significant to the financial reporting for discontinued operations mainly comprise measurementofthe selling priceofprojects in progress, which is determined i.a. on the basisofexpected residual expenses and income. Also relevant here is the outcomeofdisputes relating to claims for additional performance, payment for delays etc., determined i.a. on the basisofthe stageofnegotiation with the counterparty and an assessmentofthe likely outcome.
As partofthe applicationoftheH+HGroup's accounting policies, management makes judgements, in addition to estimates, that may haveasignificant effect on the amounts recognised in the consolidated and parent company financial statements.
No special estimates were made in either 2010 or 2011.
| DKK million | 2011 | |||||||
|---|---|---|---|---|---|---|---|---|
| Western Europe | Eastern Europe | |||||||
| Eastern | Discon | |||||||
| Production companies |
Sales companies |
Western Europe, total |
Production companies |
Sales companies |
Europe, total |
tinued operations* |
Reporting segments |
|
| Revenue, external | 707.3 | 221.2 | 928.5 | 376.0 | 5.3 | 381.3 | 129.0 | 1,438.8 |
| Revenue, internal | 148.6 | 0.3 | 148.9 | 9.0 | 0.3 | 9.3 | 0 | 158.2 |
| EBITDA | 88.0 | 5.2 | 93.2 | 12.5 | (1.2) | 11.3 | (41.6) | 62.9 |
| Depreciation and amortisation | (57.5) | (1.4) | (58.9) | (42.9) | 0 | (42.9) | (0.7) | (102.5) |
| EBITA | 30.5 | 3.8 | 34.3 | (30.4) | (1.2) | (31.6) | (42.3) | (39.6) |
| Impairment losses | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Operating profit (EBIT) | 30.5 | 3.8 | 34.3 | (30.4) | (1.2) | (31.6) | (42.3) | (39.6) |
| Financial income | 1.8 | 0.3 | 2.1 | 0.6 | 0 | 0.6 | 0 | 2.7 |
| Financial expenses | (16.9) | (2.0) | (18.9) | (36.1) | (1.6) | (37.7) | (0.3) | (56.9) |
| Profit before tax** | 15.4 | 2.1 | 17.5 | (65.9) | (2.8) | (68.7) | (42.6) | (93.8) |
| Non-current assets | 774.2 | 18.7 | 792.9 | 634.3 | 1.2 | 635.5 | 0 | 1,428.4 |
| Investments in intangible assets and property, plant and equipment |
22.8 | 0.6 | 23.4 | 11.4 | 0 | 11.4 | 0.9 | 35.7 |
| Assets | 1,067.0 | 77.8 | 1,144.8 | 737.4 | 1.7 | 739.1 | 58.3 | 1,942.2 |
| Equity | 469.7 | 8.9 | 478.6 | 298.2 | (34.4) | 263.8 | (5.7) | 736.7 |
| Liabilities | 597.3 | 68.9 | 666.2 | 439.2 | 36.1 | 475.3 | 64.0 | 1,205.5 |
| Average full-time equivalent staff | 454 | 44 | 498 | 569 | 3 | 572 | 21 | 1,091 |
| 2010 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Western Europe | Eastern Europe | |||||||
| Production companies |
Sales companies |
Western Europe, total |
Production companies |
Sales companies |
Eastern Europe, total |
Discon tinued operations* |
Reporting segments |
|
| Revenue, external | 624.9 | 185.9 | 810.8 | 359.6 | 15.1 | 374.7 | 69.0 | 1,254.5 |
| Revenue, internal | 124.4 | 0 | 124.4 | 11.8 | 0 | 11.8 | 0 | 136.2 |
| EBITDA | 49.1 | (11.5) | 37.6 | 3.3 | (9.3) | (6.0) | (10.5) | 21.1 |
| Depreciation and amortisation | (69.9) | (1.6) | (71.5) | (46.1) | (0.2) | (46.3) | (0.9) | (118.7) |
| EBITA | (20.8) | (13.1) | (33.9) | (42.8) | (9.5) | (52.3) | (11.4) | (97.6) |
| Impairment losses | 0 | (0.2) | (0.2) | (120.0) | 0 | (120.0) | 0 | (120.2) |
| Operating profit (EBIT) | (20.8) | (13.3) | (34.1) | (162.8) | (9.5) | (172.3) | (11.4) | (217.8) |
| Financial income | 0.5 | 0.2 | 0.7 | 2.0 | 1.9 | 3.9 | 0 | 4.6 |
| Financial expenses | (13.9) | (1.9) | (15.8) | (40.1) | (1.3) | (41.4) | (0.3) | (57.5) |
| Profit before tax** | (34.2) | (15.0) | (49.2) | (200.9) | (8.9) | (209.8) | (11.7) | (270.7) |
| Non-current assets | 583.0 | 24.0 | 607.0 | 732.4 | 1.2 | 733.6 | 8.6 | 1,349.2 |
| Investments in intangible assets and property, plant and equipment |
13.4 | 1.9 | 15.3 | 14.4 | 1.2 | 15.6 | 1.2 | 32.1 |
| Assets | 786.9 | 67.3 | 854.2 | 817.9 | 2.5 | 820.4 | 26.9 | 1,701.5 |
| Equity | 282.2 | 6.8 | 289.0 | 95.5 | (31.7) | 63.8 | 6.3 | 359.1 |
| Liabilities | 504.7 | 60.5 | 565.2 | 722.4 | 34.2 | 756.6 | 20.6 | 1,342.4 |
| Average full-time equivalent staff | 446 | 49 | 495 | 629 | 16 | 645 | 19 | 1,159 |
*See note 23.
**TheH+HGroup's consolidated profit before tax and management fee etc. Transactions between segments are carried out at arm's length.
| 3 Segment information – continued | Group | |
|---|---|---|
| Reconciliation of revenue, profit before tax, assets and liabilities of reporting segments | ||
| Revenue | 2011 | 2010 |
| Segment revenue for the reporting segments | 1,597.0 | 1,390.7 |
| Revenue for other operating segments | 0 | 0 |
| Elimination of inter-segment sales | (158.2) | (136.2) |
| Revenue for discontinued operations | (129.0) | (69.0) |
| 1,309.8 | 1,185.5 | |
| Profit before tax | ||
| Segment profit before tax for reporting segments | (93.8) | (270.7) |
| Profit for other operating segments | 0 | 0 |
| Elimination of inter-segment transactions | 0 | 0 |
| Impairment losses, non-reporting segment | 0 | (1.5) |
| Profit from discontinued operations | 42.6 | 11.7 |
| Non-allocated Group expenses, central functions | (1.6) | (14.0) |
| (52.8) | (274.5) | |
| Assets | ||
| Total assets for reporting segments | 1,942.2 | 1,701.5 |
| Elimination of internal profit on assets | 0 | 0 |
| Other non-allocated assets, eliminations and similar | (303.2) | (47.4) |
| Assets relating to discontinuing operations | (58.3) | 0 |
| 1,580.7 | 1,654.1 | |
| Liabilities | ||
| Total liabilities for reporting segments | 1,205.5 | 1,342.4 |
| Other non-allocated obligations, eliminations and similar | (114.2) | (413.8) |
| Liabilities relating to discontinuing operations | (64.0) | 0 |
| 1,027.3 | 928.6 |
Revenue in Denmark was DKK 104,603 thousand in 2011 (2010: DKK 83,082 thousand). Non-current assets in Denmark at year-end 2011 amounted to DKK 11,597 thousand (2010: DKK 20,862 thousand).
None of theH+HGroup's customers represented more than 10% of theH+HGroup's total revenue in 2010 or 2011. The following countries represent more than 10% of revenue or non-current assets.
| DKK million | 2011 | 2010 | ||
|---|---|---|---|---|
| Non-current | Non-current | |||
| Revenue | assets | Revenue | assets | |
| UK | 412.5 | 225.7 | 415.9 | 240.3 |
| Germany | 351.5 | 333.8 | 261.8 | 314.7 |
| Poland | 221.3 | 295.9 | 231.9 | 364.4 |
| Russia | 101.1 | 200.0 | 80.8 | 210.3 |
| Czech Republic | 62.7 | 152.6 | 58.8 | 169.0 |
| Other countries and eliminations | 160.7 | 162.0 | 136.3 | 41.9 |
| 1,309.8 | 1,370.0 | 1,185.5 | 1,340.6 |
When presenting information on geographical areas, information on revenue is based on the legal entity.
| 4 Staff costs | Group | Parent company | |||
|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 | |
| Wages and salaries | 238,541 | 246,833 | 21,639 | 21,943 | |
| Defined benefit plans, see note 18 | 5,697 | 12,719 | 0 | 0 | |
| Defined contribution plans | 5,722 | 3,972 | 0 | 0 | |
| Share-based payment | 807 | 510 | 619 | 252 | |
| Remuneration to the Board of Directors | 2,025 | 1,825 | 2,025 | 1,825 | |
| Other staff costs | 29,426 | 29,652 | 774 | 596 | |
| 282,218 | 295,511 | 16,057 | 24,616 | ||
| Staff costs are recognised as follows: | |||||
| Production costs | 166,216 | 151,978 | 0 | 0 | |
| Other external expenses | 116,002 | 143,533 | 16,057 | 24,616 | |
| 282,218 | 295,511 | 16,057 | 24,616 | ||
| Remuneration to the Executive Board: | |||||
| Michael Troensegaard Andersen: | |||||
| Salaries and fees | 2,025 | 0 | 2,025 | 0 | |
| Bonus plans | 0 | 0 | 0 | 0 | |
| Share-based payment | 133 | 0 | 133 | 0 | |
| Hans Gormsen: | |||||
| Salaries and fees | 717 | 2,866 | 717 | 2,866 | |
| Share-based payment | 270 | 244 | 270 | 244 | |
| Termination benefit | 0 | 5,330 | 0 | 5,330 | |
| Niels Eldrup Meidahl: | |||||
| Salaries and fees | 1,654 | 125 | 1,654 | 125 | |
| Bonus plans | 0 | 0 | 0 | 0 | |
| Share-based payment | 75 | 0 | 75 | 0 | |
| 4,874 | 8,565 | 4,874 | 8,565 | ||
| Remuneration to other senior executives: | |||||
| Salaries and fees | 2,827 | 4,055 | 2,096 | 3,341 | |
| Bonus plans | 85 | 0 | 85 | 0 | |
| Share-based payment | 202 | 182 | 202 | 182 | |
| 3,114 | 4,237 | 2,383 | 3,523 |
| Board of Directors | ||
|---|---|---|
The annual general meeting on 14 April 2011 approved remuneration to the Chairman and Vice Chairman of the Board of DKK 600,000 (2010: DKK 500,000) and DKK 450,000 (2010: DKK 275,000) respectively for 2011. Remuneration to ordinary board members for 2011 was DKK 300,000 (2010: DKK 200,000). An extra fee for committee work was paid in addition to the remuneration for 2010, whereas the remuneration for 2011 includes committee work.
Average full-time equivalent staff 1,084 1,156 14 16
The Board of Directors comprised six members until the annual general meeting on 14 April 2011. One member did not stand for re-election at the annual general meeting; the remaining members were re-elected but no new member was elected to replace the person standing down.
