New Accounting Standards

IFRS 15, “Revenue from Contracts with Customers”

15, “Revenue from Contracts with Customers,” replaces the existing revenue-recognition standards IAS 18 (“Revenue”) and IAS 11 (“Construction Contracts”) and related interpretations, and is applicable for reporting periods beginning on or after January 1, 2018. The new standard introduces a five-step model for the recognition of revenue from contracts with customers. IFRS 15 sets out that an entity shall recognize the revenue expected as consideration for transferring goods or services to the customer. Revenue recognition occurs when (or as) the entity satisfies its performance obligation and the customer has obtained control of the good or service either at a point in time or over a period of time. Moreover, IFRS 15 specifies the allocation of individual items to new balance-sheet items and to individual functional costs in the income statement and their presentation in gross or net form.

WACKER has introduced 15 on the basis of the modified retrospective approach, such that any transition effects as of January 1, 2018, are recognized cumulatively in retained earnings and the comparative period is presented according to previous accounting standards. All business models commonly used by the Group were reviewed in an implementation project for the new standard. These reviews did not result in any material adjustment effects that would have to be recognized in retained earnings. The low impact of IFRS 15 is due to the fact that WACKER’s customer contracts usually result in one performance obligation that is satisfied at a point in time. The transition effects are described below.

At WACKER SILICONES, there are transition effects from transactions as defined in IFRS 15.5 (d), such as non-monetary exchanges, e.g. of raw materials or products, between companies in the same line of business to facilitate sales to customers or to reduce transport costs. The transactions in question must be settled in the same period. Whereas WACKER used to report these transactions as revenue, they are no longer recognized as sales. As a consequence, sales were reduced by around €50 million in 2018. These exchanges did not result in any margin effects.

At WACKER POLYMERS, minor transition effects arose from the supply of raw materials for toll manufacturing. These transactions were no longer recognized as revenue in 2018.

One business model at WACKER BIOSOLUTIONS consists in providing development services to the pharmaceutical industry under service contracts that are satisfied over time. These customer-specific services are rendered and documented based on contractual milestones. The recognition of revenue pursuant to IFRS 15 did not result in any changes here since the right to payment arises upon achievement of the milestones. WACKER BIOSOLUTIONS also manufactures customer-specific products in connection with product supply contracts for drug-related intermediates. The right to payment in this case arises on acceptance by the customer. As of the reporting date, there were no material contract assets representing services not charged. WACKER continues to report these under inventories and explains them in the Notes.

Certain transport clauses give rise to a separate performance obligation since the freight / transport performance is not concluded until control has been transferred to the customer. The effect of postponing the share of revenue attributable to freight / transport performance to a later date amounted to €3.1 million in 2017. Since WACKER reduced the corresponding transport costs at the same time, there was no effect on .

As soon as a contracting party (customer or supplier) has satisfied its contractual obligations, the entity must recognize the contract as a contract asset or contract liability depending on whether the entity has completed performance or the customer has made payment. The entity must show every unconditional right to receive consideration separately as a receivable. WACKER currently recognizes only contract liabilities in the statement of financial position. These liabilities include advance payments made by customers for deliveries and advance payments by WACKER BIOSOLUTIONS customers. In 2017, advance payments received from customers were posted under non-financial liabilities. Furthermore, discount accruals that had been reported under other provisions in 2017 are now reported as contract liabilities.

IFRS 9, “Financial Instruments”

IFRS 9, “Financial Instruments,” replaces IAS 39, “Financial Instruments: Recognition and Measurement,” and is effective for reporting periods beginning on or after January 1, 2018. IFRS 9 introduces new requirements specifying how an entity should classify and measure financial assets. It also requires changes to the accounting of ‘own credit risk’ with respect to financial liabilities classified as measured at fair value, and it replaces the existing rules for impairment of financial assets and changes the requirements for hedge accounting.

The first-time application of IFRS 9 at WACKER led to minor impairment adjustments. The higher risk provisions for trade receivables and securities are partially offset by tax effects and reversals of existing valuation allowances, leading to a slight increase in equity. The effects are shown in a separate line item in equity. As the amounts concerned are minor, WACKER will not apply the resulting changes from IFRS 9 to IAS 1 (classification of impairment losses and reversals as a separate item in the income statement). As in the past, the changes are shown under other operating expenses for trade receivables and under other financial result for other financial assets, and are described in the Notes.

Classification and Measurement of Financial Instruments

IFRS 9 stipulates that each financial asset must be classified and measured on the basis of the entity’s business model and the asset’s contractual characteristics. On initial recognition, each financial asset is classified as measured either at fair value through profit or loss (FVPL), at amortized cost or at fair value through other comprehensive income (FVOCI). Since the new requirements under IFRS 9 diverge from the existing assessments under IAS 39, there are slight differences in the classification and measurement of financial assets. This includes the option of recognizing certain assets at fair value. The classification and measurement of financial liabilities remain largely unchanged under IFRS 9.

