6. Accounting and valuation principles

The annual financial statements of the companies included in the consolidated financial statements are based on uniform accounting and valuation principles. Specifically, the following accounting and valuation principles have been applied.

Intangible assets

Intangible assets are capitalised where the assets are identifiable, a future inflow of benefits can be expected and the acquisition and production costs can be ascertained reliably. Intangible assets acquired in return for payment are recognised at acquisition cost. Intangible assets with a finite useful life are amortised over their economic life. The Group reviews the underlying amortisation methods and the useful lives of its intangible assets with a finite useful life as of each balance sheet date.

Intangible assets with an indefinite useful life are subjected to an impairment test at least once a year. If necessary, value adjustments are made in line with future expectations. In the reporting period, there were no intangible assets with an indefinite useful life, with the exception of derivative goodwill.

Internally generated intangible assets are recognised at the costs incurred in their development phase, between the time when technological and economic feasibility is determined and production. Costs include all directly attributable costs incurred during the development phase.

The capitalised amount of development costs is subject to an impairment test at least once per year if the asset is not yet in use, or if there is evidence of impairment in the course of the year.

Property, plant and equipment

Property, plant and equipment is reported at cost less accumulated depreciation, amortisation and impairment losses. The costs of ongoing maintenance are recognised immediately in profit and loss. The production costs include specific expenses and appropriate portions of attributable production overheads. Demolition obligations are included in the acquisition or production costs at the present value of the obligation as of the time when it arises, with an equivalent provision recognised at the same time. The HHLA Group does not use the revaluation method of accounting. The carrying amounts for property, plant and equipment are tested for impairment if there is evidence that the carrying amount of an asset exceeds its recoverable amount.

Depreciation is carried out on a straight-line basis over an asset’s economic life.

The following table shows the principal useful lives which are assumed:

Land has an indefinite useful life. It is only subject to unscheduled value adjustments as necessary.

Borrowing costs

According to IAS 23, borrowing costs which can be directly attributed to the acquisition or production of a qualifying asset are capitalised as a component of the acquisition or production cost of the asset in question. Borrowing costs which cannot be directly attributed to a qualifying asset are recognised as an expense at the time they are incurred.

Investment property

Investment property consists of buildings held for the purpose of generating rental income or for capital gain, and not for supplying goods or services, for administrative purposes or for sale as part of normal business operations.

IAS 40 stipulates that investment property be held at cost less accumulated depreciation and impairment losses. Subsequent expenses are capitalised if they result in an increase in the investment property’s value in use. The useful lives applied are the same as those for property, plant and equipment used by the Group.

The fair values of these properties are disclosed separately in Note 24.

The carrying amounts for investment property are tested for impairment if there is evidence that the carrying amount of an asset exceeds its recoverable amount.

Impairment of assets

As of each balance sheet date, the Group determines whether there are any indications that an asset may be impaired. If there are such indications, or if an annual impairment test is required (as in the case of goodwill), the Group estimates the recoverable amount. This is ascertained as the higher of the fair values of the asset less selling costs and its value in use. The recoverable amount must be determined for each asset individually unless the asset does not generate cash inflows which are largely independent of those generated by other assets or groups of assets. In this case, the recoverable amount of the smallest cash-generating unit (CGU) must be determined. If the carrying amount of an asset exceeds its recoverable amount, the asset is deemed to be impaired and is written down to its recoverable amount. At HHLA, the recoverable amount is generally calculated based on the fair value less selling costs of the cash-generating unit or asset, thereby applying the discounted cash flow method. This involves discounting estimated future cash flows to their present value using a discount rate after tax which reflects current market expectations of the interest curve and the specific risks of the asset.

The following table shows the discount rate for each cash-generating unit:

The cash flow forecasts in the Group’s current plans, which are usually for the next five years, are used to determine future cash flows. If new information is available when the financial statements are produced, this will be taken into account. A growth factor of 1.0 % (previous year: 1.0 %) was applied in the reporting year. When forecasting cash flows, the Group takes account of future market and sector expectations as well as past experience in its planning. Cash flows are primarily determined on the basis of anticipated volumes and income along with the cost structure arising from the level of capacity utilisation achieved and the technology used.

