5.7 Notes

1.  Operating segments

Accell Group has the operational segments Bicycles and Parts & accessories. The risk and return profile of each segment is determined by the nature of the activities and products that are produced.

Information related to each reportable segment is set out below. The earnings before interest and taxes is used to measure the performance because management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate in the same industries.

A. Information about reportable segments

B. Reconciliations of information on reportable segments

 

Geographical information

Geographical segments are based on the physical location of the assets. The sales to external customers reported in the geographical segments are based on the geographical location of the customers. 

 

2.  Personnel costs

Personnel costs are comprised of the following:

 

3.  Depreciation

Depreciation comprise the following:

4.  Other operating expenses

 

5.  Net finance cost

Financial income and expenses comprise the following:

The policy regarding interest and currency risks is covered in note 22. Financial instruments - fair values and risk management.

6.  Taxes

The effective corporate income tax charge comprises the following:

The effective tax rate consists of the reported tax charge for the current year, divided by the profit before taxes. The effective tax rate in 2016 amounts to 38.7% (2015: 33.5%). The tax rate was negatively impacted by not recognizing deferred taxes assets from new tax losses and the derecognition of deferred tax assets carried forward in North America.

7.  Earnings per share

The calculation of earnings per share and of diluted earnings per share is based on the following data:

8.  Property, plant and equipment

Changes in property, plant and equipment are as follows:

9.      Goodwill

Changes in goodwill are as follows:

 

Goodwill is tested annually for impairment or more frequently if there are indications of impairment losses. For the purposes of this test, goodwill is allocated to cash-generating units. Allocation is made to the (group of) cash-generating units that is expected to benefit from the business combination from which the goodwill arose. The cash-generating units used in the assessment correspond with the operational segments.

The carrying amount of goodwill (with an indefinite useful life) on segment level is divided as follows:

 

The following main assumptions are used in determining the value in use of the segments Bicycles and Parts & accessories and are based on historical experiences in specific markets and countries:

• turnover growth, based on the historical average of the last 3 years, for Bicycles respectively Parts & accessories of 10.0% (2015: 10.1%) respectively of 5.4% (2015: 3.8%);
• operating margin, based on the average of the last 3 years or current year if lower, for Bicycles respectively Parts & accessories of 6.8% (2015: 5.7%) respectively of 4.5% (2015: 4.1%);
• working capital, based on the historical average ratios in relation to turnover in the last 3 years or current year if better, for Bicycles respectively Parts & accessories of 29.5% (2015: 34%) respectively of 25.5% (2015: 27%);
• a perpetual growth rate of 1.4% (2015: 1.7%) is used for the estimates of the future cash flow after the initial period of 5 years;
• a post-tax weighted average cost of capital of 7.6% (2015: 7.4%) was used for the discounting of the cash flows. The discounting rate applied corresponds with a pre-tax weighted average cost of capital of 9.8% (2015: 9.6%). 

The impairment test in 2016 shows a substantial headroom in goodwill. Accell Group believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed the recoverable amount of the cash-generating units.

10.      Other intangible fixed assets

The changes in other intangible fixed assets are as follows:

As per 31 December 2016 trademarks mainly consist of the valuation of the brands Raleigh and Diamondback from the acquisition of Raleigh Cycle (€ 24.4 million) as well as Ghost (€ 9.4 million). Furthermore brands of SBS, Brasseur, Hellberg, Currie and Van Nicholas are valued for a total amount of € 5.1 million.

 

The carrying amount of the trademarks (with indefinite useful life) at segment level is specified as follows:

The trademarks are tested annually for impairment, or more frequently if there are indications of impairment losses. The principal assumptions used in the annual impairment test include the budgeted expectations regarding the turnover of the trademarks, royalty fees of the trademarks and discounting of the cash flows applying the post-tax weighted average cost of capital of 7.6% (2015: 7.4%), which corresponds with a pre-tax weighted average cost of capital of 9.8% (2015: 9.6%). For the trademarks generating cash flows in North-America a post-tax weighted average cost of capital of 8.4% (2015: 8.3%), which corresponds with a pre-tax weighted average cost of capital of 9.6% (2015: 9.4%). This testing has led to no impairment loss in 2016.

