Professional Documents
Culture Documents
Annual Report 2010
Annual Report 2010
Annual Report 2010
marKeTs
ANSWERS //
soLuTioNs
2010
aNNuaL reporT
QUESTIONS //
our marKeTs
people all over the world now want to be able to pay, communicate, work,
travel, and network without boundaries anytime, anywhere. security,
efficiency, and convenience are key. can these expectations be met?
Key figures
Sales
2010
2009
% Change
1,688.2
1,684.2
0.2
-8.6
227.4
248.8
1,460.8
1,435.4
1.8
Capital expenditure
100.4
175.1
-42.7
116.7
93.7
24.5
EBIT
131.3 *
139.5
-5.9
80.5 *
104.5
-23.0
10,122
2.9
Sales (Germany)
Sales (other countries)
Net income
10,413
Employees as of December 31
We observe five corporate values in the daily implementation of our vision and mission:
trust, quality, sustainability, responsibility, and integrity.
Banknote: Employees
753
896
2010_________
2009_________
4,050
3,975
2010_________
2009_________
2010_________
2009_________
705
589
5,176
4,963
2010_________
2009_________
2010_________
2009_________
210
183
Every organization needs to know what its core purpose is. Giesecke & Devrient has a shared
mission that unites all its business segments and locations across the globe: We make
the world secure by ensuring reliable transactions and the authenticity of identities as well
as tangible and intangible values thus contributing to everybodys peace of mind.
A shared vision enables us to build on this solid foundation and become ever stronger and
more successful: We safeguard reliable transactions and authenticity. We are the technology
leader, trusted partner, and preferred provider of products, services, and solutions in all our
markets. We act with intercultural excellence and entrepreneurial drive.
2010_________
2009_________
Vision, Mission,
Values
658
675
2010_________ 20
2009_________ 16
2010_________ 93
2009_________ 85
S_02
Corporate
strategy
Is security
still possible
in our interconnected
world
?
In todays world, people, data, and goods are globally connected and constantly on the move.
Sometimes we pay by cash, sometimes by card, and increasingly often by cell phone. Smartphones
and notebooks enable communication in every corner of the globe. We log on to the corporate
network from home, and even machines automatically communicate with one another. The amount
of data sent via mobile devices alone will, at minimum, double each year from now through 2014,
while the flow of international goods and travel is gradually regaining pre-crisis levels. The constant
in this fast-paced world is security of data, transactions, identities, and values. Something that
G&D delivers every day.
S_03
S_04
Payment
Is cash
indispensable
?
Cash is still king, but new methods of secure, flexible payment are emerging all the time. However,
it is just these attributes security and flexibility that make cash the worlds most popular payment
method. With G&Ds cutting-edge paper, printing, and processing solutions, manipulation of bank
notes is virtually impossible. Of course, many people now use cards for payment too. And we produce a
wide variety, with each new version featuring more functionality than the last. G&D is also energetically
driving development of cell phones with a wallet function. Whether cash or electronic, we strive
every day to make payment transactions secure and convenient all over the world.
05
S_05
06
S_06
Communication
Will it soon be
impossible to
live without
my cell phone
?
Well, why miss out on the many helpful cell phone applications that make everyday life more exciting,
convenient, and flexible? What began in the US at the end of the 1940s with the worlds first cell phone
network is now a booming mass market. Thanks in no small part to our solutions, modern cell phones
are fast becoming the nerve center of our lives, opening up myriad applications both over the air and
online. They help us stay in touch both by calls and through mobile access to e-mails and social networks
such as Twitter and Facebook, they make traveling easier, and they can be used for payment and other
monetary transactions such as banking. As one of the worlds leading providers, G&D offers tailored
hardware, software, and services for all these scenarios.
07
S_07
S_08
Identity
Do people really
know exactly
where I am and
what Im doing,
24/7
?
With the increasing use of modern payment and communication tools such as the Internet, cell phones,
and cards, it is vital to prevent unauthorized parties gaining access to data or secure systems, for
instance via business premises or IT networks. Our expertise is also helping to make travel safer. For
example, G&D helps countries to protect their borders against international terrorism and organized
crime. Unambiguous verification of identity lies at the heart of all these precautions on entering airports or a companys server room, or in the event of a vehicle check. Identity management can also
help to avoid unnecessary repeat examinations in the healthcare sector. G&D provides cutting-edge
solutions for all these applications and more.
S_09
S_10
Research and
Development
Dont technical
advances always
make things more
complicated
?
Our researchers help to make anytime, anywhere payments, communications, work, travel, and
networking safer and more convenient. Technology is advancing at a breathtaking pace: the first
e-mail was sent in 1971, almost 150 years after the invention of the electrical telegraph system in 1837,
but it took less than 20 years for the mobile Internet to reach critical mass following emergence of
the first online chat room (1988), SMS (1992), and social media (1995). G&D makes a pioneering contribution to user-friendliness and state-of-the-art security and will continue to do so in the future.
11
S_11
S_12
Employees
What future
lies in store for
our employees
?
All our technology would come to nothing without people to develop, market, and use it. So a tech
nology provider such as G&D, in particular, needs employees who put their heart and soul into what
they do. We value and support our staff of around 10,000 as the most important factor in our success.
We provide varied challenges within a climate of innovation, an entrepreneurial outlook combined
with a real sense of responsibility and tradition, a work environment where people feel valued, person
al progression opportunities through ongoing development and training, the chance to experience
assignments in different countries and cultures, a transparent pay structure, and open communication.
S_13
S_14
Corporate Social
Responsibility
S_15
Payment
Communication
Identity
Q1 2010
The joint venture Original1
commences operations
Q2 2010
G&D receives another award in
recognition of its family-friendly
policies
Q3 2010
G&D sets up its own foundation
Q4 2010
G&D delivers components for
the new German ID card to the
Bundesdruckerei
ANSWERS //
OUR SOLUTIONS
Contents
Foreword
004
Management Board
006
008
Corporate Strategy
010
Payment
012
CommuniCation
016
Identity
020
024
Employees
026
030
038
068
Corporate bodies
126
Glossary
128
004
005
Foreword
Giesecke & Devrient proved itself resilient in the face of the recent global economic and financial crisis.
The total sales of around EUR 1.7 billion achieved on the back of robust growth prior to the crisis were
rivaled in fiscal 2010, with the expected drop in sales in the Banknote business unit more than offset by
significant growth in Cards and Services and Government Solutions. We were able to maintain or expand
our market share across all business units. In addition, the companys operating profit increased compared with the previous year, rising to more than EUR 150 million. This again enabled us to fund our
consistently high investment in future development from our own cash flow in 2010.
The key pillars of our Group strategy remain innovative drive, global customer proximity, and the trust in
our brand that Giesecke & Devrient has built up over almost 160 years. These three pillars again determined the focus of our capital expenditure in 2010, with funding allocated to research and development
increasing by some 25 percent and expenditure on our global sales capabilities rising around 10 percent.
2010 also saw us underline our commitment to the sustainable development of our company and the
society in which we live and operate by establishing the Giesecke & Devrient Foundation, which we
endowed with EUR 20 million. In addition, we invested significantly in globally integrated management
of environmental sustainability, employee development, and compliance. Our adoption of the UN
Global Compact in 2010 represents an important milestone in this process.
Taken as a whole, we regard fiscal 2010 as a success and not just from a business perspective. All of us
in the Group worked intensively on essential, forward-looking projects. The overarching aim is to maintain
G&Ds success as a technology leader and independent, family-owned company by playing an active
role in shaping the future of the banknote and delivering security and trust in our mobile, globally networked world. Our Creating Confidence. claim remains our core performance promise to our customers
and business partners worldwide.
In a world where people, data, and goods are constantly on the move and globally interconnected, trust is
a central requirement especially in terms of the security of transactions and the authenticity of identities,
assets, and values. This is particularly important in the rapidly growing (and converging) fields of payment, mobile communications, and Internet services. Giesecke & Devrient has invested substantially in
its portfolio of secure products, software, and services throughout recent years to help shape the dynamic
new market for secure mobile applications. Key milestones here included establishing the New Business
start-up division and Venyon service subsidiary in 2006 and acquiring software company SmartTrust in
2009. At the start of 2011, we took this work forward by creating the new Mobile Security business unit.
This combines our hardware, software, and service portfolios for integrated solutions covering telecommunications and cashless payment, mobile business applications, and public transport, as well as Internet
and network security. Just as G&D technologies already create trust and security for payment products
in peoples wallets, this new organizational structure leaves us even better placed to ensure trust and
security for mobile services on smartphones. The new business units comprehensive solutions portfolio
will now be marketed by a joint global sales team.
G&D is thus extremely well positioned to respond to the challenges and requirements of customers
across all its markets. Accordingly, this years annual report features a question-and-answer format for
our core markets of payment, communication, and identity verification.
The significant progress achieved on so many fronts in 2010 would not have been possible without the
outstanding commitment of our employees. On behalf of the entire Management Board, I would like
to thank you all for your dedication and loyalty. We are constantly striving to enhance our standing as
an attractive and reliable employer, so we were particularly pleased to learn from our most recent glob
al employee survey in 2010 that some 71 percent of our staff would recommend G&D as an employer.
That is a huge source of motivation for us and a solid platform for the future.
At the end of 2010, we started to implement our CHANGE program to harmonize and standardize our
global process and IT environment across the Group. The aim is to create a significantly more efficient
organizational structure throughout all our business units and international subsidiaries, enabling us to
align our internal competencies with external market and customer requirements even faster and more
effectively. This is crucial to maintaining our profitable growth trajectory beyond 2012.
We expect the global recovery to continue in 2011, albeit at a limited pace. We will do our utmost to
maintain our leading role in our core sectors and successfully position our new business unit and its
solutions portfolio in the burgeoning mobile security markets. Overall, we anticipate moderate sales
growth for the G&D Group over the coming year. We plan to increase investment again in 2011, while
remaining committed to boosting enterprise value.
1852
Hermann Giesecke and Alphonse Devrient
establish the Officin fr Geld- und Werthpapiere
in Leipzig, Germany
1854
From 1854 up to the creation of the German Empire
in 1871, G&D prints state-issued paper money for
8 German principalities and banknotes for 19 private
note-issuing banks
006
007
Management
Board
Michael Kuemmerle
Chairman of the
Management Board,
CEO
CFO
Banknote
Business Unit
Mobile Security
Business Unit
Government Solutions
Business Unit
1922
Printing of banknotes for the German Reichsbank
begins with the Giesecke Tausender
008
009
Supervisory
Board report
During the 2010 fiscal year, the Supervisory Board of Giesecke & Devrient GmbH performed all its
duties as stipulated by legal provisions and the Articles of Incorporation. The Supervisory Board also
monitored the Management Board and advised on issues of note.
At meetings of the Supervisory Board, the Management Board provided regular, comprehensive information about the companys situation. The Supervisory Board additionally received oral and written
updates on G&Ds performance and finances in the form of quarterly reports. Outside the scheduled
meetings, the Chairman of the Supervisory Board was also in regular contact with the Management
Board and was kept informed of issues relating to the current business situation.
The Supervisory Board held three scheduled meetings during fiscal 2010 to consider the economic
situation of the company and major investment decisions. It also used these meetings to deal with
corporate planning and G&Ds financing strategy. Further, it advised the Management Board on matters
relating to HR policy and reviewed compliance and risk management procedures. Another important
issue discussed by the Supervisory Board was the new strategic alignment of the Telecommunications
and Payment divisions and the associated creation of a new Mobile Security business unit, comprising
the Secure Devices division and the Server Software and Services division. The Supervisory Board
also considered the CHANGE program, which entails global restructuring of the process and IT
environment.
The Supervisory Board duly received the annual financial statements and management report of
Giesecke & Devrient GmbH for the period ending December 31, 2010, prepared in accordance with
the German Commercial Code (HGB), and the consolidated financial statements and Group management report for the period ending December 31, 2010, prepared in accordance with IFRS, along with
the Management Boards proposal for appropriation of net income and the audit report.
The auditor, KPMG, issued its opinion on the accounts. This was unqualified with the exception that the
notes to the consolidated financial statements do not contain disclosures required by IFRS with regard
to the remuneration of managers in key positions where this information exceeds the reporting requirements of Section 314 of the German Commercial Code.
The Supervisory Board accepted KPMGs audit opinion of both sets of financial statements. The auditor attended the meeting on May 4, 2011, in which the financial statements and proposed net income
appropriation were discussed, and reported on the main findings of the audit, particularly concerning
the internal control and risk management system in relation to the financial reporting process.
The Supervisory Board concluded its review with no objections raised. It discussed, examined, and
approved the annual and consolidated financial statements, including the corresponding management
reports, and agreed to the proposed net income appropriation at its meeting of May 4, 2011.
The Supervisory Board would like to thank the Management Board, all employees, and the Works
Councils of the G&D Group for their efforts and valuable contributions to a successful fiscal year.
1948
Following the destruction of G&Ds
headquarters in Leipzig, Siegfried Otto
starts to rebuild the company in Munich
1955
Development of the first standard Deutsche
Mark travelers checks in collaboration with
the German banking industry
010
011
Corporate
STrategy
We safeguard
reliable trans
actions and the
authenticity of
identities and
values
:
1968
G&D files the first patent application
for cards with embedded chips
1971
The European banking industry develops
the Eurocheque and Eurocheque card in
conjunction with G&D
159
our markets. Mobile Security incorporates our
hardware and software solutions for telecommunications and cashless payment, mobile business
applications, and public transport, as well as Internet and network security. Our product portfolio
here ranges from secure hardware (e.g. payment
cards, SIM cards, and tokens) to servers, software,
and services all marketed by a joint sales team.
We are thus even better equipped to meet the
needs of our customers for integrated, commercially attractive offerings. We offer tailor-made
solutions that guarantee security in todays virtual
world, such as new contactless cell phones with
NFC technology, secure integration of external
staff into company networks, secure financial and
bank transactions via cell phone, tap-proof telephone calls and SMS texts, and wireless machineto-machine communication.
The new Mobile Security business unit comprises
the former Cards and Services unit, the Transit
segment of Government Solutions, and the New
Business division. Former subsidiaries Venyon
and SmartTrust have been integrated into G&Ds
comprehensive offering, retaining recognized
brands such as Convego, SmartTrust, SkySIM,
and StarSign.
Thanks to this globally unique solution portfolio,
G&D is well positioned in the payment, communication, and identity markets. Find out more on
the following pages.
years of innovation
by Giesecke & Devrient
012
013
Payment
Theres room in
our wallets for
both banknotes
and cards and
now cell phones
are providing
another secure
way to pay
:
1975
Introduction of automated banknote
processing systems and the worlds
first machine-readable banknote
100
>>
www.louisenthal.com
1979
G&D develops the worlds first system
for laser personalization of credit cards
014
Payment
015
1981
G&D is commissioned by French banks and the
Deutsche Bundespost (German federal post office)
to produce the first smartcards for a point-of-sale
trial in France
Banknotes
trusted by all
When explorer Marco Polo became the first
European to encounter paper money in China
around 1300, little did he know that these bank
notes, which were fully accepted as a payment
method alongside coins, would fundamentally
change the way business was conducted in his
own country too. However, it was to be another
150 years before coins faced serious competition
from notes in Europe. Today, banknotes are the
most popular method of payment worldwide, still
preferred to cards or electronic transactions. In
Germany, for example, 58 percent of goods and
services purchased are paid for in cash, according
to the Bundesbank. The reasons are many and
varied: banknotes are flexible and discreet, and
cash can also make it easier to keep an eye on
ones spending. In countries with a less developed
infrastructure, cash gives the general population
access to the economy. But the main reason for
the widespread acceptance of cash lies in the huge
technical advances made in banknote production,
particularly during recent years. Counterfeiters
had it relatively easy in centuries past, but the
barriers to manipulation are now so formidable
that the banknote represents a genuine promise
of value.
016
017
Back when cell phones were used solely for communication, G&D was already helping to shape
the market. We provided smartcards for the first
German cell phone network in the 1980s and
produced the first commercial SIM cards in 1991.
Today, our customers include hundreds of mobile
network operators and other service providers
worldwide, who require much more than just voice
and message-based solutions. The ever-smaller,
flatter, and impressively stylish cell phone now
performs numerous different tasks for which
consumers expect maximum security.
CommuniCation
1984
G&D launches the SIM plug-in, which
soon becomes the global standard
297,000,000
and this number is growing all the time, so the
mobile security card is also an ideal solution for
integrating mobile devices into a companys security
concept. With the mobile security card VE 2.0,
we have even developed a solution for secure voice
and messaging. Thanks to G&D technology, both
calls and SMS texts from German government
employees have been tap-proof since 2010.
G&D is also a trusted partner with regard to the
third parameter of mobile business models the
connection between the service provider and the
consumers secure device. One of the key technol
ogies here is Near Field Communication (NFC).
Available in 2011 from every major manufacturer and set to capture a fast-growing market share,
NFC-enabled cell phones allow users to pay for
items by waving their device at a supermarket
cash register, to download a train ticket (e.g.
using Deutsche Bahns Touch&Travel offering,
powered by G&D technology), to pass through
access controls, or to gain entrance to their hotel
room. As an independent provider in the highly
promising NFC market, we can offer mobile network operators and service providers such as
banks and public transport companies a whole
host of secure management, supply, and personalization services throughout the entire lifecycle.
G&D leads the way in independent trusted ser
vice management (TSM). To take one example,
1990
G&D receives a major contract from the
US Federal Reserve for the new ISS 3000 highperformance banknote processing system
smartphones
were bought in 2010
* Source: Gartner 2011
>>
www.gd-sfs.com
018
019
book, SMS notification of missed calls, and metapasswords for credit card numbers and passwords
stored on the cell phone, etc. Thanks to G&Ds
SmartTrust DPTM solution, since 2010 mobile
network operators have also been able to provide their customers with secure access to social
media such as Twitter and Facebook from virtually every type of cell phone.
M2M communication powered by G&D
Communication
1991
G&D supplies the worlds first commercial
SIM cards to a Finnish network operator
G&D is also set to participate in the huge potential opened up by machine-to-machine (M2M)
communication. We are already playing a leading
role in the standardization and commercial rollout of this technology in many industries, from
medicine through logistics and transportation to
trade and traffic. G&Ds M2M portfolio helps
service and mobile network providers to design a
successful M2M business model. The underlying
principle is that machines, systems, and individual
modules automatically exchange information without human input. Application scenarios include
SMS, GPRS, or UMTS transfer of electricity meter readings to a utility company, or remote access
to a faulty device by a support technician. With
an estimated 50 billion M2M-capable devices
worldwide, the possibilities are endless.
To ensure that our increasingly mobile life remains
secure, reliable identity verification is becoming
ever more important.
>>> More on page 20
Cards
simple, convenient
electronic payment
There are billions of debit and credit cards in circulation around the globe. Basic versions feature
a simple magnetic stripe. In Europe, migration to
smartcards that comply with the forgery-resistant
EMV standard is set for completion in 2011, with
other high-volume markets such as the USA and
China soon to follow. Increasing numbers of cards
are also equipped with contactless technology, which
conveniently enables them to be waved in front of a
cash register or other terminal rather than inserted
in a reader. In 2010, G&D became the first card pro
ducer to supply more than 50 million contactless
smartcards in the US. We also produce dual interface cards, which feature both a contact-based and
a contactless interface. G&D is developing complete
ly new cashless payment options in the form of contactless stickers (e.g. for smartphones) and key rings
containing an embedded payment function. These
products are particularly attractive to the young,
mobile generation. Equally, banks, retailers, and
service providers have long recognized that the potential of cards extends well beyond making payments. With the help of our solutions, the payment
card becomes a marketing and customer loyalty
tool by means of personalization, attractive design,
and points programs. G&D also meets the current
high demand for eco-friendly card features, including solvent-free ink, recyclable materials, and nonPVC products.
020
021
Identity
Reliable identity
verification is
essential to keep
our interconnected
world secure
:
1993
The German healthcare sector introduces
memory chip cards manufactured by G&D
90
Bundesdruckerei (federal printer) since 2010:
chip, operating system, and antenna. This creditcard-sized ID lies at the forefront of global
technology thanks to its versatility, contactless
interface, and high level of security. The card has
three applications: identification (including via
the stored biometric data), for instance at police
checkpoints; authentication on the Internet;
and electronic signatures, which can be used for
legally binding contracts.
1996
G&D produces the first contactless
multifunction smartcard for Lufthansa
1996
G&D launches the BPS 1000, a highly
modular banknote processing system
022
Identity
023
1998
The first SIM card made in
China comes from G&D
smartphones
024
025
Research and
Development
Our research
makes the world
a safer, more
convenient place
:
1999
G&D prints the new European currency the
euro to state-of-the-art security standards for
the European Central Bank, and is the largest
euro printer by volume of the 15 involved
2000
G&D successfully completes a project involving
production of 42 million Egyptian ID cards
telecommunications, identification, and local transport ticketing. At the same time, we are working
closely with chip manufacturers to improve the
security of mobile devices. Another market of the
future is machine-to-machine (M2M) communication, where our current focus is on SIM modules
that are extremely robust and durable and can
withstand tough conditions such as constant vibration or extreme temperatures. Opportunities for
other M2M applications include vehicle telematics
such as the EUs eCall initiative for in-vehicle
emergency calls and electric vehicles.
With our customers demanding documents that
can be used for up to ten years in the field, it is
vital that our passport and ID solutions are equal
ly innovative. This means our developers must
116,700,000
anticipate the technical capabilities of passport
forgers in ten years time, which is why we work
closely with the Banknote unit to bring a new security feature to market every year. This high rate
of innovation ensures that our solutions will still
provide reliable information about the owners
identity a decade from today. We are also further
developing our pliable PECSEC card bodies,
which offer a convenient alternative to the stiffer
polycarbonate version. Another trend is the use
of sophisticated smartphones in the area of identification. In the future, cell phones will be able to
support certain ID card functions and become an
extension of the physical document.
>>
www.haw-ingolstadt.de
www.e-mobility-21.de
026
027
Employees
Our employees
are the key to
our success
:
2002
71
emphasis on health and safety, communication
and collaboration, and intercultural skills.
Professional development at Giesecke & Devrient
is not restricted to younger employees. Against a
backdrop of demographic change and an increase
in average employee age, we have decided to align
our development and training programs even more
closely with the different stages of life applicable
to our workforce. This process has already begun
at G&D with professional training and dual study
programs in more than ten skilled trades plus a
trainee program for college graduates. With a
view to filling senior positions with top quality
staff from our own ranks, employees who show
particular potential are placed in the Talent Pool
or Top Talent Pool. This professional development
process prepares staff to take on greater responsibility within our international Group. Launched
in 2006, the program has proved a great success,
2004
percent of employees
recommend G&D as an
employer
>>
www.greatplacetowork.de
www.karriere.de
028
029
Employees
>>
www.berufundfamilie.de
2005
The first EMV cards with contactless functionality
worldwide are issued in Malaysia
030
031
corporate social
responsibility
Responsibility
lies at the heart
of our business
:
2006
G&D is awarded a contract for the first electronic
healthcare cards by DAK, one of Germanys
largest statutory health insurers
2007
Introduction of the first 1 GB GalaxSIM
cards at TeliaSonera in Scandinavia
Based on our CSR strategy, in 2010 we began consolidating our existing social activities into three
areas in which our core business has a particular
impact on society: the environment, employees,
and security and society. Wider society expects us
to meet our responsibilities in terms of climate
protection and HR policy above and beyond the
legal requirements, not least in order to secure
the companys future. We are also aware that our
work in the field of security is of particular social
relevance, and this is an area in which we intend
to intensify our efforts and sharpen our focus even
further in the future. Our approach to security
issues embraces not only the technical challenges
they present, but also their impact on society as a
whole. In years to come, our business success will
partly depend on the level of social responsibility
with which these technologies are developed,
produced, and deployed.
