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SHOPPING 75ANNUAL REPORT 2014 Deutsche EuroShop FINANCIAL STATEMENTS Balance sheet amount in line with IAS 39 in € thousand Measurement category pursuant to IAS 39 Carrying amount 31.12.2014 Amortised cost Costs Fair value recognised in equity Fair value recognised in income Fair Value 31.12.2014 Carrying amount 31.12.2013 Amortised cost Costs Fair value recognised in equity Fair value recognised in income Fair value 31.12.2013 Financial assets Non-current financial assets** AfS 266 273 -7 266 34,519 34,519 34,519 Trade receivables* LaR 4,510 4,510 4,510 5,595 5,595 5,595 Other assets* LaR 4,299 4,092 207 4,299 1,587 1,228 359 1,587 Other financial investments* HtM 0 0 3,000 3,000 3,000 Cash and cash equivalents* LaR 58,284 58,284 58,284 40,810 40,810 40,810 Financial liabilities Financial liabilities* FLAC 1,430,085 1,430,085 1,545,747 1,486,759 1,486,759 1,540,073 Right to redeem of limited partners* FLAC 226,849 226,849 226,849 213,422 213,422 213,422 Trade payables* FLAC 1,098 1,098 1,098 3,351 3,351 3,351 Other liabilities* FLAC 6,602 6,602 6,602 8,508 8,508 8,508 Interest rate hedges not recognised in profit or loss* FLAC 48,347 48,347 48,347 31,007 31,007 31,007 Interest rate hedges recognised in profit or loss** FVTPL 10,084 10,084 10,084 9,474 9,474 9,474 Aggregated according to measurement category pursuant to IAS 39: Loans and receivables (LaR) 67,093 66,886 207 67,093 47,992 47,633 359 47,992 Held to maturity (HtM) 0 0 3,000 3,000 3,000 Available for sale (AfS) 266 273 -7 266 34,519 0 34,519 0 34,519 Financial liabilities measured at amortised cost (FLAC) 1,712,981 1,664,634 48,347 1,828,643 1,743,047 1,712,040 31,007 1,796,361 Financial liabilities measured at fair value in income (FVTPL) 10,084 10,084 10,084 9,474 9,474 9,474 * Corresponds to level 1 of the IFRS 7 fair value hierarchy ** Corresponds to level 2 of the IFRS 7 fair value hierarchy Investments measured using the equity method are reported at fair value. In the year under review no additional appreciations or depreciations were made as they are already included in the respective subsidiary’s net income for the period. Trade receivables, other assets as well as cash and cash equiva- lents – which are recognised at present value – have predomi- nantly short residual terms. The carrying amounts thus corre- spond to the fair value. The long-term financial liabilities include obligations from con- vertible bonds that are measured at amortised cost using the ef- fective interest rate method. Interest expense incurred amount- ed to €3,458 thousand (previous year: €3,363 thousand) and is recognised in net finance costs. Bank loans and overdrafts have short and long-term durations and are recognised at amortised cost. The fair value for Group loans is given in the notes under item 12 Financial liabilities. In total, interest expense of €58,570 thousand (previous year: €57,827 thousand) is included in net finance costs. Trade payables and other liabilities, with the exception of inter- est rate swaps – which are recognised at present value – usually have short residual terms. The carrying amounts thus corre- spond to the fair value. Interest on financial instruments, not recognised in profit or loss, is reported as interest income or interest expense. Chang- es in the value of financial liabilities measured at fair value in profit or loss are reported under Other financial expenses (€610 thousand). The fair value of the liabilities listed above in level 2 was calcu- lated in accordance with generally accepted valuation methods based on the discounted cash flow method. The interest and market price parameters applicable on the reporting date were applied. The profit/loss share of third-party shareholders of €16,117 thousand (previous year: €15,939 thousand) is included in net finance costs. Impairment charges on receivables (€739 thousand) are recog- nised in the property operating costs. Other disclosures 30. Financial instruments and risk management CARRYING AMOUNTS, VALUATIONS AND FAIR VALUES ACCORDING TO MEASUREMENT CATEGORY Risk management In risk management, the emphasis is on ensuring compliance with the strategy and, building on this, on identifying and as- sessing risks and opportunities, as well as on the fundamental decision to manage these risks. Risk management ensures that risks are identified at an early stage and can then be