The customer lists and licenses consist of the customer list of Comet, the Turkish dealer network and an extension of a licensing agreement. The useful life of these respective assets is estimated at 20 years, 20 years and 10 years and are amortized as from 2015, 2012 and 2013 onwards. During the year an impairment loss amounting to € 0.6 million was recognized in respect of the Finnish customer relationship; due to a change of ownership the business ceased.

The other intangible fixed assets relate to development expenditure in connection with the patents and development, which mainly relate to development of electric bicycles and software.

Amortization expenses and impairment losses are accounted for in the income statement within depreciation.

 

11.      Subsidiaries

The consolidated financial statements 2016 include Accell Group N.V., in Heerenveen, as well as the financial information of the following companies.

Subsidiaries that are immaterial to the consolidated financial statements are not included in the overview above. A complete list of subsidiaries is filed with the Trade Register of the Chamber of Commerce in Leeuwarden, the Netherlands.

 

These associates and joint ventures are of strategic nature; the voting rights are equal to the percentage interest held.

The changes in the non-consolidated companies are as follows:

Summary of the financial data for the interests in non-consolidated companies:

 

12.      Inventories

During 2016 inventories were written down by € 5.2 million to lower net realizable value (2015: € 3.3 million). At balance sheet date inventories with a carrying amount of approximately € 16,6 million (2015: € 10,5 million) are valued at lower net realizable value. Inventories furthermore include goods in transit of € 62.2 million (2015: € 59.3 million) related to shipped goods for which Accell Group had acquired the economic ownership, but which have not yet been received.

 

The costs of inventory that are recorded as an expense during the financial year amounts to € 778.9 million (2015: € 719.2 million).

13.      Trade receivables

The nominal value of the trade receivables is considered close to equal to the fair value. Trade receivables are non-interest-bearing and, depending on the season, are governed by a 30-150 day term of payment. The provision for credit losses is determined on the basis of an individual assessment of overdue trade receivables. The policy regarding credit risks is covered in note 22. Financial instruments - fair values and risk management.

14.      Cash, cash equivalents and bank overdrafts

Accell Group has a global cash-pooling programme in place. Both cash and bank overdrafts include € 38.4 million (2015: € 158.2 million) subject to offset-arrangements under this programme. Based on a clarification of the IFRS Interpretation Committee (IFRIC) offsetting of these balances is not allowed.

 

15.      Equity

The consolidated equity is equal to the equity in the company financial statements. The notes and movement schedules of equity are included in the company financial statements.

16.      Interest-bearing loans

This note provides information about the contractual terms and conditions of the outstanding interest-bearing loans and borrowings. For more information about Accell Group’s exposure to interest rate risk a reference is made to note 22. Financial instruments – fair values and risk management.

In 2013 Accell Group concluded a financing agreement with a syndicate of six (international) banks for a total group financing. The participating banks in the syndicate are ABN AMRO Bank, Deutsche Bank, ING Bank, Rabobank, BNP Paribas and HSBC. The original financing consisted of € 125 million of secured bank loans and a revolving credit facility of € 175 million (working capital financing), of which € 65 million was a season facility. In the period 2015-2016 the working capital financing has been extended with € 50 million from the so-called ‘accordion facility’, which is part of the financing agreement. On a portion of the secured bank loans regular installments are made of € 12.5 million per annum.

Existing guidelines for financial ratios are:

• Leverage ratio, that is determined by net debt divided by normalized EBITDA. The leverage ratio shall not exceed 2.25 (quarterly).
• Solvency ratio, that is determined by net assets divided by balance sheet total, both adjusted for intangible fixed assets and the related deferred taxes. The solvency ratio shall equal or exceed 30% (semi-annually).
• Interest coverage ratio, that is determined by operating result (EBIT) divided by net interest expense and shall not be-between zero and 5.5 (quarterly).

