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Annual Report 2016

www.gi-de.com

CreatingConfidence

At aGlance

Giesecke+Devrient GroupEUR million

2016 2015 Change

Sales 2,089.0 2,010.9 3.9%

Capital expenditure 101.7 82.7 23.0%

Research and development 111.5 104.7 6.5%

EBIT (adjusted) 1 125.2 101.6 23.2%

Net income 52.2 54.5 – 4.2%

Employees as of December 31 11,300 11,379 – 0.7%

EBITDA (adjusted) 232.2 211.2 9.9%

Free cash flow –17.2 164.3 – 110.5%

1 Adjusted to exclude expenditure of EUR 6.0 million on EPC closure for improved comparability

Sales by Business UnitEUR million

Banknote

2016

2015

Mobile Security

2016

2015

Veridos

2016

2015

secunet

2016

2015

928

920

863

863

183

138

115

90

CreatingConfidence

Giesecke+Devrient

Giesecke+Devrient enhances the personal, professional, and digital lives of billions of people every day. Our 11,300 employees in 32 countries around the globe develop, produce, and sell products and solutions for convenient payment, secure communication, and effective identity management. G+D started out in Leipzig in 1852 as a printer of securities, and now provides a broad portfolio of services for modern life on the move. Have you paid for something today using cash, a card, or your smartphone? Each of these payment methods is highly likely to contain technology from G+D. Are you impressed by your new car’s wide range of online functions, such as the automatic emergency call system? Here, again, there’s G+D technology inside. Do you look for swift yet secure border controls when traveling? Thanks to G+D, the latest identification documents and verification systems not only protect national borders effectively, but are also used to secure company premises, for instance. Meanwhile, our cyber security solutions help to make our increasingly interconnected lives more convenient, while providing the highest possible level of security. We call this Creating Confidence.

To ensure we continue building on our success in all of these fields, we have recently restructured our company. For the 2016 fiscal year, the management report and notes to the financial statements apply to the former business areas: Banknote, Mobile Security, Veridos, and secunet. With effect from 2017, G+D has been transformed into a holding company with four subgroups: Currency Technology, Mobile Security, Veridos, and secunet. An overview and profiles of these four operational areas can be found on page 3. The benefits of the new structure for our customers and the company are outlined from page 4 by the Chairman of the Management Board, Ralf Wintergerst.

Contents

4 – 5 6 – 7 8 – 9Interview with the Management Supervisory Chairman of the Board Board Management Board Report

10 – 17 18 – 23 24 – 27Our Markets Our G+D’s and Solutions Responsibility CSR Program

28 – 43 44 – 103Group Consolidated Management Financial Report Statements

104 105Corporate Legal Bodies Notice

We are pleased to present the Giesecke+Devrient Annual Report. This comprises a report on our business activities in fiscal 2016, a certified manage-ment report, the consolidated financial statements, and a progress report on our participation in the UN Global Compact. Combining this information in a single publication reflects our belief that

day-to-day business operations and responsible governance are inextricably linked. Pages 24 through 27 outline how we are implementing the ten principles of the UN Global Compact and the progress we have made (Communication on Progress). www.unglobalcompact.org

WE SUPPORT

G+D Currency Technology

G+D Mobile Security

Veridos 60%Head office Core expertiseBerlin Solutions for identity management and verification

secunet 79.43%Head office Core expertiseEssen Solutions for reliable, high-quality IT security

Giesecke+Devrient Group

Company Structure

Head office Number of employeesMunich 11,300

SalesEUR 2,089 million

Head office Core expertiseMunich Solutions for the entire banknote lifecycle

Head office Core expertiseMunich Solutions for secure and convenient digital mobility

3

As Chairman of the Management Board of Giesecke+Devrient (G+D), Ralf Wintergerst has been responsible for the Group’s global business activities since November 1, 2016. In this interview, he talks about the increasing need for security in a fast-moving, uncertain world, the company’s new structure, and where he believes the biggest development opportunities lie for G+D.

Interview

Mr. Wintergerst, you took over as Chair- man of the Management Board last year, following the retirement of your long- serving colleague Dr. Walter Schlebusch. How would you rate the past fiscal year?2016 was a very good year for us. All our business units achieved positive results, and we were able to extend our leading position in many important markets. Overall, with Group sales of over two billion euros and an EBIT of approximately 125 million euros, we slightly exceeded our forecasts.

Many of G+D’s markets are fiercely competitive and the global economy isn’t providing much tailwind at the moment. How has the company managed to remain on a growth trajectory under these conditions?I am hugely grateful here to our G+D workforce of 11,300 dedicated employees. Together, we were highly successful in meeting the needs of our markets in 2016. The greatest compliment we can receive as a company is having customers buy from us. Although it might not be immediately apparent, we are surrounded in our everyday lives by billions of instances of security technology from G+D, used in both the physical and the digital world. We help to make payment, communi-cation, and human and machine interaction more convenient and secure.

