7.7
Notes

1.  Operating segments

Accell Group has the operational segments Bicycles and Parts & accessories. The risk and return profile of each segment is determined by the nature of the activities and products that are produced.

Information related to each reportable segment is set out below. The earnings before interest and taxes is used to measure the performance because management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate in the same industries.

A. Information about reportable segments

  Bicycles   Parts & accessories  
  2017 2016 2017 2016
  € x 1,000 € x 1,000 € x 1,000 € x 1,000
External revenues 812,687 785,536 255,786 262,616
Inter-segment revenue 19,438 32,243 18,284 19,958
Segment revenue 1) 832,125 817,779 274,070 282,574
Segment profit (loss) before interest and tax 1) 2) 41,079 56,385 19,376 17,493
Depreciation and amortization 7,647 7,350 2,534 2,901
Share of profit (loss) of equity-accounted investees 385 571 - -
Segment assets 1) 545,282 537,171 128,064 146,508
Equity-accounted investees 8,304 6,947 - -
Capital expenditure 6,828 9,876 2,175 1,639
Segment liabilities 1) 174,702 187,126 35,657 33,865
1) As a result of the strategic redirection of Etablissement Th. Brasseur S.A. (Belgium) the related revenues, results and net assets are reported in the segment Bicycles as of 2017. The impact on the segment Bicycles (Parts & accessories) is: revenues +1% (4%), profit before interest and tax < 1% (< 1%) and net assets < 1% (< 1%).
2) The result of Parts & accessories includes € 1.4 million transaction profit from the sale of the fitness business of Tunturi Hellberg Oy Ltd, related trademarks and inventories.

B. Reconciliation of information on reportable segments

  2017 2016
  € x 1,000 € x 1,000
i. Revenues    
Total revenue of reportable segments 1,106,196 1,100,353
Elimination of inter-segment revenue -37,723 -52,201
Consolidated revenue 1,068,473 1,048,152
 
ii. Profit before tax 1)    
Total profit (loss) before interest and tax of the reportable segments 60,455 73,878
Unallocated amounts:    
- Interest income 625 679
- Interest expenses (incl. financing cost) -8,834 -8,952
- Other corporate expenses -22,061 -12,910
Consolidated profit before tax 30,185 52,695
 
iii. Assets 1)    
Total assets for reportable segments 673,346 683,679
Other unallocated amounts 31,932 58,134
Consolidated total assets 705,278 741,813
 
iv. Liabilities    
Total liabilities of reportable segments 210,359 220,991
Other unallocated amounts 195,598 201,442
Consolidated total liabilities 405,957 422,433
1) As of 2016 equity-accounted investees and the related income are allocated to the operational segments.

 

Geographical information

Geographical segments are based on the physical location of the assets. The sales to external customers reported in the geographical segments are based on the geographical location of the customers.

  Net turnover   Non-current assets 1)  
  2017 2016 2017 2016
  € x 1,000 € x 1,000 € x 1,000 € x 1,000
The Netherlands 202,663 223,608 32,955 33,792
Germany 312,797 265,937 51,063 50,394
Other Europe 426,594 404,719 73,112 73,556
North America 101,526 118,577 13,078 14,787
Other countries 24,893 35,311 9,191 10,588
Total 1,068,473 1,048,152 179,399 183,116
1) The deferred tax assets and the net defined benefit asset are, in accordance with IFRS 8.33b, excluded from non-current assets.

 

2.  Personnel costs

Personnel costs are comprised of the following:

  2017 2016
  € x 1,000 € x 1,000
Wages and salaries 99,638 96,457
Social security charges 13,854 13,649
Pension contributions 6,436 6,344
Profit sharing 1,418 985
Share based payments 439 464
Other personnel costs 3,999 3,882
Personnel expenses 125,785 121,781

 

3.  Depreciation, amortization and impairment losses

Depreciation, amortization and impairment losses comprise the following:

  2017 2016
  € x 1,000 € x 1,000
Amortization of intangible assets 1,204 909
Impairment losses on intangible assets - 669
Depreciation of property, plant and equipment 9,869 8,770
Capital gain on sale of tangible fixed assets - -8
Depreciation costs 11,073 10,340

4.  Other operating expenses

  2017 2016
  € x 1,000 € x 1,000
Selling expenses 66,815 65,754
General and administrative expenses 17,641 18,245
Lease and contingent rent 8,369 7,825
Research & delelopment expenses 1,762 1,770
Other 32,555 28,693
Other operating expenses 127,142 122,287

 

5.  Net finance cost

Financial income and expenses comprise the following:

  2017 2016
  € x 1,000 € x 1,000
Interest income -625 -679
Interest expenses 6,912 7,502
Bank fees 836 2,334
Currency results 1,086 -884
Net finance cost 8,209 8,273



The policy regarding interest and currency risks is covered in note 22 Financial instruments - fair values and risk management

6.  Taxes

The effective corporate income tax charge comprises the following:

  2017 2016 2017 2016
  € x 1,000 € x 1,000 % %
Current taxes 14,106 18,973    
Deferred taxes 5,578 1,430    
Taxes in income statement 19,684 20,403    
         
Taxes based on the weighted average applicable rate 8,179 13,158 27.1 25.0
Participation exemption -2,322 -199 -7.7 -0.4
Benefits from tax facilities -134 -1,284 -0.4 -2.4
Deferred tax assets not carried forward 7,307 5,214 24.2 9.9
Derecognition of deferred tax assets 5,651 1,779 18.7 3.4
Adjustment of current taxes of prior years 834 465 2.8 0.9
Adjustment of deferred taxes of prior years 82 11 0.3 0.0
Other effects, including on-deductible amounts 87 1,259 0.3 2.4
Taxes in income statement 19,684 20,403 65.2 38.7


The effective tax rate consists of the reported tax charge for the current year, divided by the profit before taxes. The effective tax rate in 2017 amounts to 65.2% (2016: 38.7%). The tax rate was negatively impacted by not recognizing deferred taxes assets from new tax losses in North America and the derecognition of carry forward losses and other deferred taxes in North America and Finland.

7.  Earnings per share

The calculation of earnings per share and of diluted earnings per share is based on the following data:

  2017 2016
Profit for earnings per share (net profit accruing to Accell Group N.V.'s shareholders) € 10,501,325 € 32,292,400
     
Number of issued shares as per balance sheet date 26,255,179 25,834,236
     
Weighted average number of shares for the earnings per share 26,101,222 25,623,405
Potential impact of share options and conditional shares on the issuance of shares 165,754 167,166
     
Weighted average number of issued shares (diluted) 26,266,976 25,790,571
     
Reported earnings per share € 0.40 € 1.26
Reported earnings per share (diluted) € 0.40 € 1.25
     
Adjustment factor according to IAS 33 1.00000 0.98476
     
Earnings per share financial year € 0.40 € 1.24
Earnings per share financial year (diluted) € 0.40 € 1.23


8.  Property, plant and equipment

Changes in property, plant and equipment are as follows:

  Land and buildings Machinery and equipment Total property. plant and equipment
  € x 1,000 € x 1,000 € x 1,000
Cost
Balance at 1 January 2016 65,075 115,692 180,767
Investments 1,157 10,441 11,598
Investments as a result of business combinations - - -
Divestments -5 -102 -107
Currency translation differences -587 -233 -820
Balance at 1 January 2017 65,640 125,798 191,438
Investments 2,219 6,551 8,770
Investments as a result of business combinations - - -
Divestments - -455 -455
Currency translation differences -265 -480 -745
Balance at 31 December 2017 67,594 131,414 199,008
 
Accumulated depreciation
Balance at 1 January 2016 21,035 89,961 110,996
Depreciation 1,236 7,534 8,770
Balance at 1 January 2017 22,271 97,495 119,766
Depreciation 1,386 8,483 9,869
Balance at 31 December 2017 23,657 105,978 129,635
 
Carrying amount
Balance at 1 January 2017 43,369 28,303 71,672
Balance at 31 December 2017 43,937 25,436 69,373

 

Land and buildings with a carrying amount of € 4.6 million per 31 December 2017 have been pledged to security; on the one hand to the trustees of the UK pension fund (€ 3.0 million) and on the other hand to security of a bank loan (€ 1.6 million).