In 2010, we developed concrete guidelines, binding principles, and programs for each of these
8,684
three action areas. This strategic alignment and
implementation of our current and future CSR
activities underpins our commitment to corporate social responsibility.
>>
www.unglobalcompact.org
032
033
corporate social
responsibility
The Group-wide Green Sustainability target system was established in 2010 to strategically align
G&Ds various worldwide activities and programs
aimed at protecting the environment and climate.
We have defined binding principles and pressed
ahead with concrete measures to move closer to
our objective of a sustainable value chain, from
introducing environmental standards across the
Group and implementing a climate protection
strategy through to efficient use of raw materials
and the development of green products.
Our aim is to establish strict, uniform environmental standards for the entire Group, which is
why we are continually extending our ISO 14001certified environmental management system.
This enables us to monitor our activities in terms
of making more efficient use of energy and resources and reducing our carbon footprint, and
thus to achieve systematic improvements. We are
gradually integrating our various production locations and subsidiaries worldwide into this system. Similarly, G&D has incorporated health and
safety standards into its existing environmental
management system to create an integrated environment, health and safety (EHS) system. This
brings together all our policies and strategies relating to environmental protection, health, and
occupational safety and leverages synergies. In
addition to the ecological aspects, this allows us
to protect the occupational health and safety of
our employees even more effectively.
2008
2009
Introduction of the new BPS M7 banknote processing system, which can check up to 120,000 banknotes
per hour for authenticity and fitness
>>
www.it-hochburg.de
www.wissensfabrik-deutschland.de
034
035
corporate social
responsibility
2010
The Bundesdruckerei (federal printer) selects
G&D as prime contractor to supply inlays
for the new German ID card
2010
G&D launches a new microSDTM card
to prevent phone tapping
education of young people, an important objective of the G&D Foundation is promoting relations between different nations and cultures. We
are developing our own program to help achieve
this. In future, our funding for the Museum of the
Printing Arts in Leipzig will also come under the
umbrella of the G&D Foundation, fulfilling an
objective close to our hearts: to preserve the historical heritage of the printing arts. The museum
displays machinery and presses for producing
printed works and provides information about
the cultural history of typesetting, printing, and
bookbinding.
Alongside our Foundations activities, G&D began
to draw up uniform guidelines for our corporate
citizenship in 2010. These will enable the company
to focus more strongly on regional commitment
in areas where we maintain operations and to
strategically align our global corporate citizenship
activities. We also aim to encourage the commitment of individual employees.
>>
www.gi-de-stiftung.org
www.stiftung-nv.de
www.druckkunst-museum.de
036
037
Measures
Timeframe
Status
CSR strategy
Management and measurability
2010
2010
Completed
From 2011
New objective
2010; ongoing
2011-13
In development
2010-11
In development
2010
Completed
2011-13
In development
Climate protection
Completed for pilot locations Munich, Leipzig, Louisenthal, and Knigstein (Germany)
and Nitra (Slovakia)
2011-13
New objective
Ongoing
In development
Ongoing
Carbon-neutral banknote
2010
Completed
corporate social
responsibility
Ongoing
2010; ongoing
Demographic change
Ongoing
Youth succession
Ongoing
Work/life balance
2010
Completed; ongoing introduction of new measures, e.g. support for women in management
positions and for flexible working time models; family issues and the executive role, etc.
Health management
2010-13
2011-13
2010-13
Started Q2 2010
Established Q1 2011
2010-11
2010-11
Program launched
2010
Implemented
2011
New objective
Establishment of Foundation
2010
Corporate citizenship
G&D Foundation
038
Group Management
Report
039
Giesecke & Devrient (G&D) is a leading international technology group that has been family-owned
for five generations. In 1852, Hermann Giesecke and Alphonse Devrient established the Officin fr
Geld- und Werthpapiere in Leipzig, a city with a rich printing and publishing heritage. Today, the Group
is headquartered in Munich and its operations comprise 61 subsidiaries, joint ventures, and associated
companies across the globe. At the end of 2010, G&D numbered 10,413 employees worldwide, including
6,493 outside Germany.
We are a trusted partner to our customers in the public and private sectors worldwide, supplying products and solutions for the following markets:
Paper production, printing, and banknote processing (Banknote business unit)
Cards (magnetic stripe, smart, and dual interface cards) and complex system solutions for safeguarding
electronic transactions and data, particularly in the fields of telecommunications and electronic
payment (Cards and Services business unit)
Security-related solutions for governments and public authorities, such as identification and travel
documents, ID and healthcare cards, e-government solutions and IT security, and contactless cards for
public transport (Government Solutions business unit)
Solutions for new markets and technologies, especially in the field of mobile communications (New
Business division)
Up to the end of 2010, the operating activities of the G&D Group were divided into three business units
with eight divisions. The ninth division, New Business, worked closely with the Cards and Services and
Government Solutions business units, primarily in relation to marketing/sales and research.
Banknote
Government
Solutions
Division
Paper
Printing
Processing
Telecommunications
Payment
SmartTrust
Government
secunet
New Business
Corporate Functions
In order to further extend our global success with innovative products for telecommunications and payment while meeting the clear market requirement for an integrated, solution-based range of secure
products, software, and services, the activities of the former Cards and Services business unit, the
New Business division, and the Transit segment of the Government division were combined within a
new Mobile Security business unit at the start of 2011.
1.
Business Activity
040 |
041
This new business unit comprises two new divisions Secure Devices, and Server Software and
Services (3S). Going forward, a joint marketing and sales organization will represent both divisions on
the global market, ensuring a customer-focused approach. This follows the pattern for the purchasing
and quality management functions, which previously provided services to all divisions within Cards and
Services and will now also support Mobile Security.
Banknote
Mobile Security
Government
Solutions
Division
Paper
Printing
Processing
Secure Devices
S erver Software
and Services
Government
secunet
Corporate Functions
2.
Market Trends
In 2010, the global economy largely emerged from the tough recession of 2008 and 2009, experiencing a
broad-based recovery and even a strong upswing in some areas. Having contracted nearly 2% in 2009,
global economic growth approached 4% on average in 2010. The key driver was resurgent international
trade, which had taken a dramatic 11% tumble in 2009 but climbed back 12% during 2010.
The Banknote business unit experienced reduced demand for its products and services in 2010 compared with the previous year. However, the trend towards cashless payment continues and cash remains
the worlds most popular payment method. As a technology leader, G&D is clearly differentiated from
its competitors in the banknote segment and invests heavily in research and development to further
enhance its competitive edge.
Modest global economic growth meant that quantities of banknotes in circulation increased only
slightly. The market for the Banknote Paper division therefore moved sideways without significant
growth drivers. The move towards durable substrates and the implementation of complex security
features continued. Showing greater responsiveness to customer requirements without long lead times
is becoming increasingly important.
Although printing volumes in the marketplace are stable at a total of around 130 billion banknotes,
manufacturers and printing plants have significantly boosted their capacity through modernization
and expansion in recent years. As a result, the Printing division is experiencing ever-tougher competition at a global level. In particular, new state-owned banknote printers with surplus capacity are
crowding into the market in Latin America and Asia. Another factor is the general rise in the price of
raw materials, with cotton in particular becoming more expensive. There is also a trend towards issuing
tenders for contracts internationally. The German central bank (Deutsche Bundesbank), for example,
has changed the way it awards contracts and placed a large proportion of its printing requirement for
2011 with foreign printers.
The Banknote Processing division continued to feel the effects of the financial crisis, especially in our
markets in the United States, Europe, and Eastern Europe regions. Investment decisions were postponed due to budget cutbacks. In other regions, however, such as Latin America and the BRIC countries
(Brazil, Russia, India, and China), recovery is increasingly apparent. The cost pressures involved in managing the banknote cycle are making automation an even higher priority for our customers, leading to
greater demand for highly integrated automation solutions for banknote security (security features and
sensors) and cash cycle management (systems, software, and services).
Performance of the markets served by our Cards and Services business unit was consistently positive
in 2010. The market environment for the Telecommunications division was marked by reinvigorated
demand for SIM cards, following single-digit growth rates in 2009. Gains were seen worldwide but
were particularly strong in Asia and Africa. Considerable additional demand is also anticipated from
North America in the future, mainly due to 4G/LTE technology being rolled out by network operators
who have not previously used SIM cards. The SIM industry does, however, remain exposed to declining prices. G&D was increasingly able to free itself of these pressures, though, because our specific
product portfolio is geared more towards higher-value SIM cards. Our market position therefore improved very favorably.
The Payment division saw its market grow much more strongly in 2010 than anticipated. The global
financial crisis had only a minor impact on the smartcard segment. Demand was also stimulated by
card replacement cycles in Canada and Spain, for example, as well as rebranding activities. Overall,
growth in G&Ds Payment division far exceeded that of the wider market. Mobile money (financial
transactions performed by cell phone and SIM card) is another G&D payment market that offers
exciting prospects, especially in the emerging markets of Southeast Asia, Africa, and Eastern Europe.
Our subsidiary SmartTrust AB, and its subsidiaries in turn, experienced no growth in their markets
during 2010. Projects were delayed by legal requirements, for example, and by the after-effects of the
financial and economic crisis. As soon as new technologies like machine-to-machine (M2M) communication and Near Field Technology (NFC) take off, this will boost the market for mobile device management (MDM) and SIM management solutions. Such solutions allow mobile network operators to
offer a better service to their end customers, manage the devices in their network more efficiently, and
provide high-revenue, customer-focused services and applications quickly and easily.
The Government Solutions business unit benefited from the ongoing focus on reliable personal identification by way of secure, durable ID documents that also offer a high level of protection against data
misuse. As well as ID documents, G&D supplies associated system solutions and personalization,
authentication, and verification services to governments worldwide. Many customers launched electronic
identification documents, such as ID cards, in 2010. By providing proof of identity, these innovations
boost security at national borders, in the local and long-haul transportation sector, within companies and
networks, and for online transactions. G&D also supplies technologies that meet the growing public
need to protect, securely transfer, and store personal data. G&D is active in all these markets and was
able to extend its position through lasting innovations.
042 |
043
The New Business division was established as an innovation incubator in 2006. In todays world,
people increasingly want to make payments, communicate, work, travel, and network unhindered by
boundaries or restrictions. Technology from G&D makes all these everyday activities more secure and
convenient. In addition, the innovations and solutions we have developed in recent years have contributed to a trend that is transforming our markets: the increasing convergence of the payment world,
mobile communication, and the Internet. For example, it is already possible for bank customers to
make payments via card, cell phone, or online applications. At the same time, cell phone operators are
starting to offer financial services. In the process, mobile devices like smartphones are becoming the
virtual nerve center of daily life.
Structural costs, i.e. selling, research and development (R&D), and general and administrative expenses, rose disproportionately compared with the previous year by EUR 49.0 million (13.4%) to
EUR 415.5 million. Factors here were the full consolidation of SmartTrust for a complete fiscal year
(+ EUR 11.2 million) and the weakening of the euro against most foreign currencies (+ EUR 7.9 million). Services or functions performed at non-German companies proved considerably more expensive for the Group due to exchange rate developments. This applies especially to selling and administrative expenses, as these functions are not performed centrally, whereas R&D is concentrated at a
small number of mostly German locations. The remaining increase in costs of EUR 29.9 million can be
attributed to R&D (EUR 20.0 million) and sales activities (EUR 12.5 million). General and administrative costs were down by some EUR 2.6 million.
The Giesecke & Devrient Group comprises 61 subsidiaries, joint ventures, and associated companies. In
the year under review, the following changes occurred: the sales subsidiary PT Giesecke & Devrient
Indonesia was established in Jakarta; the stake in Shenzhen G&D Currency Automation System Co. Ltd.
in China was increased from 40% to 50%; and the 35% interest in the Russian company SITRONIC
Smart Technologies LLC was sold, as was the 8.33% holding in Sepedo Servios de Personalizao de
Documentos S.A., Portugal.
After more project and order-related research and development in the previous year, resulting in the
capitalization of associated expenses and impacting the cost of goods sold, R&D expenses increased to
EUR 116.7 million in the year under review (previous year: EUR 93.7 million). The Government Solutions business unit invested in adding value and developing electronic components for ID cards. Development efforts relating to new card bodies, new card personalization technologies, and advances in the
field of mobile payment also contributed to the rise in R&D expenses.
Group Business
Performance
While the sales and earnings of SmartTrust AB, which was acquired in 2009, were consolidated over
only seven months that year, they were fully consolidated for the entire fiscal year for the first time in
2010. Operating income was impacted by writing down assets acquired as part of purchase price allocation and stated at fair value.
Of the EUR 24.2 million increase in selling expenses, EUR 7.5 million is attributable to SmartTrust
consolidation and EUR 4.1 million to exchange rate fluctuations. The remaining increase of EUR 12.5
million (+7.6%) was due to a number of factors, including expanding international sales activities in
Indonesia and elsewhere. The growth in selling expenses is directly related to higher sales within the
Cards and Services business unit, in particular.
3.1.1.
Given the prevailing circumstances, G&D performed very well in the year following the financial and
economic crisis. Strong performance by the Government Solutions and Cards and Services business
units compensated for the drop in sales experienced by the Banknote business unit. Overall, Giesecke &
Devrient was able to increase sales slightly from EUR 1,684.2 million in 2009 to EUR 1,688.2 million in
the year under review. Devaluation of the euro boosted sales growth by EUR 55.5 million.
In consequence, the significantly improved gross profit was countered by increased structural costs,
meaning that operating profit was up only EUR 12.2 million (8.8%) year on year, to EUR 147.9 million.
3.
Business
Performance
3.1.
Results of Operations
Increased business volumes and the lower cost of goods sold resulted in gross profit of EUR 563.7 million, up EUR 60.6 million or 12.0% compared with 2009. Gross margin climbed 3.5 percentage points
from 29.9% to 33.4%. The improvements were driven by the Banknote Processing, Telecommunications, and Government divisions, in particular. The Banknote Processing division has streamlined its
product portfolio and now focuses on cash center solutions, including services. Cash handling products
were discontinued and OEM operations will become part of a joint venture with Wincor Nixdorf as of
2011. Some changes were also made to parts of the organizational structure. Despite a slight fall in
sales, the optimized product mix resulted in a significantly improved gross margin. Additionally, while
the fiscal 2010 income statement does include some extraordinary expenses arising from restructuring
activities, the effect was much smaller than in the previous year. In line with general market growth,
the Telecommunications division was able to achieve considerably higher sales in 2010. Since production capacities were consolidated in the prior year, costs associated with idle capacity were lower in
2010 too. Furthermore, the one-off effect of consolidation activities was no longer a factor in the year
under review. The Government division successfully completed its restructuring program, Breakthrough, and thanks to buoyant project business was able to significantly improve its gross margin
compared with the previous year.
There were one-off payments in the fiscal year now ended to the Giesecke & Devrient Foundation,
which was established in 2010. These expenses are shown as a separate line item in the consolidated income statement and have an impact on earnings.
In the year under review, positive financial income of EUR 3.4 million was again achieved. Lower income from using the equity method reduced financial income only slightly compared with the prior
year, by EUR 0.3 million. A reduction in income from securities was almost completely offset by income from the sale of an associated company. Excluding the one-off payments to the Giesecke &
Devrient Foundation, earnings before interest and income taxes (EBIT) totaled EUR 151.3 million.
This represents an increase of EUR 11.8 million (8.5%). The EBIT margin rose accordingly to 9.0%
from 8.3% in the previous year. Including the one-off effects of establishing the Foundation, EBIT
amounted to EUR 131.3 million.
044 |
045
Due to the fall in market interest rates, interest income was down 18.8% to EUR 6.1 million. Interest expenses increased by EUR 5.3 million in 2010, primarily due to new long-term borrowing by
G&D GmbH. G&D is utilizing low interest rates to take out new loans to cover its long-term capital
requirements.
At EUR 38.7 million, tax expenditure was up EUR 9.1 million compared with 2009. This development
was largely driven by impairment of deferred taxes capitalized in the prior year.
2010
2009
% of sales
% of sales
1,688.2
1,684.2
100
100
1,124.5
1,181.1
66.6
70.1
Gross profit
563.7
503.1
33.4
29.9
Selling expenses
188.3
164.1
11.2
9.7
116.7
93.7
6.9
5.6
110.4
108.6
6.5
6.5
2009____
-0.4
-0.9
0.0
-0.1
147.9
135.7
8.8
8.1
20.0
0.0
1.2
Operating profit
Payments to the Giesecke & Devrient Foundation
Financial income
Earnings before interest and income taxes (EBIT)
Interest income
0.2
0.2
7.8
8.3
6.1
7.5
0.4
0.4
18.2
12.9
1.1
0.8
134.1
7.1
8.0
Income taxes
38.7
29.6
2.3
1.8
Net income
80.5
104.5
4.8
6.2
3.1.2.
3.7
139.5
119.2
Interest expenses
3.4
131.3
Netting receivables and payables between Group companies and Giesecke & Devrient Holding GmbH
(hereinafter G&D Holding) reduced assets by EUR 78.3 million in fiscal 2010.
However, despite the impact of this netting agreement on the balance sheet, total assets increased by
5.3%, or EUR 85.0 million, to EUR 1,700.6 million. The balance sheet structure on the assets side
remained virtually unchanged compared with the prior year, whereas on the liabilities side, there was
a shift from current to non-current liabilities and a higher equity ratio was recorded.
42.2%
200
400
57.8%
600
800
1,000
1,200
1,400
1,600
1,800
Current assets rose by EUR 40.8 million to EUR 975.0 million. This was primarily due to cash and
cash equivalents and investments with terms between three months and one year, but also to higher
inventories. Non-current assets rose by around the same amount. The key factors here were loans to
the associated company MC Vermgensverwaltung GmbH & Co KG and a rise in intangible assets.
The latter increased due to additions to capitalized R&D expenses and the capitalization of costs
associated with the CHANGE program.
EUR million
57.3%
1,615.6
2010
42.7%
2009____
EUR million
Net sales
1,700.6
In total, net income for the fiscal year now ended amounted to EUR 80.5 million. Eliminating the effect
of establishing the Foundation (EUR 20.0 million) would leave net income only EUR 4.0 million down
(3.8%) on the previous year.
Current assets
Current assets
Equity
2010____
1,700.6
35.5%
38.7%
25.8%
1,615.6
29.1%
200
47.8%
400
600
800
23.1%
1,000
1,200
1,400
1,600
1,800
On the liabilities side, the current liabilities of the G&D Group to G&D Holding were reduced due to
the netting agreement. The non-consolidated G&D Holding company also made loan repayments
amounting to EUR 106.3 million in the year under review. There is a cash pooling agreement between
G&D Holding and G&D GmbH, whereby repayment was made from G&D GmbHs liquid assets.
Accordingly, the liabilities payable to G&D Holding under the profit and loss transfer agreement fell.
This also contributed to the reduction in the Groups current liabilities. Conversely, the Group took out
long-term bank loans with the European Investment Bank and BayernLB totaling EUR 130.0 million.
Despite the profit and loss transfer agreement with Giesecke & Devrient Holding GmbH, equity
increased by 17.6% from EUR 372.7 million to EUR 438.3 million at the balance sheet date of December 31, 2010. The equity ratio was up 2.7 percentage points from 23.1% to 25.8%.
Giesecke & Devrient has operated a working capital management program since 2008 to boost internal
financing. Working capital intensity the ratio of average working capital to sales over the preceding
twelve months increased from 14.3% at the end of 2009 to 15.7% in December 2010. This was largely
attributable to two effects: Due to the ongoing shortage of semiconductors, safety stocks of raw materials
and supplies were increased. In addition, due to its focus on cash center solutions as opposed to OEM
business, the Banknote Processing division needs to hold more inventory and has a longer cash conversion cycle, which both impact working capital. The Groups defined objective for working capital was
nonetheless achieved.
046 |
047
3.1.3.
Capital Expenditure
The ratio of equity to non-current assets climbed 20.0 percentage points to 143.7%. Non-current assets
reached EUR 725.7 million for the year under review, while equity and non-current borrowings totaled
EUR 1,043.1 million.
The increase in working capital of EUR 32.3 million and endowing the Giesecke & Devrient Foundation
with EUR 20.0 million had a significant impact on cash flow from operating activities. At EUR 155.9 million, this figure was EUR 42.9 million (21.6%) down on the prior-year level.
In 2010, it was established that the annual financial statements of subsidiary SECUNET s.r.o. for the
period ending December 31, 2008 needed to be revised. The resulting adjustments to prior-year figures
were made to the relevant balance sheet items in the consolidated financial statements of Giesecke &
Devrient GmbH in accordance with IAS 8 (see section 1(u) of the notes to consolidated financial statements for details).
Free cash flow amounted to EUR 10.3 million, as against EUR 61.0 million in the previous year.
In the year under review, G&Ds capital expenditure totaled EUR 100.4 million around 43% below the
record level of the previous year (EUR 175.1 million). During 2010, additional short-term investments
were made (EUR 20.6 million), as well as a loan of EUR 26.5 million to an associated company, of which
EUR 1.8 million had been repaid by year-end. It should be noted here that 2009 saw an exceptionally
high level of capital expenditure due to the acquisition of SmartTrust AB and commissioning of a stateof-the-art paper machine at the Knigstein site. However, investment during the year under review remained significantly above the level of depreciation/amortization, which also rose. The investment ratio
as a percentage of sales fell from 10.4% to 5.9%.
The Banknote business unit invested in expanding and upgrading its production facilities worldwide in
order to safeguard and extend its competitive position. Notable individual investments included construction of a new warehouse at the Knigstein paper mill, expanding production capacity for security
foils, and modernizing and developing the site in Malaysia. This business unit also invested in overhauling
its entire range of banknote processing machines. There was additional investment within the Banknote
Processing division due to capitalization of development expenses on achieving defined milestones. The
Cards and Services business unit focused on replacement investment in 2010 and modernizing personalization systems. Across all business units, we primarily invested in the CHANGE and Globalize-IT
programs in order to drive forward harmonization of the Groups global IT environment and processes.
80.4 Depreciation/amortization
175.1 Capital expenditure
2009____
74.6 Depreciation/amortization
20
40
60
80
100
120
140
160
180
-145.6
-3.0
237.8
Cash from
operating activities
Cash from
investing activities
Cash from
financing activities
7.1
Exchange rate
effects
252.2
The Group received EUR 157.0 million from taking out long-term loans. Two bank loans taken out by
G&D GmbH comprised the lions share of this sum. By contrast, liabilities payable to G&D Holding
were settled in the amount of EUR 123.7 million. EUR 25.7 million of non-current liabilities were
also repaid to financial institutions. Other cash outflows, for example for repayment of finance lease
obligations and payments to minority interests, resulted in a negative cash flow from financing activities of EUR 3.0 million.
On a net basis, the Groups cash and cash equivalents increased by EUR 14.4 million compared with
the previous year.
One of the core objectives of G&Ds value-based management concept is to enhance the value of the
company on a long-term basis. The key performance indicator for the Group here is economic value
added (EVA).
2010____
200
3.1.4.
