Notes to the consolidated financial statements
1. General information
Ordina N.V., a public limited liability company, was incorporated in 1973 and has its registered office in Nieuwegein, the Netherlands. The consolidated financial statements for 2009 comprise the financial information of the company and all its subsidiaries (referred to jointly as 'Ordina'). A list of key subsidiaries and principal associates is included on page 139. The financial statements were prepared by the Management Board on 1 March 2010 and discussed in the Supervisory Board meeting of 1 March 2010 and will be submitted for adoption to the Annual General Meeting of Shareholders on 12 May 2010.
The ordinary shares in Ordina N.V. are listed on Amsterdam’s NYSE Euronext Stock Exchange. In addition, Ordina is included in the Midkap Index (AMX).
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied by Ordina entities to all periods presented in these consolidated financial statements.
2.1. Basis of preparation
The consolidated financial statements of Ordina N.V. have been prepared in accordance with the International Financial Reporting Standards (IFRS), which have been accepted by European Union, and their interpretations as adopted by the International Accounting Standards Board (IASB).
The financial statements are published in both Dutch and in English. The Dutch version is leading.
The financial statements are denominated in euros (EUR). Amounts are in thousands of euros, unless indicated otherwise. The euro is the functional and presentation currency of Ordina N.V. The accounting policies are based on the historical cost convention. Defined benefit plans and jubilee benefits are stated at actuarial value. Derivative financial instruments are stated at fair value. An asset or a liability is classified as current if it is expected to be realised or settled within 12 months of the balance sheet date.
The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and income and expenses. Estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which forms the basis of making the judgements about the carrying values of the recognised assets and liabilities. Actual results and circumstances may differ from these estimates.
The estimates and underlying assumptions are continually evaluated and adjusted where appropriate. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Assumptions and estimates made by management in the application of IFRS that have significant effect on the financial statements and future periods are disclosed in Note 5.
Ordina has adopted the following new and amended IFRS standards as of 1 January 2009
IFRS 7, ‘Financial instruments – Disclosures (amendment, effective from 1 January 2009). The amendment requires enhanced disclosures about fair value measurement and liquidity risk. As the change in accounting policy only results in additional disclosures, there is no impact on earnings per share.
IFRS 8, ‘Operating segments’. This is a new standard that replaces IAS 14, ‘Segment reporting’. This standard is mandatory for accounting periods beginning on or after 1 January 2009. IFRS 8 requires entity-wide disclosures around identifying operating segments, products and services, geographical areas and major customers. This amendment has been applied and impacts the presented segment information.
IAS 1, ‘Presentation of financial statements’ (revised, effective from 1 January 2009). The revised standard prohibits the presentation of items of income and expenses (that is ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in equity’ to be presented separately from owner changes in equity in a statement of comprehensive income. As a result, Ordina presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it also is conformity with this revised standard. As the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.
IFRS 2, ‘Share-based payment’(amendment, effective from 1 January 2009). This amendment deals with vesting conditions and cancellations. It clarifies that vesting conditions are service conditions and performance conditions only. These features would need to be included in the grant date fair value for transactions with employees and others providing similar services. All cancellations, whether by the entity or by other parties, should receive the same accounting treatment. Ordina has adopted IFRS 2 (amendment) from 1 January 2009. The amendment does not have a material impact on Ordina’s financial statements.
IAS 23, Borrowing Costs (amendment, effective from 1 January 2009). The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as a part of the cost of that asset. Application of IAS 23 (amendment) has no impact on Ordina’s financial statements as there are currently no qualifying assets.
Standards, amendment and interpretations to existing standards that are not yet effective and have not been early adopted by Ordina
The following standards and amendments to existing standards have been published and are mandatory for Ordina’s accounting periods beginning on or after 1 January 2010 or later periods, but Ordina has not early adopted them.
IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective on or after 1 July 2009). The interpretation is part of the IASB’s annual improvements project published in April 2009. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. Ordina will apply IFRIC 17 from 1 January 2010. It is not expected to have a material impact on Ordina’s financial statements.
IAS 27, ‘Consolidated and separate financial statement’ (revised, effective form 1 July 2010). The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the equity is re-measured to fair value , and a gain or loss is recognised in profit or loss. Ordina will apply IAS 27 (revised) prospectively to transactions with non-controlling interests form 1 January 2010.
IFRS 3, ‘Business Combinations’ (revised, effective from 1 July 2009). The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. Ordina will apply IFRS 3 (revised) prospectively to all business combinations from 1 January 2010.
IAS 38, ‘Intangible Assets’ (amendment). The amendment is part of the IASB’s annual improvements project published in April 2009 and Ordina will apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The amendment will not result in a material impact on Ordina’s financial statements.
IFRS 5, ‘Measurement of non-current assets (or disposal groups) classified as held-for-sale’ (amendment). The amendment is part of the IASB’s annual improvements project published in April 2009. The amendment provides clarification that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held-for-sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still applies, particularly paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1. Ordina will apply IFRS 5 (amendment) from 1 January 2010. It is not expected to have material impact on Ordina’s financial statements.
IAS 1, ‘Presentation of financial statements’ (amendment). The amendment is part of the IASB’s annual improvements project published in April 2009. The amendment provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non-current. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 month after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. Ordina will apply IAS 1 (amendment) from 1 January 2010. It is not expected to have a material impact on Ordina’s financial statements.
IFRS 2, ‘Group cash-settled and share-based payment transactions’ (amendment). In addition to incorporating IFRIC 8, ‘Scope of IFRS 2’, and IFRIC 11, ‘IFRS 2 – Group and treasury share transactions’, the amendments expand on the guidance in IFRIC 11 to address the classification of group arrangements that were not covered by that interpretation. The new guidance is not expected to have a material impact on Ordina’s financial statements.
2.2. Consolidation
The consolidation includes Ordina N.V. and all subsidiaries in which it exercises direct or indirect control. Control exists when Ordina N.V. has the power, either directly or indirectly, to govern the financial and operating policies of an entity, generally accompanying a shareholding of more than one half of the voting rights. The financial information of such subsidiaries is included in the consolidated financial statements of Ordina N.V. from the date that control is transferred to it until the date that control ceases. All subsidiaries included in the consolidated financial statements for 2008 and 2009 are wholly owned. Consequently, no minority interest exists.
The cost of an acquisition is measured as the fair value of the assets given and, if applicable, equity instruments issued (i.e. shares) at the date of exchange, plus costs directly attributable to the acquisition. Goodwill represents the excess of the cost of an acquisition over the fair value of Ordina’s share of the net identifiable assets of the acquired entity, including contingent liabilities, at the date of acquisition. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Associates are all entities over which Ordina has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting (Note 2.7).
Intercompany balances, transactions and unrealised gains on transactions between group companies are eliminated. Transactions with associates are eliminated in the consolidation where Ordina's share in the associate in question is concerned.
The accounting policies for the balance sheet and the income statement as included in these financial statements apply to all consolidated subsidiaries.
2.3. Segment reporting
Operating segments are determined based on Ordina’s internal governance, reporting and decision-making structure. At Ordina, the following operating segments report directly to the Management Board: Ordina Netherlands, Ordina Belgium/Luxembourg and three 100% participations, i.e. fiNext, Integer and Ormit. The financial statements for 2009 identify the Dutch and Belgium/Luxembourg operations as two separate operating segments. By virtue of their limited size, similar services provided and the related similar profile of risks and rewards, the three participations are aggregated into the Dutch operations. This is in accordance with the provisions of IFRS 8. In previous years, segment information was disclosed for the operating segments ICT Services and Business Process Outsourcing. This segmentation became obsolete in 2009, when the BPO activities were sold. They are now recognised as discontinued operations. For details, see Note 6.
2.4. Foreign currency translation
2.4.1. Functional and presentation currency
All subsidiaries use the euro as their functional currency. Consequently, the consolidated financial statements are presented in euros, Ordina’s functional and presentation currency.
2.4.2. Transactions and balances
Foreign currency transactions and balances are translated into the functional currency using the exchange rates prevailing at the dates of the transactions and at the balance sheet date respectively. Foreign exchange gains and losses are recognised in the income statement.
2.5. Intangible assets
2.5.1. Goodwill
Acquisitions of group companies after 1 January 2004 are accounted for using the purchase method of accounting. Goodwill results from the acquisition of subsidiaries. Goodwill represents the excess of the cost of an acquisition over the fair value of Ordina’s share of the net identifiable assets of the acquired entity, including contingent liabilities, at the date of acquisition. Goodwill is stated at cost less accumulated impairment losses.
Goodwill is allocated to cash-generating units. Impairment of goodwill is recognised as an expense where appropriate. An impairment loss recognised for goodwill will not be reversed in a subsequent period. If an entity is sold, the carrying amount of the goodwill is recognised in profit or loss.
Any negative goodwill arising on an acquisition is recognised directly in the income statement.
Goodwill on acquisitions of associates is included in ‘investments in associates'.>
2.5.2. Software
Software is stated at historical cost less accumulated amortisation and impairment losses. Amortisation is based on the assets' estimated useful lives.
2.5.3. Intangible assets related to customers
This item relates to intangible assets of acquisitions identified in conformity with IFRS 3, ‘Business Combinations’, and includes brand names, customer lists and contract portfolios. These assets are measured at their fair values at the acquisition date. The fair value at acquisition qualifies as cost at that time. The cost of the identifiable intangible assets is amortised based on the useful life of each individual component and recognised in profit or loss.
2.5.4. Intellectual property rights related to business processes
These intangible assets are comprised of intellectual property rights relating to business processes involving the BPO activities that were sold as of 1 April 2009. Where these intellectual property rights were acquired, they are stated at cost less accumulated amortisation and impairment. Where they relate to internally generated assets, of which it is probable that they will serve to generate economic benefits in excess of cost for a period of more than one year, these intellectual property rights are stated at cost less accumulated amortisation and impairment losses.
2.5.5. Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
2.5.6. Internally generated intangible assets
Development costs related to internally generated intangible assets are capitalised only when it is probable that they will serve to generate the future economic benefits embodied in the specific asset to which they relate for a period of more than one year. Employee activities directly related to internally generated intangible assets are capitalised at cost. Any third-party services contracted for the purposes of the internally generated intangible assets are capitalised at cost. Interest expense is not included in capitalised cost. Internally generated intangible assets are amortised from the date they are available for use.
2.5.7. Amortisation
Amortisation is calculated using the straight-line method to allocate the cost of intangible assets over their estimated useful lives. Goodwill is tested annually for impairment at the balance sheet date. Other intangible assets are amortised from the date they are available for use.
The estimated useful lives are as follows:
| - | software | 3 years |
| - | trademarks | 2-3 years |
| - | customer lists | 5 years |
| - | contract portfolios | 1-2 years |
| - | intangible assets related to business processes | 5-10 years |
The assets' useful lives are reviewed annually, and adjusted if appropriate.
2.6. Property, plant and equipment
2.6.1. Freehold property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition or manufacture of the items. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Ordina and the cost of the item can be measured reliably. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Gains or losses on the sale of property, plant and equipment are included in depreciation.
2.6.2. Leasehold property, plant and equipment
Leases of property, plant and equipment where Ordina has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Any initial direct costs are added to the amounts recognised as the assets. All other leases are classified as operating leases.
Property, plant and equipment acquired under finance leases are stated at the lower of fair value of the leased asset and present value of the minimum lease payments, less accumulated depreciation and impairment losses. Each finance lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. Finance charges are charged to the income statement. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease period.
Payments made under operating leases are charged to the income statement (refer to Note 23 for costs recognised for car leasing and Note 24 for costs recognised for the lease of buildings).
2.6.3. Depreciation
Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives. The estimated useful lives are as follows:
| - | equipment | 3-4 years |
| - | fixtures & fittings | 3-5 years |
| - | renovations | 2-9 years |
Renovations are depreciated based on the shorter of the remaining terms of the leases for the respective buildings and their useful lives. The residual value, which is usually set at nil, and remaining useful lives of property, plant and equipment are reviewed annually on the balance date and adjusted if appropriate.
2.7. Investments in associates
Associates are all entities in which Ordina has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost.
Ordina’s investments in associates include goodwill identified on acquisition, net of any accumulated impairment loss.
Ordina's share of its associates' post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. When Ordina’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, Ordina does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
2.8. Derivatives
Ordina uses derivatives, such as interest rate swaps, to hedge the risks of interest rate fluctuations. All Ordina’s derivatives qualify as Level 1. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value at each balance sheet date.
The fair value of derivative financial instruments is determined based on available market valuations. The gains or losses resulting from re-measurement are recognised in the income statement, unless the derivative is designated as a cash flow hedge. The purpose of a cash flow hedge is to reduce the exposure to variability attributable to currency or interest rate fluctuations of cash flows that will probably be generated in the future.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. If a derivative does not qualify as a cash flow hedge, changes in the fair value are recognised in the income statement.
