Scope of consolidated financial statements/acquisitions

The changes made in the scope of consolidated financial statements during the reporting period were as follows:

The following entities were deconsolidated during the first three quarters of the business year 2015/16:

On September 4, 2015, the voestalpine Group sold all its shares of Aktiebolaget Finansa and Associated Swedish Steels Aktiebolag at the book value of EUR 0.0 million.

The following entities are being included in the interim consolidated financial statements for the first time in the first three quarters of 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 one acquisition and two newly established subsidiaries.

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.

In accordance with IFRS 3, the acquired companies are included in the interim 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.

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).

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 (including a recycling of cash flow hedges), which are recognized in the first three quarters of 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 35.2 million in the first three quarters of the business year 2015/16.

Since its initial consolidation, voestalpine Tubulars GmbH & Co KG and voestalpine Tubulars GmbH have contributed revenue of EUR 265.0 million to consolidated revenue. Their share of the Group’s profit for the period was EUR 0.1 million (after depreciation of the hidden reserves recognized within the scope of purchase price allocation) for the same period. voestalpine Tubulars GmbH & Co KG and voestalpine Tubulars GmbH were initially consolidated as of April 1, 2015.

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.

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 (including a recycling of currency translation differences), which are recognized in the first three quarters of 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 2.2 million in the first three quarters of the business year 2015/16.

Since its initial consolidation, CNTT Chinese New Turnout Technologies Co., Ltd. has contributed revenue of EUR 64.1 million to consolidated revenue. Its share of the Group’s profit for the period was EUR 10.9 million for the same period. CNTT Chinese New Turnout Technologies Co., Ltd. was initially consolidated as of April 1, 2015.

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).

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.

These two acquisitions had the following impact on the interim consolidated financial statements:

Since their initial consolidation, these acquisitions have contributed revenue of EUR 1.8 million to consolidated revenue. Its share of the Group’s profit for the period was EUR –0.1 million for the same period. The consolidated revenue would have been EUR 7.8 million higher and the Group’s profit for the period would have been EUR –0.1 million lower if the acquisitions 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 for this acquisition.

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.

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 first three quarters of the business year 2015/16, 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. In the first three quarters of the business year 2015/16, non-controlling interests were exchanged at the fair value of EUR 4.9 million (2014/15: EUR 0.0 million) (see Chapter “Shares in immaterial associates”). Non-controlling interests amounting to EUR 1.0 million (2014/15: EUR 0.0 million) were derecognized, 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 0.6 million (March 31, 2015: EUR 0.6 million) as of December 31, 2015.