Until4April 2011 the Executive Board comprised CEO Hans Gormsen and CFO Niels Eldrup Meidahl. Michael Troensegaard Andersen joined the Executive Board as CEO on4April 2011, with Hans Gormsen resigning at the same time, and the Executive Board subsequently comprised Michael Troensegaard Andersen and Niels Eldrup Meidahl.
The group of other senior executives numbered two people throughout 2011.
In May 2011amatching share programme for the Executive Board and certain key employees was launched. These officers purchasedatotal of 10,930 shares at market price in June 2011, which will trigger allocation ofafurther 32,790H+Hshares in June 2014 if all of the vesting criteria are fulfilled.
The vesting criteria relate to employment in the vesting period, theGroup's operating profit and other financial targets. The value of the programme at inception in June 2011 is estimated at DKK 1.9 million and will be recognised as staff costs until the expiry of the vesting period in June 2014.
The fair value of the programme has been determined as the maximum number of shares which can be granted. The share price used in calculating the value of the programme is the average price of the shares in June 2011. The programme is currently not hedged by purchase of treasury shares.
InMay 2007, the BoardofDirectorsofH+HInternational A/S establishedashare option plan for the Executive Board andothersenior executives withavesting periodof2007- 2009. No option plan was adopted for 2010. The Board of-DirectorsofH+HInternational A/S isnotincluded in the company's share option plan.
Each share option entitles the holder tobuyone share. The exercise price is calculated as theaverageprice in the ten business days after the publicationofthe annual report for the financial year to which the share options relate, plus 20%. The options are exercisable duringaone-year period beginning three years and ending four years after the publicationofthe annual report for the financial year to which
the share options relate. Unless specifically agreed as part of atermination agreement, the right to be granted and to exercise share options is conditional upon the option holder's employment with the companynothaving ceased, either due to the option holder having given noticeoftermination or breachofcontract on the partofthe option holder. There are noothervesting conditions. The fair valueofthe share option plan has been calculated at DKK 4.5 million in total, and breaks down into DKK 1.5 million for the 2007 grant, DKK 1.5 million for the 2008 grant and DKK 1.5 million for the 2009 grant.
The share option plans that are expected to be exercisable are substantially hedged by treasury shares at the dateoffinal pricing, however no hedging has been carried out in recent years as the relatively large drop in the company's share price means that the probabilityofthe oldest options still exercisable being used before expiryofthe exercise period isconsidered very low. Treasury shares amounted to 20,489 shares at year-end 2011 and 2010. The outstanding options have anaverageremaining contractual lifeof1.8 years (2010: 2.6 years) and an exercise price in the range ofDKK 79-638peroption (2010: DKK 79-638peroption). The cost recognised in the 2011 income statement in respectofshare options is DKK 484 thousand (2010: DKK 509 thousand).
| (DKK '000) | Total | FormerExecutive Board | Other employees | ||||
|---|---|---|---|---|---|---|---|
| Avg exercise | Avg exercise | Avg exercise | |||||
| Outstanding options | Number | price | Number | price | Number | price | |
| Outstanding options at 31 December 2009 | 83,037 | 22,191 | 60,846 | ||||
| Additions | 0 | 0 | 0 | ||||
| Forfeited | 0 | 0 | 0 | ||||
| Expired | (11,298) | (2,850) | (8,448) | ||||
| Outstanding options at 31 December 2010 | 71,739 | 19,341 | 52,398 | ||||
| Additions | 0 | 0 | 0 | ||||
| Forfeited | 0 | 0 | 0 | ||||
| Expired | (8,850) | (2,703) | (6,147) | ||||
| Outstanding options at 31 December 2011 | 62,889 | 16,638 | 46,251 | ||||
| Breakdown of outstanding options by exercise period: |
|||||||
| Outstanding option plans at 31 December 2010 | |||||||
| 2009-2011 | 8,850 | 476 | 2,703 | 476 | 6,147 | 476 | |
| 2010-2012 | 13,032 | 638 | 3,813 | 638 | 9,219 | 638 | |
| 2011-2012 | 15,975 | 541 | 4,275 | 541 | 11,700 | 541 | |
| 2012-2013 | 15,750 | 93 | 4,275 | 93 | 11,475 | 93 | |
| 2013-2014 | 18,132 | 79 | 4,275 | 79 | 13,857 | 79 | |
| Total | 71,739 | 19,341 | 52,398 | ||||
| Outstanding option plans at 31 December 2011 | |||||||
| 2010-2012 | 13,032 | 638 | 3,813 | 638 | 9,219 | 638 | |
| 2011-2012 | 15,975 | 541 | 4,275 | 541 | 11,700 | 541 | |
| 2012-2013 | 15,750 | 93 | 4,275 | 93 | 11,475 | 93 | |
| 2013-2014 | 18,132 | 79 | 4,275 | 79 | 13,857 | 79 | |
| Total | 62,889 | 16,638 | 46,251 |
There wasasignificant dilution of the share options in connection with the company's rights issue in December 2009. The numberofoptions and the exercise price have been recalculated asaresultofthe rights issue. This adjustment is equivalent to three times the numberofshare options. The exercise price has also been adjusted. The total valueofthe options is unchanged.
The Executive Board and the company's senior executives have the opportunity to earn an annual cash bonus. The maximum bonus payment is 40%ofthe person's fixed annual salary in the year in which the bonus was earned. The earningofbonuses is dependent on EBITDA in the year in which the bonus was earned,and toalesser extent on certain qualitative targets related to the company's strategy, and the bonus is thereforenotguaranteed. The bonus payment will depend on EBITDA relative to budgeted EBITDA, with the bonus payment being calculated onastraight-line basis withinafixed range for budget performance. Bonus earned is paid eight days after the adoption by the annual general meetingofthe annual report for the year in which the bonus was earned. In caseofterminationofemployment, regardlessofthe cause, thepersonin question is entitled to proportionately earned bonus up to the dateofterminationofhis orheremployment.
The results for 2010 and 2011 have notled to any entitlement toacash bonus forthe Executive Board.Abonus has been paid to one senior executive in 2011, which wasnotthe case in 2010. The bonus was awarded in connection with the successful implementationofthe Lean programme.
The Executive Board andothersenior executives inH+H-International A/S may resign with six months' notice. The company may dismiss the Executive Board andothersenior executives with 12 months' notice. Under normal circumstances, if the company gives notice to the Executive Board andothersenior executives without reason, those concerned are entitled toatermination benefit equivalent to 12 months' fixed salary. However, ifashareholder acquires the majorityofvotes in the company asaresultofacompulsory or voluntaryofferin accordance with the rules governing this in the Danish Securities Trading Act, or if the company's operations are transferred toanew owner, the periodofnotice the Executive Board must give the company is shortened to three months foraperiodoftwo years. Inacorresponding takeover situation, the company's Executive Board hasaclaim to twice the termination benefit, equivalent to 24 months' fixed salary.
| 5 Other operating income and expenses | Group | Parent company | ||||
|---|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 | ||
| Management fee | 0 | 0 | 15,000 | 15,000 | ||
| Gain on disposal of property, plant and equipment | 5,951 | 3,185 | 386 | 542 | ||
| Loss on disposal of property, plant and equipment | (371) | (338) | 0 | 0 | ||
| Expenses in connection with competition case | (1,514) | 0 | (1,514) | 0 | ||
| Additional energy tax relating to 2008 and 2009 | (2,384) | 0 | 0 | 0 | ||
| Rental income | 2,136 | 0 | 0 | 0 | ||
| Transaction costs | 0 | (635) | 0 | (635) | ||
| Special costs related to closure of business units and terminated employees | (1,730) | (11,433) | 0 | 0 | ||
| Insurance compensation received | 0 | 1,927 | 0 | 0 | ||
| Other | 2,019 | (296) | 0 | 0 | ||
| 4,107 | (7,590) | 13,872 | 14,907 |
| 6 Depreciation and amortisation | Group | Parent company | ||||
|---|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 | ||
| Other intangible assets | 2,911 | 3,282 | 0 | 0 | ||
| Land and buildings | 19,022 | 19,232 | 0 | 0 | ||
| Plant and machinery | 61,263 | 76,124 | 0 | 0 | ||
| Fixtures and fittings, tools and equipment | 18,742 | 20,274 | 283 | 950 | ||
| 101,938 | 118,912 | 283 | 950 |
| 7 Impairment losses | Group | Parent company | |||
|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 | |
| Plant and machinery | 0 | 78,982 | 0 | 0 | |
| Fixtures and fittings, tools and equipment | 0 | 42,715 | 0 | 0 | |
| Impairment losses in subsidiaries | 0 | 0 | 354,204 | 43,167 | |
| 0 | 121,697 | 354,204 | 43,167 |
In 2010 assets in Russia were written down by DKK 120 million due to lower capacity utilisation and prices than originally anticipated. Impairment losses have also been recognised in connection with the closures in Norway, Ukraine and the Baltic States.
In connection with the closing of the financial statements for 2011, it was found that the recoverable amount of some of the Group's companies was lower than the parent company's original cost. Asaresult, significant impairment losses were recognised for the UK, Russia, the Czech Republic and Jämerä in the parent company financial statements. However, these impairment losses have no bearing on the consolidated financial statements.
| 8 Financial income | Group | Parent company | ||
|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 |
| Interest income | 192 | 109 | 0 | 7 |
| Interest income from subsidiaries | 0 | 0 | 32,466 | 33,429 |
| Realised foreign exchange gain relating to loans to subsidiaries | 0 | 0 | 109 | 4,024 |
| Exchange rate adjustments relating to loans to subsidiaries | 0 | 0 | 0 | 6,436 |
| Other exchange rate adjustments | 301 | 13,909 | 0 | 0 |
| Other financial income | 867 | 963 | 0 | 508 |
| 1,360 | 14,981 | 32,575 | 44,404 |
TheH+HGroup's total interest income in 2011 amounted to DKK 192 thousand (2010: DKK 109 thousand). The parent company's total interest income in 2011 amounted to DKK 32,466 thousand (2010: DKK 33,436 thousand).
| 9 Financial expenses | Group | Parent company | ||
|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 |
| Interest expenses | 34,487 | 34,653 | 12,109 | 13,289 |
| Interest expenses to subsidiaries | 0 | 0 | 1,373 | 338 |
| Exchange rate adjustments relating to loans to subsidiaries | 0 | 0 | 11,398 | 0 |
| Other exchange rate adjustments | 2,545 | 2,319 | 1,774 | 954 |
| Foreign exchange losses on derivatives | 81 | 0 | 0 | 0 |
| Write-down of intragroup loans | 0 | 0 | 5,521 | 5,522 |
| Other financial expenses | 6,567 | 7,064 | 6,033 | 6,217 |
| 43,680 | 44,036 | 38,208 | 26,320 |
TheH+HGroup's total interest expenses in 2011 amounted to DKK 34,487 thousand (2010: DKK 34,653 thousand). The parent company's total interest expenses in 2011 amounted to DKK 13,482 thousand (2010: DKK 13,627 thousand).
