Hornbach-Baumarkt-AG Group

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68 GROUP MANAGEMENT REPORT Risk Report Major changes to financial reporting processes due to new laws, legislative amendments or changes in internal processes are discussed prior to implementation at international finance conferences for all managers with significant involvement in the group financial reporting process. Specialist accounting or financial reporting issues and complex matters either involving particular risks or requiring special expertise are monitored and processed centrally. External experts, such as chartered surveyors, are drawn on in particular to assess the fair values of real estate in the context of impairment tests or to measure pension provisions. All significant processes relevant to financial reporting are uniformly portrayed across the Group in a common IT system for the overall Group. This complete integration of all major finance systems within a uniform IT system ensures the integrity of the data on which the separate and consolidated financial statements are based. In conjunction with the accounting handbook valid for the whole Group, the use of uniform account codes across the Group and central management of the account system ensure uniform accounting treatment of transactions of the same nature. This also serves as a basis for group consolidation in accordance with the relevant requirements. Consolidation measures and the necessary agreement activities are performed centrally by a consolidation department. The checks to be undertaken in the consolidation processes, such as the consolidation of liabilities, expenses or revenues, are performed both automatically by the system and manually. The risk of any system breakdown or loss of data is minimized by centrally managing and monitoring all significant IT systems involved in the financial reporting process and regularly performing system backups. As an integral component of the internal control system, within the framework of its activities the Group Internal Audit Department regularly audits the effectiveness of the internal control system in respect of the financial reporting process on the basis of trial samples reviewed in line with a risk-oriented audit plan. Alongside these internal audits, the external auditor also assesses the effectiveness of internal checks of relevance to the financial reporting process within the framework of its audit. Having said this, even suitable, functional systems cannot provide absolute certainty concerning the identification and management of risks. Financial risks The Group’s financial risks comprise foreign currency, interest rate, liquidity, and credit risks. Responsibility for managing these risks lies with the treasury department. Foreign currency risks In general, HORNBACH is exposed to foreign currency risks on account of its activities in countries with currencies other than the euro. Specifically, these involve Swiss francs, Czech crowns, Swedish crowns, and Romanian leis. Any depreciation in a foreign currency against the euro can lead to a reduction in consolidated earnings when translating the separate financial statements of foreign subsidiaries into euros, the Group’s currency. These risks are not hedged at the Group. Furthermore, the increasingly international business activities of the Group result in rising foreign currency requirements both for handling international procurement and for financing objects of investment in foreign currencies. Any change in the exchange rate between the respective national currency and the procurement currencies (chiefly EUR and USD) could have a direct negative impact on earnings. Open foreign currency positions in USD are largely secured by hedging transactions (forward exchange contracts and USD fixed-term deposits). Where possible, investments are financed in the functional currency of the respective country company (natural hedging). Open foreign currency positions arising at the Group in EUR, which mainly relate to intragroup deliveries and services invoiced in EUR and intragroup EUR loans, are not hedged. Interest rate risks Fixed-rate agreements or interest rate exchange agreements (interest swaps) have been concluded to secure the interest rates on existing non-current liabilities. The interest swaps
GROUP MANAGEMENT REPORT Risk Report 69 enable floating interest rates on loans to be exchanged for fixed interest rates, thus securing the interest payments on loans which could have a significant influence on the Group’s annual earnings. Liquidity risks The acquisition of land, investments in DIY megastores with garden centers and procurement of large quantities of merchandise require liquidity to be permanently available. The financing of the company's further expansion is secured by the inflow of funds from the operating cash flow and where necessary by sale and leaseback transactions, as well as by bilateral bank loans and credit lines, a syndicated credit line of € 250 million with a term running until December 14, 2016, a promissory note bond at HORNBACH-Baumarkt-AG with a volume of € 80 million and a term running until June 30, 2016, a promissory note bond taken up in local currency by a subsidiary of HORNBACH-Baumarkt-AG with an equivalent volume of € 20 million and a term running until August 31, 2015, and not least the € 250 million bond issued by HORNBACH- Baumarkt-AG in February 2013, which has a term running until February 15, 2020. HORNBACH is countering the risk of no longer being able to obtain longer-term financing for new locations from banks or via sale and leaseback transactions due to financing conditions on the capital markets by flexibly adjusting its investments, maintaining a substantial liquidity cushion, and with short and medium-term financing based on existing credit lines. No security in the form of assets was granted in connection with the bond and the syndicated credit line at HORN- BACH-Baumarkt-AG, or the promissory note bonds at the HORNBACH-Baumarkt-AG Group. The contractual terms nevertheless require compliance with specified customary covenants. Failure to do so may possibly result in immediate repayment being required for the funds drawn down. This would necessitate follow-up financing, which would only be possible on stricter refinancing terms. Alongside general covenants, such as pari passu, negative pledge, and cross default covenants, specific financial covenants were also agreed for the promissory note bonds and the syndicated credit line. These require compliance with an equity ratio of at least 25% and interest cover (adjusted EBITDA / gross interest expenses) of at least 2.25 on the level of the HORNBACH- Baumarkt-AG Group. Furthermore, maximum limits have been set for financial liabilities secured by land charges and for financial liabilities at subsidiaries. The bond is governed by general covenants, such as pari passu, negative pledge, and cross default covenants, but not by any financial covenants. Compliance with these covenants is monitored on an ongoing basis. All covenants were complied with at all times during the 2012/2013 financial year. As of February 28, 2013, the equity ratio amounted to 51.4% (2011/2012: 48.6%) and interest cover amounted to 6.0 (2011/2012: 7.6). The information required for efficient liquidity management is provided by rolling group financial planning with a twelvemonth budgeting horizon, which is updated monthly, as well as by a daily financial forecast. The Group currently faces no risks in connection with any follow-up financing necessary to cover maturing financial liabilities. At present, no liquidity risks are discernible. Credit risks The company limits the risk of any financial loss in connection with financial investments and derivative financial instruments by working exclusively with contractual partners of strong creditworthiness and selecting banks covered by collective deposit security arrangements. Moreover, bank deposits have been distributed among several financial institutions in order to counter the increased risk of bank deposit default in the context of the financial market crisis and the subsequent European credit and sovereign debt crisis. This approach was also maintained in the 2012/2013 financial year. The company’s retail format (cash and carry) means that the risk of receivables defaults in its operating divisions is already considerably reduced. Further detailed information about financial risks and sensitivity analyses can be found in Note 33 in the notes to the consolidated financial statements.
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Hornbach-Baumarkt-AG Group Annual R
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Key Group, Financial and Operating
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COMPANY PROFILE 7 Germany. The net
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10 TO OUR SHAREHOLDERS TO OUR SHARE
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12 REPORT OF THE SUPERVISORY BOARD
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14 REPORT OF THE SUPERVISORY BOARD
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16 DIRECTORS & OFFICERS DIRECTORS &
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AUDITOR’S REPORT 159 AUDITOR’S
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Germany Baden-Württemberg Binzen E
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