2016 was a year of change and uncer-tainty, both politically and economically. Has G+D found the right response to this situation?It’s true that the old certainties are currently crumbling. That applies not only in political and economic contexts, but also with regard to technology. Our customers’ need for security has rarely been greater than it is today. In a fast-moving world, many organizations are looking for a partner they can rely on; someone whose security technologies can keep pace with the accelerated speed of change. G+D is ideally qualified to be that trusted partner. Everything we do and all our technologies are focused on security – and security is crucial to the future.

G+D itself is also going through a period of change, of course. Clearly, we also need to adapt to these developments as an organization. That’s why we introduced a new corporate structure on January 1, 2017. The G+D Group now comprises four subgroups: Giesecke+Devrient Currency Technology GmbH, Giesecke+Devrient Mobile Security GmbH, Veridos GmbH – our joint venture with Bundesdruckerei, in which we hold a 60 percent interest – and listed company secunet Security Networks AG, where our ownership stake is just below 80 percent. The new structure creates the best possible conditions for sustained organic growth across all areas of the business and will enable us to further develop our portfolio.

What caused the Management Board to adopt this new configuration?Our new structure improves our competitive position by making us more resilient, more agile, and better able to achieve growth. The subgroups are each strong in their own right, and this brings them much closer to their markets and customers. They thus have more responsibility for their own operations and can make decisions faster. This means we are better equipped to deal with the fast pace of our competitive environment, proactively set new trends, and ultimately respond more precisely to the needs of our customers.

With the subgroups having greater independence going forward, will G+D be taking more of a back seat as the parent company? Giesecke+Devrient is a strong name that enjoys an excellent reputation among customers the world over. That obviously will not change. On the operational side, responsibilities will be more closely aligned with the markets in the future. At the same time, central services will create an environ-ment that allows synergies between the business areas to be exploited. Our aim is continued productive collaboration as part of a single G+D family.

4 Giesecke+ DevrientAnnual Report 2016

Interview

Ralf WintergerstChairman of the Management Board, CEO

Together with his 11,300 G+D colleagues, Ralf Wintergerst strives to add convenience and security to the personal, professional, and digital lives of billions of people each day.

What developments do you expect to see in the coming fiscal year?We started the current year with a significant order backlog and aim to increase it in 2017. With its new structure, G+D has the potential to achieve sustained long-term growth in all of its business segments. However, I believe that continuously enhancing the quality of our portfolio is even more important than a quantitative increase in sales. G+D has the necessary expertise to develop new technol-ogies and services that unlock growth even beyond the markets we currently serve.

You mentioned new technologies. Where do you see the biggest development opportunities for G+D in 2017?We will be focusing on one area in particular this fiscal year: we want to become a leader in the digitalization of our markets. To achieve this, we will be establishing a Digital unit in the second quarter of 2017. Acting as a company-internal incubator, this will drive our own digital transformation and also develop digital business models and technologies for our markets. The expected outcome will be attractive, marketable solutions that boost the quality of our portfolio.

Mr. Wintergerst, you have worked with G+D for almost 20 years. What motivates you to get up and head to the office every morning?The knowledge that I’m part of a highly competent and committed team – and the satisfaction that comes from working with people who are as dedicated to our company, products, and customers as I am. I’m confident that G+D has the right answers to the challenges of our time. Today, more than ever, we can help deliver security to our customers and thus to the everyday lives of billions of people.

» Everything we do and all our technologies are focused on security – and security is crucial to the future.«

5

Management Board

Dr. Peter Zattler CFO, Director of Labor Relations Peter Zattler has been a member of the Giesecke+Devrient Management Board since July 1, 2001. As Chief Financial Officer, he oversees Controlling, M&A, Treasury, Accounting, and Tax. Since January 1, 2006, he has also been responsible for Infra- structure Management and Human Resources.

Hans Wolfgang Kunz CEO of Veridos GmbH Hans Wolfgang Kunz became a member of the Giesecke+Devrient Man- agement Board in 1996. Since January 2006, he has been responsible for the Government Solutions business unit. This includes both secunet Security Networks AG (G+D majority holding) and, as of 2015, Veridos GmbH (G+D majority stake ownership) – a joint venture between G+D and Bundesdrucke rei originating from the G+D Government Solutions division, with Mr. Kunz as its CEO. This unit covers all security-related products and solutions for governments and public authorities, as well as IT security.


ManagementBoard

Stefan Auerbach Mobile Security Stefan Auerbach has been a member of the Giesecke+Devrient Management Board since December 2013 and is responsible for the Mobile Security business unit, which supplies financial institutions, network operators, public transportation providers, and companies across all sectors with innovative security solutions for digital applications.

Ralf Wintergerst Chairman of the Management Board, CEO Ralf Wintergerst has been Chairman of the Management Board of Giesecke+Devrient since November 1, 2016. In addition to his duties as CEO, he is responsible for overseeing the central services: Information Systems, Corporate Security, Compliance Management and Auditing, Corporate Communications, Corporate Strategy and Development, Law, and Corporate Governance.

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Supervisory Board Report

Prof. Klaus Josef LutzChairman of the Supervisory Board

Ladies and Gentlemen, During the 2016 fiscal year, the Supervisory Board of Giesecke & Devrient GmbH performed all its duties as stipulated by legal provisions and the Articles of Incorporation. The Supervisory Board duly monitored the Management Board and discussed issues of note with its members.