Having reviewed whether there could be indications of an impairment of assets, the picture for individual CGUs was as follows:

As the company’s earnings development was below the original expectations at the time of its acquisition, primarily as a result of the Russia-Ukraine war, the management performed a supplementary impairment test on the assets of CL EUROPORT Sp. Z o.o., based in Malaszewicze, Poland (CGU EUROPORT) as of 31 December 2022. Based on current planning, there is no need to recognise an impairment loss; the recoverable amount is sufficiently higher than the carrying amount for valuation purposes. An interest rate of 7.2 % was applied for the impairment test.

As of the measurement date of 31 December 2021, a recoverable amount for the cash-generating unit HHLA PLT Italy S.r.l., Trieste, Italy (CGU PLT) was calculated as part of the annual testing of goodwill. This amount was approximately € 3.1 million higher than the carrying amount for valuation purposes. As the recoverable amount was close to the carrying amount, the management considered it possible as of the measurement date of 31 December 2021 that there could be a change in material assumptions which would lead to the carrying amount exceeding the recoverable amount. A change that would have led to parity between the recoverable amount and the carrying amount would have been an increase of 0.15 pp in the discount rate.

As of the measurement date of 30 June 2022, an increase in the discount rate from 7.0 to 8.0 % was observed. The management thus regarded this increase as indicative of the need to conduct an impairment test for the CGU PLT as of the measurement date of 30 June 2022. The estimate of cash flows in the detailed planning period was updated on the basis of new information. With an unchanged growth factor of 1.0 %, the recoverable amount as of 30 June 2022 was still approximately € 0.9 million higher than the carrying amount for valuation purposes. As the recoverable amount was close to the carrying amount for valuation purposes, even a marginal change in the valuation parameters would have led to parity between the recoverable amount and the carrying amount for valuation purposes.

As of the measurement date of 31 December 2022 and as part of the annual review of goodwill for the CGU PLT, the recoverable amount was calculated as the fair value less costs of sale using the discounted cash flow method. The discount rate after tax is 8.7 %. Based on the estimate used, the recoverable amount for the CGU PLT is approximately € 9.1 million higher than the carrying amount for valuation purposes. As the recoverable amount is close to the carrying amount, the management considers it possible that there could be a change in material assumptions which would lead to the carrying amount exceeding the recoverable amount.

The overview below shows the necessary change in the various material valuation parameters which would lead to the recoverable amount being the same as the carrying amount.

Due to the Russia-Ukraine war, the management conducted an impairment test of the assets of SC Container Terminal Odessa in Odessa, Ukraine (CGU CTO), as of 30 June 2022. For this purpose, the management developed scenarios based on the original planning. These scenarios assumed the continued existence of the container terminal. For both scenarios, it was assumed that seaborne container handling would not resume in 2022. As for the subsequent years, one scenario envisaged a medium-term recovery and a return to the original volumes planned before the Russia-Ukraine war; the other scenario envisaged a recovery in the short term. Both scenarios envisaged the upper and lower points of possible developments based on the information at the time; for this reason, they were taken as equally probable for the impairment test. The weighted cash flows were discounted at a rate of 10.9 %. Based on the impairment test, the recoverable amount was approximately € 8 million higher than the carrying amount for valuation purposes. An increase in the discount rate of around 1.2 percentage points would have led to parity between the recoverable amount and the carrying amount for valuation purposes. The management performed another impairment test on the company’s assets as of 31 December 2022. Current planning is based on a resumption of seaborne container handling in the short term, which in the years ahead will be followed by recovery and a return to the volumes originally expected before the Russia-Ukraine war. Another scenario developed assumes a delayed resumption of seaborne container handling and a subsequent recovery. The current planning and the additional scenario envisage the upper and lower points of possible developments based on current information; for this reason, they were taken as equally probable for the impairment test. The weighted cash flows were discounted at a rate of 13.8 %. Based on the assumptions described, there is no need to recognise an impairment loss; the recoverable amount is sufficiently higher than the carrying amount for valuation purposes.

For Bionic Production GmbH, Lüneburg (CGU Bionic), the recoverable amount was calculated as the fair value of the intangible assets and property, plant and equipment as of 30 June 2022. This resulted in an impairment of around € 4 million. The company was deconsolidated as of 21 October 2022; see Note 3.