Net debt means the total amount of interest-bearing loans via banks or other financial institution’s, the revolving credit facility and bank overdrafts less cash and cash equivalents.

EBITDA means operating result (EBIT) after adding back any amount attributable to the amortization or depreciation of assets and including income from equity-accounted investees. Normalized EBITDA, in respect of a relevant period, EBITDA for that relevant period adjusted by:

• including EBITDA of a business combination acquired during the relevant period for that part of the relevant period­ prior to its becoming a business combination;
• excluding EBITDA attributable to any member of Accell Group (or to any business) disposed of during the relevant period­ prior to its disposal;
• including, at the election of Accell Group, extraordinary costs incurred in the relevant period including reorganization expenses, impairments of fixed assets and expenses related to the disposal of assets of discontinued operations.

Net interest expense means the net amount of financial income and expense less interest, commission, fees, discounts and other finance charges accrued in accordance with the applicable accounting standards during that relevant period.

Accell Group fully complies with the terms and conditions of the covenants as per 31 December 2016 as well as per 31 December 2015.

The terms and conditions of outstanding interest-bearing bank loans are as follows:

 

The provided securities concern the trade receivables and inventories of the Dutch, German, English and US group companies to the lenders. The provided securities are equal to the sum of the secured bank loans (nominal value), the revolving credit facility and the (net) bank overdrafts held at the syndicate bank totaling to €146.6 million. Accell Group is not allowed to pledge these assets as security for other borrowings or to sell them to another entity as method of raising financial indebtedness.

17.      Defined benefit pension plans and other long-term employee benefits

  

 

Defined benefit plan

Accell Group funds defined benefits for qualifying employees. The main defined benefit plan is the plan in the United Kingdom (UK), which accounts for approximately 92% of the defined benefit obligation and for more than 99% of the plan assets. The UK plan is subject to UK laws and is administered by a separate fund that is legally separated from the UK group company. The trustees of this fund are appointed by the company. Pension benefits are related to the member’s final salary at retirement and their length of service. Since December 2002, the defined benefit section of this pension scheme has been closed to future accrual. On the basis of the deed and rules of the UK plan the company has an unconditional right in the form of refunds when there is a surplus and the fund has no further obligations or in case when there is a surplus at the time when the plan is wound up.

The UK plan exposes the company to actuarial risks such as market risk, interest rate risk and inflation risk. The scheme does not expose the company to any unusual scheme-specific risk. The scheme’s investment strategy is to invest approximately 25% in matching assets (index related UK government bonds gilts and investment property bonds) and approximately 75% in return seeking assets (being diversified growth funds and bond portfolios). This strategy reflects the scheme’s risk profile and the trustees’ and company’s attitude to risks. The returns from the return seeking assets are not achieved solely by direct investment in return seeking assets, but the equity linked bond portfolio allow exposure to equity type returns using futures backed by collateral in the form of index-linked UK government bonds.

In addition, Accell Group sponsors funded defined benefit plans for qualified employees in Taiwan, a fixed unfunded defined benefit plan in Germany and an unfunded defined benefit plan in Hong Kong. The defined benefit plans of Accell Group have no contributions from employees anymore, because the plans are mainly frozen.

The actuarial calculations pursuant to IAS 19 were carried out at 31 December 2016 by actuaries of certified actuarial firms. The principal assumptions used for the purposes of the actuarial valuations are based on the following weighted averages:

Amounts recognized in the income statement in respect of these defined benefit plans are as follows:

Amounts recognized in other comprehensive income in respect of these defined benefit plans are as follows:

 

The defined benefit obligation and fair value of plan assets are specified as follows:

The movement in the present value of the defined benefit obligation is as follows:

 

The movement in the fair value of the plan assets is as follows:

The fair value of the plan assets is categorized as follows:

The fair values of the above equity investments and debt securities are determined based on quoted market prices in active markets. The actual return on plan assets was €9.8 million in 2016 (2015: € 3.4 million).

