D. Acquisitions and other additions to the scope of consolidated financial statements

The following entities were included in the consolidated financial statements for the first time during the business year 2015/16:

Taking into consideration the shares in voestalpine Tubulars GmbH & Co KG held by voestalpine Tubulars GmbH, this results in an interest held by the Group in voestalpine Tubulars GmbH & Co KG that has been calculated to be 49.8875%.

Up to March 31, 2015, the equity method was used for the former joint ventures voestalpine Tubulars GmbH, voestalpine Tubulars GmbH & Co KG, and CNTT Chinese New Turnout Technologies Co., Ltd. and, beginning with the business year 2015/16, full consolidation is being applied as the Group has obtained control over these companies. The other additions to the scope of consolidated financial statements of fully consolidated entities include five acquisition and four newly established subsidiaries.

In accordance with IFRS 3, the acquired companies are included in the consolidated financial statements at the fair value carried forward of the acquired assets, liabilities, and contingent liabilities determined as of the acquisition date, including depreciation and amortization as appropriate. The carrying amount of the non-controlling interests is determined based on the fair values carried forward for the assets and liabilities acquired. With regard to the first-time full consolidations in accordance with IFRS 3, due to time constraints and the fact that not all valuations have been completed, the following items are to be considered provisional: property, plant and equipment, intangible assets, inventories, and provisions – and consequently goodwill as well.

The increase in majority interests is treated as a transaction between owners. The difference between the costs of acquisition of additional shares and the pro-rated carrying value of the non-controlling interests is recognized directly in equity. During the reporting period, EUR 2.4 million (2014/15: EUR 9.9 million) was paid for the acquisition of non-controlling interests or provisions were formed for the payment thereof. Non-controlling interests amounting to EUR 0.0 million (2014/15: EUR 7.6 million) were derecognized, and the remaining amount of EUR 2.4 million (2014/15: EUR 2.3 million) was recognized directly in equity.

The decrease in majority interests is treated as a transaction between owners. The difference between the fair value and the non-controlling interests is recognized directly in equity. During the reporting period, non-controlling interests were exchanged at the fair value of EUR 4.9 million (2014/15: EUR 0.0 million) (see Chapter F. Investments in associates and joint ventures, section shares in immaterial associates). Non-controlling interests amounting to EUR 1.0 million (2014/15: EUR 0.0 million) were recognized, and the remaining amount of EUR 3.9 million (2014/15: EUR 0.0 million) was recognized directly in equity.

Put options granted to non-controlling shareholders in exchange for their shares in Group companies are recorded in the statement of financial position as liabilities stated at fair value. If the risks and rewards associated with ownership of a non-controlling interest have already been transferred at the time the majority interest was acquired, an acquisition of 100% of the entity is assumed. If, however, the risks and rewards are not transferred, the non-controlling interests continue to be shown in equity. The liability is covered by a direct transfer from retained earnings with no effect on profit or loss (double credit approach).

Outstanding put options, which are offset against equity, had a fair value of EUR 0.2 million (March 31, 2015: EUR 0.2 million) as of March 31, 2016. For the purposes of the valuation, the discounted cash flow method was applied, taking the contractual maximum limits into account. Input factors in the discounted cash flow method include but are not limited to the medium-term business plan and the discount rate.

The company valuations of voestalpine Tubulars GmbH & Co KG, voestalpine Tubulars GmbH, and CNTT Chinese New Turnout Technologies Co., Ltd. were conducted by an independent expert. The valuation of non-controlling interests is determined in accordance with the fair values of the acquired assets and liabilities. Significant fair value adjustments were recorded for customer relationships, technology, property, plant and equipment, and inventories in accordance with IFRS 3. Non-controlling interests are reported in accordance with the partial goodwill method so that no goodwill is realized for non-controlling interests.

On April 8, 2015, effective as of April 1, 2015, voestalpine Bahnsysteme Vermögensverwaltungs GmbH and Grant Prideco European Holding LLC revised almost every existing contractual agreement relating to the control and management structure of voestalpine Tubulars GmbH & Co KG. At the same time, it was agreed to increase the interest of the voestalpine Bahnsysteme Vermögensverwaltungs GmbH in the managing “Komplementär-GmbH” (close corporation general partner) from 50.0% to 57.5%.

