Group Annual Report
Transcription
Group Annual Report
Group Annual Report 2008 B S H B O S C H U N D S I E M E N S H A U S G E R ÄT E G M B H Strong brands bring success in the marketplace Our Bosch and Siemens brands are Europe’s biggest sellers. Bosch offers tangible quality and perfect technology for a better life. Siemens turns the fascination of innovative technology into something consumers can actually experience. With these and its special and regional brands, BSH boasts a unique portfolio, precisely tailored to the needs of the various target groups it serves. Despite all their differences, however, the BSH brands have one thing in common: They are a guarantee of innovative, high-quality products, which not only promise the utmost in convenience, but through their energy efficiency and ultra-frugal consumption figures, contribute to conserving our natural resources. Main Brands Special Brands Regional Brands Cooking Dishwashing Washing Drying Refrigeration Freezing Floor Care Consumer Products Group Annual Report 2008 “Here at BSH Bosch und Siemens Hausgeräte GmbH, we recognized at an early stage that environmental protection represents an opportunity for us. Not only do our innovative, highly efficient products conserve natural resources, but they also offer us a unique advantage in the international competitive arena. This is where environmental and economic actions come together.” Dr. Kurt-Ludwig Gutberlet CONTENT 5 Foreword 8 Responsibility breeds success BSH successfully brings together social, environmental and economic actions, giving it a significant edge not just within the context of its own sector. 14 Arguments that speak for themselves Modern home appliances combine excellent energy efficiency with even better performance and even more attractive convenience features. BSH products show how it’s done. 20 The future begins now Nobody knows what the world will look like ten years from now. But only those who make the right decisions today will determine the shape of tomorrow’s markets. 26 Sustainable from end to end The path from procurement of material through delivery of the finished product is a long one. Here, BSH puts its faith in long-term partnerships as a means of assuring high standards right from the outset. 32 The workplace gets a health check BSH’s corporate principles affirm that our people are the foundation of our success. The company is taking a healthy interest in ensuring that those people stay fit and active over the long term. 39 Group Key Figures 40 Supervisory Board Report 42 Board of Management, Supervisory Board 44 44 59 64 67 Management Report Business Performance Net assets, financial position, and results of operations Significant opportunities and risks for future development Outlook 69 69 70 71 72 73 Group Financial Statements Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flow Statement of Recognized Income and Expense Consolidated Statement of Changes in Shareholders’ Equity 74 74 82 86 95 104 106 Notes to the Consolidated Financial Statements Accounting and Valuation Methods Notes to the Statement of Income Notes to the Balance Sheet Notes to the Financial Instruments Notes to the Balance Sheet Consolidated Statement of Changes in Assests 110 BSH Bosch und Siemens Hausgeräte GmbH Principal Subsidiaries 111 Independent Auditors’ Report 112 Summary of Past Performance 3 4 SECURING A SUSTAINABLE FUTURE “We are well equipped to steer our company safely through difficult times” – Dr. Kurt-Ludwig Gutberlet, Chairman and CEO of BSH. FOREWORD Securing a sustainable future During 2008, BSH Bosch und Siemens Hausgeräte GmbH posted group sales worth some 8.76 billion euros, that is 0.7 percent less than in the previous year. Against a background of steady levels of investment in new products and manufacturing lines, earnings before tax stood at 510 million euros, that is 127 million euros below the figure for 2007. Although on the one hand this is less than we had budgeted for, it is, in light of the global economic situation, a result of which we can be very proud. All in all, BSH’s figures prove that we have outperformed the market as a whole, and demonstrate that we are in the best possible shape to cope with the difficult circumstances we face. The effects of the crisis The financial market crisis of the last year has also, of course, had an impact on the consumer goods industry and, because the chaos in the financial markets has spilled over into the real estate sector, business in the built-in home appliance area has been hit particularly hard. A considerable downturn in household appliance business overall has been recorded in many regions, with massive percentage falls, running into double digits, being suffered in some cases. With the exception of Germany and France, all the major Western European countries have registered marked downturns in demand for large home appliances. In the USA too, we recorded negative development, while Eastern Europe and Asia, for example, continued to report pleasing growth rates. Over the last year, our timely commitment and investment in these growth markets has clearly paid off. In China, our six factories have allowed us to benefit even more positively than others from the continued dynamism of the market. Our success in boosting sales by just on three percent in our home market of Germany was particularly gratifying, and further increased our market share. Proactive rather than reactive Our ability to enhance and strengthen our position even during a crisis-ravaged 2008 is the result of a long-term strategy best summed up as “sustainable economic management”. In this context the word “sustainable” means that our commercial actions are directed towards securing the future, and this embraces a number of very disparate aspects: They include targeted strategic investments in tomorrow’s markets, the resolute nurturing of our brands and a consistent product policy which puts an emphasis on quality and customer benefits. An additional aspect is the constant optimization of our processes in all areas. The continuous improvement of productivity, efficiency and flexibility releases resources so that we can selectively invest in the growth and competitiveness of our company. 5 6 SECURING A SUSTAINABLE FUTURE The Board of Management of BSH (from left to right): Prof. Werner Vogt, Dr. Kurt-Ludwig Gutberlet, Dr. Wolfgang Colberg, Jean Dufour FOREWORD Success through innovation Securing the future also involves taking the lead as the foremost innovator in our sector. In 2008, BSH spent some three percent of its sales revenue on research and development, applying for almost 800 patents for Germany alone. For years now, we have been one of the country’s most active patent applicants, and occupy the number one spot among white goods manufacturers. During the last year in particular, this innovative capability has manifested itself in a wealth of product launches that have seen us set new international standards. Examples include the zeolite® dishwasher with a new energy-recovery method, and the development of ultra-frugal heat pump dryers, which boast power consumption figures well below the values stipulated for inclusion in Energy Efficiency Class A, and the largest current portfolio of A+ and A++ refrigerators. All this puts BSH in pole position to become the world’s largest supplier of energy-efficient appliances. Here, innovation not only drives growth, giving us an important competitive edge, it also makes a genuine contribution to climate-protection and to the conservation of our natural resources. Heading for the future Overall, we can state that we have taken the right course with the strategy we have adopted. In the turbulent economic times we are living through, it is vital that we do not depart from our goals and values. With this in mind, we will continue to push on with our supreme efforts on the research and development front. Our confidence in the strength of our brands and the great commitment of our workforce remains steadfast. We will continue to invest in strategic projects, thereby shaping our future. Dr. Kurt-Ludwig Gutberlet Dr. Wolfgang Colberg Jean Dufour Prof. Werner Vogt 7 Responsibility breeds success BSH successfully brings together social, environmental and economic action, giving it a significant edge not just within the context of its own sector. 10 The concept of the future The German Sustainability Award: A validation of many years of commitment to the environment and society. It is official: Since December 2008 Germany’s most sustainable company is BSH Bosch und Siemens Hausgeräte GmbH. Dr. Kurt-Ludwig Gutberlet, CEO of BSH, received the German Sustainability Award from Günter Verheugen, Vice-President of the European Commission, at a special gala event in December, 2008. Competition for the prestigious award, which was being presented for the very first time, was fierce: No fewer than 350 companies entered, more than half of the companies among them are listed in the DAX 30, Germany’s blue chip stock market index. The highly eminent members of the jury praised BSH in particular, “For the exemplary way in which it combines commercial success with social responsibility and environmental protection.” The patron of the German Sustainability Award Ceremony, German Federal President Horst Köhler, underlined the universal importance of sustainability in his remarks at the event: “I believe sustainability is one of the great ideas – and one whose time has certainly come. The concept of sustainability provides us with an answer to the question of how we can help ourselves and future generations, both here and elsewhere in the world, to preserve and protect the natural, economic and social resources on which our lives depend.” Combined efforts throughout the company The receipt of the award by Dr. Gutberlet marked the culmination of a long and involved process that began all the way back in May 2008. The first step entailed assembling a team for the for the project, which was led by Christoph Felbinger and included representatives from all areas of BSH, and then the completion of an extensive questionnaire to ascertain the importance the company attached to environmental, economic and social sustainability factors at each stage of the valuecreation process. The relevant aspects of sustainability and value creation were then investigated and verified using an evaluation scheme Christoph Felbinger, who coordinated the company’s entry for the German Sustainability Award. SUSTAINABILITY drawn up by management consultants A.T. Kearney. This stage of the assessment process placed particular emphasis on the structures and processes applied in sustainability management. Only 30 companies from the original 350 entries advanced to the final round. Auditors from A.T. Kearney had no trouble verifying the information provided by the BSH divisions when they visited Group headquarters in August. “We had to compile all kinds of materials and documents from all over the company to comply with the assessors’ requirements and we had very little time in which to do so, but we managed it. This would have been quite unthinkable had the whole of our organization not already been putting the principles of sustainability into practice so systematically for such a long time,” explains Felbinger. The auditors subsequently had a conversation with Dr. Kurt-Ludwig Gutberlet during which he was able to illustrate for them how sustainability is a real priority every day at BSH – even at the very highest level. Finally, the interdisciplinary jury named BSH the winner. The three pillars of sustainability Dr. Kurt-Ludwig Gutberlet explained the key elements at the heart of BSH’s approach to sustainability during the award ceremony: “We have built our commercial success on three pillars.” Sustainability plays a central role in keeping BSH competitive. Energy-efficient products, for example, save the customer an appreciable amount of money over the course of their operating life. The second pillar is consistency: BSH applies a single set of values throughout the company worldwide, which means that its environmental protection targets, for example, are always identical and equally stringent throughout the company – even where local or national laws are far less stringent. BSH’s move to switch production at its plant in China to CFC- and HFC-free refrigeration products in the mid-1990s, for example, stemmed directly from this policy. It was the first company to take this step and its actions gave a significant boost to the development of climate-friendly technologies in Asia. Former UN Secretary General Kofi Annan, with Dr. Kurt-Ludwig Gutberlet. BSH has been a member of Kofi Annan’s Global Compact on the worldwide improvement of working and living conditions since 2004. 11 12 THE CONCEPT OF THE FUTURE The third pillar is the principle that efficient technology and market transformation are both essential if business is to be conducted on a genuinely sustainable basis. This means that retailers and customers alike must be convinced of the quality and efficiency of appliances. The benefits of factors like lower energy consumption, not just for the environment but also in terms of personal savings, are a key differentiating feature of BSH products and it is thus vital that they be communicated effectively. The combination of new and improved technology and the successful marketing of the benefits this technology brings was undoubtedly one of the factors that helped to steer the German Sustainability Award into the hands of BSH. The jury confirmed to the company that the way it continuously improves each product’s environmental performance counts as one of its major strengths. BSH has been committed to this approach for many years, as its Product/Environment Analysis system, a method of evaluating the environmental impact of products throughout their lifecycle that was introduced as early as 1998, capably attests. The Product/Environment Analysis examines concrete metrics such as water, energy and cleaning agent consumption during an appliance’s operating life as well as the resources consumed in its manufacture in order to identify potential improvements that can subsequently be incorporated into product planning and the product development process. Non-negotiable development objectives for new appliance generations can then be defined on this basis. As a consequence of this focus in research and development, BSH is not only a leader in energy and water efficiency, but also a pioneer in the area of recycling, where it has made enormous progress in adopting reusable materials and eliminating harmful substances across all products. Responsibility for people Dr. Gutberlet highlighted BSH’s corporate social policy during his conversation with the assessment team from A. T. Kearney. The notion that companies have a duty of responsibility to the society in which they operate – now commonly referred to as corporate social responsibility (CSR) – has been at the center of the sustainability debate for many years. The OECD created a common framework in this area as long ago as the mid-1970s with the publication of its Guidelines for Multinational Enterprises. BSH’s commitment to social responsibility within its own organization manifests itself in a number of ways. The company maintains an internal code of conduct, for example, which governs interactions between employees and with business partners, and operates a corresponding compliance organization to ensure strict adherence to the code’s provisions. The value of this approach is evident in the high health and safety standards applied throughout the BSH Group and in the extensive personal development programs provided to help every employee realize his or her potential. BSH has been documenting its wide-ranging activities in the spheres of environmental protection and social responsibility in an annual sustainability report since 1992, making it a pioneer in the industry in this respect as well. SUSTAINABILITY One particular aspect of BSH’s social responsibility gives Gutberlet cause for special pride especially in the age of globalization: “We currently employ 14,000 people in Germany, which is the same number we employed when BSH was founded back in 1967. This means that we remain the largest German home appliance manufacturer even after 40 years of international growth and the establishment of a global manufacturing network that today employs over 40,000 people around the world.” Pioneering innovators in our industry BSH regards the presentation of the German Sustainability Award as welcome recognition of its efforts and achievements in the area of sustainability and, of course, as an incentive and source of encouragement for the people who work in this area within its organization. “Sustainability,” claims Felbinger, “means pursuing one’s objectives with a measure of foresight and a commitment to bringing social, environmental and commercial concerns into harmony.” These ideas are defined in BSH’s Corporate Principles – five guiding principles that encapsulate the core values of the company. The Corporate Principles cover a commitment to maintaining the trust of customers, the importance of employees as the foundation for success, the company’s responsibility for the environment and society and its aim to increase its value continuously on this basis. They also state: We are pioneering innovators in our industry. Moving responsibly in the direction of a sustainable future – and that’s exactly what the German Sustainability Award stands for. BSH’s energy-saving “world champions” with their Launch Managers, Christian Muck, Ulf Engelbrecht, Sabina Schmitz and Susanne Kühlich: All BSH development efforts are centered around its sustainable product policy, and its success is clearly measured by consumption figures that set the standards for the world. 13 Arguments that speak for themselves Modern home appliances combine excellent energy efficiency with even better performance and even more attractive convenience features. BSH products show how it’s done. 16 High-tech for the environment Nearly 60 percent of private households’ electricity consumption is caused by electric home appliances – representing a large energy savings potential which can be tapped by optimizing home appliances’ energy efficiency. For BSH’s developers, a challenge to be met each and every day. Previous page: In his keynote speech at the IFA consumer electronics fair, Dr. Kurt-Ludwig Gutberlet elucidates how BSH participates in climate protection. The light goes out. A moment of absolute silence follows, then a match bursts into flame and the voice of Dr. Kurt-Ludwig Gutberlet resumes. “Fear not: reducing the amount of energy consumed by home appliances does not mean the lights in the kitchen have to go out tomorrow. Quite the opposite,” exclaims the CEO of BSH Bosch und Siemens Hausgeräte GmbH in his speech at the 2008 IFA international consumer electronics and home appliances trade fair in Berlin. “Our modern home appliances combine excellent energy efficiency with even better performance and even more attractive convenience features.” Now, however, the time has come to make this a hard and fast rule and ensure that every new generation of appliances introduces further improvements in energy efficiency. The International Energy Agency (IEA) expects global demand for energy to double in the period between 2004 and 2030, and home appliances account for around half of the electricity used in private homes. “Saving energy is not a passing fashion, but rather one of the great challenges of our time,” Gutberlet warns. “We stand on the threshold of a profound change in the nature of the economy, perhaps even a third industrial revolution. We at BSH are absolutely determined to play an active part in realizing the changes that have to be made.” Over 6,100 m2 of innovation The IFA international consumer electronics trade fair included the home appliances industry for the first time in 2008 and European market leader BSH made its mark in Berlin with an impressive array of exhibits. The Bosch and Siemens brands presented their latest products at HOME APPLIANCES@IFA across more than 6,100 square meters of exhibition hall. Highlights included remarkably energy efficient refrigerators and freezers that use up to 66 percent less electricity than comparable 15-year old appliances, and a line-up of new ENERGY EFFICIENCY dishwashers that also raise the bar in matters of energy consumption: fully loaded, the best need a mere 0.83 kilowatt hours of electricity and just ten liters of water to clean 13 standard place settings. Sensors installed in these models monitor water quality and load size to ensure that no more fresh water than required is supplied, that electricity consumption is minimized and that the rinse cycle lasts just as long as necessary for proper cleaning. Continuous flow heaters heat the water very efficiently, while the Zeolite® drying system, a world first, exploits this natural mineral’s ability to absorb and store moisture to boost drying performance. The new tumble dryers with ActiveAir technology feature highly efficient heat pumps, developed especially by BSH’s engineers, delivering enormous cuts in electricity consumption. Making this dryer the world’s most energy efficient dryer. “Don’t hide your light under a bushel” – As head of the Energy Excellence Initiative, Dr. Peter Böhm coordinates energy efficiency and sustainability marketing. Turning small numbers into large BSH launched its Energy Excellence Initiative in order to communicate these achievements accordingly to retailers and end customers. The initiative is being led by Dr. Peter Böhm, who explains how the public at large is now also very much aware of the efficiency issue: “Up until 2007 price remained the most influential factor in buying decisions,” he recounts. However, since 2008 consumers have shifted their focus from the purchase price to the appliances’ electricity and water consumption data in use. “Customers have learned that in the end, even apparently very small advantages in terms of consumption can add up to considerable cost savings over the long service life of an appliance.” The feel-good factor inspired by doing something to help the environment comes as a bonus. The impact that could be made here is breathtaking, calculates Dr. Böhm. Across the countries of the EU there are still around 188 million appliances in use that are more than ten years old and consume far too much water and energy. Replacing these old-timers with efficient new models could save a massive 44 TWh of electricity every year, which equates to an annual reduction in carbon dioxide emissions of approximately 22 million metric tons. Improved energy efficiency brings tangible savings each and every day – an important factor for BSH home appliances’ customers. 17 18 H I G H -T EC H F O R T H E E N V I R O N M E N T Every element of the art Making a modern home appliance as energy-efficient as possible while maintaining or even improving the convenience features it offers means optimizing every product and drawing on every element of the engineers’ art. Today’s ranges, for example, use less energy than ever thanks to a whole series of design improvements such as intelligent heat exhaust control for the oven, reduced thermal bridges and better sidewall insulation. Quickstart technology brings appliances up to cooking temperature up to 40 percent faster without increasing energy consumption in the slightest. Induction cooktops with pan detection automatically match the size of the cooking zone to the diameter of the base of the pan. Similar improvements are being made in the washing machines segment, where optimizing energy and water consumption remains the main priority. This particular area poses special technical challenges according to Winfried Seitz, Head of the Product Area Laundry. Ultimately time holds the key to achieving the desired result: “It is rather like driving a car. If you want to save, you have to drive slower. You can arrive sooner, but only at the expense of higher fuel consumption. Our regular programs are consequently relatively long, but extremely efficient. If the user needs a load cleaned especially quickly, there are fast wash programs available but these of course consume more electricity and water.” Refrigerators and freezers offer the greatest potential savings because, as Christofer von Nagel, Head of Marketing for this product area points out, they operate “around the clock, 365 days a year.” BSH had the largest range of refrigeration products in the sector on display at the IFA trade fair: 39 basic models, all of which exceed the specifications for the highest energy efficiency classifications. “Savings of 70 percent over the last ten years – no other industry can match that. The home appliance sector is the most advanced sector of industry bar none on this measure,” says von Nagel with pride. Energy efficiency in refrigeration appliances stems from constant improvements in a large number of different components. “We use more efficient motors. Or new foams in thicker insulating layers – that can deliver huge extra savings.” Refrigeration circuits have also been redesigned to enhance efficiency, thermal bridges have been eliminated and, as has always been the case at BSH, particular attention has been paid to ensuring high manufacturing quality. The appliances incorporate a wealth of intelligent systems too: “By using electronic control technology we obtain the most precise and energy efficient refrigeration results. In the future, appliances in all price bands will include electronic control technology.” Energy efficiency is an important issue for small as well as large appliances. “If you asked me to name one type of product that still offers really significant potential energy savings I would have to cite the vacuum cleaner,” concedes Dr. Ralf Fuchs, Head of Consumer Products at BSH. “The vacuum cleaner is used every day in many homes, some- Left: Christofer von Nagel (Product Area Cooling) shows the tremendous potential for savings offered by modern appliances. Increased energy efficiency for tumble dryers 40 percent above the Energy Class A requirements: Winfried Seitz, Head of Product Area Laundry (picture top) ENERGY EFFICIENCY times more than once, and it is easy to see and feel how energy is simply blown away. High wattage models, however, are so ‘yesterday.’ We are putting the latest technology to work to both cut electricity consumption and improve cleaning results.” Dr. Fuchs has uncovered a whole series of ways to prevent unnecessary energy consumption in his field. One apparently trivial but very effective measure is to mount the On/Off switch in clear view at the front on appliances such as coffee and espresso machines: “A ridiculous amount of electricity has been – and continues to be – wasted simply because the main switch is hidden away in a poorly accessible location at the back of the appliance.” Customers used to the convenience of an appliance that was always on and always preheated have nothing to fear, however, as the water in the new coffee and espresso machines is heated in a continuous flow heater that efficiently produces the required temperature as soon as it is switched on. Meaningful guidance New technologies are being implemented all the time, but they can only benefit to the environment in the long term if they are actively exploited in new home appliances not just in the premium segments but across all price classes. “We have been calling for a subsidy for the purchase of especially energy-efficient home appliances for years so that old appliances that waste water and energy can be phased out,” states Peter Böhm. Another problem is the system of classifying appliances by energy efficiency, which has simply failed to keep up with progress in the sector. “Today 80 to 90 percent of appliances fall into energy efficiency class A, which means the energy efficiency label no longer provides a useful indication of the differences between models. Yes, an A++ appliance is over 40 percent more efficient than a simple A-rated appliance, but how many people really know that? We need to give customers meaningful guidance so that they can make properly informed purchasing decisions.” BSH has taken a number of steps to help ensure customers receive the information they need, including the establishment of a comprehensive training program for home appliance retailers. “We are educating committed salespeople to act as energy consultants as well,” reports Böhm. The program consists of a number of different elements ranging from traditional workshops and seminars to sophisticated e-learning systems that are accessible to participants at any time and can consequently be used during quiet periods at work, for example. The course lasts six months and has been very much welcomed by the trade and the salespeople, not least because, as Helmut Michalski, who is responsible for the design of the training at BSH, explains, “What we put across to participants is not advertising but rather robust arguments that they can use where appropriate when discussing products with customers.” And being sound, these arguments naturally point very much in the direction of BSH. “Small appliances can offer significant energy savings” – Dr. Ralf Fuchs, Head of Consumer Products (picture top) Right: Helmut Michalski has developed a BSH program to train specialist retailers to become energy consultants. 