| 10 Tax | Group | Parent company | ||
|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 |
| Tax on profit from continuing operations | 16,094 | (11,571) | (1,509) | 9,500 |
| Tax on other comprehensive income | (1,228) | 3,365 | 0 | 0 |
| 14,866 | (8,206) | (1,509) | 9,500 | |
| Tax on continuing operations can be broken down as follows: | ||||
| Current tax for the year | 4,871 | 12,866 | 0 | 0 |
| Adjustment of deferred tax | 11,585 | (22,554) | 1,509 | 9,500 |
| Prior-year adjustments | (1,590) | 1,482 | 0 | 0 |
| 14,866 | (8,206) | 1,509 | 9,500 | |
| Current joint taxation contribution for the year | 0 | 0 | 0 | 0 |
| 14,866 | (8,206) | 1,509 | 9,500 | |
| Tax on profit from continuing operations can be broken down as follows: | ||||
| Calculated 25%(2010:25%) tax on profit from ordinary activities | (13,201) | (68,622) | (93,240) | (12,065) |
| Less tax in foreign Group entities compared with 25% rate (2010:25%) | 5,186 | 16,923 | 0 | 0 |
| Tax effect of: | ||||
| Not capitalised deferred tax asset | 11,741 | 13,675 | 3,236 | 9,350 |
| Write-downs of deferred tax assets | 25,677 | 10,000 | 0 | 0 |
| Reversals of deferred tax asset write-downs | (10,784) | 0 | 0 | 0 |
| Other adjustments | (2,746) | 1,329 | (1,509) | 0 |
| Tax on changes in equity | (1,228) | 3,365 | 0 | 0 |
| Non-deductible expenses | 2,212 | 13,642 | 90,073 | 12,215 |
| Prior-year adjustments | (1,590) | 1,482 | 0 | 0 |
| Non-taxable income | (401) | 0 | (69) | 0 |
| 14,866 | (8,206) | (1,509) | 9,500 |
| Group | ||||||
|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||
| Tax income/ | Tax income/ | |||||
| Tax on other comprehensive income | Before tax | expense | After tax | Before tax | expense | After tax |
| Exchange rate adjustments, foreign entities | (56,602) | 1,228 | (55,374) | 41,057 | (3,365) | 37,692 |
| (56,602) | 1,228 | (55,374) | 41,057 | (3,365) | 37,692 |
| 11 Earnings per share (EPS) | Group | |
|---|---|---|
| (DKK '000) | 2011 | 2010 |
| Average number of shares | 9,810,000 | 9,810,000 |
| Average number of treasury shares | (20,489) | (20,489) |
| Average number of outstanding shares | 9,789,511 | 9,789,511 |
| Dilution from share options | 0 | 0 |
| Average number of outstanding shares, diluted | 9,789,511 | 9,789,511 |
| Adjustment of number of DKK 50 shares | ||
| Adjusted average number of outstanding shares | 9,789,511 | 9,789,511 |
| Adjusted average number of outstanding shares, diluted | 9,789,511 | 9,789,511 |
| Profit for the year | (117,534) | (270,478) |
| Attributable to non-controlling interests | 0 | 0 |
| Shareholders inH+HInternational A/S | (117,534) | (270,478) |
| Earnings per share (EPS) | (12.01) | (27.63) |
| Diluted earnings per share (EPS-D) | (12.01) | (27.63) |
See note 23 for earnings and diluted earnings per share from discontinued operations.
Earnings per share from continuing and discontinued operations respectively for 2011 are calculated on the basis of the equivalent key figures used to calculate earnings per share.
| (DKK '000) | 2011 | 2010 |
|---|---|---|
| Shareholders inH+HInternational A/S's share of: | ||
| Profit from discontinued operations | (48,637) | (7,563) |
| Profit from continuing operations | (68,897) | (262,915) |
| Profit for the year | (117,534) | (270,478) |
The calculation of diluted earnings per share excludes 62,889 share options(2010: 71,739), which are out of the money but may potentially dilute earnings per share in the future.
In accordance with IAS 33, an adjustment has been made to the calculation of earnings per share (EPS) and diluted earnings per share (EPS-D) such that the average number of shares has been adapted toaface value of DKK 50.
| 12 Intangible assets and property, plant and equipment | Parent company | |||
|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | ||
| Other intangible assets |
Fixtures and fittings, tools and equipment |
Other intangible assets |
Fixtures and fittings, tools and equipment |
|
| Total cost at1January | 6,445 | 1,681 | 3,082 | 4,329 |
| Additions during the year | 1,612 | 316 | 3,363 | 559 |
| Disposals during the year | (1,795) | (895) | 0 | (3,207) |
| Total cost at 31 December | 6,262 | 1,102 | 6,445 | 1,681 |
| Total depreciation and amortisation at1January | 0 | 784 | 0 | 2,447 |
| Depreciation and amortisation of assets disposed of | 0 | (553) | 0 | (2,613) |
| Depreciation and amortisation for the year | 0 | 283 | 0 | 950 |
| Total depreciation and amortisation at 31 December | 0 | 514 | 0 | 784 |
| Carrying amount | 6,262 | 588 | 6,445 | 897 |
| (DKK '000) | 2011 | |||||
|---|---|---|---|---|---|---|
| Goodwill | Other intangible assets |
Land and buildings |
Plant and machinery |
Fixtures and fittings, tools and equipment |
Property, plant and equip ment under construction |
|
| Total cost at1January 2011 | 88,388 | 44,812 | 620,100 | 1,344,060 | 267,095 | 30,116 |
| Transfers | 0 | 2,154 | 8,915 | 8,190 | 2,020 | (21,279) |
| Foreign exchange adjustments,year-end rate | (6,615) | (850) | (16,200) | (14,179) | (5,923) | (302) |
| Additions during the year | 0 | 4,817 | 396 | 15,135 | 9,261 | 8,143 |
| Disposals during the year | 0 | (1,907) | (5,168) | (2,188) | (6,686) | 0 |
| Transferred to assets held for sale | 0 | (19,395) | (47,801) | (17,107) | (2,093) | (387) |
| Total cost at 31 December 2011 | 81,773 | 29,631 | 560,242 | 1,333,911 | 263,674 | 16,291 |
| Total depreciation and amortisation at1January 2011 | 0 | 16,605 | 152,311 | 783,829 | 129,908 | 7,933 |
| Foreign exchange adjustments, year-end rate | 0 | (576) | (1,042) | 144 | (2,585) | 0 |
| Foreign exchange adjustments for the year | 0 | (74) | (489) | (541) | (395) | 0 |
| Depreciation and amortisation of assets disposed of | 0 | (31) | 0 | (1,314) | (4,950) | 0 |
| Depreciation and amortisation for the year | 0 | 3,380 | 19,134 | 61,263 | 18,801 | 0 |
| Impairment losses for the year | 0 | 0 | 0 | 0 | 0 | 0 |
| Transferred to assets held for sale | 0 | (3,010) | (7,874) | (17,107) | (609) | 0 |
| Total depreciation, amortisation and impairment losses at 31 December 2011 |
0 | 16,294 | 162,040 | 826,274 | 140,170 | 7,933 |
| Carrying amount | 81,773 | 13,337 | 398,202 | 507,637 | 123,504 | 8,358 |
| Of which, assets held under finance leases | 0 | 0 | 0 | 21 | 193 | 0 |
| Group | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2010 | ||||||||
| Goodwill | Other intangible assets |
Land and buildings |
Plant and machinery |
Fixtures and fittings, tools and equipment |
Property, plant and equip ment under construction |
|||
| Total cost at1January 2010 | 85,902 | 45,981 | 599,214 | 1,291,830 | 253,603 | 22,517 | ||
| Transfers | 0 | 2,922 | 788 | 149 | 392 | (4,251) | ||
| Foreign exchange adjustments, year-end rate | 2,486 | 399 | 16,873 | 47,965 | 10,504 | 1,037 | ||
| Additions during the year | 0 | 4,997 | 3,409 | 6,403 | 10,006 | 11,548 | ||
| Disposals during the year | 0 | (9,487) | (184) | (2,287) | (7,410) | (735) | ||
| Total cost at 31 December 2010 | 88,388 | 44,812 | 620,100 | 1,344,060 | 267,095 | 30,116 | ||
| Total depreciation and amortisation at1January 2010 | 0 | 22,151 | 129,399 | 617,987 | 71,074 | 7,419 | ||
| Foreign exchange adjustments, year-end rate | 0 | 181 | 3,402 | 12,872 | 917 | 514 | ||
| Foreign exchange adjustments for the year | 0 | 18 | 52 | (429) | (410) | 0 | ||
| Depreciation and amortisation of assets disposed of | 0 | (9,465) | 0 | (1,707) | (4,861) | 0 | ||
| Depreciation and amortisation for the year | 0 | 3,720 | 19,458 | 76,124 | 20,473 | 0 | ||
| Impairment losses for the year | 0 | 0 | 0 | 78,982 | 42,715 | 0 | ||
| Total depreciation, amortisation and impairment losses at 31 December 2010 |
0 | 16,605 | 152,311 | 783,829 | 129,908 | 7,933 | ||
| Carrying amount | 88,388 | 28,207 | 467,789 | 560,231 | 137,187 | 22,183 | ||
| Of which, assets held under finance leases | 0 | 0 | 399 | 111 | 220 | 0 |
Interest totalling DKK0thousand was capitalised in 2011 (2010: DKK0thousand).
Development costs totalling DKK0thousand were capitalised in 2011 (2010: DKK0thousand).
Development costs in the region of DKK5million were expensed in 2010 and 2011.
On 31 December 2011, management tested the carrying amountofgoodwill for impairment based on the allocation ofthe costofgoodwill to thecash-generatingunits. Of total goodwillofDKK 81,773 thousand (2010: DKK 88,388 thousand), DKK 53,590 thousand (2010: DKK 60,145 thousand) related to the Eastern European segment, while DKK 28,183 thousand (2010: DKK 28,242 thousand) related to the Western European segment.
Management isofthe opinion that the lowest levelofcashgeneratingunit to which the carrying amountofgoodwill can be allocated is at company level in each country.
The recoverable amount was defined as the value in use for the purposeofimpairment testing.
In general the impairment tests were based on the budget for 2012 and strategy projections for 2013-2019, as approved by management.Averageannual growth in revenueof6.5-9.9% has been assumed for the period 2012-2019.Growth has been assessed by local and Group management. An assumed growth rateof2-3% p.a. has been used for the years after 2017. The growth rate isnotexpected to exceed theaveragelong-term growth rate in theH+HGroup's markets.Arising gross margin has been estimated for the period 2012-2019, after which it is expected to be constant. The rising gross margin assumes more expedient utilisationofproduction capacity as well as price increases.Adiscount rate after tax (WACC)of6.6- 10.4% has been applied. The WACC is based on generally recognised principles and assumptions provided by external analysts.
The assumptions made can be summarised as follows:
| Poland | Germany | Czech Republic |
|
|---|---|---|---|
| Carrying amount of goodwill at 31 December 2011 |
50,944 | 28,183 | 2,646 |
| Estimated average annual growth in revenue 2012- 2017 (CAGR) |
8.3% | 6.5% | 9.9% |
| Estimated gross margin 2012-2017 |
14-27% | 25-27% | 25-35% |
| WACC | 10.4% | 6.6% | 8.4% |
*For Poland the forecast period has been extended to 2019. CAGR for the period 2012-2019 is 8.3%.
The impairment tests performed do not indicate any need for impairment losses. Based on the assumptions above, management considers the recoverable amount to exceed the carrying amount of goodwill.