evaluated, communicated promptly and mitigated. Risk analysis involves the identification and analysis of factors that may jeopardise the achievement of goals. Market risks Liquidity risk The liquidity of Deutsche EuroShop Group is continuously monitored and planned. The subsidiaries regularly have suf- ficient cash to be able to pay for their current commitments. Furthermore, credit lines and bank overdrafts can be utilised at short notice. The contractually agreed future interest and principle repay- ments of the original financial liabilities and derivative financial instruments are as follows at 31 December 2014: in € thousand Carrying amount 31.12.2014 Cashf lows 2015 Cash flows 2016–2019 Cash flows from 2020 Convertible bond 95,264 1,750 103,303 0 Bank loans and overdrafts 1,334,821 170,426 654,220 834,482 The amounts relate to all contractual commitments existing on the balance sheet date. The majority of the trade payables and other financial liabilities reported at the end of the financial year will fall due in 2014. Credit and default risk There are no significant credit risks in the Group. The trade re- ceivables reported on the reporting date were predominantly paid up to the date of preparation of the financial statements. During the reporting year, write-downs of rent receivables of €739 thousand (previous year: €583 thousand) were recognised under property operating costs. The maximum default risk in relation to trade receivables and other assets totalled €13,662 thousand (previous year: €12,043 thousand) on the reporting date. Currency and measurement risk The Group companies operate exclusively in the European Eco- nomic Area and conduct the greater part of their business in euro. This does not entail currency risks. A 25 basis points change in a material parameter of real estate appraisals would have the following pre-tax impact on meas- urement gains/losses: in € million Basis -0.25% +0.25% Rate of rent increases 1.70% -117.5 123.0 Discount rate 6.44% 107.7 -102.6 Cost ratio 11.00% 10.3 -10.3 Interest rate risk Asensitivityanalysiswasimplementedtodeterminetheeffectof potential interest rate changes. Based on the financial assets and liabilities subject to interest rate risk on the balance sheet date, this shows the effect of a change on the Group’s equity. Interest rate risks arose on the balance sheet date only for credit borrowed and the associated interest rate hedges. An increase in the market interest rate of 100 basis points would lead to an increase in eq- uity of €17,550 thousand (previous year: €17,444 thousand). The majority of the loan liabilities have fixed interest terms. On the reporting date, loans totalling €210,111 thousand (previous year: €215,500 thousand) were hedged using derivative finan- cial instruments. Capital management The Group’s capital management is designed to maintain a strong equity base with the aim of ensuring that its ability to repay its debts and financial well-being are maintained in the future. The Group’s financial policies are also based on the an- nual payment of a dividend. in € thousand 31.12.2014 31.12.2013 Equity 1,751,191 1,642,371 Equity ratio (%) 50.1 48.4 Net financial debt 1,371,801 1,445,949 Equity is reported here including the compensation claims by limited partners. Net financial debt is determined from the financial liabilities on the balance sheet date less cash and cash equivalents. AfS 266273 -726634,51934,51934,519 LaR 4,5104,5104,5105,5955,5955,595 LaR 4,2994,0922074,2991,5871,2283591,587 HtM 003,0003,0003,000 LaR 58,28458,28458,28440,81040,81040,810 FLAC 1,430,0851,430,0851,545,7471,486,7591,486,7591,540,073 FLAC 226,849226,849226,849213,422213,422213,422 FLAC 1,0981,0981,0983,3513,3513,351 FLAC 6,6026,6026,6028,5088,5088,508 FLAC 48,34748,34748,34731,00731,00731,007 FVTPL 10,08410,08410,0849,4749,4749,474 Loans and receivables (LaR) 67,09366,88620767,09347,99247,63335947,992 Held to maturity (HtM) 003,0003,0003,000 Available for sale (AfS) 266273 -726634,519034,519034,519 Financial liabilities measured at amortised cost (FLAC) 1,712,9811,664,63448,3471,828,6431,743,0471,712,04031,0071,796,361 (FVTPL) 10,08410,08410,0849,4749,4749,474 Convertible bond 95,2641,750103,3030 overdrafts 1,334,821170,426654,220834,482 Rate of rent increases 1.70% -117.5123.0 in € thousand 31.12.201431.12.2013 Equity 1,751,1911,642,371 Equity ratio (%) 50.148.4 Net financial debt 1,371,8011,445,949