19 The future begins now Nobody knows what the world will look like ten years from now. But only those who come to the right decisions today will determine the shape of tomorrow’s markets. 22 In the right direction Future trends in the home appliance field are in many ways imbedded with the development of society as a whole. Accordingly, BSH’s planning explores perspectives far beyond the boundaries of its own industry. To some people, the future looks like an onion. Take Rudolf Walfort, for example. Ask the Head of Corporate Technology at BSH about innovation management and he speaks of many different, successive layers just as in an onion. A twelve-month layer, a three-year layer, a six-year layer, a ten-year layer: “Each of these layers,” Walfort explains, “covers a different time horizon. It is vitally important for us to develop as precise a picture as possible of how we are going to progress from one layer to the next, because even though we do not yet know exactly what the market will bring in ten years time, we still need to make sure we are moving in the right direction.” Business simulation guides innovation The layer model to which Walfort refers simulates a wide range of scenarios in order to generate a coherent picture of the future. What changes might be expected in society and how would they change consumer requirements? Which areas of research really promise practical technical solutions for the future? How will the competitive environment evolve? What will the factory of tomorrow look like? Recognizing a mega-trend like energy efficiency, for example, is still comparatively easy. But what does this mean in exactly for BSH as a leading home appliance manufacturer? How will people buy, store and prepare food in 2020, and how will they clean their clothes and living spaces? What effect will demographic shifts have? “We developed five different market scenarios and then used them to derive appropriate strategies,” explains Walfort, who is confident these simulations will point him, and hence BSH’s technology and innovation management, in the right direction. Past experience suggests it will work: “In 2002, for example, we needed to forecast the future development of surface technologies in the field of cooktops. At that time induction cooktops were still very expensive, the advantages offered by the technology were unknown in many “Society changes and so do the expectations consumers have towards our products” – Rudolf Walfort, Head of Corporate Technology. MANAGING THE FUTURE countries and prices are higher than 2,000 euros.” Thus suggesting a long-term niche market was its most likely future. Based on this information, no one could have imagined that the technology would shortly begin to acquire a significant market share. Innovation managers at BSH using “Price, Cost, Quantity” scenarios, assessments of the interactions between immediately adjacent products and, of course, breakdowns of market shares across the entire cooking segment, however, actually managed to predict the size of the market for induction cooktops in 2008 with almost perfect accuracy. Invent and protect Think sustainably, act sustainably. The job of implementing visions of the future at a global company like BSH naturally involves a large number of people in a wide range of different functions. The process essentially starts with the engineers and technical experts, who develop new products at a number of development and competence centers around the world. The headcount of people in these roles has increased by 80 percent over the past eight years, underscoring the importance BSH attaches to product innovation. These developers have produced some impressive results for the company too: BSH submitted 786 original patent applications in Germany alone in 2008, for example, and is the leading representative of the home appliance sector in the latest patent rankings from the German Patent and Trade Mark Office. It occupies 13th place in the all-sector ranking, which puts it above many well-known companies. Responsibility for protecting the company’s innovations rests with the Patent Department and its head Dr. Peter Dosterschill. The patent attorneys create the foundation for the ongoing commercial exploitation of the inventions made at BSH. Theirs is another task that obviously requires foresight and a feeling for future developments. “Our people go into the plants and talk to the development engineers directly,” explains Dosterschill regarding the work of his department. “Then we decide which innovations and results of technical development work need to be protected for BSH. We aim to acquire patents for BSH that protect broader technical concepts and not only specific embodiments The patent attorneys, under the direction of Dr. Dosterschill (right), provide the basis for the sustainable and economically viable utilization of technical innovations. 23 24 IN THE RIGHT DIRECTION “Form and function in perfect harmony” – Gerd E. Wilsdorf, Head of Design for the Siemens brand of products. Small nuances in the formulation of a patent application can have far-reaching consequences for the scope of protection afforded.” Dosterschill and his team function in part as a bridge between the technical world of the engineers and the legal world of the patent and trademark offices: It falls to them to turn inventions into the intellectual property rights through which BSH can gain a real edge over its competitors and exert a lasting influence on the market. Core propositions Sustainable product development demands more than just close collaboration between engineers and marketing specialists. Designers are also intimately involved in the innovation process right from the outset in order to ensure a harmonious synthesis of form and function. The Head of Design for the Siemens brand, Gerd E. Wilsdorf, in remarks keeping with the Bauhaus tradition, places special emphasis on two separate aspects of this role. “We see ourselves as the end consumer’s advocate. The sales staff has different concerns, as do our colleagues in marketing. The engineers too have their own focus. They have to develop a high quality product with strong technical features that can be manufactured easily. We, as designers, essentially represent the interests of the user. Ergonomics and ease of operation, for example, are becoming more and more important in the design process.” The design of a product, Wilsdorf stresses, is also the calling card of the brand and the vehicle that conveys its core propositions: “Through design we create recognition and credibility.” This idea has actually been verified in blind tests in which customers recognize Siemens brand appliances by their characteristic design even when the brand name itself is concealed. MANAGING THE FUTURE Perhaps the best person to explain Wilsdorf’s “core brand propositions” in the context of BSH is the company’s Head of Brand Management, Dietmar Turocha. “Brand-specific statements of expertise – innovation, quality and the like – are in there, but sustainability and optimal energy efficiency are also very much core propositions for us. This applies across all of the big brands in our portfolio, although we do of course vary the relative priority given to each from brand to brand. Naturally any attempt to position ourselves on the basis of sustainability, for example, will only work if our products live up to the proposition.” A matter of commercial common sense The long-standing guardian of product sustainability at BSH is the Environmental Protection department, whose head, Dr. Herbert Mrotzek, never tires of explaining how product sustainability in reality reflects the sustainability of internal processes: “It pervades the entire organization,” he asserts. “Every area is involved. Sustainability begins with purchasing and continues through development – where optimizing product energy efficiency has become a special priority – to sustainable production and, eventually, to delivery to the customer. In fact, even that is not the end of the story, as we have a very strong customer service team that not only takes care of repairs, but also advises customers on resource conservation.” Mrotzek takes care to stress that there need be no conflict between sustainability and traditional commercial imperatives. “On the contrary. Only by achieving commercial success can a company properly engage in the pursuit of sustainability. Our commitment to sustainability, in turn, has a positive effect both on our employees and on the credibility and image of our brands, so ultimately it actually gives us a competitive advantage.” Viewed in this light, sustainability seems no more than a matter of forward-thinking commercial common sense. Commitment to good cause: Within BSH, the team headed by Dr. Herbert Mrotzek (second from left) bears corporate responsibility for environmental protection and social responsibility. 25 Sustainable from end to end The path from procurement of material through to delivery of the finished product is a long one. Here, BSH puts its faith in long-term partnerships as a means of assuring high standards right from the outset. 28 Joint action creates sustainability Making sure that all internal workplaces and production facilities provide optimal working conditions is no longer sufficient for global enterprises such as BSH. Only when all suppliers have been incorporated into and bound by the same system that ensures the ethical and responsible treatment of people and the environment can there be talk of true sustainability all the way from the purchasing of components to delivery on the customer’s doorstep. For a global corporation, international collaboration is part of day-to-day business. BSH integrates suppliers into long-term global partnerships, and frequently provides vital developmental assistance. “Our claims of sustainability are not limited just to the finished product, but of course also encompass every single component that we purchase” – Raimund Denk is Head of Global Purchasing at BSH. Previous page: The swap body system significantly reduces the time it takes to transfer cargo in transit. No end to responsibility Shopping is fun. A pair of fancy shoes, a new flat screen TV, an ultrafashionable dress, a fully-featured cell phone – for many people a day buying is a day of pure pleasure. For Raimund Denk, Head of Purchasing at BSH, buying means no end of work and with it, no end of responsibility. Asked about what he most enjoys buying for the company he nevertheless allows himself a satisfied chuckle, eerily reminiscent of the successful bargain-hunter, before giving his one-word answer: “Steel. We always negotiate substantial numbers, in the hundred million range, and at that level a saved percentage point has real significance for BSH.” Denk is an experienced negotiator and knows inside out the prices he can expect as the global market waxes and wanes. Today, however, the job involves more than just haggling over unit prices, percentages and delivery dates. Quick, short-term solutions are out. Now good procurement is just as much about responsibility for the people behind the product supplied and the environment in which it is produced as it is about smart deals. Building trust is the key as customers increasingly want to be confident about the conditions under which their new home appliances have been manufactured, while suppliers need a dependable flow of orders and reliable longterm partnerships in order to achieve optimal quality, innovation and working conditions for their manufacturing employees. Mindful of its responsibilities in this area, BSH signed up to the United Nations Global Compact as early as in 2004 and defined its own standards for modern, secure working conditions at its suppliers in accordance with the compact’s ten principles. PARTNERSHIPS Clear rules for fair treatment and respect The CECED (European Committee of Domestic Equipment Manufacturers) Code of Conduct introduced in 2005 requires each of BSH’s partners adhere to a set of mandatory rules, compliance with which is continuously verified. The code covers areas such as transparency, objectivity and mutual respect in all negotiations as well as elementary issues such as the prohibition of child labor, forced labor and discrimination, and measures to ensure humane working conditions. BSH requires all its suppliers worldwide to uphold these standards. “All A and B suppliers signed the Corporate Social Responsibility declaration last year,” confirms Raimund Denk. “These suppliers account for more than 90 percent of BSH’s purchasing volume.” The long-term partnerships sought take time and effort to develop and maintain. Often the process begins long before the first delivery ships. Supplier clearance is the term in use at BSH: A newly discovered candidate that manufactures an interesting product but does not yet have the capacity to supply it in the required quality first undergoes an initial check. Analysis and development work is then carried out in workshops at the candidate’s site during which the BSH team provides practical – and free – business consultancy advice. Denk: “We present new suppliers with an overview of their own processes. That too is sustainable! They can learn an enormous amount from us in areas like process and product design, high quality manufacturing and environmentally-friendly production.” It is still common to find that improvements are needed in working conditions, especially in developing countries, which are particularly attractive for buyers due to their good cost structures. There is no question of compromise here: “We make it quite clear that nothing more will happen until these essential requirements have been met.” Chinese realities After a recent visit to the plant in Suzhou, China, where BSH engineer Ursula Moritz and her newly assembled supplier development team are working, Denk has a very clear idea of the situation there. This Optimum quality in terms of material and production activities, and stringent worldwide standards in relation to environmental protection, occupational health and safety and social responsibility – BSH’s sustainability philosophy has influence across the whole valueadded chain. 29 30 J O I N T A C T I O N C R E AT E S S U S TA I N A B I L I TY plant is intended to eventually supply wire shelves and other metal components for BSH ovens and refrigerators. Before that can happen, however, quality will have to be stabilized and a number of development issues resolved; noise protection and general standards of health and safety at work, for example, still need further improvement, and a detailed plan of action has already been drawn up to address questions surrounding the site’s wastewater disposal arrangements and deficiencies in its chemical storage facilities. Ursula Moritz, who spent time in China for BSH in a quality management role between 1999 and 2001, knows that making real progress here involves arguing the company’s case tirelessly and compellingly. “People frequently fail to understand what we are trying to achieve and we hear no end of arguments against the improvements demanded. When this happens, we have to demonstrate practical ways of approaching the problem at hand and work hard to communicate the essence of our concerns. And we have to keep on talking and explaining until everyone understands the standards we need to put in place.” Moritz’s team has already begun to make progress: Ear plugs and protective nets for long hair now have to be worn in the production hall. There is more to true sustainability than simply protecting employees’ health and the environment, however, and proper investment in supplier staff development is essential. The management of the Suzhou plant has now approved a training program for its employees as part of the improvements being made. Beyond the integrated plant Ursula Moritz’s counterpart in Russia, Kay-Uwe Clemens, has also had to learn to deal with different business cultures and mindsets in the course of his work as a supplier development officer. “One obvious example is that we have found the whole structure in Russia to be quite different to that with which we are familiar in Western Europe. Everything, from the bolts to the glass to the rubber seal, is manufactured in-house in gigantic integrated plants. The raw materials go in at one end and the finished product comes out the other end.” There is no place for supplier companies in this system and consequently there are none to be found. BSH accordingly has to look to producers outside the integrated plant structure. These relatively new operations are in many cases the creation of investors who previously lived abroad and have now returned to their home country. A newly devel- Ursula Moritz and Kay-Uwe Clemens support Chinese and Russian companies in their efforts to meet BSH’s high supplier standards. PARTNERSHIPS oped system of potential assessments is applied to these companies to establish the extent to which they already meet BSH’s stringent requirements and how they might be strategically brought on to reach the necessary levels across the board. Kay-Uwe Clemens has his hands full with this particular undertaking, and like Ursula Moritz in China, he spends much of his time making the case for health and safety at work. Sometimes progress in this area can actually be comparatively easy to achieve: simply fitting a rear-view mirror on a fork lift, for example, can make a significant contribution to preventing accidents. Logistical challenges Hans-Gerd Bauerfeind is concerned with transport on a completely different scale. As Head of Logistics, the final link in BSH’s sustainability chain, he bears ultimate responsibility for a global distribution logistics budget in excess of 500 million euros. Performance in this area measures up well against sustainability criteria. Optimally loaded containers packed to the ceiling, improved rail connections, central warehousing facilities, full capacity utilization rather than unladen journeys – BSH’s logistics organization never stops searching for new ways to make the most of its resources and cut its energy consumption. “We believe our transport solutions can be economically and environmentally sound at the same time,” says Bauerfeind. Sending goods by rail and water, for example, is both cheaper and more environmentally friendly than road transport. Making sure that everything arrives in the right place at the right time despite longer transport times simply becomes a question of management. “We are committed to improving the efficiency of our goods movements on a continuous basis, which makes finding and deploying the right technical solutions essential,” Bauerfeind explains. One such solution has improved the transfer of cargo in road transport considerably: Modern swap body systems place the transport containers on stilt-like supports, the towing vehicle is coupled to the new load and after a mere 20 minutes (this process used to involve waiting and loading times of more than 90 minutes) the truck is back on the road. This particular method helps to enhance road safety as drivers are better rested. Ultimately, it seems only right that high-quality, responsibly manufactured products should be delivered to the customer reliably with an equal amount of care – and, of course, in an environmentally-friendly manner as is possible. “Efficient, smooth-running logistics operations have both an economic and an ecological effect” – Hans-Gerd Bauerfeind, Head of Logistics for BSH Fast, safe and environmentally sound – when it comes to transporting its products, BSH puts it faith in modern technology and efficient management. 31 The workplace gets a health check BSH’s corporate principles affirm that our people are the foundation of our success. The company is taking a healthy interest in ensuring that those people stay fit and active over the long term. 34 Fit for the future As society continues to age, people’s working lives will be extended accodingly. BSH is already responding to the challenges of demographic change and taking care to ensure that its employees remain fit for their retirement. From new recruit to pensioner: BSH has instituted a whole series of programs designed to help its workforce stay fit and healthy. Should health remain a private matter? Some would say BSH has no business becoming involved in employee health: Health and safety at work aside, matters of health and fitness, they would contend, are purely the concern of the individual and no one can take over that personal responsibility from them. Klaus-Peter Fröhlich, HR Manager at BSH, disagrees: “A healthy employee who feels comfortable in his or her working environment is obviously much more motivated and productive than an unhealthy, uncomfortable employee.” Thus, BSH has good reason to take an interest in the health of its employees, and it seems likely this factor will assume even greater importance in future. As a result of rising life expectancy and falling birth rates, society continues to age. Like other employers, BSH can accordingly expect to see a significant increase in the average age of its people over the coming years, which makes helping employees stay in good shape all the way through to retirement more important than ever. Providing a conducive workplace is a key element to maintaining employee health. A well-designed workstation that minimizes the loads placed on the employee’s body, for example, can help to reduce rates of muscular and skeletal conditions. “We are very proud of these,” says Johann Graf, Head of Work Management at BSH’s range factory in Traunreut, Germany, pointing to a series of highly visible circular green signs mounted above the assembly bays. “The signs indicate that these workstations have undergone an ergonomic inspection and that no problems were found,” Graf continues. “Our fitters do not have to make any movements here that could potentially damage their health over the long term.” Some 320 workstations at Traunreut have completed the ERGO-Check inspection in the last year and more are to follow over the next few months. The inspection involves a member of the Work Management team scrutinizing the workstation with reference to a detailed questionnaire. Does the operative have to turn or bend frequently while working? Are key displays installed at eye level? Is the workstation sufficiently well lit? A special software program is also used to calculate whether the loads encountered when lifting or carrying heavy items are within acceptable limits. Previous page: Employees at the Bretten factory use their break to stay fit with certified physical education instructors. P EO P L E AT B S H Green – yellow – red The questionnaire and evaluation system are both developments of materials originally obtained from Robert Bosch GmbH. Each workstation inspected is marked with a green, yellow or red sign depending on the result. Green means “No ergonomic concerns”. “The yellow sign identifies workstations at which the loads involved are not a problem provided they do not last too long,” explains Johann Graf. “We have introduced a new system in response to this: employees at our yellow workstations now alternate repeatedly throughout the shift.” Workstations marked with a red sign do not pose an immediate threat, Graf stresses, but could lead to health problems in the longer term and consequently have to be redesigned within six months. One workstation to have been recently redesigned for precisely this reason is the point at which the fan motor is installed in the oven. Previously, employees working at this station had to bend over forward a long way and then stretch out their arms to attach the fan wheel to the back wall of the oven, and do so 770 times every shift. This awkward maneuver was eliminated at the three affected workstations by installing a specially designed tilting mechanism that enables the fitters to reach into the oven at an angle from above without having to bend. This particular improvement cost BSH a five-figure sum to realize. After all, the cost: “The plant planners kept on asking us who would pay for it all,” says Johann Graf recalling the initial difficulties encountered launching the ERGO-Check scheme. “They were right of course: the modifications have to make economic sense. The fact is that they undoubtedly do make economic sense. In the long term, a well designed workplace facilitates cost-effective production.” Keeping employees healthy, in other words, pays off for all concerned. The plant planners at Traunreut have now received special training to raise their awareness of ergonomics so that they can incorporate associated considerations into future projects. Dr. Jürgen Sturm, Head of IT, is already thinking one step ahead: “Before long we will be able to use computer simulations to conduct ergonomic checks on workstations before they have even been installed.” Once that point has been reached, the sort of retrospective measures seen at Traunreut would be a thing of the past. HR Manager Fröhlich: “Healthy employees are more motivated and more efficient, and take fewer sick days.“ Picture bottom: Green for go. After a successful ERGOCheck, the green sign indicates there are no ergonomic concerns. 35 36 FIT FOR THE FUTURE Different ideas and concepts The ERGO-Check tested at Traunreut in 2008 forms an important part of an enterprise-wide initiative launched by BSH to prepare for the consequences of the anticipated demographic change. What will happen if every employee has to work for an extra two years? What should be done about employees whose health will simply not allow that? And what can be done to avoid any shortage in qualified junior staff ready to move up the organization as roles become vacant? Three working groups are currently canvassing ideas and developing concepts as to how the expected changes might be managed. One group is concentrating solely on health management and workplace design. One significant aspect that has already become quite clear is that health depends not just on what happens during working hours, but also what the employee does outside of work. Does the employee go home and sit in front of the TV or does he or she make a conscious effort to stay in shape? “When I joined the Neff plant in Bretten in 1996 the sickness rate stood at 8.5 percent,” recalls HR Manager Iris Karcher. “We went and talked to our employees to find out what was going on. What we heard encouraged us to make a much more intensive effort to help them maintain and improve their own health.” Little by little the Bretten site acquired a diverse sporting and health program that makes it very easy for employees to participate. Qualified fitness instructors lead ‘active breaks’ during which employees are shown how to improve their strength and flexibility using simple equipment such as rubber bands, while vaccinations, diabetes screening and physiotherapy are offered in conjunction with the on-site medical service. Nobody is under any compunction to join in, but the measures have proved to be enormously popular. The Neff Aktiv sports club, for example, now has 600 members. It offers courses in Qigong, aquajogging and Starting in 2009 all global BSH subsidiaries will adopt the ERGOCheck. Bretten’s health management system is a persuasive precedent. P EO P L E AT B S H Nordic walking, and the company also has its own fitness studio. “Neff Aktiv has set up a network with other clubs and associations in the area too,” reports Iris Karcher, concluding, “All we want to do is help our employees feel enthusiastic about exercise.” An investment in the future Costs have been a sensitive issue here as well. Health management is like an endurance sport: It takes patience and stamina. “It takes a while for the results of these types of measure to become apparent, which is another reason why it is so important that BSH is prepared to make long-term investments in this area,” explains Iris Karcher, who states that an element of idealism and entrepreneurial risk are part of being in business. It turns out that the reward has been well worth the risk. The number of employees reporting sick has dropped by nearly half in the last few years. The company’s efforts have been highly acclaimed: The German Sports Federation (Deutsche Sportbund) has awarded Neff Aktiv its “Sport Pro Gesundheit” (sport for health) quality seal in recognition of the positive impact of its sports program; health insurer GEK is refunding a portion of employer contributions – money that is invested straight back into fitting out the health center; and BSH itself has also recognized the Bretten health management approach as exemplary, honoring it in 2008 as one of the three finalists for the BSH Special Award for commitment in the field of human resurces, the environment and society. Fitness at the workplace – good for morale. These two pilot projects, the ERGO-Check in Traunreut and the Bretten health management program, have effectively demonstrated how the consequences of demographic change can be ameliorated and both are now to be taken up by BSH’s subsidiaries worldwide. HR Manager Klaus-Peter Fröhlich has no doubt the measures will continue to make an impact: “Programs like these take care of themselves. Our people believe in them absolutely and will therefore make sure they are implemented properly everywhere.” “This doesn’t happen overnight, but there’s a clear return-on-investment to be gained” – HR Manager Iris Karcher (photo left) launched Neff’s health management system. 