If the assumptions above are not met,itcould result in impairment. The main assumptions relate to annual growth in revenue and gross margin.
The Group's key non-current assets were tested for impairment in 2011, including with regard to assets in Poland, Germany, the UK, Russia, the Czech Republic and Finland which together represent approx. 97%ofthe Group's total non-current assets at 31 December 2011.
The impairment tests were based on the budget for 2012 and strategy projections for 2013-2019, as approved by management. Average annual growth in revenue of 3.1-17.9% has been assumed for the period 2012-2019. Growth has been assessed by local and Group management. An assumed growth rate of 2.0-3.5% p.a. has been used for the years after 2017. The growth rate is not expected to exceed the average long-term growth rate in theH+HGroup's markets. Arising gross margin has been assumed for the period 2012- 2019, after which it is expected to be constant.
The rising gross margin assumes more expedient utilisation of production capacity and weak price increases.Adiscount rate after tax (WACC) of 6.6-17.8% has been applied. The WACC is based on generally recognised principles and assumptions provided by external analysts.
Assumed annual growth in Russia and the Czech Republic is 17.9% and 9.9% respectively, which is because in Russia there is an almost new factory inanew market and in the Czech Republicanewly converted factory and the levelofmarket penetration is currently low.
The assumptions made can be summarised as follows:
| Czech | ||||||
|---|---|---|---|---|---|---|
| Poland* | Germany | UK | Russia | Republic | Finland | |
| Carrying amount of property, plant and equipment at 31 December 2011 |
237,538 | 260,159 | 224,120 | 182,152 | 149,662 | 15,694 |
| Estimatedaverage annual growth in revenue 2012- 2017 (CAGR) |
8.3% | 6.5% | 10.2% | 17.9% | 9.9% | 3.1% |
| Estimated gross margin 2012-2017 | 14-27% | 25-27% | 18-22% | 24-28% | 25-35% | 18-20% |
| WACC | 10.4% | 6.6% | 8.4% | 17.8% | 8.4% | 7.9% |
*For Poland the forecast period has been extended to 2019. CAGR for the period 2012-2019 is 8.3%.
The impairment tests performed at 31 December 2011 do notindicate any need for impairment losses, apart from the special circumstances mentioned below. Based on the assumptions above, management considers the recoverable amount to exceed the carrying amountofproperty, plant and equipment.
If the assumptions above are not met,itcould result in impairment. The main assumptions relate to annual growth in revenue and gross margin.
During 2010, the impairment test for thecash-generatingunit Russia resulted in recognitionofan impairment lossof-DKK 120 million asaresultoflower capacity utilisation and prices than originally anticipated.
Asaresultofthe economic situation for the Group, there is aparticular risk that the future will bring further impairment losses in some subsidiaries. The assets in Poland, the Czech Republic and Russia are the most exposed to an impairment loss in relation to the assumptions mentioned above.
On 31 December 2011 the recoverable amount for the cashgeneratingunit Poland exceeds the carrying amount by DKK 177 million. Key assumption sensitivities are illustrated below. From the sensitivity analyses carried out it appears that key assumptions could change as stated below without the need for impairment losses:
The recoverable amount of the cash-generating units Czech Republic and Russia is on par with the carrying amount at-31 December 2011.
This meansthatnegative changes in the selected assumptions could necessitate impairment losses.
| 13 Deferred tax, assets | Group | Parent company | ||
|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 |
| Deferred tax assets at1January | 55,183 | 44,348 | 0 | 7,991 |
| Foreign exchange adjustments | (470) | 1,031 | 0 | 0 |
| Change in deferred tax | (8,306) | 9,804 | 0 | (7,991) |
| Prior-year adjustments | 0 | 0 | 0 | 0 |
| Transferred to assets held for sale | (6,057) | 0 | 0 | 0 |
| Deferred tax assets at 31 December | 40,350 | 55,183 | 0 | 0 |
| Deferred tax assets relate to: | ||||
| Non-current assets | (16,103) | 8,441 | 0 | 0 |
| Current assets | 4,151 | 969 | 0 | 0 |
| Liabilities | (3,586) | 159 | 0 | 0 |
| Tax loss carry-forwards | 55,888 | 45,614 | 0 | 0 |
| 40,350 | 55,183 | 0 | 0 |
| Deferred tax, liabilities | Group | Parent company | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Deferred tax liabilities at1January | 32,085 | 46,282 | 8,773 | 7,264 | |
| Foreign exchange adjustments | (936) | 1,599 | 0 | 0 | |
| Change in deferred tax | 3,279 | (15,796) | (1,509) | 1,509 | |
| Deferred tax liabilities at 31 December | 34,428 | 32,085 | 7,264 | 8,773 | |
| Provisions for deferred tax relate to: | |||||
| Non-current assets | 28,929 | 40,181 | 0 | 1,509 | |
| Current assets | (547) | (15,360) | 0 | 0 | |
| Tax loss carry-forwards | (1,218) | 0 | 0 | 0 | |
| Retaxation balance relating to discontinued joint taxation | 7,264 | 7,264 | 7,264 | 7,264 | |
| 34,428 | 32,085 | 7,264 | 8,773 |
No provision has been made in respectofdeferred tax in connection with the share option plan, as the priceofthe shares at the balance sheet date was less than the exercise priceofthe options.
No deferred tax has been recognised on the difference between the costofequity investments and the estimated fair value. This is because the shareholdings in the equity investments are all considered to be 'shares inasubsidiary', and any gain/loss is therefore nottaxable.
The tax valueofloss carry-forwards has been recognised as deferred tax assets in the companies where it is considered likely that this can be utilised in future earnings.Thetax value of loss carry-forwards of DKK 70 million at 31 December 2011 (2010: DKK 38 million) has not been recognised as deferred tax assets, astheseare not considered likely to be utilised.
| 14 Investments in subsidiaries | Parent company | |
|---|---|---|
| (DKK '000) | 2011 | 2010 |
| Acquisition cost at1January | 1,500,943 | 1,448,807 |
| Capital contribution in subsidiaries | 765,075 | 52,283 |
| Disposals acquisition cost | (958,718) | (147) |
| Cost at 31 December | 1,307,300 | 1,500,943 |
| Impairment losses at1January | 371,871 | 328,704 |
| Reversal of disposals | (453,183) | 0 |
| Impairment losses, investments | 354,204 | 43,167 |
| Impairment losses at 31 December | 272,892 | 371,871 |
| Carrying amount at 31 December | 1,034,408 | 1,129,072 |
The costofinvestments in subsidiaries was tested for impairment at the endof2010 and 2011. The recoverable amountofthe investments at 31 December 2011 is based on the value in use, which has been determined using expected net cash flows based on estimates for the years 2012-2017 (or 2012-2019 for Poland) andaWACCof6.6-17.8%. The weightedaveragegrowth rate used for extrapolating expected future net cash flows for the years after 2017 has been estimated at 2.0-3.5%.Itis estimated that the growth rate willnotexceed the long-termaveragegrowth rate in the company's markets.
In connection with the closing of the financial statements for 2011, it was found that the recoverable amount of some of the Group's companies was lower than the parent company's original cost. Asaresult, significant impairment losses were recognised for the UK, Russia, the Czech Republic and Jämerä in the parent company financial statements. However, these impairment losses have no bearing on the consolidated financial statements.
| 2011 | 2010 | ||
|---|---|---|---|
| Registered office | Equity interest,% |
Equity interest,% |
|
| KWAY Holding Limited* | UK | 100 | 100 |
| H+HUK Holding Limited | UK | 0 | 100 |
| H+HDeutschland GmbH | Germany | 100 | 100 |
| H+HDanmark A/S | Denmark | 100 | 100 |
| HHI A/S af 3. maj 2004 | Denmark | 100 | 100 |
| H+HFinland Oy | Finland | 100 | 100 |
| Jämerä-kivitalot Oy | Finland | 100 | 100 |
| H+HSverige AB | Sweden | 100 | 100 |
| H+HNorge AS | Norway | 100 | 100 |
| H+HPolska Sp.zo.o. | Poland | 100 | 100 |
| H+HČeská republika s.r.o. | Czech Republic | 100 | 100 |
| H+HSlovenská republika s.r.o. | Slovakia | 100 | 100 |
| H+HUkraina TOV | Ukraine | 100 | 100 |
| H+HUA TOV | Ukraine | 100 | 100 |
| OOOH+H | Russia | 100 | 100 |
| H+HBelgien SPRL | Belgium | 100 | 100 |
| H+HNederland BV | Netherlands | 100 | 100 |
| Diverse af 29.9.2011 ApS | Denmark | 100 | 0 |
The above list does not include indirectly owned companies without any activities.
*This activity comprises ownership ofH+HUK Limited.
| 15 Inventories/production costs | Group | Parent company | ||||
|---|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 | ||
| Raw materials and consumables | 49,167 | 50,131 | 0 | 0 | ||
| Finished goods and goods for resale | 141,824 | 131,648 | 0 | 0 | ||
| 190,991 | 181,779 | 0 | 0 | |||
| Write-downs recognised in the inventories above have developed as follows: |
||||||
| Write-downs at1January | 12,448 | 14,403 | 0 | 0 | ||
| Foreign exchange adjustments | (13) | 393 | 0 | 0 | ||
| Write-downs for the year | 1,008 | 6,584 | 0 | 0 | ||
| Realised during the year | (6,943) | (1,909) | 0 | 0 | ||
| Reversals | 0 | (7,023) | 0 | 0 | ||
| Inventory write-downs, year-end | 6,500 | 12,448 | 0 | 0 | ||
| Value of inventories recognised at net realisable value | 0 | 0 | 0 | 0 | ||
| Wages and salaries | 166,216 | 151,978 | 0 | 0 | ||
| Production overheads | 97,305 | 96,908 | 0 | 0 | ||
| Cost of sales | 762,922 | 685,390 | 0 | 0 | ||
| Write-downs for the year | 1,008 | 6,584 | 0 | 0 | ||
| Reversals of inventory write-downs | 0 | 7,023 | 0 | 0 | ||
| Total production costs | 1,027,451 | 947,883 | 0 | 0 |
| 16 Receivables | Group | Parent company | |||
|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 | |
| Trade receivables | 87,821 | 78,275 | 0 | 0 | |
| Other receivables | 11,684 | 12,180 | 677 | 1,117 | |
| 99,505 | 90,455 | 677 | 1,117 | ||
| Write-downs of impaired receivables have developed as follows: | |||||
| Write-downs at1January | 6,573 | 5,090 | 0 | 0 | |
| Foreign exchange adjustments | (208) | 176 | 0 | 0 | |
| Write-downs for the year | 950 | 2,350 | 0 | 0 | |
| Realised during the year | (1,670) | (820) | 0 | 0 | |
| Reversals | (149) | (223) | 0 | 0 | |
| Transferred to assets held for sale | (350) | 0 | 0 | 0 | |
| Write-downs relating to receivables, year-end | 5,146 | 6,573 | 0 | 0 |
Receivables that arenotpast due are deemed to predominantly haveahigh credit quality.
Security isnotnormally required in respectofclaims. The Group's customers are typically large well-consolidated builders' merchants andhousebuilders,and customers are credit rated onaregular basis. Only limited security had been provided at 31 December 2011.