9.      Goodwill

Changes in goodwill are as follows:

  2017 2016
  € x 1,000 € x 1,000
Cost
Balance at 1 January 61,408 60,495
Investments as a result of business combinations - 315
Currency translation differences -2,027 598
Balance at 31 December 59,381 61,408
Accumulated impairments
Balance at 1 January 2,306 2,306
Impairments - -
Balance at 31 December 2,306 2,306
Carrying amount
Balance at 1 January 59,102 58,189
Balance at 31 December 57,075 59,102

 

Goodwill is tested annually for impairment or more frequently if there are indications of impairment losses. For the purposes of this test, goodwill is allocated to cash-generating units. Allocation is made to the (group of) cash-generating units that is expected to benefit from the business combination from which the goodwill arose. The cash-generating units used in the assessment correspond with the operational segments.


The carrying amount of goodwill (with an indefinite useful life) on segment level is divided as follows:

  2017 2016
  € x 1,000 € x 1,000
 
Bicycles 40,113 41,181
Parts & accessories 16,962 17,921
Balance at 31 December 57,075 59,102

 

The following main assumptions are used in determining the value in use of the segments Bicycles and Parts & accessories and are based on historical experiences in specific markets and countries:

  • turnover growth, based on the historical average of the last 3 years, for Bicycles respectively Parts & accessories of 7.5% (2016: 10.0%) respectively of 3.1% (2016: 5.4%);
  • operating margin, based on the average of the last 3 years, for Bicycles respectively Parts & accessories of 6.9% (2016: 6.8%) respectively of 6.6% (2016: 4,5%);
  • working capital, based on the current ratio in relation to turnover, for Bicycles respectively Parts & accessories of 31.0% (2016: 29.5%) respectively of 22.9% (2016: 25.5%);
  • a perpetual growth rate of 1.5% (2016: 1.4%) is used for the estimates of the future cash flow after the initial period of 5 years;
  • a post-tax weighted average cost of capital of 7.6% (2016: 7.6%) was used for the discounting of the cash flows. The discounting rate applied corresponds with a pre-tax weighted average cost of capital of 10.1% (2016: 9.8%).

The impairment test in 2017 shows a substantial headroom in goodwill. Accell Group believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed the recoverable amount of the cash-generating units.

10.      Other intangible fixed assets

The changes in other intangible fixed assets are as follows:

  Trademarks Customer lists and licenses Other Total other intangible assets
  € x 1,000 € x 1,000 € x 1,000 € x 1,000
Cost
Balance at 1 January 2016 41,833 5,859 5,053 52,745
Investments - - 1,225 1,225
Investments as a result of business combinations - - - -
Currency translation differences 319 -192 27 154
Balance at 1 January 2017 42,152 5,667 6,305 54,124
Investments - - 785 785
Investments as a result of business combinations - - - -
Currency translation differences -2,334 -185 -105 -2,624
Balance at 31 December 2017 39,818 5,482 6,985 52,285
Accumulated depreciation
Balance at 1 January 2016 3,350 958 3,381 7,689
Amortization - 105 804 909
(Reversal of) Impairment losses -73 742 - 669
Balance at 1 January 2017 3,277 1,805 4,185 9,267
Amortization - 362 842 1,204
(Reversal of) Impairment losses - - - -
Balance at 31 December 2017 3,277 2,167 5,027 10,471
Carrying amount
Balance at 1 January 2017 38,875 3,862 2,120 44,857
Balance at 31 December 2017 36,541 3,315 1,958 41,814


As per 31 December 2016 trademarks mainly consist of the valuation of the brands Raleigh and Diamondback from the acquisition of Raleigh Cycle (€ 22.4 million) as well as Ghost (€ 9.4 million). Furthermore brands from the acquisitions of SBS, Brasseur, Hellberg, Carraro, Currie and Van Nicholas are valued for a total amount of € 4.7 million.

 

The carrying amount of the trademarks (with indefinite useful life) at segment level is specified as follows:

  2017 2016
  € x 1,000 € x 1,000
Bicycles 36,541 38,375
Parts & accessories 1) - 500
Balance at 31 December 36,541 38,875
1) The trademarks of the segment Parts & accessories decline by € 0.5 million due to the reporting of Etablissement Th. Brasseur S.A.(België) in the segment Bicycles as of 2017.


The trademarks are tested annually for impairment, or more frequently if there are indications of impairment losses. The principal assumptions used in the annual impairment test include the budgeted expectations regarding the turnover of the trademarks, royalty fees of the trademarks and discounting of the cash flows applying the post-tax weighted average cost of capital of 7.6% (2016: 7.6%), which corresponds with a pre-tax weighted average cost of capital of 10.1% (2016: 9.8%). For the trademarks generating cash flows in North America a post-tax weighted average cost of capital of 8.3% (2016: 8.4%), which corresponds with a pre-tax weighted average cost of capital of 10.8% (2016: 9.6%). This testing has led to no impairment loss in 2017.

The customer lists and licenses consist of the Turkish dealer network, an extension of a licensing agreement and the customer list of Comet. The useful life of these respective assets is estimated at 20 years, 10 years and 20 years and are amortized as from 2012, 2013 and 2015 onwards.

The other intangible fixed assets relate to software, development expenditure in connection with the patents and development mainly relating to the development of electric bicycles.

Amortization expenses and impairment losses are accounted for in the income statement within depreciation.

 

11.      Subsidiaries

The consolidated financial statements 2017 include Accell Group N.V., in Heerenveen, as well as the financial information of the following companies.

  Participation Percentage
Consolidated subsidiaries
Accell Bisiklet A.S., Manisa, Turkey 100%
Accell Hunland Kft, Toszeg, Hungary 100%
Accell IT B.V., Heerenveen, the Netherlands 100%
Accell Nederland B.V., Heerenveen, the Netherlands 100%
Accell North America Inc, Kent, Washington, United States of America 100%
Accell Suisse AG, Alpnach Dorf, Switzerland 100%
ATC Ltd (Taiwan Branch), Taipei, Taiwan 100%
ATC Ltd, Hong Kong, People's Republic of China 100%
Comet Distribuciones Commerciales S.L., Urnieta, Spain 100%
Cycle Services Nordic ApS, Odense, Danmark 100%
Cycles Lapierre S.A.S., Dijon, France 100%
Cycles France-Loire S.A.S., Saint-Cyprien, France 100%
Delta Metal Technology Ltd, Shenzhen, People's Republic of China 100%
E. Wiener Bike Parts GmbH, Sennfeld, Germany 100%
Etablissement Th. Brasseur S.A., Liège, Belgium 100%
Ghost-Bikes GmbH, Waldsassen, Germany 100%
Raleigh UK Ltd, Nottingham, United Kingdom 100%
Swissbike Vertriebs GmbH, Alpnach Dorf, Switserland 100%
Tunturi-Hellberg Oy Ltd, Turku, Finland 100%
Vartex AB, Varberg, Sweden 100%
Winora Staiger GmbH, Sennfeld, Germany 100%


Subsidiaries that are immaterial to the consolidated financial statements are not included in the overview above. A complete list of subsidiaries is filed with the Trade Register of the Chamber of Commerce in Leeuwarden, the Netherlands.