37 39 Group Key Figures 40 Supervisory Board Report During the year under review, the Board of Management reported regularly to the Supervisory Board on the performance of the company and on its major decisions, both orally and in writing. The 2007 financial statement and management report, the development of business during fiscal 2007 and in the year 2008, and the Business Plan 2009, including HR and financial planning, were explained to the Supervisory Board by the Board of Management at the two regular Supervisory Board meetings held during the year. The Board of Management reported to the Supervisory Board on the economic development of the company and on the course of business in the various sales regions, particularly in Europe, Turkey, in Eastern Europe including Russia, in North and Latin America and China. The Supervisory Board discussed these topics in depth. Gerhard Kümmel, Chairman of the Supervisory Board. Particular advisory effort in the Supervisory Board was devoted to the risks to the company stemming from the global economic difficulties in the wake of the crisis in the financial markets, particularly the effects in North America, in Spain and the UK, as well as in other countries of Western and Eastern Europe, and the associated measures derived. A further point of focus was the business situation in Brazil and Latin America as a whole, including the structural and development projects of the Brazilian subsidiary. The Supervisory Board also advised on the developments and projects involving the Refrigeration Product Area and other Product Areas, on the status of the new plants in China and Russia and further investments. Other topics dealt with in the Supervisory Board meetings included the introduction of new organizational structures in the USA and China, the home appliance market in India and how to service it, the growth of internet trading, the development of market prices and material, personnel and selling costs, developments on the quality front, the energy efficiency of household appliances and further possibilities for cutting energy consumption, trends in innovation, collaborative arrangements and competitive analyses. The Supervisory Board received reports from the Board of Management on the company’s Risk Management and Compliance Management activities and allied topics during 2008. In addition to its official meetings during the course of the year, regular discussions also took place between the Board of Management and the Chairman of the Supervisory Board and his deputies. SUPERVISORY BOARD REPORT The financial statement of BSH Bosch und Siemens Hausgeräte GmbH and the consolidated financial statement as of Dec. 31, 2008, and the management report for BSH Bosch und Siemens Hausgeräte GmbH and the Group management report have been audited by Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft, Munich, and have been given their unqualified approval. The reports prepared by the auditors were presented to all members of the Supervisory Board. The Supervisory Board thoroughly examined the documents concerned and the Board of Management’s proposal regarding the allocation of net income. The reports were discussed in full at the Supervisory Board’s meeting to approve the balance sheet, which was held in the presence of the auditors. The Supervisory Board raises no objections and concurs with the findings of the audit. It approves the financial statements and management report of BSH Bosch und Siemens Hausgeräte GmbH as well as the consolidated financial statements and Group management report; it recommends the shareholders to confirm the financial statements, to approve the consolidated financial statements and Group management report and to accept the Board of Management’s proposal regarding the allocation of net income. The period of office of the Supervisory Board came to an end with effect from April 30, 2008. After many years as a member of the Supervisory Board, of which he has in the past served as both Chairman and Vice-Chairman, Mr. Gotthard Romberg has stepped down. The shareholders and the Supervisory Board thanked Mr. Romberg for his commitment towards the development of the company. The end of the period of office also saw Messrs. Karl-Heinz Seibert and Lothar Wiedeberg and Prof. Dr. Klaus Wucherer step down from the body. Mr. Artur Fischer retired at the end of 2008. The Supervisory Board thanked its outgoing members for their valuable contributions. At the start of its new period of office on April 30, 2008, the Supervisory Board welcomed Dr. Rudolf Colm, Mr. Joe Kaeser, Prof. Dr. Hermann Requardt and Mr. Siegfried Stegmann as new members. During the constituent meeting of the newly elected Supervisory Board, Mr. Gerhard Kümmel was chosen to serve as its Chairman, with Mr. Elmar Freund and Prof. Dr. Hermann Requardt as his deputies. Mr. Stefan Rauschhuber joined the Supervisory Board with effect from January 1, 2009. The Supervisory Board would like to thank the Board of Management and the company’s employees for their successful endeavors over the past year. Munich, May 5, 2009 For the Supervisory Board Gerhard Kümmel Chairman 41 42 Board of Management Dr. sc. pol. Kurt-Ludwig Gutberlet Chairman Chief Executive Officer, Corporate Strategy, Corporate Communications, Law and Industrial Policy, Compliance, Internal Audit, Consumer Products, Customer Service Dr. sc. pol. Wolfgang Colberg (until March 31, 2009) Chief Financial Officer, Finance and M &A, Business Administration, Corporate Development and Controlling, Labor Relations Director, Human Resources, Data Protection, Information Technology, Purchasing, Tax, Customs, Insurance Johannes Närger (since April 1, 2009) Chief Financial Officer, Finance and M&A, Business Administration, Corporate Development and Controlling, Labor Relations Director, Human Resources, Data Protection, Information Technology, Purchasing, Tax, Customs, Insurance Jean Dufour Chief Sales and Marketing Officer, Corporate Sales, Brand Management, Logistics Prof. E. h. Werner Vogt Chief Technology Officer, Product Area Dishwashers, Product Area Cookers, Product Area Cooling, Product Area Laundry, Electronic Systems and Drives, Corporate Technology, Environmental, Occupational, Health, Fire and Disaster Protection Supervisory Board Gerhard Kümmel, Stuttgart Chairman of the Supervisory Board (since April 30, 2008) Member of the Board of Management of Robert Bosch GmbH Rudi Lamprecht, Munich Chairman of the Supervisory Board (until April 30, 2008) Member of the Supervisory Board (from May 21, 2008) Advisor to the Managing Board of Siemens AG Elmar Freund, Bad Neustadt Vice-Chairman of the Supervisory Board Chairman of the Group Works Committee Prof. Dr. phil. nat. Hermann Requardt, Munich Vice-Chairman (since April 30, 2008) Member of the Managing Board of Siemens AG Wolfgang Chur, Stuttgart Vice-Chairman (since April 30, 2008) Member of the Supervisory Board (from April 30, 2008) Member of the Board of Management of Robert Bosch GmbH (until June 30, 2008) Dominik Asam, Munich Head of the Board of Management of Siemens Financial Services GmbH Thomas Bauer, Stuttgart Director, Sales and Marketing Coordination Consumer Goods and Industrial Technology, Marketing Communications and Brand Management of Robert Bosch GmbH Ellen Bonna-Knöpp, Giengen Chairperson of the Works Committee of the Giengen plant Dr. rer. oec. pol. Rudolf Colm, Stuttgart (since April 30, 2008) Member of the Board of Management of Robert Bosch GmbH Artur Fischer, Rosenheim (until Dec. 31, 2008) Senior Authorized Representative of the IG Metall trade union Rosenheim Administrative Office (until April 30, 2008) Union Secretary of the IG Metall trade union Rosenheim Administrative Office (from May 1, 2008) BOARDS Peter Kern, Frankfurt Union Secretary to the Executive Committee of the IG Metall trade union Joe Kaeser, Munich (since April 30, 2008) Member of the Managing Board of Siemens AG Stefan Rauschhuber, Rosenheim (since January 1, 2009) Senior Authorized Representative of the IG Metall trade union, Rosenheim Administrative Office Gotthard Romberg, Stuttgart (until April 30, 2008) Formerly Member of the Board of Management of Robert Bosch GmbH Wolfgang Rückert, Traunreut Vice-Chairman of the Works Committee, Traunreut plant Dieter Schweisfurth, Hamburg Head of Sales, Bosch Northern Region BSH Bosch und Siemens Hausgeräte GmbH Karl-Heinz Seibert, Munich (until April 30, 2008) Head of Mergers, Acquisitions and Postclosing Management for Siemens AG Siegfried Stegmann, Nuremberg (since April 30, 2008) Chairman of the Nuremberg Works Committee Franz Veh, Dillingen Chairman of the Works Committee, Dillingen plant Lothar Wiedeberg, Berlin (until April 30, 2008) Vice-Chairman of the Works Committee, Berlin plant Prof. Dr.-Ing., Dr.-Ing. E. h. Klaus Wucherer, Erlangen (until April 30, 2008) Advisor to the Managing Board of Siemens AG 43 44 Management Report A. Development of business Development of the sector and of the economy as a whole Global domestic product grew by 2.3 percent in 2008, compared with around 4 percent in 2006 and 2007. From the middle of the year, the escalating financial market crisis also had a negative impact on the real economy, causing global economic activity to slow, especially in the fourth quarter. Following massive commodity price increases throughout the course of the year, falling commodity prices at the end of the year and the resulting easing of inflationary pressure brought only slight relief. Efforts were made to prop up the economy by starting to take monetary and fiscal measures to counter the crisis. In Europe, the United Kingdom, Ireland, and Spain had to deal with collapsing real estate markets and falling private consumption. Germany’s economy was weighed down primarily by a collapse in demand for exports, while domestic demand proved to be a stabilizing factor. Robust domestic demand in the new EU member states ensured that economic output fell comparatively less rapidly. Toward the end of the year, the downturn had spread to all European economies, albeit to different degrees. The recession in the USA was exacerbated further in 2008, primarily as a result of continuing price erosion in the real estate market and serious weakness in consumer demand. Measures intended to stimulate the economy taken by the US government, such as tax relief, only had a short-term impact. Overall, gross domestic product increased modestly in comparison with the previous year. Economic performance in emerging economies and commodity exporting countries was comparatively buoyant. Latin America in particular benefited from strong global demand for commodities in the first half of the year. However, toward the end of the year, the decline in demand in Western industrialized nations adversely affected the region. In China, Asia’s largest export market, the sluggish Western demand resulted in the first single-digit economic growth in year. The market for large household appliances could not escape the negative trends in global economic development. Although some European core markets had expanded in the previous year, most of them developed negatively during 2008. In Western Europe, the decline affected above all the important markets of Spain, the United Kingdom, Italy, and Scandinavia. Confirming initial signs at the end of 2007, Spain’s construction industry collapsed in 2008. Because of the great extent to which the Spanish market for large appliances depends on first-time buyer demand, there was a double-digit fall in demand. In the United Kingdom, the situation remained tense because of the weak real estate sector. In addition, the weak exchange rate of pound sterling weighed on market performance in euro terms. BUSINESS PERFORMANCE Positive changes in France and Germany provided support for the Western European white goods market. Although the number of household appliances sold in Germany was similar to the previous year’s figure, increased demand for higher-quality and more energyefficient products boosted revenue. The market in Eastern Europe performed better than the Western European market. The markets in Russia and Poland recorded aboveaverage growth rates But even in Russia, Eastern Europe’s largest market, the economic growth showed the first signs of cooling during the second half of the year. The weak rouble had an additional negative impact on market performance measured in euros. The household appliances market in the USA contracted even more significantly in 2008 than in the previous year. In particular demand for large appliances in the cooking and dishwashing material groups, which is to a large extent driven by construction activity, declined by double-digit percentages. Moreover, the weak annual average exchange rate of the US dollar contributed to the double-digit decline in the overall household appliances market when measured in euros. Renewed solid growth in Latin America’s markets only offset to a limited extent this poor development of the American continent as a whole. China was again a sustained growth market in 2008. This was mainly due to continued demand from first-time buyers in rural regions. Rising saturation rates in the cities, however, slightly dampened the increase in demand compared with previous years. India, Asia’s fourth largest market, also expanded faster than average, while growth was slow in the saturated markets of Japan and Korea. In spite of the fall in demand in North America and Western Europe, the global market for large household appliances expanded slightly. However, exchange rate developments resulted in a decline on a euro basis. Revenue development In the year under review, BSH Bosch und Siemens Hausgeräte GmbH (referred to in the text as “Group” or “BSH”) generated consolidated revenue of EUR 8.758 billion, a year-on-year decline of 0.7 percent. After currency adjustments, revenue amounted to EUR 8.924 billion, 1.2 percent more than in the previous year. In Germany, the Group’s revenue was EUR 1.765 billion, an increase of 2.9 percent. As a result, the proportion of revenue generated outside Germany declined from 80.5 percent to 79.9 percent. In Western Europe – including Turkey, but excluding Germany – consolidated revenue fell by EUR 243 million to EUR 4.314 billion. The decline was mainly attributable to the markets in Spain and the United Kingdom, while BSH recorded encouragingly good growth rates in the markets of Belgium, France, and Switzerland. MANAGEMENT REPORT 45 46 MANAGEMENT REPORT BUSINESS PERFORMANCE In Eastern Europe, BSH continued on its extremely positive growth path of previous years. Revenue increased by around 14.4 percent to EUR 946 million in the year under review. This growth was driven in particular by the markets in Russia, as well as Slovakia, Poland, and the Czech Republic. The negative revenue development in the North American market was mainly attributable to the USA, while revenue growth was buoyant in Canada. The fall in revenue in the USA was primarily due to the financial market crisis and its impact on the sales markets, as well as exchange rate developments. Sales by Region 01.4 % Others 09.3 % Asia 03.4 % Latin America 20.1% Germany 05.7 % North America While revenue in Latin America declined by 2.1 percent, the Group’s revenue generated in Brazil was similar to the previous year. Revenue in Peru increased by an encouraging percentage, but this was offset by a significant fall in revenue in Argentina. 10.8 % Eastern Europe 49.3 % Western Europe excluding Germany, including Turkey BSH continued its successful performance in Asia, reporting sharp increases in revenue. The market development for BSH was satisfactory, especially in China, but also in the United Arab Emirates and Israel. As in previous years, revenue expanded rapidly in Australia/Oceania. Production BSH manufactures large household appliances and small consumer products at 29 locations in 14 countries around the world. On the basis of product platform concepts, the 43 production facilities form part of a closely linked network in both development and production. This network allows BSH to maintain its cost at internationally competitive levels and keep the development cycles for new products short. In addition, BSH meets the regional requirements in the sales markets through specific product developments at the respective production locations. Consistent process optimization along the supply chain leads to further shortening of the firm order horizon of the production facilities and thus allows BSH to respond flexibly to changes in demand in the markets. Moreover, short transport routes mean that BSH can deliver to retailers and customers quickly. The strong focus on the ongoing optimization of quality processes leads to continuous improvement of the quality standard of BSH products. As a result, BSH’s quality leadership makes it a benchmark in many countries, not only in terms of the functional reliability of the products, but in particular regarding the benefits in use for retail customers. BUSINESS PERFORMANCE Independent institutions such as the German consumer organization Stiftung Warentest or similar organizations in other countries are impressively unanimous about the Group’s product performance leadership. In the year under review, BSH successfully completed the rollout of a standardized production system for all production facilities. To date, 25 facilities have successfully passed an internal audit. The BSH production system is a standardized method of testing all processes along the value chain for inefficiencies. In close collaboration with all employees, the non-value-added components are thus continuously eliminated or significantly reduced. An end-to-end formula for success, the BSH production system enjoys encouraging levels of acceptance among employees at all locations. In 2009, BSH will further expand and fine-tune the methods employed by this production system. The high degree of flexibility of its production facilities allows BSH at any time to engage in forward-looking demand planning for global production volumes and manufacturing capacity, thus protecting the Group especially during times of crisis. By using consistent inventory management, BSH has been able to reduce inventories accordingly. With marginally declining output of large household appliances and unchanged global BSH capacity, utilization was also down slightly, tracking the decline in revenue. While the output of German facilities increased by 1.2 percent, output fell back by around 1 percent in other European countries. However, the financial market crisis had a significant negative impact on output at production facilities overseas. Procurement While the prices of primary materials, especially steel, rose sharply in the first half of the year, the effect of the financial market crisis caused market prices to retreat, in some cases significantly, from October 2008. Depending on the terms of the procurement contracts and the dates they were signed, it was possible to offset a portion of the wide price fluctuations. In the case of plastics, the sharp increases in the oil price also impacted the procurement market well into the third quarter. However, looking ahead to 2009 BSH expects the sharp decline in oil prices at the end of 2008 to improve conditions to an as yet undeterminable extent. The general increase in volatility in the area of commodities was in part moderated by a campaign to develop new suppliers for primary materials. MANAGEMENT REPORT 47 48 MANAGEMENT REPORT BUSINESS PERFORMANCE In addition, there is continuous and long-term cooperation with core suppliers. To manage the risks of widely fluctuating commodity prices, BSH consistently pursues the hedging of non-ferrous metals. In spite of the economic downturn that started in the fourth quarter of 2008 and declining market prices at the beginning of 2009, the prices of commodities and primary materials are expected to increase in the course of the year. The massive capacity adjustments that some suppliers have already implemented will quickly lead to supply shortages and rising market prices in case of even moderate hikes in demand, especially in emerging economies. In response to declining order volumes and financing problems among suppliers, BSH has intensified its risk management activities in the procurement market, for example through systematic and preventive monitoring of single source suppliers. As part of various benchmark projects, more far-reaching procurement strategies have been identified to make better use of the market in the current economic environment, to optimize processes, and to strengthen interdisciplinary cooperation. Implementation on the basis of rollout plans has begun. Similar to the process for direct materials, a central purchasing function has been set up for indirect materials and services. The aim for the Group is to make systematic use of pooling and synergy potential for investments, communication technology, marketing and consulting services. More powerful IT systems have been used to support and optimize supplier management, risk management, and purchasing control. All these measures are appropriate ways of increasing BSH’s competitiveness. As part of its supplier assessment, BSH again gave awards to suppliers whose performance stood out in the year under review. Investments Investment by the Group in intangible assets and property, plant, and equipment (excluding goodwill) increased by 1.1 percent to EUR 382 million, which equates to 4.4 percent of consolidated revenue. Of the investments in intangible assets and property, plant, and equipment, EUR 141 million is attributable to Germany and EUR 241 million to other countries. The Group made 36.9 percent of its total investments in Germany. The most significant investments relate to the introduction of new built-in appliances and investments in information technology. BUSINESS PERFORMANCE In other countries, investments were primarily made at locations in China, Spain, Turkey, the USA, Brazil, and Eastern Europe. In China and Eastern Europe, investments related to washing machine and refrigeration appliances. In Spain, investing activities focused on new built-in appliances. MANAGEMENT REPORT Investment * in EUR million 400 Of the total amount invested 41.3 percent was spent on new products, 23.8 percent on expansion and rationalization activities. 34.9 percent was spent on land, buildings, logistics, information technology, and other items; around one third of this figure related to investments in replacement assets. Finances The impact of the financial market crisis is also felt by BSH. The extreme volatility and turbulence on the financial markets could not have been predicted, and there are no indications that the crisis would end after the end of the year. 350 382 378 2008 2007 300 250 200 150 100 50 The stock markets collapsed and bond markets did not follow any clear trends in the course of the year. Activities on the credit market were extremely sluggish and even faltered at times. The prevailing uncertainty about possible liquidity problems in the banking, industry, and retail sectors prompted international central banks to take extraordinary measures. High credit margins and the banks’ reluctance to give credit had no impact on BSH’s income statement, but only had a very minor formal effect on its finances. Since most of its loans are long-term and have fixed interest rates, BSH is soundly financed and its borrowing is only subject to minor interest rate risks. In addition, BSH has sufficient – contractually fixed – flexible lines of credit. Current and noncurrent financial liabilities decreased by a total of EUR 113 million in the year under review. This related primarily to the repayment of matured loans of EUR 107 million by the parent company BSH Bosch und Siemens Hausgeräte GmbH (referred to in the text as “BSH GmbH”). While noncurrent financial liabilities increased by EUR 9 million, current financial liabilities declined by EUR 122 million. Cash and cash equivalents increased by EUR 50 million. Currency risks resulting from operating activities are continuously identified, measured, and hedged in accordance with a defined finance policy in a rolling process with a horizon of up to twelve months. BSH hedges currency risks using forward exchange contracts and currency options. In the year under review, BSH introduced cash flow hedge accounting at Group level outside Germany. 