On each reporting date, an assessment is made as to whether an impairment loss recognised in prior periods either no longer exists or has decreased. If there are such indications, the recoverable amount is estimated. Where there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognised, previously recognised impairment losses are reversed. In this case, the carrying amount of the asset is raised to its recoverable amount. This higher carrying amount may not exceed the amount which would have been determined, less depreciation or amortisation, had no impairment losses been recognised in prior years. Any such reversals must be recognised immediately in profit and loss for the period. Following a reversal, the amount of depreciation or amortisation must be adjusted in subsequent periods in order systematically to write down the adjusted carrying amount of the asset, less any residual value, over its remaining useful life.

Impairment losses on goodwill are not reversed.

Financial assets

Depending on the business model under which significant amounts of assets are held, and depending on the composition of related payment flows, financial assets are classified at amortised cost, at fair value through other comprehensive income or at fair value through profit and loss.

Business models

IFRS 9 distinguishes between three kinds of business model:

HOLD TO COLLECT

The objective of this business model is to hold debt instruments, generate contractual cash flows (e. g. interest income) and, upon maturity, collect the nominal value. In this business model, subsequent measurement is performed at amortised cost, applying the effective interest rate method.

HOLD TO COLLECT AND SELL

If debt instruments are held under this business model, the objective is to collect contractual cash flows or sell the debt instruments. The debt instruments are measured at fair value, with market value fluctuations recorded in equity.

HOLD FOR TRADING

If debt instruments are held primarily to generate short-term price gains, they are assigned to this business model. This category includes financial assets that do not meet the requirements of the two business models outlined above. Consequently, the debt instruments are measured at fair value through profit and loss.

Nature of payment flows

Alongside the business model, the nature of the contractual cash flows is material. If these are not solely comprised of interest and repayments – and thus reflect not only the fair value of the cash and the credit risk of the counterparty – the debt instruments concerned are measured at fair value through profit and loss. These debt instruments are automatically assigned to the “Hold for trading” business model.

Classification of financial assets

The following table shows the financial assets recognised by HHLA and their assigned business models on which the corresponding measurement categories are based. The cash flows of all the financial assets belonging to the “Hold to collect” and “Hold to collect and sell” business models are solely comprised of interest and repayments.

Impairment of financial assets

Pursuant to IFRS 9, losses will be recorded not only once they occur but also when they are expected, depending on whether the default risk of financial assets has worsened significantly since their acquisition. If there is a significant deterioration and the default risk is not classified as “low” on the balance sheet date, all expected losses over the entire term will be recorded from this point. Otherwise, it is only necessary to take account of the expected losses over the term of the instrument that result from potential future loss events within the next twelve months.

Exceptions apply in respect of trade receivables and leasing receivables. For these assets, all expected losses over the entire term must (if they do not contain any significant financing components) or may (if they do contain significant financing components) be taken into account, regardless of the change in the default risk.

On each balance sheet date, the Group determines whether a financial asset or a portfolio is impaired. For a detailed description of this method, please see Note 47.

Inventories

Inventories include raw materials, consumables and supplies, work in progress, finished products and merchandise. They are initially recognised at acquisition or production cost. Measurement at the balance sheet date is made at the lower of cost and net realisable value. Standard sequences of consumption procedures are not used for valuation. Work in progress is performed over a period stipulated in the relevant contract. Input-based methods are used to determine the level of progress. As such, HHLA recognises revenues on the basis of the endeavours or inputs of the company to fulfil its performance obligation (e. g. hours worked or costs incurred) in relation to the total inputs expected to fulfil this performance obligation. HHLA only recognises the income of a performance obligation fulfilled over a certain period of time where progress towards complete fulfilment of the performance obligation can be deemed appropriate.

Financial liabilities

In principle, financial liabilities are to be classified by measurement category. As soon as HHLA becomes a contracting party, financial liabilities must be recognised. The liability is measured at fair value at the time of acquisition, with acquisition costs constituting the most suitable valuation benchmark. Subsequent measurement of financial liabilities is performed at amortised cost, applying the effective interest rate method. A liability is derecognised as a result of repayment, buy-back or debt relief.