  2017 2016
Equity-accounted investees (i)
Atala SpA, Monza, Italy (i) 50% 50%
Beeline Bikes Inc., Delaware, United States of America (ii) 32% 19%
Jalaccell OÜ, Tallinn, Estonia (iii) 0% 35%
Raleigh SA (Pty) Ltd, Kensington, South Africa (iv) 20% 20%
Velosophy B.V., Utrecht, Nederland (ii) 35% 38%
(i) Atala SpA is a joint venture active in the development and sales of bicycles under its own brands.
(ii) Beeline Bikes, Inc. is an associate that is active in the reparing and sales of bicycles.
(iii) Jalaccell OÜ (35%) set up for the assembly and storage of fitness equipment, has been liquidated per 1 September 2017.
(iv) Raleigh SA (Pty) Ltd is an associate that is active in the marketing and sales of bicycles.
(v) Velosophy B.V. is an associate that is active in the marketing and sales of of high quality, electric carrier bicycles.

 

These associates and joint ventures are of strategic nature; the voting rights are equal to the percentage interest held.

The changes in the non-consolidated companies are as follows:

  2017 2016
  € x 1,000 € x 1,000
Balance at 1 January 6,947 4,981
Investments 1,334 1,516
Dividend -99 -218
Net income 385 571
Currency translation differences -264 97
Balance at 31 December 8,304 6,947



Summary of the financial data for the interests in non-consolidated companies:

  2017 2016
  € x 1,000 € x 1,000
Total assets 15,886 12,262
Total liabilities 11,235 7,973
Total turnover 26,016 24,222
Total share in net income and impairments thereof 385 571

 

12.      Inventories

  2017 2016
  € x 1,000 € x 1,000
Components for the purpose of production 157,436 145,460
Work in progress 2,748 2,882
Trading and finished products 173,380 173,210
Balance at 31 December 333,564 321,553

 

During 2017 inventories were written down by € 9.5 million to lower net realizable value (2016: € 5.2 million). At balance sheet date inventories with a carrying amount of approximately € 21,2 million (2016: € 16,6 million) are valued at lower net realizable value. Inventories furthermore include goods in transit of € 68.0 million (2016: € 62.2 million) related to shipped goods for which Accell Group had acquired the economic ownership, but which have not yet been received.

The costs of inventory that are recorded as an expense during the financial year amounts to € 805.6 million (2016: € 778.9 million).

13.      Trade receivables

  2017 2016
  € x 1,000 € x 1,000
Trade receivables 137,352 147,371
Provision for impairment of receivables -10,224 -9,516
Balance at 31 December 127,128 137,855


The nominal value of the trade receivables is considered close to equal to the fair value. Trade receivables are non-interest-bearing and, depending on the season, are governed by a 30-150 day term of payment. The provision for credit losses is determined on the basis of an individual assessment of overdue trade receivables. The policy regarding credit risks is covered in note 22 Financial instruments - fair values and risk management.

14.      Cash, cash equivalents and bank overdrafts

  2017 2016
  € x 1,000 € x 1,000
Cash and cash equivalents 24,123 49,421
Bank overdrafts -44,630 -87,901
Cash and bank overdrafts in the cash flow statement -20,507 -38,480

 

15.      Equity

The consolidated equity is equal to the equity in the company financial statements. The notes and movement schedules of equity are included in the company financial statements.

16.      Interest-bearing loans

This note provides information about the contractual terms and conditions of the outstanding interest-bearing loans and borrowings. For more information about Accell Group’s exposure to interest rate risk a reference is made to note 22 Financial instruments – fair values and risk management.


  2017 2016
  € x 1,000 € x 1,000
Unsecured bank loans 1) 98,471 47,158
Other bank loans 2,062 15
Non-current interest-bearing liabilities 100,533 47,173
Current portion unsecured bank loans 1) - 12,500
Current portion other bank loans 8 69
Total current portion of interest-bearing loans 8 12,569
Revolving credit facility 40,000 49,050
Bank overdrafts 44,630 87,901
Total other interest-bearing liabilities 84,630 136,951
Current interest-bearing liabilities 84,638 149,520
1) In the refinancing in 2017 the pledge on the trade receivables and inventories of the Dutch, German, English and US group companies is cancelled.


The terms and conditions of outstanding interest-bearing bank loans are as follows:

          2017   2016
  Currency Nominal interest rate Year of maturity Face value Carrying amount Face value Carrying amount
        € x 1,000 € x 1,000 € x 1,000 € x 1,000
Unsecured bank loan 1) EUR 1.8% 2022 85,000 83,671 45,750 44,908
Unsecured bank loan 1) EUR 5.7% 2022 15,000 14,800 15,000 14,750
Other bank loans EUR 1.4% 2027 2,070 2,070 84 84
Total interest-bearing loans       102,070 100,541 60,834 59,742
1) In the refinancing in 2017 the pledge on the trade receivables and inventories of the Dutch, German, English and US group companies is cancelled.

 

Reconciliation of movements of liabilities to cash flows arising from financing activities:

  Liabilities     Equity   Total
 
  Bank overdrafts used for cash management purposes Revolving credit facility Interest-bearing loans Share capital / premium Reserves  
  € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000
Balance at 1 January 2017 87,901 49,050 59,742 43,992 275,388 516,073
             
Changes in financing cash flows:            
Proceeds from loans and borrowings - 100,950 87,056 - - 188,006
Transaction costs related to loans and borrowings - - -1,568 - - -1,568
Repayment of borrowings - -110,000 -45,819 - - -155,819
Dividend paid - - - - -6,740 -6,740
Total changes from financing cash flows - -9,050 39,669 - -6,740 23,879
The effect of changes in foreign exchange rates -3,023 - - - - -3,023
Other changes liability-related:            
Change in bank overdrafts -40,248 - - - - -40,248
Interest expenses minus interest paid - - 1,130 - - 1,130
Total liability-related other changes -43,271 -9,050 40,799 - -6,740 -18,262
Total equity-related other changes - - - -510 -12,809 -13,319
Balance at 31 December 2017 44,630 40,000 100,541 43,482 255,839 484,492

 

In 2017 Accell Group concluded a financing agreement with a syndicate of six (international) banks for a total group financing. The participating banks in the syndicate are ABN AMRO Bank, BNP Paribas, Deutsche Bank, HSBC, ING Bank and Rabobank. The financing consist of € 100 million of unsecured bank loans and a revolving credit facility of € 275 million (working capital financing), of which € 100 million is a season facility, for an initial period of 5 years. The financing agreement includes an extension option to be requested at the first and/or second anniversary of the agreement. The termination date could be extended with 12 months at each of the anniversary dates.

Existing guidelines for financial ratios are:

  • Term loan leverage ratio, that is determined by bank loans divided by normalized EBITDA. The term loan leverage ratio shall not exceed 2.5 (quarterly).
  • Solvency ratio, that is determined by net assets divided by balance sheet total, both adjusted for intangible fixed assets and the related deferred taxes. The solvency ratio shall equal or exceed 25% (semi-annually).

 

Bank loans mean the total amount of interest-bearing loans via banks or other financial institutions.

EBITDA means operating result (EBIT) after adding back any amount attributable to the amortization or depreciation of assets and including income from equity-accounted investees. Normalized EBITDA, in respect of a relevant period, EBITDA for that relevant period adjusted by:

  • including EBITDA of a business combination acquired during the relevant period for that part of the relevant period prior to its becoming a business combination;
  • excluding EBITDA attributable to any member of Accell Group (or to any business) disposed of during the relevant period prior to its disposal;
  • including, at the election of Accell Group, extraordinary costs incurred in the relevant period including reorganization expenses, impairments of fixed assets and expenses related to the disposal of assets of discontinued operations.

Accell Group fully complies with the terms and conditions of the covenants as per 31 December 2017 as well as per 31 December 2016.