0 * Investments in intangible assets and property, plant, and equipment (excluding goodwill) 49 50 MANAGEMENT REPORT BUSINESS PERFORMANCE In times of financial market crisis and the resulting credit shortage, even greater use is made of intercompany financing. In this way, a centrally managed, Group-wide cash management system ensures that all subsidiaries are solvent at all times. Because of market imbalances, all financial market assets lost a large amount of value in the course of the year under review. As a result, the financial markets suffered double-digit losses in some cases. BSH’s fund investments only reported minor losses. In this environment, this was positive confirmation of BSH’s risk-adjusted investment strategy, which had proved itself in the past. BSH chose a narrow interpretation of the guidance of IAS 39 and recognized the appropriate impairment losses as of the balance sheet date. A central treasury control unit ensures that potential treasury risks in the Group are continuously monitored, identified, and measured. BSH retained its external long-term rating of “A-” from international rating agency Standard & Poor’s in 2008. The outlook was raised to “positive.” Human resources and social issues At December 31, 2008, BSH employed a total of 40,286 people worldwide, including apprentices/trainees. Of this total, 26,090 (2007: 24,890) were employed outside Germany and 14,196 (2007: 14,060) in Germany. At the end of the year, there were 733 employees in various stages of apprenticeship/traineeship, 449 of them located in Germany. Workforce by Region 18 % Asia 35 % Germany 05 % Latin America 04 % North America 10 % Eastern Europe 28 % Western Europe The headcount increased by 1,336 employees, mainly at the companies in China, Slovenia, the Netherlands, and Russia. Of this increase, China accounted for 1,200 and the Netherlands for 104 employees, resulting from the acquisition of the sales company Willem van Rijn Huishoud-elektro B.V., Amsterdam. Personnel restructuring was carried out in Spain, the USA, and Slovakia for local facility-related reasons. In Germany, BSH’s headcount expanded by a total of 136. exluding Germany, including Turkey At December 31, 2008 As in previous years, BSH believes in a sustainable personnel policy that ensures the Group’s business success for the long term, also given the current financial market crisis. Examples include safeguarding the compensation structures, maintaining the vocational training and qualification programs, and long-term personnel development measures at all management levels. For further optimization in filling key positions in the Group (in addition to standardized systematic succession planning), the current need to recruit management personnel in technology and marketing was determined and appropriate action packages were developed on that basis. BUSINESS PERFORMANCE To ensure the recruitment of young managers strategically and for the long term, BSH provides intensive personnel development through programs such as the Junior Executive Pool, the International Executive Pool, and the Senior Executive Program. The Senior Executive Program for selected senior managers, which had been established in the previous year, was implemented with great success for the first time in 2008. The orientation centers, organized nationally and internationally for members of the Junior Executive Pool were expanded at national and international level. The “PROFI” pilot project was successfully completed in the laundry product area to establish the career path for project management. On the basis of existing internal models, external benchmark data, and the BSH competence model, an international project team developed management principles for application around the world and presented them to the participants at a corporate conference in 2008. The BSH competence model has been integrated into almost all central personnel development tools. Multiplier training was carried out to support the national companies. On the employer branding front, BSH again successfully competed for the Top Employer 2008 award run by the crf institute and German magazine “Karriere.” The result once again demonstrates BSH’s attractiveness as an employer. As of December 31, 2008, BSH employed 449 Professional Academy students and apprentices as well as 30 trainees in Germany. The internationalization of its training programs was boosted further with an increased number of exchanges of students and trainees between national companies. BSH discharges its social responsibility by, among other things, employing significantly more apprentices than it needs. The BSH JuniorFirma program established itself further with great success and is in high demand as a service provider. On the subject of training and development, BSH carried out a strategic realignment project with support from inhouse consulting. On the basis of the existing organization as well as interviews with internal customers and external benchmarks, a proof of concept was developed from strategic and operational topics. The core task of the newly formed department for communication and qualification in corporate personnel is to implement this strategic realignment. This also entails the creation of a uniform, transparent external effect of BSH’s human resources issues. MANAGEMENT REPORT 51 52 MANAGEMENT REPORT BUSINESS PERFORMANCE The newly designed employee survey was successfully conducted in Poland and Turkey. In Germany, the monitoring and implementation of actions derived from the 2007 survey was an important priority. The further international roll-out was planned at the same time. The intention is to conduct the employee survey throughout the Group at standard 2-year intervals. The Feedback for Management tool was rolled out comprehensively throughout the Group. The internationalization of personnel deployment continues at an undiminished pace. Currently 216 expatriates are deployed in 31 countries, 46 inbounds work at BSH locations in Germany, and 19 employees work internationally as part of cross-country transfers. Strict governance and approval processes for drafting and amending contracts along with regular reviews of employment terms and conditions ensure that the management of BSH subsidiaries maintains market-based terms and conditions of employment while taking local conditions and company principles into account. On the basis of external and internal benchmarking, human resources regularly reviews the level and structure of compensation and ensure that managers and employees are paid in line with the market. The Group thus ensures that the quantitative and qualitative aspects of compensation correspond to those of the market. Following the successful introduction of the standard framework agreement on pay (ERA) at almost all locations of BSH GmbH and Neff GmbH in July 2007, compensation structure officers were appointed at each location in order to safeguard and apply this new task assessment and performance related pay system for the long term. BSH adapted to demographic changes at an early stage. Since 2007, a working group named “Perspektive 67” has been working on the challenges facing the Group in this regard. To date, the Group has focused its work on areas such as the improvement of ergonomic workplace conditions, the expansion of holistic health management, and communication regarding private and company pension plans. In the human resource portal, support for managers was driven by introducing new improved management self-service scenarios. Operational HR work in Germany focused on uniformly transferring the customer service and sales organizations to Bavaria’s industry-wide collective bargaining agreement and merging the HR support function for customer service, sales, headquarters, and vocational training. In addition, the terms of employment were changed for middle management employees receiving payment over and above standard salary. BUSINESS PERFORMANCE MANAGEMENT REPORT Environmental protection BSH is Germany’s most sustainable company The German Sustainability Prize, which is under the patronage of German Federal President Horst Köhler and was awarded for the first time in 2008, recognizes companies which combine economic success with social responsibility and protection of the environment in an exemplary manner, and use their sustainable activities to generate further growth. Following a detailed selection process, BSH was chosen as the winner from around 350 companies – including over half of the DAX 30 companies. During the review of the sustainability factors along the entire value chain, BSH received confirmation that one of its major strengths was the continuous improvement of its products’ environmental attributes. “With our energy-efficient home appliances we are securing our competitiveness, safeguarding our employees’ jobs, and making a crucial contribution to conserving resources and protecting the environment,” said Dr. Gutberlet at the award ceremony on December 5, 2008. Environmental Figures for Production BSH has established an environmental management system at all its operating locations, guaranteeing safe and efficient production designed to conserve resources. A Group-wide environmental and quality management system controls the development and production processes internally, using comprehensive key performance indicators. Energy per ton product (kWh/t product) In the year under review, a total of 39 of the Group’s 43 production facilities were certified under ISO 14001, the international standard for environmental management systems. Investments and costs recognized as expenses attributable to production-related environmental protection amounted to EUR 21 million in the year under review. Water per ton product (m3/t product) The introduction to market of the new dishwasher generation and the new condensation dryer with heat pump technology marks the most important milestone to date in the development and production of energy-efficient and environmentally compatible home appliances by BSH. These products represent the consistent implementation within the Group of innovative technology and environmental standards and sets benchmarks for the industry around the world. Waste per ton product (kg/t product) 690 689 90.0 89.9 1.37 1.36 CO2 emissions per ton product* 44.2 45.2 (kg/t product) 2008 2007 *proportion from electrical energy generation, district heating, and and transport 53 54 MANAGEMENT REPORT BUSINESS PERFORMANCE Reducing energy consumption is one of the key levers in checking carbon dioxide (CO2 ) emissions and thus decelerating climate change. The early replacement of inefficient old appliances is particularly effective for the environment. The current energy consumption values of the most energy-efficient BSH appliances has been cut by around 30 percent for cookers, 37 percent for washing machines, up to 52 percent for dishwashers, and up to 80 percent for refrigerators, when compared with market averages in 1990 (Kyoto Protocol base year). In 2008, BSH presented its first account of production-related CO2 emissions for all BSH activities, also known as carbon footprint. It measures the CO2 emitted during production at BSH locations from the use of gas and heating oil. It also includes emissions from the use of energy and power at production facilities and office locations as well as emissions due to business travel, customer service activities, and the transport of goods from production facilities to customers. BSH published its 16th Environmental and Corporate Responsibility Report in 2007. Additional information about environmental protection within the Group and about BSH’s international production facilities is available on the internet at www.bsh-group.com. Research and development Through its innovation management, research and development makes an important contribution to the success of BSH. By introducing and continuously optimizing new methods, tools, and processes, innovation management – as part of a global development network with regional variations – promotes the efficiency and overall success of the Company in the globalized environment. In addition, a web-based tool was introduced in the year under review to allow ideas to be captured and systematically assessed anywhere in the world. During the innovation process, the shell model method is used to capture and present the technologies and trends relevant to BSH in this regard. A comprehensive IT project was launched in the year under review to further improve document and change management. This will allow users to exchange meaningful information in real time. Its innovative and high-quality products enabled BSH again to be successful in the market in 2008. One case in point was BSH’s first appearance at the international trade fair for Consumer Electronics and Home Appliances (IFA) in Berlin, where it exhibited many extremely successful innovations. It showcased small consumer products, such as the new EQ.7 automatic coffee machine, as well as large home appliances, for example the new tumble dryers and dishwashers. BUSINESS PERFORMANCE MANAGEMENT REPORT For BSH, the conservation of resources, in particular energy, is a major research and development area. For example, the new dryer with heat pump and self-cleaning condenser uses 40 percent less energy than a conventional appliance in energy efficiency class A, making it the world’s most energy-efficient dryer in 2008. In addition, the new dishwasher with zeolite®-assisted drying and the A++ initiative for refrigerators and freezers make an important contribution to the environment. Various test results for BSH appliances produced by German and international consumer organizations provide evidence of superior quality. They also confirm a good price/performance ratio. In 56 of the 95 tests involving BSH products in 2008, the Group emerged as “overall winner” or “best buy.” But it is not only technical features that provide customer benefit, the design of a product is increasingly gaining in importance among customers. The brand designs are facing up to this challenge, as is impressively evidenced by the 146 international design awards BSH won in 2008. They include the international “iF design award” and the “red dot design award.” Research and Development Costs in EUR million 300 250 263 259 2008 2007 200 150 In the year under review, the Group spent EUR 263 million on research and development, which equates to 3.0 percent of revenue (2007: 2.9 percent). This documents BSH’s long-standing reputation as the industry’s innovation leader. As of the balance sheet date, BSH had 2,240 employees in research and development, 1,198 of them in Germany. 100 50 0 In the context of research and development, BSH applies a very successful intellectual property strategy centered on maintaining, bolstering, and expanding its portfolio of industrial property rights worldwide. This is confirmed by, among other things, the large number of patent applications and grants (786 first patent applications in Germany in 2008) and BSH property rights. According to the latest publication of the German Patent Office, BSH ranks among the top 10 German patent and property right applicants; in Spain, BSH is number one in a similar ranking. as a percentage of sales Further enhancing its considerable research and development capabilities and ensuring that it remains ahead of its competitors in terms of innovation are among BSH’s strategic objectives. 0.5 3.0 3.0 2.9 2.5 2.0 1.5 1.0 0 2008 2007 55 56 MANAGEMENT REPORT BUSINESS PERFORMANCE Significant developments BSH responds to the excellent revenue performance in China by making further investments in this market in order to consolidate its market position and increase market share. At the Chinese production facility in Chuzhou in Anhui Province, BSH made large-scale investments in the start-up of production of new fridge-freezers in the year under review. At the Appliance Park operated by BSH Electrical Appliances Co., Ltd., Nanjing in Jiangsu Province, the production of hot water appliances, which are part of consumer products, started successfully. At the same location, investments were made in a new production line for washing machines; production started in 2008 as planned. In Russia, construction started on the expansion of production facilities at the St. Petersburg location. The major investments of BSH Ev Aletleri Sanayi ve Ticaret A.Ş. at the Çerkezköy location in Turkey relate to the new production line for dishwashers and the production of refrigerators. The production of Tassimo coffee machines started at the Nazarje location in Slovenia, and their market launch was successfully completed in Germany, France, and Austria. Their rollout in the Spanish, US, and Canadian markets is planned for 2009. At the Łódź location in Poland, the production of the new tumble dryer with heat pump and self-cleaning condenser started as planned. This particularly energy-efficient appliance was presented at the IFA trade fair for the first time and its acceptance by customers promises success. Further good news was that the Łódź location celebrated the production of its 10 millionth large home appliance in the year under review. As a symbol to mark the occasion, one oak tree was planted for every one million appliances. Investing activity was also buoyant in Germany, where BSH spent 36.9 percent of its global investment volume. Production of the new dishwasher and built-in appliances started at the Dillingen and Traunreut locations. In addition, logistics commissioned a new container terminal in Giengen and a new sales warehouse in Nauen. At the vacuum cleaner facility in Bad Neustadt, an ultra-modern, especially environmentally friendly paint facility with low emissions was installed. BSH Electrodomésticos España, S. A. relocated to its new headquarters in Zaragoza, Spain. Other investments in Spain focused mainly on new built-in appliances. BUSINESS PERFORMANCE At Hortolandia in Brazil, the local BSH company commissioned its new production hall for the manufacture of cookers. This location supplies the Latin American market. Investments for new dishwashers and washing machines were also made in North America. In spite of the crisis on the US financial markets, BSH expects revenue and profits to grow considerably for the new washing machine and the new 60 cm middle class dishwasher. Effective January 1, 2008, BSH acquired the sales company Willem van Rijn Huishoud-elektro B.V., thereby taking over direct marketing of the Bosch and Neff brands in the Netherlands. Effective January 1, 2009, BSH Huishoud-elektro B.V., Amsterdam took over the household appliance activities of Siemens Nederland N.V., The Hague, i.e., the sales of the Siemens and Gaggenau brands in the Netherlands. Also in the year under review, BSH established a new Moroccan sales company, BSH Electroménagers S.A., based in Casablanca. The company sells the Bosch and Siemens brands in that country. The sales activities for household appliances of Siemens AG in Northern Ireland were transferred to BSH Home Appliances Ltd. in the UK as of October 1, 2008. BSH électroménagers S.A., Luxembourg took over the sales of household appliances from Siemens S.A./N.V., Brussels with effect from January 1, 2009. It now sells the BSH brands in Luxembourg. BSH GmbH is Germany’s most sustainable company, chosen from a total of 350 companies offering products and services in Germany. This award was given to BSH on December 5, 2008 to honor the economic, ecological, and social sustainability of its corporate strategy. According to the jury, BSH deserves the award because of the special way in which it promotes the idea of a future-capable company. “BSH helps reduce the country’s energy consumption, protect the climate, and improve the quality of life of its population.” This is how the Group’s sustained commitment has been presented, for example with reference to the exchange of refrigerators BSH has initiated in the poorer quarters, known as favelas, of many Brazilian cities. The exchange works as follows: Old appliances are disposed of in an environmentally responsible manner and replaced with new energyefficient appliances – at no cost to the people living in the favelas. MANAGEMENT REPORT 57 58 MANAGEMENT REPORT BUSINESS PERFORMANCE BSH was elected Supplier of the Year by EURONICS International Ltd. for the third time in succession. This buying group for electrical appliances, which is based in Amsterdam in the Netherlands, has 6,300 members at 11,500 locations in 28 countries and reaches over 600 million consumers. The criteria for giving this award to BSH were innovation and product quality, marketing and sales support, delivery reliability, and customer service. The members of CECED (Conseil Européen de la Construction d’appareils Domestiques or European Committee of Domestic Equipment Manufacturers) elected the CEO of BSH, Dr. Kurt-Ludwig Gutberlet, as its President for the second time at its annual General Assembly. The main focus of Dr. Gutberlet’s two-year term of office will be the revision of energy efficiency classes at EU level. At a number of national and international trade fairs, BSH’s brands presented their new design. For example, there were large-scale BSH exhibits at the important Eurocucina and IFA trade fairs. In addition to the latest generations of large home appliances, the first automatic coffee machine produced at BSH’s own facilities was also introduced. Competence in household appliances: Bosch celebrated 75 years of household appliances in 2008. Under the banner “The future needs a past,” the Bosch brand continues to be a winner through innovation and modern design. N E T A S S E T S , F I N A N C I A L P O S I T I O N , A N D R E S U LT S O F O P E R AT I O N S MANAGEMENT REPORT B. Net assets, financial position, and results of operations Total assets fell by EUR 103 million year-on-year to EUR 6,173 million. The improvement in cash and cash equivalents is due to cash inflow from operating activities slightly exceeding the cash outflow from investing and financing activities. BSH also benefited from a significantly higher opening amount of cash and cash equivalents at the beginning of the year under review. The decrease in cash inflow from operating activities amounting to EUR 43 million was primarily due to the decline in profit before taxes as well as a further reduction in trade payables and other liabilities. This was offset by higher depreciation and amortization charges, a further reduction in inventories, and higher other non-cash income and expenses. The cash outflow from investing activities was impacted by a decline in investments in securities and increased sales of securities. On the other hand, the fact that no financial receivables were retired in the year under review (unlike the previous year) prevented higher cash inflow from investing activities. Higher additions of financial receivables led to further cash outflow from investing activities in the year under review. The net cash outflow from financing activities increased by EUR 27 million year-on-year, driven by higher dividend payments to the parent companies, lower borrowing, and lower repayments of financial liabilities. Exchange rate fluctuations and changes in the consolidated group, on the other hand, had a minor impact on cash and cash equivalents. BSH has demonstrated successful asset management with regard to both trade receivables and inventories. With revenue almost the same as in 2007, the two balance sheet items were reduced by 4.9 percent and 2.6 percent respectively. Other assets increased by EUR 58 million to EUR 273 million, driven primarily by positive fair values from currency hedging transactions. BSH’s investments in property, plant, and equipment amounted to EUR 369 million. Strong exchange rate fluctuations reduced cost by EUR 103 million. Retirements amounted to EUR 181 million. BSH’s net investments led to an increase in property, plant, and equipment of EUR 37 million. This included depreciation of EUR 56 million for the year under review. The depreciation charge was positively impacted by exchange rate fluctuations of EUR 66 million. Balance Sheet Structure 2008 2007 9% 36 % 8% 36 % Cash, cash equivalents, and securities Receivables and other assets 17 % 18 % Inventories 38 % 38 % Noncurrent assets 6,173 6,276 Total assets (in mill. of EUR) 2008 2007 11% 11% Trade accounts payable 10 % 12 % Financial liabilities 26 % 27 % Provisions 14 % 12 % Other liabilities 39 % 38 % Shareholders’ equity 6,173 6,276 Total liabilities and shareholders’ equity (in EUR million) 59 60 MANAGEMENT REPORT N E T A S S E T S , F I N A N C I A L P O S I T I O N , A N D R E S U LT S O F O P E R AT I O N S Intangible assets declined marginally to EUR 235 million. Investments added goodwill of EUR 8 million and software of EUR 12 million. Deferred tax assets as of the reporting date fell to EUR 146 million (2007: EUR 203 million), due primarily to the change in the discount rate used to calculate pension provisions to 5.60 and 6.00 percent abroad and in Germany respectively (2007: 5.40 and 5.25 percent) In addition, impairment losses recognized in accordance with IAS 36 and IAS 39 had an impact on the recognition of deferred tax assets. The use of the remaining loss carryforwards also led to a reduction in deferred tax assets. On the liabilities side, current liabilities declined by 2.0 percent and noncurrent liabilities by 4.7 percent; equity rose by 1.0 percent. In total, financial liabilities decreased by EUR 113 million to EUR 639 million because of loan repayments; they now account for 10.3 percent of total equity and liabilities. Trade payables, current income tax liabilities, and other current liabilities rose by EUR 73 million in the year under review, mainly because of negative fair values from currency hedging transactions and liabilities to customers and third parties. The percentage of trade payables, current income tax liabilities, and other current liabilities as a proportion of total equity and liabilities rose to 24.7 percent (2007: 23.1 percent). Provisions excluding pension obligations totaled EUR 830 million and accounted for 13.4 percent of capital employed. The EUR 48 million decline in provisions is mainly due to items in the HR and sales areas with a material impact on the income statement. Provisions for pension obligations declined by EUR 32 million as of the balance sheet date, primarily due to the change in the discount rate from 5.40/5.25 percent to 5.60/6.00 percent. The reduction in deferred tax liabilities is mainly the result of consolidation adjustments. Consolidated equity increased by EUR 24 million in the period under review to EUR 2,396 million, due primarily to changes in retained earnings, dividend payments, consolidated net profit for the period, and items recognized directly in equity. Following the rapid rises in revenue during previous years, the financial market crisis prevented BSH from meeting revenue expectations in the year under review. Consolidated revenue declined from EUR 8.818 billion in 2007 to EUR 8.758 billion in 2008. N E T A S S E T S , F I N A N C I A L P O S I T I O N , A N D R E S U LT S O F O P E R AT I O N S Cost of sales amount to 65.8 percent, a marginal 1.3 percent higher than in the previous year. This shows that in 2008 the sharp increases in the prices of energy, primary materials, and logistics services could not be fully offset by revenue. Therefore, gross profit decreased to EUR 2,999 million, or 34.2 percent of revenue. Sales Trend in bill. of EUR After significant increases in selling expenses in previous years, BSH cut these expenses back to 2006 levels, thus reflecting the negative development of revenue in the year under review. In line with the trend of previous years, administrative expenses declined further. Total selling and administrative expenses accounted for 24.1 percent of revenue, a reduction of 1.6 percentage points. 9 Research and development expenses increased to EUR 263 million and accounted for 3.0 percent of revenue. In spite of the financial market crisis, BSH’s expenses in this area increased by 1.5 percent, highlighting the enormous value the Company attaches to innovation. 5 In the year under review, net other operating expenses (other operating income less other operating expenses) amounted to EUR 5 million, an increase of EUR 52 million over the net other operating income of EUR 47 million in 2007. 8.758 8.818 2008 2007 8 7 6 4 3 2 1 0 The change in other operating income was mainly due to exchange gains on trade receivables and trade payables as well as gains on currency hedging transactions. The figure also includes other operating income, which declined yearon-year, lower income from the reversal of impairment losses, and income from the reversal of provisions that is not function-related. Profitability Trend* in EUR million The year-on-year change in other operating expenses was primarily driven by losses on currency hedging transactions and exchange losses on trade receivables and trade payables. The figure also includes miscellaneous other operating expenses and expenses under IAS 36. 700 600 637 500 510 Net interest expense was EUR 12 million, marginally less than in 2007. 400 Because of high currency volatility on the financial markets, net other finance income/expense changed considerably compared with the previous year. 300 On a net basis, exchange gains and losses as well as fair value measurement gains and losses – especially on intercompany financial transactions – exceeded the net loss reported in the previous year by EUR 65 million. Expenses arising from the application of IAS 39 also belong under this caption. BSH’s profit before taxes amounted to EUR 510 million, or 5.8 percent of revenue, thus falling short of the ambitious budget for 2008 and the previous year’s result. 