If the company can be obliged to buy back the shares of shareholders outside the Group on the basis of written put options, the potential purchase price liability is measured at the present value of the exercise price of the put option on the balance date in accordance with the contractual regulations, and recognised in financial liabilities. A reserve of the same amount is recognised in equity.

Provisions

A provision is formed if the Group has a present (legal or factual) obligation arising from past events, settlement of which is likely to result in an outflow of resources embodying economic benefits, and if the amount required to settle the obligation can be estimated reliably. The provision is formed for the amount expected to be necessary to settle the obligation, including future increases in prices and costs. If the Group anticipates at least a partial reimbursement of an amount made as a provision (e. g. in the case of an insurance contract), the reimbursement is recognised as a separate asset only if it is virtually certain. The expenses arising from recognising the provision are disclosed in the income statement after the reimbursement has been deducted. If the interest effect is substantial, non-current provisions are discounted before tax at an interest rate which reflects the specific risks associated with the liability. In the event of discounting, the increase in the amount of the provision over time is recognised under interest expenses.

Pensions and other post-employment benefits

Pension obligations

Pensions and similar obligations include the Group’s benefit obligations under defined benefit obligations. Provisions for pension obligations are calculated in accordance with IAS 19 (revised 2011) using the projected unit credit method. Actuarial gains and losses are taken directly to equity and recognised in other comprehensive income, after accounting for deferred taxes. Service cost affecting net income is recognised in personnel expenses, with the interest proportion of the addition to provisions recognised in the financial result.

Actuarial opinions are commissioned annually to measure pension obligations.

Phased early retirement obligations

The compensation to be paid in the release phase of the “block model” is recognised as provisions for phased early retirement (pro rata over the working period over which the entitlements accrue). Since 1 January 2013 and in accordance with IAS 19 (revised 2011), provisions for supplementary amounts have only been accrued pro rata over the required service period, which regularly ends when the passive phase begins.

Actuarial opinions are commissioned annually to measure compensation obligations in the release phase of the block model as well as supplementary amounts.

If payment obligations do not become payable until after twelve months’ time because of entitlements in the block model or in supplementary amounts, they are recognised at their present value.

Leases

A lease is a contract that entitles one party to use an identifiable asset of the other party for a certain period of time in exchange for payment of a fee.

As the lessee

Pursuant to IFRS 16, the Group generally recognises assets for the usage rights of the leased assets, and liabilities for the payment obligations entered into, for all leases on the balance sheet at their present value. The lessee makes the following payments over the course of the usage period for the leased asset:

• Fixed payments without lease incentives
• Variable lease payments that are pegged to an index or interest rate
• Anticipated residual value payments from residual value guarantees
• The exercise price of a purchase option, provided exercise thereof is deemed sufficiently certain
• Compensation payments incurred where the lessee exercises a termination option

Lease payments are discounted using the interest rate on which the lease is based, insofar as this rate can be determined. Otherwise, the incremental borrowing rate of the lessee (HHLA Group) will be included in the discounting.

During initial measurement, rights of use are valued at cost on the date of provision.

This includes:

• the amount arising from initial measurement of the lease liability;
• lease payments made at the time of, or prior to, provision, less any lease incentives received;
• any initial direct costs incurred by the lessee; and
• costs arising from demolition obligations.

Subsequent measurement are based on amortised cost. Amortisation on rights of use is recognised on a straight-line basis over the expected useful life or the term of the lease agreement, whichever is the shorter. Lease liabilities are carried at their carrying amount using the effective interest rate method.

Lease payments arising from short-term leases, leases for low-value assets and variable lease payments are recognised on a straight-line accrual basis as an expense on the income statement.

As the lessor

The HHLA Group lets properties in and around the Port of Hamburg as well as office properties, warehouses and other commercial space. Rental contracts are classified as operating leases, as the main risks and potential rewards of the properties remain with the Group. Properties are therefore held as investment properties at amortised cost.

Rental income from investment properties is recognised on a straight-line basis over the term of the leases.

Recognition of income and expenses

Income is recognised when it is probable that the economic benefit will flow to the Group and the amount of income can be determined reliably. The following criteria must also be met for income to be recognised:

Provision of services

Income from services is recognised according to the extent to which the service has been provided over time or, if not applicable, at a given point in time. If recorded over time, the extent to which the service has been provided is determined by the number of hours worked as of the balance sheet date, as a percentage of the total number of hours estimated for the project. If the result of a service transaction cannot be estimated reliably, income is recognised only to the extent that the expenses incurred are eligible for reimbursement. For a detailed description of the provision of services in the respective segments, please see Note 44.