 

17.      Defined benefit pension plans and other long-term employee benefits

  2017 2016
  € x 1,000 € x 1,000
Net defined benefit asset -14,960 -14,489
Total employee benefit asset -14,960 -14,489
Net defined benefit obligation 6,341 6,583
Other long-term employee benefits 2,190 2,278
Total employee benefit liabilities 8,531 8,861

 

Defined benefit plan

Accell Group funds defined benefits for qualifying employees. The main defined benefit plan is the plan in the United Kingdom (UK), which accounts for approximately 92% of the defined benefit obligation and for more than 99% of the plan assets. The UK plan is subject to UK laws and is administered by a separate fund that is legally separated from the UK group company. The trustees of this fund are appointed by the company. Pension benefits are related to the member’s final salary at retirement and their length of service. Since December 2002, the defined benefit section of this pension scheme has been closed to future accrual. On the basis of the deed and rules of the UK plan the company has an unconditional right in the form of refunds when there is a surplus and the fund has no further obligations or in case when there is a surplus at the time when the plan is wound up.

The UK plan exposes the company to actuarial risks such as market risk, interest rate risk and inflation risk. The scheme does not expose the company to any unusual scheme-specific risk. The scheme’s investment strategy is to invest approximately 37% in matching assets (index related UK government bonds gilts and investment property bonds) and approximately 63% in return seeking assets (being diversified growth funds and bond portfolios). This strategy reflects the scheme’s risk profile and the trustees’ and company’s attitude to risks. The returns from the return seeking assets are not achieved solely by direct investment in return seeking assets, but the equity linked bond portfolio allow exposure to equity type returns using futures backed by collateral in the form of index-linked UK government bonds.

In addition, Accell Group sponsors a funded defined benefit plan for qualified employees in Taiwan, a fixed unfunded defined benefit plan in Germany and an unfunded defined benefit plan in Hong Kong. The defined benefit plans of Accell Group have no contributions from employees anymore, because the plans are mainly frozen.

The actuarial calculations pursuant to IAS 19 were carried out at 31 December 2017 by actuaries of certified actuarial firms. The principal assumptions used for the purposes of the actuarial valuations are based on the following weighted averages:

  2017 2017 2016 2016
  UK plan Other UK plan Other
Discount rate 2.3% 1.6% 2.6% 1.8%
Expected rates of salary increase 2.0% 0.4% 3.5% 0.5%
Inflation 2.6% 1.7% 2.7% 1.8%
Average longevity at retirement age for current pensioners (years):        
Males 21.4 18.6 21.2 18.4
Females 23.4 22.1 23.3 21.7
Average longevity at retirement age for current employees (years):        
Males 23.6 20.9 23.3 20.5
Females 25.8 24.3 25.6 23.8

 

Amounts recognized in the income statement in respect of these defined benefit plans are as follows:

  2017 2016
  € x 1,000 € x 1,000
Current service cost 39 19
Past service cost and losses (gains) from settlements - 527
Administration expense 157 177
Net interest expense (income) -252 -519
Total expenses defined benefit plans -56 204


Amounts recognized in other comprehensive income in respect of these defined benefit plans are as follows:

  2017 2016
  € x 1,000 € x 1,000
Remeasurement on the net defined benefit obligation (asset):    
Return on plan assets (excluding amounts included in net interest expenses) -2,631 -7,059
Actuarial losses (gains) from changes in demographic assumptions - 374
Actuarial losses (gains) arising from changes in financial assumptions 2,353 10,741
Actuarial losses (gains) arising from experience adjustments -48 -33
Adjustments for restrictions on the defined benefit asset - -
Prior year(s) presentation adjustment - -348
Remeasurement net defined benefit plans -326 3,675

 

The defined benefit obligation and fair value of plan assets are specified as follows:

At 31 December 2016 UK plan Other Total
  € x 1,000 € x 1,000 € x 1,000
Present value of funded pension obligation 77,210 916 78,126
Minus: Fair value of plan assets -91,699 -594 -92,293
Deficit/ (surplus) -14,489 322 -14,167
Present value of unfunded defined benefit obligations - 6,261 6,261
Funded status -14,489 6,583 -7,906
Restrictions on assets recognised - - -
Net defined benefit obligation (asset) as per 31 December 2016 -14,489 6,583 -7,906
 
At 31 December 2017 UK plan Other Total
Present value of funded pension obligation 74,415 724 75,139
Minus: Fair value of plan assets -89,375 -450 -89,825
Deficit/ (surplus) -14,960 274 -14,686
Present value of unfunded defined benefit obligation - 6,067 6,067
Funded status -14,960 6,341 -8,619
Restrictions on assets recognised - - -
Net defined benefit obligation (asset) as per 31 December 2017 -14,960 6,341 -8,619



The movement in the present value of the defined benefit obligation is as follows:

  UK plan Other Total
  € x 1,000 € x 1,000 € x 1,000
Balance at 1 January 2016 78,220 12,431 90,651
Current service cost - 19 19
Interest cost 2,404 136 2,540
Actuarial (gains) and losses arising from changes in demographic assumptions 370 4 374
Actuarial (gains) and losses arising from changes in financial assumptions 10,720 21 10,741
Actuarial (gains) and losses arising from experience adjustments - -33 -33
Liabilities extinguished on settlements - -5,094 -5,094
Exchange differences on foreign plans -11,022 58 -10,964
Benefits paid -3,482 -365 -3,847
Defined benefit obligation at 31 December 2016 77,210 7,177 84,387
Current service cost - 39 39
Interest cost 1,904 128 2,032
Actuarial (gains) and losses arising from changes in demographic assumptions - - -
Actuarial (gains) and losses arising from changes in financial assumptions 2,294 59 2,353
Actuarial (gains) and losses arising from experience adjustments - -48 -48
Liabilities extinguished on settlements - - -
Exchange differences on foreign plans -3,114 -111 -3,225
Benefits paid -3,879 -454 -4,333
Defined benefit obligation at 31 December 2017 74,415 6,790 81,205


 

The movement in the fair value of the plan assets is as follows:

  UK plan Other Total
  € x 1,000 € x 1,000 € x 1,000
Balance at 1 January 2016 98,406 6,261 104,667
Interest income 3,051 8 3,059
Remeasurement gain (loss):      
Return on plan assets (excluding amounts included in net interest expense) 7,062 -3 7,059
Plan assets distributed on settlements 0 -5,627 -5,627
Contributions from the employer 513 18 531
Administration expense 177 - 177
Exchange differences on foreign plans -14,028 41 -13,987
Benefits paid -3,482 -104 -3,586
Fair value of the plan assets at 31 December 2016 91,699 594 92,293
Interest income 2,277 7 2,284
Remeasurement gain (loss):      
Return on plan assets (excluding amounts included in net interest expense) 2,634 -3 2,631
Plan assets distributed on settlements - - -
Contributions from the employer 489 23 512
Administration expense 158 - 158
Exchange differences on foreign plans -4,003 -31 -4,033
Benefits paid -3,879 -140 -4,019
Fair value of the plan assets at 31 December 2017 89,375 450 89,825


The fair value of the plan assets is categorized as follows:

  2017 2016
  € x 1,000 € x 1,000
Index-linked gilts 5,335 20,334
Liability driven investment 17,745 8,812
Corporate bonds 11,504 5,621
Property bonds 11,248 11,201
Absolute return bonds 21,309 21,652
Diversified growth funds 21,727 21,084
Cash and cash equivalents 957 3,589
Total debt securities and equity investments 89,825 92,293


The fair values of the above equity investments and debt securities are determined based on quoted market prices in active markets. The actual return on plan assets was € 4.9 million in 2017 (2016: € 10.1 million).

The average duration of the defined benefit obligation is 16 years as per 31 December 2017 (2016: 16 years).