WACKER has assessed its financial assets using the underlying business model and the contractual cash flow characteristics of the assets and classified them as follows:

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Reclassification of Financial Assets as of January 1, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

€ million

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measurement pursuant to IAS 39

 

Measurement pursuant to IFRS 9

Financial assets

 

IAS 39 category

 

IFRS 9 business model / measure­ment category

 

Balance sheet carrying amount Dec. 31, 2017

 

Re­measure­ment

 

Balance sheet carrying amount Jan. 1, 2018

 

(Amortized) cost

 

Fair value through profit or loss

 

Fair value through other compre­hensive income

 

Fair value as of Dec. 31, 2017

 

(Amortized) cost

 

Fair value through profit or loss

 

Fair value through other compre­hensive income

 

Jan. 1, 2018

*

FVPL = financial assets measured at fair value through profit or loss

**

FVOCI = financial assets (debt instruments) measured at fair value through other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade receivables

 

Loans and receivables / amortized cost

 

Held to collect / amortized cost

 

655.7

 

 

655.7

 

655.7

 

 

 

 

 

655.7

 

655.7

 

 

 

 

 

655.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other financial assets

 

 

 

 

 

185.1

 

 

185.1

 

171.7

 

8.4

 

5.0

 

174.0

 

160.6

 

19.5

 

5.0

 

185.1

Other financial assets

 

Loans and receivables / amortized cost

 

Held to collect / amortized cost

 

 

 

 

 

 

 

160.6

 

 

 

 

 

160.6

 

160.6

 

 

 

 

 

160.6

Investments

 

Available for sale / at cost

 

Trading / FVPL*

 

 

 

 

 

 

 

11.1

 

 

 

 

 

 

 

 

 

11.1

 

 

 

11.1

Derivatives that do not qualify for hedge accounting

 

FVPL*

 

FVPL*

 

 

 

 

 

 

 

 

 

3.0

 

 

 

3.0

 

 

 

3.0

 

 

 

3.0

Derivatives that qualify for hedge accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

5.4

 

5.0

 

10.4

 

 

 

5.4

 

5.0

 

10.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities and fixed-term deposits

 

 

 

 

 

260.3

 

 

260.3

 

156.8

 

 

 

103.5

 

260.3

 

156.8

 

 

 

103.5

 

260.3

Fixed-term deposits

 

Loans and receivables / amortized cost

 

Held to collect / amortized cost

 

 

 

 

 

 

 

156.8

 

 

 

 

 

156.8

 

156.8

 

 

 

 

 

156.8

Available-for-sale securities

 

Available for sale / FVOCI**

 

Held to collect and for sale / FVOCI**

 

 

 

 

 

 

 

 

 

 

 

103.5

 

103.5

 

 

 

 

 

103.5

 

103.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

286.9

 

 

286.9

 

286.9

 

 

 

 

 

286.9

 

286.9

 

 

 

 

 

286.9

Fixed-term deposits

 

Loans and receivables / amortized cost

 

Held to collect / amortized cost

 

 

 

 

 

 

 

187.1

 

 

 

 

 

187.1

 

187.1

 

 

 

 

 

187.1

Bank deposits

 

Loans and receivables / amortized cost

 

Held to collect / amortized cost

 

 

 

 

 

 

 

99.8

 

 

 

 

 

99.8

 

99.8

 

 

 

 

 

99.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total financial assets

 

 

 

 

 

1,388.0

 

 

 

1,388.0

 

 

 

 

 

 

 

1,376.9

 

 

 

 

 

 

 

1,388.0

The reclassifications did not result in any change in carrying amounts. The classification of financial liabilities remained unchanged year over year.

To determine possible classification and measurement changes from the implementation of IFRS 9, WACKER carried out an analysis of the business models and assessed the contractual cash flow characteristics of the financial assets within these business models. As a result of this analysis, the Group identified financial assets that are measured either at amortized cost or at fair value through other comprehensive income, and that are therefore subject to the IFRS 9 impairment rules.

On initial recognition of an equity investment not held for trading, WACKER shall, in certain cases, exercise its irrevocable option to report the following changes in fair value in equity under “Other equity items.” WACKER did not make use of this option as of the transition date.