The gains or losses associated with cash flow hedges are transferred from equity and reclassified into profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss. The ineffective portion of any gain or loss is directly recognised in profit or loss. When a cash flow hedge expires or is sold or terminated, or the hedge contract is broken but the forecast transactions is still expected to occur, any cumulative gain or loss existing at that time remains in equity and is recognised when the forecast transaction ultimately occurs, at which time settlement takes place as described above. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.
2.9. Inventories
2.9.1. Goods held for resale
Inventories are stated at the lower of cost and net realisable value as at the balance sheet date. Cost is determined using the first-in, first-out (FIFO) method.
2.9.2. Work in progress
Costs directly attributable to work in progress commissioned by third parties, whose results cannot be reliably estimated are recognised as work in progress only when it is probably that future economic benefits associated with the project will flow to Ordina. Receivables related to fixed-price contracts are presented as ‘other receivables’ (Note 2.10). In this regard, reference is made also to the accounting policies for revenue recognition (Note 2.19).
2.10. Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that Ordina will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement within ‘other operating expenses'.
Other receivables include revenue from assignments completed and not yet invoiced, as well as pre-payments and accrued income. Pre-payments and accrued income also include amounts receivable by virtue of projects in progress at the balance date where these receivables have already exceeded the amounts billed in relation to these projects. If the amounts billed in relation to current projects should exceed the sum of costs incurred and gains posted, the balance of these projects is recognised within ‘other payables'.
2.11. Cash and cash equivalents
Cash and cash equivalents include cash balances and demand deposits, and are stated at fair value. Bank overdrafts are included as a component of cash and cash equivalents for the purpose of the cash flow statement. For details on non-current borrowings at year-end 2009, reference is made to Note 15 and 16.
2.12. Assets and liabilities held for sale
Non-current assets are classified as held-for-sale if their sale is more likely than not and their carrying amounts will be recovered through this sale. For this to be the case, the assets must be available for immediate sale and their sale must be highly probable. Assets held for sale are presented separately on the face of the balance sheet. Non-current assets held for sale are stated at the lower of carrying amount and fair value less costs to sell. The liabilities included within a disposal group classified as held-for-sale are also presented separately from other liabilities on the face of the balance sheet.
2.13. Impairment of non-financial assets
Intangible assets that have an indefinite useful life as well as assets that are not yet available for use are not subject to amortisation but tested annually for impairment at each balance sheet date. Assets that have a finite useful life are amortised and tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. An impairment loss is recognised for the amount by which an asset's carrying amount exceeds its recoverable amount.
2.13.1. Calculation of recoverable amount
The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
2.13.2. Reversal of impairment losses
An impairment loss recognised for goodwill will not be reversed in a subsequent period.
In respect of all other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. It is assessed at each reporting date whether there is any indication that an impairment loss recognised in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amount of that asset is re-determined and the impairment loss adjusted where the assessment so warrants.
2.14. Equity
2.14.1. Share capital
The authorised capital of Ordina N.V. consists of 72,000,000 ordinary shares, 17,999,995 preference shares and one priority share. At year-end 2009, no preference shares were issued. The issued and paid-up priority share and the issued and paid-up ordinary shares are classified as equity.
2.14.2. Treasury shares
Where Ordina N.V. purchases equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the company’s equity holders until the shares are cancelled, reissued or sold. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the company’s equity holders.
2.14.3. Dividends
Dividends distributed to shareholders of Ordina N.V. are classified as liabilities as soon as the Annual General Meeting of Shareholders declares them.
2.15. Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Borrowings relating to finance leases are capitalised at the lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding lease obligations with a term of more than one year are included in ‘non-current liabilities'. Lease commitments with a term of less than one year are recognised within ‘current liabilities'.
2.16. Employee benefits
2.16.1. Pension plans
Ordina has both defined contribution and defined benefit plans. A defined contribution plan is a pension plan under which Ordina pays fixed contributions to an insurance company. Ordina has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.
2.16.1.1. Defined contribution plans
Any contributions to defined contribution plans are recognised as expenses in the income statement in the period to which they relate. Ordina has no other obligations in relation to defined contribution plans.
2.16.1.2. Defined benefit plans
The liability recognised in the balance sheet in respect of defined benefit plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability.
Under IFRS 1, all actuarial gains and losses as at 1 January 2004 (i.e. the date of transition to IFRS) were measured and recognised within equity. Actuarial gains and losses posted after 1 January 2004 are recognised directly in equity.
Pension costs incurred during the year (including contributions, interest cost and expected return on plan assets) are recognised as expenses.
2.16.2. Jubilee benefits
Ordina’s terms of employment include a jubilee scheme, based on which employees who celebrate an anniversary with the company receive a gross bonus. Under IAS 19, ‘Employee Benefits’, a provision is formed for the liability associated with these jubilee benefits. The provision for jubilee benefits is calculated in the same manner as that for defined benefit plans. Under IFRS 1, all actuarial gains and losses as at 1 January 2004 (i.e. the date of transition to IFRS) were measured and recognised within equity. Actuarial gains and losses posted after 1 January 2004 are recognised directly in the income statement.
Jubilee benefits paid to employees during the year are charged to the provision. Any movements in the provision for jubilee benefits are recognised in the income statement.
2.16.3. Share-based payment
In the years up to and including 2004, Ordina introduced employee share option schemes for several years. Based on IFRS 2, ‘Share-based payment', the fair value of options that vested after 7 December 2002 is charged to the income statement. Options awarded under the employee share option scheme 2004 were granted after 7 December 2002. Options granted under the employee share option scheme 2004 become exercisable immediately after having been granted. Under IFRS 2, the cost of this employee share option scheme was recognised in the income statement for 2004. The recognition of these costs has resulted in a corresponding adjustment to equity as well. The value was measured using a Monte Carlo simulation model for the valuation of options.
In 2009, 240,000 conditional options in total were granted to a select group of employees. These options will vest by 1 April 2010 at the latest. No options were granted in 2008. For details, see Note 13.2.
The proceeds received are credited to share capital (par value) and the share premium reserve (difference between exercise price and par value) when the options are exercised.
The members of the Management Board are entitled to long-term profit-sharing and bonus benefits in the form of Ordina N.V. shares. For the purposes of these long-term benefits, performance criteria are determined annually for each upcoming three-year period. Based on these performance criteria, the number of shares to be awarded unconditionally is determined annually and for each individual three-year period. The shares that are expected to be awarded are valued based on the price of the Ordina N.V. share at the grant date and estimates of the extent to which the relevant targets will be achieved. Any awarded shares will be subject to a lock-up period of two consecutive years. This lock-up does not apply to the sale of part of the shares with a view to paying any taxes due on the grant of the shares. In valuing the shares, allowance was made for the share lock-up, as well as for expected dividend distributions. The change in long-term profit-sharing and bonus benefits is recognised in the income statement at the reporting date based on current estimates. As the liability by virtue of long-term benefits involving a share-based payment is disclosed as an equity component, the expense recognised in the income statement results in a corresponding adjustment to equity. The recognised value of the share-based payment is disclosed as a capital contribution at the time of payment.
2.17. Provisions
Provisions are recognised in the balance sheet when:
1) there is a present legal or constructive obligation as a result of past events;
2) it is more likely than not that an outflow of resources will be required to settle the obligation; and
3) the amount necessary to settle the obligation can be reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
In addition to the provisions for pension and jubilee benefits (Notes 2.16.1 and 2.16.2 respectively), provisions will be recognised for restructuring costs, vacant buildings under lease, warranty and project commitments, and onerous contracts.
A provision for restructuring costs will be formed when Ordina has a detailed formal plan for the restructuring and has started to implement the restructuring or has raised a valid expectation in those affected that it will carry out the restructuring by announcing its main features to those affected by it. Costs relating to future operating activities will not be included in the restructuring provision.
The provision for vacant buildings was formed to cover the future rent, including directly attributable costs less expected sub-lease payments, for the period in which Ordina does not expect to use these buildings. If the buy-out of a lease contract is lower, the provision is determined at this lower value.
A provision is recognised for warranty commitments pending at the balance sheet date; this provision is based on the activities that are expected to be associated with these commitments. The warranty provision is determined at the cost of the expected activities.
The provision for project commitments relates to activities expected to be performed with regard to onerous contracts. The amount of the provision corresponds with the excess of the unavoidable costs of meeting the obligations under such contracts over the economic benefits expected to be received under them.
2.18. Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
2.19. Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of Ordina's activities. Revenue is shown net of value-added tax, returns, rebates and discounts, and after eliminating sales within Ordina.
Ordina recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the company and specific criteria have been met for each of the company's activities as described below. Revenue is not recognised if there are significant uncertainties about the probability that the costs incurred will be recovered.
Ordina bases its recognition method on the type of transaction and the specifics of each arrangement.
2.19.1. Contracts based on contractual rates and subsequent costing
Revenue from services provided under contracts based on contractual rates and subsequent costing is recognised in the period the services are provided, irrespective of the contracts' terms to maturity.
2.19.2. Fixed-price contracts
Revenue from fixed-price contracts for delivering IT projects and solutions is recognised by reference to the stage of completion of a transaction as a proportion of the total transaction (percentage of completion (POC) method), where the services performed on the balance sheet date can be reliably measured and the costs incurred for the transaction and the costs required to complete the transaction can be reliably estimated. Under the POC method, revenue is recognised based on the costs incurred to date as a percentage of the total estimated costs to meet the contractual obligations.
If circumstances arise that may change the original estimates of revenues, costs or extent of progress toward completion, estimates are revised. These revisions may result in increases or decreases in estimated revenues or costs and are reflected in income in the period in which the circumstances that give rise to the revision become known by management.
If the outcome of a transaction cannot be estimated reliably, revenue is recognised only to the extent that it is probable that the economic benefits associated with the transaction will flow to Ordina. The receivable associated with this revenue is recognised within work in progress (Note 2.9.2). Transaction costs are recognised as an expense in the period in which they were incurred. When it is probable that the total costs of a transaction will exceed the total revenue generated by it, the expected loss is directly recognised as an expense.
2.19.3. Outsourcing contracts
Individual activities performed under outsourcing contracts are not separately identifiable. As a result, revenue generated from such contracts is recognised based on fixed periodic amounts, in accordance with the contractual arrangements. If additional activities are performed, the related revenue is recognised in accordance with Notes 2.19.1 and 2.19.2, depending on the nature of the additional activities.
2.19.4. Licences
Revenue from the sale of licences is fully recognised on the transfer date where Ordina has no further obligations at the time of transfer.
As soon as a licence is integrated into a project and the licence is not separable from the project as a whole, the related revenue is recognised as a proportion of total services to be performed in the accounting period (percentage of completion). Within the project, additional services are provided by Ordina with regard to the licence, including integration, modification and customisation.
Revenue arising from the sale of acquired and retransferred licences where Ordina does not provide any material additional services is recognised up to the amount of the margin realised at the time of the transfer.
2.20. Costs
2.20.1. Cost of hardware, software and work contracted out
Hardware, software and work contracted out are recognised at historical cost in the period in which they are incurred.
2.20.2. Operating lease payments
Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.
2.20.3. Finance lease payments
Payments made under finance leases are allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding.
2.20.4. Government grants
Government grants are recognised where there is reasonable assurance that:
1) Ordina will comply with all attached conditions; and
2) the grants will be received.
Government grants relating to study costs allowances are recognised in the income statement within ‘other personnel expenses’.
2.20.5. Finance income and costs
This item includes interest received on bank balances, as well as interest received in relation to the settlement of tax claims.
It also comprises interest paid on bank borrowings, as well as interest due on the settlement of tax claims.
In addition, finance costs include the interest component of finance lease obligations.
2.21. Income taxes
Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income). Current and deferred tax is recognised in the income statement, except to the extent that the tax arises from a transaction or event which is recognised directly in equity. In that case, the associated tax is recognised directly in equity as well.
Tax expense (income) for the accounting period includes income tax on taxable profit, which is calculated based on tax rates expected to be applied, making allowance for tax-exempt profit components and non-deductible amounts, as well as any adjustments for current tax of prior periods.
Deferred taxes are recognised for temporary differences arising between the tax bases of assets and liabilities, and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets relating to tax losses are recognised only when it is probable that taxable profits will be available against which they can be utilised. Deferred income tax assets and liabilities that have the same term and relate to the same taxable entity are offset in the balance sheet if Ordina has a legally enforceable right of set-off.
3. Presentation of the cash flow statement
Ordina reports cash flows using the indirect method. Cash flows are classified by operating, investing and financing activities. Net cash flows from operating activities include cash payments and refunds of income taxes, as well as interest received and paid. Cash flows arising from the acquisition or disposal of equity or debt instruments of other entities and interests in joint ventures are included in cash flows from investing activities; allowance is made for cash and cash equivalents embodied in such instruments. Dividends are included in cash flows from financing activities.