Statement of Cash Flows
EVA constitutes the excess return arising from the difference between return on capital employed
(ROCE) and the weighted average cost of capital (WACC). The latter represents the minimum return
required over the long term and was fixed at 10.8%, unchanged from the previous year. Internal
ROCE is calculated based on the ratio between adjusted EBIT and average capital employed. The
interest cost component of pension expenses is added to obtain the adjusted EBIT. Average capital
employed is calculated from the mean of capital employed in the prior year and the period under review. The increase in earnings was somewhat lower than the rise in average capital employed. Internal
ROCE therefore decreased by 3.0 percentage points to 17.6%. This translates into an excess return of
6.8% for 2010, corresponding to an absolute rise in EVA of EUR 56.4 million, down EUR 16.3 million
on the previous year.
3.1.5.
Return on Capital and
Economic Value Added
048 |
049
In 2010, EBIT and therefore the EVA metric was affected by establishing the Foundation. Given
average capital employed of EUR 825.7 million, the one-off expenses of EUR 20.0 million reduced
excess return by 2.4 percentage points.
3.1.6.
Employees
G&Ds reputation with customers is built on state-of-the-art technology, outstanding service, and
trust-based relationships that often go back many years. With all these factors, the skills, commitment,
and service focus of our employees are crucial. Our people are key to the success of our business.
Boosting their commitment and encouraging them to fulfill their potential is a core aspect of our HR
strategy, for which we are rated highly both by our employees and by external bodies. 79.2% of employees participated in our second global employee survey conducted in 2010 5% more than in 2008.
A core finding was that 71% of those surveyed would recommend G&D as an employer. In 2008,
the equivalent figure was 68%. G&D participated in the nationwide competition held by the Great
Place to Work Institute Deutschland for the first time in 2010 and made it straight into the list of
Germanys top 100 employers.
In the year under review, the number of employees worldwide rose by 291 (2.9%) to 10,413 full-time
equivalents (FTE) at the balance sheet date. Production recorded the largest increase in headcount in
absolute terms, of 208 FTE, followed by technical support and project management (+74 FTE) and
internal sales (+34 FTE). With the exception of the Government Solutions business unit (-17 FTE), all
business units employed more people than in 2009. In the Banknote business unit, the focus was on
setting up cash center solutions in Brazil and reinforcing the service team in India. The Cards and
Services business unit (+213 FTE) primarily invested in expanding production capacity in Canada and
China, plus research and development capacity in India. The increase in Corporate Functions related
mainly to central IT services and was associated with the CHANGE program and the need to set up
centralized management of master data. The headcount for Compliance also increased.
4,050
3,975
5,176
4,963
658
675
436
424
Total 2010____
2009____
0
10,413
10,122
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000
In 2010, some 62.4% of employees were based outside Germany. In regional terms, headcount changes
largely tracked sales. The number of G&D employees worldwide increased by a total of 2.9%. The
headcount was higher in both the Americas (+14.3%) and Asia (+3.9%) than in the previous year. In
the EMEA region (Europe, the Middle East, and Africa), the number of employees was down slightly
compared with the previous year.
Employees by region
EMEA 2010____
2009____
Asia 2010____
2009____
Americas 2010____
2009____
0
58.1%
60.4%
2,072
21.2%
2,000
6,115
2,152
20.7%
20.5%
19.1%
6,049
2,212
1,935
4,000
6,000
8,000
In fiscal 2010, Group sales slightly exceeded the high prior-year level. Huge sales growth in the Cards and
Services business unit largely compensated for the lower level of sales generated by the Banknote business unit. Government Solutions also posted gratifying sales growth of EUR 27.0 million, or 14.8%.
3.2.
Business Unit Reporting
050 |
051
The first of a new generation of banknote destruction solutions and enhanced automation solutions
for packaging banknotes are also attracting considerable interest in the marketplace.
753
896
The Cards and Services business unit performed very well in 2010, especially within the Payment and Tele
communications divisions. Sales for the business unit rose by EUR 116.9 million (19.9%) from EUR 588.6
million in the previous year to EUR 705.5 million. The Payment division recorded the biggest sales growth
both in percentage and absolute terms and also generated the highest sales within the business unit.
705
589
210
183
The Telecommunications division operated in a positive market environment in 2010 and was able to
significantly increase sales compared with the prior year thanks to major existing and new customers.
The year was marked by reinvigorated demand for SIM cards, following single-digit growth rates in
2009. The upturn was global and displayed particular momentum in Asia and Africa. In 2010, the division launched a number of innovative products: STARSIM Atlas, SkySIM Avior, SkySIM Argo,
ProxSIM Taurus, and SkySIM CX Scorpius. All these SIM cards from G&D provide security for
mobile communication and offer a variety of mobile services.
Total 2010____
2009____
0
3.2.1.
Banknote Business Unit
3.2.2.
Cards and Services
Business Unit
1,688
1,684
500
1,000
1,500
2,000
Following exceptional growth in recent years, the Banknote business unit suffered a drop in sales of
EUR 143.9 million (16.0%) to EUR 752.6 million in 2010. This is largely attributable to the perfor
mance of the banknote printing business.
The Paper division benefited from healthy business volumes on a par with the previous year. Our
customers showed increased interest in complex security features that are difficult to forge. The development of the HybridTM banknote substrate by our Papierfabrik Louisenthal GmbH subsidiary made
it possible to significantly enhance banknote durability without impacting security. This substrate combines cotton and plastic and is currently the most advanced solution on the market. HybridTM has already
been deployed successfully in three countries, with further denominations set to follow in 2011.
The Printing division experienced lower demand in 2010 coupled with increased price pressure. For
non-German banknotes in particular, a decline in order intake was accompanied by an adverse pricing
environment. Despite this trend, G&D remains committed to its high-quality strategy: Our customers
expect banknotes to incorporate effective security features that people can see, hear, and feel, thus
allowing unaided authentication. Our LOOK security feature, for example, leverages sophisticated
laser technology to create attractive and prominent optical effects on banknotes that can be easily
checked by the person on the street. By integrating colors, foils, and substrates, laser technology can
be used to produce individual information. Our portfolio also includes 3D watermarks, foils, holograms, security threads, and transparent windows.
The Processing division proved to be the strongest sales performer by far within this business unit.
Despite focusing the product portfolio more on cash center solutions and exiting the market for cash
handling products, sales in 2010 reached almost the same level as in the previous year. This is primar
ily due to expanding the service side of the business. Although key sectors served by G&D continued
to be cautious about investment in the wake of the financial crisis, we were also able to acquire new
customers. The successful market launch of the BPS M7 and associated upgrade packages continued.
Due to its acquisition of SmartTrust AB in 2009, G&D enjoys a leading position in the strategically important market for mobile device management and over-the-air (OTA) SIM management solutions. This
enables us to meet rising global demand from mobile network operators for comprehensive SIM card
and mobile device management solutions, as well as for valued-added services with strong growth potential. SIM cards are no longer just an identification interface between phone companies and consumers
they have become one of the key drivers of business success for mobile network operators. Innovations
in the fields of 4G/LTE networks, NFC, and mobile money will create new opportunities in 2011.
The Payment division benefited in 2010 from ongoing migration from simple payment cards to more
sophisticated smartcards. Thanks to G&Ds excellent market position, we are well able to benefit from
dynamic demand worldwide. Electronic media are increasingly central to many aspects of peoples
lives, from straightforward communication and data transfer right through to mobile financial services.
Moving away from tangible transactions increases the need for security and trust. G&Ds innovative
products and solutions provide a secure, trustworthy environment for conducting transactions in the
digital world and enabling secure payment and data transfer at ATMs, online, or by cell phone.
Government Solutions performed well in fiscal 2010, with sales up EUR 27.0 million (14.7%) to EUR
210.4 million. This rise was made possible by the success of new projects in the e-passport, ID document,
and system solution segments. The biggest new projects involved electronic ID cards, components, and
solutions. Pleasingly, this was also true of the German market in the year under review. Sales from
ongoing orders placed by existing customers also rose.
IT security is another area that is becoming increasingly important, with a strong focus on preventing
data loss or damage to IT infrastructures stemming from operating errors, negligence, or cyber crime.
Essen-based secunet Security Networks AG, in which we have a majority holding, provides an extensive
portfolio of products in this field. One notable example is the SINA (Secure Inter-Network Architecture) encryption system, which enables classified documents and other confidential information to be
processed, stored, and transferred securely online. We were able to reinforce our significant share in this
specialist area of the domestic German market during the year under review.
3.2.3.
Government Solutions
Business Unit
052 |
053
3.2.4.
New Business Division
The New Business division boosted its sales by EUR 4.0 million (25.5%) to EUR 19.7 million. StarSign
products in the company ID field played a crucial role here. Secure authentication of employees and
secure communication with colleagues and partners both inside and outside an organization are two of
the biggest challenges when it comes to managing IT processes within companies and public agencies
With data growing ever more mobile and available, authentication is also becoming more challenging.
IT security alone is not enough if factors such as economic efficiency and processing speeds are compromised. The major benefits of security applications from G&D arise from the in-depth process
knowledge of the research team. Card systems leverage many different features to provide users with
cost-effective, forward-looking IT security.
3.3.
Regional Breakdown
For fiscal 2010, G&D posted Group sales of EUR 1,688.2 million. 87% of sales were generated in
159 countries outside Germany. Compared with the prior year, sales outside Germany grew by 1.3%.
The EMEA region remained the most significant market, accounting for 53% of sales. The total of
EUR 897.1 million in 2010 represented a decline of EUR 129.2 million, or 12.6%. In Asia and the
Americas, G&D recorded sales growth during 2010. Asias share of Group sales rose from 21% to
25%. In absolute terms, the region recorded an increase of EUR 63.3 million (17.8%), with sales
totaling EUR 418.3 million. Sales in the Americas rose 23.0% to EUR 372.8 million.
The following events occurred after the balance sheet date of December 31, 2010 and prior to approval
of the consolidated financial statements by the Management Board, requiring disclosure in accordance
with IAS 10:
4.
Subsequent Events
G&D GmbH, Munich, intends to acquire the remaining 40% of the shares in Huangshi Wanda Security
Card Co. Ltd, China, from existing partner Hubei Tri-Ring Metal-Forming Co. Ltd.
G&D has reached an agreement in principle with Deutsche Investitions- und Entwicklungsgesellschaft
mbH (DEG), Cologne, to acquire its 13.9% stake in G&D LOMO, ZAO, St. Petersburg. We expect to
sign the relevant contract in the first quarter of 2011. Transfer of ownership and registration of the shares
is expected to take place at the start of the second quarter.
G&D has joined forces with Wincor Nixdorf International GmbH to create a joint venture. Called
CI Tech Components AG, this will develop and market security technology for authenticating and
processing banknotes. The focus is on sensors and cash-in / cash-out modules. The goal is to pool the
expertise of the two parent companies with regard to automating the cash cycle from consumers
through banks, retailers, and cash-in-transit companies to central banks. The partners will also be cooperating more closely to standardize systems and processes, making for efficient cash processing.
Giesecke & Devrient Bahrain S.P.C. was sold to a local partner with effect from January 1, 2011.
53%
61%
Asia 2010____
2009____
25%
21%
Americas 2010____
2009____
*E
urope, the Middle East,
and Africa
897
22%
18%
200
400
1,026
418
In fiscal 2011, it is intended to merge Giesecke & Devrient Holding GmbH with Giesecke & Devrient
GmbH with retroactive effect from January 1, 2011. This will make Giesecke & Devrient GmbH the new
Group holding company from 2011.
Thanks to its strong research and development capabilities, Giesecke & Devrient is actively shaping
key markets and the everyday applications of the future. Our innovations contribute to ever-greater
security, convenience, and efficiency when making payments, communicating, working, and traveling.
355
373
303
600
800
1,000
1,200
116.7
93.7
10
20
30
40
50
60
70
80
90
100
110
120
5.
Research and
Development
054 |
055
Investment in research and development is the key factor in ensuring long-term sales growth. Due to
its intensive efforts over recent years, G&D will once again be able to offer many new products and
solutions in 2011.
In the Banknote business unit, we are focusing our research activity on increasingly sophisticated
security features that render forgery virtually impossible. In 2011, we will be bringing a feature to
market that we expect will generate high customer demand: RollingStar. The core element is a security thread approximately four millimeters wide in the form of a window, which is integrated into the
banknote paper. Tilting the banknote creates an optical effect as if a wave were moving across it. Also
scheduled for 2011 is the launch of our new MultiCodeTM security thread in banknote paper, which
represents a huge obstacle to counterfeiters. These threads are based on a magnetic code that is recognized by banknote processing machines. A unique code can even be assigned to each denomination. In
order to meet customer requirements for integrated solutions, we will be providing the appropriate
sensor for our banknote processing machines to accompany this new security feature. Our research
department is also making more intensive use of laser technology. In 2011, G&D is commencing series
production of printing sheets using a new short-pulse laser process. This prints security features directly onto the sheet, considerably enhancing the scope for banknote design. Optically variable color
effects, uncovering parts of multi-layer elements, and visibly altering the surface of the substrate all
become possible, creating completely new and very high barriers to counterfeiting. Banknote printing
will also be advanced by the development of printable magnetic displays. This security feature can be
checked anywhere using a simple magnet. For example, holding a banknote against a cell phone can
show the outline of the magnet or reveal hidden information. Within Banknote Processing, our new
Compass VMS vault management system is nearly ready for launch. This will have standardized interfaces for the relevant ERP system and our customers other IT applications. It will enable commercial banks, cash-in-transit companies, and others to manage their entire cash cycle more efficiently,
from deposits, registration, accounting, and vault storage through to returning banknotes to circulation.
The Cards and Services business unit (Mobile Security from January 1, 2011) focuses its research activities
on enabling convergence between cell phone applications previously regarded as separate. Solutions for
payment, telecommunications, identification, and public transport are rapidly coming together on modern
smartphones. G&D is actively helping to shape this trend with innovative hardware and software solutions.
At the same time, our researchers are working closely with major chip manufacturers to continually improve the security of mobile devices. Environmentally friendly products and manufacturing processes are
another focus of our research efforts. For example, we are continually improving the durability of our card
bodies and making them easier to recycle. Communication between machines (M2M) is another market of
the future. SIM modules used here need to be extremely tough and durable, so we are developing products
that will even work reliably even when subjected to constant vibrations or extreme temperatures. Areas
likely to adopt M2M applications over the next few years include vehicle telematics and electric vehicles.
We also face ongoing pressure in the Government Solutions business unit to supply increasingly innovative passport and ID solutions. For cost reasons, our customers in this area demand documents that can
withstand up to ten years of use before needing to be replaced. For our researchers, this means incorporating security solutions and features into todays products that criminals, terrorists, or spies will be unable to crack even in a decades time. Another trend shaped by G&D is the use of todays smartphones
for identity verification. We believe that cell phones will be able to fulfill various functions of an ID card
in the future, so we are working on ways of using these devices to prove ones identity, grant access to
buildings, or sign legally binding contracts electronically.
The New Business division part of the Mobile Security business unit as of January 1, 2011 is launching
a new microSDTM card for making tamper-proof telephone calls. The mobile security card VE 2.0 contains an encryption controller, which encrypts cell phone calls and securely authenticates the user.
Thanks to a key length of up to 521 bits based on elliptic curves, this unique encryption card provides
strong authentication for cell phones and smartphones. Designed to be inserted into the cell phone, this
microSD card was developed by Giesecke & Devrient Secure Flash Solutions, a joint venture between
G&D and Phison Electronics Corp. Two new display card models have also been added to the product
range to make online banking and payment even more secure. These innovative solutions in a compact,
credit-card-sized format can dynamically generate one-time passwords for online applications at the
touch of a button. Passwords are shown on a flexible display integrated into the card. This means that
conventional bank cards for electronic payment can now also be enhanced to include a groundbreaking
security function for banking and payment online.
The CHANGE Growth through Change program was set up in 2008 as part of Group strategy for
the medium and long term. It is geared towards optimizing and integrating business processes worldwide
across all business units, divisions, subsidiaries, and sites. The objectives are greater workflow efficiency
and synergy effects between business units. To support this, a globally integrated SAP system is gradually being rolled out to replace the various disparate legacy IT systems and create a standardized data
set within the Group.
CHANGE was launched successfully at the first subsidiary, Giesecke & Devrient S.A. in Belgium, during
2010, with GyD Ibrica in Spain set to follow during early 2011. At our Group headquarters in Munich,
the first core functionalities have already been deployed on the development side. A complete roll-out
in Munich and at other major sites is scheduled for early 2012.
The CHANGE program will enable us to boost productivity, improve the quality of our services to our
customers, and fulfill market requirements more rapidly and effectively worldwide. The objective is to
make us more competitive, which in turn will drive growth and secure our future as an independent,
family-owned enterprise.
6.
CHANGE Program
056 |
057
7.
Risk and
Compliance
Management
7.1.
Risk Management System
As a commercial enterprise with global operations, G&D has to find the right balance between opportunity
and risk. Effectively leveraging business opportunities automatically entails risk, but failing to identify
and/or manage risk satisfactorily could jeopardize individual business units or even threaten the Groups
existence. Effective risk management forms part of responsible and sustainable corporate governance.
The objectives are to minimize any potential impact on the Groups net assets, financial position, and
profitability, safeguard the ongoing existence of G&D as an independent business, strengthen its market
position, and achieve real increases in enterprise value.
To maintain customer confidence and the Groups reputation worldwide, G&D continued to enhance its
compliance management system in the year under review. Ensuring that employees in all parts of the
Group observe all legal requirements and internal corporate guidelines is essential to the perception of
G&D as a reliable partner. Establishing shared values and encouraging proper conduct have always
been important management functions at G&D. Given the continual changes in the regulatory environment worldwide, we review compliance management within the Group on an ongoing basis, making
modifications where necessary.
The risk management system incorporates all the process and organizational guidelines needed to identify,
analyze, assess, and manage the Groups overall risk situation. This system is embedded into standard
Group-wide strategy, planning, and controlling mechanisms. While operating and financial risks are dealt
with on an ongoing basis whenever necessary in the course of day-to-day business management and
assessed during the quarterly performance reviews, strategic risk is subject to an annual review as part
of the strategy process and therefore to separate reporting. Compliance risk is likewise managed via our
own compliance organization and is also subject to separate reporting, including reporting to Corporate
Controlling in case of financial implications.
We took an important step in 2010 by putting in place an overarching compliance framework worldwide,
with the aim of establishing a strong compliance culture within the Group by 2015. Responsibilities were
clearly defined. The Compliance Office, based at our Group headquarters in Munich, is a central element
here. Among other activities, it supports and trains those responsible for compliance at local level in
the various Group companies. Our extensive range of training opportunities is designed to enable those
responsible to prevent violations from occurring in the course of day-to-day operations. All employees
are aware that any misconduct will have consequences.
Operations are examined systematically and comprehensively as part of an integrated risk analysis process.
This means that any risks associated with a transaction or project are examined from signing the contract
through to expiry of any warranty period. Where the transaction or project comes under the operational
responsibility of a Group company and this company receives technical, logistical, or other specialist
support or supplies from a different Group company, joint risk analysis is carried out for all Group companies involved. The degree of potential risk is quantified and the probability of occurrence defined.
For customer business and associated risks, a standard procedure for identifying and evaluating risk is
applied across all divisions. The GAAPS Committee, an entity within Corporate Functions that supports
customer projects and their management, was increasingly able to contribute its expertise and underpin
risk management in the fiscal year now ended.
Corporate Controlling compiles a Group risk report on a monthly basis, which sets out the current status
of specific risks. The risk report is provided to members of the Supervisory Board and Advisory Board
on a quarterly basis.
To ensure that the consolidated financial statements are correctly prepared in accordance with IFRS, a
standard accounting policy applies across the Group. The Group accounting department updates this
policy when new IFRS standards are published or existing ones amended. In order to evaluate all risks
relevant to accounting (e.g. inventory valuation, credit risk with regard to receivables, valuation of provisions), the accounting department has defined standard requirements for the Group. External experts
are consulted to help assess special areas, such as pension obligations.
7.2.
Compliance Management
The Compliance Office reports to the Groups Management Board on a quarterly basis. This report
covers all key events and developments across all relevant parts of the Group in that period. Since 2010,
the Management Board reports annually to the Supervisory Board (in the presence of the auditor) on
compliance management within the Group.
Individual events are reported separately and immediately to the Chairman of the Management Board,
who takes appropriate measures in conjunction with the Board members. Compliance matters are examined
and considered on a case-by-case basis; external consultants may be called in to assist.
On behalf of the Management Board, the internal auditing department (Corporate Auditing) conducts regular spot checks to assess the implementation and effectiveness of Group management and
monitoring processes. The main aspects looked at are risk management, the internal control system,
legal regulations, and internal corporate guidelines. In fiscal 2010, Corporate Auditing carried out a
total of 16 audits (2009: 14). Findings are reported to the Management Board and the management
of the audited entity. Corporate Auditing checks that measures arising from these investigations are
implemented appropriately.
Giesecke & Devrients business operations are affected by the global economy and financial markets
and by regional developments within our markets. In the wake of the financial crisis of 2008 and 2009,
performance varied across the markets in which G&D is active. The nature of our product portfolio
enabled downturns in some areas to be compensated for by growth in others. Following a cautious
phase in G&Ds key customer industries, such as banks and financial service providers, telecommunications and IT companies, and retailers, these sectors stepped up their investment activities again in
2010. Thanks to its position as a technology leader, G&D was able to benefit significantly from demand for high-quality products. Nonetheless, investing in innovative solutions and in research and
development also presents a risk if market requirements are not met or specific solutions are not yet
ready to bring to market.
8.
Risks,
Opportunities,
and Forecast
8.1.
Industry-Specific Business
Risks, Opportunities, and
Forecast
058 |
059
In the Banknote business unit, the barriers to entry by competitors remain relatively high. In order to
maintain and build on its position as a technology leader, G&D plays an active role in shaping market
trends. Nevertheless, there is a risk of losing market share, particularly due to the activities of governmentowned competitors in banknote printing. As a rule, such competitors do not need to give great consideration to commercial factors and are increasingly operating outside their domestic markets. This
may lead to excess capacity and greater pressure on prices and margins. G&D responds to this pressure
by implementing measures to boost productivity on an ongoing basis (e.g. Six Sigma programs) and
extending its technology leadership. By issuing tenders for its German euro quotas internationally in
2010, the Deutsche Bundesbank has again changed the way it awards contracts. Conversely, G&D remains
largely unable to access volume markets in other EU countries. To date, however, the Louisenthal paper
mill has been well able to maintain its market position as one of the biggest suppliers of banknote paper.
G&D has responded to the trend for ever-more durable banknote paper without compromising on
security via its HybridTM substrate. The primary material used to make paper continues to be cotton and
cotton fibers, the cost of which rose by up to 150% during fiscal 2010. This may have a significant impact
on the Paper divisions profitability. In order to protect itself as much as possible from the effects of
further price fluctuations, G&D is using options and forward contracts to partially hedge purchase prices.
On the Asian markets, G&Ds product portfolio in the banknote processing sector is more and more
exposed to competition from cheaper imitations and product piracy. G&D is responding to the battle for
price leadership by expanding its product range. In addition to solely supplying equipment, G&D is increasingly providing complete automation solutions for the cash cycle, including services. In some business areas, G&D will be sharing its expertise with Wincor Nixdorf in a joint venture. The aim of this cooperation is to generate synergies in the development of leading-edge technologies and tap into
additional market segments.