200 100 0 2008 2007 * Profit before income taxes MANAGEMENT REPORT 61 62 MANAGEMENT REPORT N E T A S S E T S , F I N A N C I A L P O S I T I O N , A N D R E S U LT S O F O P E R AT I O N S Income tax expense amounted to EUR 199 million (2007: EUR 226 million), or 2.3 percent (2007: 2.6 percent) of revenue. The change in income taxes is the result of a smaller increase in effective taxes and, primarily, due to the halving of deferred taxes. The increase in the effective tax burden in Germany is offset by a decline in the effective tax burden abroad. The use of the small amount of loss carryforwards still available in Germany led to a year-on-year decline in deferred tax expense. In addition, temporary differences arising from changes in provisions, impairment losses recognized in accordance with IAS 36 and IAS 39, and consolidation adjustments impact on the deferred income tax expense. The Group tax rate as of the reporting date was 39.0 percent. BSH’s consolidated net profit for 2008 declined by EUR 99 million, with minority interest falling only slightly. Thus the Group generated consolidated profit of 3.5 percent of revenue (2007: 4.6 percent). Key factors affecting profits Consolidated revenue fell by EUR 60 million to EUR 8.758 billion. The fact that the business plan figure or prior-year revenue was not achieved is a significant reason for the change in profit. In line with a further reduction in quality costs, the Group adjusted its obligations to actual requirements. This led to an increase in profit in the year under review. The measurement of financial assets in accordance with IAS 39 led to a not immaterial expense recognized in the income statement for the reporting period because of the consistent application of the guidance on necessary write-downs to fair value as of the balance sheet date. Impairment losses recognized on assets in accordance with IAS 36 led to additional expenses recognized in the consolidated income statement. The wage tax audit for 2002 through 2006 conducted in Germany in 2008 had a not immaterial positive impact on the income statement due to reversal of some provisions proven unnecessary. Personnel obligations due to performance-related agreements led to a reduction in this balance sheet item. N E T A S S E T S , F I N A N C I A L P O S I T I O N , A N D R E S U LT S O F O P E R AT I O N S Due to the decline in the number of persons entitled to claims on the basis of age, along with no new legal requirements or new contractual arrangements have been made, the obligations for partial retirement and overtime were reduced significantly. For the field action on dishwashers in the USA, obligations for sales made in the more distant past were recognized as other operating expenses in the income statement. The financial market crisis, declining sales, lower revenue, and a difficult cost situation led to a renewed decline in profit in the USA in 2008. Stagnating revenue, exchange rate-related increases in the cost of exports, and non-operating expenses prevented the Brazilian company from generating a profit despite its improved cost structure. As in the previous year, the large production companies in Poland and Turkey did not reach their prior-year profits in 2008. This was primarily attributable to the sharp decline in their currencies at the end of the year as well as a fall in export revenue in Poland because of the financial market crisis. Following the sale of intercompany assets, the Spanish subsidiary’s profits improved compared with the previous year, in spite of a decline in revenue caused by the domestic market. Business performance was also difficult in the UK sales company. A considerable decline in revenue and significant exchange rate factors caused a sharp fall in profits. In spite of significant increases in revenue, the Chinese companies recorded a not inconsiderable overall decline in profits. The main reasons were large investments, a rise in selling expenses and startup costs for new products, the subsidiary economic environment caused by the Olympic Games, and the financial market crisis. The German companies are still among the Group’s most important profit drivers. As in the previous year, appropriate provisions were recognized at all Group companies for known and other risks at the balance sheet date. MANAGEMENT REPORT 63 64 MANAGEMENT REPORT SIGNIFICANT OPPORTUNITIES AND RISKS FOR FUTURE DEVELOPMENT C. Significant opportunities and risks to future development BSH Compliance Management assists the operating units in complying with the law, the Business Conduct Guidelines, and the BSH guidelines. The establishment of the compliance organization, which started in 2007, was completed in 2008. The organization consists of the Corporate Compliance Committee, the Office of the Compliance Committee, regional compliance officers, and the external ombudsman. During the implementation of the local compliance organizations 36 regional compliance officers were appointed. These officers support the central BSH compliance organization and local management on compliance issues and in organizing training events in 40 countries. To date, more than 7,200 employees have successfully completed the online training programs on BSH compliance and the Business Conduct Guidelines as well as anti-corruption activities. Senior and middle managers as well as company representatives, and employees who have contact with customers and suppliers are obliged to complete compliance training. More online and attendance courses are planned for 2009. Risk reporting continues as part of the risk management process. Concurrently, the Business Continuity Management Program was stepped up in business units and selected national companies of BSH. In 2008, all existing insurance contracts were examined with regard to the underlying risks and how they have developed, both between renewal dates and each time a contract was due for renewal. Content and cover were adjusted to the latest requirements wherever necessary. Especially in the fourth quarter of 2008, it was noticeable across industries and countries that insurers had reduced the cover for credit risks. This trend is expected to continue in 2009. BSH took preventive measures to counter this development. In addition, a new reporting process was set up for corporate credit risk management to improve the way credit risks are mapped. The consolidation of IT systems continued. The new corporate data center architecture further minimized the risk of prolonged malfunctions or outages of the IT infrastructure impacting on business processes. Energy consumption and cooling costs in the data center were reduced at the same time. SIGNIFICANT OPPORTUNITIES AND RISKS FOR FUTURE DEVELOPMENT To control the increased counterparty risk of banks, which increased as a result of the financial market crisis, corporate finance specified a more stringent procedure for assessing current risk in business transactions with banks. In addition, the development of exchange rates continues to present a not immaterial currency risk for business activities outside the eurozone. The Group counters these risks by taking appropriate action. The Group employs the treasury control and value contribution monitor used in corporate finance to identify and control interest and currency management activities throughout the Group. BSH uses these information systems to identify, weigh, and assess interest rate and currency risks throughout the Group and thus manage its hedging transactions. Given the current and future consequences of the financial market crisis, risk management in purchasing is equally important to ensure, among other things, that the Company’s performance and competitiveness are sustained. BSH counters the risk of single sourcing by systematically taking preventive and corrective action. Further risks exist in the development of prices in the commodity and energy markets, as well as in possible fluctuations in supply security in parts of the energy market. BSH counters the former by integrating parts and components suppliers in BSH master agreements with suppliers of primary materials, particularly steel and plastic pellets. In addition, the Group will organize procurement opportunities by placing specifications for materials and their processing across a broader supply market. To ensure energy supplies, the Group uses the existing opportunities under agreements with large consumers. Purchasing counters the possible risk of future steel and plastic shortages by, among other things, entering into medium-term agreements. In regards to the markets, the financial market crisis poses risks to the performance of the macro-economic development, which will also affect the home appliances market. By taking additional measures in the operating and procurement areas, in cost management and in its sales and marketing activities, BSH will try to minimize the impact of this crisis as much as possible by making consistent use of the maneuvering room it offers in order to strengthen and expand its competitive position. MANAGEMENT REPORT 65 66 MANAGEMENT REPORT SIGNIFICANT OPPORTUNITIES AND RISKS FOR FUTURE DEVELOPMENT In addition to the current market risks, there are also opportunities. These opportunities arise, albeit to a smaller extent than in previous periods, as a result of more favorable procurement options and prices, the competitive situation in the market, the recruitment of highly qualified staff, and BSH’s presence in growth markets.. Further opportunities for BSH result in particular from the environmental and corporate responsibility the Company has taken on. This is evidenced in the high energy efficiency of the products and the resource-conserving production process. It also includes fair dealings with employees, suppliers, customers, and shareholders. In conclusion, BSH is able to state that it is currently not aware of any risk that threatens the continued existence of the Group as a going concern. OUTLOOK D. Outlook BSH expects a difficult economic environment for 2009. A significant decline in economic output is expected in the industrialized nations, and the economy will also lose momentum in emerging economies. Falling inflation and energy prices boost private consumption, although this is offset by uncertain income prospects due to the heightened risk to job security. Falling demand for exports and lower capital expenditure further weigh on economic growth. Moreover, the economic stimulus packages that have been passed will only have a gradual effect. In Europe, declining economic output will continue to particularly grip the United Kingdom, Spain, and Ireland, which were already affected by the real estate crisis in 2007/2008. The accelerated decline in demand for exports will have a major impact on Germany, a large and important exporter, and probably lead to a contraction in gross domestic product. Likewise, economic growth in Eastern European countries will be affected by the wave of generally poor economic performance around the world. The US economy faces several problems in 2009: The continuing crisis in residential construction, financing problems for companies and private households, a sharp increase in unemployment, and weak demand for exports weigh on gross domestic product. However, decisive economic policy countermeasures and the early onset of the downturn could make the United States one of the first countries to emerge from the recession. In the emerging economies, BSH still expects positive economic growth, but at a sharply slower rate. BSH anticipates lower growth rates particularly in China, although the political climate is relatively stable, and the country has large foreign currency reserves and has passed a comprehensive economic stimulus program to deal with the financial market crisis. It is currently hard to forecast the intensity and duration of the impact the change in key factors will have on the white goods industry. The situation in the home appliances market will track the deterioration of global economic development in 2009. Germany and the Western European core markets will probably experience negative growth. Although the US home appliances market is already at a low level, no visible recovery is expected for 2009. Growth markets such as China and India will probably also lose momentum. MANAGEMENT REPORT 67 68 MANAGEMENT REPORT OUTLOOK BSH will align its activities with the reduced regional growth potential in 2009. The Group does not expect revenue to expand in Western Europe and South America in the subsequent year either. However, BSH has identified good prospects for revenue and profits in Belgium and Australia/New Zealand. The internationally strong Bosch and Siemens brands, BSH’s exceptional expertise in the white goods field, the positive development of quality costs, and a well positioned international customer service organization will help to limit the impact on BSH of the market decline that is expected by all parties. On the basis of attributes such as the sustainability, energy efficiency, and environmental compatibility of its home appliances, the Group hopes to turn the economic challenges, especially in the European and North American markets, into an opportunity. With this in mind, BSH will be able to defend its market leadership in Germany and Europe even in the economically difficult 2009 fiscal year. In line with the general expectations of market participants, the Group has significantly revised the profits planned for 2009, down from the more positive figure anticipated in the previous year. Nevertheless, the situation also offers cost reduction and other savings opportunities for the Group. Measures that have already been rolled out are continuously monitored, improved, and consistently implemented. BSH sees major challenges in very volatile procurement prices and in the possible demise of some suppliers caused by the financial market crisis. To be prepared for further deterioration in the economic environment, BSH has developed alternative planning scenarios and resulting measures, in addition to the approved business plan. Business performance at the beginning of the 2009 fiscal year – with revenue and profit failing to reach the amounts originally budgeted – indicates that BSH will achieve the results of the current planning scenario. Munich, February 26, 2009 BSH Bosch und Siemens Hausgeräte GmbH The Board of Management Group Financial Statements G R O U P F I N A N C I A L S TAT E M E N T S Consolidated Statement of Income Note 2008 2007 Revenue 4 8,758 8,818 Cost of sales 5 5,759 5,683 2,999 3,135 Gross profit Selling and administrative expenses 6 2,109 2,263 Research and development expenses 7 263 259 Other operating income 8 344 200 Other operating expenses 8 349 153 1 0 621 660 10 77 70 Finance cost 10 – 89 – 84 Other financial result 11 – 99 –9 510 637 199 226 311 411 6 7 305 404 Goodwill impairment Operating profit Finance income Profit before taxes Income taxes 12 Profit after taxes Minority interest Consolidated net profit 13 January 1 to December 31, 2008 (in EUR million) 69 70 G R O U P F I N A N C I A L S TAT E M E N T S CO N S O L I D AT E D B A L A N C E S H E E T Consolidated Balance Sheet as at December 31, 2008 (in EUR million) Note 12/31/2008 12/31/2007 ASSETS Current assets Cash and cash equivalents 15 503 453 Securities 16 70 90 Trade accounts receivable 17 1,729 1,819 29 19 Current income tax receivables Other current assets 18 273 215 Inventories 19 1,074 1,103 3,678 3,699 20 674 707 0 12 Property, plant, and equipment 21 1,440 1,403 Intangible assets 22 235 252 Deferred tax assets 12 146 203 Total noncurrent assets 2,495 2,577 Total assets 6,173 6,276 Total current assets Noncurrent assets Noncurrent financial assets Noncurrent income tax receivables SHAREHOLDERS’ EQUITY AND LIABILITIES Current liabilities Financial liabilities 23 138 260 Trade accounts payable 24 682 728 8 19 Other current liabilities 25 834 704 Other current provisions 25 371 363 2,033 2,074 Current income tax liabilities Total current liabilities Noncurrent liabilities Financial liabilities 23 501 492 Other noncurrent liabilities 26 12 11 Other noncurrent provisions 26 459 515 Provisions for pensions and other postretirement benefits 27 763 795 Deferred tax liabilities 12 9 17 1,744 1,830 Total noncurrent liabilities Shareholders’ equity Subscribed capital 28 125 125 Retained earnings and other reserves 28 1,944 1,816 305 404 22 27 Total shareholders’ equity 2,396 2,372 Total shareholders’ equity and liabilities 6,173 6,276 Consolidated net profit Minority interest 28 CO N S O L I D AT E D S TAT E M E N T O F C A S H F LO W G R O U P F I N A N C I A L S TAT E M E N T S Consolidated Statement of Cash Flow Note 2008 311 411 12 199 226 510 637 –6 –7 300 253 Profit after taxes Income taxes Profit before tax Minority interest 13 Depreciation, amortization, and impairment of noncurrent assets and reversals of impairment losses 2007 Gains and losses on disposals of assets –1 0 Net interest expense 12 14 – 89 – 84 Interest paid Interest received 73 71 –170 – 171 92 44 –16 – 94 Change in trade accounts receivable and other accounts receivable –8 – 41 Change in securities (held for trading) –9 11 Change in trade accounts payable and other liabilities 64 137 – 59 – 49 18 33 711 754 0 0 – 401 – 388 13 15 Income taxes paid Other noncash income and expenses Changes in assets and liabilities Change in inventories Change in provisions Change in deferred taxes Cash provided by operating activities 29 Payments for financial investments Payments for investments in intangible assets and property, plant, and equipment Proceeds from the disposal of assets Increase in financial receivables Decrease in financial receivables Investments in securities (available-for-sale) Sales of securities (available-for-sale) Cash used in investing activities 29 Dividends Minority interest Proceeds from bank borrowings Repayment of financial liabilities Net cash provided by/used in financing activities 29 Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the period Change in cash and cash equivalents due to changes in exchange rates Change in cash and cash equivalents due to changes in basis of consolidation Cash and cash equivalents at the end of the period 29 29 –16 0 0 63 – 433 – 474 471 443 – 366 – 341 – 197 – 158 2 4 92 131 –185 –238 – 288 –261 57 152 453 305 –8 –4 1 503 0 453 (in EUR million) 71 72 G R O U P F I N A N C I A L S TAT E M E N T S S TAT E M E N T O F R ECO G N I Z E D I N CO M E A N D E X P E N S E Statement of Recognized Income and Expense (in EUR million) Net loss (–)/gain (+) from financial instruments available-for-sale 2008 2007 –32 –13 Net gain on fair value measurement of financial instruments used for hedging purposes (CFH) 7 2 Actuarial gains (+)/losses (–) from defined benefit pension and similar obligations 45 86 Exchange differences on translating foreign subsidiaries – 91 24 Deferred tax relating to components of income and expense recognized directly in equity –16 –33 Income and expense recognized directly in equity – 87 66 Profit/loss after taxes 311 411 Total recognized income and expense for the year 224 477 CO N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N S H A R E H O L D E R S ’ E Q U I T Y G R O U P F I N A N C I A L S TAT E M E N T S Consolidated Statement of Changes in Shareholders’ Equity (in EUR million) 125 1,929 8 44 – –78 2,028 st tere orit y in Total shareholders’ equity Min Fair me -value nt o m f se easu r cur itie es De r inst ivative rum f ent inanci s (C al FH ) Act u on arial g pen sion ains/l pro osses visi ons Equ i t y of t h e h o ld e r par ent s ing de arn Ret a ine cap i bed Su b sc r i At December 31, 2006 s Cur r ad j e n c y t u st me ransla nt tion Accumulated other comprehensive income tal Note 28 29 2,057 – Profit after taxes – 404 – – – – 404 7 411 – Dividend payments – – 152 – – – – –152 –6 –158 – Foreign currency translation differences – – 24 – – – 24 0 24 – Financial instruments – – – –10 1 – –9 – –9 – Pensions Net actuarial gains/losses – – – – – 51 51 – 51 – Other changes – –1 – – – – –1 –3 –4 125 2,180 32 34 1 –27 2,345 27 2,372 At December 31, 2007 – Profit after taxes – 305 – – – – 305 6 311 – Dividend payments – – 190 – – – – –190 –7 –197 – Foreign currency translation differences – – – 91 – – – – 91 0 – 91 – Financial instruments – – – –32 5 – – 27 – –27 – Pensions Net actuarial gains/losses – – – – – 32 32 0 32 – Other changes – – – – – – – –4 –4 125 2,295 – 59 2 6 5 2,374 22 2,396 At December 31, 2008 73 74 Notes to the Consolidated Financial Statements 1 General BSH Bosch und Siemens Hausgeräte GmbH was formed in 1967 as a joint venture of Robert Bosch GmbH, Stuttgart, and Siemens AG, Berlin and Munich. The activities of the BSH Group (hereafter referred to as “Group” or “BSH”) comprise: the manufacture or procurement and marketing, as well as research and development, of industrial products in the area of electrical engineering, precision mechanics, and related technology, especially in the area of home appliances; the manufacture or procurement and marketing of goods for use as accessories, auxiliary materials, or tools with the manufactured or marketed products. The address of registered office of parent company (BSH-D) is Carl-Wery-Straße 34, 81739 Munich, Germany. The Supervisory Board will approve the consolidated financial statements for publication on May 5, 2009. 2 Presentation of accounting policies The following accounting policies were used in the preparation of the consolidated financial statements of BSH. 2.1 Statement of compliance The consolidated financial statements of BSH for the year ended December 31, 2008, have been prepared in accordance with the mandatory International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), London, as adopted by the European Union (EU), and the additional requirements of German commercial law in accordance with section 315 a (1) of the Handelsgesetzbuch (German Commercial Code – HGB). 2.2 Basis of presentation The Group currency of BSH is the euro; unless stated otherwise, all amounts are reported in millions of euros (EUR million). The income statement is presented using the cost of sales method. To enhance the clarity of presentation, various captions of the balance sheet and income statement have been aggregated. Refer to the notes for separate disclosure and explanations. The consolidated financial statements have been prepared on the basis of historical cost, with the following exception: – “Financial assets at fair value through profit or loss” and “available-for-sale financial assets” are recognized at fair value. The accounting policies described below have been consistently applied over the reporting periods covered by these consolidated financial statements. The members of the Group consistently applied the accounting and measurement policies. 2.3 Amendments to accounting standards 2.3.1 Guidance to be applied for the first time IFRIC 11 “IFRS 2 – Group and Treasury Share Transactions” The interpretation clarifies the accounting treatment of share-based payment throughout the Group. It does not result in any changes to the consolidated financial statements. IFRIC 14 “IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction” IFRIC 14 deals with the interaction between an obligation as of the balance sheet date to pay additional contributions into a pension plan (minimum funding requirement) and the guidance of IAS 19 on the upper limit of any positive difference between plan assets and a defined benefit obligation (asset ceiling). It also deals with the impact statutory or contractual minimum funding requirements may have on the net liability/net asset to be recognized. In addition, it provides guidance on when minimum funding requirements can lead to an additional liability to be recognized. The amendment has no material impact on the consolidated financial statements. Amendment to IAS 39 “Financial Instruments: Recognition and Measurement” and IFRS 7 “Financial Instruments: Disclosures” The amendment allows certain financial instruments to be reclassified, if they are measured at amortized cost less any writedowns for impairment. The amendment has no material impact on the consolidated financial statements of BSH. A CCO U N T I N G A N D VA LU AT I O N M E T H O DS 2.3.2 Newly issued guidance adopted by the EU that is not applied ahead of the deadline The following accounting guidance published by the IASB is mandatory for fiscal years beginning on or after January 1, 2009. The Company is still assessing the potential impact of these pronouncements on the consolidated financial statements. Amendment to IFRS 1 “First-time Adoption of Financial Reporting Standards” and IAS 27 “Consolidated and Separate Financial Statements” The standards provide guidance for the accounting of transactions under which an entity retains control and transactions under which it loses control. Transactions under which control is retained are not taken directly to equity. Any remaining interest is measured at fair value at the time control is lost. Deficit balances may be reported for minority interests, i. e., losses will in future be allocated in proportion to the interest held and no ceiling will be applied. Revision of IFRS 3 “Business Combinations” and IAS 27 “Consolidated and Separate Financial Statements” IFRS 3 provides new guidance for applying the purchase method to account for business combinations. The most significant changes relate to the measurement of minority interest, accounting for step acquisitions, and the treatment of contingent consideration and acquisition costs. According to the new guidance, minority interest can be measured either at fair value (full goodwill method) or at the fair value of the acquiring entity’s portion of identifiable net assets. In step acquisitions, shares held at the time control is obtained are to be remeasured at fair value through profit or loss. A change in the amount of contingent consideration recognized as a liability at the time of the acquisition will in future be recognized in profit or loss. Acquisition costs will be expensed as incurred. Revision of IAS 1 “Presentation of Financial Statements” IAS 1 (2007) replaces IAS 1 (2003) “Presentation of Financial Statements.” The revision is aimed at improving analysis options and the comparability of financial statements for users. N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S IAS 1 provides basic guidance for the presentation and structure of financial statements. It also specifies minimum requirements for their content. Amendments to IAS 23 “Borrowing Costs” The amendments will make it mandatory to capitalize borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset, thus removing the option to recognize them immediately in the income statement. IAS 32 “Financial Instruments: Presentation” and IAS 1 “Presentation of Financial Statements” The amendment relates primarily to the conditions for classifying puttable financial instruments as equity instruments or liabilities. Amendments to IAS 39 “Financial Instruments: Recognition and Measurement” These amendments clarify how the principles for presenting hedge accounting contained in IAS 39 are applied to two special cases. Firstly the one-sided risk in relation to a hedged item and secondly the designation of inflation in a hedged item. IFRIC 13 “Customer Loyalty Programs” IFRIC 13 provides guidance for the accounting treatment of customer loyalty programs operated by manufacturers or service providers themselves or by third parties. IFRIC 15 “Agreements for the Construction of Real Estate” IFRIC 15 provides guidance for the accounting treatment of real estate sales where contracts are signed with buyers before construction is completed. The interpretation firstly clarifies under what circumstances an agreement falls within the scope of IAS 11 or that of IAS 18. In addition, it provides guidance on when revenue is recognized and what disclosures have to be made in the notes to the financial statements. IFRIC 16 “Hedges of a Net Investment in a Foreign Operation” The interpretation seeks to clarify two issues arising from Standards IAS 21 “The Effects of Changes in Foreign Exchange Rates” and IAS 39 “Financial Instruments: Recognition and Mea- 75 76 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S A CCO U N T I N G A N D VA LU AT I O N M E T H O DS surement” in connection with accounting for hedges of foreign currency exposure within a company and its foreign operations. IFRIC 16 clarifies what is regarded as risk in hedging a net investment in a foreign operation and which entity within a group may hold the hedging instrument to reduce this risk. IFRIC 17 “Distributions of Non-cash Assets to Owners” IFRIC 17 provides guidance on how an entity measures non-cash assets distributed as dividends to shareholders. A dividend payable should be recognized when a dividend has been authorized by the bodies responsible and is no longer at the discretion of the entity. 2.3.3 Newly issued guidance adopted by the EU that does not have any impact on the BSH Group The following accounting requirements are not applicable to BSH and therefore do not have any impact on the consolidated financial statements. Amendments to IFRS 2 “Share-based Payment” The amendment clarifies that vesting conditions are service conditions and performance conditions only. It also stipulates that all cancellations should receive the same accounting treatment, irrespective of whether the plan is canceled by the entity itself or another party. The amendment will have no impact on BSH. IFRS 8 “Operating Segments” IFRS 8 requires entities to report on the financial situation of its segments using the management approach. Under this standard, the definition of segments and the disclosures for segments are based on information that management uses internally to assess segment performance and allocate resources. BSH does not apply this standard. 2.4 Foreign currency translation Foreign currency transactions included in the annual financial statements of BSH GmbH and the subsidiaries are translated at the exchange rate prevailing at the transaction date. At the balance sheet date, monetary items denominated in foreign currency are recognized using the closing rate. Any translation differences are recognized in the income statement. The financial statements of consolidated subsidiaries prepared in foreign currency are translated on the basis of the functional currency concept (IAS 21 “The Effects of Changes in Foreign Exchange Rates”) using the modified closing rate method. The foreign subsidiaries that are part of the BSH Group carry out their activities independently from a financial, economic, and organizational point of view, and for this reason, the functional currency is always the same as the company’s local currency. All assets and liabilities (but not shareholders’ equity) are translated at the closing rate. The accounts included in the income statement are translated at the annual average rate. All resulting exchange rate differences are taken directly to a currency translation reserve in equity. In the single-entity financial statements of BSH Bosch und Siemens Hausgeräte GmbH and the subsidiaries, foreign currency receivables and payables are measured on initial recognition at the exchange rate on the date of the transaction. Any exchange rate gains and losses at the balance sheet date are recognized in income. The exchange rates of one euro for the most important currencies used for currency translation have changed as follows: Closing rate 12/31/2008 12/31/2007 Average rate 2008 2007 US dollar 1.3917 1.4721 1.4708 1.3705 Sterling 0.9525 0.7334 0.7963 0.6843 Turkish lira 2.1408 1.7102 1.8983 1.7776 Brazilian real 3.2372 2.6077 2.6737 2.6694 Chinese yuan renminbi 9.6104 10.6669 10.2147 10.4175 A CCO U N T I N G A N D VA LU AT I O N M E T H O DS 2.5 Basis of consolidation and consolidation principles The consolidated financial statements include BSH GmbH and all companies under its control. This control usually exists if BSH GmbH, directly or indirectly, holds over 50 % of the voting rights of the subscribed capital of an entity or has the power to govern the financial and operating policies of the entity. The interests of minority shareholders in the Group’s equity are reported separately in the balance sheet and income statement. Companies are consolidated from the time the BSH Group obtains the option of control and deconsolidated when the option of control ceases. The financial statements of BSH GmbH and its consolidated subsidiaries have been prepared, audited, and consolidated in accordance with IAS 27, applying accounting and measurement policies that are uniform throughout the BSH Group. Germany Other Countries Total 11 52 63 in 2008 0 3 3 Deconsolidated in 2008 0 0 0 11 55 66 Consolidated as of December 31, 2007 Consolidated for the first time Consolidated as of December 31, 2008 See section 3 of the notes for more information on changes to the basis of consolidation. The consolidated group also includes a special fund. As of December 31, 2008, five (2007: four) companies were not consolidated, because they have no or only insignificant operating activities. This does not have a significant influence on the Group’s net assets, operating results and financial position. In addition, BSH Bosch und Siemens Hausgeräte Altersfürsorge GmbH, Munich, is not consolidated because its assets are defined as plan assets and are deducted from pension provisions in accordance with IAS 19. The consolidated financial statements and group management report of BSH are published in the electronic German Federal Gazette. See Annex II of the notes to the consolidated financial statements for more information on shareholdings. N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Investments are consolidated on the basis of the fair values applicable at the date of acquisition or first-time consolidation. Any positive difference between purchase price and fair values is recognized as goodwill. Intragroup balances and intragroup transactions as well as resulting intragroup profits and losses are eliminated in full. Deferred taxes are recognized for consolidation transactions recognized in the income statement. 