The average duration of the defined benefit obligation is 16 years as per 31 December 2016 (2015: 16 years).

Significant actuarial assumptions for the determination of the defined benefit obligation are the discount rate and the expected salary increase. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions at the end of the reporting period. In the analyses the interdependence of inputs has not been considered.:

• if the discount rate is 1 % higher, the defined benefit obligation would decrease by € 11.1 million (2015: € 11.1 million);
• if the discount rate is 1 % lower, the defined benefit obligation would increase by € 12.4 million (2015: € 13.5 million);
• if the expected salary growth increases by 1%, the defined benefit obligation would increase by € 0.5 million (2015: € 0.5 million);
• if the expected salary growth decreases by 1%, the defined benefit obligation would decrease by € 0.6 million (2015: € 0.6 million).

The sensitivity analyses are prepared at the end of the reporting period using the same methods as applied in the defined benefit obligation in the balance sheet. The sensitivity analyses may not be representative of the actual change in the defined benefit obligation. It is unlikely that the changes in the assumptions would occur in isolation of one another as some of the assumptions are correlated.

Accell Group expects to make a contribution of € 0.5 million in 2017 with regard to the defined benefit plans.

Other long-term employee benefits

Other long-term employee benefits relate to the provision for future anniversary bonuses and resignation payments in some countries. The provision is based on contractual obligations and assumptions with respect to expectations of death and resignation. Provisions for deferred employee benefits and warranty obligations are expected to have a duration between one and five years.

18.      Share-based payments

Accell Group has a restricted share plan and an option plan.

Restricted share plan

Accell Group has a restricted share plan whereby conditional shares can be granted to the members of the Board of Directors and to directors of subsidiaries who contribute significantly to the result of Accell Group. Both share plans are share-based payments plans with non-vesting conditions. The grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. The conditions have been incorporated into the fair value at grant date by applying a discount to the valuation obtained.

The shares that have been conditionally granted are comprised of the following:

 

The fair value will be charged to the income statement according to the straight-line method spread over the period between grant date and the time that the shares become unconditional, whereby adjustment will be made for the expected number of shares to be distributed.

Option plan

The Supervisory Board awards options to the directors based on the realization of targets set in agreement with the Board of Directors and the expected contribution that the members of the Board of Directors will make to the further development of the company. After granting, the stock options are unconditional.

Below an overview is provided on the number and movement in stock option entitlements:

The options granted are specified in note 26 Related parties. Only the options granted in 2011 are exercisable at 31 December 2016.

The fair value of the employee share options has been measured using an option valuation model (Black-Scholes-Merton). Service and non-market performance conditions attached to the transactions were not taken into account in measuring fair value.

The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows:

 

Expected volatility has been based on an evaluation of the historical volatility of the Accell Group N.V.’s share price, particularly over the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder behavior.

The reconciliation to personnel expenses is as follows:

 

In the event of full exercise of the option entitlements granted to date and the vesting of the conditional shares the number of issued shares would increase by 0.6%. According to company policy, the options and shares granted are not covered by the company’s purchase of its own shares. In case of equity-settlement new shares are issued by the company at the moment options are exercised.

19.     Deferred taxes

Deferred taxes comprise the following:

 

The movement in the deferred tax assets and deferred tax liabilities is as follows:

 

At 31 December 2016 deferred tax assets are recognized in respect of carry forward losses of € 3.1 million (2015: € 6.7 million) and temporary differences of € 4.0 million (2015: € 2.0 million). Accell Group’s projections support the assumption that it is probable that sufficient future taxable profits will be available to realize the related tax benefits. For North-America these projections include the change in strategy and the sales and distribution of other bicycle brands of Accell Group into the North-American market as well as tax planning.