Receivables are written down directly if the value has been impaired, for example asaresultofsuspensionofpayments, compulsory winding-up or similar, based on an individual assessmentofthe individual debtor's ability to pay. Write-downs are made to estimated net realisable value. The income statement for 2011 recognises write-downs and losses on bad and doubtful debtsof-DKK 801 thousand (2010: DKK 2,127 thousand).
| 16 Receivables – continued | Group | Parent company | ||||
|---|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 | ||
| Age analysis of trade receivables: | ||||||
| Not past due | 67,882 | 46,482 | 0 | 0 | ||
| 0-30 days | 14,109 | 25,046 | 0 | 0 | ||
| 30-90 days | 5,569 | 5,226 | 0 | 0 | ||
| Over 90 days | 261 | 1,521 | 0 | 0 | ||
| 87,821 | 78,275 | 0 | 0 | |||
| Write-downs relating to receivables, year-end | 5,146 | 6,573 | 0 | 0 |
| 2011 | ||||||
|---|---|---|---|---|---|---|
| Germany | ||||||
| Netherlands | Norway | |||||
| Belgium | Sweden | Eastern | ||||
| UK | Denmark | Finland | Europe | Total | ||
| Write-downs at1January | 885 | 1,456 | 1,277 | 2,955 | 6,573 | |
| Foreign exchange adjustments | 29 | (2) | (14) | (221) | (208) | |
| Write-downs for the year | 232 | 179 | 258 | 281 | 950 | |
| Realised during the year | 0 | (671) | (832) | (167) | (1,670) | |
| Reversals | (86) | (15) | 0 | (48) | (149) | |
| Transferred to assets held for sale | 0 | 0 | (350) | 0 | (350) | |
| Write-downs relating to receivables, year-end | 1,060 | 947 | 339 | 2,800 | 5,146 |
| 2010 | ||||||
|---|---|---|---|---|---|---|
| Germany | ||||||
| Netherlands | Norway | |||||
| Belgium | Sweden | Eastern | ||||
| UK | Denmark | Finland | Europe | Total | ||
| Write-downs at1January | 807 | 1,006 | 1,047 | 2,230 | 5,090 | |
| Foreign exchange adjustments | 43 | 3 | 42 | 88 | 176 | |
| Write-downs for the year | 35 | 670 | 458 | 1,187 | 2,350 | |
| Realised during the year | 0 | 0 | (270) | (550) | (820) | |
| Reversals | 0 | (223) | 0 | 0 | (223) | |
| Write-downs relating to receivables, year-end | 885 | 1,456 | 1,277 | 2,955 | 6,573 |
Trade receivables which were past due at 31 December 2011butnotimpaired are also included, as follows:
| Group | Parent company | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Age analysis of trade receivables: | ||||
| 0-30 days | 14,109 | 25,046 | 0 | 0 |
| 30-90 days | 5,569 | 5,226 | 0 | 0 |
| Over 90 days | 0 | 0 | 0 | 0 |
| 19,678 | 30,272 | 0 | 0 |
| Number | Nominal value, DKK 1,000 | |||||
|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |||
| 1January | 9,810,000 | 9,810,000 | 490,500 | 490,500 | ||
| 31 December–fully paid | 9,810,000 | 9,810,000 | 490,500 | 490,500 |
The share capital comprises 9,810,000 sharesofnominal value DKK 50. All the shares have the same rights, with each share carrying 10 votes at the general meeting.
| Treasury shares | |||
|---|---|---|---|
| %of share capital, | |||
| Number | Nominal value, DKK 1,000 | year-end | |
| Holding at1January 2010 | 20,489 | 1,024 | 0.2 |
| Purchased during the year | 0 | 0 | 0 |
| Sold during the year | 0 | 0 | 0 |
| Holding at 31 December 2010 | 20,489 | 1,024 | 0.2 |
| Purchased during the year | 0 | 0 | 0 |
| Sold during the year | 0 | 0 | 0 |
| Holding at 31 December 2011 | 20,489 | 1,024 | 0.2 |
All the treasury shares are owned byH+HInternational A/S.
Treasury shares are acquired partly in order to hedge liabilities related to the company's option plans.
At 31 December 2011atotalof62,889 shares are required in connection with the company's option plan (2010: 71,739 shares). Management has chosennotto hedge all the outstanding options as it is unlikely that all the options will be exercised.
The company's matching share programme isnothedged by treasury shares.
Under defined contribution plans, the employer is under obligation to payaspecific contribution (e.g.afixed amount orafixedpercentageofsalary). Under defined contribution plans, theH+HGroup doesnotbear the risk associated with future development in interest rates, inflation, mortality and disability.
Under defined benefit plans, the employer is under obligation to payaspecific amount (e.g.aretirement pension as afixed amount orafixedpercentageoffinal salary). Under defined benefit plans, theH+HGroup bears the risk associated with future developments in interest rates, inflation, mortality and disability.
Danish entities' pension obligations are insured. Some foreign entities' pension obligations are also insured. Foreign entities that arenotinsured or only insured in part (defined benefit plans) calculate their obligation actuarially at present value at the balance sheet date. These pension plans are fully or partly funded in pension funds for the employees. In the consolidated financial statements, an amountofDKK 65,457 thousand (2010: DKK 80,585 thousand) has been recognised under liabilities in respectoftheH+HGroup's obligations to existing andformeremployees after deduction ofthe assets associated with the plans.
In the consolidated income statement, an amountofDKK 5,722 thousand (2010: DKK 3,972 thousand) has been recognised in respectofexpenses relating to insured plans (defined contribution). For non-insured plans (defined benefit plans), an amountofDKK 5,697 thousand (2010: DKK 12,719 thousand) has been recognised in the consolidated income statement in respectofexpenses.
TheH+HGroup has defined benefit plans in the UK and Germany. The UK pension plans are managed byapension fund to which payments are made, whereas the German pension plans are unfunded.
H+HCelcon Pension Fund is supervised by an independent fundmanager,H+HCelcon Pension Fund Trustee Limited. In accordance with the legislation governing pension funds, amongotherthings the fundmanagermust ensure thatalimited actuarial calculationofthe pension obligations is carried out each year andamore detailed actuarial calculationofthe pension obligations every three years.Adetailed actuarial calculation carried out in April 2008 showed an unfunded pension obligationofDKK 128 million (GBP 15.6 million). Based on this calculation, on 26 June 2009H+H-UK Limited andH+HCelcon Pension Fund Trustee Limited entered into an agreement on the paymentofcontributions to cover the unfunded pension obligation (Scheduleof-Contributions). The agreement sets outa15-year repayment profile under whichH+HUK Limited will pay DKK 1.0 million (GBP 0.12 million)peryear in the period April 2009– March 2011 and DKK 18 million (GBP 2.17 million)peryear in the period April 2011–March 2023.
The pension plan was closed to new employees and future payments in 2011. This has resulted inacurtailment gain ofDKK 5.7 million (GBP 0.7 million), which is recognised under staff costs.
| 18 Pension obligations – continued | Group | |
|---|---|---|
| (DKK '000) | 2011 | 2010 |
| Pensions and similar obligations: | ||
| Present value of fully or partly funded defined benefit plans | 504,989 | 462,130 |
| Fair value of plan assets | 349,094 | 312,367 |
| Underfunding | 155,895 | 149,763 |
| Unrecognised actuarial losses/(gains) relating to fully or partly funded plans | 98,443 | 76,503 |
| Present value of unfunded defined benefit plans | 8,341 | 8,162 |
| Unrecognised actuarial losses/(gains) relating to unfunded plans | (336) | (837) |
| Net obligation recognised in the balance sheet | 65,457 | 80,585 |
| Development in present value of fully or partly funded defined benefit obligation: | ||
| Obligation at1January | 462,130 | 420,689 |
| Foreign exchange adjustments | 13,540 | 22,089 |
| Pension costs relating to the current financial year | 4,630 | 4,250 |
| Calculated interest on obligation | 25,110 | 25,719 |
| Actuarial losses (gains) | 25,247 | 7,281 |
| Curtailment gains | (7,018) | 0 |
| Pensions paid | (18,650) | (17,898) |
| Obligation at 31 December | 504,989 | 462,130 |
| Development in present value of unfunded defined benefit obligation: | ||
| Obligation at1January | 8,162 | 7,885 |
| Foreign exchange adjustments | 0 | 15 |
| Pension costs relating to the current financial year | 0 | 42 |
| Calculated interest on obligation | 345 | 397 |
| Actuarial losses (gains) | 303 | 323 |
| Pensions paid | (469) | (500) |
| Obligation at 31 December | 8,341 | 8,162 |
| 18 Pension obligations – continued | Group | |
|---|---|---|
| (DKK '000) | 2011 | 2010 |
| Development in fair value of pension assets: | ||
| Pension assets at1January | 312,367 | 274,453 |
| Foreign exchange adjustments | 9,426 | 14,355 |
| Expected return on plan assets | 18,667 | 17,689 |
| Actuarial gains (losses) | 6,177 | 14,919 |
| The company's contributions to plan assets | 21,107 | 8,849 |
| Pensions paid | (18,650) | (17,898) |
| Pension assets at 31 December | 349,094 | 312,367 |
| Pension costs relating to the current financial year | 4,630 | 4,292 |
| Curtailment gains | (5,721) | 0 |
| Calculated interest on obligation | 25,455 | 26,116 |
| Expected return on plan assets | (18,667) | (17,689) |
| Total amount recognised in respect of defined benefit plans | 5,697 | 12,719 |
| Total amount recognised in respect of defined contribution plans | 5,722 | 3,972 |
| Total amount recognised in the income statement | 11,419 | 16,691 |
The cost has been recognised in the income statement under staff costs. Costs recognised under production costs amount to DKK 3,109 thousand (2010: DKK 4,544 thousand), and costs recognised underotherexternal expenses amount to DKK 8,310 thousand (2010: DKK 12,147 thousand).
| Group | ||
|---|---|---|
| 2011 | 2010 | |
| Pension assets can be broken down as follows: | ||
| Shares | 139,987 | 124,947 |
| Bonds | 207,013 | 183,984 |
| Cash | 2,094 | 3,436 |
| Total | 349,094 | 312,367 |
| Return on plan assets: | ||
| Actual return on plan assets | 24,844 | 32,608 |
| Expected return on plan assets | 18,667 | 17,689 |
| Actuarial gain (loss) on plan assets | 6,177 | 14,919 |
| Discount rate (avg) | 4.90% | 5.50% |
| Expected return on plan assets | 4.90% | 5.90% |
| Future rate of salary increases | 4.40% | 5.00% |
The expected return on plan assets has been determined by an external actuary on the basisofthe compositionofthe assets and the general economic outlook.