2.6 Revenue Revenue from the sale of products is recognized when ownership or risk and reward are transferred to the customer, a price has been agreed or can be determined, and its payment can be expected. Revenue is reported net of the discounts, price reductions, customer bonuses, and rebates. Royalties are recognized on an accrual basis in accordance with the substance of the relevant agreement. 2.7 Research and development costs Research expenditure is recognized as an expense when incurred. Likewise, development expenditure is recognized as an expense when incurred. Project development costs that fully meet the following criteria are exempt from this rule: – The product or system is clearly defined and the relevant expenditure can be clearly assigned and reliably measured. – The technical feasibility of the product can be demonstrated. – The product or system will be either marketed or used internally. – The assets will generate future economic benefits (e. g., the entity can demonstrate the existence of a market for the product or, if it is to be used internally, its usefulness). – There are adequate technical, financial, and other resources to complete the project. Costs are capitalized from the time the above criteria are met. Costs recognized as expenses in previous accounting periods are not capitalized retrospectively. 77 78 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S A CCO U N T I N G A N D VA LU AT I O N M E T H O DS 2.8 Trade accounts receivable Trade accounts receivable are reported at amortized cost. Any necessary valuation allowances, which are based on the probable risk of default, are taken into account. Allowances on trade receivables are recognized using impairment accounts. Non-interest-bearing or low-interest bearing receivables with maturities of more than one year are discounted. If the requirements of IAS 32.42 are met, receivables and payables are netted. 2.9 Inventories Inventories are recognized at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Work in process and finished goods are recognized at cost. This includes all costs that are directly attributable to the manufacturing process, plus a reasonable portion of the production overhead, including production-related depreciation and amortization, proportionate administrative expenses, and proportionate social security costs. Borrowing costs are not capitalized. Inventory risks that result from the duration of storage or reduced usefulness or marketability are taken into account by making write-downs. Lower values as of the reporting date due to reduced sales proceeds are recognized in the balance sheet and income statement. 2.10 Financial assets The shares in nonconsolidated affiliated companies and associates reported under financial assets are recognized at cost, unless a different market value is available. According to IAS 39, financial investments are broken down into the following categories: (a) Held-to-maturity investments (b) Financial assets held for trading or at fair value through profit or loss (c) Available-for-sale financial assets (d) Loans and receivables Financial assets with fixed or determinable payments and fixed maturity that the Company has the positive intent and ability to hold to maturity, other than loans and receivables, are classified as held-to-maturity investments. Financial assets obtained principally to generate a profit from short-term fluctuations in price or exchange rates are measured and classified at fair value through profit or loss. Securities held as financial assets at fair value through profit or loss and securities held for trading are recognized at market value, if available. If no market value is available, they are carried at cost. Changes in the fair value of financial assets held for trading are recognized through the income statement. All other financial assets, other than loans and receivables originated by the Company are classified as available-for-sale financial assets. Until realized, gains and losses on the fair-value measurement of an availablefor-sale financial asset are recognized directly in equity, taken deferred taxes into account. Available-for-sale securities and financial assets are measured in accordance with IAS 39.61. 2.11 Property, plant, and equipment Property, plant, and equipment is measured at cost, less straight-line depreciation and, in some cases, write-downs for impairment. Low-value assets are fully depreciated in the year of acquisition. The cost of self-created property, plant, and equipment comprises all direct costs and a reasonable portion of the necessary material and production overheads. This includes production-related depreciation and amortization, as well as a proportion of the costs for the Company’s pension plan and voluntary employee benefits. Borrowing costs are not capitalized. A CCO U N T I N G A N D VA LU AT I O N M E T H O DS Depreciation is based on the following useful lives: Buildings 12 – 33.3 years Machinery and equipment 6 – 13.0 years Office equipment and vehicles 3 – 8.0 years Land is not depreciated. In accordance with IAS 36 “Impairment of Assets,” impairment losses are recognized on property, plant, and equipment if both the realizable value and the value in use of the asset concerned fall below its carrying amount. If the reasons for an impairment loss no longer apply, the impairment loss is reversed, but the increased carrying amount must not exceed the carrying amount that would have been determined (net of depreciation) if no impairment loss had been recognized. Depreciation and impairment losses charged during the year under review are reported under functional costs or other operating expenses. Reversals of write-downs are shown under other operating income. 2.12 Intangible assets (excluding goodwill) Purchased and self-created intangible assets are carried at cost. Assets with finite useful lives are amortized over their useful lives. Amortization is based on the following useful lives: Concessions, industrial rights, and customer bases according to normal useful lives (contract, license period, etc.) Purchased software 4 years Internally generated intangible assets 4 – 6 years Amortization is on a linear basis over a period of four to six years. The expense is allocated to functional areas according to source. Write-downs are recognized for any impairment losses. If the reasons for an impairment loss no longer apply, the impairment loss is reversed, but the increased carrying amount must not exceed the carrying amount that would have been determined (net of amortization) if no impairment loss had been recognized. Assets with infinite useful lives are not amortized. N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Amortization and impairment losses charged during the year under review are reported under functional costs or other operating expenses. Reversals of write-downs are shown under other operating income. 2.13 Goodwill Goodwill is recognized in accordance with IFRS 3. Goodwill is tested for impairment regularly at least once a year; if required, an appropriate impairment loss is recognized. Under IAS 36 “Impairment of Assets,” an impairment requirement is determined by comparing the expected future discounted cash flows of the cash-generating unit in question with the goodwill amount recognized. 2.14 Pension provisions Provisions for pensions and other postretirement benefits are recognized using the projected unit credit method as specified in IAS 19, “Employee Benefits.” In addition to the pensions and vested benefits known as of the balance sheet date, this method takes into account expected future increases in salaries and pensions. If pension obligations are covered by plan assets, only the net amount is reported. The calculation is based on actuarial reports taking into account biometric calculation methods. As specified in IAS 19.93 A onward, actuarial gains and losses incurred in the fiscal year are reported in the statement of recognized income and expense (SORIE) and recognized directly in equity. 2.15 Provisions A provision is recognized only if a present (legal or constructive) obligation exists as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are tested at each balance sheet date and adjusted to the current best estimate. Where the effect of the time value of money is material, the provision amount is the present value of the expenditure expected to be required to settle the obligation. Where dis- 79 80 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S A CCO U N T I N G A N D VA LU AT I O N M E T H O DS counting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognized under other net finance income/cost. The interest cost on tax provisions is recognized under tax expense. 2.16 Derivative financial instruments Derivative financial instruments are employed solely for hedging purposes, in order to reduce exchange rate, interest rate, and fair value risks from operating business and any resultant finance requirements. According to IAS 39, all derivative financial instruments such as interest rate, currency and combined interest rate and currency swaps, as well as currency forwards are recognized at fair value, regardless of the purpose or intention behind them. The fair value of derivative financial instruments is determined on the basis of market data and recognized measurement methods. The mark-tomarket measurement of derivative financial instruments is performed using computeraided methods by discounting future cash flows or by using option price models with parameters in line with market conditions. The effective part of the change in fair value of derivative financial instruments, for which cash flow hedge accounting is employed, is recognized in equity as part of other recognized gains and losses. It is reclassified to the income statement at the same time as the hedged item is realized. That part of the change in fair value not covered by the underlying transaction is immediately recognized in the income statement. If hedge accounting cannot be employed, the change in fair value of derivative financial instruments is recognized in the income statement. The change in fair value of derivative financial instruments not qualifying for hedge accounting is shown under other operating expenses or income. The changes in interest rate derivatives are recognized in other net finance income/cost. If this involves “combined instruments,” for which separate measurement of the embedded derivative instruments is not possible, the entire “combined instrument” is recognized at fair value through profit or loss. 2.17 Leases A lease is classified as an operating lease if the lessor retains substantially all the risks and rewards incident to ownership. Lease payments under an operating lease are recognized as an expense and allocated equally to each period of the lease term. 2.18 Government grants A government grant is not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to it, and that BSH will receive the grant. Government grants are recognized as income on a systematic and rational basis over the periods necessary to match them with the related costs that they are intended to compensate. Grants received for the acquisition of property, plant, and equipment are treated as a reduction in the cost of such assets. Other grants received are initially recognized as a liability on the balance sheet (miscellaneous other liabilities), which is then used to offset the corresponding depreciation charges over the useful life of the asset concerned. 2.19 Management judgment The preparation of the consolidated financial statements in accordance with IFRS requires that assumptions and estimates are made that may impact the amount recognized for assets and liabilities on the balance sheet, income and expenses, as well as contingent liabilities. Estimates and assumptions may change over time and have a significant impact on the Group’s net assets, operating results, and financial position. The assumptions and estimates relate primarily to the measurement of property, plant, and equipment and intangible assets, impairment of assets, the recognition and measurement of provisions, and the realizability of future tax benefits. The estimates and assumptions are regularly assessed and adjusted if necessary. At the time of the preparation of the consolidated financial statements, no material changes to the underlying assumptions and assets were anticipated. A CCO U N T I N G A N D VA LU AT I O N M E T H O DS Allowances on doubtful receivables reflect to a significant extent assumptions and estimates for specific receivables that are based on the current credit rating of the customer in question and the economic market environment in the country concerned. Goodwill, property, plant and equipment, and intangible assets are tested for impairment at least once a year using measurement methods that are based on discounted cash flows and use estimated growth rates, weighted average cost of capital, and tax rates. The planning horizon is a three-year plan approved by management. Deferred tax assets are recognized if it seems probable that the tax benefits can be utilized within the planning horizon. Provisions for pensions and similar obligations and the corresponding expenses and income are recognized on the basis of actuarial methods. The main estimated variables are discount factors, the expected return on plan assets, salary and pension trends, and life expectancies. The parameters are defined according to circumstances as of the balance sheet date. Due to fluctuating market and economic conditions, these actuarial assumptions may differ considerably from future developments and may therefore lead to a material change in pensions and similar obligations. The measurement of provisions for warranties, losses expected on uncompleted transactions, and litigation involves a considerable amount of future estimates, some of which are determined on the basis of past experience and adjusted in line with the latest assessment. N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 3 Changes in the basis of consolidation Willem van Rijn Huishoud-elektro B.V., the Netherlands, was included in the consolidated financial statements for the first time. As of January 1, 2008, BSH acquired a 100 percent interest in the sales company Willem van Rijn Huishoud-elektro B.V., thereby taking over direct marketing of the Bosch and Neff brands in the Netherlands. The following carrying amounts and fair values were allocated to the company’s assets and liabilities at the time of acquisition: Carrying amount Fair value Cash and cash equivalents 1 1 Trade accounts receivable and other receivables 23 23 Inventories 17 17 3 12 22 22 Current assets Noncurrent assets Property, plant, and equipment and intangible assets Current liabilities Trade accounts payable and other liabilities Deferred tax liabilities Acquired net assets 0 2 22 29 Previously unrecognized intangible assets (excluding goodwill) amounting to EUR 9 million before deferred taxes were recognized as part of the acquisition. Willem van Rijn Huishoud-elektro B.V. generated a profit of EUR 2 million in the fiscal year. The company’s revenue was EUR 170 million, the date of first consolidation was January 1, 2008. Payment of the purchase price led to a net cash outflow in the same amount. The first-time consolidation of BSH Home Appliances Service Jiangsu Co., Ltd., Nanjing and BSH Electroménagers (SA), Casablanca was not material. The companies were included in the basis of consolidation for the first time. Comparability of the consolidated group with that of the previous year has not been adversely affected by the change. 81 82 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S N OT E S T O T H E S TAT E M E N T O F I N CO M E 4 Revenue Revenue was primarily generated from electrical appliances and gas appliances, as well as from related customer services; it breaks down as follows: Germany 2008 % 2007 % 1,765 20.1 1,716 19.5 Western Europe (excluding Germany, including Turkey) 4,314 49.3 4,557 51.7 Eastern Europe 946 10.8 827 9.4 North America 497 5.7 550 6.2 Latin America 298 3.4 304 3.4 Asia 815 9.3 741 8.4 Rest of world 123 1.4 123 1.4 Total 8,758 100.0 8,818 100.0 5 Cost of sales The cost of sales figure of EUR 5,759 million (2007: EUR 5,683 million) comprises the full production-related costs incurred in the manufacture of the products sold. 6 Selling and administrative expenses Selling and administrative expenses amounted to EUR 2,109 million (2007: EUR 2,263 million) and comprised solely costs, income, and expenses allocated to these categories. General administrative expenses include personnel and material costs, and depreciation/amortization in corporate areas that cannot be assigned to production, sales and marketing, or research and development. 7 Research and development costs Research and development costs amounting to EUR 263 million (2007: EUR 259 million) include research costs and development costs not recognized in the balance sheet. No development costs were capitalized during fiscal year 2008 (2007: EUR 0 million). 8 Other operating income and expenses 2008 2007 33 18 117 38 17 25 Rental and leasing income 3 3 Income from the disposal of assets 6 5 121 43 Income from costs transferred to third parties 30 43 Miscellaneous other operating income 17 25 344 200 14 18 107 47 45 41 5 4 37 0 Income from the reversal of provisions (not function-related) Foreign currency gains on trade accounts receivable and payable Income from the reversal of allowances on and remeasurement of receivables Income from foreign exchange derivatives Total other operating income Expenses to set up provisions (not function-related) Foreign currency losses on trade accounts receivable and payable Expenses for allowances on receivables Expenses for the disposal of assets Impairment losses Other taxes Losses on foreign exchange derivatives Miscellaneous other operating expenses Total other operating expenses 3 2 104 19 34 22 349 153 9 Income from investments Income from investments relates primarily to dividends paid by Kreisbaugesellschaft Heidenheim GmbH, Giengen. N OT E S T O T H E S TAT E M E N T O F I N CO M E 10 Finance income and finance expense 2008 Interest income 2007 77 70 – 89 – 84 –12 –14 Loans and receivables 52 62 Financial assets available-for-sale 24 7 – 88 – 83 Interest expense – of which to nonconsolidated affiliated companies EUR – 0.8 million (2007: EUR – 0.5 million) Net interest income/expense – of which from financial instruments in measurement categories defined by IAS 39: Financial liabilities carried at amortized cost Interest income and expense calculated under the effective interest rate method was recognized in the income statement for financial assets and financial liabilities not measured at fair value. 11 Other financial result Other financial result relates to the fair-value measurement of financial instruments, the disposal of securities, the measurement of receivables and liabilities denominated in foreign currency, expenses from interest cost added to provisions, and miscellaneous other financing income and cost. In 2008, available-for-sale financial assets were sold. This resulted in a reduction in equity of EUR 19 million (2007: EUR 23 million) and the recognition as expenses (2007: income) of an equivalent figure under other financial result. Expenses according to IAS 39.61 amounted to EUR 32 million (2007: EUR 2 million). 12 Income taxes By origin, the BSH Group’s taxes on income break down as follows: Effective taxes Deferred income taxes Total income taxes 2008 2007 174 172 25 54 199 226 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 83 84 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S N OT E S T O T H E S TAT E M E N T O F I N CO M E Income taxes paid or payable in the various countries as well as deferred taxes are reported under income taxes. Deferred taxes are calculated on the basis of temporary differences between the carrying amounts of assets and liabilities in the IFRS financial statements and the tax base, and on the basis of consolidation transactions, recoverable loss carryforwards, and tax credits. The calculation is based on the tax rates expected to be in force in the various countries at the time the asset is realized or the liability is settled. In all cases, the rates are derived from the laws and provisions in force or enacted at the balance sheet date. Germany’s corporate income tax rate in 2008 was 15 % plus a solidarity surcharge of 5.5 % of the corporate income tax charge. Taking into account trade tax at 13.52 %, the overall tax rate for German companies was 29.35 % (2007: 38.29%). The reported income tax expense in the year under review of EUR 199 million is EUR 49 million higher than the expected income tax expense of EUR 150 million, which would in theory arise if the German tax rate were to be applied to the consolidated profit before taxes. The reconciliation between the expected tax expense and the reported tax expense is as follows: Profit before taxes 2008 2007 510 637 Expected taxes when using the tax rate applicable to the parent company of 29.35% (2007: around 38.29%) 150 244 Effects of differences in foreign tax rates –34 – 78 1 15 46 5 36 22 Effects of changes in tax rates Effects of permanent differences Change in the recoverability of deferred tax assets Other changes 0 18 Reported income tax expense 199 226 Corporate tax rate in percent 39.0 35.5 Deferred tax assets and liabilities are derived from the following individual balance sheet items: Deferred tax assets Deferred tax liabilities 2008 2007 2008 2007 9 5 63 67 Receivables and other assets 17 20 45 13 Inventories 51 53 4 3 Liabilities 50 30 8 2 Pension provisions 46 60 4 1 Other provisions 91 67 0 0 5 0 5 2 Tax loss carryforwards and tax credits 135 130 0 0 Gross total 404 365 129 88 Write-downs –138 – 91 0 0 Netting –120 –71 –120 –71 146 203 9 17 Intangible assets and property, plant, and equipment Available-for-sale securities Deferred taxes after netting N OT E S T O T H E S TAT E M E N T O F I N CO M E Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available. At each balance sheet date, a new assessment is made of unrecognized deferred tax assets and of the carrying amount of deferred tax assets. A write-down of deferred tax assets was performed on tax loss carryforwards and tax credits amounting to EUR 113 million (2007: EUR 78 million) and on deductible temporary differences totaling EUR 25 million (2007: EUR 13 million), as direct use in the foreseeable future seems improbable. The change in the writedowns was recognized in the income statement. Out of the total amount of these potential tax benefits of EUR 138 million (2007: EUR 91 million), EUR 78 million (2007: EUR 56 million) can be carried forward without limitation and EUR 60 million (2007: EUR 35 million) for more than three years. As of December 31, 2008, the BSH Group had unutilized tax loss carryforwards of EUR 305 million (2007: EUR 321 million). The following table shows the utilization periods for tax loss carryforwards: Utilization periods 2008 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 13 Minority interest The profit attributable to the minority interest in BSH Ev Aletleri Sanayi ve Ticaret A.Ş., Istanbul, and BSW Household Appliances Co., Ltd., Wuxi, is EUR 6 million (2007: EUR 7 million). 14 Other income statement disclosures The functional costs include the following personnel expenses: Wages and salaries Social security contributions Expenses for pension plans and benefits Personnel expenses 2008 2007 1,346 1,361 262 260 84 83 1,692 1,704 The cost of materials totals EUR 4,464 million (2007: EUR 4,436 million). The Group received government grants for research and development amounting to EUR 5 million (2007: EUR 1 million) and other grants amounting to EUR 1 million (2007: EUR 1 million), which were recognized in the income statement. 2007 3 15 The average number of employees breaks down as follows: more than three years 124 96 BSH GmbH Can be carried forward without restrictions 178 210 305 321 Can be carried forward with restrictions, less than three years 2008 2007 Wage earners 6,526 6,605 Salary earners 5,545 5,416 Can be carried forward with restrictions, Apprentices/trainees Tax loss carryforwards, excluding deferred tax assets, amount to EUR 278 million (2007: EUR 201 million). The deferred taxes recognized directly in equity include deferred tax liabilities on securities and derivative financial instruments totaling EUR 4 million (2007: EUR 2 million) and deferred tax liabilities on actuarial gains and losses related to pension obligations totaling EUR 2 million (2007: deferred tax assets of EUR 11 million). 331 334 Other companies in Germany 1,759 1,715 Companies outside Germany 26,547 25,348 Total 40,708 39,418 15 Cash and cash equivalents Cash and cash equivalents breaks down as follows: Checks Cash on hand 2008 2007 23 26 6 6 Bank balances 474 421 Cash and cash equivalents 503 453 All items under cash and cash equivalents are due within three months, as in 2007. 85 86 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTES TO THE BALANCE SHEET 16 Securities In accordance with IAS 39, securities are classified as available-for-sale and recognized at a fair value of EUR 70 million (2007: EUR 90 million). 17 Trade accounts receivable Trade accounts receivable (third parties) 2008 2007 1,832 1,904 Trade accounts receivable (nonconsolidated affiliated companies) Allowances on receivables 0 0 –103 – 85 As of December 31, 2008, the carrying amount of trade receivables, for which the contractual conditions were renegotiated, was EUR 6 million (2007: EUR 3 million). Trade receivables include an amount of EUR 0.1 million (2007: EUR 0.1 million) with a maturity of more than one year. 18 Other current assets Other receivables (third parties) Trade accounts receivable, net 1,729 1,819 Other receivables from nonconsolidated Trade accounts receivable 1,832 1,904 affiliated companies Prepaid expenses of which neither impaired nor overdue as of the reporting date 1,333 1,597 (note 30) overdue as of the reporting Other tax receivables and receivables 128 109 from employees less than 1 month 77 56 Allowances on other current assets between 1 month and 3 months 35 25 Total other current assets more than 3 months 16 28 2007 At January 1 85 108 Exchange rate differences –5 2 Finished goods and merchandise 0 0 Work in process Additions 57 9 Utilization 26 31 8 3 103 85 At December 31 0 0 21 19 65 9 123 141 –2 –2 273 215 19 Inventories 2008 Reversal 48 Prepaid expenses primarily consist of IT service payments made in advance. The development of allowances on trade receivables is as follows: Change in basis of consolidation 2007 66 Current derivative financial instruments of which not impaired but date by periods of 2008 Regarding trade receivables which are neither impaired nor in default, there were no indications as of the balance sheet date that the debtors will not meet their payment obligations. Additionally, almost half of the trade receivables are insured, individually and on a country-specific basis, by the companies concerned. Raw materials, consumables, and supplies 2008 2007 730 759 34 33 238 245 Spare parts 53 51 Advance payments 19 15 1,074 1,103 Total The spare parts item comprises components held in warehouses to cover a 10-year parts warranty on home appliances. The writedown recognized in the year under review was EUR 110 million (2007: EUR 103 million). NOTES TO THE BALANCE SHEET 20 Noncurrent financial assets Noncurrent financial assets included the following: Financial assets Financial investments Other noncurrent assets Noncurrent financial assets 2008 2007 643 681 0 0 31 26 674 707 The following table shows the breakdown of other noncurrent assets: Loans (third parties) 2008 2007 3 2 Noncurrent derivative financial instruments (note 30) 2 5 Miscellaneous other noncurrent assets 26 19 Other noncurrent assets total 31 26 EUR 1 million of the loans were impaired (2007: EUR 1 million), and there are no overdue loans. 