At meetings of the Supervisory Board, the Management Board provided regular, comprehensive information about the situation of the company and the Group as a whole. The Supervisory Board additionally received updates on G+D’s performance and finances in the form of quarterly reports. Outside the scheduled meetings, the Chair- man of the Supervisory Board was also in regular contact with the Management Board and was kept informed of current issues.

Based on detailed reports from the Manage-ment Board, the Supervisory Board held three scheduled meetings and one extraordinary meeting to review G+D’s economic situation, including major investment decisions and corporate law measures relating to foreign Group companies. The Supervisory Board also considered the risk report and the Group’s risk management system.

A strategic issue under discussion at all Supervisory Board meetings was the transformation of the G+D Group into a holding company with independent subgroups. Global preparations commenced in 2016 and the legal aspects of the process are expected to be concluded by mid-2017. The Supervisory Board approved the restruc - turing following provision of a positive binding statement from the financial authorities and the consent of the financing banks. In the same context, profit-and-loss transfer agreements were also approved between Giesecke & Devrient GmbH, as the future holding company, and future subgroup parent companies Giesecke+Devrient Mobile Security GmbH and Giesecke+Devrient Currency Technology GmbH.

During one meeting in particular, the Super- visory Board focused on secunet Security Networks AG, Essen, in which Giesecke & Devrient GmbH is the majority shareholder.

Supervisory Board Report8 Giesecke+ Devrient

Annual Report 2016

The Supervisory Board dealt with a number of HR matters in the reporting year, includ-ing changes to pension commitments and to the system of deferred remuneration for managing directors, as well as an adjustment to D&O insurance.

The Supervisory Board duly received the annual financial statements and management report of Giesecke & Devrient GmbH for the period ending December 31, 2016, prepared in accordance with the German Commercial Code (HGB), and the consolidated financial statements and Group management report for the period ending December 31, 2016, prepared in accordance with IFRS, along with the auditor’s report.

The accounts were examined by the auditor, KPMG AG, which issued an unqualified audit opinion.

The auditor attended the meeting of the Supervisory Board on April 6, 2017, at which the financial statements were discussed. In the course of this meeting, the auditor reported on the main findings of the audit and answered questions from the Super- visory Board. The Supervisory Board accepted KPMG’s audit opinion on both sets of financial statements.

The Supervisory Board concluded its review with no objections raised. It approved the annual and consolidated financial statements, including the corresponding management reports, at its meeting of April 6, 2017.

Dr. Walter Schlebusch retired and stepped down as Chairman of the Management Board effective October 31, 2016. Ralf Wintergerst, former Head of the Banknote business unit, took over as Chairman of the Management Board from the same date. The Supervisory Board would like to thank Dr. Schlebusch for his contribution to the company’s success and wishes Mr. Wintergerst all the best in his new position.

The Supervisory Board also thanks the Management Board, all employees, and the Works Councils of the G+D Group for their efforts and high degree of personal commitment during the 2016 fiscal year.

Munich, April 2017

Prof. Klaus Josef LutzChairman of the Supervisory Board

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Connectivity, mobility, and digitalization are key aspects of our world today. They open up huge opportunities, but at the same time, pose new risks – such as the unauthorized use of data – that need identifying and containing. Citizens, companies, and countries rightly expect their assets, transactions, data, and identities to be protected with the highest levels of security. Ulti- mately, the huge potential of digital transformation can only be fully realized if people have confidence in the new technologies. Giesecke+Devrient has specialized in the field of security for 165 years, becoming a trusted expert partner. With our leading-edge technologies, we increase the convenience and reliability of payment, of identity management, and of communication and connections between people, devices, and machines. Our workforce of over 11,000 people is helping to shape the world of tomorrow and make it a safer place.

People use our technologies literally every second of the day – when paying by cash, card, or smartphone; when using online banking or e-government services; when driving an Internet-enabled car, logging on to their office PCs, and surfing the Internet. From vacation travel to machine interaction via the Internet of Things, we help to make it all possible. Our customers include national governments, public authorities, central banks, banknote printers, commercial banks, security transport companies, financial service providers, telecommunications providers, network operators, equipment manufacturers, OEMs, car manufacturers, energy companies, public transportation companies, health insurers, retailers, and casinos. G+D helps all of these customers and industries to achieve efficiency gains, make their business models fit for the future, protect their data and infrastructures, and – above all – offer their end customers an outstanding user experience.

Our Markets and Solutions

Security is a central priority for societies and economies in our modern world. Nowadays, we take the smooth functioning of payment, communication, mobility, and identity control solutions for granted. Providers no longer gain a major competitive edge or boost their reputation just by making things work. The standout factor is trusted security. The more interconnected, digitalized, and fast-paced our world becomes, the more potential there is for abuse. Data theft, phishing, hacker attacks, industrial espionage, counterfeit money, identity theft, and fake news are just some of the threats that concern people in a digital world. For sovereign states and private companies alike, a fundamental value is at stake: the trust of their citizens and customers. G+D plays a crucial role in reinforcing this trust by providing effective measures for greater security.