Significant actuarial assumptions for the determination of the defined benefit obligation are the discount rate and the expected salary increase. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions at the end of the reporting period. In the analyses the interdependence of inputs has not been considered:

  • if the discount rate is 0.1 % higher, the defined benefit obligation would decrease by € 1.3 million;
  • if the discount rate is 0.1 % lower, the defined benefit obligation would increase by € 1.3 million;
  • if the expected salary growth increases by 0.1%, the defined benefit obligation would increase by € 0.6 million;
  • if the expected salary growth decreases by 0.1%, the defined benefit obligation would decrease by € 0.6 million.

The sensitivity analyses are prepared at the end of the reporting period using the same methods as applied in the defined benefit obligation in the balance sheet. The sensitivity analyses may not be representative of the actual change in the defined benefit obligation. It is unlikely that the changes in the assumptions would occur in isolation of one another as some of the assumptions are correlated.

Accell Group expects to make a contribution of € 0.5 million in 2018 with regard to the defined benefit plans.

Other long-term employee benefits

Other long-term employee benefits relate to the provision for future anniversary bonuses and resignation payments in some countries. The provision is based on contractual obligations and assumptions with respect to expectations of death and resignation. Provisions for deferred employee benefits and warranty obligations are expected to have a duration between one and five years.

18.      Share-based payments

Accell Group has a restricted share plan and an option plan.

Restricted share plan

Accell Group has a restricted share plan whereby conditional shares can be granted to the members of the Board of Directors and to directors of subsidiaries who contribute significantly to the result of Accell Group. Both share plans are share-based payments plans with vesting conditions. The grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. The conditions have been incorporated into the fair value at grant date by applying a discount to the valuation obtained.

The shares that have been conditionally granted are comprised of the following:

  Number at 31-12-16 Number at 31-12-17 Granting date Expiry date Share price at granting date Fair value at granting date
Conditional shares
Conditional shares granted in 2015 1) 46,069 8,050 4-3-2015 3 jaar € 15.92 € 109,000
Conditional shares granted in 2016 2) 47,301 44,661 24-2-2016 2-3 jaar € 18.96 € 425,000
Conditional shares granted in 2017 - 29,643 9-3-2017 2-3 jaar € 22.05 € 346,000
1) A total of 35,119 shares are granted to members of the Board of directors in 2017 and 2,900 conditional shares expired due to resignation of a director of a subsidiary.
2) Due to the resignation of a director of a subsidiary 2,640 conditional shares have been expired .

 

The fair value will be charged to the income statement according to the straight-line method spread over the period between grant date and the time that the shares become unconditional, whereby adjustment will be made for the expected number of shares to be distributed.

Option plan

The company has an option plan for the Board of Directors. The Supervisory Board awards options to the directors based on the realization of targets set in agreement with the Board of Directors.

Below an overview is provided on the number and movement in stock option entitlements:

  Number at 31-12-16 Number at 31-12-17 Granting date Expiry date (years) Exercise price Fair value at granting date Average exercise price
Options
Granted in 2014 7,950 7,950 26-02-14 3-8 € 14.13 € 2.13 n/a
Granted in 2015 28,150 28,150 4-03-15 3-8 € 15.92 € 1.90 n/a
Granted in 2016 1) 37,700 25,250 24-02-16 3-8 € 18.96 € 2.39 n/a
Granted in 2017 - 22,050 9-03-17 3-8 € 22.05 € 2.71 n/a
Of the stock option entitlements 12,450 expired due to the termination of employment of Mr. Takens.


The options granted are specified in note 26 Related parties. Only the options granted in 2014 are exercisable at 31 December 2017.

The fair value of the employee share options has been measured using an option valuation model (Black-Scholes-Merton). Service and non-market performance conditions attached to the transactions were not taken into account in measuring fair value.

The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows:

  2017 2016
Expected volatility (weighted-average) 22.16% 23.84%
Expected life (weighted-average) 3.9 3.8
Expected dividends 3.30% 3.40%
Risk-free interest rate (based on government bonds) 0.67% 0.28%

 

Expected volatility has been based on an evaluation of the historical volatility of the Accell Group N.V.’s share price, particularly over the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder behavior.

The reconciliation to personnel expenses is as follows:

  2017 2016
  € x 1,000 € x 1,000
Conditional shares management 2014 36 49
Conditional shares management 2015 38 52
Conditional shares management 2016 48 -
Conditional shares Board of Directors 2014 - 116
Conditional shares Board of Directors 2015 156 156
Conditional shares Board of Directors 2016 101 -
Options Board of Directors 60 91
Total expense recognized in personnel expenses 439 464

 

In the event of full exercise of the option entitlements granted to date and the vesting of the conditional shares the number of issued shares would increase by 0.6%. According to company policy, the options and shares granted are not covered by the company’s purchase of its own shares. In case of equity-settlement new shares are issued by the company at the moment options are exercised.

19.     Deferred taxes

Deferred taxes comprise the following:

  2017 2016
  € x 1,000 € x 1,000
Deferred tax assets 3,437 7,142
Deferred tax liabilities 11,820 13,334
Net deferred taxes -8,383 -6,192

 

The movement in the deferred tax assets and deferred tax liabilities is as follows:

  Loss carry forwards consolidated companies Other deferred taxes Total deferred tax assets Revaluation of property. plant and equipment Financial instruments Trademark valuation Other deferred taxes Total deferred tax liabilities
  € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000
Balance at 1 January 2016 6,653 2,016 8,669 -1,787 -360 -6,266 -3,163 -11,576
Added through business combination - - - - - - - -
Charged through other comprehensive income - - - - -712 - -1,798 -2,510
Charged through income statement -3,638 1,907 -1,731 38 - -39 302 301
Change in income tax rate - - - - - - - -
Transfer from/to current tax 19 - 19 - - - 2 2
Currency translation differences 107 78 185 12 - -11 448 449
Balance at 31 December 2016 3,141 4,001 7,142 -1,737 -1,072 -6,316 -4,209 -13,334
Added through business combinations - - - - - - - -
Charged through other comprehensive income - 2,358 2,358 - 1,072 - -129 943
Charged through income statement -1,965 -3,751 -5,716 57 - -42 123 138
Change in income tax rate - - - - - - - -
Transfer from/to current tax -262 200 -62 - - - 87 87
Currency translation differences -34 -251 -285 6 - 195 145 346
Balance at 31 December 2017 880 2,557 3,437 -1,674 - -6,163 -3,983 -11,820

 

At 31 December 2017 deferred tax assets are recognized in respect of carry forward losses of € 0.9 million (2016: € 3.1 million) and temporary differences of € 2.6 million (2016: € 4.0 million). Due to disappointing results, combined with the restructuring of the business, there is insufficient assurance on the period in which the tax benefits from the carry forward losses and the deductible temporary differences in North America and Finland can be realized. For these reasons the carry forward losses and other deferred taxes in North America and Finland are derecognized.

 For some subsidiaries Accell Group has insufficient assurance that future taxable profits will be available to realize the related tax benefits of carry forward losses of € 90.2 million (2016: € 78.9 million). As a result no deferred tax assets are recognized for these carry forward losses. These unused carry forward losses are mainly carry forward losses in North America and the United Kingdom and partially relate to the global results of the Raleigh group before the acquisition by Accell Group in 2012. The carry forward period of these unused tax benefits is 1-5 years for € 1.6 million, 5-10 years for € 5.3 million, 10-20 years for € 45.9 million and indefinite for 37.4 million. 