The company was presented in the business year 2014/15 as a joint venture between Grant Prideco European Holding LLC (subsidiary of the US-based group National Oilwell Varco, Inc. with expertise in the segments of drill pipes and premium pipe couplings) and voestalpine Bahnsysteme Vermögensverwaltungs GmbH, which, through its subsidiary voestalpine Stahl Donawitz GmbH, has applicable steel expertise and can furnish the pre-materials that meet the exacting quality requirements. The headquarters and production location of voestalpine Tubulars GmbH & Co KG are located in Kindberg, Austria. The company has sales offices in the USA and in the Middle East.

As a result of the fundamental revision of the key contractual agreements associated with the clear-cut change in the close corporation general partner’s shareholding, the criterion of control in accordance with IFRS 10.6 is fulfilled from April 2015 onward, since this enables operational management that is consistent with the interests of voestalpine.

This includes control over the budget (in the sense of setting the controlling operating conditions for management), including the supply of pre-materials, tax and financial policy, and fundamental marketing activities. With the amendments in the contractual agreements, voestalpine Bahnsysteme Vermögensverwaltungs GmbH will in the future be able to implement all essential operating matters in accordance with its interests, both on the Management Board and on the Supervisory Board (in connection with the decisive vote cast by the Chairman).

voestalpine Tubulars GmbH & Co KG and voestalpine Tubulars GmbH were initially consolidated as of April 1, 2015. The fair values of the identifiable assets and liabilities of voestalpine Tubulars GmbH & Co KG and voestalpine Tubulars GmbH are as follows once control has been achieved:

Goodwill of EUR 67.1 million results from the profit potential of the company, which cannot be allocated to individual capitalizable items according to IFRS, in particular, the extensive technical expertise and the excellent sales expertise of the employees. Goodwill is assigned completely to the “Tubulars” unit, which carries the goodwill. It is not expected that any part of included goodwill will be eligible for corporate tax deductions.

Prior shares were included as a joint venture using the equity method. Directly before control was achieved, the prior shares were reassessed at fair value. This resulted in proceeds of EUR 133.6 million (thereof recycling of cash flow hedges of EUR 4.5 million), which are recognized in the business year 2015/16 in the share of profit of entities consolidated according to the equity method. Depreciation of disclosed hidden reserves resulted in an expense of EUR 79.5 million in the business year 2015/16.

Since its initial consolidation, voestalpine Tubulars GmbH & Co KG and voestalpine Tubulars GmbH have contributed revenue of EUR 343.3 million to consolidated revenue. Their share of the Group’s profit after tax was EUR –35.6 million (after depreciation of the hidden reserves recognized within the scope of purchase price allocation) for the same period.

As part of the first-time full consolidation of voestalpine Tubulars GmbH & Co KG and voestalpine Tubulars GmbH, the following are being taken over at fair value: trade receivables of EUR 46.3 million (gross carrying amount: EUR 46.3 million); receivables from finance and clearing of EUR 56.9 million (gross carrying amount: EUR 56.9 million); and other receivables of EUR 8.0 million (gross carrying amount: EUR 8.0 million). Receivables expected to be uncollectible are considered immaterial and negligible.

Effective April 1, 2015, the fundamental revision of the key contractual agreements constitutes the criterion of control for CNTT Chinese New Turnout Technologies Co., Ltd. in accordance with IFRS 10.6. Two voestalpine companies hold 50% of CNTT Chinese New Turnout Technologies Co., Ltd. Because of the prior alternating nomination right for the CEO (between the joint venture partner and voestalpine), who has the decision-making powers for essential matters, CNTT Chinese New Turnout Technologies Co., Ltd. was previously treated as a company under joint control and, until March 31, 2015, included in the voestalpine consolidated financial statements using the equity method. Because of a change in the articles of association, from now on the Board of Directors will have decision-making powers; the majority of representatives on this Board are from voestalpine. Consequently, starting April 1, 2015, CNTT Chinese New Turnout Technologies Co., Ltd. has been fully consolidated. The company produces turnouts and expansion joints for the continuing development of the high-speed railway network in China.