Did you know ...

... that G+D products are used billions of times every day? Banknotes incorporating our expertise are in circulation in over 150 countries. Our transit solutions help 50 million commuters get to work faster each day on public transportation. Eight of the ten largest car manufacturers equip their Internet-enabled vehicles with G+D technology. We have supplied two billion payment cards and around three times as many SIM cards over the last ten years. Your smartphone, tablet, or fitness tracker is also likely to be one of over a billion mobile devices managed by G+D worldwide.



Managing payments securely

Payment is a prime area where trust is vital. We want to be sure that the banknotes we hold are authentic, that our credit cards are protected from unauthorized use, and that no-one is spying on our smartphone activity at the supermarket checkout. High security requirements have been a priority for Giesecke+Devrient since 1852, when the company was first established and began printing securities. Those requirements then became even more important as new payment methods emerged. Cash was followed by checks and bills of exchange, then later by bank cards and credit cards. Today, online banking and payment by mobile device are increasingly gaining ground, while special digital currencies based on blockchain technology offer new potential.

The most recent addition to the payment family is mobile payment. Here, G+D has already delivered over a hundred solutions for Internet-enabled devices to banks and financial service providers all over the world. Growth in this market is driven by the increasing prevalence of smartphones.

More than three billion people around the globe now use an Internet-enabled mobile phone – double the number of five years ago. Our technologies enable smartphones to be used securely in a similar way to a bank card or credit card. Near field communication (NFC) makes it possible for users to pay for purchases simply by waving their device over a checkout terminal. Payments by app and web browser can also be made safely by smartphone if the device has our security features. And now, mobile payment is also extending to wearable devices, such as smart- watches and fitness trackers. G+D equips these intelligent accessories with functions for payment and online banking – including products from Samsung and Swatch. Around 200 million wearables adorn the wrists of users worldwide, and the number is rising rapidly. But despite the popularity of these methods, none of them comes close to card payment: with over twelve billion cards in circulation in 2016, there was more plastic money on the planet than people. G+D is one of the leading providers of electronic payment solutions. Over the past ten years, our production facilities have supplied consumers with more than two billion payment cards incorporating the sophisticated EMV standard, making them far more secure than a conventional magnetic strip.

Making banknotes counterfeit-proof

Of all the options out there, the number-one payment method is still cash. Some 80 percent of all payment transactions worldwide are made this way. Even in advanced economies, such as Germany, cash-payers are in the majority. Globally, the amount of cash is rising by around five percent each year, with one trillion coins and notes now circulating in euros alone. And cash certainly has many advantages: it is always available, does not depend on a power supply, and offers a very high level of personal privacy.

At the same time, cash is essentially a product like any other. It needs to be developed, manufactured, circulated, managed, recycled, and disposed of – all in accordance with the highest standards of quality, convenience, and security. Ultimately, it is not just a question of the actual banknotes consumers hold in their hands, but also of the authenticity and value promise universally associated with those notes, underpinning trade between people around the globe. In short, it’s all about trust.

Your requirement

You want flexibility wherever you make payments and peace of mind that your transactions are secure.

Our solution

G+D is involved in producing highly secure banknotes in dozens of different countries. Our payment cards are also used billions of times per day. And technology from G+D can turn your smartphone into a secure mobile wallet.

3billionsmartphone users in 2017

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Currencies only work properly when people trust them and the institutions behind them. Giesecke+Devrient is the only one-stop pro- vider in the world to develop and manufac-ture all the key elements itself here, enabling optimum end-to-end solutions. Our product and solution portfolio covers the entire lifecycle of a banknote. We create country- specific designs, supply substrates such as cotton paper and durable hybrids, develop and produce security features, and finally print the banknotes. The subsequent links in the cash cycle value chain are banknote processing and destruction. Central and commercial banks all over the world deploy our processing systems, and we also develop and manage complete cash center solutions.

For all payment methods, security is the top priority. Banknotes are the most secure means of payment worldwide. The number of counterfeit notes is extremely small in

relation to the total volume in circulation. We attach great importance to our inno-vative ability, which enables G+D to stay at least one step ahead of the counterfeiters at all times. We regularly create new, sophisticated security features for banknotes, including optically variable and dynamic effects for security threads and foils, intelligent window solutions, laser engraving, and intricate watermarks. These features can be combined to produce a high-tech product that is extremely difficult for counterfeiters to duplicate. One of the latest security features developed by G+D is RollingStar® LEAD. This works by arranging microscopic mirrors on a foil in such a way that tilting the banknote produces dynamic color effects with an unprecedented level of brightness and light intensity. And with our brand new Galaxy™ feature, dynamic 3D+ effects and 360-degree authentication also become possible. Alongside these visible effects, the cash

cycle between central banks, commercial banks, businesses, and end customers also calls for machine-readable features such as magnetism, electrical conductivity, or elements rendered visible by ultraviolet light.