20.     Provisions


  Warranties Other provisions Total
  € x 1,000 € x 1,000 € x 1,000
Balance at 1 January 2017 7,305 1,565 8,870
Provisions used during the year -6,473 -1,176 -7,649
Provisions made during the year 6,499 1,035 7,534
Provisions reversed during the year -45 -59 -104
Currency translation differences -89 -4 -93
Balance at 31 December 2017 7,197 1,361 8,558
 
Non-current 3,439 828 4,267
Current 3,758 533 4,291

 

Warranty provisions represent the estimated costs under warranty obligations for goods delivered and services rendered as at balance sheet date. The provision is based on estimates using historical warranty information. The provision for warranty obligations are expected to have a duration between one and five years. Other provisions mainly relate to a an environmental provision, a provision for anti-dumping duties and a number of small provisions with a duration of less than one year.

21.      Deferred revenue


  Deferred revenue  
  31-12-17 31-12-16
  € x 1,000 € x 1,000
Non-current 1,190 1,201
Current 947 1,313
Balance at 31 December 2017 2,137 2,514


Deferred revenue consists of receipts in respect of extended warranty to be realized in the coming five years.

22.      Financial instruments - fair values and risk management

A. Accounting classification and fair values

The following table shows the carrying amount and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

    2017        
    Carrying amount       Fair value
    Fair value - hedging instruments Loans and receivables Other financial liabilities Total Level 2
  notes € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000
Interest rate swaps used for hedging   - - - - -
Forward exchange contracts used for hedging   - - - - -
Financial assets measured at fair value   - - - - -
 
Trade and other receivables   - 149,795 - 149,795 -
Cash and cash equivalents 14 - 24,123 - 24,123 -
Financial assets not measured at fair value   - 173,918 - 173,918 -
 
Interest rate swaps used for hedging   191 - - 191 191
Forward exchange contracts used for hedging   9,339 - - 9,339 9,339
Financial liabilities measured at fair value   9,530 - - 9,530 9,530
 
Unsecured bank loans 16 - - 98,471 98,471 -
Other bank loans 16 - - 2,070 2,070 -
Revolving credit facility 16 - - 40,000 40,000 -
Bank overdrafts 16 - - 44,630 44,630 -
Trade and other payables   - - 179,798 179,798 -
Financial liabilities not measured at fair value   - - 364,969 364,969 -

    2016        
    Carrying amount       Fair value
    Fair value - hedging instruments Loans and receivables Other financial liabilities Total Level 2
    € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000
Interest rate swaps used for hedging   - - - - -
Forward exchange contracts used for hedging   6,049 - - 6,049 6,049
Financial assets measured at fair value   6,049 - - 6,049 6,049
 
Trade and other receivables   - 160,043 - 160,043 -
Cash and cash equivalents 14 - 49,421 - 49,421 -
Financial assets not measured at fair value   - 209,464 - 209,464 -
 
Interest rate swaps used for hedging   1,762 - - 1,762 1,762
Forward exchange contracts used for hedging   - - - - -
Financial liabilities measured at fair value   1,762 - - 1,762 1,762
 
Secured bank loans 16 - - 59,658 59,658 -
Other bank loans 16 - - 84 84 -
Revolving credit facility 16 - - 49,050 49,050 -
Bank overdrafts 16 - - 87,901 87,901 -
Trade and other payables   - - 180,520 180,520 -
Financial liabilities not measured at fair value   - - 377,213 377,213 -

 

B. Measurement of fair values

i. Valuation techniques

The fair value of the other financial instruments is determined on the basis of other inputs than quoted rates/prices that are observable (level 2). For the determination generally accepted valuation methods are used. The determined value in this way is equal to the price at which the derivative can be sold in a transparent market.

Forward exchange contracts

Forward pricing is used a valuation technique. The fair value is determined using quoted forward exchange rates at the reporting date and present value calculations based on markets interest derived from the swap curve of the respective currencies.

Interest rate swaps

Swap models were used as valuation technique. The fair value is calculated as the present value of the estimated future cash flows. Estimates of the future floating rate cash flows are based on quoted swap rates, futures prices and interbank borrowing rates. Estimated cash flows are discounted using a yield curve constructed from similar sources which reflects the relevant benchmark interbank rate used by market participants for this purpose when pricing interest rate swaps. The fair value estimate is subject to a credit risk adjustment that reflects the credit risk of Accell Group and of the counterparty.

Other financial liabilities

Discounted cash flows are used as valuation technique. The valuation model considers the present value of expected payment, discounted using a risk-adjusted discount rate.

ii. Transfers between Level 1 and 2

There were no transfers from Level 1 to Level 2 or from Level 2 to Level 1 in 2017 (and 2016).

C. Financial risk management

Accell Group has exposure to the following risks arising from financial instruments:

  1. credit risk;
  2. liquidity risk;
  3. market risk.
Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of Accell Group’s risk management framework. Accell Group’s risk management policies are established to identify and analyze the risks faced by Accell  Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and Accell Group’s activities. Accell Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit Committee oversees how management monitors compliance with Accell Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by Accell Group. Accell Group's Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures; the results are reported to the Audit Committee.

i. Credit risk

Credit risk is the risk of financial loss to Accell Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from Accell Group’s receivables from customers. The carrying amount of financial assets represents the maximum credit exposure.

Trade and other receivables

Accell Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and country in which customers operate. Further details of concentration of revenue are included in note 1 Operational segments. There is no significant concentration of credit risks within Accell Group, as Accell Group has a large number of customers. No customers comprise 10% or more of the turnover.

Accell Group has established a credit policy under which sales to large customers must be insured with an external credit insurance company. Smaller customers are analyzed individually for creditworthiness before Accell Group's standard payment and delivery terms and conditions are offered and a credit limit is established. Any sales exceeding those limits require approval of the Board of Directors.

In general goods are sold subject to retention of title clauses, so that in the event of non-payment Accell Group may have a secured claim. Accell Group does not otherwise require collateral in respect of trade and other receivables.

Accell Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.

At 31 December 2017, the ageing of trade receivables that were not impaired was as follows:

  2017 2016
  € x 1,000 € x 1,000
Neither past due nor impaired 108,355 112,901
Past due 1-90 days 11,404 12,954
Past due 90-150 days 1,187 2,476
Past due more than 150 days 1,686 3,262
Total at 31 December 122,632 131,593

 

Accell Group has agreed various specific and, to a limited extent, individual terms of payment with its customers that differ depending on the nature of the goods delivered and that can also differ per country. Due to the seasonal nature of the activities, customers are offered so-called winter terms, whereby the customer can opt for an extra payments discount or a longer payment period. This is customary in the business.

Management believes that the unimpaired amounts that are past due days are still collectible in full, based on historic payment behavior and extensive analysis of customer credit risk, including underlying customers’ credit ratings if they are available.

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

  2017 2016
  € x 1,000 € x 1,000
Balance at 1 January 9,516 7,972
Amounts written of -1,891 -1,889
Impairment losses recognized 3,025 3,348
Effect of movement in exchange rates -426 85
Balance at 31 December 10,224 9,516


The impairment loss at 31 December 2017 relate to several customers that have indicated that they are not expecting to be able to pay their outstanding balances, mainly due to economic circumstances.

Cash and cash equivalents

Accell Group held cash and cash equivalents of € 24,123 thousand at 31 December 2017 (2016: € 49,421 thousand). The cash and cash equivalents are held with bank and financial institution counterparties, which are rated B+ to AA-, based on Fitch or S&P ratings.

Derivatives

The derivatives are entered into with bank and financial institution counterparties, which are rated BB to AA-, based on Fitch or S&P ratings.

Guarantees

Accell Group’s policy is to provide financial guarantees only to subsidiaries.

ii. Liquidity risk

Liquidity risk is the risk that Accell Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. Accell Group’s approach to managing liquidity is to ensure, as far as possible and taking into account the seasonal nature of its business, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Accell Group’s reputation.