CNTT Chinese New Turnout Technologies Co., Ltd. was initially consolidated as of April 1, 2015. The fair value of the identifiable assets and liabilities of CNTT Chinese New Turnout Technologies Co., Ltd. is as follows once control has been achieved:

Goodwill of EUR 0.2 million results from the profit potential of the company, which according to IFRS cannot be allocated to individual capitalizable items. Goodwill is assigned completely to the “Turnout Systems” unit, which carries the goodwill. It is not expected that any part of recognized goodwill will be eligible for corporate tax deductions.

Prior shares were included as a joint venture using the equity method. Directly before control was achieved, the prior shares were reassessed at fair value. This resulted in proceeds of EUR 12.2 million (thereof recycling of currency translation differences of EUR 8.8 million), which are recognized in the business year 2015/16 in the share of profit of entities consolidated according to the equity method. Depreciation of disclosed hidden reserves resulted in an expense of EUR 2.5 million in the business year 2015/16.

Since its initial consolidation, CNTT Chinese New Turnout Technologies Co., Ltd. has contributed revenue of EUR 69.4 million to consolidated revenue. Its share of the Group’s profit after tax was EUR 13.7 million for the same period.

As part of the first-time full consolidation of CNTT Chinese New Turnout Technologies Co., Ltd., the following were taken over at fair value: trade receivables of EUR 23.3 million (gross carrying amount: EUR 28.5 million); and other receivables of EUR 0.1 million (gross carrying amount: EUR 0.1 million). Receivables expected to be uncollectible amounted to EUR 5.2 million.

At the end of February 2016, the Special Steel Division acquired Sermetal Barcelona, SL and Grandacos – Servicos Maquinados Portugal, Unipessoal, Lda, which involved acquisition of the four sales and service locations in Spain and Portugal. Sermetal is considered the market leader on the Iberian Peninsula in the segment for plastic mold steel used by the automotive industry and with its 60 employees generated revenue of around EUR 27 million in 2015. Along with stainless steel products, the new sales and service centers offer on-site processing (sawing, milling, heat treatment) customized to customer specifications.

This acquisition has the following impact on the consolidated financial statements:

Goodwill of EUR 0.3 million results from the profit potential of the company, which according to IFRS, cannot be allocated to individual capitalizable items. Goodwill is assigned completely to the “Value Added Services” unit, which carries the goodwill. It is not expected that any part of recognized goodwill will be eligible for corporate tax deductions.

Since the initial consolidation, this acquisition has contributed revenue of EUR 0.0 million to consolidated revenue. Its share of the Group’s profit after tax was EUR 0.0 million for the same period. The acquisition would have contributed EUR 28.2 million to the consolidated revenue and EUR 0.8 million to the Group’s profit after tax if the acquisition had been consolidated as of April 1, 2015.

As part of the first-time full consolidation of the Sermetal Group, fair values for trade receivables of EUR 9.9 million (gross carrying amount: EUR 10.3 million) and other receivables of EUR 0.1 million (gross carrying amount: EUR 0.1 million) were taken over. Receivables that are expected to be uncollectible are considered immaterial and negligible. Acquisition-related costs of EUR 0.3 million were recognized in other operating expenses for this acquisition.

On March 31, 2016 the Special Steel Division took control over its long-standing distribution partner, Advanced Tooling Tek (ATT), based in Shanghai, China, as well as ATT’s subsidiary, Microcosmic Metal Co., Ltd., thereby beginning the Group’s next phase of expansion in the Chinese market. With its acquisition of the company, which employs about 100 people and generated revenue equivalent to EUR 16 million in 2015, the Special Steel Division was able to expand its market leadership position as a supplier of stainless steel products for tool and mold making. Large injection molds used for the production of plastic products for the automotive industry, as well as in the electronics industry, constitute an important product segment for the company, which specializes in stainless steel processing and distribution.

This acquisition has the following impact on the consolidated financial statements:

Goodwill of EUR 5.2 million results from the profit potential of the company, which according to IFRS, cannot be allocated to individual capitalizable items. Goodwill is assigned completely to the “Value Added Services” unit, which carries the goodwill. It is not expected that any part of recognized goodwill will be eligible for corporate tax deductions.