The Banknote business unit again expects mid-single-digit sales growth in 2011, buoyed by an upturn in
banknote printing. Earnings in 2011 are set to weaken slightly further, largely due to the rise in the price
of cotton, but should increase considerably in the medium term.
The Cards and Services business unit or Mobile Security as of 2011 has been facing intense price
competition and consolidation among customers for some years now. G&D is therefore seeking to
achieve ever-greater cost efficiency in production and sell more products and solutions with higher
margins. Ongoing restricted availability of memory chips (semiconductors) could affect sales growth.
The SmartTrust division anticipates significant growth trends. Overall, sales by Mobile Security are set to
increase considerably, in part due to the activities taken over from other business units. Profitability is,
however, being impacted by capital expenditure on mobile applications. In the Telecommunications
division, considerable future demand is anticipated from North America, in particular, mainly due to
4G/LTE (Long Term Evolution) technology being rolled out by network operators who have not previously used SIM cards. There is a risk, however, that demand for SIM cards may contract or that the
market launch of SIM-based NFC or M2M solutions may be delayed. For G&D, this could mean a decline
in production volumes and also prevent transition to a product mix with higher margins. Sustained consolidation among network providers is also reducing the number of potential customers and strengthening
the negotiating position of individual customers. Having said that, G&D is extremely well positioned
with regard to the major network operators. The Payment division benefits from the fact that the world
is becoming ever more interconnected. Demand for mobile solutions that add value and thus for secure
products, software, and services is rising as a result. These innovative solutions often entail developing
entirely new ecosystems, which means redefining important aspects of the way network operators, banks,
equipment manufacturers, and service providers interact. All market players are attempting to reposition
themselves in this environment. This may significantly alter the current distribution of market share and
sales. Traditional businesses may reinvent themselves, new form factors could emerge, and so on. But
whatever changes occur, transaction security requirements will increase. All this presents opportunities
for G&D. Backed by the expertise of SmartTrust and Venyon, which are now fully integrated Group
companies, G&D is taking a leading position in the strategically important market for mobile device
management and OTA SIM management solutions. This enables us to meet rising global demand from
mobile network operators for comprehensive SIM card and mobile device management solutions, as
well as for valued-added services with strong growth potential. Over the next few years, we will invest
even more in developing secure applications for the mobile world, which will necessarily have an impact
on earnings. Innovations in the fields of NFC, mobile money, and M2M in particular will create new
opportunities in 2011.
The Government Solutions business unit is facing increasing consolidation among foreign competitors.
Over the long term, this could intensify competition. The business unit will therefore continue to take
steps aimed at boosting efficiency and cutting costs. At the same time, rising demand worldwide for electronic ID systems and secure IT solutions presents substantial opportunities. Due to a diverse portfolio
of solutions, this business unit occupies an excellent position and anticipates sales growth in 2011, with
the supply of components for electronic ID documents set to be a major contributing factor. In addition,
the first orders associated with the German electronic healthcare card indicate that this long-planned
project is being implemented. Profitability should continue to rise.
Overall, the Group expects only a slight increase in sales for 2011. However, earnings will decline compared with 2010 due to increased price pressure, ongoing major investment in the Mobile Security business unit, and the rising cost of raw materials. From 2012 onwards, we expect our business to experience
both sales and earnings growth again, assuming stable economic conditions.
Legal and political factors: These have a significant influence on Giesecke & Devrients commercial
success. For example, public policy with regard to awarding contracts may be modified, governments
may change, and budgets could be cut.
Procurement market / supply chain: The performance of the Group is highly dependent on effective
management of the supply chain, including logistics. Supply chain management is handled centrally at
G&D. Disruptions may have adverse effects on the availability, quality, and cost of G&D products and
therefore impact sales and earnings. The Group sources components, input products, and services from a
variety of third-party companies worldwide. G&D has only indirect influence over productivity, quality
assurance, and deadline compliance in such cases. There may also be allocation changes and price
fluctuations on the procurement side. The Cards and Services business unit purchases large quantities of
semiconductors, for instance, and the Banknote Paper division substantial amounts of cotton. In the
Banknote Processing division, plant engineering is outsourced to an external manufacturer. If an important
supplier encountered financial difficulties, this could likewise have a negative impact on G&D.
Product lifecycle management: G&D works extensively with innovative technologies. Innovation is
synonymous with competitiveness. Spending on underlying research, product development, and orderrelated R&D is correspondingly high. Technology cycles are getting shorter all the time. In order to
manage the opportunities and risks associated with innovative technologies in a professional manner, we
need a clear understanding of market requirements. We also need to implement projects quickly while
8.2.
Other Risks
060 |
061
adhering to time and cost schedules, incorporate comprehensive quality assurance mechanisms throughout, and have a clear strategy for discontinuing products. In some cases, technologies are combined to
form new solutions. This makes differentiation more difficult and requires great care on the part of the
Groups patent department.
Production/quality: G&D operates in an environment characterized by considerable competition and
price pressure. Accordingly, innovation and quality leadership need to go hand in hand with a strict focus
on cost efficiency. Interruptions to operations at production sites around the world at different stages of
the value chain can have a negative impact on timely availability of products and on manufacturing costs.
Software components and products may also suffer from quality problems that compromise agreed
functionality.
Data security: To enable personalization of cards and documents, customer data must be provided and
processed. This takes place in a security-certified environment. Any security breaches could significantly
harm G&Ds reputation. This would also indirectly have an adverse effect on our competitive position.
Acquisitions: To support corporate strategy and expand our portfolio of products and services, targeted
acquisitions are necessary, which tie up capital. Implementing the acquired companys business plan and
necessary post-merger integration measures entails considerable risk. Failing to meet objectives may
cause the value of the holding to fall and thus impact results.
Employees: In order to defend and build on its position as a technology leader, it is vital that the Group
attracts highly qualified, skilled employees and managers. Participating in competitions, such as the quest
to find Germanys best employers, is intended to boost awareness of G&Ds attractiveness as an employer. Internally, an integrated program to nurture talent is designed to foster staff loyalty. Employee
satisfaction is measured via regular surveys. All these activities are aimed at finding the right people to
fill key positions.
Prices: Other price risks affecting G&D, which mainly arise from purchase price increases for semiconductors, are as follows: Given a procurement volume of EUR 208.8 million, a 10% variation in purchase
prices would have a negative or positive effect on earnings before taxes and on total equity of EUR
20.9 million, assuming all other variables remained constant. The price of cotton rose sharply in the
second half of 2010. G&D has calculated the impact of future price fluctuations for different scenarios
and will hedge potential effects on earnings using appropriate forward contracts.
Giesecke & Devrients operations expose it to typical liquidity risk, counterparty credit risk, and market
risks stemming from changes to exchange rates, interest rates, and share prices. On the procurement side,
risks are associated with price rises in raw materials (particularly semiconductors and cotton). These risks
can adversely impact our net assets, financial position, and results of operations and are primarily managed
as part of the Groups ongoing business and financing activities. Additionally, there are written guidelines
in place for identifying financial risks affecting the G&D Group and its operating subsidiaries. These risks
are identified centrally and their management is also largely handled by Giesecke & Devrient GmbH.
Risk reports are submitted to the Management Board each month, as well as on a regular basis to the
Supervisory and Advisory Boards.
8.3.
Financial Risk
Derivative financial instruments are used in relation to foreign currency to hedge underlying transactions. All trading activity is subject to financial monitoring that is independent of the Groups treasury
department in accordance with risk management standards applying to international banks.
Risk positions (relating to foreign currency, interest rates, and financial investment) are monitored
regularly using sensitivity analysis. The modified duration risk measure is used for interest rate risks
associated with bond investments. This measure indicates the percentage by which the price of the bond
changes if market interest rates move by one percentage point. The Value-at-Risk (VaR) measure is used
for equity investments. Total risk comprises equity risk and specific risk. This measure indicates the
maximum loss not exceeded for a specific equity position with a given probability of 95% and a holding
period of 10 days.
Liquidity risk is managed centrally by Giesecke & Devrient GmbH based on annual planning for all
Group companies. This is complemented by short-term liquidity planning for the main Group companies.
Centralized cash management is based on a contractual agreement, which sees the majority of German
and foreign Group companies participating in a cash pooling system.
In addition to the provision of sufficient cash, the agreement of short-term credit lines with blue chip
banks assures appropriate liquidity for operating activities and capital expenditure. At the balance
sheet date of December 31, 2010 (2009), written credit line facilities were available to the amount of
EUR 422.2 million (EUR 502.2 million), of which EUR 247.2 million (EUR 194.9 million) were utilized
in the form of guaranteed credit and bank loan agreements.
In addition, securities with a carrying and market value of EUR 62.7 million (EUR 62.2 million) were
held within the G&D Group. Most of these were realizable within three months. Financial investments
with a maturity of longer than three months totaled EUR 30.9 million (EUR 10.3 million). The following
tables show the G&D Groups contractually agreed (undiscounted) interest payments and repayments
for the original financial liabilities, as well as derivative financial instruments with a negative fair value.
8.3.1.
Risk Measurement
Method
8.3.2.
Liquidity Risk
062 |
063
1 2 years
2 3 years
3 4 years
4 5 years
Over 5 years
Carrying
value
Gross
outflows
Repayment
Interest
Repayment
Interest
Repayment
Interest
Repayment
Interest
Repayment
Interest
Repayment
Interest
216.9
216.9
216.5
0.0
0.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Financial liabilities
216.1
244.0
42.2
8.7
19.0
6.1
36.0
5.2
36.3
4.1
51.5
2.2
31.1
1.6
99.7
142.6
9.0
7.3
9.4
6.7
8.7
6.1
8.9
5.5
9.4
4.8
54.3
12.5
1.5
1.5
1.5
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
534.2
605.0
269.2
16.0
28.8
12.8
44.7
11.3
45.2
9.6
60.9
7.0
85.4
14.1
The net assets associated with Group companies located outside the Eurozone and translation risks relating to the sales and earnings of these companies are not hedged against exchange rate fluctuations.
Carrying
value
Gross
outflows
Repayment
Interest
344.4
344.4
344.4
77.1
88.1
33.3
108.3
159.1
0.7
530.5
1 2 years
Repayment
0.0
4.2
8.5
7.9
0.7
0.7
592.3
386.9
Due to its international focus, Giesecke & Devrient has supply streams and cash flows in various currencies
related to both import and export activities. Maintaining production locations worldwide is a response
to currency risk, as is netting imports and exports in the appropriate foreign currency at Group level.
Here, relevant foreign currency risks and obligations (fixed contracts, orders) for the Group as a whole
are identified centrally, aggregated, and netted as far as possible. The balance remaining from operations
and financing activities within the Group as of the balance sheet date is fully covered on an ongoing
basis using appropriate financial instruments, i.e. exclusively foreign exchange contracts and swap transactions. In the main foreign currency, the US dollar, exports and imports virtually balance out over the
year. From fiscal 2011, therefore, US dollar risk will be identified based on rolling 12-month cash flow
planning and only hedged if defined net threshold amounts are exceeded. Hedge accounting will not be
applied in this respect. However, contracts with a value greater than USD 10 million will continue to be
hedged separately using forward exchange contracts and accounted for as fair value hedges.
2 3 years
Interest
Repayment
0.0
0.0
13.0
2.6
9.0
0.0
12.1
3 4 years
4 5 years
Over 5 years
Interest
Repayment
Interest
At the balance sheet date of December 31, 2010 (2009), G&D was exposed to the following net risks in
foreign currencies:
0.0
0.0
0.0
0.0
Net Currency Exposure at December 31, 2010 (December 31, 2009) (Foreign currency risk in EUR million)
7.3
0.9
8.8
0.0
6.1
8.9
5.5
63.8
17.3
0.0
0.0
0.0
0.0
0.0
0.0
15.7
7.5
16.2
6.4
72.6
17.3
Interest
Repayment
Interest
Repayment
0.0
0.0
7.7
1.9
0.0
0.0
7.0
1.4
7.3
9.4
6.7
8.7
0.0
0.0
0.0
0.0
22.0
9.9
17.1
8.6
All financial instruments held as of December 31, 2009 and December 31, 2010 for which payments were
already contractually agreed have been included. Target figures for future new liabilities are not included.
Amounts in foreign currencies were translated at the closing rate applicable on the reporting date. Variable
interest payments from financial instruments were determined by applying the last fixed interest rates
before December 31, 2009 or December 31, 2010, respectively. Financial liabilities that are repayable at
any time are always assigned to the earliest time period.
8.3.3.
Credit Risk
Giesecke & Devrient protects itself against the risk of bad debts through an internal system of assessing
customers with regard to their payment ability. Based on a rating process, customers are categorized as
A, B, or C customers. Doubtful positions are strictly limited and agreed payment terms are monitored
closely. Where customer creditworthiness is an issue, confirmed and unconfirmed letters of credit are
requested where possible to minimize credit risk. To fulfill reporting requirements in accordance with
IFRS 7, we wish to note that the maximum credit risk with regard to loans and receivables to customers
corresponds to the carrying value of these financial assets. With regard to financial guarantees, the
maximum amount that the Group would have to pay corresponds to the maximum credit risk.
USD
2010
GBP
CAD
ZAR
AUD
INR
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
BRL
2010
2009
7.8
0.7
17.7
0.0
0.0
0.0
0.0
0.5
0.0
0.0
0.0
0.0
0.0
0.0
43.6
33.4
5.3
0.1
2.5
5.8
2.5
2.2
2.1
0.0
5.7
3.6
11.8
0.0
Liabilities
23.0
12.0
15.5
0.0
21.8
1.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Net exposure
28.4
22.1
7.5
0.1
-19.3
4.0
2.5
2.7
2.1
0.0
5.7
3.6
11.8
0.0
Financial derivates
45.8
33.5
0.1
3.8
-24.7
-1.6
2.2
6.0
2.7
0.7
17.8
14.4
8.6
5.4
USD = US dollar, GBP = British pound, CAD = Canadian dollar, AUD = Australian dollar,
ZAR = South African rand, INR = Indian rupee, BRL = Brazilian real
Net Currency Exposure at December 31, 2010 (December 31, 2009) (Foreign currency risk in EUR million)
JPY
RMB
SEK
HKD
MYR
MXN
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.1
4.0
Liabilities
0.0
0.0
0.0
0.0
4.1
0.0
0.0
0.0
0.0
0.0
0.0
3.5
Net exposure
0.0
0.0
0.0
0.0
-4.1
0.0
0.0
0.0
0.0
0.0
3.1
1.6
Financial derivates
2.3
2.4
-12.2
0.0
-10.3
0.0
-2.5
-13.5
-4.3
-4.5
3.1
0.0
JPY = Japanese yen, RMB = Chinese renminbi yuan, SEK = Swedish krona,
MYR = Malaysian ringgit, HKD = Hong Kong dollar, MXN = Mexican peso
8.3.4.
Market Risk
8.3.4.1.
Currency Risk
064 |
065
Intercompany receivables and payables in foreign currencies are included in net risks. The effects of
valuation as of the balance sheet date influence the consolidated income statement and are not
eliminated.
Sensitivity analysis allows the impact of hypothetical changes to the respective risk variables to be determined in relation to gains/losses and total equity as of the balance sheet date. Only the main foreign
currencies are considered here.
Assuming that the euro had risen or fallen by 10% against the specified foreign currencies as of December 31, 2010 (2009), the effect on total equity and the income statement (without consideration of tax
effects) is shown below. Differences arising from translating the financial statements into the reporting
currency are not considered here.
Equity
Gain/loss
2010
2010
2009
2009
2010
2010
2009
2009
-10%
+10%
-10%
+10%
-10%
+10%
-10%
+10%
-2.2
USD
2.8
-2.8
2.2
-2.2
2.8
-2.8
2.2
GBP
0.7
-0.7
0.0
0.0
0.7
-0.7
0.0
0.0
CAD
-1.9
1.9
0.4
-0.4
-1.9
1.9
0.4
-0.4
INR
0.6
-0.6
0.4
-0.4
0.6
-0.6
0.4
-0.4
BRL
1.2
-1.2
0.0
0.0
1.2
-1.2
0.0
0.0
Gain/loss
2010
2010
2009
2009
2010
2010
2009
2009
-10%
+10%
-10%
+10%
-10%
+10%
-10%
+10%
USD
-4.2
5.1
-3.0
3.7
-4.2
5.1
-3.0
3.7
CAD
2.2
-2.7
-0.2
0.1
2.2
-2.7
-0.2
0.1
AUD
-0.2
0.2
-0.5
0.7
-0.2
0.2
-0.5
0.7
INR
-1.6
2.0
-1.3
1.6
-1.6
2.0
-1.3
1.6
0.2
-0.3
1.2
-1.5
0.2
-0.3
1.2
-1.5
-0.5
HKD
0.4
-0.5
0.4
-0.5
0.4
-0.5
0.4
BRL
-0.8
1.0
-0.5
0.6
-0.8
1.0
-0.5
0.6
SEK
0.9
-1.1
0.0
0.0
0.9
-1.1
0.0
0.0
RMB
1.1
-1.4
0.0
0.0
1.1
-1.4
0.0
0.0
8.3.4.2.
Interest Rate Risk
2009
Total amount
Up to 1 year
2010
2009
2010
2009
1 2 years
2010
2009
2 5 years
2010
2009
Over 5 years
2010
2009
0.0
7.0
30.6
25.2
30.6
25.2
0.0
0.0
0.0
0.0
0.0
3.7
7.0
173.9
43.8
0.0
0.0
19.0
13.0
123.8
22.0
31.1
8.8
7.5
7.8
99.7
108.3
9.0
8.5
9.4
9.0
27.0
27.1
54.3
63.7
304.1
177.3
39.6
33.7
28.4
22.0
150.8
49.1
85.4
72.5
11.6
8.1
11.6
8.1
0.0
0.0
0.0
0.0
0.0
0.0
11.6
8.1
11.6
8.1
0.0
0.0
0.0
0.0
0.0
0.0
Net exposure
MYR
The interest rates for the majority of the Groups bank loans and finance leases are fixed until the end
of the respective term. In contrast, most interest-rate-sensitive financial assets are subject to a variable
interest rate. Cash and cash equivalents are excluded here. Market interest rate changes therefore
have an effect on Group earnings and equity. At the balance sheet date of December 31, 2010 (2009),
the values were as follows:
10.6
7.0
Risks from interest rate changes are identified at regular intervals and included in risk reporting. Derivative financial instruments (e.g. interest rate swaps) are not used to manage interest rate risk. Sensitivity
analysis of interest rate risk shows the effect of a change in market interest rates of 100 basis points (one
percentage point) on the income statement (without consideration of tax effects) and on total equity. All
other variables are assumed to be constant. Within the sensitivity analysis prescribed by IFRS 7, however,
only the impact on net income and total equity is considered and not the impact on future cash flows.
Deferred interest payments recognized as liabilities are therefore restated using the hypothetical market
interest rate as of the balance sheet date.
066 |
067
The effect of a 100-basis-point change in market interest rates on net income and total equity as of
December 31, 2010 (2009) is below EUR 0.1 million for financial assets and liabilities, with the exception
of bonds, and is therefore immaterial. For bonds, the following sensitivity analysis applies:
2009
Portfolio 1
Portfolio 2
Total
16.5
18.1
34.6
1.5
1.1
Duration
years
2.1
1.4
Modified duration
2.1
1.4
Potential loss/gain
EUR million
-0.3
-0.3
-0.6
Bond holdings
EUR million
22.2
20.8
43.0
Return
3.5
1.6
Duration
years
2.9
2.0
Modified Duration
2.8
2.0
Potential loss/gain
EUR million
-0.6
-0.4
Bond holdings
EUR million
Return
-1.0
The effect of a one-percentage-point rise in the market interest rate on net income (without consideration
of tax effects) and total equity as of December 31, 2010 (2009) is EUR -0.6 million (EUR -1.0 million). A
corresponding one-percentage-point decrease in the market interest rate would have an equal but opposite
impact on pre-tax earnings and total equity, assuming all other variables remained constant.
2010
2009
The modified duration table indicates the change in total income from bonds if the market interest rate
falls or rises by one percentage point.
8.3.4.3.
Value-at-risk: Equities
Liquid cash is invested in overnight and time deposits and commercial paper. Decisions regarding
duration are based on liquidity planning, sometimes favoring short-term deposits with a maturity of less
than three months (cash and cash equivalents) and sometimes deposits with a maturity of longer than
three months (current financial assets). We also invest in equities and bonds through special funds. For
all forms of investment, emphasis is placed on ensuring that the counterparty is robust and that the price
risk is as low as possible.
As well as bank deposits, larger amounts are invested in special funds with established German investment management companies in order to achieve higher returns. For reasons of efficiency, the special
funds were consolidated and placed with a single investment management company in September 2010.
The investment is in a portfolio of blue chip bonds (government and corporate bonds) and equities (blue
chip companies). This mix minimizes the related risk. Equities comprise a maximum of 40% of the total
portfolio. The risk associated with these financial investments is stated monthly for equities using the
Value-at-Risk (VaR) measure as provided by the investment management company responsible. As of
December 31, 2010 (2009), the values were as follows:
Portfolio 1
Portfolio 2
Total
10.4
11.2
21.6
7.2
7.5
Equity holdings
EUR million
VaR
Potential loss/gain
EUR million
-0.8
-0.8
-1.6
Equity holdings
EUR million
4.4
7.0
11.4
VaR
1.2
8.9
Potential loss/gain
EUR million
-0.1
-0.6
-0.7
VaR analysis is based on the assumption of a 10-day holding period, a 95% confidence interval, and a
past observation period of 52 weeks. To calculate volatility and correlations, expected figures are used.
These are dynamically derived from the relevant equity/bond structure (interest rate structure).
In addition to the special funds, the Group holds securities, which are classified as available-for-sale
securities. The carrying value as of December 31, 2010 (2009) was EUR 6.4 million (EUR 7.3 million).
The majority of these securities are holdings in investment funds, which serve as insolvency insurance to
cover the provision for pensions and pre-retirement part-time working arrangements. No sensitivity
analysis was performed on these holdings due to the very minor fluctuations in their value.
The Management Board has not identified any concentration of risk as defined in IFRS 7.34.
The above information is disclosed in accordance with IFRS 7, Financial Instruments: Disclosures.