Impairment of Financial Assets

The policies of IFRS 9 regarding impairments apply to debt instruments measured at amortized cost or at fair value through other comprehensive income (referred to collectively in the following as “financial assets”). The model for determining impairments and risk provisions has changed from one based on actual losses of receivables (IAS 39) – under which these are recognized on occurrence of a defined loss event – to one based on expected losses of receivables (IFRS 9). Under the latter, impairments for losses of receivables are recognized on initial recognition of the financial asset on the basis of the potential losses expected at that point in time. WACKER is exposed to an insignificant transition effect from the change in the model for losses of receivables because the majority of receivables are insured. A detailed description of the model can be found in the accounting and valuation principles for financial assets.

Hedge Accounting

IFRS 9 also includes new rules for hedge accounting with the objective to bring it into line with risk management. In principle, some of the restrictions contained in the existing rules have been eliminated, meaning that a wider range of hedging instruments and hedged items qualifies for hedge accounting. IFRS 9 offers the option of postponing application of its accounting rules for hedging relationships and, instead, continuing to apply the corresponding IAS 39 rules. WACKER decided to exercise this accounting option and therefore did not apply the IFRS 9 hedge accounting rules as of January 1, 2018, the effective date of IFRS 9.

Other accounting standards and interpretations applied for the first time in these consolidated financial statements are:

Accounting Standards Applied for the First Time in 2018

 

Standard / Interpretation

 

 

 

Manda­tory from

 

Endorsed by EU

 

Impact on WACKER

 

 

 

 

 

 

 

 

 

Amend­ments to IAS 40

 

Transfers of Invest­ment Property

 

Jan. 1, 2018

 

March 14, 2018

 

Investment property is held to earn rental income or for capital appreciation and not within the ordinary course of business. The amendments clarify that a change in use has occurred only if there is actual evidence of such a change. The mere intention of a change in use is not sufficient. As WACKER did not institute any changes in use in the 2018 fiscal year, the amendments did not lead to any changes in carrying amounts.

IFRIC 22

 

Foreign Currency Trans­actions and Advance Conside­ration

 

Jan. 1, 2018

 

March 28, 2018

 

The interpretation determines the exchange rate to be used on initial recognition of a foreign currency transaction in an entity’s functional currency when the entity pays or receives consideration in advance for the related asset, expense or income (or parts thereof). WACKER makes investment-related advance payments to a minor extent only. The advance payments received to date for polysilicon deliveries have all been denominated in euros. The volume of other advance payments made is only minor. The application of this interpretation did not alter the WACKER Group’s earnings, net assets or financial position in the 2018 fiscal year.

Other standards and interpretations to be applied for the first time are not applicable due to the absence of relevant circumstances.

Accounting Standards / Interpretations Not Applied Prematurely

The International Accounting Standards Board (IASB) has published the following standards, interpretations, and amendments to existing standards, the application of which is not yet mandatory and which WACKER is not applying earlier than required. Only those standards that are relevant to WACKER are mentioned. WACKER evaluates every new standard to determine its impact on the consolidated financial statements.

Accounting Standards Published by the IASB, But Not Yet Applied

 

Standard / Interpretation

 

 

 

Publi­cation by IASB

 

Manda­tory from

 

Endorsed by EU

 

Antici­pated Impact on WACKER

 

 

 

 

 

 

 

 

 

 

 

IFRS 16 – Leases

 

Lease Accounting

 

Jan. 13, 2016

 

Jan. 1, 2019

 

Oct. 31, 2017

 

IFRS 16, “Leases,” replaces the existing lease accounting standard IAS 17, “Leases,” and related interpretations. WACKER will use the modified retrospective approach to make the transition; the comparative figures for prior-year periods will not be restated. The analysis performed as part of the groupwide first-time application project has shown that IFRS 16 will have a material impact on the components of the consolidated financial statements and on the presentation of WACKER’s earnings, net assets and financial position.

Statement of financial position: for lessees, IFRS 16 introduces a uniform approach to the accounting treatment of leasing in which, for all leases, right-of-use assets are capitalized and the corresponding payment obligations incurred are recognized as liabilities. WACKER makes use of the relief applied for leases of low-value assets and for short-term leases of less than twelve months. The requirements for lessors, on the other hand, remain largely unchanged, especially as regards the continuing requirement to classify leases pursuant to IAS 17. In leases that have previously been classified as operating leases in accordance with IAS 17, the lease liability is measured at the present value of the remaining lease payments and discounted at the lessee’s incremental borrowing rate at the date of initial application. The right-of-use asset is measured at an amount equal to the lease liability plus initial direct costs. The analysis performed in the groupwide first-time application project has shown that, as of January 1, 2019, the transition is expected to result in the recognition of lease liabilities of some € 155 million and right-of-use assets of € 145 million in the statement of financial position. Upon first-time application, retained earnings will change only slightly. This balance sheet extension will reduce the equity ratio by around one percent. Given the material increase in lease liabilities, net financial debt will increase accordingly.