G+D has always been committed to making the cash cycle more efficient. The logistics in this area are highly complex. Already a pioneer in currency and cash management back in 1970, we now provide integrated solutions that combine systems, software, and services. Our portfolio ranges from compact desktop machines, which are used by retailers and commercial banks to count, check, and sort banknotes, to entire cash center solutions for central banks, security transport companies, and casinos. Our BPS® X9 flagship product is able to process up to 44 banknotes per second – so well over a million banknotes per day. State-of-the-art

80percent of all transactions worldwide made in cash



5percentannual global growth of cash in circulation

Did you know ...

... that products also have an identity that requires protection? Falsifying that identity can be dangerous or create serious problems. In the German engineering sector, for example, counterfeit components and spare parts not only cause around EUR 8 billion worth of damage every year, they also put the security of facilities at risk. For that reason, G+D embeds micro- controllers in machines to verify their authenticity prior to start-up. Other products, such as medicines, carry our counterfeit-resistant identifying features to prove they are authentic.

cash management also demands highly secure automation: central banks, major commercial banks, and casino chains are increasingly connecting their premises, servers, and machines via the Internet as part of the move towards Industry 4.0. They are also producing, analyzing, and storing ever-larger amounts of business-related big data. Accordingly, tampering, espionage, and corporate crime all present new and significant security risks for the industry. With its numerous solutions for safeguarding Industry 4.0 processes, G+D is making a substantial contribution to cash cycle reliability and helping to ensure these huge data volumes are used appropriately. With the aid of data analytics, for example, we can ensure banks fill their ATMs efficiently, in line with customer needs.

Protecting identities with ID documents

As with cash, security is also a top priority when it comes to cards and ID documents. Alongside its wide range of payment cards, Giesecke+Devrient also provides loyalty, customer, fuel, and public transportation cards. With our ID cards, electronic driver’s licenses, tachograph cards, visas, residence permits, passports, and healthcare cards, we are likewise a technology leader with a strong market position. We produce around 40 percent of all healthcare cards in Germany, for example. These cards are designed to enable secure and efficient telematics (e-health), facilitating the exchange of data between physicians, hospitals, and health insurers for the benefit of patients. Ever-closer convergence in the cards sector is also delivering greater convenience for consumers. In Singapore, for instance, commuters can load credit onto their monthly public transportation card – supplied by G+D. Meanwhile, in Kosovo, one of our most advanced chip- based ID cards anywhere in the world enables citizens to perform a number of activities online, including dealing with public agencies, carrying out bank transactions, and shopping.

Cards, ID documents, and passports are of fundamental importance when it comes to identity control. Again, G+D covers the entire value chain here, from selecting

the material through security printing – including anti-counterfeit features – to verification systems, such as at airports. Our international secure identification business has been merged with Bundes-druckerei activities in joint venture Veridos www.veridos.com. For many people, cross-

border identity checks are an essential part of increased security, not least due to the ever-present terrorist threat and rising international crime. At the same time, leisure and business travelers alike expect fast and convenient entry and exit procedures without long wait times. This presents a major challenge, especially given that the number of international airline passengers grew from three to four billion between 2012 and 2017 alone. We are meeting this challenge with our electronic passports, which contain biometric chips, and with highly automated border control systems. The latest state-of-the-art technology is incorporated into our e-gates – automated border control gates that accelerate processing for the majority of passengers, leaving border police free to deal with travelers requiring additional checks. This can be joined up with other components, such as entry/exit systems (EES). An EES is currently being developed by the Federal Republic of Germany with the aid of G+D to boost protection of the EU’s external Schengen borders.

13

Did you know ...

... that tiny mirrors are concealed in your banknotes? A banknote contains nano-particles in the form of microscopic mirrors. When the note is tilted, these create the optical color effects that make it easy to check if your money is genuine.

Security is clearly required whenever people pay, communicate, travel, or otherwise inter- act. But it is also becoming increasingly important for direct connections between machines. Today, billions of intelligent devices already network with each other in factories, companies, power plants, universities, offices, hospitals, medical practices, cars, airplanes, and private households. Since these devices are linked via the Internet, this phenomenon is referred to as the Inter- net of Things (IoT). It is predicted that around 28 billion smart devices around the world will be connected via the Internet of Things by 2021. As the potential for cyber threats such as data misuse, hacker attacks, sabotage, and industrial espionage increases accord-ingly, the cyber security market is expected to see exponential growth. G+D makes IoT data, identities, and communication channels more secure in a range of ways and is actively involved in shaping this emerging market. We also provide customers with support for digital transformation and help them to implement new digital business models successfully.

Where devices, machines, and technical equipment communicate with each other without constant management and monitoring by humans, it is vital for these processes to be

tamper-proof. The core technology here is the embedded SIM card (eSIM) and its management. G+D is at the forefront of the global market for eSIM management, with the largest share of commercial imple- men tations and partnerships. The eSIM is the virtual identity of a device or machine – be it a fitness tracker, smartphone, car, or power-station turbine. It acts as a kind of high-security microcomputer, storing heavily encrypted, security-related data. Using solutions developed by G+D, device manufacturers, mobile network operators, and service providers can manage eSIMs throughout their entire lifecycle – from com- missioning through contract and price adjustments, changes of ownership, and maintenance all the way to decommissioning. They can also change access rights, bill costs transparently, and deliver new functions.

