Areas of critical judgements and estimates (continued)
10. Investments in equity accounted companies (continued)
10.2. Significant judgements relating to recognition of investments as equity accounted investments Accounting for the interest in SRP
The Group acquired a 17% strategic interest in SRP during July 2017 for €158.6 million. The Group entered into voting agreements with the founding shareholders and Steinhoff N.V. is also represented on the board of SRP. As such, the Group established it has significant influence over SRP and SRP is therefore equity accounted.
SRP is a separately listed entity with a December financial year-end. No equity accounted earnings for SRP are recognised by the Group in the 2017 results owing to the delay in obtaining December 2017 year-end financial information for SRP and then the fact that SRP was sold on 11 January 2018 (refer note 34). Management determined that any equity accounted earnings for this short period that the group held the investment in SRP would be immaterial.
Accounting for the interest in Atterbury Europe
The Group owns 50% of the ordinary shares in Atterbury Europe and 100% of the issued preference share capital of Atterbury Europe which did not hold any voting rights. The investment in the preference shares is classified as part of the Group's net investment in Atterbury Europe together with the 50% investment in the ordinary shares. The requirement to declare preference dividends is not mandatory, the preference shares have no fixed terms of repayment and are unsecured.
The investment in the preference shares is therefore deemed akin to an equity investment.
Notes
30 September 2017€m
Restated 30 September 2016€m
10.3 Reconciliation of the aggregate carrying values of equity accounted companies
Balance at the beginning of the period 1 379 1 184
Additions 10.4 846 247
Impairments 10.5 (175) –
Share of:
Profit or loss 107 89
Other comprehensive loss (3) –
Other reserves 14 6
Dividends received 29.5 (59) (20)
Other movements (2) 2
Exchange differences on translation of equity accounted investments (52) (129)
Carrying values of equity accounted companies at the end of the period 2 055 1 379 10.4 Additional investments during the period
During the period the Group increased its preference share investment in Atterbury Europe by €278 million to support the expansion in central and eastern Europe. The SRP investment was acquired for €159 million in July 2017. Cofel SAS, a bedding manufacturer was subscribed for during the period for €51 million. POCO was recognised as an equity accounted investment on 31 March 2017 at fair value on initial recognition of €302 million (refer note 1.2.3b for judgements regarding the recognition of POCO as an equity accounted investment). The investment in POCO was not acquired for cash, but was recognised as a result of a loss of control.
As part of the KAP rights offer, the Group subscribed for a further 94 million KAP shares during the period for €45 million.
In the prior period the Group acquired its interest in the Bud Group for €132 million and increased their preference share investment in Atterbury Europe by €85 million.
10. Investments in equity accounted companies
(continued)10.5 Significant judgements relating to impairment of equity accounted investments
The Group considers whether any impairment indicators are present with regards to its investment in equity accounted companies by reference to the quoted fair value, if available, as well as the underlying investment’s profitability, access to operational funding and any other factors that could impact the investment’s ability to deliver returns to the Group.
The following investments had impairment indicators present and considerations are discussed below.
SRP
As at 30 September 2017, SRP's share price had declined significantly since the initial acquisition by the Group. The Group determined impairment indicators were present as a result of the decline in the share price driven by reduced profitability of SRP following several profit warnings by the Group. The Group considered the recoverable amount of its investment in SRP to be the fair value taking into account the listed share price, and recognised an impairment of €79 million during the period.
Cofel SAS and POCO
Cofel SAS and POCO showed impairment indicators of declining profitability together with Cofel SAS’s inability to pay dividends to ordinary shareholders during the period.
As Cofel SAS and POCO are private entities, EBITDA multiples were applied based on available market information to determine a recoverable amount for both Cofel SAS and POCO.
An impairment of €46 million and €49 million was recognised during the period for Cofel SAS and POCO, respectively.
Atterbury Europe
The investment in Atterbury Europe was disposed of on a piecemeal basis during 2018 to alleviate funding requirements of the Group. A loss of €130 million was recognised on the disposal (refer to note 34). Management considered whether this loss recognised on disposal during 2018 was indicative of any impairment indicators that existed at the reporting date and concluded that an impairment at 30 September 2017 was not required. The Group invested in Atterbury Europe joint venture to expand the Group’s property presence in Eastern Europe. A property portfolio of this size was intended to provide returns in the long-term. The underlying assets (properties) in the Atterbury Europe portfolio were not deemed to be impaired at 30 September 2017 and both joint venture partners had sufficient access to the funding required to support the operations and expansion as at 30 September 2017. Management concluded that the sale of a long-term property investment of this size on a piecemeal basis so soon after the initial investment was made resulted in the loss on disposal.
PSG
In the prior year the quoted fair value of the PSG investment was less than the carrying amount. A period-end sum-of-the-parts valuation exceeded the carrying value of the Group’s interest in PSG and the investment was not deemed to be impaired.