4. Financial risk management
Ordina’s activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. Ordina’s risk management programme, which is prescribed by the Management Board, encompasses more than just financial risks. It focuses on identifying key risks and managing them using guidelines, procedures, systems, best practices, specific controls and audits. Our financial risk management focuses specifically on risks that are relevant to Ordina in this regard. Ordina uses derivative financial instruments to hedge interest rate risk exposures only.
4.1. Market risk
4.1.1. Interest rate risk
Ordina is exposed to interest rate risk, which is limited to the eurozone. Ordina’s interest rate risk policy seeks to limit the entity's exposure to interest rate risk on borrowings. Interest rate risk arises both on non-current and current borrowings. Ordina continually analyses developments in cash flows in relation to available overdraft facilities and interest rate fluctuations.
At year-end 2009, Ordina’s non-current borrowings amounted to approximately EUR 64.8 million in total. The non-current borrowings consisted of a subordinated loan of EUR 26.2 million and other loans in the sum of EUR 38.6 million. The interest coupon on the subordinated loan has been fixed at 13.5% per annum. The other long-term loans are floating-rate loans. In order to manage the interest rate risk on the long-term loan with an original principal of EUR 35 million, the floating interest rate was swapped into a fixed rate for the full term of the loan, thereby converting the floating base rate into a fixed rate of interest. Under this interest rate swap, Ordina agreed with a third party to exchange, at quarterly intervals, the difference between the fixed contract rate and the floating-rate interest amount. The floating rate of interest due on the current borrowings is dependent on the term to maturity of the borrowings plus a margin. The term to maturity of the current borrowings fluctuates depending on cash requirements and ranges between one and three months. The margin depends on the ratio of adjusted EBITDA to Ordina’s net debt position per quarter end, and ranges between 1.75% and 3.75%.
If the floating rate of interest on non-current and current borrowings had been 0.8% higher/lower with all other variables remaining constant during 2009, post-tax profit for the year would have been approximately EUR 0.3 million lower/higher. The 0.8% interest rate is based on the volatility of interest rates during 2009.
4.1.2. Currency risk
All member companies of Ordina are based, and most of their revenue is realised, in the eurozone. Therefore, Ordina has chosen the euro as its presentation currency. Ordina has no assets or liabilities outside the eurozone. The Management Board qualifies the currency risk at year-end 2009 as very limited.
4.2. Credit risk
Credit risk is managed on a group basis. Credit risk arises on cash and cash equivalents, derivative financial instruments and transactions with customers, including credit exposures. For banks and financial institutions, only independently rated professional parties based in the Netherlands are accepted, with risks being spread over a range of parties. Ordina’s financing facilities, as described in the explanations 15 and 16, have been contracted from ING Bank, Rabobank, Fortis Bank Nederland and NIBC. The credit quality of clients is assessed in advance using project acceptance criteria. If available, external credit ratings are used. If there is no independent rating, Ordina assesses the credit quality of the customer based on internal guidelines, taking into account its financial position, past experience and other factors. The exposure to credit risk associated with customers is assessed on an ongoing basis using the internal guidelines. The Management Board qualifies the client credit risk at year-end 2009 as limited.
4.3. Liquidity risk
With the exception of recent acquisitions, cash management within Ordina has been centralised using the centrally managed senior overdraft facilities that Ordina contracted in mid-October 2009. At year-end 2009, Ordina was able to draw on a senior committed facility of EUR 120 million in total, as well as on a subordinated loan with an original principal of EUR 27.5 million. Cash management is aimed at putting Ordina’s available cash resources and financing facilities to the best possible use. To this end, cash flow forecasts are prepared periodically for both the short and medium terms. These forecasts are revised periodically based on actual results and revised forecasts, if any.
As a policy principle and in line with usual practices within the sector, Ordina seeks to cap its total net debt position at twice the amount of earnings before interest, taxes, depreciation and amortisation (EBITDA). At year-end 2009, total net debt was 0.9 times EBITDA, which falls comfortably within the bandwidth of the agreed policy (2008: 1.6 times EBITDA).
Within Ordina, the covenant calculation is performed four times a year, i.e. on 31 March, 30 June, 30 September and 31 December. Total net debt is the sum of borrowings (subordinated and senior) net of cash and cash equivalents plus finance lease commitments. On the specified dates, EBITDA is calculated for the preceding 12 months. EBITDA can be adjusted for specific non-recurring expense items.
The table below analyses Ordina’s financial liabilities into relevant contractual due dates, based upon the remaining period from assessment date to contractual due date. The amounts disclosed are the unconditional, contractual, undiscounted cash flows.
| Carrying amount | Maturity date | ||||
| Less than 1 year | 1-2 years | More than 2 years | |||
| At 31 December 2009 | |||||
| Subordinated Loan | -26,202 | - | -7,150 | -20,350 | |
| Borrowings / Term Loan - Revolver | -48,557 | -10,000 | -40,000 | - | |
| Derivative financial instruments | -101 | -321 | -14 | - | |
| Finance lease obligations | -2,145 | -1,311 | -836 | -8 | |
| Trade and other payables | -21,706 | -21,706 | - | - | |
| At 31 December 2008 | |||||
| Borrowings / Term Loan | -34,930 | -10,000 | -25,000 | - | |
| Derivative financial instruments | -699 | -172 | -196 | - | |
| Finance lease obligations | -3,930 | -1,754 | -2,069 | -153 | |
| Trade and other payables | -51,398 | -51,398 | - | - | |
4.4. Capital risk management
Capital is managed centrally to safeguard Ordina’s ability to continue as a going concern and to maintain an optimal capital structure in order to reduce the cost of capital and generate returns for shareholders.
Instruments for achieving the best possible capital structure are dividend policy, the option to purchase treasury shares and the option to issue new shares, in particular to fund potential acquisitions or to reduce debt. In this light, 7.8 million ordinary shares in Ordina N.V. were issued in mid-2009, boosting equity by approximately EUR 19.3 million.
Ordina's objective is to maintain a minimum capital asset ratio of 25%. The capital asset ratio at year-end 2009 was 46% (year-end 2008: 35%). If, based on a sensitivity analysis, the assumed rate of goodwill impairment is 30%, the capital asset ratio at year-end 2009 was 37% (year-end 2008: 27%). If an impairment rate is assumed of 50%, the capital asset ratio at year-end 2009 was 30% year-end 2008: 19%).
5. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management of Ordina makes estimates and assumptions concerning the future on an ongoing basis. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
5.1. Impairment of goodwill
Ordina tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated in Note 2.13. Where the recoverable amount of goodwill is less than its carrying amount, an impairment loss is recognised. The recoverable amounts of cash-generating units are determined based on value-in-use calculations. These calculations require the use of estimates (Note 7.6). The recoverable amount is based on the higher of the asset's fair value less costs to sell and its value in use.
If the estimated (pre-tax) discount rate applied to the discounted cash flows had been 10% higher than management's estimates, this would not have resulted in a reduction in the carrying amounts of the intangible assets. At an estimated interest rate of 14.4%, under identical other assumptions, the recoverable amounts of the cash-generating units correspond with the carrying amounts year-end 2009 of goodwill and intangible assets related to customers.
If the estimated medium and long-term growth rates had been 10% lower than management's estimates, this would not have resulted in a reduction in the carrying amounts of the intangible assets.
5.2. Revenue recognition
Ordina uses the percentage of completion method in accounting for fixed-price contracts. Use of this method requires Ordina to estimate the costs incurred to date as a proportion of the estimated costs to meet the contractual obligations (Note 2.19.2). Estimates are based on periodically available information regarding the stage of completion of the projects in question.
5.3. Restructuring provision
Ordina recognises a restructuring provision when it has prepared a detailed formal plan for the restructuring and has started to implement the restructuring or has raised a valid expectation in those affected that it will carry out the restructuring by announcing its main features to those affected by it. Restructuring provisions include estimates and assumptions involving redundancy and severance payments. The actual situation may differ from these estimates.
5.4. Provision for onerous contracts
The amount of the provision corresponds with the excess of the unavoidable costs of meeting the obligations under such contracts over the economic benefits expected to be received under them. The actual situation may differ from these estimates.
5.5. Income tax expense
Ordina assesses annually the extent to which tax losses are expected to qualify for set-off (Note 19.1). The actual set-off may differ from these estimates.
6. Segment information
Segment information is disclosed for Ordina Netherlands and Ordina Belgium/Luxembourg. Segment results, assets and liabilities are items that are directly or reasonably attributable to a segment. The prices and terms of inter-segment transactions are determined on an arm's length, objective basis. Segment capital expenditure is the total amount incurred during the period to acquire segment assets that are expected to be used for more than one period. Segment results do not include interest revenue or interest expense, income tax, or proceeds from the sale of associates. The assets and liabilities of a segment do not include any tax assets or tax receivables.
6.1. Operating segments
Segment information is disclosed based on Ordina’s internal governance, reporting and decision-making structure. At Ordina, a number of operating segments report directly to the Management Board. These are Ordina Netherlands, Ordina Belgium/Luxembourg and three 100% participations, i.e. fiNext, Integer and Ormit, each of which is for-profit-managed. Ordina Netherlands and Ordina Belgium/Luxembourg offer services in the areas of Consulting, IT and Application Outsourcing. These services are offered to customers in cohesion and in combination. For this reason, these different types of services have been aggregated from a commercial and operating perspective into the operating segments Ordina Netherlands and Ordina Belgium/Luxembourg. The three participations score under 10% in terms of their revenue, share of profit and total assets. In addition, they offer similar types of services and have a similar profile of risks and rewards as Ordina Netherlands. That is why the disclosures on the associates have been aggregated into the Dutch operations. This is in accordance with the provisions of IFRS 8. The result is that Ordina discloses segment information for 2009 on its operations in the Netherlands and Belgium/Luxembourg. Segment results, assets and liabilities are items that are directly attributable to the segment in question.
Up to and including 2008, Ordina also identified Business Process Outsourcing as an operating segment in the Netherlands. This segmentation became obsolete in 2009, when the BPO activities were sold. They are now recognised as discontinued operations.
6.1.1. Segment information
The segment results for the year ended 31 December 2008 are as follows:
| Notes | the Netherlands | Belgium/Luxembourg | Subtotal | Discontinued operations | Total | |
| Total segment revenue | 596,175 | 70,277 | 666,452 | 43,032 | 709,484 | |
| Inter-segment revenue | -11,291 | -1,720 | -13,011 | - | -13,011 | |
| Revenue | 584,884 | 68,557 | 653,441 | 43,032 | 696,473 | |
| Operating profit | 8,553 | 3,846 | 12,399 | -89,462 | -77,063 | |
| Finance costs - net | 25 | -4,948 | -498 | -5,446 | ||
| Result on disposed subsidiaries | 26 | 10,425 | -28,000 | -17,575 | ||
| Share of profit of associates | 133 | - | 133 | |||
| Profit before tax | 18,009 | -117,960 | -99,951 | |||
| Income tax expense | 27 | -2,442 | 21,259 | 18,817 | ||
| Profit for the year | 15,567 | -96,701 | -81,134 | |||
The segment results for the year ended 31 December 2009 are as follows:
| Notes | the Netherlands | Belgium/Luxembourg | Subtotal | Discontinued operations | Total | |
| Total segment revenue | 473,460 | 71,509 | 544,969 | 8,007 | 552,976 | |
| Inter-segment revenue | -1,228 | -1,430 | -2,658 | - | -2,658 | |
| Revenue | 472,232 | 70,079 | 542,311 | 8,007 | 550,318 | |
| Operating profit | 8,733 | -872 | 7,861 | -1,795 | 6,066 | |
| Finance costs - net | 25 | -5,093 | 10 | -5,083 | ||
| Result on disposed subsidiaries | 26 | - | - | - | ||
| Share of profit of associates | 300 | - | 300 | |||
| Profit before tax | 3,068 | -1,785 | 1,283 | |||
| Income tax expense | 27 | -1,749 | 646 | -1,103 | ||
| Profit for the year | 1,319 | -1,139 | 180 | |||
In 2009, Ordina recognised approximately EUR 2.3 million (2008: approximately EUR 1.2 million) in revenue from the sale of licences. Two Dutch clients accounted for more than 10% of total revenue in 2009. The revenue generated from these two clients was approximately EUR 70.0 million and approximately EUR 60.0 million.