One of the most important early adopters of eSIM management has been the automotive industry. Estimates suggest that by 2020, nearly two thirds of all new cars supplied will be able to connect to the Internet. Connected cars offer people a host of advantages. A smartphone can be used to find, unlock, and control the car – activating the vehicle’s seat heating system while the driver is still sitting at the breakfast table, for example. If required, the in-car display can show restaurants, free charging points for electric cars, and alternative routes for avoiding congestion. Passengers enjoy full Internet access during their trip and can watch movies or deal with e-mails.

Securing connections between machines



Your requirement

You want to travel to other countries without long waits at passport control. At the same time, maximum security has to be guaranteed.

Our solution

G+D already offers automated border control systems based on electronic ID documents and passports. These are auto- matically read and checked by e-gates, allowing the police, customs officials, and security services to direct passenger flows appropriately. More and more countries plan to install these systems in the coming years.

165yearsof trusted security expertise from Giesecke+Devrient

15

Did you know ...

... that you can organize your everyday life securely and conveniently with fewer mobile devices? G+D technology turns your devices into talented multitaskers: Your cell phone can also work as an electronic key for your home or office. The integrated payment card function in your fitness tracker lets you buy a snack after your run with no need to carry a wallet. And thanks to your tablet’s fingerprint sensor, you can also check your bank account securely from the park bench during your lunch break. We even help ease multiple-password confusion: users can access several web applications with just one identity and a single password through our smart authentication solutions.

2020

2out of threenew vehicles are connected cars

In European Union countries, it will also be compulsory for new vehicles to be connected to the eCall emergency call system via an integrated SIM card from 2018. Other useful features include remote maintenance, car sharing, flexible insurance rates, and usage- based billing, for instance for taxi fleets. G+D makes connected cars secure, particularly when it comes to protecting vehicle data and electrical systems. With over 15 years’ experience in meeting complex security requirements for series-production vehicles, our secunet www.secunet.com subsidiary offers a public key infrastructure (PKI) solution that is successfully deployed by manufac-turers and suppliers to provide cryptographic keys and certificates for their vehicles and control units. G+D has also teamed up with IBM to develop a sophisticated security solution to defend the numerous electronic control units, in-vehicle bus systems, and wireless connections to the outside world from hacker attacks. Many vehicle manu-facturers already rely on us, making G+D the market leader in automotive security and the ongoing digitalization of vehicles.

Protecting companies and infrastructures

Interconnection extends far beyond people and their smartphones, cars, and household appliances, however. Today, entire companies, factories, hospitals, government agencies, federations, and infrastructures such as power grids are digitally intertwined – both within their own networks and also via web- and cloud-based solutions. This brings speed, efficiency, and cost advantages. At the same time, though, it entails huge security challenges, which are often still seriously under- estimated. One thing is clear: we cannot use yesterday’s security measures to guarantee our cyber security today – and still less tomorrow. G+D offers a broad and technically advanced portfolio of products that protect the digitally connected economy and society. Our solutions manage identities and access rights, coordinate entry to buildings and IT systems, protect against unauthorized access, enhance the security of data transmission and storage, and deliver secure encryption up to the very highest level, such as NATO SECRET. We also carry out threat and vulnerability assessments for customers to help protect

against threats such as hacker attacks, as well as providing tailored advice on making cyber security an integral part of corporate policy. The security partnership between our secunet subsidiary and the German State, established in 2004, bears testimony to the high level of trust placed in our expertise.



Your requirement

You want to benefit from the Internet’s speed and convenience in your work and private life – anytime, anywhere, and from any device. Equally, your data and transactions must be protected against snooping, tampering, and other criminal activity.

Our solution

G+D makes the interconnected mobile world more depend-able. We build a secure data repository into your smart-phone, keep data thieves out of your Internet-enabled car, and protect the power grid from hacker blackouts. Just a few examples of how G+D acts as your trusted partner to safeguard assets, transactions, data, and identities day by day.

250millionInternet-enabled cars on the road worldwide by 2020

17

Giesecke+Devrient (G+D) has been participating in the UN Global Compact, the world’s biggest and most important initiative for responsible corporate governance, since 2010. G+D is fully committed to its principles on human rights, labor standards, environmental protection, and fighting corruption. We take responsibility for the social impact of our business activities and are mindful of the requirements around achieving sustainable operations across our supply chain. Our sixth progress report documents the measures we put in place to ensure responsible corporate governance during the 2016 fiscal year.

Our Responsibility

73out of 100 pointsEcoVadis Gold Standard for Giesecke+Devrient

The ten principles of the UN Global Compact www.unglobalcompact.org and our commit-

ment to responsible corporate governance together provide the framework for our corporate social responsibility (CSR) strategy. We focus on three key action areas here: a future-oriented HR policy, resource-efficient and safe site operation, and fair and safe business practices. In our new corporate structure, we continue to pursue our sustainability activities across the Group. At the same time, the subgroup parent companies can

set their own priorities, enabling them to respond in the best way possible to specific customer requirements. In addition, we are planning a review of our materiality matrix for the holding company and the subgroups in 2017.