Statement of income: as opposed to the previous presentation of expenses for operating leases, right-of-use assets will be depreciated, and interest expenses arising from accrued interest on the lease liabilities recognized. The changes will result in higher EBITDA. Based on the leases in place as of January 1, 2019, Group EBITDA is expected to increase by about € 35 million in 2019.

Statement of cash flows: the changed presentation of operating-lease expenses will correspondingly improve cash flow from operating activities and diminish cash flow from financing activities. Net cash flow will thus improve by some € 30 million in 2019.

IFRIC 23

 

Uncer­tainty over Income Tax Treat­ments

 

June 7, 2017

 

Jan. 1, 2019

 

Oct. 23, 2018

 

The interpretation contains rules for recognizing and measuring uncertain tax positions and hence closes existing gaps in IAS 12, “Income Taxes.” Uncertain tax positions comprise all risk-related tax issues. This concerns uncertainties regarding acceptance by the tax authorities. The recognition of an uncertain tax position (whether asset or liability) depends on whether a payment is assessed as being probable. An uncertain tax position can affect both current taxes and deferred taxes. Determining an uncertain tax position requires uniform estimates and assumptions. We assume that the interpretation will not result in any change in the WACKER Group’s earnings, net assets or financial position.

 

 

Annual Improve­ments to IFRSs, 2015 -2017 Cycle

 

Dec. 12, 2017

 

Jan. 1, 2019

 

2019

 

As part of the annual improvement process, the following clarifications have been made. IFRS 3, “Business Combinations,” and IFRS 11, “Joint Arrangements”: acquiring additional shares to obtain control in a former joint venture necessitates the remeasurement of the previously held interests as an acquisition achieved in stages; if there is no change in the determination of a joint arrangement, the previously held interest is not remeasured. WACKER currently does not recognize any joint arrangements according to IFRS 11. Amendments to IAS 12, “Income Taxes,” relating to income tax consequences of dividend payments: these amendments have no impact on WACKER. Amendments to IAS 23, “Borrowing Costs”: WACKER has already been applying this clarification, which requires that borrowings that were directly attributed to a specific qualifying asset in accordance with IAS 23 after its completion and are reallocated to general borrowing costs and eligible for capitalization as part of IAS 23.

Amend­ments to IAS 19

 

Employee Benefits – Plan Amendment, Curtailment or Settlement

 

Feb. 7, 2018

 

Jan. 1, 2019

 

2019

 

The amendments relate to the determination of current service cost after an intervention in a defined benefit plan. For the time period between the intervention and the end of the reporting period, the current service cost and the net interest cost are remeasured using the actuarial assumptions and the net defined benefit liability determined in case of plan amendment and at the time of the plan amendment. WACKER may be affected by these amendments, but at this time we are not anticipating any impact on earnings, net assets or financial position.

Amend­ments to IFRS 3

 

Business Combi­nations – Definition of a Business

 

Oct. 22, 2018

 

Jan. 1, 2020

 

2019

 

The amendments have changed the definition of a business in IFRS 3. A business exists only if, at a minimum, a substantive process contributing to creating outputs exists or has been acquired. If an acquisition’s fair value is focused solely on purchased assets, it is not considered a business and IFRS 3 is therefore not applied. WACKER will be affected by these amendments for future acquisitions.

Amend­ments to IAS 1 and IAS 8

 

Definition of Material

 

Oct. 31, 2018

 

Jan. 1, 2020

 

2019

 

The amendments clarify information is material if omitting or misstating it could reasonably be expected to influence decisions that the primary users of financial statements make. Primary users of financial statements are existing investors, lenders or other creditors. WACKER already applies these materiality criteria in its published consolidated financial statements.

IFRS
The International Financial Reporting Standards (until 2001 International Accounting Standards, IAS) are compiled and published by the London-based International Accounting Standards Board (IASB). Since 2005, publicly listed EU-based companies have been required to use IFRS in accordance with IAS regulations.
IFRS
The International Financial Reporting Standards (until 2001 International Accounting Standards, IAS) are compiled and published by the London-based International Accounting Standards Board (IASB). Since 2005, publicly listed EU-based companies have been required to use IFRS in accordance with IAS regulations.
EBITDA
Earnings before interest, taxes, depreciation and amortization.
Polysilicon
Hyperpure polycrystalline silicon from WACKER POLYSILICON is used for manufacturing wafers for the electronics and solar industries. To produce it, metallurgical-grade silicon is converted into liquid trichlorosilane, highly distilled and deposited in hyperpure form at 1,000 ° C.
Cash Flow
Cash flow represents the movement of cash and cash equivalents into or out of a business activity during a finite period. Net cash flow is the sum of cash flow from operating activities (excluding changes in advance payments received) and cash flow from long-term investing activities (before securities), including additions due to finance leases.

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