In the funding of Accell Group, a distinction is made between long-term (core) funding and the seasonal credit facility. The solvency and liquidity of Accell Group are ensured all times by rolling liquidity planning and a liquidity reserve in form of cash and cash equivalents and € 275 million revolving credit facility that is committed. Interest would be payable at the rate of Euribor plus 65-170 basis points.

Exposure to liquidity risk

The following are the remaining contractual maturities of the non-derivative financial liabilities and the derivative financial assets and liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments on interest-bearing loans and excluding the impact of netting agreements:

    2017        
      Contractual cash flows
    Carrying amount Total < 1 jaar 1-5 year > 5 year
    € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000
Revolving credit facility 16 -40,000 -40,000 -40,000 - -
Bank overdrafts 16 -44,630 -44,630 -44,630 - -
Unsecured bank loans 16 -98,471 -110,471 -2,512 -107,959 -
Other bank loans 16 -2,070 -2,338 -29 -116 -2,193
Trade and other payables   -179,798 -179,798 -179,798 - -
Non-derivative financial liabilities   -364,969 -377,237 -266,970 -108,074 -2,193
             
Interest rate swaps used for hedging (net)   -191 -4 -4 - -
Forward exchange contracts used for hedging (net)   -9,339 -9,339 -9,339 - -
Derivative financial liabilities (assets)   -9,530 -9,343 -9,343 - -

    2016        
      Contractual cash flows
    Carrying amount Total < 1 year 1-5 year > 5 year
    € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000
Revolving credit facility 16 -49,050 -49,050 -49,050 - -
Bank overdrafts 16 -87,901 -87,901 -87,901 - -
Secured bank loans 16 -59,658 -63,538 -13,947 -33,721 -15,870
Other bank loans 16 -84 -87 -72 -15 -
Trade and other payables   -180,520 -180,520 -180,520 - -
Non-derivative financial liabilities   -377,213 -381,096 -331,490 -33,736 -15,870
             
Interest rate swaps used for hedging (net)   -1,762 -803 -799 -4 -
Forward exchange contracts used for hedging (net)   6,049 6,049 6,049 - -
Derivative financial liabilities (assets)   4,287 5,246 5,250 -4 -

 

The inflows/(outflows) disclosed in the above table represent the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes and which are not usually closed out before contractual maturity. The disclosure shows net cash flow amounts for derivatives that are net cash-settled.

As disclosed in note 16 Interest-bearing loans, Accell Group has a bank loan that contains a loan covenant. A future breach of covenant may require Accell Group to repay the loan earlier than indicated in the above table. The interest payments on variable interest rate loans in the table above reflect market forward interest rates at the reporting date and these amounts may change as market interest rates change. Except for these financial liabilities, it is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

iii. Market risk

Market risk is the risk that changes in market prices – such as foreign exchange rates and interest rates – will affect Accell Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

Accell Group uses derivatives to manage market risks. All such transactions are carried out within the guidelines set by the Board of Directors. Generally, Accell Group seeks to apply hedge accounting to manage volatility in profit or loss.

Currency risk

Accell Group is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales, purchases and borrowings are denominated and the respective functional currencies of Group companies. The functional currencies of Group companies are primarily the euro (EUR) and the US Dollar (USD). The currencies in which these transactions are primarily denominated are EUR, USD, JPY, TWD, GBP and CNY.

At any point in time, Accell Group hedges 80% of its estimated foreign currency exposure in respect of forecast sales and purchases over the season (July-June). Accell Group uses forward exchange contracts to hedge its currency risk, all with a maturity of less than one year from the reporting date. Such contracts are generally designated as cash flow hedges.

Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of Accell Group, primarily EUR, but also USD and GBP. In addition, interest on borrowings is denominated in the currency of the borrowing. This provides an economic hedge without derivatives being entered into and therefore hedge accounting is not applied in these circumstances.

In respect of other monetary assets and liabilities denominated in foreign currencies, Accell Group’s policy is to ensure that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

Accell Group’s investments in subsidiaries are not hedged.

Interest rate risk

In managing interest risk Accell Group aims to reduce the impact of short-term fluctuations on earnings. Over the longer term, however, permanent changes in interest rates would have an impact on profit.

Accell Group opts for a mix of fixed and variable interest rates in its financing operations, combined with the use of interest rate instruments. Over 2017 Accell Group ensured that its interest rate risk exposure of its interest-bearing secured bank loans and part of its revolving credit facility was at fixed rate. This was achieved by borrowing at a float rate and using interest rate swaps as hedges of the variability in cash flows attributable to interest rate risk. For the remainder of the funding a floating interest rate exposure profile was maintained.

In 2018 the current interest rate swaps will mature. Accell Group will enter into a new interest swap to ensure that its interest rate risk exposure of its interest-bearing bank loan is at fixed rate. For the remainder of the funding a floating interest rate exposure profile will be maintained. Accell Group’s interest rate position over 2018 will be weighted more towards fixed than floating.

Sensitivity analysis

A reasonably possible strengthening (weakening) of the USD, JPY and TWD against the euro at 31 December would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

A reasonably possible change of 100 basis points in interest rates at the reporting date would have affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant.

  Profit and loss Equity, net of tax
  Strengthening Weakening Strengthening Weakening
  € x 1,000 € x 1,000 € x 1,000 € x 1,000
  2017      
USD (5% movement) 4,150 -4,587 3,698 -4,087
JPY (5% movement) 1,842 -2,036 1,801 -1,991
TWD (5% movement) 548 -605 528 -583
Unhedged variable interest rate instruments (100 basis point movement) -846 846 - -

 

D. Derivative assets and liabilities designated as cash flow hedges

The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur and the carrying amounts of the related hedging instruments.

    2017      
      Expected cash flows
    Carrying amount Total < 1 year 1-5 year
    € x 1,000 € x 1,000 € x 1,000 € x 1,000
Forward exchange contracts          
Assets   70 165,572 165,572 -
Liabilities   -9,409 -174,911 -174,911 -
Interest rate swaps          
Assets   - - - -
Liabilities   -191 -191 -191 -
Total   -9,530 -9,530 -9,530 -

    2016      
      Expected cash flows
    Carrying amount Total < 1 year 1-5 year
    € x 1,000 € x 1,000 € x 1,000 € x 1,000
Forward exchange contracts          
Assets   7,958 154,594 154,594 -
Liabilities   -1,909 -148,546 -148,546 -
Interest rate swaps          
Assets   - - - -
Liabilities   -1,762 -1,762 -1,571 -191
Total   4,287 4,287 4,478 -191

 

E. Capital management

There were no major changes in Accell Group's approach to capital management during the year. The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital as well as the level of dividends to ordinary shareholders.

In order to achieve this overall objective, the Accell Group’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current period.

23.      Dividend

The dividend in respect of financial year 2016 was determined at € 0.72 per share or as stock dividend during the General Meeting of Shareholders of 25 April 2017. After the period in which shareholders could report their preference, 64% of the shareholders opted for the stock dividend. On 16 May 2017 € 6.7 million was distributed as cash dividend and 399,871 shares were issued as stock dividend and added to issued share capital.

The Board of Director proposes to make available to the shareholders a dividend with stock option of € 0.50 per share with respect to the current year, whereof € 0.40 from the profit after tax for 2017 and € 0.10 from the other reserve. The dividend proposal is subject to approval by the General Meeting of Shareholders on 25 April 2018 and is not reflected as a liability in these financial statements.

24.      Off-balance sheet commitments

The total off-balance sheet commitments consist of:

  Total 2017 < 1 year 1-5 year > 5 year Total 2016
  € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000
Operational lease commitments 27,394 9,690 17,552 152 30,805
Property, plant and equipment ordered 214 204 10 - 145
Other off-balance sheet commitments 10,471 4,191 5,503 777 5,045
Total 38,079 14,085 23,065 929 35,995


Accell Group has financial commitments arising from operational lease agreements on land and buildings, IT equipment, machinery and cars for use in de ordinary course of business. The other off-balance sheet commitments include among other financial commitments in respect of marketing and merchandising.