For some subsidiaries Accell Group has insufficient assurance that future taxable profits will be available to realize the related tax benefits of carry forward losses of € 78.9 million (€ 61.1 million). As a result no deferred tax assets are recognized for these carry forward losses. These unused carry forward losses are carry forward losses in North-America and the United Kingdom and partially relate to the global results of the Raleigh group before the acquisition by Accell Group in 2012. The carry forward period of these unused tax benefits is limited for € 42.5 million (1 – 20 years) and indefinite for 36.4 million.

20.     Provisions

Warranty provisions represent the estimated costs under warranty obligations for goods delivered and services rendered as at balance sheet date. The provision is based on estimates using historical warranty information. The provision for warranty obligations are expected to have a duration between one and five years. Other provisions mainly relate to a customs claim, an environmental provision and a number of small provisions with a duration of less than one year.

 

21.      Deferred income

Deferred income consists of receipts in respect of extended warranty to be realized in the coming five years.

22.      Financiële instrumenten - reële waarden en risicobeheer

A. Accounting classification and fair values

The following table shows the carrying amount and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

 

B. Measurement of fair values

i. Valuation techniques

The fair value of the other financial instruments is determined on the basis of other inputs than quoted rates/prices that are observable (level 2). For the determination generally accepted valuation methods are used. The determined value in this way is equal to the price at which the derivative can be sold in a transparent market.

Forward exchange contracts

Forward pricing is used a valuation technique. The fair value is determined using quoted forward exchange rates at the reporting date and present value calculations based on high credit quality yield curves in the respective currencies.

Interest rate swaps

Swap models were used as valuation technique. The fair value is calculated as the present value of the estimated future cash flows. Estimates of the future floating rate cash flows are based on quoted swap rates, futures prices and interbank borrowing rates. Estimated cash flows are discounted using a yield curve constructed from similar sources which reflects the relevant benchmark interbank rate used by market participants for this purpose when pricing interest rate swaps. The fair value estimate is subject to a credit risk adjustment that reflects the credit risk of Accell Group and of the counterparty.

Other financial liabilities

Discounted cash flows are used as valuation technique. The valuation model considers the present value of expected payment, discounted using a risk-adjusted discount rate.

 

ii. Transfers between Level 1 and 2

There were no transfers from Level 1 to Level 2 or from Level 2 to Level 1 in 2016 (and 2015).

 

C. Financial risk management

Accell Group has exposure to the following risks arising from financial instruments:

1. credit risk;
2. liquidity risk;
3. market risk.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of Accell Group’s risk management framework. Accell Group’s risk management policies are established to identify and analyze the risks faced by Accell  Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and Accell Group’s activities. Accell Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit Committee oversees how management monitors compliance with Accell Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by Accell Group. Accell Group's Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures; the results are reported to the Audit Committee.

i. Credit risk

Credit risk is the risk of financial loss to Accell Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from Accell Group’s receivables from customers. The carrying amount of financial assets represents the maximum credit exposure.

Trade and other receivables

Accell Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and country in which customers operate. Further details of concentration of revenue are included in note 1. There is no significant concentration of credit risks within Accell Group, as Accell Group has a large number of customers. No customers comprise 10% or more of the turnover.

Accell Group has established a credit policy under which sales to large customers must be insured with an external credit insurance company. Smaller customers are analyzed individually for creditworthiness before Accell Group's standard payment and delivery terms and conditions are offered and a credit limit is established. Any sales exceeding those limits require approval of the Board of Directors.

In general goods are sold subject to retention of title clauses, so that in the event of non-payment Accell Group may have a secured claim. Accell Group does not otherwise require collateral in respect of trade and other receivables.

Accell Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.

At 31 December 2016, the ageing of trade receivables that were not impaired was as follows:

 

Accell Group has agreed various specific and, to a limited extent, individual terms of payment with its customers that differ depending on the nature of the goods delivered and that can also differ per country. Due to the seasonal nature of the activities, customers are offered so-called winter terms, whereby the customer can opt for an extra payments discount or a longer payment period. This is customary in the business.