| 18 Pension obligations – continued |
Group | ||||
|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2009 | 2008 | 2007 |
| The amounts for the Group's pension obligations for the current and previous years are as follows: |
|||||
| Actuarially determined pension obligations | 504,989 | 462,130 | 420,689 | 324,340 | 445,752 |
| Pension assets | 349,090 | 312,368 | 274,453 | 228,932 | 334,802 |
| Present value of unfunded defined benefit plans | 8,341 | 8,162 | 7,885 | 7,017 | 7,338 |
| Over-/(under)funding | (164,240) | (157,924) | (154,121) | (102,425) | (108,288) |
| Empirical changes to obligations | 25,550 | 8,075 | 65,520 | (30,357) | (23,149) |
| Empirical changes to pension assets | 6,177 | 14,919 | 24,024 | (52,032) | (8,342) |
| 19 Other provisions | Group | ||||
|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 | |
| Non-current portion | Current portion | ||||
| Warranty obligations at1January | 5,199 | 4,454 | 0 | 0 | |
| Foreign exchange adjustments | (54) | 147 | 0 | 0 | |
| Transfers | 0 | 0 | 0 | 0 | |
| Provisions for the year | 50 | 981 | 0 | 0 | |
| Utilised during the year | 0 | (126) | 0 | 0 | |
| Reversals during the year | (3,148) | (257) | 0 | 0 | |
| Warranty obligations at 31 December | 2,047 | 5,199 | 0 | 0 | |
| Other provisions at1January | 1,836 | 0 | 0 | 0 | |
| Foreign exchange adjustments | (129) | 0 | 0 | 0 | |
| Transfers | 0 | 0 | 0 | 0 | |
| Provisions for the year | 7,636 | 1,836 | 0 | 0 | |
| Utilised during the year | 0 | 0 | 0 | 0 | |
| Reversals during the year | 0 | 0 | 0 | 0 | |
| Transferred to liabilities relating to assets held for sale | (8,222) | 0 | 0 | 0 | |
| Other provisions at 31 December | 1,121 | 1,836 | 0 | 0 | |
| Obligation relating to restoration of sites at1January | 13,102 | 12,622 | 0 | 0 | |
| Foreign exchange adjustments | 40 | 480 | 0 | 0 | |
| Provisions for the year | 78 | 0 | 0 | 0 | |
| Utilised during the year | 0 | 0 | 0 | 0 | |
| Reversals during the year | (1,543) | 0 | 0 | 0 | |
| Transferred to liabilities relating to assets held for sale | (7,120) | 0 | 0 | 0 | |
| Obligation relating to restoration of sites at 31 December | 4,557 | 13,102 | 0 | 0 | |
| Total other provisions | 7,725 | 20,137 | 0 | 0 |
TheH+HGroup's companies provide normal warranties in respect of products supplied to customers. The provision for warranty obligations thus relates to warranties provided in respect of products supplied prior to the balance sheet date. The warranty period varies depending on normal practice in the markets in question. The warranty period is typically between one and five years. Warranty obligations have been determined separately for each company based on normal practice in the market in question and historical warranty costs. At 31 December 2011 warranty obligations relate predominantly to Germany.
Warranty obligations also includeabank guarantee pledged on behalf ofabusiness partner.
The obligation in respect of restoration of sites relates to the company's sites in Finland, Germany, Poland and the UK. The obligation has been calculated on the basis of external assessments of the restoration costs. Restoration is expected to take place after five years.
| 20 Credit institutions | Group | Parent company | ||
|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 |
| Bank loans | 651,058 | 629,670 | 278,572 | 290,165 |
| Lease commitments | 678 | 716 | 9 | 220 |
| Amortised borrowing costs | (3,041) | (3,719) | (3,041) | (3,719) |
| 648,695 | 626,667 | 275,540 | 286,666 | |
| Payables to credit institutions are recognised in the balance sheet as follows: | ||||
| Non-current | 648,307 | 626,174 | 275,531 | 286,643 |
| Current | 88 | 493 | 9 | 23 |
| Liabilities relating to assets held for sale | 300 | 0 | 0 | 0 |
| 648,695 | 626,667 | 275,540 | 286,666 |
TheH+HGroup will be dependent on debt financing in the coming years and maintenanceofthe committed credit facilities is conditional upon compliance withanumberoffinancial covenants; see note 25.
| 2011 | 2010 | |||||
|---|---|---|---|---|---|---|
| Lease | Carrying | Lease | Carrying | |||
| Finance leases | payments | Interest | amount | payments | Interest | amount |
| 0-1 year | 196 | 54 | 142 | 507 | 14 | 493 |
| 1-5 years | 588 | 52 | 536 | 242 | 19 | 223 |
| 784 | 106 | 678 | 749 | 33 | 716 |
TheH+HGroup leases production equipment under finance leases. The lease term is typically between two and five years, with an option to purchase the asset in question atafavourable price on expiryofthe lease term.
All leases followafixed repayment profile and noneofthe leases include provisions about conditional lease payments apart from provisions on indexation based on public indices. The leases are non-cancellable during the agreed lease term,butmay be extended on renewed terms. The leases are normally based onafixed interest rate.
| 2011 | 2010 | 2011 | 2010 | |
|---|---|---|---|---|
| Operating leases | Lease payments |
Lease payments |
Lease payments |
Lease payments |
| 0-1 year | 3,231 | 2,806 | 383 | 0 |
| 1-5 years | 6,772 | 3,988 | 601 | 0 |
| Over5years | 532 | 0 | 0 | 0 |
| Total minimum lease payments | 10,535 | 6,794 | 984 | 0 |
TheH+HGroup leases property, production equipment and vehicles underoperatingleases inafew cases.
| 2011 | 2010 | 2011 | 2010 | |
|---|---|---|---|---|
| Rental | Rental | Rental | Rental | |
| Rental obligations | payments | payments | payments | payments |
| 0-1 year | 2,855 | 2,799 | 606 | 577 |
| 1-5 years | 7,179 | 7,984 | 1,970 | 2,424 |
| Over5years | 57,516 | 58,725 | 0 | 151 |
| 67,550 | 69,508 | 2,576 | 3,153 |
TheH+HGroup's key rental obligations consistoflong-term land leases in Poland and the UK. An amountofDKK 5,605 thousand (2010: DKK 4,318 thousand) has been recognised in the consolidated income statement for 2011 in respectofoperatingleases and rental obligations.
| 21 | Contingent liabilities | Group | Parent company | |||
|---|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 | ||
| Financial guarantee | 0 | 0 | 372,486 | 339,505 | ||
| 0 | 0 | 372,486 | 339,505 |
The parent companyH+HInternational A/S acts as guarantor for the subsidiaries' drawdowns on the Group's credit facility.
The parent companyH+HInternational A/S has issued letters of supporttosome of the subsidiaries.Managementdoesnot expect thesetogive risetolossesforthe parent company.
TheH+HGroup isaparty toafew pending legal proceedings. In management's opinion, the outcomeofthese proceedings will nothave any impact on the Group's financial position apart from the receivables and payables recognised in the balance sheet.
The Group's Danish companies are jointly and severally liable for joint registration of VAT.
| 22 Auditors' remuneration | Group | Parent company | ||||
|---|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | 2011 | 2010 | ||
| Total fees for statutory audit: | ||||||
| KPMG | 3,403 | 3,083 | 1,165 | 875 | ||
| 3,403 | 3,083 | 1,165 | 875 | |||
| The fee to KPMG can be broken down as follows: | ||||||
| Statutory audit | 1,992 | 2,187 | 495 | 400 | ||
| Other assurance engagements | 28 | 0 | 0 | 0 | ||
| Tax and VAT assistance | 991 | 134 | 670 | 100 | ||
| Other services | 392 | 762 | 0 | 375 | ||
| 3,403 | 3,083 | 1,165 | 875 |
As partofits continued focus on core business andadesire to reduce interest-bearing debt,H+Haims to sell someofits non-strategic assets in the coming year.
Variousplotsofland in Poland,asand pit in Germany, an officeproperty in Denmark,aplotofland in the UK and unused production equipment were therefore readied for sale during the second quarterof2011 and classified as assets held for sale.Ifall the assets are sold at the expected value, the selling price for the assets will be DKK 80-90 million, and the sale is expected to result in an accounting gain before taxofDKK 25-35 million. The transactions are expected to be completed before the endofthe first halfof-2012 and arenotincluded in the outlook for 2012.
Aconditional purchase agreement for theofficeproperty in Denmark was signed in the third quarterof2011. The proceeds from the sale will be around DKK 7.5 million and will be received from thebuyerin the first quarterof2012 in connection with the handoverofthe property, which is being sold for more than DKK 1.8 million more than its book value, ofwhich DKK 0.5 million was recognised in 2011.
As part ofH+H's continued focus on core business, the Board of Directors decided in the third quarter of 2011 to divest the Finnish subsidiary Jämerä-kivitalot Oy, which designs and sells the construction of aircrete houses for private individuals. As the company has been loss-making for anumber of years, the divestment will haveapositive effect onH+H's future earnings. The company switched strategy in 2009 in favour of an increased focus on delivering turnkey solutions to customers, but this strategy has not proved sustainable, as the processes required to control the building phases were not fully implemented. The divestment is under way and is expected to be completed by the end of the third quarter of 2012. Jämerä-kivitalot Oy has therefore been reclassified asadiscontinuing operation.
| Key figures for discontinuing operations and assets held for sale | ||
|---|---|---|
| (DKK '000) | 2011 | 2010 |
| Revenue | 129,043 | 69,041 |
| Expenses | (171,623) | (80,759) |
| Profit for the year before tax | (42,580) | (11,718) |
| Tax on profit for the year | (6,057) | 4,156 |
| Profit for the year after tax | (48,637) | (7,562) |
| Profit for the year from discontinuing operations | (48,637) | (7,562) |
| Cash flow from operating activities | (10,335) | (14,549) |
| Cash flow from investing activities | (641) | (1,186) |
| Cash flow from financing activities | (6,428) | 5,886 |
| Total cash flow | (17,404) | (9,849) |
| Intangible assets | 16,385 | 0 |
| Property, plant and equipment | 41,798 | 0 |
| Inventories | 0 | 0 |
| Receivables | 30,815 | 0 |
| Cash and cash equivalents | 2,599 | 0 |
| Assets held for sale, total | 91,597 | 0 |
| Credit institutions | 330 | 0 |
| Trade payables | 8,594 | 0 |
| Other liabilities | 56,586 | 0 |
| Liabilities relating to assets held for sale, total | 65,510 | 0 |
| Earnings per share from discontinuing operations (EPS) | (4.97) | (0.77) |
| Diluted earnings per share from discontinuing operations (EPS-D) | (4.97) | (0.77) |
The Group's related parties are the Executive Board, the Board of Directors and senior executives in theH+HGroup.
On 31 December 2010, the company's former CEO Hans Gormsen purchasedacar from the company at its market value of DKK 275,685.
Apart from contracts of employment and the above sale of an asset, no agreements or transactions have been entered into between the company, the Executive Board, the Board of Directors and senior executives. Remuneration to the Board of Directors, the Executive Board and senior executives is disclosedin note 4.
Amember of the Board of Directors–Henrik Lind–isapartner in the law firm Gorrissen Federspiel, which was paid fees totalling DKK 607 thousand in 2011 for legal assistance (2010: DKK 145 thousand).
H+HInternational A/S has no controlling shareholders. Besides the parties specified above, the parent company's related parties consist of its subsidiaries, cf. note 14.
Amanagement fee totalling DKK 15,000 thousand(2010: DKK 15,000 thousand) was received by the parent company from the remainder of the Group.
Transactions between the parent company and subsidiaries also include deposits, loans and interest; these are shown in the parent company balance sheet and notes8and 9.