068
069
IFRS Consolidated
Financial Statements
069
Auditors Report
070
071
072
074
075
076
Hachmann
Wirtschaftsprfer
German Public Auditor
Auditors Report
070
071
STATEMENT OF COMPREHENSIVE INCOME for the years ended December 31, 2010 and 2009
CONSOLIDATED INCOME STATEMENT for the years ended December 31, 2010 and 2009
Note
2010
2009
[15]
1,688,228
1,684,194
Net income
1,124,501
1,181,061
563,727
503,133
Selling expenses
188,315
164,139
116,690
93,706
Net sales
Cost of goods sold
Gross profit
[6]
[17]
[18]
Interest expense
[18]
108,642
371
911
147,863
Operating profit
110,488
[19]
135,735
20,000
1,494
1,764
1,930
1,977
131,287
139,476
6,113
7,529
(18,189)
(12,925)
119,211
134,080
38,714
29,571
80,497
104,509
2,223
2,618
78,274
101,891
80,497
104,509
in thousands of EUR
2010
2009
80,497
104,509
31,706
7,999
307
(88)
32,013
7,911
112,510
112,420
4,386
2,308
108,124
110,112
112,510
112,420
in thousands of EUR
072
073
December 31,
2010
December 31,
2009
252,230
237,780
Current assets
Note
December 31,
2010
December 31,
2009
[10]
358,556
470,299
[11]
132,572
150,281
[13]
43,727
33,918
[2]
99,725
74,107
[3]
299,312
334,335
Financial liabilities
Inventories, net
[4]
286,473
249,125
11,355
8,363
[6]
1,979
[5]
25,889
28,468
974,984
934,157
Non-current liabilities
19,085
18,081
173,905
43,827
[9]
90,727
99,762
[14]
271,690
255,353
[19]
11,389
11,607
Financial assets
[2]
40,934
18,120
[3]
4,345
4,323
Intangible assets
[7]
115,190
92,058
[8]
462,821
458,529
[19]
70,180
76,380
20,140
23,151
Equity
2,993
2,278
725,661
681,427
1,700,645
1,615,584
in thousands of EUR
38,282
[13]
24
Total assets
35,267
[11]
6,564
1,600
91,937
772,255
Financial liabilities
7,458
[6]
93,519
657,559
[6]
8,502
17,318
[10]
[12]
8,997
20,188
[9]
Capital stock
[20]
Retained earnings
Accumulated income and expenses recognized directly in equity
Treasury stock
Minority interest
Total equity
Total liabilities and equity
[20]
2,687
3,692
604,750
470,604
25,000
25,000
434,898
400,016
21,446
(8,404)
(68,404)
(68,404)
25,396
24,517
438,336
372,725
1,700,645
1,615,584
in thousands of EUR
074
075
CONSOLIDATED STATEMENT OF CASH FLOWS for the years ended December 31, 2010 and 2009
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the years ended December 31, 2010 and 2009
Capital stock
Balance as of January 1, 2009
Adjustment in accordance with IAS 8 (see Note 1(u))
Adjusted balance as of January 1, 2009
Net income
Retained
earnings
Accumulated
income and
expenses
recognized directly
in equity 1
Treasury stock
Subtotal
Minority interest
Total
25,000
404,834
(16,625)
(68,404)
344,805
31,846
376,651
(1,581)
(1,581)
(1,565)
(3,146)
25,000
403,253
(16,625)
(68,404)
343,224
30,281
373,505
101,891
101,891
2,618
104,509
8,221
8,221
(310)
7,911
101,891
8,221
110,112
2,308
112,420
(19,670)
(19,670)
(6,560)
(26,230)
82,221
8,221
90,442
(4,252)
86,190
(85,458)
(85,458)
(85,458)
900
900
Dividends paid
(2,412)
(2,412)
25,000
400,016
(8,404)
(68,404)
348,208
24,517
372,725
Net income
78,274
78,274
2,223
80,497
29,850
29,850
2,163
32,013
78,274
29,850
108,124
4,386
112,510
200
200
200
78,474
29,850
108,324
4,386
89,504
76,730
(515)
(Gain)/loss on sale and disposal of intangible assets and property, plant and equipment
(150)
695
1,344
(1,197)
(12,341)
(32,770)
(24,220)
216
(7,512)
(27,511)
36,692
35,704
11,911
(14,015)
1,924
17,071
16,598
(1,462)
1,605
(29,192)
(37,759)
155,966
198,841
(43,592)
(43,592)
(3,507)
(3,507)
25,396
1,110
412,940
(1,764)
112,710
(68,404)
(325)
(1,494)
6,655
(11,193)
(43,592)
21,446
139,476
5,421
434,898
131,287
Adjustments to reconcile income before interest and taxes to cash provided by operations
(15,716)
25,000
2009
Interest paid
Dividends paid
Interest received
2010
Cash flows from operating activities
438,336
in thousands of EUR
(20,556)
37,286
(33,320)
(24,698)
(71,884)
(108,152)
6,517
7,692
(1,595)
(5,763)
(48,934)
943
(2,692)
(26,500)
1,800
2,640
69
44
2,014
1,644
(145,635)
(137,810)
10,331
61,031
(700)
(17,635)
142,978
64,678
14,000
(25,684)
(7,919)
(8,546)
(7,731)
2,121
(1,288)
(123,691)
(26,293)
900
(3,507)
(2,412)
(3,029)
2,300
7,148
342
14,450
63,673
237,780
174,107
252,230
237,780
Free cash flow consists of net cash provided by operating activities less net cash used in investing activities.
in thousands of EUR
076 |
077
Notes
(1)
Summary of
Significant
Accounting
Policies and
Practices
(a)
Description of Business
Giesecke & Devrient Gesellschaft mit beschrnkter Haftung and subsidiaries (G&D or Giesecke &
Devrient) is in the business of printing banknotes and securities, as well as the development and production of security paper and currency automation equipment. Giesecke & Devrient also develops and
manufactures magnetic stripe cards and smartcards mainly for the telecommunications, banking, and
health services industries. A further field of business includes security-related solutions for governments
and public authorities, ranging from ID cards and travel documents to e-government solutions. New
technologies comprise network solutions and secure mobile transaction solutions.
Giesecke & Devrient, headquartered in Prinzregentenstrae 159, 81607 Munich, Germany, has a strong
international orientation. One of G&Ds major markets is in Germany, and other key markets include
the United States, Canada, Great Britain, and China. As of December 31, 2010, G&D had subsidiaries in
33 countries. Giesecke & Devrient employs 10,413 people worldwide, including 6,493 outside Germany.
Principles of consolidation
The financial statements of the companies included in the consolidated financial statements are prepared using uniform accounting policies in accordance with IFRS.
Income and expenses, receivables, payables and provisions, as well as intragroup profits between companies included in the consolidated financial statements are eliminated.
A subsidiary is deconsolidated from the date it is no longer controlled by G&D.
Investments in joint ventures and associates accounted for using the equity method are initially recognized at cost and adjusted accordingly in subsequent periods. Intragroup profits from transactions with
these companies are eliminated in proportion to the acquirers interest.
The consolidated financial statements were approved by the Management Board on March 28, 2011.
(b)
Basis of Presentation
(c)
Consolidated Group and
Principles of Consolidation
The consolidated financial statements as of December 31, 2010 have been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by the EU. The accounting policies
and practices applied in preparing the consolidated financial statements also comply with the full International Financial Reporting Standards issued by the International Accounting Standards Board (IASB).
Consolidated Group
All material G&D subsidiaries, joint ventures, and associates are included in the consolidated financial
statements.
Subsidiaries are companies controlled by Giesecke & Devrient; such companies are fully consolidated.
Joint ventures are companies jointly controlled by G&D and other companies.
Associates are companies in which Giesecke & Devrient has significant influence. These are generally investments in which G&D has an ownership interest of between 20% and 50%. Joint ventures and associated companies are accounted for in the consolidated financial statements using the equity method.
The consolidated Group comprises eight domestic and 50 foreign subsidiaries which are fully consolidated.
Additionally, three joint ventures and/or associated companies are accounted for using the equity method
of accounting. The consolidated financial statements include all material companies which are presented in
the schedule of shareholdings (see Note 34).
In fiscal 2010, Giesecke & Devrient has applied the revised standards IFRS 3, Business Combinations
(IFRS 3 (2008)) and IAS 27, Consolidated and Separate Financial Statements in accordance with IFRS
(IAS 27 (2008)).
Under IFRS, all business combinations are accounted for using the purchase method. The acquirer allocates the cost of a business combination by recognizing the acquirees identifiable assets, liabilities, and
contingent liabilities that satisfy the recognition criteria at their fair value on the date control over the
entity is obtained (acquisition date). The full amounts of identifiable assets and liabilities and contingent
liabilities irrespective of the companys ownership interest are recognized at their fair values. Any excess
of the purchase price over the fair value of the identifiable assets, liabilities, and contingent liabilities less
any minority interests is recognized as goodwill. Where the fair value exceeds the purchase price, the
resulting amount is recorded in the income statement.
Minority interests are measured at the fair value of the proportionate identifiable net assets. In a business
combination achieved in stages, interests held at the time of transfer of control are revalued and the resulting gain or loss is recognized in profit or loss. An adjustment of conditional purchase price components
that were reported as liability at the acquisition date are recognized in profit or loss for business combinations beginning in 2010. Transaction costs are recognized as expenses at the time they are incurred.
Upon acquisition of additional ownership in less than 100%-owned subsidiaries, the difference between
the purchase price and the proportionate share of the subsidiarys equity is charged against retained
earnings. Transactions which do not result in loss of control have no impact on the income statement and
are recorded as equity transactions.
Remaining interests are measured at fair value at the time of loss of control. In the case of minority interests, the reporting of negative balances is permitted, i.e. future losses are allocated in proportion to the
participation without restriction.
078 |
079
Notes
(d)
Use of Estimates
The preparation of the accompanying financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
amounts and liabilities as of the date of the financial statements and reported amounts of revenues and
expenses during the reporting period.
Information about significant areas of estimation, uncertainty and critical judgments in applying
accounting policies that have the most significant effect on the amounts recognized in the consolidated
financial statements is included in the following notes:
Note 1(k) Goodwill and Other Intangible Assets
Note 1(o) Provisions
(e)
Foreign Currency
Translation
Transactions in foreign currency are translated into euros using the exchange rate on the date of the transaction. At the balance sheet date, monetary assets and liabilities are remeasured using the closing rate. Any
differences upon remeasurement are recognized in the income statement. Non-monetary assets and liabilities denominated in foreign currency are translated using the historical exchange rate as of the date of the
transaction.
The individual functional currency of each of the Group companies is the currency of the primary economic environment in which the entity operates. The assets and liabilities of foreign subsidiaries with functional currencies other than the euro are translated using period-end exchange rates, while the revenues
and expenses are translated using average exchange rates during the period. Differences arising from the
translation of assets and liabilities in comparison with the translation of the previous periods are included
in cumulative translation adjustment and reported as a separate component of equity.
The average and closing rates for the fiscal years ended December 31 are as follows:
Rates December 31, 2010
Average
Closing
Average
Closing
US dollar USD
1.3275
1.3362
1.3933
1.4406
1.4442
1.3136
1.7749
1.6008
0.8582
0.8607
0.8911
0.8881
1.3665
1.3322
1.5852
1.5128
8.9805
8.8220
9.5174
9.8350
7.4976
7.7648
7.7609
7.9425
10.3077
10.3856
10.7997
11.1709
4.2733
4.0950
4.9040
4.9326
9.5469
8.9655
10.4526
10.2520
Since fiscal 2009, Giesecke & Devrient has applied the revised standard IAS 1, Presentation of Financial
Statements. With the revision of IAS 1, the consolidated financial statements now include a statement
of comprehensive income in addition to the income statement. The statement of comprehensive income
includes net income and changes in income and expenses recognized directly in equity during the period
which do not result from transactions with the shareholder.
Since fiscal 2009, Giesecke & Devrient has applied the changes to IFRS 7, Financial Instruments:
Disclosures. This standard requires additional information for the determination of fair values and
the liquidity risk. The changes have no effect on the results of operations, net assets and financial position of the Group.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
Financial assets include, in particular, cash and cash equivalents, accounts receivable trade, loans, other
receivables, marketable securities, and derivative instruments.
For regular-way purchases and sales of all categories of financial assets, with the exception of derivative
financial instruments, the date of initial recognition in the balance sheet or of derecognition is the settlement date, i.e. the date on which an asset is delivered to or by an entity. The trade date is determinant for
derivative financial instruments.
Financial liabilities include accounts payable trade, liabilities to banks, finance lease obligations, and
derivative financial liabilities.
Financial assets and liabilities are generally measured at fair value on initial recognition. Financial assets,
which are not valued at fair value through profit or loss, include the direct acquisition costs. The fair
value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable,
willing parties in an arms length transaction.
A financial asset is derecognized when the contractual rights to the cash flows relating to the financial
asset expire, that is, when the asset is realized or forfeited or is no longer under the control of the company. Up to now, G&D has not exercised the right to record financial assets as financial assets measured
at fair value through profit or loss at the time of initial recognition. The measurement category held-tomaturity investments is also not used. Interest income was not recorded on impaired financial assets.
(f)
Presentation of Financial
Statements
(g)
Financial Instruments
080 |
081
Notes
Giesecke & Devrient considers all highly liquid investments with an original maturity of three months
or less to be cash equivalents. These are valued at amortized cost.
Highly liquid commercial paper with an original maturity of up to three months is also classified as cash
and is measured at fair value.
Short-term investments with durations between three months and one year are classified as current
financial assets.
Unrealized gains and losses on available-for-sale securities are included in accumulated income and
expenses recognized directly in equity. Impairments are recognized through profit and loss on other than
temporary declines in value. An impairment is recorded on equity securities when there is a permanent
or significant reduction in the fair value below the original acquisition costs. For debt securities, an impairment is recorded when there is a considerable decline in the creditworthiness of the debtor. If, in a
subsequent period, the fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognized, the impairment loss shall be reversed in the income statement (for equity securities the reversal is recognized directly in equity).
Equity investments in other related companies are recognized at cost, since an active market price does
not exist and their fair market value cannot be reliably determined.
Accounts receivable trade and other receivables, net are allocated to the category loans and receiv
ables. They are measured at fair value at the time of initial recognition, which represents the acquisition
costs at the date of acquisition. The valuation at subsequent balance sheet dates is at amortized cost.
At the same time, credit risk impairments in the form of specific allowances for doubtful accounts are
carried out. Specific defaults (i.e. the start of an insolvency proceeding) lead to derecognition of the
receivables affected. In addition, lump-sum specific allowances are also recorded. The indication of a
possible impairment begins when the agreed payment terms are exceeded, moreover when the start of
insolvency proceedings or similar becomes known. Allowances on accounts receivable trade and other
receivables are recorded in separate allowance accounts.
With the exception of derivative financial instruments, other financial assets recognized as assets are
allocated to the measurement category loans and receivables. The valuation is in accordance with the
explanation provided for accounts receivable trade and other receivables, net. If there are indications
of an impairment for financial assets which are valued at amortized cost, an impairment is carried out
to the extent of the lowest possible realizable amount. Irrecoverable financial assets are derecognized.
An impairment is reversed when the reasons for the impairment recorded no longer prevail.
Financial liabilities
Income and expenses in connection with the recognition and reversal of specific allowances, lump-sum
specific allowances, as well as direct derecognitions of receivables are recorded in selling expenses. Nonand low-interest-bearing non-current receivables are recorded at the present value of the expected
future cash flows when the interest effect is material. For such amounts, the subsequent valuation is made
using the effective interest method. Assets are classified as non-current when the remaining duration
at the balance sheet date exceeds 12 months.
With the exception of derivative financial instruments, financial liabilities recorded as liabilities are
allocated to the measurement category financial liabilities measured at amortized cost. The initial
valuation of these financial liabilities is at fair value and in subsequent periods at amortized cost using
the effective interest method. Transaction costs are deducted from the acquisition costs, in as much as
they are directly attributable. Liabilities are classified as non-current when the remaining maturity as
of the balance sheet date exceeds 12 months.
The valuation of accounts payable trade is in accordance with the procedures noted previously for financial liabilities.
G&Ds marketable securities are classified as trading or available-for-sale securities and are stated at
fair value as determined by the most recently traded price of each security at the balance sheet date. The
trading securities contain numerous shares in two closed and fully consolidated special funds, which invest in publicly traded equity and debt securities. The available-for-sale securities are shares in investment funds, which serve as insolvency insurance to cover the provision for pre-retirement part-time
working arrangements. Highly liquid commercial paper with an original maturity of up to three months
is classified as cash and is measured at fair value.
Unrealized gains and losses on trading securities are included in income on a current basis.
A financial liability is derecognized when the underlying obligation relating to the liability is fulfilled,
terminated or extinguished.
Giesecke & Devrient has not made use of the option to designate financial liabilities as financial liabilities measured at fair value through profit or loss at the time of initial recognition in the balance sheet.
082 |
083
Notes
Derivative instruments are only used to manage the foreign currency exposure incurred in the normal
course of business and only in the form of forward exchange contracts. G&D does not apply hedge
accounting where the contract volume covered falls below USD 10 million. These derivative financial
instruments therefore qualify as held-for-trading, and are recorded at fair value at the balance sheet
date as either an asset or a liability. Changes in fair value are recognized in the income statement as
financial income or expense. The fair market value of forward exchange contracts is calculated on the
basis of the applicable spot market rates as well as the forward contract premium or discount compared
to the contracted forward contract rate.
Currency risks from contracts with a nominal volume exceeding USD 10 million are secured via forward
exchange contracts within the scope of a micro hedge and presented as fair value hedges in the balance
sheet. If the conditions for hedge accounting in accordance with IAS 39 are fulfilled, Giesecke & Devrient
classifies and documents the hedge as a fair value hedge during the period. A fair value hedge is a hedge
of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment. Documentation of the hedging relationship includes the objectives and strategy of the companys
risk management, the nature of the hedging activity, the risk covered by the hedge, a description of the
hedge instrument and the hedged item, as well as a description of the method used in measuring its effectiveness. The hedge is expected to be highly effective in offsetting changes in fair value attributable to the
hedged risk and is assessed on an ongoing basis throughout the financial period for which the hedge was
designated. Changes in fair value of the derivatives, as well as changes in the market values of their corresponding hedged items, are recognized in net financial income. The fair values of the hedged items are
recognized as current financial assets and current financial liabilities. If derivative financial instruments
no longer meet the criteria for hedge accounting, they are classified as held for trading.
Giesecke & Devrient identifies derivative instruments embedded in host contracts and accounts for them
separately according to the provisions of IAS 39 Financial Instruments: Recognition and Measurement. These derivatives consist solely of foreign currency derivatives embedded in certain firm sales
and purchase contracts denominated in a currency that is neither the functional currency of G&D nor
of the contractual counterparty and which is also not a currency in which transactions are commonly
denominated in the jurisdiction in which the transaction is to occur.
The fair values of foreign currency embedded derivatives are included in the balance sheet under current
financial assets and current financial liabilities.
The relevant classes of financial instruments used by G&D include the measurement categories in accordance with IAS 39, cash and cash equivalents, short-term investments, receivables and payables from
construction contracts, as well as finance lease obligations, financial guarantees and derivative financial
instruments that are eligible for hedge accounting.
Risk management for the entire Group is coordinated centrally. Policies for risk management, foreign
currency exposure, and documentation requirements are set forth in guidelines and procedures issued by
the corporate treasury department. These guidelines are examined and updated on a regular basis. The
approval of the guidelines is the responsibility of management.
(h)
Risk Management
and Foreign Currency
Exposure Policies
Derivative financial instruments are used by G&D solely to reduce the risks inherent within its worldwide business. As such, Giesecke & Devrient does not hold or issue derivative instruments for speculative purposes.
Refer to section 8.3. of the Group management report in the risk report, Financial risk, for additional
related disclosures.
Inventories are carried at cost. Cost is determined using the weighted average or FIFO method. Finished
goods and work-in-progress inventories include direct material, labor, and manufacturing overhead
costs, which are based on the normal capacity of the production facilities. Items in inventory are written
down at the balance sheet date if their net realizable value is lower than their carrying amount.
Non-current assets are classified as held for sale if they are available for immediate sale in their present
condition, subject only to terms that are usual and customary for sales of such assets and their sale is
highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell.
Intangible assets consist of purchased intangible assets, such as standard software, licenses, patents, water
rights, know-how, goodwill, and internally developed intangible assets.
Intangible assets with definite useful lives are valued at cost and are amortized on a straight-line basis
over their estimated economic useful lives.
Development costs are capitalized when the requirements of IAS 38, Intangible Assets, are fulfilled.
Such costs are amortized on a straight-line basis over the estimated economic useful lives. Research costs
are expensed in the period in which they are incurred.
The useful lives of intangible assets with definite useful lives are generally as follows:
Years
Development costs/Technology
Software, rights, customer base etc.
310
38
(i)
Inventories
(j)
Non-Current Assets
Held for Sale
(k)
Goodwill and Other
Intangible Assets
084 |
085
Notes
Goodwill is not amortized but rather tested at least annually for impairment. Reversals of impairments
on goodwill are not permitted.
At least once a year, Giesecke & Devrient evaluates the recoverability of goodwill at the cash-generating unit (CGU) level or group of CGUs using a one-step impairment test. Where the recoverable
amount (value in use equal to the present value of future cash flows) of the CGU or group of CGUs, to
which the goodwill was allocated, is less than the carrying amount, an impairment loss is recognized. If
the impairment loss exceeds the goodwill of the CGU, the excess is allocated to the other assets (generally property, plant and equipment and intangible assets) of the CGU or group of CGUs pro rata on the
basis of the carrying amount of each asset.
Impairment of other intangible assets and items of property, plant and equipment is identified by comparing the carrying amount with the recoverable amount (the higher of fair value less costs to sell and
value in use). If no future cash flows generated independently of other assets can be allocated to the individual assets, recoverability is tested on the basis of the cash-generating unit to which the assets can be
allocated. Impairment losses are reversed, with the exception of goodwill, if the reasons for recognizing
the original impairment loss no longer apply.
Beneficial ownership of leased assets is attributed to the contracting party in the lease, to which substantially all risks and rewards incidental to ownership of the asset are transferred.
(m)
Impairment of Intangible
Assets and Property, Plant
and Equipment
(n)
Leasing
The most critical assumptions the calculation of the fair value less costs to sell and the calculation of the
value in use are based on, include estimated growth rates, weighted average capital costs and tax rates.
Such premises, as well as the underlying methodology, can materially influence the respective values and
therefore impact the determination of a potential impairment of the goodwill. As far as property, plant
and equipment, as well as intangible assets, are tested for impairment, the determination of the recoverable amount is based on estimates of the management.
(l)
Property, Plant
and Equipment
Property, plant and equipment are valued at cost less accumulated depreciation. Depreciation of property, plant and equipment is calculated on the straight-line method over the estimated economic useful
lives of the assets. Depreciation on an asset commences once it has been placed in service.
The cost of self-constructed property, plant and equipment comprises the direct cost of materials and
direct manufacturing expenses, plus appropriate allocations of material and manufacturing overheads as
well as production and output-related general and administrative costs.
The acquisition or manufacturing costs also include estimated dismantling and removal costs as well as
costs relating to the restoration of the location to its original state.
Any investment allowances or grants received reduce the acquisition or manufacturing costs of the
assets for which they were granted.
If an item of property, plant and equipment is comprised of several components with differing useful
lives, the separate components are depreciated over the individual useful lives. Expenses for the day-today repair and maintenance of property, plant and equipment are normally charged against income.
Estimated economic useful lives of G&Ds property, plant and equipment are as follows:
Years
Buildings
up to 50
320
323
If substantially all the risks and rewards are attributable to the lessor (operating lease), the leased asset is recognized by the lessor. Measurement of the leased asset is then governed by the accounting
policies applicable to that asset. During the term of the lease, the operating lease payments are recognized in the income statement by the lessor and the lessee.
If substantially all the risks and rewards incidental to ownership of the leased asset are transferred to
the lessee (finance lease), the lessee must recognize the leased asset. At the commencement of the
lease term, the leased asset is measured at fair value or the lower present value of the future lease
payments and depreciated over the shorter of the estimated economic useful life and the lease term.
The lessee recognizes a lease liability at the commencement of the lease term. In subsequent periods,
the lease liability is reduced using the effective interest method and the carrying amount is adjusted
accordingly.
Pension obligations, other post-employment benefits and related income/expenses are determined on
the basis of actuarial reports. Actuarial reports are based on key premises such as discount rates, expected profits on fund assets, rates of compensation increases, life expectancy and assumptions on medical
cost trend rates. The rate used to discount post-employment benefit obligations is determined by reference to market yields on runtime-specific high-quality corporate bonds with a fixed rate of interest at the
balance sheet date. The return on fund assets is determined on the basis of long-term historical returns
and the structure of the portfolio. Due to fluctuant market and economic conditions, the underlying
assumptions can deviate from actual developments and may therefore have a material impact on pension obligations and other post-employment benefits.