Other segment items included in the income statement for 2008 are as follows:
| Notes | the Netherlands | Belgium/Luxembourg | Subtotal | Discontinued operations | Total | |
| Amortisation | 7 | 18,512 | 2,215 | 20,727 | 3,845 | 24,572 |
| Depreciation | 8 | 8,137 | 735 | 8,872 | 2,227 | 11,099 |
| Impairment | 7/8 | - | - | - | 72,543 | 72,543 |
Other segment items included in the income statement for 2009 are as follows:
| Notes | the Netherlands | Belgium/Luxembourg | Subtotal | Discontinued operations | Total | |
| Amortisation | 7 | 14,921 | 2,467 | 17,388 | 29 | 17,417 |
| Depreciation | 8 | 6,233 | 852 | 7,085 | 79 | 7,164 |
| Impairment | 7/8 | - | - | - | - | - |
The segment assets and liabilities at 31 December 2008 and capital expenditure for the year then ended were as follows:
| Notes | the Netherlands | Belgium/Luxembourg | Subtotal | Discontinued operations | Total | |
| Assets | 381,222 | 59,310 | 440,532 | 19,939 | 460,471 | |
| Liabilities | 250,508 | 27,814 | 278,322 | 18,869 | 297,191 | |
| Purchases of intangible assets | 7 | 4,668 | 11,563 | 16,231 | 31,471 | 47,702 |
| Purchases of property, plant and equipment | 8 | 4,155 | 1,105 | 5,260 | 1,679 | 6,939 |
| Carrying amount of intangible assets | 7 | 212,858 | 27,170 | 240,028 | - | 240,028 |
| Carrying amount of property, plant and equipment | 8 | 18,285 | 2,070 | 20,355 | - | 20,355 |
The segment assets and liabilities at 31 December 2009 and capital expenditure for the year then ended were as follows:
| Notes | the Netherlands | Belgium/Luxembourg | Subtotal | Discontinued operations | Total | |
| Assets | 355,785 | 44,884 | 400,669 | - | 400,669 | |
| Liabilities | 197,474 | 19,055 | 216,529 | - | 216,529 | |
| Purchases of intangible assets | 7 | 1,026 | 341 | 1,367 | 29 | 1,396 |
| Purchases of property, plant and equipment | 8 | 2,419 | 1,707 | 4,126 | 79 | 4,205 |
| Carrying amount of intangible assets | 7 | 198,959 | 25,044 | 224,003 | - | 224,003 |
| Carrying amount of property, plant and equipment | 8 | 14,471 | 2,528 | 16,999 | - | 16,999 |
7. Intangible assets
This item can be broken down as follows:
| Goodwill | Software | Related to customers | Intellectual property rights | Total | ||
| At 1 January 2008 | ||||||
| Cost | 194,827 | 8,421 | 94,045 | 44,616 | 341,909 | |
| Accumulated amortisation | -8,262 | -4,044 | -32,395 | -4,597 | -49,298 | |
| Carrying amount at 1 January 2008 | 186,565 | 4,377 | 61,650 | 40,019 | 292,611 | |
| Movements in carrying amount | ||||||
| Additions | 5,378 | 3,527 | 7,320 | 25,828 | 42,053 | |
| Internally generated | - | 650 | - | 4,999 | 5,649 | |
| Acquisitions | - | - | - | - | - | |
| Amortisation | - | -3,669 | -16,946 | -3,957 | -24,572 | |
| Impairment | - | -1,351 | - | -66,426 | -67,777 | |
| Assets classified as held for sale | - | - | - | - | - | |
| Disposals | -5,373 | -12 | -2,421 | -130 | -7,936 | |
| Carrying amount at 31 December 2008 | 186,570 | 3,522 | 49,603 | 333 | 240,028 | |
| At 31 December 2008 | ||||||
| Cost | 194,832 | 12,464 | 97,742 | 75,314 | 380,352 | |
| Accumulated amortisation | -8,262 | -8,942 | -48,139 | -74,981 | -140,324 | |
| Carrying amount at 31 December 2008 | 186,570 | 3,522 | 49,603 | 333 | 240,028 | |
| Of which internally generated | - | 985 | - | 318 | 1,303 | |
| Goodwill | Software | Related to customers | Intellectual property rights | Total | ||
| At 1 January 2009 | ||||||
| Cost | 194,832 | 12,464 | 97,742 | 75,314 | 380,352 | |
| Accumulated amortisation | -8,262 | -8,942 | -48,139 | -74,981 | -140,324 | |
| Carrying amount at 1 January 2009 | 186,570 | 3,522 | 49,603 | 333 | 240,028 | |
| Movements in carrying amount | ||||||
| Additions | 41 | 604 | - | - | 645 | |
| Internally generated | - | 751 | - | - | 751 | |
| Reclasses | - | 333 | - | -333 | - | |
| Acquisitions | - | - | - | - | - | |
| Amortisation | - | -1,897 | -15,520 | - | -17,417 | |
| Impairment | - | - | - | - | - | |
| Assets classified as held for sale | - | - | - | - | - | |
| Disposals | - | -4 | - | - | -4 | |
| Carrying amount at 31 December 2009 | 186,611 | 3,309 | 34,083 | - | 224,003 | |
| At 31 December 2009 | ||||||
| Cost | 194,873 | 12,181 | 97,742 | - | 304,796 | |
| Accumulated amortisation | -8,262 | -8,872 | -63,659 | - | -80,793 | |
| Carrying amount at 31 December 2009 | 186,611 | 3,309 | 34,083 | - | 224,003 | |
| Of which internally generated | - | 1,159 | - | - | 1,159 | |
7.1. Additions and disposals
Investments in 2009 in goodwill involved the acquisition of E-Chain Management (Belgium).
7.2. Impairment and reversal of impairment losses
Ordina did not recognise any impairment losses on intangible assets in 2009. In 2008, Ordina recognised impairment losses on intangible assets held by Ordina BPO B.V. No prior-year impairment losses on intangible assets were reversed in 2009.
7.3. Goodwill
Goodwill is allocated to Ordina’s cash-generating units. A segment-level summary of these cash flow-generating units is presented below.
| Total | ||
| Ordina the Netherlands | 169,261 | |
| Rabo OBT | 97 | |
| Total the Netherlands | 169,358 | |
| Ordina Belgium / Luxembourg | 17,253 | |
| Total Belgium / Luxembourg | 17,253 | |
| Total Ordina | 186,611 | |
For details on the net realisable value based on value in use, see Note 7.6.
7.4. Intangible assets related to customers
This item relates to the measurement at acquisition of brand names, customer lists and contract portfolios. The different components are amortised based on the individual components over their estimated useful lives. Intangible assets related to customers are allocated to Ordina’s cash-generating units. A segment-level summary of these cash-generating units is presented below.
| Total | ||
| Ordina the Netherlands | 13,592 | |
| Rabo OBT | 13,000 | |
| Total the Netherlands | 26,592 | |
| Ordina Belgium / Luxembourg | 7,491 | |
| Total Belgium / Luxembourg | 7,491 | |
| Total Ordina | 34,083 | |
Over the next years, intangible assets related to customers, based on all acquisitions undertaken by Ordina up to and including 2009, will be amortised as follows:
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | ||
| Amortisation of intangible assets due to acquisitions | 14.2 | 9.7 | 5.2 | 4.0 | 1.0 | - | |
| (in euro millions) | |||||||
7.5. Intellectual property rights related to business processes
These intangible assets related to Ordina BPO, which was sold as of April 2009.
7.6. Testing cash-generating units with goodwill and intangible assets related to customers for impairment
Ordina tests cash-generating units to which goodwill and intangible assets related to customers have been allocated for impairment annually. In this regard, reference is made to Notes 2.5, 2.13 and 5.
The useful life based on which cash flows are discounted is indefinite in principle. The recoverable amounts of the different cash-generating units to which goodwill and intangible assets related to customers can be allocated are determined by calculating their value in use. These calculations use cash flow projections based on actual cash flows, a detailed projection for the coming year and a three-year projection. The projection for the next three years is that the market will see a gradual recovery, resulting in improving productivity levels and, consequently, an increase in operating profit (even after non-recurring expenses). Based on this premise, allowance is being made for a strong improvement in cash flows especially for the years 2011 and 2012. Cash flows beyond three years are extrapolated using growth rates of between 0% and 2%, which are considered acceptable for the development in the sector in the medium and long term. Future cash flows are discounted on a post-tax basis at an interest rate of 11.5% (year-end 2008: 10.4%). The pre-tax interest rate at year-end 2009 was 14.5%. The accumulated carrying amount of the goodwill and intangible assets related to customers embodied in the cash-generating units is less than its recoverable amount based on value in use. Ordina did not, therefore, recognise any impairment loss on goodwill and intangible assets related to customers for 2009.
8. Property, plant and equipment
This item can be broken down as follows:
| Equipment | Fixtures and fittings | Renovations | Total | ||
| At 1 January 2008 | |||||
| Cost | 28,016 | 6,053 | 20,578 | 54,647 | |
| Accumulated depreciation | -16,297 | -4,024 | -5,262 | -25,583 | |
| Carrying amount at 1 January 2008 | 11,719 | 2,029 | 15,316 | 29,064 | |
| Movements in carrying amount | |||||
| Additions | 5,666 | 769 | 504 | 6,939 | |
| Acquisitions | 149 | 305 | 78 | 532 | |
| Depreciation | -7,040 | -1,070 | -2,989 | -11,099 | |
| Impairment | -2,622 | -393 | -1,751 | -4,766 | |
| Assets classified as held for sale | - | - | - | - | |
| Disposals | -101 | -20 | -194 | -315 | |
| Carrying amount at 31 December 2008 | 7,771 | 1,620 | 10,964 | 20,355 | |
| At 31 December 2008 | |||||
| Cost | 32,377 | 6,936 | 21,717 | 61,030 | |
| Accumulated depreciation | -24,606 | -5,316 | -10,753 | -40,675 | |
| Carrying amount at 31 December 2008 | 7,771 | 1,620 | 10,964 | 20,355 | |
| Equipment | Fixtures and fittings | Renovations | Total | ||
| At 1 January 2009 | |||||
| Cost | 32,377 | 6,936 | 21,717 | 61,030 | |
| Accumulated depreciation | -24,606 | -5,316 | -10,753 | -40,675 | |
| Carrying amount at 1 January 2009 | 7,771 | 1,620 | 10,964 | 20,355 | |
| Movements in carrying amount | |||||
| Additions | 1,943 | 395 | 1,867 | 4,205 | |
| Acquisitions | - | - | - | - | |
| Depreciation | -4,496 | -533 | -2,135 | -7,164 | |
| Impairment | - | - | - | - | |
| Assets classified as held for sale | - | - | - | - | |
| Disposals | -57 | -281 | -59 | -397 | |
| Carrying amount at 31 December 2009 | 5,161 | 1,201 | 10,637 | 16,999 | |
| At 31 December 2009 | |||||
| Cost | 25,361 | 6,332 | 20,272 | 51,965 | |
| Accumulated depreciation | -20,200 | -5,131 | -9,635 | -34,966 | |
| Carrying amount at 31 December 2009 | 5,161 | 1,201 | 10,637 | 16,999 | |
8.1. Additions and disposals
Capital expenditure on renovations and furniture and fixtures in 2009 related mainly to the new office buildings in Groningen (the Netherlands) and Mechelen (Belgium). Expenditures on equipment in 2009 chiefly involved replacement investments.
8.2. Impairment and reversal of impairment losses
Ordina did not recognise any impairment losses on property, plant and equipment in 2009. In 2008, Ordina recognised an impairment loss in relation to the property, plant and equipment of Ordina BPO B.V.
No prior-year impairment losses on property, plant and equipment were reversed in 2009.
8.3. Leasehold property, plant and equipment
Leased assets relate exclusively to equipment. At year-end 2009, the carrying amount of the leased assets was approximately
EUR 2.1 million (approximately EUR 3.3 million at year-end 2008). The lease contracts fall due in three to five years. Additions to leased assets during the reporting period amounted to approximately EUR 0.1 million (2008: approximately EUR 1.5 million).
9. Investments in associates
This item can be broken down as follows:
| 2009 | 2008 | ||
| At 1 January | 216 | 143 | |
| Additions | - | 125 | |
| Share of profit | 300 | 133 | |
| Dividend | - | -172 | |
| Disposals | - | -13 | |
| At 31 December | 516 | 216 | |
The associates at year-end 2009 were Rijnconsult B.V. (20% interest) and Passwerk CVBA (Belgium, 37.31% interest). The 22.5% interest in Double Sigma B.V. was sold in 2008.
The following breakdown applies to the associates:
| Assets | Liabilities | Revenue | Profit | Share | ||
| Rijnconsult B.V. | 3,037 | 1,750 | 11,780 | 687 | 20.0% | |
| Passwerk CVBA | 841 | 147 | 1,019 | 437 | 37.3% | |
10. Financial instruments by category
The accounting policies for financial instruments have been applied to the line items below:
| Loans and receivables | Derivatives used for hedging | Total | ||
| At 31 December 2008 | ||||
| Derivatives | - | -699 | -699 | |
| Trade and other receivables | 138,763 | - | 138,763 | |
| Cash and cash equivalents | 25,725 | - | 25,725 | |
| Total at 31 December 2008 | 164,488 | -699 | 163,789 | |
| Loans and receivables | Derivatives used for hedging | Total | ||
| At 31 December 2009 | ||||
| Derivatives | - | -101 | -101 | |
| Trade and other receivables | 82,100 | - | 82,100 | |
| Cash and cash equivalents | 52,575 | - | 52,575 | |
| Total at 31 December 2009 | 134,675 | -101 | 134,574 | |
All non-current borrowings (year-end 2009: EUR 64.8 million; year-end 2008: EUR 24.9 million) qualify as ‘other financial obligations’.
11. Trade and other receivables
Trade and other receivables can be summarised as follows:
| 2009 | 2008 | ||
| Trade receivables | 64,738 | 114,084 | |
| Provision for impairment of trade receivables | -1,623 | -3,546 | |
| Trade receivables - net | 63,115 | 110,538 | |
| Unbilled receivables | 17,362 | 24,679 | |
| Other receivables | 661 | 1,525 | |
| Prepayments and accrued income | 17,257 | 24,651 | |
| At 31 December | 98,395 | 161,393 | |
The fair value of the trade and other receivables approximates to their carrying amount.
As at 31 December 2009, trade receivables of approximately EUR 10.6 million (31 December 2008: approximately EUR 38.5 million) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
| 2009 | 2008 | ||
| Trade receivables not impaired and not past due | 52,542 | 72,052 | |
| Trade receivables not impaired and past due: | |||
| Up to 1 month | 5,530 | 15,328 | |
| 1 to 2 months | 3,545 | 8,546 | |
| 2 to 3 months | 962 | 6,243 | |
| Over 3 months | 536 | 8,369 | |
| 10,573 | 38,486 | ||
| Trade receivables - net | 63,115 | 110,538 | |
Movements in the allowance for doubtful debts were as follows:
| 2009 | 2008 | ||
| At 1 January | 3,546 | 2,244 | |
| Provision for receivables impairment | 220 | 2,134 | |
| Receivables written off during the year as incollectible | -1,154 | -635 | |
| Unused amounts reversed | -989 | -197 | |
| At 31 December | 1,623 | 3,546 | |
The trade receivables are denominated exclusively in euros. Ordina does not have any receivables that are denominated in a currency other than the euro.
The creation and release of the provision have been included in ‘other operating expenses’ in the income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.
The other classes within trade and other receivables do not contain impaired assets.
Prepayments and accrued income include prepaid expenses, receivables under fixed-price contracts and other amounts receivable. Other receivables fell due in less than one year at both year-end 2009 and 2008.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. Ordina does not hold any collateral as security.
12. Cash and cash equivalents
The balances disclosed in this item are at Ordina’s free disposal except for an amount of approximately EUR 9 million. At year-end 2009, Ordina no longer had any uncommitted overdraft facilities in place (year-end 2008: EUR 60 million). For details on the committed senior financing facilities, see Note 16.
At the balance sheet date, Ordina had no financial derivative instruments other than the interest rate swap for the long-term bank borrowings (Note 17).
The cash and cash equivalents have been deposited with professional market parties whose credit quality is rated as good.
13. Share capital
Movements in paid-up and called-up capital in 2008 and 2009 were as follows:
| Number of outstanding shares | Issued capital in EUR | ||
| At 1 January 2008 | 41,195 | 4,119 | |
| Issue at acquisitions | 75 | 7 | |
| Issue at option exercise | 18 | 2 | |
| Share-based payment | 46 | 5 | |
| At 31 December 2008 | 41,334 | 4,133 | |
| (in thousands) | |||
| Number of outstanding shares | Issued capital in EUR | ||
| At 1 January 2009 | 41,334 | 4,133 | |
| Issue of shares | 7,800 | 780 | |
| Issue at acquisitions | 153 | 16 | |
| Issue at option exercise | - | - | |
| Share-based payment | - | - | |
| At 31 December 2009 | 49,287 | 4,929 | |
| (in thousands) | |||
13.1. Paid-up and called-up share capital
The total authorised number of shares at year-end 2009 was 89,999,995 shares with a par value of EUR 0.10 per share and one priority share of EUR 0.50, divided as follows:
- priority shares 1
- preference shares 17,999,995
- ordinary shares 72,000,000
At year-end 2009, 1 priority share and 49,286,680 ordinary shares (year-end 2008: 1 priority share and 41,333,741 ordinary shares) were fully paid up. The increase in the number of outstanding shares was attributable in particular to the issue of 7,800,000 ordinary shares in Ordina N.V. in mid-2009. Ordina N.V. did not purchase any treasury shares at year-end 2009.
13.2. Share options
In the years 1999 to 2002, as well as in 2004, options were granted to the Management Board, management and employees on an annual basis. All options granted in 2004 lapsed by mid-2009. No options were exercised in 2009. All options outstanding at year-end 2008 lapsed in 2009.
In 2009, 240,000 conditional options in total were granted to a select group of employees. These options will vest by 1 April 2010 at the latest. About 210,000 options are expected to vest. With a view to this expected vesting, more than EUR 0.2 million was charged to profit in 2009. The options are valued using a Monte Carlo simulation model for the valuation of options. The exercise price will be EUR 4.55, which was based on the closing price of the Ordina N.V. share on the day preceding the conditional grant date. Vested options will be exercisable as of 2 April 2010. The options will lapse as of 2 September 2014.
Under the share option schemes, the option exercise price is at least equal to the closing price of the Ordina N.V. share on the day preceding the grant date. The option schemes include a repayment obligation by virtue of which part of the benefit enjoyed upon exercise of the option rights must be repaid if an employee leaves the company within three years of the grant date.
No treasury shares were purchased as at year-end 2009 for the purposes of exercising option rights. The number of ordinary shares in the authorised capital allows for future share issues pursuant to the exercise of outstanding option rights.
At year-end 2009, no option were outstanding under existing option plans (year-end 2008: approximately 0.3 million option rights). No options were exercised during the financial year (2008: 18,050 at an average exercise price of EUR 8.64).
Movements in the total number of outstanding share options in 2008 and 2009 were as follows:
| Granted | Exercised | Lapsed | Outstanding | Average exercise price | Exercise period in years | ||
| Movements in 2008 | |||||||
| Option scheme 2004 | 175 | 20 | 60 | 95 | 10.24 | 5 | |
| Option scheme 2004 | 447 | 209 | 62 | 176 | 8.68 | 5 | |
| Option scheme 2004 | 42 | 18 | 2 | 22 | 8.20 | 5 | |
| Outstanding at year-end 2008 | 293 | ||||||
| (in thousands) | |||||||
| Granted | Exercised | Lapsed | Outstanding | Average exercise price | Exercise period in years | ||
| Movements in 2009 | |||||||
| Option scheme 2004 | 175 | 20 | 155 | - | 10.24 | 5 | |
| Option scheme 2004 | 447 | 209 | 238 | - | 8.68 | 5 | |
| Option scheme 2004 | 42 | 18 | 24 | - | 8.20 | 5 | |
| Outstanding at year-end 2009 | - | ||||||
| (in thousands) | |||||||
14. Reserves
Movements in reserves in 2008 and 2009 can be broken down as follows:
| Share premium reserve | Hedging reserve | Retained earnings | Profit for the year | Total | ||
| At 1 January 2008 | 75,744 | 534 | 143,800 | 30,394 | 250,472 | |
| Prior-year dividend distribution | - | - | - | -8,250 | -8,250 | |
| Prior-year retained earnings | - | - | 22,144 | -22,144 | - | |
| Issue at acquisitions | 493 | - | - | - | 493 | |
| Issue at option exercise | 154 | - | - | - | 154 | |
| Share-based payment | 691 | - | -1,221 | - | -530 | |
| Profit for the year | - | - | - | -81,134 | -81,134 | |
| Actuarial gains and losses | - | - | -1,003 | - | -1,003 | |
| Changes in fair value of cash flow hedges | - | -1,055 | - | - | -1,055 | |
| Transfer to retained earnings | - | - | - | - | - | |
| At 31 December 2008 | 77,082 | -521 | 163,720 | -81,134 | 159,147 | |
| Share premium reserve | Hedging reserve | Retained earnings | Profit for the year | Total | ||
| At 1 January 2009 | 77,082 | -521 | 163,720 | -81,134 | 159,147 | |
| Prior-year dividend distribution | - | - | - | - | - | |
| Prior-year retained earnings | - | - | -81,134 | 81,134 | - | |
| Issue of shares | 18,564 | - | - | - | 18,564 | |
| Issue at acquisitions | 478 | - | - | - | 478 | |
| Issue at option exercise | - | - | - | - | - | |
| Share-based payment | - | - | 256 | - | 256 | |
| Profit for the year | - | - | - | 180 | 180 | |
| Actuarial gains and losses | - | - | 140 | - | 140 | |
| Changes in fair value of cash flow hedges | - | 446 | - | - | 446 | |
| Transfer to retained earnings | - | - | - | - | - | |
| At 31 December 2009 | 96,124 | -75 | 82,982 | 180 | 179,211 | |
The hedging reserve is comprised of the effective portion of the net cumulative change in the fair value of cash flow hedges where the hedge transaction has not yet been settled.
Of retained earnings, an amount of approximately EUR 81.8 million is freely distributable (year-end 2008: approximately EUR 81.3 million). The company financial statements at year-end 2009 include a statutory reserve in the sum of EUR 1.2 million (year-end 2008: EUR 1.3 million).
15. Non-current borrowings - Subordinated
The subordinated loan at year-end 2009 relates to the loan with an original principal of EUR 27.5 million in total raised from ING Corporate Investments Mezzanine Fonds and Delta Lloyd in the second half year of 2009. The interest coupon amounts to 13.5% per annum. The first interest payment will be made on 31 May 2010; the following payment is due 30 July 2010. After that, interest will be due every three months. The loan has a term of six years. No repayments will be made on the principal amount for the first two years. Movements in the subordinated long-term loan were as follows:
| 2009 | 2008 | ||
| At 1 January | - | - | |
| Bank borrowings | 27,500 | - | |
| Change due to effective interest method | -1,298 | - | |
| Repaid | - | - | |
| Presented as current liabilities | - | - | |
| At 31 December | 26,202 | - | |
The effective interest rate on the subordinated loan is 14.88%. The carrying amount of the subordinated loan was determined based on the effective interest method and approximates to its fair value. The repayment schedule of the subordinated long-term loan with an original principal of EUR 27.5 million is as follows:
| Repayment due in 2011 | 1,375 | |
| Repayment due in 2012 | 5,775 | |
| Repayment due in 2013 | 6,875 | |
| Repayment due in 2014 | 7,700 | |
| Repayment due in 2015 | 5,775 | |
| 27,500 | ||
Ordina also concluded an underwriting agreement with ING Corporate Investments Participaties en Delta Lloyd under which it has the option to issue shares at the prevailing share price subject to a 6% discount. The purchase of the shares is guaranteed. Up tot 22 share issue moments have been laid down in this agreement. The proceeds generated by these share issues can be used to offset the impact of interest payments and/or repayments on the subordinated loan in cash.
Unless Ordina decides not to issue shares, which it can do independently at any issue moment, Ordina will issue new ordinary shares on the respective issue dates for an amount that is equivalent to the interest paid and, if applicable, the repayment. If Ordina has the right to issue shares whose value is equivalent to interest plus repayments, it also has the option to limit the scope of the share issue to either the value of the interest or that of the repayments. The first possible issue date is 21 June 2010 and the second is 20 August 2010. Issue dates will then follow at three-month intervals, each around the 21st day of the month. The number of shares to be issued is determined by dividing the issue amount in question by the weighted average price of the Ordina N.V. share on Amsterdam’s NYSE Euronext Stock Exchange for the past five trading days preceding the issue date in question, subject to a 6% discount.
The covenant for the subordinated loan is based on the IFRS-compliant consolidated financial statements, with the ratio of earnings before interest, taxes, depreciation and amortisation (EBITDA) adjusted for non-recurring expenses and restructuring costs to Ordina’s total net debt as stipulated in the credit agreement, not exceeding the leverage ratio as agreed in de senior financing facility increased by 0.75, but capped at 4.0. At year-end 2009, this meant that the ratio should not exceed 3.5. At year-end 2009, the ratio of total debt to (adjusted) EBITDA effectively amounted to 0.9.