Since the initial consolidation, this acquisition has contributed revenue of EUR 0.0 million to consolidated revenue. Its share of the Group’s profit after tax profit for the period was EUR 0.0 million for the same period. The acquisition would have contributed EUR 16.5 million to the consolidated revenue and EUR 1.4 million to the Group’s profit after tax if the acquisition had been consolidated as of April 1, 2015.

As part of the first-time full consolidation of Advanced Tooling Tek and their subsidiary Microcosmic Metal Co., Ltd., fair values for trade receivables of EUR 5.5 million (gross carrying amount: EUR 5.8 million) and other receivables of EUR 0.1 million (gross carrying amount: EUR 0.1 million) were taken over. Receivables that are expected to be uncollectible are considered immaterial and negligible. Acquisition-related costs of EUR 0.6 million were recognized in other operating expenses for this acquisition.

The acquisitions that, in and of themselves, are of less significance for voestalpine’s consolidated financial statement are as follows.

voestalpine Precision Strip GmbH, a company in the Metal Forming Division, acquired the US company Wickeder Steel Company (now voestalpine Precision Strip WI, Inc.) in Wisconsin at the start of November 2015. This company specializes in heat treating and hardening carbon steel to produce saws, hand tools, and flap valves and ranks among the top five on the US market. This company has 50 employees, and in 2015, it recorded revenue of around EUR 13 million. Wickeder Steel Company’s product and technology range is in line with the Precision Strip business segment’s US growth strategy and its core competences. Wickeder Steel Company has a long history of heat treating and hardening special strip steel for the highest customer requirements. This acquisition will additionally reinforce voestalpine’s product range for hardened special strip steel for high-quality applications such as band saw blades for the food sector. voestalpine Precision Strip WI, Inc. was initially consolidated as of November 2, 2015.

voestalpine WBN B.V. Netherlands, which is part of the Metal Engineering Division of the voestalpine Group, acquired Rail Service Netherlands (RSN), which is headquartered in Alkmaar, on September 1, 2015 as part of an asset deal. This company, which has around ten employees, manufactures turnout drives and corresponding mechanical interfaces (drive and detection rods) for the Dutch market. The most important strategic considerations of the asset deal are to strengthen and ensure the market position of voestalpine WBN B.V. by integrating drive, locking, and detection technology (system turnouts for the Netherlands), creation of a competence center for signaling technology for the Netherlands as well as the expansion of the existing service business, the acceleration of the market entry of other signaling products by leveraging the excellent reputation of RSN, and the more rapid market expansion of RSN turnout drives due to the excellent market position of voestalpine on the Dutch railway market.

On September 2, 2015, voestalpine Wire Technology GmbH, Bruck an der Mur, Austria, acquired a company in the Metal Engineering Division as part of an asset deal with ArcelorMittal Bissen & Bettembourg SA, Bissen, Luxembourg involving both tangible assets, mainly machinery and technical equipment, as well as intangible assets, in the form of licenses, technology know-how and commercial information for the production of fine wires and technical cords. The key strategic considerations behind the asset deal involved supplementing existing know-how as well as adding production technology, including the corresponding customer base, in order to further expand business in fine wires.

These acquisitions have the following impact on the consolidated financial statements:

Since their initial consolidation, these acquisitions have contributed revenue of EUR 5.2 million to consolidated revenue. Its share of the Group’s profit after tax profit for the period was EUR –0.1 million for the same period. The acquisition would have contributed EUR 20.9 million to the consolidated revenue and EUR –0.2 million to the Group’s profit after tax if the acquisition had been consolidated as of April 1, 2015.

As part of the first-time full consolidation of voestalpine Precision Strip WI, Inc., fair values for trade receivables of EUR 1.4 million (gross carrying amount: EUR 1.4 million) and other receivables of EUR 0.1 million (gross carrying amount: EUR 0.1 million) were taken over. Receivables that are expected to be uncollectible are considered immaterial and negligible. Acquisition-related costs of EUR 0.1 million were recognized in other operating expenses. The badwill is recorded under other operating income.

The earn out clause “Inventory Pay-Out” agreed during the acquisition of voestalpine Precision Strip WI, Inc. stipulates that of the “inventories at risk” identified in the agreement, 50% of the proceeds generated from the sale of “inventories at risk” (capped at USD 0.5 million and for a limited period through to June 30, 2017) will be remunerated in addition to the agreed purchase price.