Provisions for defined benefit plans are measured using the projected unit credit method, taking into
account not only the pension obligations and vested pension rights known at the balance sheet date, but
also expected future salary and benefit increases. Actuarial gains or losses are recognized at the balance
sheet date only to the extent that they fall outside a corridor of 10% of the amount of the defined benefit obligation. The amount of actuarial gains or losses exceeding the corridor is amortized over the average remaining working life of the eligible employees and recognized as income or expense. The interest
component of the addition to provisions contained in pension expenses is reported in operating income/
expense as personnel expense. The return on plan assets is also reported in operating income/expense.
The amounts payable under defined contribution plans are expensed.
(o)
Provisions
086 |
087
Notes
Other provisions
A liability is recognized for obligations under pre-retirement part-time working arrangements as soon
as an employee is entitled to end the employment relationship early. In the case of pre-retirement parttime working arrangements based on the phased working time model, the outstanding obligation for
work performed by the employee during the work phase and the obligation to pay top-up amounts are
measured separately. The resulting obligations are measured at their present value on the basis of actuarial principles. Whereas the obligation for work performed by the employee during the work phase is
recognized in installments, the top-up amounts are recognized as expense as soon as the obligation
arises. The interest component of the allocation to the provision for pre-retirement part-time working
arrangements is presented within personnel expense.
Other provisions are recognized where there are legal or constructive obligations to third parties on the
basis of past transactions or events that will probably require an outflow of resources to settle, and this
outflow can be reliably measured. They are carried at their expected settlement amount, taking into
account all identifiable risks, and may not be offset against potential reimbursements, for example, via
insurance claims. The settlement amount is calculated on the basis of a best estimate. Provisions are
discounted where the effect of the time value of money is material.
Product warranties
A provision for the expected warranty-related costs is established when the product is sold. Estimates
for accrued warranty costs are primarily based on historical experience.
Provision for restructuring costs
A provision for restructuring costs is recorded where a legal or constructive obligation exists. A constructive obligation for restructuring costs arises only when there is a detailed formal plan identifying
key features of the plan and its implementation and a valid expectation on the part of those affected,
either by starting to implement the plan or announcing its main features to those affected by it. A restructuring provision should include only the direct expenditures arising from the restructuring, which
are those that are both necessarily entailed by the restructuring and not associated with the ongoing
activities of G&D.
Provision for onerous contracts
The calculation of provisions for onerous contracts is to a significant extent based on estimates. Such
estimates are mainly related to the status of the projects, the fulfillment of the services requested,
changes regarding the volume of the projects, the update of budgeted costs as well as applied customized
and runtime-specific discount rates.
Giesecke & Devrient records a provision for onerous contracts on contracts where the unavoidable
costs of meeting the obligations exceed the expected benefits. The unavoidable costs under a contract
reflect the minimum net costs of exiting from the contract, which is the lower of the cost of fulfilling it
and any compensation or penalties arising from failure to fulfill it. Before a separate provision for an
onerous contract is established, any impairment loss that has occurred on assets dedicated to that
contract is recognized.
Changes in estimates of the amount and timing of payments or changes in the discount rate applied in
measuring provisions for decommissioning, restoration, and similar obligations are recognized in the
same amount for the related asset. Where the decrease in the amount of a provision is greater than the
carrying amount of the related asset, the excess is recognized immediately in profit or loss.
Revenue is generally recognized when a product is shipped and title is transferred to the customer or
services are performed. If product sales require customer acceptance, revenues are recognized generally
upon acceptance by the customer. For arrangements requiring installation of a product at the customer
location, where installation is essential to the functionality of the product, revenue is recognized when
the product is delivered and installed at the customer location.
In certain instances, G&D is the general contractor concerning the construction of paper mills, special
facilities (e.g. production of security products), and personalization centers. The fulfillment of these types
of contracts usually extends over a long period and can last up to several years until final completion. For
construction contracts, the percentage-of-completion method is applied, provided that the revenue and
expenses can be estimated reliably. The percentage of completion is generally determined using the costto-cost method. Profit recognized in the period is calculated by multiplying the contract revenues and
costs by the percentage of completion less the results recognized in prior periods.
For long-term customer contracts in which the major components consist of the production, modification, or customizing of software, the percentage-of-completion method is also used for revenue recognition.
Giesecke & Devrient has contractual arrangements in which it performs multiple revenue-generating
activities, mainly for cards, passports and ID documents. For arrangements involving multiple revenuegenerating activities (e.g. the delivery of card bodies and personalization services) the immediate recognition of revenue is only possible under certain circumstances. In these cases, the revenue allocation is
based upon the relative fair values of the individual components of the total arrangement. The amount
allocable to the delivered elements is limited to the amount that is not contingent upon delivery of additional elements.
Interest is recognized using the effective interest method. Dividends are recognized when the shareholders right to receive payment is established.
(p)
Recognition of Revenue,
Interest and Dividends
088 |
089
Notes
(q)
Grants
Where grants are received for certain assets, they are offset against the acquisition or manufacturing
costs of the related assets and therefore reduce the acquisition costs. The grants/allowances are released
to the income statement in installments in the form of a reduction in depreciation expense.
Other types of grants are recorded in the income statement in the period in which the entitlement arises.
(r)
Borrowing Costs
(s)
Deferred Taxes
(t)
Statement of Cash Flows
Since 2009, Giesecke & Devrient has applied the revised IAS 23, Borrowing costs. According to the
revised standard, borrowing costs that are directly attributable to a qualifying asset have to be capitalized. A qualifying asset is an asset that takes a substantial period of time to get ready for its intended
use or sale, including the acquisition, construction or manufacture. No such borrowing costs have been
capitalized in 2010 and 2009.
Deferred tax assets and liabilities are recognized for temporary differences between the carrying
amounts in the consolidated balance sheet and the tax base, as well as for tax loss carryforwards that are
expected to reduce tax expense in future periods.
The statement of cash flows is prepared in accordance with IAS 7 and shows the cash inflows and
outflows during the fiscal year classified by cash flows from operating activities, investing activities and
financing activities. The cash flows from operating activities are presented using the indirect method,
in which earnings are adjusted for non-cash transactions. Moreover, items attributable to cash flows
from investing activities and financing activities are eliminated. Cash flows from interest received and
interest paid, as well as dividends received, are allocated to cash flows from operating activities. Cash
outflows for the acquisition of additional shares in affiliated companies under common control are
classified as cash flows from financing activities.
The cash flow funds comprise the balance sheet line item cash and cash equivalents. Cash and cash
equivalents include cash on hand and cash at banks, as well as cash from funds and investments with an
original maturity of up to three months.
In 2010, an adjustment to the financial statements of the subsidiary SECUNET s.r.o., Prague, as of
December 31, 2008 was ascertained. The resulting adjustments to the prior year figures for fiscal
2009 were made to the respective balance sheet items in the consolidated financial statements of
Giesecke & Devrient GmbH in accordance with IAS 8.42. The misstatement primarily relates to
current accounts receivable trade and other receivables, net, as well as equity. Both line items were
reduced by EUR 3.1 million as of January 1, 2009. The value of minority interests acquired in 2009
was reduced by EUR 0.9 million. A 3-year presentation was omitted, since only immaterial errors
were adjusted.
Within the scope of the project to revise the accounting standards for financial instruments, the IASB
published IFRS 9, Financial Instruments, in November 2009 and accordingly in October 2010. The new
standard specifies the classification and measurement of financial assets and liabilities. An entity shall
apply this standard for annual periods beginning on or after January 1, 2013. Earlier application is permitted. IFRS 9 has not yet been adopted by the EU. Giesecke & Devrient has not yet applied IFRS 9.
In November 2009, the IASB published IAS 24, Related Party Disclosures (revised 2009). Up to
now, companies that are controlled or considerably influenced by government were obligated to disclose information for all transactions with companies that are controlled or considerably influenced by
the same government. With the change to IAS 24, detailed disclosures have to be made only for individual material transactions. Additionally, quantitative or qualitative indications of effects for transactions that are not individually, but, when combined, material, have to be made. Furthermore, a clear
definition of a related company or a related person was made via the change to IAS 24. The changes
have to be adopted for accounting periods beginning on or after January 1, 2011. Currently, no changes
are foreseen for Giesecke & Devrient.
In April 2009 and in May 2010, the IASB published several amendments to various IFRS standards as
part of its annual improvement process. The adjustments mainly relate to terminology as well as editorial aspects. The timeframe for the earliest application of the April 2009 adjustments is the financial year
beginning on or after July 1, 2009 or accordingly on or after January 1, 2010. The timeframe for the earliest
application of the May 2010 adjustments is the financial year beginning on or after July 1, 2010 or on
or after January 1, 2011. The changes have not had or rather will not have a significant influence on the
financial position and result of operations of G&D.
(u)
Changes to the
Prior Year Figures
(v)
New Accounting
Pronouncements
090 |
091
Notes
(2)
Financial assets are comprised of the following as of December 31, 2010 and 2009:
Aging structure of accounts receivable trade and other accounts receivable (excluding prepayments)
as of December 31, 2010 and 2009:
December 31
Financial Assets
December 31
2010
2009
2010
2009
30,890
10,313
35,462
40,812
Trading securities
Current
56,274
54,883
21,627
21,479
Available-for-sale securities
6,400
7,343
11,648
5,346
2,561
1,566
Receivables past due between 181 360 days, but not impaired
3,904
2,720
Receivables past due more than 360 days, but not impaired
3,600
99,725
74,107
17,003
15,289
23,931
2,831
40,934
18,120
in thousands of EUR
Acquisition costs for available-for-sale securities in the amount of EUR 6.4 million have been included
in marketable securities as of December 31, 2010 and EUR 7.3 million as of December 31, 2009. As of
December 31, 2010 and 2009, the fair market value of these securities was EUR 6.4 million and EUR 7.3
million, respectively.
Loans to related parties relate to a loan and the security for rent to MC Vermgensverwaltung GmbH
& Co. KG. All loans receivable are not yet due. Specific allowances on loans to third parties in the amount
of EUR 0.0 million and EUR 0.1 million were recorded as of December 31, 2010 and 2009, respectively.
(3)
Accounts Receivable Trade and
Other Accounts
Receivable, net
Impaired or not past due accounts receivable trade and other receivables
Total accounts receivable trade and other receivables, gross
Non-current
68
83
72,709
70,440
219,695
249,094
292,404
319,534
in thousands of EUR
The following table serves as a summary of the development of the specific allowances as well as lump-sum
specific allowances for doubtful accounts:
Allowance for doubtful accounts
(specific)
2010
2009
2010
2009
Opening balance
5,185
5,501
790
872
3,390
3,531
(1,906)
(1,801)
(27)
Utilization
(1,655)
(1,987)
(146)
(39)
Currency effects
477
(59)
(16)
5,491
5,185
653
790
in thousands of EUR
Accounts receivable trade and other accounts receivable, net are comprised of the following as of
December 31, 2010 and 2009:
December 31
2010
2009
272,972
245,659
9,336
6,801
Current
Accounts receivable trade
Accounts receivable from joint ventures and associated companies
Accounts receivable from related parties
Accounts receivable from Giesecke & Devrient Holding GmbH
Accounts receivable from undertakings in which G&D has a participating interest
Other
Prepayments
107
58,070
1,080
7,486
6,158
15,555
22,542
305,456
340,310
(6,144)
(5,975)
299,312
334,335
2,503
1,766
1,842
2,557
4,345
4,323
Non-current
in thousands of EUR
The specific allowances for doubtful accounts relate to gross receivables in the amount of EUR 6.3 million
and EUR 6.0 million as of December 31, 2010 and 2009, respectively.
Relating to accounts receivable trade and other receivables in the amount of EUR 213.4 million and
EUR 243.1 million as of December 31, 2010 and 2009, which have neither been provided for nor are past
due as of the balance sheet date, there is no indication that the debtors will not be able to meet their
payment obligations.
Allowances for doubtful accounts on accounts receivable from joint ventures, associated companies,
Giesecke & Devrient Holding GmbH, as well as other receivables were not recorded.
092 |
093
Notes
(4)
Inventories, net
Inventories are comprised of the following as of December 31, 2010 and 2009:
Shenzhen G&D Currency Automation Systems Co. Ltd. sells and installs banknote processing systems.
December 31
2010
2009
94,221
75,641
Work in process
161,478
137,259
Finished goods
17,550
15,154
Raw materials
Merchandise
13,224
21,071
286,473
249,125
The main activity of EPC Electronic Payment Cards, Gesellschaft fr Kartenmanagement mbH is the
production and sale of cards and card systems.
Effective October 1, 2010, Giesecke & Devrient acquired an additional 10% of shares in Shenzhen G&D
Currency Automation Systems Co. Ltd. at a purchase price of EUR 0.4 million. The outflow of funds
took place in 2011. As a result of this acquisition, negative goodwill in the amount of EUR 0.3 million
was recorded in the income statement in other financial income/(expenses), net in 2010.
in thousands of EUR
In fiscal years 2010 and 2009, write-downs on inventory amounted to EUR 19.5 million and EUR 8.5 million, respectively.
(5)
Other Current
Assets
The investment in SITRONICS Smart Technologies LLC (SITRONICS), which was classified as noncurrent assets held for sale as of December 31, 2009, was sold at a selling price of EUR 2.6 million. The
net gain on sale, less foreign exchange losses in the amount of EUR 0.1 million that were previously
not recognized in the income statement, amounted to EUR 0.5 million and is presented within other
financial income/(expenses), net.
December 31
2010
2009
6,486
5,173
Restricted cash
2,900
3,016
Gross amount due from customers for contract work (see Note 22)
5,154
13,048
11,349
7,231
25,889
28,468
Other
in thousands of EUR
Considering the respective ownership, the aggregate summarized financial information for all associated
companies and joint ventures as of and for the years ended December 31, 2010 and 2009 is as follows:
December 31
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net sales
(6)
Investments
Gross profit
December 31
2010
2009
7,458
6,564
1,600
24
9,058
6,588
in thousands of EUR
The following investments (see Note 1c) are accounted for using the equity method of accounting:
Name of the associated company/joint venture
50.00
50.00
49.00
in %
E-Kart Elektronik Kart Sistemleri Sanayi ve Ticaret Anonim Sirketi manufactures and sells cards,
card systems, and card-based solutions.
2010
2009
19,968
13,361
6,667
5,989
16,337
9,919
1,640
2,228
34,807
33,279
5,320
5,617
189
136
Other expenses
4,015
3,989
Net income
1,494
1,764
Other income
in thousands of EUR
094 |
095
Notes
(7)
Intangible Assets
The amounts of amortization on intangible assets recorded in the functional areas of the income
statement are as follows:
A summary of the activity for goodwill and other intangible assets is as follows:
Costs
January 1, 2009
Additions
Transfers
Customer base/
Rights
Development
costs/
Technology
Software
Goodwill
Total
28,453
17,488
31,905
7,213
85,059
415
13,895
10,414
24,724
27
523
550
3,366
15,585
259
27,394
46,604
(10)
(1,040)
(1,050)
1,712
1,162
437
1,345
4,656
33,963
48,130
42,498
35,952
160,543
January 1, 2010
33,963
48,130
42,498
35,952
160,543
1,122
5,328
26,700
33,150
Additions
169
169
Disposals
(79)
(4,590)
(693)
(5,362)
3,327
2,944
808
4,360
11,439
38,333
51,812
69,482
40,312
199,939
in thousands of EUR
The additions in 2010 and 2009 comprise self constructed intangible assets in the amount of EUR 5.3 million and EUR 13.9 million, respectively.
Customer base/
Rights
Development
costs/
Technology
Software
Goodwill
Total
27,056
9,154
21,605
57,815
609
2,967
4,302
7,878
Impairment losses
1,981
1,981
(153)
(153)
(1,006)
Accumulated amortization
January 1, 2009
Additions
Disposals
(10)
(996)
1,595
63
312
1,970
29,250
14,012
25,223
68,485
January 1, 2010
29,250
14,012
25,223
68,485
1,102
4,824
3,730
9,656
7,899
7,899
(5,293)
Additions
Impairment losses
Disposals
(79)
(4,590)
(624)
2,835
516
651
4,002
33,108
22,661
28,980
84,749
January 1, 2009
1,397
8,334
10,300
7,213
27,244
4,713
34,118
17,275
35,952
92,058
5,225
29,151
40,502
40,312
115,190
in thousands of EUR
2009
6,704
5,085
Selling expenses
348
382
812
653
1,792
1,758
9,656
7,878
Transfers
2010
in thousands of EUR
In fiscal year 2010, impairment losses in the amount of EUR 7.9 million were among others recorded on
capitalized development costs relating to product lines and products which will no longer be produced.
No reversals of impairment losses were recognized. Impairment losses recognized were recorded in the
amount of EUR 5.2 million in cost of goods sold and in the amount of EUR 2.7 million in research and
development expenses.
In fiscal year 2009, impairment losses in the amount of EUR 2.0 million were recorded on capitalized
development costs relating to a product line which will no longer be produced. Additionally, reversals of
impairment losses on capitalized development costs in the amount of EUR 0.2 million were recognized.
Impairment losses recognized and reversed were recorded in cost of goods sold.
In 2010, the goodwill of a Canadian subsidiary in the amount of EUR 2.2 million was allocated to the
Banknote Printing CGU (EUR 0.6 million) and to the Banknote Paper CGU (EUR 1.6 million)
according to the relative fair values of future cash flows. This was performed in accordance with IFRS 8,
Operating segments. The goodwill from secunet AG in the amount of EUR 3.4 million was assigned
to the secunet CGU. The goodwill from Giesecke & Devrient Matsoukis, Security Printing, S.A. in the
amount of EUR 2.1 million was allocated to the Government CGU. The goodwill from SmartTrust AB
in the amount of EUR 32.6 million was assigned to the SmartTrust CGU. Until 2009, the CGU SmartTrust was comprised solely of the company SmartTrust AB, Stockholm. As a result of the restructuring
of the former Cards and Services business unit, the CGU SmartTrust now consists of the new Server
Software and Services (3S) division of the business unit Mobile Security. Refer to section 1 of the Group
management report, Business Activity, for the related disclosures.
In performing the annual impairment testing for goodwill, the recoverable amount of the CGU or group
of CGUs is based on the value in use. The value in use is the present value of the future cash flows expected to be derived from the CGU or a group of CGUs. The cash flow projections, with the exception of
the Government CGU and the SmartTrust CGU, are based upon G&Ds forecasts for the next three
years. Terminal values are generally based upon the average projected cash flows from forecasts for the
following three years. For the terminal values of the Government CGU, the average cash flows for the next
four years are utilized and the terminal values for the SmartTrust CGU are based on the average cash flow
for the next eight years. In discounting the cash flows of the secunet CGU, pre-tax interest rates of 12.3%
and 13.9% were used in 2010 and 2009. For the CGU Banknote Paper and the CGU Banknote Printing,
pre-tax interest rates of 11.0% and 13.2% were applied in 2010 and 2009 to discount cash flows. In discounting the cash flows of the Government CGU, pre-tax interest rates of 12.3% and 13.9% were used in 2010
and 2009. In discounting the cash flows of the SmartTrust CGU, pre-tax interest rates of 11.4% and
12.9% were used in 2010 and 2009. No goodwill impairments were recorded in fiscal years 2010 and 2009.
096 |
097
Notes
(8)
Property, Plant
and Equipment
During the current fiscal year, Giesecke & Devrient recorded impairments in the amount of EUR 1.3 million on technical equipment and machinery which had no further economic useful lives. Impairment
losses were recorded solely in cost of goods sold.
Land and
buildings1
Technical
equipment
and machinery1
Other plant
and office
equipment1
Construction
in process
Total
331,977
469,500
156,618
31,265
989,360
Additions
9,149
51,748
19,296
22,162
102,355
Transfers
6,183
22,566
2,994
(30,717)
1,026
Costs
January 1, 2009
162
162
(3,990)
(17,009)
(10,574)
(203)
(31,776)
480
9,013
196
302
9,991
343,799
535,980
168,530
22,809
1,071,118
January 1, 2010
343,799
535,980
168,530
22,809
1,071,118
Additions
1,799
32,031
13,347
14,599
61,776
Transfers
3,844
25,862
1,225
(26,489)
4,442
Disposals
(3,818)
(21,334)
(12,152)
(37,304)
Disposals
Foreign currency effects
4,599
18,156
3,955
835
27,545
350,223
590,695
174,905
11,754
1,127,577
Accumulated depreciation
January 1, 2009
Additions
Transfers
Impairment losses
Reversal of impairment loss
Disposals
Foreign currency effects
December 31, 2009
January 1, 2010
Additions
Transfers
Impairment losses
Reversal of impairment loss
Disposals
Foreign currency effects
in thousands of EUR
Land and
buildings1
Technical
equipment
and machinery1
Other plant
and office
equipment1
Construction
in process
Total
144,319
314,102
110,920
569,341
12,274
38,461
15,978
66,713
(64)
64
144
2,024
88
2,256
(1,945)
(1,945)
(3,879)
(15,784)
(9,774)
(29,437)
591
5,073
(3)
5,661
153,449
341,867
117,273
612,589
153,449
341,867
117,273
612,589
12,478
41,881
16,376
70,735
(37)
1,345
(1,308)
1,263
1,263
(47)
(47)
(3,703)
(20,135)
(11,602)
(35,440)
1,594
11,162
2,900
15,656
163,781
377,383
123,592
664,756
January 1, 2009
187,658
155,398
45,698
31,265
420,019
190,350
194,113
51,257
22,809
458,529
186,442
213,312
51,313
11,754
462,821
in thousands of EUR
During 2009, Giesecke & Devrient recorded impairments in the amount of EUR 2.3 million on land
and buildings, technical equipment and machinery, and other plant and office equipment which had no
further economic useful lives. Impairment losses in the amount of EUR 2.0 million were recorded in
cost of goods sold, EUR 0.1 million in selling expenses and EUR 0.2 million in general and administrative expenses.
In fiscal year 2009, reversals of impairment losses in the amount of EUR 1.9 million were recorded on
fixed assets that were impaired in the prior year. The impairment losses were reversed since the impaired
assets could be used for new customer contracts. The reversals of impairment losses were recorded in
cost of goods sold.
The carrying value of property, plant and equipment which serves as collateral on financial liabilities
(see Note 13) amounted to EUR 82.8 million and EUR 93.3 million as of December 31, 2010 and 2009,
respectively.
Commitments for the purchase of property, plant and equipment amounted to EUR 9.0 million and
EUR 4.1 million as of December 31, 2010 and 2009, respectively.
Giesecke & Devrient has obligations under finance leases covering buildings and certain machinery
and equipment that expire at various dates over the next ten years.
(9)
As of December 31, 2010 and 2009, the carrying values of buildings, machinery and equipment recorded
under finance leases were as follows:
Leasing
December 31
Buildings
2010
2009
60,348
65,746
5,310
7,269
65,658
73,015
in thousands of EUR
Giesecke & Devrient leases office and manufacturing facilities from MC Vermgensverwaltung GmbH
& Co. KG, a related company. The headquarters and main manufacturing facilities are located at this
leased site. The lease is for an initial thirty-year term expiring in 2020, with annual renewal thereafter.