Management believes that the unimpaired amounts that are past due days are still collectible in full, based on historic payment behavior and extensive analysis of customer credit risk, including underlying customers’ credit ratings if they are available.

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

At 31 December 2016, there is an impairment loss of € 1.6 million related to two multi-sport chains in North-America that were declared bankrupt during the year. Although the goods sold to the customer were subject to a retention of title clause, Accell Group has no indication that the customer is still in possession of the goods. The remainder of the impairment loss at 31 December 2016 relate to several customers that have indicated that they are not expecting to be able to pay their outstanding balances, mainly due to economic circumstances.

Cash and cash equivalents

Accell Group held cash and cash equivalents of € 49,421 thousand at 31 December 2016 (2015: € 172,479 thousand). The cash and cash equivalents are held with bank and financial institution counterparties, which are rated B+ to AA-, based on S&P ratings.

Derivatives

The derivatives are entered into with bank and financial institution counterparties, which are rated BB to A, based on S&P ratings.

Guarantees

Accell Group’s policy is to provide financial guarantees only to subsidiaries. At 31 December 2016, Accell Group has issued a guarantee to the trustees of the UK defined benefit plan a group guarantee, whereby in case of a bankruptcy of the UK subsidiary, Accell Group will guarantee possible deficits in the UK scheme to a maximum amount of £ 8.7 million. Furthermore Accell Group has issued a rental guarantee, whereby in case of a bankruptcy of the Dutch subsidiary, Accell Group will guarantee possible lease payments to a maximum amount of € 4.0 million.

ii. Liquidity risk

Liquidity risk is the risk that Accell Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. Accell Group’s approach to managing liquidity is to ensure, as far as possible and taking into account the seasonal nature of its business, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Accell Group’s reputation.

In the funding of Accell Group, a distinction is made between long-term (core) funding and the seasonal credit facility. The solvency and liquidity of Accell Group are ensured all times by rolling liquidity planning and a liquidity reserve in form of cash and cash equivalents and €225 million revolving credit facility that is secured. Interest would be payable at the rate of Euribor plus 100-180 basis points.

Exposure to liquidity risk

The following are the remaining contractual maturities of the non-derivative financial liabilities and the derivative financial assets and liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments on interest-bearing loans and excluding the impact of netting agreements:

 

The inflows/(outflows) disclosed in the above table represent the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes and which are not usually closed out before contractual maturity. The disclosure shows net cash flow amounts for derivatives that are net cash-settled.

As disclosed in note 16. Interest-bearing loans, Accell Group has a secured bank loan that contains a loan covenant. A future breach of covenant may require Accell Group to repay the loan earlier than indicated in the above table. The interest payments on variable interest rate loans in the table above reflect market forward interest rates at the reporting date and these amounts may change as market interest rates change. Except for these financial liabilities, it is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

iii. Market risk

Market risk is the risk that changes in market prices – such as foreign exchange rates and interest rates – will affect Accell Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

Accell Group uses derivatives to manage market risks. All such transactions are carried out within the guidelines set by the Board of Directors. Generally, Accell Group seeks to apply hedge accounting to manage volatility in profit or loss.

Currency risk

Accell Group is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales, purchases and borrowings are denominated and the respective functional currencies of Group companies. The functional currencies of Group companies are primarily the euro (EUR) and the US Dollar (USD). The currencies in which these transactions are primarily denominated are EUR, USD, JPY, TWD, GBP and CNY.

At any point in time, Accell Group hedges 80% of its estimated foreign currency exposure in respect of forecast sales and purchases over the season (July-June). Accell Group uses forward exchange contracts to hedge its currency risk, all with a maturity of less than one year from the reporting date. Such contracts are generally designated as cash flow hedges.

Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of Accell Group, primarily EUR, but also USD and GBP. In addition, interest on borrowings is denominated in the currency of the borrowing. This provides an economic hedge without derivatives being entered into and therefore hedge accounting is not applied in these circumstances.

In respect of other monetary assets and liabilities denominated in foreign currencies, Accell Group’s policy is to ensure that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

Accell Group’s investments in subsidiaries are not hedged.

Interest rate risk

Accell Group adopts a policy of ensuring that the interest rate risk exposure of its interest-bearing secured bank loans and part of its revolving credit facility is at fixed rate. This is achieved by borrowing at a float rate and using interest rate swaps as hedges of the variability in cash flows attributable to interest rate risk.

The interest rate risk exposure of the other interest-bearing financial instruments (cash and cash equivalents, bank overdrafts and the remainder of revolving credit facility) is at a float rate.

Sensitivity analysis

A reasonably possible strengthening (weakening) of the USD, JPY and TWD against all other currencies at 31 December would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

A reasonably possible change of 100 basis points in interest rates at the reporting date would have affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant.

 

D. Derivative assets and liabilities designated as cash flow hedges

The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur and the carrying amounts of the related hedging instruments.

 

E. Capital management

There were no major changes in Accell Group's approach to capital management during the year. The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital as well as the level of dividends to ordinary shareholders.

In order to achieve this overall objective, the Accell Group’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current period.

23.      Dividend

The dividend in respect of financial year 2015 was determined at € 0.72 per share or as stock dividend during the General Meeting of Shareholders of 26 April 2016. After the period in which shareholders could report their preference, 52% of the shareholders opted for the stock dividend. On 18 May 2016 € 8,793,000 was distributed as cash dividend and 536,296 shares were issued as stock dividend and added to issued share capital.

The Board of Director proposes to make available to the shareholders a dividend with stock option of € 0.72 per share with respect to the current year. The dividend proposal is subject to approval by the General Meeting of Shareholders on 25 April 2017 and is not reflected as a liability in these financial statements.

24.      Off-balance sheet commitments

The total off-balance sheet commitments consist of:

Accell Group has financial commitments arising from operational lease agreements on land and buildings,  IT equipment, machinery and cars for use in de ordinary course of business. The other off-balance sheet commitments include among other financial commitments in respect of marketing and merchandising.

Next to the guarantees as disclosed in note 22 Financial instruments - fair values and risk management Accell Group holds no contingent assets or contingent liabilities. 

25.      Related parties

 

Identification of related parties

Accell Group has related party relationships with its associates and joint ventures (refer to note 11. Subsidiaries) and with the Board of Directors and Supervisory Board. 

Remuneration of the Board of Directors and the Supervisory Board

Board of Directors

The remuneration of the individual members of the Board of Directors is as follows:

 

The company’s remuneration policy is reflected in the remuneration report that has been presented to the General Meeting of Shareholders for approval. The bonuses reflected in the financial statements relate to the financial year and depend on the targets set by the Supervisory Board. For 2016 a bonus varying between 28% and 30% of the salary has been paid out.

The stock option entitlements that have been granted comprise of the following: 

At the end of 2016 Mr. Takens holds 110,338 shares, Mr. Sybesma holds 10,000 shares and Mr. Snijders Blok holds 32,343 shares and Mr. Both holds 750 shares.

Supervisory Board

The remuneration of the individual members of the Supervisory Board is as follows:

 

Associates and joint ventures

The transactions during the financial year and balances outstanding at year-end between group companies and associates and joint ventures are presented below:

 

The amounts outstanding are not provided for and will be settled in cash and cash equivalents. No guarantees have been given or received. No expense has been recognized for bad or doubtful debts in respect of the amounts owed by related parties. All sales and purchases are prices on an arm’s length basis. Transactions and balances between Accell Group and its non-consolidated companies have not been eliminated for consolidation purposes.

26.      Auditor fees

The total costs for the services rendered by KPMG Accountants N.V. consist of: