5. Effects of new accounting standards

Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures

The aim of the amendments, which were published in October 2017, is to clarify that an entity must apply IFRS 9 Financial Instruments to all long-term interests in an associate or joint venture, irrespective of the accounting method. The EU enacted this clarification in its legislation with Commission Regulation (EU) 2019/237 dated 8 February 2019. The amendments take effect for reporting periods that begin on or after 1 January 2019. Early adoption is permitted.

IFRS 16 Leases

The IASB published IFRS 16 Leases in January 2016. This standard supersedes the previously valid IAS 17 Leases and introduces significant accounting changes for lessees. In general, all leases are now to be recognised as rights of use for accounting purposes. Under IFRS 16, lessors will continue to classify leases as operating or finance in line with IAS 17. The new rules aim to help improve the transparency of financial reporting and break down existing information imbalances. The EU enacted this standard in its legislation with Commission Regulation (EU) 2017/1986 dated 31 October 2017. The effective date is 1 January 2019.

The HHLA Group will apply the standard for the financial year beginning on 1 January 2019 using the modified retrospective approach. With this method, the comparative prior-year figures are not adjusted; changeover effects must therefore be recognised as adjustments to revenue reserves as of 1 January 2019. As part of the modified retrospective approach, an incremental borrowing rate as of 1 January 2019 has been used to calculate the lease liability.

In respect of many of the contracts, HHLA will recognise the usage rights for leased assets in the amount of the corresponding lease liabilities at first-time application, meaning that no equity effects will arise at this time. Due to their material importance, usage rights for rental agreements for space at the Port of Hamburg, which were previously recognised as operating leases, will be recognised at their carrying amounts, as though IFRS 16 had applied since the start of the lease. This results in significant changeover effects as of 1 January 2019, which are shown as adjustments to revenue reserves.

As a lessee, HHLA takes the opportunity not to recognise usage rights and lease liabilities for short-term leases or leases where the underlying asset is of low value. For these leases, lease payments are recorded as expenses instead.

The new lease standard was implemented via a Group-wide project.

Balance sheet total and equity ratio

The increase in the balance sheet total triggered by the new rules of IFRS 16 will be largely prompted by capitalising the right of use. On the liabilities side, this is countered by the adjustments to revenue reserves and the recognition of the leasing liability. On the basis of the contracts currently concluded and what is still a provisional valuation, the HHLA Group expects the balance sheet total to increase by approx. € 0.6 billion as of 1 January 2019.

Given this increased balance sheet total and taking into account the changeover effects in equity, the current status of contracts will lead to a reduction in the equity ratio in the upper single-digit range as of 1 January 2019.

Income statement

Until now, expenses from operating leases had always been recognised under other operating expenses on the income statement. In future, however, depreciation and amortisation on the right of use and interest expenses will be shown for the lease liability.

In the 2019 financial year, this change in terms of recognition will result in an increase in EBIT in the mid-single-digit percent range as compared with the 2018 financial year.

Cash flow statement

In the cash flow statement, there will be a shift between cash flow from operating activities and cash flow from financing activities. While EBIT and thus operating cash flow will increase, the capital outflows from financing activities will also rise because higher redemptions of lease liabilities will have to be accounted for.

Amendments to IFRS 9 Prepayment Features with Negative Compensation

The IASB published these amendments to IFRS 9 in October 2017. They are designed to facilitate measurement at amortised cost/at fair value through other comprehensive income even for financial assets that do not meet the SPPI criterion. These relate to financial assets with prepayment features that involve one party receiving or paying appropriate compensation in the event of termination (appropriate negative fee). The EU enacted this standard in its legislation with Commission Regulation (EU) 2018/498 dated 22 March 2018. The amendments are to apply to financial years beginning on or after 1 January 2019. Early adoption is permitted.

IFRIC 23 Accounting for Uncertainties in Income Taxes

The interpretation published in June 2017 clarifies the accounting treatment of uncertainties relating to income tax treatment under IAS 12. The interpretation is to be applied to taxable profit (tax loss), unused tax losses, unused tax credits and tax rates. The EU enacted this standard in its legislation with Commission Regulation (EU) 2018/1595 dated 23 October 2018. The provisions will come into force for financial years starting on 1 January 2019. Early adoption is permitted.

Amendments to IAS 1 and IAS 8 Definition of Materiality

In October 2018, the IASB published amendments with regard to the definition of the materiality of information in financial statements in IAS 1 Presentation of Financial Statements and in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. With these changes, a consistent and precisely defined understanding of the materiality of information in financial statements has been created and supplemented with examples. The amendments are to be observed as of 1 January 2020. Early adoption is permitted.

Amendments to IAS 19 Plan Amendment, Curtailment or Settlement

In accordance with IAS 19, pension obligations are to be measured based on updated assumptions in the event of a plan amendment, curtailment or settlement. This amendment clarifies that, after such an event, the past service cost and net interest for the remainder of the period must be taken into account based on updated assumptions.

The amendments are to be applied with effect from 1 January 2019. Early adoption is permitted.

Amendments to IFRS 3 Definition of a Business

In October 2018, the IASB published an amendment to IFRS 3 Business Combinations with regard to the definition of a business. With this amendment, the IASB clarifies that a business consists of a group of activities and assets that covers at least one resource input and a substantial process that, together, result in output. Furthermore, with regard to performance (output), the definition is narrowed to focus on goods and services provided to customers and excludes the reference to cost reductions. The new provisions also include an optional “concentration test”, which aims to facilitate the identification of a business. The amendment is applicable to business combinations where the date of acquisition is either on or after 1 January 2020. Early adoption is permitted.

Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The IASB approved amendments to IFRS 10 consolidated financial statements and IAS 28 Investments in Associates and Joint Ventures in September 2014. These clarify how unrealised gains from transactions between an investor and a joint venture or an associate should be reported. The EFRAG announced in February 2015 that the process of endorsing these amendments had been suspended for the time being because inconsistencies had been identified between the amended standard and the existing IAS 28. The effective date – previously 1 January 2016 – has been postponed indefinitely until the inconsistencies have been resolved.

Amendments to References to the Conceptual Framework in IFRS standards

In March 2018, the IASB published its revised conceptual framework for financial reporting. The revised version contains extensive amendments to the earlier conceptual framework. The standards affected by the amendments are IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22 and SIC-32. Amendments to the references within the IFRS listed above are particularly affected by the endorsement process, which has an editorial character. The endorsement is not expected to have any effect on the consolidated financial statements.

Improvements to IFRS 2015–2017 Cycle

These clarifications were published in December 2017 and apply to four standards.

Based on the amendments to IFRS 3 Business Combinations, the principles governing successive business combinations are to be applied when an entity obtains control over a business operation in which it previously held an interest as part of a joint operation.

Based on the amendments to IFRS 11 Joint Arrangements, a company does not remeasure its previously held interest in a joint operation when it obtains joint control of the business.

The amendments to IAS 12 Income Taxes deal with the income tax consequences of dividend payments.

The amendments to IAS 23 Borrowing Costs clarify that, in connection with the calculation of the capitalisation rate, the cost associated with debt taken out specifically in connection with the acquisition of the qualifying assets is not to be included until the asset is completed if a company has generally borrowed funds to purchase qualifying assets.

The amendments are to be applied with effect from 1 January 2019. Early adoption is permitted.

Amendments to IFRS 4

Insurance Contracts

IFRS 17

Insurance Contracts