Lease payments are subject to future increases in accordance with stipulations stated in the lease agreement, which are based on the consumer price index for private households as published by the Federal
Statistics Office in Wiesbaden.
Depreciation on assets held under finance leases is included in depreciation expense.
098 |
099
Notes
Giesecke & Devrient also has several non-cancelable operating leases, primarily for office facilities, electronic data processing equipment, motor vehicles, and other office equipment, which expire over the
next 12 years. Rental expenses for operating leases during 2010 and 2009 amounted to EUR 27.2 million
and EUR 25.0 million, respectively.
Finance leases
Operating leases
16,319
20,074
59,477
49,840
66,793
142,589
Less amount representing interest (at rates ranging from 5.3% to 8.8%)
(42,865)
(8,997)
90,727
147,683
46,082
188,961
965
700
301
146
47
7,044
7,432
142,009
125,875
358,556
470,299
34,881
38,212
Accounts Payable
Trade and Other
Accounts Payable
Non-current
Deposits received/deferred income
Accounts payable trade due to third parties
99,724
161,610
30,464
100,378
2009
Current
Future minimum lease payments under non-cancelable operating leases and future minimum finance
lease payments are:
(10)
December 31
2010
386
70
35,267
38,282
in thousands of EUR
in thousands of EUR
The amounts payable to related parties relate to MC Vermgensverwaltung GmbH & Co. KG.
The present value of net minimum finance lease liabilities is as follows:
(11)
Finance leases
Less than one year
8,997
36,483
54,244
99,724
in thousands of EUR
Included in the future minimum operating lease payments is an annual amount of EUR 3.4 million payable to the related party MC Vermgensverwaltung GmbH & Co. KG over the next ten years pertaining
to rental increases since the inception of the related finance lease. The total annual lease payments
amounted to EUR 15.3 million.
Provisions
Warranties
Personnel and
social costs
Licenses and
patent
infringements
Restructuring
Other
Total
January 1, 2010
69,726
15,633
9,435
11,943
3,568
58,057
168,362
Additions
26,803
2,588
1,324
4,340
2,004
15,486
52,545
Transfers
1,087
(990)
(3)
94
1,145
1,145
Interest component
Utilization
Onerous
contracts
(6,836)
(3,014)
(7,412)
(3,405)
(17,779)
(38,446)
(16,834)
(5,975)
(1,757)
(75)
(9,372)
(34,013)
848
51
174
146
751
1,970
74,794
15,258
4,784
6,298
2,238
48,285
151,657
thereof current
74,794
10,801
4,784
6,298
2,238
33,657
132,572
4,457
14,628
19,085
Release
Foreign currency effects
thereof non-current
in thousands of EUR
Personnel-related provisions include provisions for pre-retirement part-time working arrangements and
long-service awards. The interest components of these provisions are included in personnel expenses.
Other provisions include, in particular, provisions for asset retirement obligations, archival storage
costs, contractual commitments, and outstanding credits.
100 |
101
Notes
(12)
Other Current
Liabilities
December 31
The aggregate maturities of financial liabilities for each of the following years are as follows:
2010
2009
75,715
73,332
2011
43,727
11,967
11,430
2012
19,025
2,068
1,820
2013
35,976
199
2014
36,319
3,570
5,355
2015
51,479
93,519
91,937
Gross amount due to customers for contract work (see Note 22)
Amounts payable to minority interests
Other liabilities
thereafter
31,106
217,632
in thousands of EUR
in thousands of EUR
(13)
Financial
Liabilities
Financial liabilities as of December 31, 2010 and 2009 consist of the following:
Lines of credit
December 31
2010
2009
11,581
8,057
29,233
25,172
1,371
1,542
689
43,727
33,918
152,914
21,929
Giesecke & Devrient maintains global credit facilities in the amount of EUR 422.2 million. As of
December 31, 2010, G&D used EUR 182.1 million of these facilities for bank guarantee purposes and
EUR 65.1 million for credit orders. These are primarily used for the subsidiaries financing requirements. These facilities carry no significant commitment fees.
Giesecke & Devrient has defined benefit pension plans for a significant number of its employees in
Germany, as well as for certain employees at two subsidiaries outside of Germany.
(14)
Defined benefit pension plans are principally based upon years of service and salary earned. G&D
also extends the option to employees in Germany to apply designated portions of their compensation
to count toward future pension amounts.
Pension and
Related Liabilities
14,000
337
337
4,781
35,887
41,952
Total
203,138
68,999
(29,233)
(25,172)
173,905
43,827
217,632
77,745
in thousands of EUR
The fair value of embedded derivatives included in derivative financial instruments amounted to
EUR 0.0 million and EUR 0.3 million as of December 31, 2010 and 2009, respectively.
The other postretirement benefits relate primarily to retiree health and dental plans in Canada.
The measurement date of the defined benefit obligation for the principal pension plans, as well as the
principal other postretirement benefits, is December 31. The pension plans are generally unfunded
except for one Canadian and three German plans.
Furthermore, G&D maintains payment obligations for defined contribution state plans in Germany
and abroad.
Total provision for pension and related liabilities
Liabilities for G&Ds principal defined benefit pension plans and other postretirement benefit plans are
comprised of the following components:
December 31
Pension benefits
Other postretirement benefits
Other
Total provision for pension and related liabilities
2010
2009
267,049
251,641
4,349
3,480
292
232
271,690
255,353
in thousands of EUR
102 |
103
Notes
Obligation for pension benefit and other postretirement benefit plans and funded status
Information regarding changes in the defined benefit obligation, in the fair value of plan assets, and
other postretirement benefit plans, as well as the reconciliation of the funded status, is presented in the
following tables:
The amounts of the present value of the defined benefit obligation (DBO), the fair value of the plan
assets and the surplus or deficit in the plan, as well as experience adjustments arising on liabilities and
plan assets can be viewed in the following summary:
December 31
2010
2009
December 31
2010
2009
242,266
2,750
2,196
1,165
1,593
389
246
Surplus/(deficit)
Experience adjustments on liabilities
12,354
10,690
243
201
Interest cost
14,084
13,196
194
148
Settlements
34
(49)
(6)
214
500
Amendments
452
48
Actuarial (gains)/losses
24,046
11,119
204
21
Benefits paid
(9,193)
(7,430)
(49)
(62)
315,041
271,885
3,773
2,750
301,109
264,246
13,932
7,639
7,036
4,733
2009
2008
2007
2006
(315,041)
(271,885)
(242,266)
(236,072)
(248,441)
11,063
7,036
4,733
6,436
5,643
(303,978)
(264,849)
(237,533)
(229,636)
(242,798)
1,690
4,157
2,759
567
1,942
243
430
(1,348)
(197)
286
(3,773)
(2,750)
(2,196)
(3,597)
(2,037)
(403)
(23)
1,146
157
Service cost
2010
Pension benefit plans
in thousands of EUR
Net liability
The development of the net liability recorded for the fiscal years ended December 31, 2010 and 2009
was as follows:
1,152
649
649
792
2,159
463
December 31
December 31
2010
2009
2010
2009
251,641
235,104
3,480
2,885
315
214
500
26,288
23,552
444
(147)
(101)
(2,159)
(463)
11,063
7,036
Benefits paid
(9,046)
(7,329)
(49)
(62)
(303,978)
(264,849)
(3,773)
(2,750)
36,904
13,208
(785)
(1,004)
25
209
274
(267,049)
(251,641)
(4,349)
(3,480)
325
777
474
342
267,049
251,641
4,349
3,480
in thousands of EUR
Plan assets
in thousands of EUR
2009
Equity securities
52.0
62.0
Debt securities
26.0
33.0
Other
22.0
5.0
100.0
100.0
in % of plan assets
104 |
105
Notes
The majority of plan assets is invested in a pooled fund containing, e.g. Canadian and other foreign equity
and debt securities and are actively monitored by a fund manager. Management activity and reinvestment
are covered by a detailed investment policy, which restricts investments to high-quality assets and ensures
diversification across different asset classes. The expected future composition of the investment portfolio
has a 50 - 65% bias towards equities. Additionally, in 2010 plan assets were invested in reinsurance and
investment funds for German companies.
The health and dental care inflation trend rate assumption has a significant effect on the amounts reported.
A one-percentage-point change in the health and dental care trend rate would have the following effects
for the year ended December 31, 2010:
The employer contributions to plan assets in 2011 are expected to be EUR 0.6 million.
Onepercentagepoint increase
Onepercentagepoint decrease
568
463
52
53
in thousands of EUR
Assumed discount rates and rates of increase in remuneration and pension entitlements used in calculating the projected benefit obligation and the net periodic benefit costs vary according to the economic
conditions of the country in which the retirement plans are situated. The weighted-average assumptions
used in calculating the actuarial values were as follows:
The components of the net periodic pension cost included in personnel expenses for the years ended
December 31, 2010 and 2009, were as follows:
Pension benefit plans
2010
2009
2010
2009
December 31
December 31
Service cost
12,354
10,690
243
201
2009
Interest cost
14,084
13,196
194
148
(525)
(377)
2010
2009
2010
4.8
5.3
5.6
6.1
401
153
90
3.0
3.0
3.2
3.2
(60)
(6)
(140)
(124)
2.1
34
49
(6)
26,288
23,552
444
315
2.0
2.0
2.2
5.3
5.5
6.1
6.6
7.0
3.0
3.1
3.2
5.3
2.0
2.1
2.1
3.4
in thousands of EUR
6.1
Net periodic pension cost has been recorded in the following functional areas:
Pension benefit plans
in %
The determination of the expected long-term return on plan assets is based on the expected future
returns on the invested assets. The expected long-term return is reviewed regularly.
The assumed health and dental care inflation trend rates are as follows:
December 31
Health and dental care inflation trend rate assumed for next year
2010
2009
5.0
6.0
in %
The health and dental care inflation trend rate decreased at the rate of one percentage point per year to
a rate of 5.0% in 2010.
2010
2009
2010
2009
14,861
13,472
359
279
Selling expenses
3,655
4,392
16
4,753
2,498
3,019
3,190
69
28
26,288
23,552
444
315
in thousands of EUR
In fiscal years 2010 and 2009, expenses relating to state plans amounted to EUR 25.0 million and
EUR 22.6 million, respectively.
106 |
107
Notes
(15)
Revenue
2010
2009
1,626
1,870
1,768
3,337
Trading securities
1,668
1,464
Tax receivables
1,039
800
Interest income
Sales of goods
Rendering of services
Royalties
2010
2009
1,527,632
1,539,038
142,177
139,932
18,419
5,224
1,688,228
1,684,194
Other
in thousands of EUR
12
58
6,113
7,529
40
16,937
12,782
Interest expense
Loans and receivables
(16)
Income and
Expenses Relating
to Other Periods
2010
Income relating to other periods
Expenses relating to other periods
39,142
2009
37,512
Other Financial
Income, net
103
18,189
12,925
36,041
30,860
in thousands of EUR
in thousands of EUR
Other interest expense in fiscal 2010 and 2009 mainly contains interest expense relating to accrued
interest on provisions.
2009
1,071
2,624
4,378
3,506
(4,733)
(3,993)
1,214
(160)
1,930
1,977
1,246
(6,652)
2010
Other
(3,101)
Income relating to other periods consists primarily of reversals from warranty provisions and royalty
provisions that are included in cost of goods sold. Expenses relating to other periods mainly comprise tax
expenses for prior periods.
(17)
Interest income and expense relating to financial assets and financial liabilities that are not valued at
fair value are as follows:
2009
1,626
1,870
1,768
3,337
3,394
5,207
Interest expense
Loans and receivables
Financial liabilities measured at amortized cost
in thousands of EUR
2010
Interest income
40
16,937
12,782
16,943
12,822
in thousands of EUR
The changes in net unrealized gains and (losses) on trading securities included in earnings during
the fiscal periods ending December 31, 2010 and 2009 were EUR 2.3 million and EUR 5.5 million,
respectively.
Regarding other financial income/(expenses) refer to Note 6.
(18)
Interest Income
and Interest
Expense
108 |
109
Notes
(19)
Income Taxes
The income tax expense/(income) for the 2010 and 2009 fiscal years is comprised of:
2010
2009
30,326
18,815
809
3,628
31,135
22,443
(5,473)
6,489
(101)
(380)
13,153
1,019
7,579
7,128
38,714
29,571
in thousands of EUR
subsidiary companies only had to bear the income tax expense that was actually accrued, this lead to a
reconciling item resulting from the tax allocation in the amount of EUR (1.6) million and EUR (2.8) million
as of December 31, 2010 and 2009. This can be attributed to the fact that the controlling company if
regarded on a stand-alone basis had made a tax loss in the amount of EUR 5.0 million and EUR 8.9 million
in 2010 and 2009, respectively.
Deferred tax assets and liabilities
The gross values of deferred tax assets and liabilities as of December 31, 2010 and 2009 are attributable
to the following balance sheet line items:
Financial assets
Accounts receivable and other receivables, net
Inventories, net
For the fiscal year ended December 31, 2010, G&D was subject to German federal corporation tax at a
base rate of 15% plus a solidarity surcharge of 5.5% on federal corporation taxes payable. As a result,
the statutory rate consisted of a federal corporate tax rate of 15.8% and trade tax of 16%, resulting in a
combined tax rate of 31.79%.
2009
37,897
42,624
(10,856)
(12,062)
(1,581)
(2,840)
Non-deductible expenses
5,266
3,859
(101)
(380)
Tax-free income
(2,267)
(8,142)
Additions due to tax risks and tax payments (refunds) for prior periods
(4,049)
3,628
967
1,105
13,153
1,019
582
502
(297)
258
38,714
29,571
in thousands of EUR
Effective January 1, 2007, Giesecke & Devrient GmbH (controlled subsidiary company) transferred its
entire profits to Giesecke & Devrient Holding GmbH (controlling company). Due to an intercompany
tax allocation agreement, the controlled subsidiary companies opted to bear the overall amount of the
current taxes of the controlling company for the 2010 and 2009 assessment periods. As the controlled
2010
2009
2010
2009
2010
2009
730
338
(713)
(688)
17
(350)
694
539
(285)
(360)
409
179
12,219
18,237
(23)
(329)
12,196
17,908
267
58
(1,531)
(301)
(1,264)
(243)
2,978
(8,678)
(5,174)
(6,076)
(2,196)
6,979
1,839
(30,665)
(29,473)
(23,686)
(27,634)
2010
Net
December 31
2,602
Financial liabilities
Following is a reconciliation of the expected income tax expense to the actual income tax expense which
was recorded. The calculation of the expected income tax expense is based on the multiplication of income
before income tax with the German corporate combined statutory rate of 31.79% in 2010 and 2009.
Liabilities
December 31
Intangible assets
Other assets
Provisions
Assets
December 31
635
777
(7)
635
770
22,386
23,058
(3,707)
(5,268)
18,679
17,790
888
278
888
278
26,494
28,671
(11)
26,494
28,660
112
(16)
96
17,032
15,918
17,032
15,918
Other liabilities
2,415
2,202
(2,042)
(1,103)
373
1,099
Donations
3,189
3,189
9,901
12,498
9,901
12,498
106,435
107,503
(47,644)
(42,730)
58,791
64,773
Set-off of tax
(36,255)
(31,123)
36,255
31,123
70,180
76,380
(11,389)
(11,607)
58,791
64,773
in thousands of EUR
The changes in deferred tax assets, net for fiscal years 2010 and 2009 are included in the following
summary:
2010
2009
64,773
63,643
(7,579)
(7,128)
7,261
Changes in net deferred tax assets not affecting net income resulting from
changes in consolidation structure
Changes in deferred taxes resulting from exchange rate effects which
were recognized directly in equity
Deferred tax assets, net as of December 31
1,597
997
58,791
64,773
in thousands of EUR
110 |
111
Notes
The amount of deductible timing differences and tax loss carryforwards, for which deferred tax assets
were not recorded, are as follows:
2010
2009
12,941
3,597
82,566
71,449
681
1,003
96,188
76,049
bear interest. The unconditional claim for refund not linked to any dividend payments was recognized as a
current tax asset within the definition of IAS 1.68 (m) and in the income statement in 2006. The fair value
of the income tax claims amounted to EUR 23.9 million and EUR 26.4 million as of December 31, 2010
and 2009, respectively.
The total share capital of G&D amounted to EUR 25.0 million as of December 31, 2010 and 2009.
All shares have been paid in full. The nominal value of treasury stock amounted to EUR 4.8 million as
of December 31, 2010 and December 31, 2009. The acquisition costs amounted to EUR 68.4 million as of
December 31, 20010 and December 31, 2009.
in thousands of EUR
Unused tax loss carryforwards in the amount of EUR 6.2 million can be carried forward for limited
periods. The remaining EUR 76.4 million is available indefinitely.
Furthermore, deferred tax assets in the amount of EUR 9.9 million and EUR 12.5 million on tax loss
carryforwards in the amount of EUR 36.2 million and EUR 41.6 million were recorded as of December
31, 2010 and 2009, respectively.
The determining factor in the recognition of deferred tax assets is the probability of the reversal of the
temporary differences which resulted in the recognition of the deferred tax assets and future taxable
profit against which the unused tax losses can be utilized. Based upon the level of historical taxable
income and projections for future taxable income, G&D believes that it is not probable that the benefits
of deductible timing differences and carryforward tax losses in the amount of EUR 96.2 million and
EUR 76.0 million will be realized and therefore has not recognized deferred tax assets for these amounts
in 2010 and 2009.
Income tax on dividends
As of December 31, 2010 and 2009, G&D recorded deferred tax liabilities on cumulative earnings in
subsidiaries and investments that are intended for distribution. Furthermore, deferred taxes were
recorded on the taxable temporary differences relating to investments in associated companies and joint
ventures. As of December 31, 2010 and 2009, the amount of these liabilities was EUR 1.4 million and
EUR 0.6 million, respectively.
The temporary differences relating to investments in subsidiaries, for which deferred tax liabilities were
not recorded, amounted to EUR 38.3 million and EUR 18.1 million as of December 31, 2010 and 2009,
respectively.
The Gesetz ber steuerliche Begleitmanahmen zur Einfhrung der Europischen Gesellschaft und
zur nderung weiterer steuerrechtlicher Vorschriften (SEStEG Act on Fiscal Measures Accompanying
the Introduction of the Societas Europaea and on Amending Further Tax Provisions) published in the
Federal Law Gazette on December 12, 2006 revised the treatment of corporation tax credits. As the law
previously stood, the annual realization of these tax credits was linked to dividend payments and thus to
future events. The SEStEG stipulates that the corporation tax credit will be refunded irrespective of
dividend payments. The recoverable amounts will thus be paid out in ten equal annual amounts between
2008 and 2017. The full amount of the refund became recoverable as of December 31, 2006 and does not
Unappropriated retained earnings amounted to EUR 421.9 million and EUR 388.3 million as of December 31, 2010 and 2009, respectively.
In connection with the acquisition of minority interests in fiscal year 2009, EUR 19.7 million was netted
against retained earnings. In 2010, a related contingent purchase price in the amount of EUR 0.2 million
was not paid out. As a result, the retained earnings were increased by that amount. Refer to the summary in Note 23.
As a result of the profit transfer agreement which became effective on January 1, 2007, Giesecke & Devrient
transferred its profit in accordance with German GAAP in the amount of EUR 43.6 million in 2010 and
EUR 85.5 million in 2009 to Giesecke & Devrient Holding GmbH.
With respect to its capital management, the aim of Giesecke & Devrient, in particular, is to secure its
continuation as well as generating value for the shareholder, i.e. in the form of dividend payments. In this
context, reference is made to the equity reported in the balance sheet in accordance with IFRS. As of
December 31, 2010 and 2009, the equity ratio amounted to 25.8% and 23.1%, respectively. G&D is not
subject to external minimum capital requirements.
In addition, refer to the corresponding explanations in Section 3.1.5. Return on capital and economic
value added in the Group management report.
(20)
Equity
112 |
113
Notes
(21)
Financial
Instruments
The following table incorporates the carrying amounts and fair values of G&Ds financial instruments.
The fair value of a financial instrument is the value at which a party would accept the rights and/or
obligations of this financial instrument from another independent party.
December 31, 2010
The carrying values represent cost or amortized cost. The carrying values of financial assets and financial
liabilities summarized by the individual classes are as follows:
December 31, 2010
Carrying value
Fair Value
Carrying value
Fair Value
252,230
252,230
237,780
237,780
30,890
30,890
10,313
10,313
Financial assets 1
2,068
720
720
54,883
54,883
58,342
58,342
55,603
55,603
493
493
846
846
8,000
8,000
7,367
7,367
252,230
252,230
237,780
237,780
30,890
30,890
10,313
10,313
5,154
5,154
13,048
13,048
1,979
1,979
668,900
668,900
643,328
643,328
216,090
215,175
77,056
77,230
2,068
2,068
1,820
1,820
Accounts payable
216,933
216,933
344,493
344,493
435,091
434,176
423,369
423,543
1,542
1,542
689
689
99,724
111,698
108,264
125,109
536,357
547,416
532,322
549,341
54,883
54,883
7,343
7,343
2,561
2,561
1,566
1,566
Available-for-sale securities
27,531
27,531
2,833
2,833
Special classes
Other assets 3
Non-current assets held for sale
Investment in other related parties
Total financial assets
Accounts payable trade and other accounts payable 4
Other current liabilities 5
92,766
92,766
66,625
66,625
286,260
313,559
313,559
5,154
5,154
13,048
13,048
1,979
1,979
1,600
1,600
24
24
668,900
668,900
643,328
643,328
216,933
216,933
344,493
344,493
2,068
2,068
1,820
216,090
215,175
77,056
1,542
1,542
689
217,632
216,717
77,745
77,919
99,724
111,698
108,264
125,109
536,357
547,416
532,322
549,341
1,820
Financial liabilities
Financial liabilities measured at amortized cost
Derivative financial liabilities
Total
Finance lease obligations
Total financial liabilities
77,230
689
in thousands of EUR
mount does not include the cash surrender value of insurance policies in the amount of EUR 17.0 million and EUR 15.3 million as of
A
December 31, 2010 and 2009, respectively, as this is not included in the scope of IFRS 7.
A mount does not include prepayments in the amount of EUR 17.4 million and EUR 25.1 million as of December 31, 2010 and 2009,
respectively, as these are not included in the scope of IFRS 7.
3
A mount consists solely of receivables from construction contracts. Other current assets in the amount of EUR 23.7 million and
EUR 17.7 million as of December 31, 2010 and 2009, respectively, are not included in the scope of IFRS 7.
4
A mount does not include deposits received in the amount of EUR 176.9 million and EUR 164.2 million as of December 31, 2010
and 2009, respectively, as these are not included in the scope of IFRS 7.
5
A mount includes gross amount due to customers for contract work.
316,392
56,274
6,400
286,260
Fair Value
316,392
2,068
56,274
Total
Carrying value
313,791
56,274
6,400
Fair Value
313,791
Trading securities
56,274
Loans
Carrying value
Available-for-sale securities
Trading securities
in thousands of EUR
The fair value of G&Ds foreign currency forward contracts and embedded foreign currency derivatives is based on forward exchange rates. Derivative financial instruments are stated at fair value and
recorded on the balance sheet under current financial assets in the amount of EUR 2.6 million and
EUR 1.6 million and under current financial liabilities in the amount of EUR 1.5 million and EUR 0.7 million as of December 31, 2010 and 2009, respectively.