We demonstrate our sustainability standards not only in our annual progress report, but also through our participation in the EcoVadis global online initiative. www.ecovadis.org

EcoVadis operates the world’s biggest platform specializing in supplier CSR ratings for global supply chains. We subject ourselves to an extensive sustainability assessment of our corporate governance activities as part of this initiative. In November 2016, we again received a Gold Standard rating after the annual evaluation, scoring 73 out of 100 points. G+D thus belongs to the top tier of businesses assessed by EcoVadis. Indi- cators collected across the Group provide the foundation for the documentation submitted. These indicators help us manage our sustainability activities, monitor targets, and identify areas where there is room for improvement.


Our Responsibility

Responsibility

To Employees

Being a leader in all our markets is central to our strategic agenda. Innovation and quality assurance are thus among our most important endeavors. Today and in the future, we need qualified and motivated employees around the globe.

Our declared aim is therefore clear:

G+D provides an environment that motivates its employees to achieve their best and enables them to grow professionally and personally within the organization.

G+D also promotes diversity and believes it is beneficial and enriching to the company. The same applies to the health of our employees. Specifically, this means developing existing employees and at the same time attracting well-qualified young talent and management staff. We seek to achieve this through strategic succession planning measures, HR policy tailored to different life stages, and new, modern ways of working in response to increasing digitization of the workplace that simultaneously recognize the needs of our employees.

Ongoing Qualification and Training

Our employees have access to a wide-ranging training program and can pursue their career through individual development plans, which cover specialist skills, project leadership, and management positions. At the management level, we focus on strategic succession planning by way of appropriate HR instruments. In addition, we aim to upskill our employees so they are even better equipped for the challenges of a digitized workplace. This involves targeted training and ongoing pro-

fessional development. We reach out to the skilled employees of tomorrow at an early stage, via recruitment fairs, for example, or through Germany’s nationwide “Girls’ Day,” www.girls-day.de which seeks to interest girls

in technology-based career options. “Girls’ Day” is the biggest career guidance project for female high school students worldwide. We attract new talent and job market en- trants via professional training opportunities, dual and master’s study programs – predominantly in technical subjects – an 18-month international trainee program, and direct entry into the workforce.

Our global talent management program identifies and develops employees who demonstrate the potential to take on bigger projects and greater management respon-sibility. In addition to the centrally managed Top Talent program, there are also dedicated talent pools for the EMEA (Europe, the Middle East, and Africa), Asia-Pacific, and North / South America regions. The benefits of this system include the ability to train our own talented young employees and take account of cultural factors in career planning, especially in the international markets that are becoming increasingly important for G+D.

A new round of the global Top Talent program was launched in 2016, with eight employees from six countries being selected; it finishes in April 2017. G+D also remains committed to targeted promotion of suitable candidates in 2017.

Development for Different Life Stages

In view of the challenges arising from demographic change, we have a particular responsibility to support our people in maintaining their health, motivation, and performance levels. Our response here takes the form of staff development tailored to different life stages, which enables an individual and appropriate work / life balance. This includes occupational health measures, management awareness training, the intergenerational transfer of expertise, and reintegration support after extended periods of sick leave. In 2016, specialist staff received dedicated training to help professionalize the necessary transfer of expertise to a new generation of employees. In addition, we carried out a pilot project at the Munich site on psychological risks in the workplace. The aim is to identify

19

and assess work-related psychological stress, with measures then being developed in dialog with staff and management to improve conditions. The 2016 “berufundfamilie” www.beruf-und-familie.de re-audit (carried

out at the highest audit level) confirmed that an HR policy geared towards different life stages is embedded in the corporate structure at G+D. “berufundfamilie” is a strategic management instrument used by businesses and institutions to align their HR policy with family needs and life stages.

Diversity as a Competitive Advantage

Alongside offering good career development and progression opportunities, we aim to recognize and promote the diversity of our

staff. Leveraging the diversity of our people and actively countering discrimination are essential to our long-term success in extremely fast-moving markets. G+D therefore regards a diverse workforce as a significant competitive advantage. As a signatory to the German government’s Diversity Charter www.charta-der-vielfalt.de, which is designed

to promote respect and combat prejudice, we embrace these principles in training sessions, workshops, and in the workplace.

Our three-pronged diversity management concept goes even further, aiming to create conditions in which our employees can perform to the very best of their ability regardless of gender, age, or cultural origin. Diversity was also applied as a basic criterion during the selection of trainees and top talents.

Women in Management Roles

Equal opportunities for women and having a higher proportion of women in manage-ment and key positions are important goals for G+D as we seek to achieve greater diversity throughout the company. By mid-2017, we want 10 percent of managers in the top tier below the Management Board at G+D Germany to be women. Our target for the second management tier is 20 percent. This also reflects the requirement under German law to define a female quota for manage-ment roles. A third of our Supervisory Board is already made up of women. We aim to increase the proportion of women at the executive and global management level to 15 percent worldwide.