10.6 Commitments
The Group's obligation in respect of losses and contingent liabilities from equity accounted companies is limited to the extent of the carrying values of the investments including loans and preference share investments.
The Group's had committed funding of €15.8 million to Atterbury Europe for development of properties during 2018.
Subsequent to year-end, with the disposal of Atterbury Europe, the Group was released of this funding obligation.
10.7 Summarised information in respect of material equity accounted companies
The table below provides summarised financial information for those equity accounted investments that are material to the Group. The information disclosed reflects the amounts presented in the most recent financial statements of the relevant equity accounted companies and not the Group's share of those amounts.
Adjustments are made for material transactions occurring between equity accounted company's reporting date and Steinhoff N.V.'s reporting date (where necessary).
Where relevant the statements of financial positions of the associates were translated to Euro at spot conversion rate at the end of the Group's reporting period and the income statements were translated to Euro at the average conversion rate applicable to the Group's financial year.
The Group has compared the accounting policies of these companies to those of the Group and has found no material
10. Investments in equity accounted companies
(continued)10.7 Summarised information in respect of material equity accounted companies (continued)
KAP PSG POCO1 Atterbury Europe2
Year ended 30 June 2017€m
ended Year 30 June 2016€m
Year ended 31 August 2017€m
ended Year 31 August 2016€m
Period ended 30 September 2017€m
Fifteen months ended 30 September 2016€m
Eighteen months ended 31 December
2017€m
ended Year 30 June 2016€m
Revenue 1 337 1 001 972 833 1 319 1 541 1 1
Investment income 8 3 127 92 – 1 1 2
Depreciation and
amortisation (58) (50) (32) (26) (27) (23) – –
Interest expense (43) (22) (32) (30) (5) (9) (1) (1)
Income tax expense (17) (14) (28) (35) (19) (28) – –
Profit for the period from
continuing operations 98 75 189 160 36 52 15 6
Loss for the period from
discontinued operations (4) (1) – – – – – –
Profit for the period 94 74 189 160 36 52 15 6
Other comprehensive (loss)/income for the
period (5) 3 (25) (9) – – 2 –
Total comprehensive
income for the period 89 77 164 151 36 52 17 6
1 POCO has a December year-end but due to their prior consolidation, September numbers are available and have been presented.
2 Atterbury Europe changed their year-end to 31 December 2017.
10. Investments in equity accounted companies
(continued)10.7 Summarised information in respect of material equity accounted companies (continued)
KAP PSG POCO1 Atterbury Europe2
As at 30 June
2017€m
As at 30 June
2016€m
As at 31 August 2017€m
As at 31 August 2016€m
As at 30 September 2017€m
As at 30 September 2016€m
As at 31 December 2017€m
As at 30 June
2016€m
Non-current assets 1 210 798 3 198 2 922 659 635 402 75
Current assets
Cash and cash equivalents 125 168 3 3 20 13 – 1
Other current assets 348 259 2 279 2 040 274 279 22 –
Total current assets 473 427 2 282 2 043 294 292 22 1
Non-current liabilities:
Non-current financial liabilities (excluding trade
payables) (459) (272) (1 974) (1 853) (154) (162) (13) (71)
Other non-current
liabilities (187) (94) (51) (49) (87) (86) – –
Total non-current liabilities (646) (366) (2 025) (1 902) (241) (248) (13) (71)
Current liabilities:
Current financial liabilities
(excluding trade payables) (30) (30) (1 475) (1 147) (23) (12) (25) –
Other current liabilities (300) (255) (275) (279) (188) (190) – –
Total current liabilities (330) (285) (1 750) (1 426) (211) (202) (25) –
Non-controlling interests (20) (13) (683) (709) (4) (4) – –
Net assets 687 561 1 022 928 497 473 386 5
% ownership by Group 43.0% 43.0% 25.5% 25.7% 50.0% 50.0% 50.0% 50.0%
Group's share of net assets 295 241 261 238 249 N/A 193 3
Adjustment for material transactions and foreign
currency differences (6) 7 1 3 36 N/A 180 86
Goodwill 66 67 485 505 – – – –
Carrying amount of the
Group's interest 355 315 747 746 285 38 373 89
Note 10.7a Note 10.7b
1 POCO has a December year-end but due to their prior consolidation, September numbers are available and have been presented.
2 Atterbury Europe changed their year-end to 31 December 2017.
10.7a POCO
In the prior period the Group only held an equity accounted investment in the property company of POCO. Comparative information of POCO (retail and properties) has been presented for reference only and no material reconciling items are recognised.
10.7b Atterbury Europe
The Group held all the preference shares of Atterbury Europe amounting to €364 million as at 30 September 2017. This comprises the most material adjustment between the Group's share of the net assets and the carrying value of the Group's interest in Atterbury Europe.