114 |
115
Notes
The nominal volume of foreign currency forward contracts entered into by Giesecke & Devrient as of
December 31, 2010 amounted to (in thousands of foreign currency units):
US dollar
Australian dollar
Brazilian real
British pound
Purchase
contracts
Sales
contracts
26,146
64,084
1,737
4,574
19,119
918
1,000
32,877
108,000
Indian rupee
1,063,795
Japanese yen
68,943
321,909
Malaysian ringgit
10,417
Canadian dollar
Chinese renminbi
Mexican peso
Polish zloty
500
8,008
31,541
92,648
51,234
Non-current financial assets and financial liabilities as well as finance lease obligations
The fair value is determined based on the amortized cost using the effective interest method. Under this
method, the expected future cash flows are discounted using the prevailing market rate as of the balance
sheet date for similar maturities and contracts.
As of December 31, 2010 and 2009, there were no significant differences between the fair values and the
carrying values of non-current financial assets.
Impairment losses and reversals of impairment losses during fiscal years 2010 and 2009 related solely to
financial assets in the class loans and receivables.
Impairment losses
Reversals of impairment losses
2010
2009
(3,607)
(3,611)
1,759
2,570
(1,848)
(1,041)
in thousands of EUR
Net gains and losses from financial assets and liabilities by measurement category amounted to:
The fair values of non-derivative financial instruments are as follows:
Cash, short-term investments as well as the current portion of receivables, other assets,
trade accounts payable and other accounts payable, financial liabilities and other liabilities
The carrying amounts of these financial instruments are considered to approximate fair value because of
the relatively short period of time between origination and their expected realization.
2010
2009
1,927
(76)
(3,128)
(108)
515
(355)
(122)
(1,041)
(306)
in thousands of EUR
Marketable securities
Debt and equity securities are carried at fair value, which is based on quoted market prices at the
balance sheet date.
Non-current assets held for sale
Non-current assets classified as held for sale are measured at the lower of their carrying amount and
fair value less costs to sell. As of December 31, 2009, there were no material differences between the
fair value and the carrying value.
Net gains and losses on loans and receivables consist of results from impairments, reversals of impairments and foreign currency exchange effects.
Net gains and losses on financial assets and liabilities measured at their fair values contain results from
changes in fair market values and adjustments on settlement of these financial instruments.
Net gains and losses from financial liabilities measured at amortized cost contain foreign currency
exchange effects.
Derivative financial instruments within the scope of hedge accounting
Investments
If the fair value cannot be readily determined, investments are recorded at acquisition cost (other
related parties). All investments in other related parties are presently recognized at the lower of their
acquisition cost or recoverable amounts.
Operating segments applied hedge accounting for specific material pending transactions in foreign
currency. G&D used forward exchange contracts on pending transactions to manage the foreign
currency exposure on future cash flows resulting from significant individual USD orders exceeding
USD 10 million.
116 |
117
Notes
Allocation of the fair value measurement classes of financial assets and liabilities to levels in accordance with IFRS 7 as of December 31, 2009:
From fiscal year 2009 on, pending transactions are hedged by using forward exchange contracts that are
classified as foreign currency fair value hedges for future sales. Changes in market value of such transactions were recognized in financial income. Changes in derivatives were also recognized in financial income resulting in valuation effects in the amount of EUR (0.3) million and EUR 0.8 million on hedging
instruments and EUR 0.3 and EUR (0.8) million on firm commitments in 2010 and 2009.
Level 1
Level 2
Level 3
31,386
31,386
Financial assets
Special class
Commercial paper
Financial assets held for trading
In the following table, financial instruments measured at fair value are allocated to the levels in accordance
with IFRS 7, Financial Instruments: Disclosures. Thereby, the fair value measurement of a financial
instrument is allocated in its entirety to the level for which inputs are material to determine its fair value.
In level 1, fair values are mainly determined by using quoted prices in active markets for identical financial
assets or liabilities. The basis to determine fair values of level 2 are mainly observable quoted prices for
similar financial assets or liabilities. Fair value measurements of level 3 are mainly based on unobservable
market data. In 2010 and 2009, Giesecke & Devrient determined fair values of financial instruments
based on level 1 and level 2. The fair value measurement of level 3 was not used. In 2010 and 2009, no
material reclassifications between the levels were recorded.
Trading securities
Available-for-sale securities
1,566
1,566
54,883
54,883
7,348
7,348
689
689
Financial liabilities
Financial liabilities held for trading
Derivative financial instruments
in thousands of EUR
Level 1
Level 2
Level 3
December 31
Financial assets
Special class
Commercial paper
Progress billings
45,268
45,268
2,561
2,561
56,274
56,274
6,400
6,400
1,542
1,542
2010
2009
6,171
21,329
10,673
4,041
16,844
25,370
(13,758)
(14,142)
3,086
11,228
5,154
13,048
(2,068)
(1,820)
3,086
11,228
in thousands of EUR
Financial liabilities
Financial liabilities held for trading
Derivative financial instruments
Receivables from and liabilities due to construction contracts are included under other current assets
and under other current liabilities, respectively.
in thousands of EUR
Contract revenues recognized in fiscal years 2010 and 2009 amounted to EUR 12.6 million and
EUR 13.1 million, respectively.
(22)
Construction
Contracts
118 |
119
Notes
(23)
Business
Combinations
For business combinations, G&D includes the results of operations of the acquired business starting from
the date of acquisition. The net assets acquired are recorded at their fair value at the date of acquisition.
The excess of the purchase price over the fair value of tangible and identifiable intangible net assets
acquired is recorded as goodwill in the accompanying consolidated balance sheet.
Effective December 1, 2009, Giesecke & Devrient acquired an additional 43% of the shares in Venyon Oy,
Helsinki, Venyon GmbH, Munich, and Venyon Inc., Irving. With the acquisition of these shares, Giesecke &
Devrient now holds 100% of the shares in each of the three companies. The companies operate as service
providers in the field of NFC. The net present value of the estimated purchase price which is dependent on
future events amounted to EUR 7.7 million. As all companies were previously controlled and therefore
fully consolidated as of December 1, 2009, the acquisition is treated as a business combination under common
control. The difference between the estimated net present value of the purchase price and the proportionate
share of the subsidiarys equity in the amount of EUR 7.8 million was charged against retained earnings.
As of December 31, 2010, the contingent purchase price payment amounted to EUR 8.8 million. This
amount includes compounded interest, which totaled EUR 1.1 million in 2010.
On July 1, 2009 and October 1, 2009, Giesecke & Devrient acquired an additional 23.6% and 2.8% of the
shares in the secunet Security Networks AG, Essen, secunet SwissIT AB, Solothurn, SECUNET s.r.o.,
Prague, and secunet Inc., Austin. With the purchase of the shares, Giesecke & Devrient holds 76.4% in
each of the four companies. The companies are engaged in security analysis of data processing-based
systems. The companies also consult on and implement security concepts, provide sales and integration
services of security products as well as maintenance and long-term support of IT systems. The acquisition
price amounted to EUR 9.8 million on July 1, 2009 and EUR 1.0 million on October 1, 2009. As all companies had already been controlled and therefore fully consolidated as of July 1, 2009 and October 1, 2009,
the acquisitions are treated as business combinations under common control. The difference between
the estimated net present value of the purchase price and the proportionate share of the subsidiarys
equity in the amount of EUR 4.6 million was charged against retained earnings.
Effective June 1, 2009 (initial consolidation), G&D acquired 100% of the shares of SmartTrust AB
(SmartTrust) at a purchase price of EUR 62.6 million. Of this amount, EUR 56.8 million was paid in
cash in 2009 and the remaining amount of EUR 5.8 million was paid in 2010. Incidental acquisition costs
totaled EUR 0.4 million. As a result of the transaction, goodwill in the amount of EUR 27.4 million was
recorded initially. SmartTrust operates in the field of SIM card software management for mobile devices.
In connection with the purchase, cash and cash equivalents in the amount of EUR 8.3 million were
acquired. In fiscal 2009, the acquisition resulted in cash outflows in the amount of EUR 48.9 million,
in fiscal 2010 EUR 5.8 million.
With the acquisition of SmartTrust, G&D is now more offensively positioned in the market of SIM card
management.
The major balance sheet line items for SmartTrust at the time of the initial consolidation were as follows:
Carrying value
Fair value
Current assets
26,351
26,351
Non-current assets
14,152
26,647
Liabilities
17,439
17,439
Equity
23,064
35,559
in thousands of EUR
The amounts presented above represent the carrying amounts and fair values of the balance sheet
classifications determined in accordance with IFRS immediately before the combination.
In the period between the acquisition on June 1, 2009 and December 31, 2009, SmartTrust contributed
EUR 3.0 million to the Group result. If the acquisition had taken place on January 1, 2009, the consolidated net income would have amounted to EUR 104.2 million. The consolidated net sales would have
amounted to EUR 1,696.4 million.
Effective January 1, 2009, Giesecke & Devrient acquired additional 32% of shares in the affiliated companies Giesecke & Devrient Asia Pacific Ltd., Hong Kong, Giesecke & Devrient Asia Pacific Banking
Systems (Shanghai) Co. Ltd., Shanghai, and Giesecke & Devrient Asia Pacific (Korea), Seoul. With the
acquisition of the residual shares, Giesecke & Devrient now holds all shares in each of the three companies.
The companies are engaged in sales and services for banknote processing machines. The purchase price
amounted to EUR 7.6 million. As all companies had already been controlled and therefore fully consolidated as of December 31, 2008, the acquisition in 2009 is considered as a business combination under
common control. The difference between the purchase price and the proportionate share of the subsidiarys equity in the amount of EUR 7.3 million was charged against retained earnings in 2009. In 2010, the
contingent purchase price in the amount of EUR 0.2 million was not paid out. As a result, the retained
earnings were increased by that amount.
Giesecke & Devrient Holding GmbH is the parent company of Giesecke & Devrient GmbH.
Giesecke & Devrient GmbH entered into a profit and loss transfer agreement with Giesecke & Devrient
Holding GmbH which became effective on January 1, 2007. The profit and loss transfer amounts are
offset against retained earnings and recognized directly in the equity of Giesecke & Devrient GmbH.
Payments made to Giesecke & Devrient Holding GmbH are included in net cash used in financing
activities.
Income taxes include expenses from tax allocations from the shareholder Giesecke & Devrient Holding
GmbH in the amount of EUR 2.6 million and EUR 5.7 million for fiscal 2010 and 2009, respectively,
which originate from the consolidated tax filing arrangement for income tax.
In addition, Giesecke & Devrient Holding GmbH is the controlling company regarding a consolidated
tax filing arrangement for sales tax. Furthermore, Giesecke & Devrient Holding GmbH provides various
services for the Group companies.
As of December 31, 2010 and 2009, accounts receivable from Giesecke & Devrient Holding GmbH
amounted to EUR 0.0 million and EUR 58.1 million, while accounts payable amounted to EUR 46.1
million and EUR 189.0 million.
For fiscal 2010 and 2009, the consolidated financial statements contain expenses including interest expense
resulting from transactions with Giesecke & Devrient Holding GmbH in the amount of EUR 0.9 million
and EUR 2.2 million. Furthermore, they contain income including interest income in the amount of
EUR 0.9 million and EUR 1.2 million for 2010 and 2009, respectively.
(24)
Related Party
Disclosures
120 |
121
Notes
Key management personnel compensation in accordance with 314 Para. 1 no. 6 HGB
In fiscal year 2010, Giesecke & Devrient rendered a loan to MC Vermgensverwaltung GmbH & Co. KG
amounting to EUR 26.5 million. The residual debt as of December 31, 2010 amounts to EUR 24.7 million.
The average variable interest rate in 2010 was 3.0%. Interest income in 2010 amounted to EUR 0.4 million. The loan is due on February 28, 2012.
Members of key management personnel encompass members of the Management Board of Giesecke &
Devrient GmbH as well as members of the Supervisory Board and the Advisory Board.
Regarding the lease agreement between Giesecke & Devrient and MC Vermgensverwaltung GmbH &
Co. KG, refer to Note 9.
Total personnel compensation for 2010 and 2009 amounted to EUR 6.1 million and EUR 5.3 million for
the Management Board, EUR 0.2 million each year for the Supervisory Board and EUR 0.3 million each
year for members of the Advisory Board.
In fiscal years 2010 and 2009, total personnel compensation for former members of the Management
Board and their surviving dependents amounted to EUR 1.0 million and EUR 0.9 million, respectively.
In fiscal year 2010, G&D established the Giesecke & Devrient Foundation. The grants amounted to
EUR 20.0 million. In addition the company received a loan from the Giesecke & Devrient Foundation
in the amount of EUR 14.0 million. Interest expenses in 2010 amounted to EUR 0.4 million (see Note 13).
Pension obligations to former members of the Management Board and their surviving dependents
amounted to EUR 14.0 million and EUR 14.4 million as of December 31, 2010 and 2009, respectively.
No prepayments or loans to members of the Management Board, the Supervisory Board or the Advisory
Board were granted in fiscal years 2010 and 2009.
As of December 31, 2010, Giesecke & Devrient has recorded a liability to the shareholder MC Holding
GmbH & Co. KG amounting to EUR 1.0 million (see Note 10).
The average number of full-time equivalent employees (excluding trainees, employees on maternity
leave and employees doing national service) was:
Transactions were carried out between the affiliated companies and associated companies/joint ventures and
other related parties. The following summary presents these transactions from the viewpoint of the affiliated
company:
Services rendered
Sales
2010
2009
7,297
7,078
925
916
1,003
998
Administration
1,081
1,063
10,306
10,055
2010
2009
455,887
421,265
72,064
64,238
27,114
24,703
555,065
510,206
(25)
Number of
Employees
Services received
2010
2009
2010
2009
24,563
24,488
672
665
1,112
1,481
25,675
25,969
680
665
5,204
8,080
30
30,879
34,079
680
673
(26)
Personnel
Expenses
in thousands of EUR
Giesecke & Devrient leases office and manufacturing facilities from the related party MC Vermgensverwaltung GmbH & Co. KG. The resulting total annual lease payment amounted to EUR 15.3 million
in 2010 and 2009.
in thousands of EUR
The consolidated financial statements include the results of secunet AG, a publicly traded company. In
accordance with 161 AktG (German Stock Corporation Act), the management of secunet AG has
filed the required declaration and has made it permanently available to the shareholders on their
website (http://www.secunet.com).
(27)
Disclosure in
Accordance with
161 AktG
122 |
123
Notes
(28)
Commitments
and Contingent
Liabilities
Giesecke & Devrient is defendant in various lawsuits that allege infringement of patents. The plaintiffs
are seeking damages based on the revenues resulting from the use of these patents. Management of
G&D is of the opinion that the accrued amounts cover the risk from these lawsuits.
Giesecke & Devrient is involved in other pending claims and legal proceedings arising in the ordinary
course of business. Provisions have been made for the estimated liabilities for certain items. It is the
opinion of management that the resolution of all such matters will not have a material impact on G&Ds
net assets, results of operations and financial position.
The aggregate amount of required payments for commitments as of December 31, 2010 is as follows:
2011
199,830
2012
15,660
2013
5,943
2014
2,110
2015
190
thereafter
171
223,904
in thousands of EUR
Guarantees
Giesecke & Devrient does not maintain substantial amounts of financial assets which serve as collateral
for liabilities or contingent liabilities. Moreover, G&D does not hold collateral, which it would be
permitted to sell or re-pledge in the absence of default by the owner of the collateral.
G&D has issued guarantees for deposits received in the amount of EUR 29.0 million as of December 31,
2010 and EUR 19.0 million as of December 31, 2009.
Guarantees for third-party liabilities exist representing guarantees of indebtedness of a joint venture
concerning contractual performance by this company. These arrangements cover credit lines of the joint
venture in the amount of up to EUR 2.9 million in 2010 and 2009, respectively. Amounts relating to interest
charges are also guaranteed. In the event of default of the joint venture, G&D is required to repay the
borrowings covered by these guarantees. The maximum exposure relating to these guarantees amounted
to EUR 2.9 million as of December 31, 2010 and December 31, 2009, respectively.
In fiscal 2006, Giesecke & Devrient granted Giesecke & Devrient Holding GmbH an absolute guarantee
in the amount of EUR 100.0 million for a loan obligation. The amount of the loan obligation amounted
to EUR 57.1 million as of December 31, 2010 and EUR 71.4 million as of December 31, 2009.
Commitments
As of December 31, 2010, Giesecke & Devrient has material purchase commitments which consist mainly of short-term agreements for the purchase of raw materials, supplies, property, plant and equipment,
and services that were entered into during the 2010 fiscal year.
Grants from fiscal authorities and from the Schsische Aufbaubank are primarily received for non-current
assets. The grants are given under the condition that G&D maintains the non-current assets for at least
five years. In fiscal 2010 and 2009, Giesecke & Devrient recorded grants in the amount of EUR 6.5 million
and EUR 8.0 million which were offset against the acquisition and manufacturing costs.
(29)
Grants
Furthermore, in fiscal 2010 and 2009 G&D received other miscellaneous grants for operational investments in the amount of EUR 1.0 million and EUR 0.7 million which were recognized in other operating
income. At present, there is reasonable assurance that the attached conditions will be fulfilled.
Refer to section 8. of the Group management report, Risks, Opportunities, and Forecast, for the related
disclosures.
(30)
Risks
The audit fees for KPMG Europe LLP for the financial year ended 2010 amounted to EUR 2.1 million.
The break down into categories is as follows: a) fees for audit services EUR 0.9 million, b) fees for auditrelated services EUR 0.1 million, c) fees for tax-related services EUR 0.7 million, and d) fees for all
other services EUR 0.4 million.
(31)
Giesecke & Devrient Holding GmbH is the parent company of the Giesecke & Devrient Group (see
Note 24). As of December 31, 2010, consolidated financial statements and a Group management report
will be prepared in accordance with International Financial Reporting Standards (IFRS). The consolidated financial statements of Giesecke & Devrient Holding GmbH will be published electronically in
the German Federal Gazette.
(32)
Refer to section 4. of the Group management report, Subsequent Events, for the related disclosures.
(33)
Audit Fees
124 |
125
Notes
(34)
Shareholdings
Direct and indirect investments held by Giesecke & Devrient in affiliated companies
Shareholding in %
Direct and indirect investments held by Giesecke & Devrient in affiliated companies
Shareholding in %
100.00
100.00
100.00
100.00
100.00
99.00
100.00
95.00
100.00
79.43
100.00
79.43
100.00
100.00
79.43
100.00
70.81
100.00
70.00
100.00
70.00
100.00
60.00
100.00
60.00
100.00
51.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
Giesecke & Devrient Asia Pacific Banking Systems (Shanghai) Co. Ltd., Shanghai
100.00
100.00
100.00
100.00
79.43
1
Shareholding in %
50.00
50.00
49.00
Shareholding in %
20.00
Dr. K. Ottenberg
M. Kuemmerle
H. W. Kunz
Dr. W. Schlebusch
Dr. P. Zattler
126
127
Corporate
Bodies
Supervisory Board
(Chairman)
Munich
Hebertshausen
(Chairman)
Munich
Hebertshausen
Walter Bogner*
(Deputy Chairman)
Dachau
Ralf Gerlach*
Gilching
Jens Mller*
Gerichshain
Michael Reinhard*
Claudia Scheck*
Knigsmoos
Peter-Johann Stark*
(Deputy Chairman)
Burgwedel
Fischbachau
Advisory Board
London
Kirchseeon
Michael Kuemmerle
* Employee representatives
Management Board
128
Glossary
129
communicates with the card reader using RFIDbased induction technology. These cards merely
require close proximity to an antenna to perform
transactions.
unmodified or genuine.
Cash center ___ A location that handles cash-
related logistical processes.
Compass VMS ___ State-of-the-art software apBiometrics ___ Method of recognition used to
identify individuals by means of unique characteristics, such as facial features, fingerprints,
irises, or veins.
Corporate social responsibility (CSR) ___ Incorporates both legal requirements and additional, voluntary activities through which companies fulfill
their responsibilities to society. The objective is to
promote sustainable development in an economic,
environmental, and social context. CSR shapes a
companys activities throughout the entire value
chain.
formation.
E
E-banking ___ Paperless bank transactions performed electronically.
E-business ___ One of the most important applications of digital information and communication
technologies, encompassing all types of business
process that are handled electronically.
European Union to automatically alert the emergency services in the event of an accident.
130
Glossary
131
F
Flash memory ___ Non-volatile storage used in
memory chip cards that can take the place of
hard disks.
a digital photograph of the holder and two fingerprints is stored on a chip. This enables verification that the person presenting the document is
indeed its authorized holder.
chip-based credit and debit cards. The specification is issued by EMVCo, whose current members are MasterCard, VISA, and JCB (Japan
Credit Bureau).
G
GalaxSIM ___ SIM card product line from G&D
identification.
GSM/EDGE ___ The Global System for Mobile
H
HIGHSEC eERP (European Residence Permit) ___
FIT (Fine Intaglio Technology) ___ Digital enEMV chip card ___ Chip-based payment card that
ISO 14001 ___ International standard for environmental management systems, focusing on a
process of continuous improvement.
L
LOOK (Laser Originated Optical Key) ___
132
Glossary
133
is a short-range connectivity technology that allows contactless data transfer across distances of
just a few centimeters. Possible NFC applications
include sharing data between two NFC-enabled
cell phones simply by holding the phones next to
each other.
compact computer.
on microlens technology.
This is used to store and execute secure, contactless applications, such as mobile payment.
manufacturer.
platform.
threads in banknotes.
134
Glossary
135
Smartcard ___ Also known as chip cards or integrated circuit cards (ICC), smartcards are special
plastic cards with an integrated chip containing
hardware logic, memory, or a microprocessor.
USB ___ Universal serial bus a system for connecting a computer to external devices.
Token ___ Device for user authentication that
SmartRoam ___ This service ensures that roaming subscribers are continuously attached to the
preferred available network and access technology, with the widest possible network coverage at the destination and without outages in
the roaming service.
TM
from G&D for mobile device and SIM management, as well as value-added mobile services.
networks.
Some information in this glossary may stem from common Internet sources
such as Wikipedia.
This list is not intended to be exhaustive. A more comprehensive glossary
is available at www.gi-de.com.
136
G&D AROUND
THE WORLD
Legal Notice
Europe
_ Belgium
_ Czech Republic
_ Finland
_ France
_ Germany
_ Greece
_ Italy
_ Luxembourg
_ Russia
_ Slovakia
_ Spain
_ Sweden
_ Switzerland
_ Turkey
_ United Kingdom
Americas
_ Argentina
_ Brazil
_ Canada
_ Mexico
_ USA
Africa
_ Egypt
_ Nigeria
_ South Africa
Asia
Australia
_ China
_ India
_ Indonesia
_ Japan
_ Malaysia
_ Singapore
_ South Korea
_ UAE
Published by:
Giesecke & Devrient GmbH
Prinzregentenstrasse 159
P.O. Box 80 07 29
81607 Munich
Germany
Phone +49 (0) 89 41 19-0
Fax
+49 (0) 89 41 19-15 35
www.gi-de.com
Project management:
Corporate Communications
Phone +49 (0) 89 41 19-13 82
Fax
+49 (0) 89 41 19-12 08
Concept, editorial, design:
Cortent Kommunikation AG, Frankfurt/Main
thema communications ag, Frankfurt/Main
Photography:
Michael Dannenmann, Dsseldorf
Hubertus Hamm, Munich
Production:
Volkhardt Caruna Medien, Amorbach
Headquartered in Munich, Giesecke & Devrient has over 60 subsidiaries, joint ventures,
and associated companies on every continent of the world.