Trading with related parties is at arm's length.
Asaresultofitsoperating,investing and financing activities, theH+HGroup is exposed to various financial risks, including market risks (currency, interest rate and commodity risks), credit risks and liquidity risks.Itis theH+HGroup's policynotto speculate actively in financial risks.
TheH+HGroup's financial risk management is thus aimed exclusively atmanagingthe financial risks that areadirect consequenceoftheH+HGroup'soperating,investing and financing activities. This note relates exclusively to financial risks directly associated with theH+HGroup's financial instruments. There have been no material changes in the H+HGroup's risk exposure or risk management compared with last year.
TheH+HGroup's companies are exposed to currency risks. Financial instruments are primarily entered into in the individual consolidated entities' functional currencies asaresultoftheir purchase and sales transactions. However, theH+HGroup hasatranslation risk, and asaresultofthis theH+HGroup's profit/loss is exposed to fluctuations in the functional currencies.
TheH+HGroup doesnotengagein currency speculation. The individual consolidated entities donotenter into financial instruments denominated in foreign currencies unless commercially warranted, and expected transactions and financial instruments in foreign currencies that exceed alimited level and time horizon require hedging. Derivatives andotherfinancial instruments are used only toalimited extent to hedge currency risks. TheH+HGroup didnotuse derivatives orotherfinancial instruments to hedge currency risks in 2010, and in 2011aminor position in EUR was hedged for SEK. This hedging took the formofaforward exchange transaction for purchaseofEUR with payment in SEK. At 31 December 2011 the contract hadafair value ofDKK (81) thousand, which has been recognised under financial expenses andotherpayables.
The individual subsidiaries do not have any material exposure to currencies other than the functional currency. The table on the following page shows the Group's monetary items by currency.
TheH+HGroup regularly evaluates the capital structure on the basisofexpected cash flows withaview to ensuring an appropriate balance between adequate future financial flexibility andareasonable return to shareholders.
In 2011H+Hrefinanced debt denominated in CZK and PLN in GBP to provideamore expedient currency exposure and interest savings.
The H+H Group will continue to operate with significant loan financing. At year-end 2011H+Hhad net interest-bearing debtofDKK 628.5 million, an increaseofDKK 14.9 million compared with year-end 2010.
Retentionofthe committed credit facilities requires compliance withanumberoffinancial key figures; see page 84.
The effective interest rate forH+Hin 2011 was in the region of5.2% (2010: 5.6%).
The effective interest rate for 2012 is expected to be in line with 2011.
At year-end 2011H+HInternational A/S hadasolvency ratio of35.0%, compared with 43.9% at year-end 2010.
| Monetary items in foreign currency | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (DKK '000) | 2011 | ||||||||
| EUR | GBP PLN DKK RUB Others |
||||||||
| Trade receivables | 5,335 | 48,689 | 11,704 | 10,089 | 3,895 | 8,109 | 87,821 | ||
| Cash and cash equivalents | 5,098 | 100 | 12,580 | 166 | 297 | 1,614 | 19,855 | ||
| Trade payables | (41,519) | (42,509) | (24,217) | (9,729) | (4,072) | (8,821) | (130,867) | ||
| Credit institutions | (21,918) | (279,139) | 0 | (290,165) | (19) | (57,154) | (648,395) | ||
| Gross exposure | (53,004) | (272,859) | 67 | (289,639) | 101 | (56,252) | (671,586) | ||
| Hedged via derivative financial instruments | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||
| Net exposure | (53,004) | (272,859) | 67 | (289,639) | 101 | (56,252) | (671,586) |
| (DKK '000) | 2010 | ||||||
|---|---|---|---|---|---|---|---|
| EUR | GBP | PLN | DKK | RUB | Others | Total | |
| Trade receivables | 11,513 | 31,343 | 9,733 | 11,915 | 4,244 | 9,527 | 78,275 |
| Cash and cash equivalents | 2,625 | 36 | 4,776 | 49 | 1,097 | 4,479 | 13,062 |
| Trade payables | (27,784) | (19,988) | (10,993) | (5,748) | (1,098) | (6,582) | (72,193) |
| Credit institutions | (14,218) | (12,339) | (189,028) | (291,492) | (98) | (119,492) | (626,667) |
| Gross exposure | (27,864) | (948) | (185,512) | (285,276) | 4,145 | (112,068) | (607,523) |
| Hedged via derivative financial instruments | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Net exposure | (27,864) | (948) | (185,512) | (282,276) | 4,145 | (112,068) | (607,523) |
| (DKK '000) | 2011 | 2010 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Position | Sensitivity | Position | Sensitivity | ||||||
| Cash and receivables |
Potential volatility of exchange rate |
Hypothetical impact on profit before tax for the year* |
Hypothetical impact on equity |
Cash and receivables |
Potential volatility of exchange rate |
Hypothetical impact on profit before tax for the year* |
Hypothetical impact on equity |
||
| EUR/DKK | 322,166 | 1% | 3,322 | 2,491 | 540,543 | 1% | 5,405 | 4,054 | |
| GBP/DKK | (24,510) | 5% | (1,226) | (919) | (29,113) | 5% | (1,456) | (1,092) | |
| PLN/DKK | 41,630 | 5% | 2,082 | 1,561 | 86,067 | 5% | 4,303 | 3,228 | |
| 4,178 | 3,133 | 8,252 | 6,190 |
*The hypothetical impact on profit/loss and equity is significant to the parent company's financial statements but not necessarily to the consolidated financial statements.
The parent company has significant monetary items in currenciesotherthan the functional currency in the formofloans to subsidiaries. The table above shows the parent company's key monetary positions broken down by currency and derived sensitivity.
| (DKK '000) | 2011 | 2010 | |||
|---|---|---|---|---|---|
| Profit | Equity | Profit | Equity | ||
| 5% increase in GBP/DKK | 768 | 15,352 | 749 | 7,943 | |
| 5% increase in PLN/DKK | (2,092) | 13,087 | (2,038) | 4,706 | |
| 5% increase in RUB/DKK | (1,025) | (2,962) | (4,757) | (1,689) | |
| (2,349) | 25,477 | (6,046) | 10,960 |
The table above shows the sensitivityofprofit/loss and equity to market fluctuations.Adecline in the GBP/DKK, RUB/DKK and PLN/DKK exchange rates would result inacorresponding increase in profit/loss after tax and equity. The sensitivity analysis has been calculated at the balance sheet date on the basis of the exposure to the stated currencies at the balance sheet date. The calculations are based solely on the stated change in the exchange rate and do not take into account any knock-on effects on interest rates, other exchange rates etc.
The principal raw materials used in the production of aircrete are cement, lime, water and sand or pulverised fuel ash. Costs for cement account for roughly one-third of total raw materials consumed, excluding energy consumption. Energy costs also account forasubstantialproportionof total variable costs. Thepricingof most of the raw materials is hedged through standardfixed-pricecontracts with suppliers, typically withaterm of less than one year, under which committed minimumquantitiescan be purchased at fixed prices.
Asaresultofits investing and financing activities, theH+H-Group is exposed to interest rate fluctuationsbothin Denmark and abroad. The main interest rate exposure is related to fluctuations in CIBOR, LIBOR, EURIBOR and WIBOR.
Itis theH+HGroup's policy to hedge interest rate risks on theH+HGroup's loans if it is assessed that the interest payments can be hedged atasatisfactory level. Hedging is normally effected using interest rate swaps, where floatingrate loans are swapped to fixed-rate loans.
The table below illustrates theH+HGroup's interest rate exposure on financial instruments at the balance sheet date.
At 31 December 2011 the Group isnotinvolved in any interest rate swaps.
Allotherthings being equal, based on theH+HGroup's averagenet interest-bearing debt (expressed by quarter), an increaseof1percentage pointperyear in the interest rate level in relation to theaverageinterest rate level in 2011 would reduce profit/loss before tax by DKK 6.7 million (2010: DKK 6.1 million).
| Interest rate exposure | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | ||||||||
| Net interest bearing debt |
Interest hedged |
Net position | Weighted time to maturity of hedging |
Net interest bearing debt |
Interest hedged |
Net position | Weighted time to maturity of hedging |
|||
| DKK | 289,999 | 0 | 289,999 | 0 | 291,443 | 0 | 291,443 | 0 | ||
| EUR | 16,820 | 0 | 16,820 | 0 | 11,594 | 0 | 11,594 | 0 | ||
| PLN | (12,580) | 0 | (12,580) | 0 | 184,252 | 0 | 184,252 | 0 | ||
| CZK | 53,570 | 0 | 53,570 | 0 | 116,595 | 0 | 116,595 | 0 | ||
| RUB | (278) | 0 | (278) | 0 | (999) | 0 | (999) | 0 | ||
| GBP | 279,040 | 0 | 279,040 | 0 | 12,303 | 0 | 12,303 | 0 | ||
| Others | 1,969 | 0 | 1,969 | 0 | (1,583) | 0 | (1,583) | 0 | ||
| Total | 628,540 | 0 | 628,540 | 0 | 613,605 | 0 | 613,605 | 0 |
TheH+HGroup's liquidity risk is defined as the risk that theH+HGroup willnot,inaworst-case scenario, be able to meet its financial obligations due to insufficient liquidity.Itis theH+HGroup's policy for capital procurement and placing ofsurplus funds to be managed centrally by the parent company.
AsaconsequenceofH+H's stabilising debt levels and the expected positive cash flow in the years ahead, in February 2012 the company decided to cut its borrowing costs by reducing the committed loan agreement with Danske Bank A/S by DKK 50 million to around DKK 800 million. The company also has an uncommitted credit facilityofDKK 50 million.
Danske Bank A/S has extended the committed credit facility until 15 February 2015. The associated financial covenants have been adjusted at the same time. The loan agreements containanumberoffinancial conditions ('covenants'), the effectsofwhich are calculated with effect from the 2012 financial year and then quarterly until the expiryofthe agreements on 15 February 2015; see the table below.
| First measurement date | |
|---|---|
| Total net interest-bearing debt to EBITDA | 31 Mar. 2012 |
| Equity to total assets | 31 Dec. 2012 |
| Debt service cover | 31 Dec. 2012 |
| EBITDA interest cover | 31 Dec. 2012 |
| Maximum capital expenditure | 31 Dec. 2010 |
There is no obligation to make ordinary repayments prior to the expiryofthe loan agreements on 15 February 2015.The company and thoseofits subsidiaries that are participating in the loan agreements, or that may be consideredamaterial subsidiary, provide cross-guarantees for eachother'sobligations under the loan agreements.
The loan agreements may be cancelled without notice by the lender if the company's shares are delisted from NAS-DAQ OMX Copenhagen. The loan agreements may also be terminated by Danske Bank A/S without notice if investors otherthan Scandinavian institutional investors, individually or through coordinated collaboration, gain controlofmore than one-thirdofthe shares or more than one-thirdofthe total numberofvotingrights carried by the shares inH+H-International A/S.