Presented below is a table of estimated future cash flows from the contractual obligations assumed under the subordinated loan with an original principal of EUR 27.5 million.
| From fixed interest | From floating interest | From repayments | ||
| Estimated future cash flows | ||||
| 2010 | -4,476 | - | - | |
| 2011 to 2012 | -7,085 | - | -7,150 | |
| Later than 2012 | -4,285 | - | -20,350 | |
16. Non-current borrowings - Other
Other non-current borrowings can be broken down as follows:
| 2009 | 2008 | ||
| Term Loan | 23,557 | 24,930 | |
| Revolver | 15,000 | - | |
| At 31 December | 38,557 | 24,930 | |
In October 2009, Ordina negotiated a committed senior facility agreement with ING, Rabobank, Fortis Bank Nederland en NIBC totalling EUR 120 million. This facility agreement replaced the committed facility agreement of EUR 110 million, as granted by ING, Rabobank and RBS.
The committed senior facility agreement is comprised of a long-term loan with an original principal of EUR 35 million and a revolving facility of EUR 85 million. Of the revolving facility, EUR 10 million was used for a committed bank overdraft.
Movements in non-current borrowings were as follows:
| 2009 | 2008 | ||
| At 1 January | 34,930 | 44,893 | |
| Bank borrowings | 35,000 | - | |
| Change due to effective interest method | -1,373 | 37 | |
| Repaid | -35,000 | -10,000 | |
| Presented as current liabilities | -10,000 | -10,000 | |
| At 31 December | 23,557 | 24,930 | |
The effective interest rate on the long-term loan is 7.01%. The carrying amount of the long-term loan was determined based on the effective interest method and approximates to its fair value. The repayment schedule of the long-term loan with an original principal of EUR 35.0 million is as follows:
| Repayment due on 31 October 2010 | 10,000 | |
| Repayment due on 31 October 2011 | 10,000 | |
| Repayment due on 31 October 2012 | 15,000 | |
| 35,000 | ||
The interest on the long-term loan and the revolving facility is set based on the prevailing base rate (EURIBOR) plus a margin. The base rate is linked to the interest period to be designated by Ordina and may range from one to six months in principle. The margin depends on the ratio of earnings before interest, taxes, depreciation and amortisation (EBITDA) adjusted for non-recurring expenses and restructuring costs to Ordina’s senior net debt (exclusive of the subordinated loan) at the end of each quarter, and may range between 1.75% and 3.75%.
The interest rate (base rate plus margin) on the long-term loan of EUR 35 million was 2.474% at year-end 2009 (year-end 2008: 5.327%). The floating base rate (0.724% at year-end 2009) was converted into a fixed interest rate of 1.86% through an interest rate swap based on the three-month interest period (Note 17).
Ordina had an obligation under the revolving facility of EUR 15 million at year-end 2009 (year-end 2008: EUR 70 million). This obligation was recognised under non-current borrowings at year-end 2009. The interest rate (base rate plus margin) on the revolving facility was 2.175% at year-end 2009 (year-end 2008: 3.343%). A commitment fee of 35% of the margin is due on the unused portion of the revolving facility.
The covenants for the loan and the revolving facility consist of a maximum leverage ratio of senior net debt to (adjusted) EBITDA and an Interest Cover Ratio. The covenants are based on the IFRS-compliant consolidated financial statements. The credit agreement stipulates that the leverage ratio (ratio of earnings before interest, taxes, depreciation and amortisation (EBITDA) adjusted for non-recurring expenses and restructuring costs to Ordina’s senior net debt) cannot exceed 2.75. A maximum leverage ratio of 2.5 will apply after 31 December 2010. At year-end 2009, the ratio of senior net debt to (adjusted) EBITDA was 0.3 (year-end 2008: 1.6). The minimum Interest Cover Ratio will be 3.5 until 31 December 2010; a ratio of 4 will apply after that date. The Interest Cover Ratio was 8.1 at year-end 2009. The credit agreement also stipulates that the total EBITDA of the companies that are party to the credit agreement should account for at least 80% of the consolidated EBITDA provided in the credit agreement. This requirement was satisfied at year-end 2009. Only some trade receivables were pledged as security for this financing. The majority of group companies have assumed joint responsibility for the long-term loan and the revolving facility.
Presented below is a table of estimated future cash flows from the contractual obligations assumed under the long-term loan in the initial sum of EUR 35 million and the related interest rate swap.
| From fixed interest | From floating interest | From repayments | ||
| Estimated future cash flows | ||||
| 2010 | -1,019 | -321 | -10,000 | |
| 2011 to 2012 | -1,669 | -14 | -25,000 | |
| Later than 2012 | - | - | - | |
17. Derivative financial instruments
This item can be broken down as follows:
| 2009 | 2008 | ||
| Interest rate swaps | 101 | 699 | |
| At 31 December | 101 | 699 | |
Movements in derivative financial instruments were as follows:
| 2009 | 2008 | ||
| At 1 January | 699 | - | |
| Movements during the year | -598 | 699 | |
| At 31 December | 101 | 699 | |
The total carrying amount of the derivative financial instruments relates to the interest rate swap in respect of the non-current borrowings with an original principal of EUR 35 million. The interest rate swap contracted in 2006 that related to the long-term loan with an original principal of EUR 45 million was terminated early in 2009. As a result of this early termination, an amount of approximately EUR 1.3 million was charged against profit in 2009. In 2009, Ordina entered into a new interest rate swap for the long-term loan contracted in 2009 under the new financing facility (Note 16).
An interest rate swap is used to achieve a good mix of fixed and floating interest rates. The term to maturity and repayment schedule of the interest rate swap correspond with those of the underlying loan. The interest rate swap qualifies as a cash flow hedge. The principal of the non-current borrowings for which the interest rate swap was contracted amounts to EUR 35 million. There is no ineffective portion in relation to the change in the fair value of the interest rate swap. The interest rate swap was contracted in 2009. For details on estimated future cash flows arising from the interest rate swap, see Note 16. The interest rate swap has been contracted from a professional market party whose credit quality is rated as good.
18. Finance leases
Finance lease liabilities relate to finance leases of equipment that fall due in more than one year. Lease liabilities that fall due in less than one year are recognised as ‘current liabilities’. The underlying assets are disclosed as ‘property, plant and equipment’. All finance leases at Ordina contain a fixed-interest component.
| 2009 | 2008 | ||
| Minimum lease payments | |||
| No later than 1 year | 1,301 | 1,718 | |
| Later than 1 year and no later than 5 years | 844 | 2,212 | |
| Later than 5 years | - | - | |
| Total at 31 December | 2,145 | 3,930 | |
Presented below is a table of estimated future cash flows from the contractual obligations (both current and non-current) assumed under finance leases.
| From fixed interest | From repayments | ||
| Estimated future cash flows | |||
| 2010 | 10 | 1,301 | |
| 2011 to 2012 | - | 836 | |
| Later than 2012 | - | 8 | |
19. Deferred taxes
Deferred taxes can be broken down as follows:
| Notes | 2009 | 2008 | |
| Deferred tax assets | 19.1 | 11,647 | 15,920 |
| Set off deferred tax liabilities | -3,466 | -9,315 | |
| Defered tax assets net | 8,181 | 6,605 | |
| Notes | 2009 | 2008 | |
| Deferred tax liabilities | 19.2 | 5,938 | 9,315 |
| Set off deferred tax liabilities | -3,466 | -9,315 | |
| Defered tax liabilities net | 2,472 | - | |
19.1. Deferred income tax assets
Deferred income tax assets can be broken down as follows:
| 2009 | 2008 | ||
| Intangible assets and property, plant and equipment | 2,287 | 2,185 | |
| Employee related provisions | 929 | 1,972 | |
| Recognised tax losses | 8,405 | 11,585 | |
| Derivative financial instruments | 26 | 178 | |
| Unrealised intercompany gains | - | - | |
| At 31 December | 11,647 | 15,920 | |
The deferred tax asset by virtue of intangible assets and property, plant and equipment relates to the temporary measurement differences due to the changed minimal fiscal amortisation period, starting in 2007. Measurement is at the set tax rates.
The deferred tax asset by virtue of employee-related provisions relates to temporary measurement differences where pension benefits are concerned. Measurement is at the set tax rates.
Tax losses are recognised if they are expected to be utilised (total at year-end 2009: approximately EUR 32.9 million; year-end 2008: approximately EUR 45.4 million). Measurement is at the fair value that will apply to future financial years. The total tax loss potential at year-end 2009 was approximately EUR 33.7 million (year-end 2008: approximately EUR 52.6 million).
No deferred tax asset was recognised for tax losses amounting to approximately EUR 0.7 million (year-end 2008: approximately EUR 7.2 million) because it is not probable that taxable profit will be available in the future against which any deferred tax asset can be utilised. The sale of Ordina BPO B.V. weighed down the unrecognised tax losses by about EUR 6.6 million.
Of the deferred tax assets, an amount of approximately EUR 7.8 million (2008: EUR 8.6 million) has a term of more than one year. Of this item, approximately EUR 3.5 million has been netted against the deferred tax liabilities (see Note 2.21). After netting, the deferred tax assets amounted to EUR 8.2 million at year-end 2009.
Movements in deferred income tax assets were as follows in 2008:
| Opening balance 2008 |
Acquisitions/ Divestments |
Recognised in income statement | Recognised in equity | Closing balance 2008 | ||
| Intangible assets and property, plant and equipment | 1,097 | -116 | 1,204 | - | 2,185 | |
| Employee related provisions | 1,650 | - | -21 | 343 | 1,972 | |
| Recognised tax losses | 2,106 | -129 | 9,608 | - | 11,585 | |
| Derivative financial instruments | - | - | - | 178 | 178 | |
| Unrealised intercompany gains | 102 | - | -102 | - | - | |
| 4,955 | -245 | 10,689 | 521 | 15,920 | ||
Movements in deferred income tax assets were as follows in 2009:
| Opening balance 2009 |
Acquisitions/ Divestments |
Recognised in income statement | Recognised in equity | Closing balance 2009 | ||
| Intangible assets and property, plant and equipment | 2,185 | - | 102 | - | 2,287 | |
| Employee related provisions | 1,972 | - | -994 | -49 | 929 | |
| Recognised tax losses | 11,585 | - | -3,180 | - | 8,405 | |
| Derivative financial instruments | 178 | - | - | -152 | 26 | |
| Unrealised intercompany gains | - | - | - | - | - | |
| 15,920 | - | -4,072 | -201 | 11,647 | ||
19.2. Deferred income tax liabilities
Deferred income tax liabilities can be broken down as follows at year end:
| 2009 | 2008 | ||
| Intangible assets related to customers | 5,938 | 9,315 | |
| Derivative financial instruments | - | - | |
| 5,938 | 9,315 | ||
The deferred tax liabilities relate to temporary measurement differences that arise in relation to intangible assets related to customers acquired in business combinations. They are measured at the fair value that is expected to apply during the amortisation period of these assets. Of the deferred tax liabilities, an amount of approximately EUR 2.9 million (2008: approximately EUR 5.9 million) has a term of more than one year. Of the deferred tax liabilities, an amount of approximately EUR 3.5 million has been netted against the deferred tax assets (see Note 2.21). After netting, the deferred tax liabilities amounted to approximately EUR 2.5 million at year-end 2009.
Movements in deferred income tax liabilities were as follows in 2008:
| Opening balance 2008 |
Acquisitions/ Divestments |
Recognised in income statement | Recognised in equity | Closing balance 2008 | ||
| Intangible assets related to customers | 11,334 | 1,798 | -3,817 | - | 9,315 | |
| Derivative financial instruments | 183 | - | - | -183 | - | |
| 11,517 | 1,798 | -3,817 | -183 | 9,315 | ||
Movements in deferred income tax liabilities were as follows in 2009:
| Opening balance 2009 |
Acquisitions/ Divestments |
Recognised in income statement | Recognised in equity | Closing balance 2009 | ||
| Intangible assets related to customers | 9,315 | - | -3,377 | - | 5,938 | |
| Derivative financial instruments | - | - | - | - | - | |
| 9,315 | - | -3,377 | - | 5,938 | ||
20. Employee-related provisions
Employee-related provisions can be summarised as follows:
| 2009 | 2008 | ||
| Defined benefit obligation | 3,645 | 5,269 | |
| Jubilee benefits | 3,662 | 3,747 | |
| Total employee benefits | 7,307 | 9,016 | |
20.1. Defined benefit obligation
The defined benefit obligation can be broken down as follows:
| 2009 | 2008 | ||
| Defined benefit obligation | 22,695 | 24,224 | |
| Less: fair value of plan assets | 19,050 | 18,955 | |
| Defined benefit obligation | 3,645 | 5,269 | |
Movements in the defined benefit obligation were as follows:
| 2009 | 2008 | ||
| At 1 January | 24,224 | 23,795 | |
| Current service cost | - | - | |
| Interest cost | 1,170 | 1,357 | |
| Contributions by plan participants | - | - | |
| Benefits paid | -118 | 27 | |
| Actuarial gains and losses | 632 | -955 | |
| Divestments | -3,213 | - | |
| Defined benefit obligation at 31 December | 22,695 | 24,224 | |
Movements in the fair value of plan assets were as follows:
| 2009 | 2008 | ||
| At 1 January | 18,955 | 20,437 | |
| Expected return on plan assets | 968 | 1,159 | |
| Employer contributions | - | -147 | |
| Benefits paid | -125 | -193 | |
| Actuarial gains and losses | 820 | -2,301 | |
| Divestments | -1,568 | - | |
| Fair value of plan assets at 31 December | 19,050 | 18,955 | |
The defined pension obligation (based on average salary or final salary schemes) is measured at present value in accordance with the provisions of IAS 19, ‘Employee Benefits’. Plan assets are stated at fair value. Actuarial gains and losses are recognised directly in equity. All pension plans operated by Ordina are administrated by professional insurers. The plan assets are comprised of qualifying insurance policies.