21 Property, plant, and equipment The consolidated statement of changes in assets (see Annex I) shows a breakdown of the property, plant, and equipment items aggregated on the face of the balance sheet, together with the changes in these items in the year under review. As of the balance sheet date, obligations incurred in connection with the acquisition of property, plant, and equipment amounted to EUR 1 million (2007: EUR 3 million). There were no restrictions on title to assets in the year under review (2007: EUR 5 million). 22 Intangible assets Please refer to the statement of changes in assets (Annex I) for information on changes in intangible assets. N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Additions under this item included the costs of purchased software, tool licenses, industrial and similar rights, customer bases, and similar assets. A significant item in intangible assets was goodwill, for the most part attributable to the subsidiaries in Turkey and the USA. Additions to intangible assets (goodwill) of EUR 8 million resulted from the acquisition of additional shares in a subsidiary (2007: EUR 10 million). To meet the requirements of IFRS 3, in combination with IAS 36, and to test for goodwill impairment, the cash-generating units have been defined to coincide with the legal entities, and an impairment test has been performed. For the impairment test, the carrying amount of each cash-generating unit is determined by allocating the assets and liabilities, including attributable goodwill and intangible assets. An impairment loss is recognized if the recoverable amount of a cash-generating unit is lower than its carrying amount. The recoverable amount is fair value less cost to sell or value in use, whichever is the higher. For its impairment tests, BSH uses a discounted cash flow (DCF) method to determine the expected future cash inflows of the cash-generating unit. The calculation of the cash flows of each cash generating unit is based on business plans with a planning horizon of three years. We have assumed a uniform rate of increase due to inflation of 1.0 % p. a. after the end of the three-year planning period. Country-specific discount rates vary between 8.0 % p. a. and 15.0 % p. a. (2007: between 8.0 % p. a. and 15.5 % p. a.), including the risk premium. All goodwill items recognized in the consolidated balance sheet and assigned to cashgenerating units were tested for impairment. An impairment loss of EUR 1 million (2007: EUR 0 million) was recognized as a result. 87 88 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTES TO THE BALANCE SHEET 23 Current and noncurrent financial liabilities Current and noncurrent financial liabilities comprise primarily liabilities to banks. 25 Other liabilities and provisions (current) Current provisions and other current liabilities break down as follows: 2008 The financial liabilities have the following remaining periods to repayment: Provisions for taxes 2008 2007 up to 1 year 138 260 1– 5 years 376 386 over 5 years 125 106 Total 639 752 2007 61 50 Other provisions 310 313 Current provisions 371 363 Notes payable 155 61 17 30 375 404 Advance payments received Accrued liabilities Deferred income 2 1 57 43 44 4 Miscellaneous other liabilities 184 161 Other current liabilities 834 704 Other tax liabilities Financial liabilities due within one year are reported as current financial liabilities; financial liabilities due after one year are classified as noncurrent financial liabilities. Current derivative financial instruments The following tables show the contractually agreed (undiscounted) interest and principal payments for non-derivative financial liabilities and derivative financial instruments with negative fair values: The statement of changes in provisions (note 26) gives details of changes in current provisions. Carrying 2009 2010 2011 2012 2013 > 2014 amount as of December 31, 2008 (note 30) 26 Other liabilities and provisions (noncurrent) The following table shows the breakdown of noncurrent other liabilities and noncurrent provisions: Trade accounts payable 682 688 0 0 0 0 0 Liabilities to banks 639 242 67 202 63 62 56 Other financial liabilities 158 158 1 0 0 0 0 Noncurrent derivative 45 44 1 0 0 0 0 financial instruments (note 30) 1 0 Miscellaneous other liabilities 11 11 Other noncurrent liabilities 12 11 Provisions for taxes 127 115 Other provisions 332 400 Noncurrent provisions 459 515 Derivative financial instruments Carrying 2008 2009 2010 2011 2012 > 2013 amount as of December 31, 2007 Trade accounts payable Liabilities to banks Other financial liabilities Derivative financial instruments 728 728 0 0 0 0 0 752 260 11 63 199 59 175 97 86 2 3 2 2 2 4 4 0 0 0 0 0 24 Trade accounts payable Trade accounts payable are recognized at the higher of their nominal amount and repayment amount; all trade accounts payable are due within one year, as in 2007. 2008 2007 NOTES TO THE BALANCE SHEET N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The following table shows the breakdown of current and noncurrent other provisions: Provisions for taxes Personnel and social security obligations Obligations relating to the sales function Other provisions Total At January 1, 2008 165 224 331 158 878 Exchange rate differences –13 –4 –9 –7 –33 0 0 1 0 1 49 55 141 19 264 Reversal 3 24 51 13 91 Additions 88 26 183 33 330 Changes in the basis of consolidation Utilization Interest cost 0 5 2 3 10 Reclassifications 0 –1 0 0 –1 188 171 316 155 830 61 54 222 34 371 127 117 94 121 459 At December 31, 2008 Current portion of provisions Noncurrent portion of provisions The additions include interest cost of EUR 10 million (2006: EUR 7 million). The reclassifications are shown under accrued liabilities. The provisions for personnel and social security obligations include primarily obligations for partial retirement, personnel adjustments, and long-service bonuses. The provisions for obligations relating to the sales function include primarily provisions for warranty obligations. Other provisions include provisions for guarantees, contractual agreements in Germany and abroad, environmental protection, and other risks. 27 Provisions for pensions and other postretirement benefits 27.1 Defined benefit plans The benefit obligations of subsidiaries in Israel, the Netherlands, and another company in Thailand were recognized for the first time in the consolidated financial statements as of December 31, 2008. There are postretirement benefit entitlements for employees in Germany, primarily granting lump-sum/pension benefits and fixed individual amounts. For employees in other countries (Belgium, Great Britain, Norway, Portugal, Sweden, and Switzerland), the benefits mainly depend on the number of years in service and the salary received immediately prior to retirement. The postretirement benefits granted in Austria, France, Greece, Israel, Italy, Poland, Singapore, Thailand, Turkey, and the United Arab Emirates are lump-sum payments. The postretirement benefits in Germany are mainly financed by the recognition of pension provisions; part of the obligation is met through an employee trust. In other countries, they are mainly financed through insurers and pension funds. The commitment under defined benefit plans is measured annually using the projected unit credit method or approximations. In accordance with IAS 19.93 A, the SORIE method is used to determine the pension provisions and the pension expense. Actuarial gains and losses are disclosed in the SORIE statement and taken directly to equity. 89 90 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTES TO THE BALANCE SHEET The breakdown of pension obligation funding is as follows: Net present value of unfunded pension obligations Germany Other countries Germany Other countries 2008 2008 2007 2007 39 37 41 35 Present value of funded pension obligations 738 73 768 82 External plan assets – 67 –57 – 66 – 65 Unrecognized actuarial gains (+)/losses (–) 0 0 0 0 Unrecognized past service costs 0 0 0 0 710 53 743 52 Pension provision The pension provisions changed as follows in the course of fiscal 2008: Germany Other countries Germany Other countries 2008 2008 2007 2007 743 52 793 63 Exchange rate differences 0 –5 0 0 Transfer values 0 0 1 0 –38 –4 – 34 –3 Employer contributions to external funds –7 –5 –2 –5 Reversal (–)/addition (+) 63 9 60 8 Brought forward Pension and capital amounts paid by the Company Deferred compensation 0 0 0 0 Amount recognized in SORIE –51 6 –75 –11 Pension provision 710 53 743 52 In Germany, contributions from the deferred compensation amounting to EUR 3 million were shown under “service cost” for the first time in 2007. In prior years, these contributions were recognized under personnel expenses rather than pension expense. In 2008, the contributions also amounted to EUR 3 million. The expense recognized in the income statement breaks down as follows: Germany Other countries Germany Other countries 2008 2008 2007 2007 Service cost 25 5 26 5 Interest expense 41 6 38 5 Expected return on external plan assets –3 –4 –3 –3 Amortization of actuarial gains (–)/losses (+) 0 0 0 0 Amortization of past service cost 0 1 0 1 0 1 –1 0 63 9 60 8 Expense (+)/income (–) from curtailment and settlement Total Expense (+)/income (–) recognized The total expense is recognized in the functional areas. NOTES TO THE BALANCE SHEET N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The reconciliation of benefit obligations and assets is as follows: Present value of obligations at beginning of year Deferred compensation Germany Other countries Germany Other countries 2008 2008 2007 2007 809 117 859 124 0 0 0 0 Service cost 25 5 26 5 Interest expense 41 6 38 5 0 1 0 1 –54 –4 –75 –11 0 –11 0 –4 Employee contributions Actuarial gain (–)/loss (+) Exchange rate effects – 44 –7 – 40 –5 Past service cost Total amount of pensions and lump sums paid 0 1 0 1 Transfer values 0 1 1 1 – 0 – – Obligations transferred as a result of business combination Effect of curtailments and settlements Present value of obligations at end of year Fair value of plan assets at beginning of year Expected return on external plan assets Actuarial gain (+)/loss (–) 0 1 0 0 777 110 809 117 66 65 66 61 3 4 3 3 –3 –10 0 0 Exchange rate effects 0 –6 0 –3 Employer contributions to external pension funds 7 5 2 5 Employee contributions to external pension funds 0 1 0 1 –2 Amounts of pension and lump sums paid –6 –3 –5 Transfer values by external funds 0 1 0 0 Assets acquired as a result of business combination – 0 – – Effects of plan settlement Fair value of plan assets at end of year 0 0 0 0 67 57 66 65 The actual return on external plan assets was as follows: Expected return on external plan assets Actuarial gain (+)/loss (–) Actual income from external plan assets Germany Other countries Germany Other countries 2008 2008 2007 2007 3 3 4 3 –3 –10 0 0 0 –6 3 3 For 2009, contributions paid to external funds are expected to total around EUR 5 million and direct pension payments around EUR 40 million. 91 92 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTES TO THE BALANCE SHEET The amounts disclosed in the statement of recognized income and expense (SORIE) are as follows: Actuarial gain (+)/loss (–) Effect of asset limitation (IAS 19.58[b]) Amount recognized in SORIE Total recognized in SORIE Germany Other countries Germany Other countries 2008 2008 2007 2007 51 –6 75 11 0 0 0 0 51 –6 75 11 14 –7 –37 –1 –15 2 –32 –3 Total recognized in shareholders’ equity –4 2 11 0 Net actuarial gains (+)/losses (–) reported in equity 10 –5 –26 –1 Deferred taxes on actuarial gains (+)/losses (–) The actuarial gains and losses incurred are attributable to the following categories: Germany Other countries Germany Other countries 2008 2008 2007 2007 –3 –10 0 0 –1 –1 1 –2 Difference between expected and actual return on external plan assets Difference between expected and recorded amounts Adjustment due to changes in measurement assumptions 55 5 74 13 Total actuarial gain (+)/loss (–) 51 –6 75 11 The breakdown in the other prior reporting periods in accordance with IAS 19.120 A (p) is as follows: Germany Other countries Germany Other countries Germany Other countries 2006 2006 2005 2005 2004 2004 45 39 44 36 41 30 – 66 – 61 62 53 61 44 3 4 5 6 3 3 –21 –1 17 6 –74 –5 17 1 18 –1 0 0 Germany Other countries Germany Other countries 2008 2008 2007 2007 Present value of unfunded pension obligations External plan assets Actual income from external plan assets Actuarial gains (+)/losses (–) recognized in SORIE Difference between expected and recorded amounts The reported plan assets break down as follows: Values in percent Equities and other securities Bonds Real estate Other assets Total Values in percent 0.0 37.0 33.0 47.0 27.0 34.0 34.0 23.0 6.0 16.0 6.5 13.0 67.0 13.0 26.5 17.0 100.0 100.0 100.0 100.0 NOTES TO THE BALANCE SHEET N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 34.3 % (2007: 23.4%) of the plan assets reported for Germany are invested in the sponsors of the employee trust. The expected return on plan assets in Germany was assumed to be 5 %. The expected return on external plan assets for companies outside Germany ranges between 4.0 % and 6.3 %. In Germany, part of the plan assets comprises pension trust (employee trust) receivables from BSH GmbH. As at December 31, 2008, the receivables stood at EUR 23 million (2007: EUR 15 million). In addition, the plan assets include real estate leased to the Group. The employee trust had sold part of the real estate to an investor in 2007. The calculation of the pension obligations and pension expense was based on the following assumptions: Germany Other countries 2008 2008 Values in percent Germany Other countries 2007 2007 Values in percent Discount rate 6.00 5.60 5.25 5.40 Expected return on external plan assets 5.00 5.30 5.00 5.80 Salary inflation 3.00 3.70 3.00 3.70 Pension inflation 2.00 – 1.80 – The pension obligations of German companies were remeasured as of December 31, 2008, using a discount rate of 6.00 % p. a. The measurement assumptions used for countries outside Germany are weighted averages. The expected long-term return on investment is determined on the basis of publicly available and internal capital market studies and forecasts. In Germany, the 2005 G Heubeck tables were used as the basis for the biometric calculation. Employee turnover probabilities were estimated for specific age groups and genders. 93 94 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTES TO THE BALANCE SHEET 27.2 Defined contribution plans In 2008, the Company made contributions of EUR 86 million (2007: 83 million) to defined contribution plans (employer contributions to statutory pension insurance). 27.3 Partial retirement agreements and long-service bonus commitments In some countries, there are also obligations from partial retirement agreements and longservice bonus commitments. The amount of the obligation for these plans was around EUR 91 million at the end of 2008 (EUR 104 million at the end of 2007). The difference is primarily attributable to income of EUR 16 million (2007: EUR 18 million). 28 Shareholders’ equity The statement of changes in shareholders’ equity shows the changes in the BSH Group’s equity and its components. The currency translation reserve captures directly in equity the differences resulting from the translation of the financial statements of subsidiaries outside Germany. In accordance with IAS 19, the actuarial gains/losses item comprises actuarial gains/losses on pension provisions (net of deferred taxes) recognized directly in equity. The reserve for available-for-sale securities includes the measurement gains or losses on securities and derivative financial instruments, net of deferred taxes, recognized directly in equity. Retained earnings and reserves include the income earned in the past by the companies included in the consolidated financial statements, insofar as they have not been paid as dividends, and other recognized gains and losses. Minority interests include the paid-in capital and the net profit for the year generated by the sales companies whose shares are held by Robert Bosch GmbH and Siemens AG. This item also includes the minority interest in the equity of BSH Ev Aletleri Sanayi ve Ticaret A.Ş., Istanbul, and BSW Household Appliances Co., Ltd., Wuxi, including the proportion of profit or loss attributable the minority shareholders. A dividend of EUR 190 million (2007: EUR 152 million) was paid out to the shareholders on May 6, 2008 in proportion to their interests. BSH Germany reported a net profit of EUR 212 million in its 2008 financial statements prepared in accordance with German commercial law. Management proposes to distribute an amount of EUR 211 million to shareholders. 29 Notes to the cash flow statement The cash flow statement reports how the BSH Group’s cash and cash equivalents changed in the course of 2008 as a result of cash inflows and outflows. In accordance with IAS 7 “Statement of Cash Flow”, a distinction is made between cash flows from operating, investing, and financing activities. The cash flow statement is determined using the indirect method starting from the profit after income taxes. The net cash from operating activities is determined after applying adjustments for non-cash income and expenses, primarily depreciation and amortization, and after taking into account any changes in working capital. Investing activities comprises additions under noncurrent assets and the purchase or sale of securities. Cash flows from financing activities show cash inflows and outflows from the drawdown or repayment of financial liabilities and from dividends. The cash and cash equivalents reported in the cash flow statement comprise cash on hand, checks, and bank balances, providing they are available within three months. The effect of exchange rate changes on cash and cash equivalents and the effect of changes in the consolidated group are reported separately. The changes in the balance sheet items reported in the cash flow statement cannot be directly reconciled to the balance sheet statement because they have been adjusted for exchange rate effects. The exception to this is the figure for cash and cash equivalents. Minor amounts of cash and cash equivalents were subject to exchange control restrictions (2007 and 2008: EUR 0 million). NOTES TO THE FINANCIAL INSTRUMENTS 30 Financial instruments A financial instrument is a contract that simultaneously leads to a financial asset in one entity and a financial liability or equity instrument in another. Financial instruments involve non-derivative as well as derivative assets or liabilities. Derivative financial instruments are used to hedge future cash flows. IAS 39 divides financial instruments into the following categories: – Financial investments held to maturity – Financial assets/liabilities at fair value through profit or loss – Available-for-sale financial assets – Loans and receivables – Other financial liabilities In the BSH Group, financial instruments are generally classified as “loans and receivables” or as “available-for-sale.” The nonderivative financial liabilities are assigned to the category “other financial liabilities.” Derivative financial instruments not qualifying for hedge accounting are classified as “held for trading.” Financial instruments are shown on the balance sheet upon purchase or sale on the settlement date under usual market conditions. Net gains/losses by category Loans and receivables Available-for-sale financial assets 2008 2007 37 31 –24 25 35 16 –151 – 83 Financial assets and financial liabilities at fair value through profit or loss Financial liabilities carried at amortized cost The net gains/losses from the loans and receivables category include changes in write-downs, gains and losses on derecognition and payments received, exchange rate gains and losses, and the reversal of impairment losses or of gains/losses on derecognized loans and receivables. N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Net gains and losses on the sale of availablefor-sale financial assets comprise gains and losses on the derecognition of availablefor-sale financial assets and interest income from these financial instruments. For the amount of unrealized gains and losses on available-for-sale financial assets recognized directly in equity during the fiscal year, and the amount reclassified from equity and recognized as income in the year, see the consolidated statement of changes in shareholders’ equity. Net gains or losses on financial assets and liabilities at fair value through profit or loss include not only the effects of changes in fair value, but also interest expense or income from these financial instruments. The net expense from financial liabilities valued at amortized cost consists of interest expenses and currency gains and losses. 95 96 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTES TO THE FINANCIAL INSTRUMENTS Carrying amounts and fair values by category and class 12/31/2008 Measurement categories defined by IAS 39 Carrying amount 12/ 31/2007 Fair Value Carrying amount Fair Value ASSETS Cash and cash equivalents LaR 503 503 453 453 Trade accounts receivable LaR 1,729 1,729 1,819 1,819 Other financial receivables LaR 225 228 203 203 Available-for-sale financial assets AfS 547 547 597 597 FAHfT 56 56 13 13 Derivative financial assets not qualifying for hedge accounting Derivative financial assets (hedge accounting) n. a. 10 10 2 2 FVTPL 27 27 36 36 Trade accounts payable FLAC 682 682 728 728 Liabilities to banks FLAC 639 608 752 737 Other financial liabilities FLAC 326 326 217 217 Finance lease liabilities n. a. 0 0 0 0 FLHfT 45 45 4 4 n. a. 1 1 – – FVTPL – – – – 2,457 2,460 2,475 2,475 547 547 597 597 Financial assets with embedded derivatives SHAREHOLDERS’ EQUITY AND LIABILITIES Derivative financial liabilities not qualifying for hedge accounting Derivative financial liabilities (hedge accounting) Financial liabilities with embedded derivatives Of which aggregated by measurement category Loans and receivables (LaR) Available-for-sale financial assets (AfS) Financial assets at fair value through profit or loss (FAHfT) Financial liabilities carried at amortized cost (FLAC) 56 56 13 13 1,647 1,616 1,697 1,682 Financial liabilities at fair value through profit or loss (FLHfT) 45 45 4 4 Financial assets at fair value through profit or loss (FVTPL) 27 27 36 36 181 181 192 192 482 482 513 513 Reconciliation to balance sheet Other nonfinancial receivables (included in other current assets, securities, and noncurrent financial assets) Other nonfinancial liabilities (included in other current and noncurrent liabilities) LaR Loans and receivables AfS Available-for-sale FAHf T Financial assets held for trading FLAC Financial liabilities measured at amortized cost FLHfT Financial liabilities held for trading FVTPL Fair value through profit or loss NOTES TO THE FINANCIAL INSTRUMENTS N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 30.1 Non-derivative financial instruments 30.2 Derivative financial instruments Available-for-sale financial instruments Available-for-sale financial instruments are always reported at fair value. The fair value is generally the market value. If there is no active market, fair value is determined using a generally accepted measurement technique. Hedging policy and financial derivatives The activities of BSH are impacted by a number of factors, including exchange rate fluctuations. It is the aim of the Company’s business policies to limit these risks with hedging measures. Hedging transactions are entered into exclusively with first-rate national and international banks. A limit is imposed on transactions with each contract partner. Investments in nonconsolidated subsidiaries and associates Shares in nonconsolidated subsidiaries and associates are always reported at cost; impairment losses are recognized where appropriate. There is no active market for these companies and fair value therefore cannot be reliably determined with reasonable time and effort. Loans/receivables and financial liabilities Loans/receivables and financial liabilities are measured at amortized cost using the effective interest method, provided they are not related to hedges. In particular, these are – Loans under financial assets – Trade receivables and trade payables – Other current assets and liabilities As in the previous year, most loans under financial assets have a maturity in excess of four years, but trade accounts receivable and payable are, as in the previous year, due within one year. The amortized cost is calculated as the amount in which a financial asset or a financial liability was measured on initial recognition, less any repayments, impairment losses, or uncollectibility write-downs, and net of the premium/discount. The premium/discount is allocated using the effective interest rate method over the life of the financial asset or liability. For current receivables and liabilities, amortized cost equals the nominal amount or the repayment amount. Because of the Company’s customer structure, there is no substantial concentration of payment default risk in reported receivables, nor is disclosure required. Binding internal rules and guidelines provide firm guidance on permitted actions and responsibilities for hedging, especially the hedging relationship with operating business and financial investment or financing transactions. BSH does not use derivative financial instruments for speculative purposes. The Group employs the treasury control and value contribution monitor used in the finance unit to control interest and currency management activities. These information systems are used to support the identification and assessment of interest rate and currency risks throughout the Group for the next twelve months, based on planned cash flow. This takes place according to the minimum hedging rates stipulated in the company’s financial guidelines, and taking account of the strategy laid down by the Treasury Committee, which meets regularly under the chairmanship of a member of executive management. If hedge accounting is used, changes in the fair value of derivative financial instruments are shown in shareholders’ equity as part of other recognized gains and losses. If cash flow hedge accounting cannot be employed, the changes in fair value are recognized in the income statement. 