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 Significant accounting principles

Basis of preparation
The financial statements are presented in Euro. They are prepared on the historical cost basis, except for provisions and certain liabilities that are based on present value and certain financial instruments that are based on fair value.

The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements.

Principles of consolidation
Vedior N.V. and its subsidiary companies are fully consolidated. Subsidiary companies are companies where Vedior N.V. directly or indirectly has the power to govern their financial and operating policies. The financial results of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Investments in companies in which Vedior N.V. has significant influence, but not control, over the financial and operating policies are accounted for by the equity method. Generally, significant influence is presumed to exist if at least 20% of the voting power is owned. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounting basis, from the date the significant influence commences until the date the significant influence ceases. If Vedior’s share in the losses of any of these companies exceeds the interest in the associate, the carrying amount of the investment is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group’s proportionate share of the total recognised gains and losses of joint ventures on an equity accounting basis, from the date the joint control commences until the date that joint control ceases.

Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.

Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed in exchange for control of the acquiree, plus any costs directly attributable to the business combination.

Intangible assets in business combinations
Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and the fair value can be measured reliably. If the fair value cannot be measured reliably, the asset is not recognised as a separate intangible asset but is included in goodwill. Each acquisition is considered separately to analyse if intangible assets can be identified and measured reliably. Industry specific intangibles are trademarks, customer relationships or candidate databases. For the acquisitions up until 2006, no intangibles were separately identified because of the interdependence between these intangibles. As a consequence these intangibles can not be measured reliably and are therefore not separated from goodwill.

Goodwill is considered to have an indefinite useful life and is stated at cost less any accumulated impairment losses. Other intangible assets acquired in a business combination have definite useful lives and are stated at cost less accumulated amortisation and impairment losses.

Minority shares in business combinations
In connection with various acquisitions, Vedior has encouraged management of acquired companies to retain a minority equity interest. Vedior has entered into put and call options with the holders of these minority interests. The put option gives the minority shareholder the right to sell its minority interest to Vedior. The option exercise price is determined by a contractually agreed formula that includes dependence on future results of the subsidiary as well as a multiple. The call option gives Vedior the right to purchase the minority interest and is valid in certain default events only. In the normal course of events, the timing of exercise of the put options is not predetermined but is generally precluded for a minimum of three to five years from the date of acquisition.

Minority interests in the net assets of consolidated subsidiaries where a put option has not been granted to the minority share holder are identified separately from equity as minority interests. Minority interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses are allocated to results attributable to minority interests until the minority interest is nil and for the remainder of the losses to results attributable to Vedior, except to the extent that the minority shareholder has a binding obligation and is able to make an additional investment to cover the losses.

Minority interests in the net assets of consolidated subsidiaries where a put option has been granted to the minority shareholder are identified separately from equity as a liability. The put option includes an obligation for Vedior to buy the shares held by the minority shareholder. The liability is recognised at fair value. The fair value is the expected cash outflow to settle the liability and is based on forecasted future earnings. The amount of the liability that is expected to settle within one year is classified in current liabilities. The amount that is expected to settle after one year is classified as non-current liability under ‘deferred consideration business combinations’.

As of today, there remains uncertainty in IFRS regarding the treatment of the difference between the exercise price of the options and the carrying value of the minority interests that have to be reflected as financial liabilities. Until finalisation of phase two of the business combinations project of the IASB, Vedior has chosen to present such a difference as additional goodwill.

Impairment of goodwill
Goodwill is tested for impairment annually. For the purpose of impairment testing, goodwill is allocated to cash-generating units. If the recoverable amount of the cash-generating unit is less than the carrying amount, the impairment loss is allocated first to reduce the carrying amount of goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period as this is not allowed under IFRS.

On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Impairment of assets excluding goodwill
At each balance sheet date, Vedior reviews the carrying amounts of tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If such an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, Vedior estimates the re­coverable amount of the cash-generating unit to which the asset belongs. Assets are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to the present value using a discount rate that reflects assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Risk management
Vedior is exposed to capital, credit, interest and currency risks that arise in the normal course of the Group’s business. The responsibility to assess exposure as well as to enter into and manage derivative instruments is centralised in the Company’s treasury department. The activities of the Company’s treasury department are covered by corporate policies and procedures approved by the Board of Management, which specifically prohibit the use of derivative instruments for trading and speculative purposes. The Board of Management approves the hedging strategy and monitors the underlying market risks periodically. For a detailed analysis of Vedior’s risks, please refer to ‘Risk management’ on this page.

Capital risk
Vedior’s capital structure consists of debt, cash and cash equivalents and equity. This structure is managed and balanced through payment of dividends, as well as new share issues, share buy backs and the issue of new debt or the redemption of existing debt.

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Credit risk
Credit controls are established throughout the Company to monitor credit limits on clients, assess the creditworthiness of new and current clients and promptly follow up overdue accounts. Due to the diversified client base of the Company, no major concentrations of credit risk exist.

Interest rate risk
The interest rates on the borrowings of the Company are a mixture of floating and fixed rates. Developments in interest rate markets are monitored and fixing or capping interest rates may be considered based on market developments.

Currency risk
Fluctuations in foreign currency exchange rates, particularly between the Euro and the USD and the Euro and the GBP, may have an impact on Vedior’s operating results. As Vedior’s businesses are operated and financed locally, Vedior does not hedge its revenues and cash flow in foreign currencies. The impact of foreign currency exchange rate fluctuations on Vedior’s net income in Euro is, to some extent, limited as Vedior’s external borrowings and interest expenses are nominated in various currencies in approximately the same proportion as its operating income in these currencies. Another element of the currency risk is the translation of monetary items and foreign investments.

Financial instruments
Vedior’s financial instruments consist of loans and receivables, interest bearing loans and borrowings and derivative financial instruments.

Derivative financial instruments
Derivative financial instruments are shown at fair value when they are initially recognised. The fair value is the market price at the balance sheet date. The profit or loss arising on re-measurement at fair value is recognised directly to the income statement except when hedge accounting is applied.

Vedior uses derivative financial instruments to hedge currency and interest risks arising from operational and financing activities. In accordance with its treasury policy, Vedior does not hold derivatives for trading purposes.

Hedging
For instruments used to hedge underlying exposures to currency exchange and interest rate risks, hedge accounting is applied. Hedge accounting recognises the offsetting effects in changes of the fair values of the hedging instrument and the hedged item.

Fair value hedges
Vedior applies fair value hedge accounting for certain interest and currency risks arising from financing activities. In the income statement, the following will be recognised: the gain or loss from re-measuring the hedging in­strument at fair value and the gain or loss on the hedged item attributable to the hedged risk.

Fair value hedge accounting is discontinued when Vedior revokes the hedge relationship, the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised through the income statement from that date.

Cash flow hedge accounting/Net investment hedges
The cash flow hedge accounting method is applied for net investments in foreign operations that qualify for net investment hedges. The effective part of the gain or loss on these financial instruments is recognised in the translation reserve in equity. At the moment the foreign operation is disposed of, the related cumulative gain or loss on the financial instrument is trans­ferred from the translation reserve to the income statement.

Segment reporting
A business segment is a group of assets and operations engaged in providing services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing services within a particular economic environment which are subject to risks and returns that are different from those of segments operating in other economic environments. Vedior’s risks and returns at this moment are affected predominantly by differences in the service sectors (traditional versus professional/executive recruitment) and by differences in geographical locations. The primary format for reporting segment information is geographically, whereas the secondary segment information is reported per business sector. Corporate expenses are not allocated to the various geographies.

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