The cumulative change relating to actuarial gains and losses recognised directly in equity amounted to EUR 7.1 million negative (year-end 2008: EUR 7.3 million negative).
The amounts recognised in the income statement were as follows:
| Notes | 2009 | 2008 | |
| Current service cost | - | - | |
| Interest cost | 1,170 | 1,357 | |
| Expected return on plan assets | -968 | -1,159 | |
| Release of pension provision due to harmonisation | - | - | |
| Total, included in personnel expenses | 23 | 202 | 198 |
The actual return on plan assets was EUR 1.8 million (2008: 1.1 million negative). Plan assets are comprised in full of the market value of the insurance contracts that are principally characterised by surplus interest sharing. There is no separate investment portfolio. Given the nature of the plan assets, the expected return is based on the forecast surplus interest and the contractual interest.
The principal actuarial assumptions were as follows:
| 2009 | 2008 | ||
| Discount rate at 31 December | 5.25% | 5.60% | |
| Expected return on plan assets | 5.25% | 5.60% | |
| Future salary increases (age-related) | 2.0%-5.0% | 2.0%-5.0% | |
| Future increase in pension obligation (plan-related) | 0.0%-3.0% | 0.0%-3.0% | |
Assumptions involving life expectation are set based on advice in accordance with published statistics. The average life expectancy in years of a pensioner retiring at age 65 on the balance sheet date is as follows:
| 2009 | 2008 | ||
| Male | 18.6 | 18.5 | |
| Female | 21.6 | 21.6 | |
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date, is as follows:
| 2009 | 2008 | ||
| Male | 20.1 | 20.0 | |
| Female | 22.3 | 22.3 | |
If the major Dutch pension funds should decide to apply the increased life expectancy based on recently published mortality tables, the defined benefit obligation will rise by about 4%.
20.2. Jubilee benefits
The jubilee obligation can be broken down as follows:
| 2009 | 2008 | ||
| Jubilee benefits | 3,662 | 3,747 | |
| Less: fair value of jubilee assets | - | - | |
| Jubilee benefits | 3,662 | 3,747 | |
The terms of employment of various group companies include a jubilee scheme, based on which employees who celebrate an anniversary with the company receive a gross, non-salary-based bonus. Under IAS 19, ‘Employee Benefits’, a provision was formed for the contingent liability associated with this jubilee scheme. Actuarial gains and losses are recognised directly in profit or loss.
The amounts recognised in the income statement were as follows:
| 2009 | 2008 | ||
| Current jubilee cost | 593 | 628 | |
| Interest cost | 195 | 205 | |
| Actuarial gains and losses | -487 | -625 | |
| Total, included in personnel expenses | 301 | 208 | |
Movements in the amounts recognised in the balance sheet were as follows:
| Notes | 2009 | 2008 | |
| At 1 January | 3,747 | 3,990 | |
| Charged against profit, standard | 788 | 833 | |
| Jubilee benefits | -386 | -451 | |
| Actuarial gains and losses | -50 | -318 | |
| Divestments | -437 | -307 | |
| At 31 December | 3,662 | 3,747 | |
The principal actuarial assumption was as follows:
| 2009 | 2008 | ||
| Discount rate at 31 December | 4.6% | 5.6% | |
21. Other provisions
Movements in other provisions were as follows in 2008:
| Projects | Reorganisation | Other | Total | ||
| At 1 January | 94 | - | 2,144 | 2,238 | |
| Additions | 5,517 | 13,985 | 1,313 | 20,815 | |
| Unused amounts | -157 | - | -152 | -309 | |
| Used during the year | -4 | - | -1,072 | -1,076 | |
| At 31 December | 5,450 | 13,985 | 2,233 | 21,668 | |
Movements in other provisions were as follows in 2009:
| Projects | Reorganisation | Other | Total | ||
| At 1 January | 5,450 | 13,985 | 2,233 | 21,668 | |
| Additions | 71 | 3,674 | 284 | 4,029 | |
| Unused amounts | -500 | - | -60 | -560 | |
| Used during the year | -4,936 | -15,671 | -1,790 | -22,397 | |
| At 31 December | 85 | 1,988 | 667 | 2,740 | |
The provision for project commitments pertains to outstanding project activities that were recognised in the financial year under the prevailing accounting policies. The restructuring provision is for non-recurring costs associated with the restructuring and initiatives for sustainable margin improvement. Other provisions relate to vacancy of buildings for which Ordina has a contractual lease obligation. The provision for vacant buildings was formed to cover the future rent, including directly attributable costs, for the contract period in which Ordina does not expect to use these buildings.
Of the provisions, an amount of approximately EUR 0.1 million (2008: approximately EUR 0.9 million) has a term of more than one year.
22. Trade and other payables, accruals and deferred income
This item can be summarised as follows:
| 2009 | 2008 | ||
| Trade payables | 15,953 | 30,079 | |
| Advanced billings | 12,083 | 7,521 | |
| Taxes and social security | 28,281 | 22,766 | |
| Pension contributions | 2,375 | 1,171 | |
| Lease payments due within 1 year | 1,301 | 1,718 | |
| Other payables | 7,903 | 13,363 | |
| Accruals and deferred income | 46,588 | 80,044 | |
| At 31 December | 114,484 | 156,662 | |
The item ‘other payables’ relates to earn-out payments by virtue of acquisitions, among other debts. Accruals and deferred income include commitments involving holiday allowance, leave day entitlements, year-end and other bonuses, and other personnel expenses, other items charged to profit or loss for the year under the accounting policies, as well as the commitment regarding the sale of Ordina BPO B.V. for EUR 9.2 million (year-end 2008: EUR 28.0 million). Other payables, accruals and deferred income falling due in more than one year amounted to approximately EUR 1.0 million at year-end 2009 (year-end 2008: approximately EUR 14.5 million).
23. Personnel expenses
| 2009 | 2008 | ||
| Salaries | 248,010 | 317,970 | |
| Social charges | 34,958 | 41,000 | |
| Defined benefit obligation | 202 | 198 | |
| Defined contribution obligation | 16,039 | 18,991 | |
| Other personnel expenses | 54,640 | 96,689 | |
| Total | 353,849 | 474,848 | |
| Related to discontinued operations | -5,349 | -24,423 | |
| Continued operations | 348,500 | 450,425 | |
Other personnel expenses include car expenses, hotel and travelling expenses, and study costs. This item also includes an amount of approximately EUR 28.6 million (2008: approximately EUR 32.8 million) for operating leases for cars. Additionally, an amount of approximately EUR 4.3 million (2008: approximately EUR 17.0 million) was recognised in this item in 2009 for restructuring costs.
Personnel expenses included an expense item of approximately EUR 0.3 million for share-based payment in 2009 (2008: an income item of approximately EUR 0.5 million). The income recognised in 2008 was attributable to the release of reservations in connection with changes in scoring chances.
The average workforce in FTEs numbered 4,534 in 2009 (2008: 5,519).
At year-end 2009, Ordina employed 4,121 FTEs (year-end 2008: 5,336 FTEs). The number of FTEs working at the Belgian and Luxembourg-based group companies was 626 at year-end 2009 (year-end 2008: 705 FTEs).
24. Other operating expenses
Other operating expenses can be broken down as follows:
| 2009 | 2008 | ||
| Office accommodation costs | 14,154 | 17,055 | |
| Marketing and selling expenses | 5,133 | 8,484 | |
| Other expenses | 14,273 | 21,272 | |
| Total | 33,560 | 46,811 | |
| Related to discontinued operations | -1,466 | -8,619 | |
| Continued operations | 32,094 | 38,192 | |
Other expenses include information management and automation expenses, the cost of insurance, and audit and consulting fees.
Of office accommodation costs, an amount of about EUR 9.5 million (2008: approximately EUR 10.7 million) was recognised for operating leases.
Audit fees recognised in the income statement 2008 under ‘other operating expenses’ in the reporting period were as follows:
| PwC Accountants NV | Other PwC network | Total PwC network | ||
| Audit of the financial statements | 336 | 206 | 542 | |
| Other audit activities | 802 | - | 802 | |
| Tax advise | - | 25 | 25 | |
| Other non-audit activities | - | 307 | 307 | |
| 1,138 | 538 | 1,676 | ||
Audit fees recognised in the income statement 2009 under ‘other operating expenses’ in the reporting period were as follows:
| PwC Accountants NV | Other PwC network | Total PwC network | ||
| Audit of the financial statements | 264 | 154 | 418 | |
| Other audit activities | 118 | - | 118 | |
| Tax advise | - | 4 | 4 | |
| Other non-audit activities | 68 | 92 | 160 | |
| 450 | 250 | 700 | ||
25. Finance income and costs
Finance income and costs can be broken down as follows:
| 2009 | 2008 | ||
| Finance income | 637 | 195 | |
| Finance costs | -5,693 | -5,546 | |
| Finance lease liabilities | -27 | -95 | |
| Total | -5,083 | -5,446 | |
| Related to discontinued operations | 10 | -498 | |
| Continued operations | -5,093 | -4,948 | |
Finance costs include the following amounts for the long-term loan and the contracted interest rate swap, under which the base rate was converted from a floating rate into a fixed rate of interest:
| 2009 | 2008 | ||
| Floating base rate | -532 | -2,084 | |
| Fixed base rate - net | -645 | 414 | |
| Floating interest margin | -297 | -197 | |
| Total finance costs of non-current borrowings | -1,474 | -1,867 | |
Finance costs for 2009 also include an amount of approximately EUR 1.3 million for the redemption of the interest rate swap involving the long-term loan that was terminated in 2009 due to the renewal of the financing agreement.
26. Gains/losses on sale of associates
This item can be broken down as follows:
| Notes | 2009 | 2008 | |
| Profit on sale Ordina Technical Automation B.V. | - | 10,425 | |
| Costs on sale Ordina BPO B.V. | 32 | - | - |
| Total result on disposed subsidiaries | - | 10,425 | |
The loss of EUR 28 million on the sale of Ordina BPO recognised in the financial statements for 2008 was recognised within income from discontinued operations in 2009.
27. Income tax expense
| 2009 | 2008 | ||
| Current tax | -409 | 4,427 | |
| Deferred tax | -694 | 14,390 | |
| Total | -1,103 | 18,817 | |
| Tax related to discontinued operations | 646 | 21,259 | |
| Tax recognised in consolidated financial statements | -1,749 | -2,442 | |
The tax rate, including tax on income from discontinued operations, stood at 112.3% (2008: 22.8%) and can be broken down as follows:
| 2009 | 2008 | ||
| Applicable tax rate | 25.5 | -25.5 | |
| Unused tax losses | 29.9 | - | |
| Differences with foreign tax rates | -23.1 | 0.9 | |
| Upward valuation of deferred tax assets | -15.3 | - | |
| Impairment of deferred tax assets | - | 2.0 | |
| Non-deductible amounts | 102.5 | 0.4 | |
| Incidental items | -7.2 | -0.6 | |
| Effective tax rate | 112.3 | -22.8 | |
The effective tax burden is based on income exclusive of gains on the sale of associates. The tax rate for 2009 is high due to the strong impact of non-deductible amounts compared with the relatively low pre-tax profit. Unrecognised losses in the reporting period are losses suffered during the year that do not qualify for set-off and for which no deferred tax asset has been recognised. The upward valuation of deferred tax assets is attributable to the valuation of tax losses that went previously unrecognised. The impact of the impairment of deferred tax assets in 2008 related to the impairment of the recognised tax losses at Ordina BPO B.V., the division that was sold as of April 2009. Incidental items include the impact of prior-year adjustments recognised in the reporting period as well as non-recurring items.