97 98 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTES TO THE FINANCIAL INSTRUMENTS Currency risks As a basis for controlling its exposure to currency risks, BSH primarily uses a Group-wide cash flow reporting system, differentiated by currency; the subsidiaries outside Germany prepare rolling monthly reports for headquarters. Most of the hedging instruments used are forward exchange contracts; options are used in some cases. To monitor the risks from financial derivatives, hedges are mark to market on each bank working day; this valuation, plus additional information such as exchange rate gains or losses and risks, is available to the employees concerned and to the managers responsible. The market values disclosed in the above list were determined on the basis of information available on the balance sheet date. They represent the settlement amounts (redemption values) of the financial derivatives. Redemption values are calculated on the basis of quoted prices and standardized procedures. The maximum credit risk of derivative financial instruments is limited to the total positive market values in the event of default by a contract partner of BSH GmbH or the BSH Group companies. The nominal volumes of the reported hedges represent the total of purchase and selling amounts on which the hedges are based. Nominal volumes 2008 Maturity Fair value 2007 2008 2007 up to 1 year between 1 year and 5 years up to 1 year between 1 year and 5 years 405 – 320 – 40 6 – – 17 – – 0 56 16 8 40 17 7 Derivatives with positive fair values Foreign currency derivatives not qualifying for hedge accounting Currency forwards Currency options Other foreign currency derivatives Interest rate and other derivatives not qualifying for hedge accounting Other interest rate derivatives Other price hedging instruments 3 – 10 – 0 – 24 – – – 0 – 60 – 37 – 10 2 Foreign currency derivatives, hedge accounting Currency forwards Derivatives with negative fair values Foreign currency derivatives not qualifying for hedge accounting Currency forwards 440 2 231 – 43 3 Currency options – – – – – – Other foreign currency derivatives 2 24 13 – 1 0 Interest rate and other derivatives not qualifying for hedge accounting Other interest rate derivatives 63 0 13 – 0 0 Other price hedging instruments 18 – 86 – 0 1 15 – – – 1 – Foreign currency derivatives, hedge accounting Currency forwards NOTES TO THE FINANCIAL INSTRUMENTS Changes in the value of financial instruments from the hedging of planned transactions and available-for-sale financial instruments are recognized directly in other recognized gains and losses. As of December 31, 2008, EUR 8 million (2007: EUR 35 million) were included in shareholders’ equity after the deduction of deferred taxes. Of this, the effects of cash flow hedges amounted to EUR 6 million (2007: EUR 1 million). As in the previous year, no gains or losses were recognized from the remeasurement of ineffective cash flow hedges for fiscal year 2008. Fluctuations in market prices can have significant risks for the BSH Group. Changes in exchange rates, interest rates, and share prices affect worldwide operating business, as well as investment and financing activities. To represent these risks, IFRS 7 calls for sensitivity analyses which indicate the effects of hypothetical changes in relevant risk variables on profit or loss and equity. The periodical effects are determined by relating the hypothetical changes in the risk variables to the portfolio of financial instruments as of the reporting date. This assumes that the portfolio as of the reporting date is representative of the full year. BSH has implemented a system based on the sensitivity analysis, made up of various risk analysis and risk management methods. The sensitivity analysis approximately quantifies the risk that can occur subject to the given assumptions, if particular parameters are changed to a defined extent. The risk assessment here assumes: – a parallel 10 % decrease/increase in the exchange rate of the US dollar against euro – a parallel 10 % decrease/increase in the exchange rate of pound sterling against euro – a parallel 10 % decrease/increase in the exchange rate of the Turkish lira against euro – a parallel shift in the interest curves of all currencies by 100 basis points (1 percentage point) – a 10 % rise or fall in the prices of all listed investments classified as available-for-sale financial assets N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The potential economic effects of this represent estimates. They are based on the assumption that the market changes implied within the framework of the sensitivity analysis occur. As a result of the global market developments actually taking place, the actual effects on the consolidated income statement can differ significantly from these. More than half of BSH’s subsidiaries are located outside the eurozone. As the Group’s reporting currency is the euro, the company translates the financial statements of these companies into euros. In order to address translation-related currency effects in risk management, the working hypothesis that investments in foreign companies are in all cases long-term in nature, and the returns are continuously reinvested, is applied. Translation-related effects resulting from changes in the value of net assets translated into euros caused by exchange rate fluctuations are recognized in equity in the BSH consolidated financial statements; they are not included in the sensitivity analysis. 99 100 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTES TO THE FINANCIAL INSTRUMENTS Foreign currency risks (remeasurement) USD +10 % At December 31, 2008 Recognized in income statement USD –10 % At December 31, 2007 Effect on other movements in equity Recognized in income statement At December 31, 2008 Effect on other movements in equity Recognized in income statement At December 31, 2007 Effect on other movements in equity Recognized in income statement Effect on other movements in equity 0 Financial assets Cash and cash equivalents (1) 0 0 1 0 0 0 –1 Trade accounts receivable (2) 4 0 4 0 –4 0 –4 0 11 0 15 0 –11 0 –15 0 –1 Other assets FVTPL (3) 0 0 0 1 0 0 0 Derivatives FVTPL Financial assets AfS (4) –3 0 –17 0 3 0 17 0 Effect on financial assets before tax 12 0 3 1 –12 0 –3 –1 0 Financial liabilities Derivatives FVTPL –11 0 4 0 11 0 –3 Trade accounts payable (5) 0 0 0 0 0 0 0 0 Financial liabilities (6) 3 0 –3 0 –3 0 3 0 –8 0 1 0 8 0 0 0 4 0 4 1 –4 0 –3 –1 Effect on financial liabilities before tax Total effect before tax Foreign currency risks (remeasurement) GBP +10 % At December 31, 2008 Recognized in income statement GBP –10 % At December 31, 2007 Effect on other movements in equity Recognized in income statement At December 31, 2008 Effect on other movements in equity Recognized in income statement At December 31, 2007 Effect on other movements in equity Recognized in income statement Effect on other movements in equity Financial assets Cash and cash equivalents (1) Other assets FVTPL (3) Financial assets AfS (4) Derivatives FVTPL Derivatives CFH (7) Effect on financial assets before tax 1 0 1 0 –1 0 –1 0 –1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 –14 0 –1 0 14 0 2 0 0 –5 0 –4 0 5 0 4 –14 –5 0 –4 14 5 1 4 Financial liabilities Derivatives FVTPL Trade accounts payable (5) Financial liabilities (6) Effect on financial liabilities before tax Total effect before tax 13 0 0 0 –13 0 0 0 2 0 3 0 –2 0 –3 0 0 0 –1 0 0 0 1 0 15 0 2 0 –15 0 –2 0 1 –5 2 –4 –1 5 –1 4 NOTES TO THE FINANCIAL INSTRUMENTS N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Foreign currency risks (remeasurement) TRY +10 % At December 31, 2008 Recognized in income statement TRY –10 % At December 31, 2007 Effect on other movements in equity At December 31, 2008 Recognized in income statement Effect on other movements in equity Recognized in income statement At December 31, 2007 Effect on other movements in equity Recognized in income statement Effect on other movements in equity 0 Financial assets Cash and cash equivalents (1) –7 0 0 0 7 0 0 Trade accounts receivable (2) –9 0 –5 0 9 0 5 0 1 0 4 0 –1 0 –4 0 Other assets FVTPL (3) Derivatives FVTPL Effect on financial assets before tax –3 0 0 0 3 0 0 0 –18 0 –1 0 18 0 1 0 –1 0 –8 0 1 0 8 0 4 0 7 0 –4 0 –7 0 Financial liabilities Derivatives FVTPL Trade accounts payable (5) Financial liabilities (6) 27 0 12 0 –27 0 –12 0 Effect on financial liabilities before tax 30 0 11 0 – 30 0 –11 0 Total effect before tax 12 0 10 0 –12 0 –10 0 AfS FVTPL CFH Available-for-sale Fair value through profit or loss Cash flow hedge Explanatory notes: (1) Cash and cash equivalents includes checks, cash on hand, and deposits with banks. The currency risk relates to remeasurement. (2), (5) Trade accounts receivable and payable relate to both external and intercompany receivables and payables subject to remeasurement risk. (3) Other assets relate in particular to intercompany loan receivables and cash pool amounts subject to remeasurement risk as a result of exchange rate fluctuations. (4) AfS financial assets include securities in particular. In the case of interest-bearing securities, exchange rate changes bring about a change in market values, which impacts on the income statement. Mutual funds in bonds and money market funds are not included. Currency fluctuations in the case of stock funds and mutual funds in stocks would likewise be reported in the revaluation surplus. (6) Financial liabilities include both external borrowings and intercompany loan liabilities. The currency risk relates to remeasurement. (7) Derivative instruments with hedge accounting (cash flow hedges) only include currency forwards. For the effective portion, the effect of exchange rate changes is thus recognized directly in equity. 101 102 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTES TO THE FINANCIAL INSTRUMENTS Interest rate risks In order to determine the interest rate risk, a flat-rate 1 % increase or cut in general interest rates is simulated. The changes in interest expense or income thus derive from the nominal volumes concerned. Changes in the market values of fixed-income securities and derivatives that react to interest rates are determined by calculating the basis point value (1 % = 100 BP). Interest risk +1% At December 31, 2008 Recognized in income statement –1% At December 31, 2007 Effect on other movements in equity Recognized in income statement Effect on other movements in equity At December 31, 2008 Recognized in income statement At December 31, 2007 Effect on other movements in equity Recognized in income statement Effect on other movements in equity 0 Financial assets Cash and cash equivalents (1) 5 0 4 0 –5 0 –4 Financial assets AfS (2) 0 –11 0 –6 0 11 0 6 Derivatives FVTPL (3) 0 0 1 0 0 0 –1 0 Effect on financial assets before tax 5 –11 5 –6 –5 11 –5 6 0 Financial liabilities Derivatives FVTPL (4) 4 0 –2 0 –4 0 2 –1 0 –1 0 1 0 1 0 Effect on financial liabilities before tax 3 0 –3 0 –3 0 3 0 Total effect before tax 8 –11 2 –6 –8 11 –2 6 Financial liabilities (5) AfS FVTPL Available-for-sale Fair value through profit or loss Explanatory notes: (1) Cash and cash equivalents includes checks, cash on hand, and deposits with banks. A change in interest rates would result in increased/reduced interest income based on the demand and fixed-term deposits and accounts with interest-bearing balances as of the reporting date. (2) AfS financial assets comprise securities in particular. In the case of interest-bearing securities, a change in interest rates brings about a change in market values, which is reflected in the revaluation surplus. Mutual funds in bonds and money market funds are not included. Stock funds and mutual funds in stocks are in particular subject to other price risk, which is always recognized in the revaluation surplus. The simulation is conducted through the income statement only if impairments have already been recognized through profit or loss. (3), (4) Derivatives not qualifying for hedge accounting include currency forwards, currency options, stock index futures, currency swaps, and interest rate index futures. Any effect of the scenarios in question is recognized in the income statement. (5) Financial liabilities include external borrowings. A change in interest rates would result in increased/reduced interest expense based on the variable-interest liabilities as of the reporting date. NOTES TO THE FINANCIAL INSTRUMENTS N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Other price risks Within the framework of the other price risk, a 10 % flat-rate increase or reduction in the stock prices is simulated, with the result that the stock prices or the corresponding stock price indices (relative to the mutual funds invested in stock funds or relative to the index futures concerned) are shown as being 10 % higher or lower. Other price risks Stocks +10 % At December 31, 2008 Stocks –10 % At December 31, 2007 At December 31, 2008 Recognized in income statement Effect on other movements in equity Recognized in income statement Effect on other movements in equity Recognized in income statement At December 31, 2007 Effect on other movements in equity Recognized in income statement Effect on other movements in equity Financial assets Financial assets AfS (1) Derivatives FVTPL Effect on financial assets before tax 5 2 4 15 –7 0 –4 –15 –2 0 0 0 2 0 0 0 3 2 4 15 –5 0 –4 –15 Financial liabilities Derivatives FVTPL (2) –2 0 –9 0 2 0 9 0 Effect on financial liabilities before tax –2 0 –9 0 2 0 9 0 1 2 –5 15 –3 0 5 –15 Total effect before tax AfS FVTPL Available-for-sale Fair value through profit or loss Explanatory notes: (1) AfS financial assets comprise securities in particular. In the case of interest-bearing securities, a change in interest rates brings about a change in market values, which is reflected in the revaluation surplus. Mutual funds in bonds and money market funds are not included. Stock funds and mutual funds in stocks are in particular subject to other price risk, which is always recognized in the revaluation surplus. The simulation is conducted through the income statement only if impairments have already been recognized through profit or loss. (2) Derivatives not qualifying for hedge accounting include currency forwards, currency options, stock index futures, currency swaps, and interest rate index futures. Any effect of the scenarios in question is recognized in the income statement. 103 104 N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTES TO THE BALANCE SHEET Credit and liquidity risks The liquidity risk for the company consists in its possibly being unable to meet its financial liabilities, for example the repayment of financial liabilities and the payment of purchase commitments. BSH limits this risk by means of effective central cash management, global access to lines of credit provided by prime rated banks, and a syndicated credit line primarily entered into for contingencies. A significant portion of the external bank loans has been taken out over the long term, thus excluding short-term liquidity risks from repayment obligations. To supplement the above-mentioned liquidity management tools, BSH continuously follows up the financing options offered on the financial markets. In addition, the Group monitors developments relating to availability and cost. A major objective here is to secure BSH’s financial flexibility and to limit unreasonable refinancing risks. No deficits from financial investments subject to credit risks had been identified as of the reporting date. 31 Leases The breakdown of future minimum lease payments under non-cancelable leases is as follows: Maturity within one year second through fifth year more than five years Total 2008 2007 62 47 123 95 84 72 269 214 The minimum lease payments relate primarily to rents paid for real estate. Under rental agreements and leases, minimum lease payments of EUR 77 million (2007: EUR 54 million) and sublease payments of EUR 3 million (2007: EUR 3 million) were recognized in income in 2008. The part of a property that the pension trust (employee trust) of BSH GmbH had sold to an investor in 2007 was leased back in part in 2008 by the investor to a BSH Group company for a period of 10 years, with an option to extend twice by a period of 5 years. The remainder of the real estate still owned by the employee trust has been leased to BSH companies on the basis of longer-term leases. 32 Contingent liabilities and other financial liabilities No provisions have been set up for the following contingent liabilities, recognized at their nominal values, because it is not deemed probable that the risk will occur. 2008 2007 Surety and letters of support 2 16 Guarantees on notes 2 1 Other contingent liabilities 2 1 Total 6 18 NOTES TO THE BALANCE SHEET 33 Related party disclosures The following companies or persons are related parties for BSH GmbH under IAS 24: – Robert Bosch GmbH, Stuttgart, Germany – Siemens AG, Munich and Berlin, Germany – Companies directly or indirectly controlled by BSH GmbH – Other consolidated and nonconsolidated affiliated companies of the Robert Bosch Group and the Siemens Group – Members of the executive management or the Supervisory Board – Companies in which Robert Bosch GmbH, Siemens AG, or members of management hold a significant portion of the voting rights Transactions with these related parties are performed at normal market terms and conditions. The goods and services bought from related parties include primarily production supplies and sales services, and a small amount of training and other services. The goods and services supplied to related parties primarily involve the sale of household appliances. Most of these transactions are performed by the companies in Germany. N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Since 2008, revenue, receivables, and liabilities vis-à-vis related parties are reported for the Group; in 2007 they were only reported for BSH GmbH. 2008 Robert BoschSiemensGroup Group 2007 Robert BoschSiemensGroup Group Receivables 1 22 0 Liabilities 3 12 2 11 Revenue 3 131 0 108 34 Remuneration of members of the Board of Management and the Supervisory Board The remuneration paid to the Supervisory Board amounted to EUR 0.1 million (2007: EUR 0.1 million); executive management remuneration amounted to EUR 2.4 million (2007: EUR 3.4 million). Former members of executive management and their surviving dependents received payments of EUR 1.6 million, including pensions and transitional payments (2007: EUR 1.4 million). As of December 31, 2008, provisions amounting to EUR 20.2 million (2007: EUR 19.7 million) were recognized for pensions and benefit entitlements for these persons. In 2008, as in the previous year, there were no loans to members of the executive management or the Supervisory Board. The members of the executive management and the Supervisory Board are listed in the annexes. Munich, February 27, 2009 BSH Bosch und Siemens Hausgeräte GmbH Executive Management 15 105 G R O U P F I N A N C I A L S TAT E M E N T S CO N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N A S S E S T S Appendix I Consolidated Statement of Changes in Assets January 1 to December 31, 2008 (in EUR million) I. Property, plant, and equipment pos als Dis Add itio ns p* Cha n con ges in s oli t dat he ed g rou Cur re lati ncy tr on a diff nsere nce s . 1, Jan e 200 8 Purchase and production cost Not 106 21 Land and buildings 771 –21 6 22 9 Technical equipment and machinery 1.548 – 62 0 100 65 Other equipment, operating, and office equipment 1.224 –20 2 142 107 134 –1 0 85 0 50 1 0 20 0 3.727 –103 8 369 181 Patents, licenses, customer bases, etc. (excl. software) 30 0 10 1 0 Software 67 –1 0 8 1 Goodwill 212 –33 0 8 0 1 0 0 0 0 310 –34 10 17 1 28 0 0 4 0 Development expenses 3 0 0 0 0 Intangible assets being created 4 0 0 0 0 35 0 0 4 0 4.072 –137 18 390 182 Assets under construction Advance payments on property, plant, and equipment II. Intangible assets 22 Purchased intangible assets Advance payments on intangible assets Self-created intangible assets Software * Change in the basis of consolidation as a result of the acquisition of Willem van Rijn Huishoud-elektro B.V., the Netherlands. CO N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N A S S E S T S N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Depreciation, amortization, impairment losses Carrying 5 4 0 350 451 47 1.568 1.108 – 45 0 122 63 –21 0 1.101 467 84 1.325 887 –12 2 132 102 18 0 925 400 –117 101 3 –1 0 3 0 –1 0 4 97 – 46 25 0 0 0 0 0 0 0 0 25 0 3.820 2.324 – 66 6 286 170 0 0 2.380 1.440 0 41 25 0 0 3 0 0 0 28 13 1 74 53 0 0 7 1 0 0 59 15 0 187 3 0 0 1 0 0 0 4 183 –1 0 0 0 0 0 0 0 0 0 0 0 302 81 0 0 11 1 0 0 91 211 4 36 11 0 0 3 0 0 0 14 22 0 3 1 0 0 0 0 0 0 1 2 –4 0 0 0 0 0 0 0 0 0 0 0 39 12 0 0 3 0 0 0 15 24 0 4.161 2.417 – 66 6 300 171 0 0 2.486 1.675 ersa Cur re 200 . 1, Jan De c ** Including EUR 36 million impairment of property, plant and equipment and EUR 1 million impairment of intangible assets. . 31 , 20 De c 29 l Rev 4 pos als –8 nt y 326 8 801 . 31 , 20 32 Rec lass ifica Rec lass ifica Dec. 31, 2008 Dis 08 tion s * ear * Cha n con ges in s oli dat the ed g rou Cur re lati ncy tr on a diff nsere nce s 08 tion s p amounts 107 G R O U P F I N A N C I A L S TAT E M E N T S CO N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N A S S E S T S Consolidated Statement of Changes in Assets January 1 to December 31, 2007 (in EUR million) I. Property, plant, and equipment pos als Dis ns itio Add Cha n con ges in s oli dat the ed g rou Cur re lati ncy tr on a diff nsere nce s . 1, Jan e 200 7 p Purchase and production cost Not 108 21 Land and buildings 727 2 0 30 16 Technical equipment and machinery 1.339 18 0 69 32 Other equipment, operating, and office equipment 1.217 2 1 94 46 110 0 0 130 3 43 –1 0 43 0 3.436 21 1 366 97 Patents, licenses, etc. (excl. software) 30 0 0 1 0 Software 57 0 0 7 0 Goodwill 190 12 0 10 0 3 0 0 0 0 280 12 0 18 0 29 –1 0 0 0 Development expenses 3 0 0 0 0 Intangible assets being created 0 0 0 4 0 32 –1 0 4 0 3.748 32 1 388 97 Assets under construction Advance payments on property, plant, and equipment II. Intangible assets 22 Purchased intangible assets Advance payments on intangible assets Self-created intangible assets Software CO N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N A S S E S T S N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Depreciation, amortization, impairment losses Carrying 07 tion s 9 3 –2 326 445 154 1.548 989 11 0 95 30 45 –2 1.108 440 – 44 1.224 850 1 0 126 42 – 48 0 887 337 –103 134 3 0 0 2 2 0 0 3 131 –35 50 0 0 0 0 0 0 0 0 50 0 3.727 2.152 14 0 245 83 0 –4 2.324 1.403 –1 30 22 –1 0 2 0 2 0 25 5 3 67 48 0 0 7 0 –2 0 53 14 0 212 3 0 0 0 0 0 0 3 209 –2 1 0 0 0 0 0 0 0 0 1 0 310 73 –1 0 9 0 0 0 81 229 0 28 10 –1 0 2 0 0 0 11 17 0 3 0 0 0 1 0 0 0 1 2 0 4 0 0 0 0 0 0 0 0 4 0 35 10 –1 0 3 0 0 0 12 23 0 4.072 2.235 12 0 257 83 0 –4 2.417 1.655 De c ersa Rev Cur re 200 . 1, Jan De c * Including EUR 7 million impairment of property, plant and equipment. . 31 , 20 22 l 0 pos als 2 nt y 310 7 771 . 31 , 20 28 Rec lass ifica Rec lass ifica Dec. 31, 2007 Dis ear * Cha n con ges in s oli dat the ed g rou Cur re lati ncy tr on a diff nsere nce s 07 tion s p amounts 109 110 BSH Bosch und Siemens Hausgeräte GmbH Principal Subsidiaries as at December 31, 2008 Apendix II Share of capital in % Consolidated subsidiaries according to IAS 27.12 Share of capital in % South America BSH Electrodomésticos S.A., Buenos Aires Germany Constructa-Neff Vertriebs-GmbH, Munich 50 100 BSH Continental Eletrodomésticos Ltda., São Paulo 100 BSH Continental da Amazônia Ltda., Manaus 100 Neff GmbH, Munich 100 BSH Electrodomésticos S.A.C., Callao-Lima 100 BSH Hausgeräte Service GmbH, Munich 100 Briky S.A., Montevideo 100 BSH Hausgerätewerk Nauen GmbH, Nauen 100 BSH Hausgeräte Service Nauen GmbH, Nauen 100 Asia Gaggenau Hausgeräte GmbH, Munich 100 BSH Home Appliances Co., Ltd., Chuzhou 100 BSH Vermögensverwaltungs-GmbH, Munich 100 BSH Home Appliances Service Jiangsu Co., Ltd., Nanjing 100 BSH Hausgeräte Vertriebs GmbH, Munich 100 Jiangsu BS Home Appliances Sales Co., Ltd., Nanjing 100 BSH Electrical Appliances (Jiangsu) Co., Ltd., Nanjing 100 Europe BSW Household Appliances Co., Ltd., Wuxi 60 BSH Home Appliances S.A., Brussels 100 BSH Home Appliances Ltd., Hong Kong 100 BSH Hvidevarer A/S, Ballerup 100 BSH Home Appliances Ltd., Tel Aviv 100 BSH Kodinkoneet Oy, Helsinki 100 BSH Home Appliances Sdn. Bhd., Kuala Lumpur 100 BSH Electroménager S.A.S., Saint Ouen 100 BSH Home Appliances Pte. Ltd., Singapore 100 Gaggenau Industrie S.A.S., Lipsheim 100 BSH Home Appliances Pty. Ltd., Heatherton, Victoria 100 BSH Ikiakes Syskeves A.B.E., Athens 100 BSH Home Appliances Ltd., Auckland 100 BSH Home Appliances Ltd., Milton Keynes 100 BSH Home Appliances Ltd., Bangkok 100 BSH Elettrodomestici S.p.A., Milan 100 BSH Home Appliances Manufacturing Ltd., Kabinburi 100 BSH Huishoud-elektro B.V., Amsterdam 100 BSH Home Appliances FZE, Dubai 100 Gaggenau Nederland B.V., Nieuwegein 100 Willem van Rijn Huishoud-elektro B.V., Amsterdam 100 Africa BSH Husholdningsapparater A/S, Oslo 100 BSH Electroménagers (SA), Casablanca 100 BSH Hausgeräte Gesellschaft mbH, Vienna 100 BSH Home Appliances (Pty) Ltd., Johannesburg 100 BSH Home Appliances Holding GmbH, Vienna 100 BSH Finance Management GmbH, Vienna 100 Consolidated subsidiaries according to IAS 27.13 (b) BSH Sprzet Gospodarstwa Domowego Sp.z o.o., Warsaw 100 Robert Bosch Hausgeräte GmbH, Munich – BSHP Electrodomésticos, S.U., Lda., Carnaxide 100 Siemens-Electrogeräte GmbH, Munich – BSH Electrocasnice S.R.L., Bucharest 100 Constructa GmbH, Munich – OOO BSH Bytowaja Technika, Moscow 100 OOO BSH Bytovye Pribory, St. Petersburg 100 Not consolidated subsidiaries according to IAS 27.13 BSH Hushållsapparater AB, Stockholm 100 BSH Bosch und Siemens Hausgeräte Altersfürsorge GmbH, BSH Hausgeräte AG, Geroldswil 100 Munich BSH Drives and Pumps s.r.o., Michalovce 100 BSH Hišni Aparati d.o.o., Nazarje 100 Not consolidated subsidiaries due to immateriality BSH Electrodomésticos España, S.A., Huarte 100 BSH I.D. Invalidska druzba, BSH PAE, S.L., Vitoria 100 proizvodnja in storitve d.o.o., Nazarje 100 BSH Krainel, S.A., Vitoria 100 BSH Home Appliances Sarl, Tunis 100 100 BSH électroménagers S.A., Luxemburg 100 BSH domácí spotřebiče s.r.o., Prague BSH Ev Aletleri Sanayi ve Ticaret A.Ş., Istanbul 97,84 TOV BSH Pobutova Technika, Kiev 100 Plus one subsidiary without business operation BSH Háztartási Készülék Kereskedelmi Kft., Budapest 100 Profilo Elektrogeräte-Vertriebsgesellschaft mbH, Munich North America BSH Home Appliances Ltd./Électroménagers BSH Ltée, Mississauga 100 BSH Electrodomésticos, S.A. de C.V., Mexico City 100 BSH Home Appliances Corporation, Huntington Beach/New Bern 100 100 100 Independent Auditors’ Report We have audited the consolidated financial statements prepared by BSH Bosch und Siemens Hausgeräte GmbH, Munich, comprising income statement, balance sheet, cash flow statement, statement of changes in equity, statement of recognised income and expense and the notes to the consolidated financial statements, together with the group management report for the business year from January 1 to December 31, 2008. The preparation of the consolidated financial statements and the group management report in accordance with IFRS as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Abs. (paragraph) 1 HGB are the responsibility of the parent company’s management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position, and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used, and significant estimates made by management, as well as evaluating the over- N OT E S T O T H E CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S all presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements of BSH Bosch und Siemens Hausgeräte GmbH, Munich, comply with IFRS as adopted by the EU, the additional requirements of German commercial law pursuant to § 315a Abs.1 HGB, and give a true and fair view of the net assets, financial position, and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development. Munich, February 28, 2009 Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft Prof. Dr. Plendl Prosig Wirtschaftsprüfer Wirtschaftsprüfer (German Public Auditors) 111 112 Summary of Past Performance BSH Bosch und Siemens Hausgeräte GmbH (Group) (in EUR million) 2008 IFRS 2007 IFRS 2006 IFRS 2005 IFRS 2004 HGB 2003 HGB 2002 HGB 2001 HGB 8,758 –1 80 8,818 6 81 8,308 13 78 7,340 7 78 6,844 9 77 6,296 0 74 6,289 3 73 6,092 –3 71 40.3 39.0 38.0 35.5 34.5 34.4 35.7 35.6 1,692 1,704 1,654 1,448 1,486 1,458 1,448 1,392 Investment in tangible fixed assets* In percent of sales 382 4.4 378 4.3 358 4.3 333 4.5 278 4.1 275 4.4 278 4.4 220 3.6 Depreciation of tangible fixed assets* In percent of capital investment 299 78 257 68 281 78 223 67 197 71 188 68 175 63 197 89 Balance sheet total 6,173 6,276 5,950 5,325 4,311 3,844 3,611 3,584 Fixed assets 2,349 2,374 2,259 1,957 1,571 1,484 1,277 1,291 Inventories 1,074 1,103 1,019 828 741 643 669 633 Trade receivables from sales of goods and services and other current assets 2,031 2,053 2,052 1,655 1,587 1,407 1,181 1,209 Share capital and reserves In percent of balance sheet total 2,396 39 2,372 38 2,057 35 1,859 35 1,535 36 1,176 31 961 27 837 23 Provisions 1,593 1,673 1,709 1,581 1,462 1,426 1,380 1,322 EBITDA 821 908 834 731 770 696 684 715 EBIT 522 651 553 505 541 486 474 470 Results from ordinary activities 510 637 542 500 520 473 434 459 Net income for the year (before profit transfer) 311 411 372 386 367 278 257 241 Sales Year-to-year change in percent Foreign share of sales in percent Workforce (in thousands at Jan.1 of the following year) Personnel expenses * Including intangible assets, excluding goodwill. A mark of commitment: BSH promotes climate protection. Mixed Sources Product group from well-managed forests, controlled sources and recycled wood or fibre www.fsc.org Cert no. IMO-COC-026340 © 1996 Forest Stewardship Council Right of amendment reserved, errors excepted. May 2009. Printed in Germany © by BSH Bosch und Siemens Hausgeräte GmbH. Reproduction and use in all media (incl. electronic media), whether complete or in part, subject to approval. Oslo Ballerup Amsterdam Milton Keynes Nauen Bad Neust Brussels Bretten Luxembourg Dillin Paris Giengen Toronto Lipsheim Munich Geroldswil Milan New Bern La Follette Santander Vitoria Estella Huarte Esquiroz La Cartuja Huntington Beach Montañana Lisbon Casablanca Mexiko City Callao Hortolândia São Paulo Group Headquarters Subsidiaries Factories Cooking Refrigeration/Freezing Dishwashing Buenos Aires Washing/Drying Consumer Products Motors, pumps Wide-coverage sales and customer service network As at: May 2009 Helsinki Stockholm St. Petersburg Chuzhou Nanjing Moscow Wuxi Warsaw Berlin tadt Łódz Pragua ngen Regensburg Traunreut Vienna Nazarje Kiev Michalovce Budapest Hong Kong Bucharest Çerkezköy Istanbul Kabinburi Bangkok Athens Tunis Kuala Lumpur Tel Aviv Singapore Dubai Johannesburg Melbourne Auckland BSH Bosch und Siemens Hausgeräte GmbH Carl-Wery-Straße 34 81739 Munich Germany Tel. Fax +49 89 4590-01 +49 89 4590-2347 www.bsh-group.com General information and ordering the following reports: Konzern-Geschäftsbericht 2008 Group Annual Report 2008 Verantwortung für Umwelt und Gesellschaft 2008 Environmental and Corporate Responsibility 2008 Corporate Communications Tel. +49 89 4590-2809 Fax +49 89 4590-2128 E-Mail [email protected]