25.      Contingent assets and liabilities

Accell Group’s most significant contingent assets and liabilities are described below.

At 31 December 2017, Accell Group has issued a guarantee to the trustees of the UK defined benefit plan a group guarantee, whereby in case of a bankruptcy of the UK subsidiary, Accell Group will guarantee possible deficits in the UK scheme to a maximum amount of £ 8.7 million. Furthermore Accell Group has issue a rental guarantee, whereby in case of a bankruptcy of the Dutch subsidiary, Accell Group will guarantee possible lease payments to a maximum amount of € 1.9 million. The other contingent liabilities include a number of custom guarantees, bank guarantees and rental guarantees totaling to € 1.7 million.

Per 31 December 2017 Accell holds a contingent claim of € 1.0 million.

 

26.      Related parties

Identification of related parties

Accell Group has related party relationships with its associates and joint ventures (refer to note 11 Subsidiaries) and with the Board of Directors and Supervisory Board.

Remuneration of the Board of Directors and the Supervisory Board

Board of Directors

The company’s remuneration policy is reflected in the remuneration report that has been presented to the General Meeting of Shareholders for approval. The bonuses reflected in the financial statements relate to the financial year and depend on the targets set by the Supervisory Board. For 2017 a bonus varying between 9% and 50% of the salary has been paid out.

At the end of 2017 Mr. Anbeek holds 2,000 shares of Accell Group N.V., Mr. Sybesma holds 16,748 shares and Mr. Snijders Blok holds 38,802 shares and Mr. Both holds 768 shares.

The remuneration of the individual members of the Board of Directors is as follows:

  Salary Termination agreement Bonus Pension contributions Share-based payments Total 2017 Total 2016
  in € in € in € in € in € in € in €
T. Anbeek 1) 79,333 - 39,667 18,333 - 137,334 -
R.J. Takens 2) 3) 476,000 1,106,466 42,840 194,667 51,515 1,871,487 881,769
H.H. Sybesma 4 426,480 - 32,940 74,614 100,383 634,417 632,711
J.M. Snijders Blok 310,000 - 27,900 76,107 82,323 496,330 534,697
J. Both 310,000 - 27,900 61,173 82,323 481,396 494,896
Total 1,601,813 1,106,466 171,247 424,894 316,544 3,620,964 2,544,073
1) Mr. Anbeek is appointed as CEO and Chairman of the Board of Directors as of 1 November 2017.
2) Mr. Takens resigned as CEO and Chairman of the Executive Board on 25 April 2017and remained involved with Accell Group as advisor over 2017. In the termination agreement a severance payment of € 948 duizend has been agreed as well as the payment of four months of salary in 2018.
3) In 2017 a refund of pension contributions unduly withheld of € 181 thousand was recognized in relation to the remuneration of Mr. Takens. This refund was an expense to the employer and therefore not included in the table above.
4) Including an allowance for Mr. Sybesma for the role as interim-CEO for the period 26 April till 1 November 2017.

 

The stock option entitlements that have been granted comprise of the following: 

  Number at 01-01-17 Issued in 2017 Expired in 2017 Number at 31-12-17 Average exercise price beginning of period Average exercise price at year-end Weighted average term at year-end
T. Anbeek - - - - - - -
R.J. Takens 27,500 - 12,450 15,050 € 17.08 € 15.53 0.33
H.H. Sybesma 21,100 8,350 - 29,450 € 17.08 € 18.49 5.97
J.M.Snijders Blok 17,350 6,850 - 24,200 € 17.08 € 18.48 5.97
J.J. Both 7,850 6,850 - 14,700 € 18.96 € 20.40 6.63
Total 73,800 22,050 12,450 83,400      

 

 

Internal pay ratio

The pay ratio of the Board of Directors compared to the average employee compensation during 2017 is 15:1 (2016: 17:1). The pay ratios can vary over time as a result of the Accell Group’s annual performance. This performance impacts the remuneration of the Board of Directors more than of all other employees.

The ratio consists of the average remuneration of the Board of Directors compared to the average cost of all other employees of Accell Group. The average remuneration of the Board of Directors is calculated from the sum of the fixed salary, short-term incentives, share based payments, pensions and other benefits of the four members of the Board of Directors. The average cost of all other employees is calculated from the personnel costs (note 2) and the average number of employees during the year (3,088 FTE) minus four.

Resignation of Mr. Takens as CEO and Chairman of the Executive Board in 2017

Mr. Takens has resigned from the Executive Board following the Annual General Meeting on 25 April 2017. A severance payment of € 948 thousand as well as the payment of four months of salary in 2018 have been agreed in accordance with the employment contract and recognized in the 2017 income statement. After his resignation from the Executive Board Mr. Takens remained involved with Accell Group as advisor until 31 December 2017. The disclosed remuneration comprises both his period as CEO and Chairman of the Executive Board and his period as adviser.

Due to the ending of his employment contract Mr. Takens will not be able to meet the service condition of the options granted in 2016 and the conditional shares granted in 2017; these will not vest. The conditional shares granted in 2016 and conditional options granted in 2014 and 2015 will continue to vest at their regular vesting dates.

Board changes after balance sheet date

Mr. Sybesma (CFO) decided after 23 years to leave the company as of 1 May 2018 and will step down from the Board of Directors as of 25 April. Mr. Snijders Blok (COO) resigns from the Board of Directors at his own request as of 25 April 2018, while retaining his current activities and reporting directly to the CEO. The responsibility for the production sites has recently been transferred to Mr. Both (CSCO). Mr. Hubert has been appointed Chief Commercial Officer (CCO) as of 1 March 2018. He reports to the CEO and is responsible for marketing, innovation, (e)commerce and retail / experience centers.

Supervisory Board

The remuneration of the individual members of the Supervisory Board is as follows:

  2017 2016
  in € in €
A.J. Pasman 63,004 52,488
J. van den Belt 48,239 40,730
P.B. Ernsting 48,239 40,730
A. Kuiper 1) 35,239 40,730
Total 194,721 174,678
1) Resigned as a member of the supervisory Board on 19 October 2017.

 

Associates and joint ventures

The transactions during the financial year and balances outstanding at year-end between group companies and associates and joint ventures are presented below:

  Transaction values for the year Balance outstanding at year-end
  2017 2016 2017 2016
  € x 1,000 € x 1,000 € x 1,000 € x 1,000
Sale of goods and services        
Atala SpA 3,371 2,269 660 51
Velosophy B.V. 28 - 1 -
Raleigh South Africa 62 - 43 -
         
Purchase of goods        
Atala SpA 3,488 2,881 670 20
Beeline Bikes, Inc. 146 6 18 -
         
Dividends received        
Atala SpA 99 50 - -
Velosophy B.V. - 168 - -
         

 

The amounts outstanding are not provided for and will be settled in cash and cash equivalents. No guarantees have been given or received. No expense has been recognized for bad or doubtful debts in respect of the amounts owed by related parties. All sales and purchases are prices on an arm’s length basis. Transactions and balances between Accell Group and its non-consolidated companies have not been eliminated for consolidation purposes.

27.      Auditor fees

The total costs for the services rendered by KPMG Accountants N.V. consist of:

  KPMG Accountants N.V. Other KPMG network Total KPMG KPMG Accountants N.V. Other KPMG network Total KPMG
      2017     2016
  € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000
Audit of the financial statements 591 527 1,118 373 494 867
Other audit assignments - - - - - -
Tax services - 29 29 - 23 23
Other non-audit services 1) 5 - 5 - - -
Total costs 596 556 1,152 373 517 890
1) The other non-audit services in 2017 include agreed-upon procedures.