The loan agreements prevent the BoardofDirectors, without the prior permissionofthe lender, from recommending annual dividend distributions to shareholdersofan amount that exceeds 50%ofthe company's profit after tax in the preceding financial year. The company is also subject to restrictions on its rightofdisposal over its assets without the prior permissionofthe lender, including:
| The H+H Group's financial liabilities fall due as follows | ||||||||
|---|---|---|---|---|---|---|---|---|
| (DKK '000) | 2011 | |||||||
| Non-derivative financial instruments | Carrying amount | 0-1 year | 1-5 years | Over 5 years | ||||
| Credit institutions and banks | 648,018 | 0 | 648,018 | 0 | ||||
| Finance lease commitments | 678 | 142 | 536 | 0 | ||||
| Trade payables | 130,867 | 130,867 | 0 | 0 | ||||
| 779,563 | 131,009 | 648,554 | 0 |
| 2010 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Non-derivative financial instruments | Carrying amount | 0-1 year | 1-5 years | Over 5 years | ||||
| Credit institutions and banks | 625,918 | 32,885 | 593,033 | 0 | ||||
| Finance lease commitments | 749 | 508 | 241 | 0 | ||||
| Trade payables | 72,193 | 72,193 | 0 | 0 | ||||
| 698,860 | 105,586 | 593,274 | 0 |
TheH+HGroup is exposed to credit risks in the course of its activities. These risks are primarily related to receivables in respect of sales of theH+HGroup'sproducts.Other credit risks, which relate to bank deposits and counterparties under financialcontracts,are considered to be insignificant.
The maximum credit risk related to financial assets corresponds to the carrying amounts recognised in the balance sheet. TheH+HGroup doesnothave any material risks relating toasingle customer, business partner or country.
TheH+HGroup's customers are primarily large wellconsolidated builders' merchants. TheH+HGroup has modest credit exposure to housebuilders and developers inafew markets. In keeping with theH+HGroup's credit policy, all major customers are credit rated onaregular basis. Credit limits are determined on the basisofthe individual customer's credit rating.
Ifthe credit ratingofacustomer is considerednotto be sufficient, the payment terms will be changed or security or credit insurance will be obtained. TheH+HGroup regularly monitors its credit exposure to customers as partofits risk management. The customer types in the individual segments are typically very similar, regardlessofwhich segment they come from. TheH+HGroup has historically suffered relatively small losses asaresultofnon-payment on the partofcustomers. These losses have been evenly distributed among theH+HGroup's geographical segments. The credit qualityofreceivables is consequently considered to be identical, regardlessofwhich segment the receivables come from.
TheH+HGroup's maximum credit risk is equivalent to the carrying amountofthe receivables and amounts to DKK 99,505 thousand (2010: DKK 90,455 thousand).
TheH+HGroup uses financial instruments, including derivatives, to onlyavery limited extent to hedge financial risks.
The fair valueofthose financial instruments that qualify for designation as hedge accounting underIAS39 is recognised directly in equity until the hedged items are recognised in the income statement. No such financial instruments were used in 2010 or 2011.
No long-term contracts fixing purchase prices for gas or suppliesofotherraw materials were entered into in 2010 and 2011.
The fair valueofthose financial instruments that donotqualify for hedge accounting underIAS39 is recognised directly in the income statement and disclosed in notes8 and 9.Aforward exchange contract for purchaseofEUR in SEK was entered into in 2011. At 31 December 2011 the contract hadafair valueofDKK (81) thousand, which has been recognised under financial expenses andotherpayables.
| Financial instruments that hedge expected transactions but do not qualify for hedge accounting under IAS 39 | |||||||
|---|---|---|---|---|---|---|---|
| (DKK '000) | 2011 | 2010 | |||||
| Gain/loss recognised in the income statement |
Fair value at 31 December |
Time to maturity | Gain/loss recognised in the income statement |
Fair value at 31 December |
Time to maturity | ||
| Forward exchange contract EUR/SEK EUR 650 thousand |
(81) | (81) | 0-1 year | 0 | 0 | 0 |
The fair valueofunlisted financial instruments is determined as the present valueofexpected future instalments and interest payments. The current market rate for instruments with similar maturities is used as the discount rate.
Itis estimated that the fair valueoffinancial instruments relating to the purchase and saleofproducts etc. withashort credit period matches the carrying amount. Foradescriptionofaccounting policies and methods, including recognition criteria and basisofmeasurement, reference is made to the relevant sectionsofthe accounting policies.
| 2011 | 2010 | |||
|---|---|---|---|---|
| Carrying amount | Fair value | Carrying amount | Fair value | |
| Trade receivables | 87,821 | 87,821 | 78,275 | 78,275 |
| Other receivables | 16,891 | 16,891 | 21,820 | 21,820 |
| Cash and cash equivalents | 19,855 | 19,855 | 13,062 | 13,062 |
| Total receivables | 124,567 | 124,567 | 113,157 | 113,157 |
| Financial liabilities (derivatives) measured at fair value via the income statement |
(81) | (81) | (127) | (127) |
| Financial liabilities (derivatives) used as hedging instruments | (81) | (81) | 0 | 0 |
| Finance lease liabilities | 678 | 678 | 749 | 749 |
| Loans | 648,018 | 651,059 | 625,918 | 629,670 |
| Trade payables and other payables | 205,026 | 205,026 | 156,200 | 156,200 |
| Total financial liabilities measured at amortised cost | 853,722 | 856,763 | 782,867 | 786,619 |
Level2estimates are used for the fair value of derivatives.
Derivative financial instruments: Forward exchange contracts and interest rate swaps are valued using generally recognised valuation methods based on relevant observable swap rates and exchange rates.
Other financial instruments: Current bank loans at variable interest rates are valued atarate of 100. The fair value of long-term loans and finance leases is calculated using models that discount all estimated and fixed cash flows to net present value. The expected cash flows for the individual loan or lease are based on contractual cash flows. Financial instruments relating to sale and purchase of goods etc. with ashort credit period are considered to haveafair value equal to the carrying amount.
The methods are unchanged from 2010.
The internal rules for trading inH+HInternational A/S's shares by boardmembers,executives and certain employees only permit trading in the 4-week period following each quarterly announcement.
| Shares in H+H International A/S | |||||||
|---|---|---|---|---|---|---|---|
| (DKK '000) | 1Jan. 2011 |
On entry/exit | Additions | Sold/settled during the year |
31 Dec. 2011 |
Market value* |
|
| Board of Directors: | |||||||
| AndersCKarlsson | 4,500 | 0 | 0 | 0 | 4,500 | 191 | |
| Asbjørn Berge | 6,000 | 0 | 0 | 0 | 6,000 | 254 | |
| StewartABaseley | 0 | 0 | 10,000 | 0 | 10,000 | 424 | |
| Pierre-Yves Jullien | 0 | 0 | 0 | 0 | 0 | 0 | |
| Henrik Lind | 0 | 0 | 0 | 0 | 0 | 0 | |
| Board of Directors, total | 10,500 | 0 | 10,000 | 0 | 20,500 | 869 | |
| Executive Board: | |||||||
| Michael Troensegaard Andersen | 0 | 0 | 4,974 | 0 | 4,974 | 211 | |
| Niels Eldrup Meidahl | 1,000 | 0 | 1,532 | 0 | 2,532 | 107 | |
| Hans Gormsen | 16,200 | (16,200) | 0 | 0 | 0 | 0 | |
| Executive Board, total | 17,200 | (16,200) | 6,506 | 0 | 7,506 | 318 | |
| Other executives | 270 | 0 | 2,462 | 0 | 2,732 | 116 | |
| Total | 21,970 | (16,200) | 18,968 | 0 | 30,738 | 1,303 |
*Calculation of the market value is based on the quoted share price of DKK 42.4 at the end of the year.
| 27 Major shareholders and shareholder groups | Parent company | |||
|---|---|---|---|---|
| (DKK '000) | Nominal value | %of total | Votes | %of total |
| Share capital at1January 2011: | ||||
| Shares of DKK 50 | 490,500 | 100.0 | 98,100 | 100.0 |
| Total | 490,500 | 98,100 |
All shares carry the same rights. Each share carries 10 votes at general meetings.
| Major shareholders | ||||||
|---|---|---|---|---|---|---|
| Nominal value | %of total | Votes | %of total | |||
| The following shareholders hold more than 5% of the share capital or at least 5% of the voting rights inH+HInternational A/S at1January 2012: |
||||||
| Danish Labour Market Supplementary Pension Fund (ATP) | 55,310 | 11.28 | 11,062 | 11.28 | ||
| LD Equity1K/S | 28,624 | 5.84 | 5,724 | 5.84 |
| Groups of shareholders at 1 January 2012 | |||||
|---|---|---|---|---|---|
| Nominal value | %of total | Votes | %of total | ||
| Board of Directors and Executive Board | 1,400 | 0.29 | 280 | 0.29 | |
| ATP and LD Equity1K/S | 83,934 | 17.11 | 16,786 | 17.10 | |
| Foreign investors | 62,975 | 12.84 | 12,595 | 12.84 | |
| H+HInternational A/S | 1,024 | 0.21 | 204 | 0.21 | |
| Other registered shareholders | 218,541 | 44.56 | 43,708 | 44.56 | |
| Unregistered shareholders | 122,626 | 24.99 | 24,527 | 25.00 | |
| Total | 490,500 | 100.00 | 98,100 | 100.00 |
No events have occurred after the balance sheet date that will haveamaterial effect on the parent company's or the H+HGroup's financial position.
CVR No. 49 61 98 12 Dampfærgevej 3, 3rd Floor 2100 CopenhagenØ-Denmark
Tel.: +45 35 27 02 00 Fax: +45 35 27 02 01 www.HplusH.com
Avenue Louise 331-333 1050 Brussels Belgium
Tel.: +32 10 815 801 Fax: +32 10 811 711 www.HplusH.be
Bushøjvænget 129 8270 Højbjerg Denmark
Tel.: +45 70 24 00 50 Fax: +45 70 24 00 51 www.HplusH.dk
Industristr.3 23829 Wittenborn Germany
Tel.: +49 4554 700-0 Fax: +49 4554 700-223 www.HplusH.de
Teikankaantie 256 39500 Ikaalinen Finland
Tel.:+358 207 524 200 Fax:+358 207 524 222 www.HplusH.fi
Magnesiumstraat1A 6031 RV Nederweert Netherlands
Tel.: +31 495 450169 Fax: +31 495 450069 www.HplusH.nl
Stenyxegatan 35 213 76 Malmö Sweden
Tel.:+46 40 55 23 00 Fax:+46 40 55 23 10 www.HplusH.se
Celcon House, Ightham Sevenoaks, Kent TN15 9HZ UK Tel.: +44 1732 886333
Fax: +44 1732 886810 www.hhcelcon.co.uk
Fallåker1 02740 Espoo Finland
Tel.:+358 207 524 270 Fax:+358 207 524 277 www.jamera.fi
Růžodol1 434 01 Most-Kopisty Czech Republic
Tel.:+420 476 709 957 Fax:+420 476 000 439 www.HplusH.cz
ul. Kupiecka6 03-042 Warsaw Poland
Tel.:+48 22 51 84 000 Fax:+48 22 51 84 029 www.HplusH.pl
Polná 4/1967 903 01 Senec Slovakia
Tel.:+421 245 258 601 Fax:+421 245 258 604 www.HplusH.sk
Fuchikastr4,LetterK,Office602 192102StPetersburg Russia
Tel.: +7812609-09-00 Fax:+7812 609-09-01 www.HplusH.ru
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