Sale of goods and merchandise

A five-step model – in which the contract with a customer, the performance obligation and the transaction price are identified – is used to determine the time and amount at which revenue is to be recorded pursuant to IFRS 15. The model stipulates that revenue is to be recorded at the time control over goods or services passes from the company to the buyer, and at the amount to which the company can expected to be entitled (acquisition of power of disposal). The HHLA Group only engages in the sale of goods and merchandise on a small scale.

Interest

Interest income and interest expenses are recognised when accrued or incurred.

Dividends

Income from dividends is recognised in profit and loss when the Group has a legal right to payment. This does not apply to dividends distributed by companies accounted for using the equity method.

Income and expenses

Operating expenses are recognised in profit or loss when the service is rendered or the expense is incurred. Income and expenses resulting from identical transactions or events are recognised in the same period. Rental expenses are recognised on a straight-line basis over the lease term.

Government grants

Government grants are recognised when there is reasonable certainty that they will be granted and the company fulfils the necessary conditions. Grants paid as reimbursement for expenses are recognised as income over the period necessary to offset them against the expenses for which they are intended to compensate. If grants relate to an asset, they are generally deducted from the asset’s cost of purchase and recognised in profit and loss on a straight-line basis by reducing the depreciation for the asset over its useful life. The conditions for the subsidies include obligations to operate subsidised equipment for a retention period of five to 20 years, observe certain operating criteria and provide the subsidising body with evidence for the use of the funds. 

There is sufficient certainty that all the conditions have been or will be fulfilled for the government grants totalling € 63,729 thousand which were paid to the HHLA Group between 2001 and 2022. These grants have been deducted from the cost of purchasing the subsidised investments. The HHLA Group received € 1,536 thousand in government grants in the reporting year.

Taxes

Current claims for tax rebates and tax liabilities

Current claims for tax rebates and tax liabilities for the financial year and prior periods are measured at the amount for which a rebate is expected from, or payment must be made to, the tax authorities. The tax rates and tax legislation in force as of the balance sheet date are used to determine the amount.

Deferred taxes

Deferred taxes are recognised by applying the balance sheet liabilities method to all temporary differences as of the reporting date between the carrying amount of an asset or liability in the balance sheet and the amount for tax purposes, as well as to tax loss carry-forwards.

Deferred tax liabilities are recognised for all taxable temporary differences.

Deferred tax assets are recognised for all deductible temporary differences and unused tax loss carry-forwards proportionate to the probability that taxable income will be available to offset against the deductible temporary differences and the unused tax loss carry-forwards.

The carrying amount of deferred tax assets is reviewed on each balance sheet date and reduced to the extent that it is no longer likely that sufficient taxable profits will be available to use against the deferred tax asset. Unrecognised deferred tax assets are reviewed on each balance sheet date and recognised proportionate to the likelihood that future taxable profits will make it possible to use deferred tax assets.

Deferred tax assets and liabilities are measured using the tax rates expected to apply in the period in which the asset is realised or the liability is met. Tax rates and tax regulations are applied if they have already been enacted as of the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity, likewise not affecting net income.

Deferred tax assets and liabilities are netted only if the deferred taxes relate to income taxes for the same tax authority and the current taxes may also be offset against one another.

Derivative financial instruments and hedging transactions

As in the previous year, the Group conducted currency hedging transactions to hedge future cash flows in foreign currency. As these are not in a hedging relationship in accordance with IFRS 9, the instruments were measured at fair value through profit and loss. In addition, forward interest rate swaps were used in the reporting period to hedge the interest rate level for the planned drawdown of fixed interest loans to finance investments. These hedging transactions were designated in hedge accounting according to IFRS 9. The effective changes in fair value are thus initially recognised in other comprehensive income. Any ineffective component would be recognised through profit or loss. The amount accumulated in equity from the hedging transactions remains in equity until future cash flows occur. It is reclassified as interest expenses through profit or loss when the underlying transaction occurs. By contrast, there were no hedging transactions to hedge fair value or net investments in a foreign operation.