28. Earnings per share
28.1. Earnings per share – basic
Basic earnings per share are calculated by dividing profit for the year by the average number of outstanding shares during the year.
| 2009 | 2008 | ||
| Profit for the year | 180 | -81,134 | |
| Average number of outstanding shares (in thousands) | 45,355 | 41,264 | |
| Earnings per share- basic (in euros) | 0.00 | -1.97 | |
28.2. Earnings per share – diluted
Diluted earnings per share are calculated by dividing the profit for the year by the average number of outstanding shares during the year inclusive of any outstanding option rights whose exercise price is less than the share price at year end.
| 2009 | 2008 | ||
| Profit for the year | 180 | -81,134 | |
| Average number of outstanding shares (in thousands) | 45,355 | 41,264 | |
| Adjustment for in-the-money options | 210 | - | |
| Adjustment for share-based payment obligations | 56 | - | |
| 45,621 | 41,264 | ||
| Earnings per share - diluted (in euros) | 0.00 | -1.97 | |
29. Dividend per share
Given the loss that was posted in 2008, no dividend was distributed in 2009. Where the dividend for the financial year 2009 is concerned, it will be proposed to the Annual General Meeting of Shareholders, which is scheduled for 12 May 2010, not to distribute any dividend for 2009 either. This proposal is in keeping with Ordina’s prevailing dividend policy. No allowance has been made for this proposal in these financial statements (see Note 2.14.3).
30. Preference shares
Ordina’s authorised capital includes 17,999,995 preference shares with a par value of EUR 0.10 per share. Dividends on preference shares shall not exceed the statutory interest rate prevailing at the date the dividends are declared. No preference shares were issued at year-end 2009.
31. Commitments and contingencies, and contractual obligations
Ordina N.V. and its subsidiaries have issued guarantees for a total amount of approximately EUR 2.8 million (2008: approximately EUR 2.8 million). These guarantees relate to lease commitments in particular.
At year-end 2009, Ordina had no material expenditure obligations in relation to property, plant and equipment, and intangible assets.
Company cars provided to employees are usually acquired under operating leases spanning 36 to 48 months. Within this scope, Ordina N.V. and its subsidiaries have a total car lease obligation of approximately EUR 22.6 million (2008: EUR 27.8 million) that falls due in less than one year.
All buildings where subsidiaries are located are in leasehold. Ordina does not have any buildings in freehold. In addition, Ordina N.V. and its subsidiaries have a total building lease obligation of approximately EUR 8.6 million (2008: EUR 10.4 million) that falls due in less than one year. Of the building leases that fall due within one year, an amount of EUR 5.3 million relates to the head office in Nieuwegein. The lease for the head office in Nieuwegein runs through 1 October 2014.
The total of future minimum lease payments can be broken down as follows for each of the following periods:
| Cars | Buildings | ||
| Not later than one year | 22,635 | 8,601 | |
| Later than one year and not later than five years | 21,913 | 29,639 | |
| Later than five years | - | 1,129 | |
| 44,548 | 39,369 | ||
In a number of instances, Ordina N.V. has assumed joint and several liability – within the scope of its regular operations – for the debts and obligations of a subsidiary. Where such a guarantee was issued to customers of Ordina BPO B.V., which was sold as of April 2009, and insofar as it has not yet expired, Centric Holding B.V. and its group companies have issued a full counter-guarantee.
In the context of the sale of divisions, Ordina has issued the usual limited-time (balance sheet) guarantees to the buyers of these divisions.
In accordance with the provisions of Section 403, Book 2, Part 9, of the Netherlands Civil Code, Ordina N.V. has assumed joint and several liability for the obligations arising from the juristic acts of most of the Dutch group companies. The statements to that effect have been filed with the competent Trade Registries. The group companies in question are listed on page 139.
Ordina N.V. and the majority of its Dutch group companies form one or more tax groups for income tax and value-added tax purposes, as a result of which the companies involved are jointly and severally liable for the liabilities incurred by the tax group.
Ordina N.V. and the majority of its group companies have assumed joint and several liability for the bank overdrafts. Of trade receivables, an amount of approximately EUR 56.4 million was pledged as security under the financing facility at year-end 2009 (year-end 2008: nil).
32. Acquisitions and disposals
32.1. Acquisitions in 2009
There were no acquisitions in 2009. Ordina acquired a 100% interest in E-Chain Management Financials BVBA (Belgium) late in September 2008.
32.2. Disposal of Ordina BPO B.V.
Ordina sold all shares in Ordina BPO B.V. to Centric as of 1 April 2009. The loss on the transaction, including that suffered for the first quarter of 2009, amounted to EUR 34 million. Of this amount, more than EUR 32 million, made up of the EUR 28 million proceeds from the sale plus a provision for project commitments of EUR 4 million, was recognised as a non-recurring expense item for 2008. In accordance with IFRS 5 ‘Non-current assets held for sale and discontinued operations’, Ordina has classified the activities of Ordina BPO B.V., which was sold in 2009, as discontinued operations. The comparative figures for 2008 in the income statement have been restated accordingly.
The breakdown of income from discontinued operations as presented in the income statement relates fully to Ordina BPO B.V. and can be explained as follows:
| 2009 | 2008 | |
| Revenue | 8,007 | 43,032 |
| Total operating expenses | 9,802 | 132,494 |
| Operating profit | -1,795 | -89,462 |
| Finance income net | 10 | -498 |
| Result on disposed subsidiaries | - | -28,000 |
| Profit before tax | -1,785 | -117,960 |
| Income tax | 646 | 21,259 |
| Net profit from discontinued operations | -1,139 | -96,701 |
32.3. Effects of business combinations
The business combinations had the following effects on the assets and liabilities position of Ordina:
| Acquisitions 2009 | Acquisitions 2008 | ||
| Property, plant and equipment | - | 532 | |
| Intangible assets | - | - | |
| Intangible assets related to customers | - | 7,320 | |
| Inventories | - | - | |
| Trade and other receivables | - | 3,276 | |
| Cash and cash equivalents | - | 1,696 | |
| Provisions | - | - | |
| Deferred income taxes - net | - | -2,529 | |
| Trade and other payables | - | -2,238 | |
| Identifiable assets and liabilities - net | - | 8,057 | |
| Goodwill acquired in business combinations | 41 | 5,378 | |
| Purchase consideration | 41 | 13,435 | |
| Earn-out commitments | - | -6,950 | |
| Earn-out payments related to prior year acquisitions | 5,033 | 5,839 | |
| Financing of purchase consideration through share issue | -494 | -500 | |
| Purchase consideration settled in cash | 4,580 | 11,824 | |
| Cash and cash equivalents in subsidiaries acquired | - | -1,696 | |
| Net cash outflow at acquisitions | 4,580 | 10,128 | |
The following breakdown applies to the effects on Ordina’s assets and liabilities position of the acquisition of group companies in 2009:
| E-Chain Management | ITG Consulting | Other | Total | ||
| Property, plant and equipment | - | - | - | - | |
| Intangible assets | - | - | - | - | |
| Intangible assets related to customers | - | - | - | - | |
| Inventories | - | - | - | - | |
| Trade and other receivables | - | - | - | - | |
| Cash and cash equivalents | - | - | - | - | |
| Provisions | - | - | - | - | |
| Deferred income taxes - net | - | - | - | - | |
| Trade and other payables | - | - | - | - | |
| Identifiable assets and liabilities - net | - | - | - | - | |
| Goodwill acquired in business combinations | 41 | - | - | 41 | |
| Purchase consideration | 41 | - | - | 41 | |
| Earn-out commitments | - | - | - | - | |
| Earn-out payments related to prior year acquisitions | 1,973 | 3,000 | 60 | 5,033 | |
| Financing of purchase consideration through share issue | -494 | - | - | -494 | |
| Purchase consideration settled in cash | 1,520 | 3,000 | 60 | 4,580 | |
| Cash and cash equivalents in subsidiaries acquired | - | - | - | - | |
| Net cash outflow at acquisitions | 1,520 | 3,000 | 60 | 4,580 | |
In 2009, the effects on Ordina’s assets and liabilities position of the acquisition of group companies were limited in particular to the settlement of earn-out obligations for group companies acquired in previous years.
33. Related parties
33.1. Identity of related parties
The related parties of Ordina N.V. are its group companies, the members of the Supervisory Board and the members of the Management Board.
33.2. Transactions with the members of the Management Board and Supervisory Board
33.2.1. Remuneration policy
The Supervisory Board determines the compensation of the members of the Management Board on an annual basis. For notes to the remuneration policy for the members of the Management Board, reference is made to the Report of the Supervisory Board on page 75 of this Annual Report.
33.2.2. Executive compensation
Executive compensation was as follows at year-end 2009 and 2008 respectively:
| 2009 | 2008 | ||
| R. Kasteel | |||
| Salary | 364 | 364 | |
| Variable component/short-term, cash based | 50 | - | |
| Variable component/long-term, share based | 18 | -174 | |
| Pension costs / regular | 53 | 34 | |
| Pension costs / related to transfer of previously accrued pension entitlements | 259 | - | |
| 744 | 224 | ||
| 2009 | 2008 | ||
| J.H. den Hartog | |||
| Salary | 318 | 318 | |
| Variable component/short-term, cash based | 43 | - | |
| Variable component/long-term, share based | - | -153 | |
| Pension costs / regular | 38 | 50 | |
| Pension costs / related to transfer of previously accrued pension entitlements | 71 | - | |
| 470 | 215 | ||
The long-term benefits under variable components are comprised of a payment in Ordina N.V. shares; they are determined for a three-year period for each individual plan. A conditional number of shares is awarded at the beginning of each three-year period. If it is established after three years that the set targets were achieved or exceeded, the shares are awarded unconditionally. The number of shares in Ordina N.V. to be allotted is estimated at the balance sheet date based on the long-term bonus benefits. The costs of the long-term benefits are recognised in the income statement. The costs of the shares expected to be issued are recognised in equity as ‘retained earnings’. Within the scope of the long-term profit-sharing and bonus plans for the period 2007-2009, no shares in Ordina N.V. will be granted to Mr Kasteel and Mr Den Hartog.
In 2008, the provision formed in previous years was released to the income statement in connection with the estimate of scoring chances. This release has resulted in a negative long-term component within the incentive scheme for 2008.
Early in 2008, the pension plans of the members of the Management Board were converted into an average-salary scheme with conditional indexation. This is more in keeping with the benefits offered to a broader group of employees. Any previously accrued pension entitlements by the members of the Management Board were transferred to this new average-salary scheme. The resulting non-recurring expenses associated with the transfer of the benefits were recognised in 2009.
The members of the Management Board are provided with a car and a mobile telephone. In addition, they are entitled to a monthly expense allowance.
No loans, advances or guarantees have been issued for the benefit of the members of the Management Board.
33.2.3. Shares held by the members of the Management Board
At year-end 2009, the members of the Management Board held 209,684 shares in Ordina N.V. (year-end 2008: 209,684). The shares are distributed among the members of the Management Board as follows:
| 2009 | 2008 | ||
| R. Kasteel | 165,399 | 165,399 | |
| J.H. den Hartog | 44,285 | 44,285 | |
| 209,684 | 209,684 | ||
33.2.4. Options granted to, and held by, the members of the Management Board
No option rights were granted to the members of the Management Board at year-end 2009. All options rights held by the members of the Management Board at year-end 2008 lapsed in 2009. What follows is a list of option rights awarded to the members of the Management Board:
| Granted | Exercised | Lapsed | Outstanding | Exercise price | Date of lapse | ||
| R. Kasteel | 40,000 | - | 40,000 | - | 10.24 | 12-3-2009 | |
| Outstanding at year-end 2009 | - | ||||||
| Granted | Exercised | Lapsed | Outstanding | Exercise price | Date of lapse | ||
| J.H. den Hartog | 35,000 | - | 35,000 | - | 10.24 | 12-3-2009 | |
| Outstanding at year-end 2009 | - | ||||||
33.2.5. Supervisory Board compensation
The remuneration of the members of the Supervisory Board can be broken down as follows:
| 2009 | 2008 | ||
| C.J. de Swart, chairman | 34 | 33 | |
| E.P. de Boer | 26 | 26 | |
| P.G. Boumeester | 17 | - | |
| R.J. van de Kraats | 26 | 26 | |
| J.M.L. van Engelen | - | 9 | |
| 103 | 94 | ||
The compensation of the Supervisory Board is not linked to the financial performance of the company. No loans, advances or guarantees have been issued to the members of the Supervisory Board.
33.2.6. Shares held by the members of the Supervisory Board
At year-end 2009, the members of the Supervisory Board held 124,761 shares in Ordina N.V. (year-end 2008: 124,761). The shares are distributed among the members of the Supervisory Board as follows:
| 2009 | 2008 | ||
| C.J. de Swart, chairman | - | - | |
| E.P. de Boer | 124,761 | 124,761 | |
| P. Boumeester | - | - | |
| R.J. van de Kraats | - | - | |
| J.M.L. van Engelen | - | - | |
| 124,761 | 124,761 | ||
34. Events after the balance sheet date
No events occurred after 31 December 2009 that have a material effect on, or would warrant restatement of, the balance sheet positions at year-end 2009 as presented in the financial statements.