We will seek to achieve these objectives by filling vacant posts with suitable female candidates and providing targeted professio nal support for women within the organization. We take all aspects of management ability into consideration when selecting candidates and while recruiting staff in general.

Half of our global Top Talent program in 2016 was comprised of women. The participants in our current trainee program are exclusively women.

G+D shares insights with other companies on the genderdax platform www.genderdax.de, an initiative supported by the German government. This platform focuses on gender and diversity issues, which are addressed in detail at conferences and workshops. Partici- pants in the initiative are drawn from both industry and academia.

A good work / life balance and a family- friendly corporate culture and management style are also key drivers of employee health and satisfaction. We provide a range of options, from mobile working and telecom-muting to in-house childcare facilities and assistance for employees with relatives need- ing care. We also offer flexible working time models and job sharing. Almost 10 percent of the jobs at G+D in Germany are now part- time positions.

Responsible Management

In times of major change, our managers face complex challenges every day. We support them in developing their leadership potential, thereby enabling them to give employees appropriate guidance and set an example. Our leadership initiative has established a Group-wide management philosophy that

6.5percentwomen in executive management, top tier below Management Board 16.7

percentwomen in the global management team, second management tier

2016

Female Staff Worldwide


Our Responsibility

promotes a sense of identity, while leverag-ing employees’ specific strengths, and a value-based leadership culture. Building on the first training session, a series of work-shops entitled “Leading the Way to Success” and associated feedback workshops were launched in 2016. In addition, training was offered around boosting management skills in change processes.

Meeting Standards

As a global company, we have also made a commitment to uphold fundamental labor standards based on the principles of the International Labor Organization (ILO). These are: freedom of association, non-use of forced or child labor, equal opportunities for all employees, and a safe working environ-ment. All major production locations have been certified according to the international OHSAS 18001 health and safety standard since mid-2015.

Responsibility

To the Environment

Responsible use of resources and protection of our climate and environment are core elements of G+D’s CSR policy. Our long-term aims are to ensure that our entire supply chain is sustainable and to continue reducing our ecological footprint. All our major production sites have an ISO 14001 environmental management system in place. The three Currency Technology production facilities in Louisenthal, Königstein, and Leipzig have also introduced an energy management system and are ISO 50001 certified. As part of the company’s new structure, we are moving from the previous certifications at the Group level and working to develop independent management systems for the subgroup companies and the holding company. In the

future, every company will thus be respon-sible for practical implementation of its own activities and objectives.

We will switch to the revised ISO 14001:2015 standard as part of the recertification audit in 2018.

Our aim is to ensure that standards are met across the Group while also taking account of the specific requirements of the subgroup companies and identifying more ways of mini- mizing the environmental impact of our operations. We measure our activities against centrally defined sustainability indicators, which we capture at the 22 largest production sites. These indicators are based on the internationally recognized Global Reporting Initiative (GRI) www.globalreporting.org and will be gradually expanded. Via a partici- patory process, the GRI develops guidelines for the creation of sustainability reports by major corporations, SMEs, governments, and NGOs.

Transparent Greenhouse Gas Reporting

Our climate protection activities are under- pinned by a comprehensive emissions control policy. We report our greenhouse gas emissions in line with the Greenhouse Gas Protocol. This is the most widely used international calculation method for greenhouse gas emissions. As the world’s most extensive climate protection ranking, the Carbon Disclosure Proj- ect (CDP) www.cdp.net again confirmed our high level of transparency in 2016. We intend to continue reducing our energy consump-tion at our sites through the deployment of innovative technology. The Louisenthal paper mill www.louisenthal.com, for instance, uses renewable energy obtained from a dedicated hydropower system for the production of banknote paper. In the course of upgrading our headquarters in Munich, the entire site will be equipped with LED lighting by 2018. Floor lamps will be fitted with daylight sensors and movement sensors. These changes should cut the amount of power used for lighting by more than 65 percent.

We want to motivate our staff to actively contribute to reducing G+D’s ecological footprint. We support this involvement with regular online training and a range of activities aimed at raising awareness, such as awarding prizes for outstanding sustainability measures initiated by employees. In 2016, the Louisenthal paper mill received the G+D Award in the “Best Sustainability Measure” category for the phased establish-ment of a heat recycling network at the site.

0.81injury rateper hundred employees in 2015

0.80injury rateper hundred employees in 2016

Number of Employees Involved in a Recordable Injury

21

Waste heat from the production process is recycled and used for building climate control.

Conserving resources is a crucial factor in the operation of our sites, and sustainability is also a priority when it comes to our products. Examples include banknote paper that is typically manufactured from cotton comber noil – a by-product of the textile industry that can also be derived from organically grown cotton if the customer prefers. For cashless payments, G+D can supply card bodies made of renewable materials. We can also provide SIM cards in various form factors that use less material, as well as offering more environmentally friendly alternatives to the standard materials used. After production, the lifecycle of a SIM can be extended by means of over-the-air updates to prolong its technical service life.

Last year, we amended our absolute goal for reducing CO2 emissions between the base year, 2010, and 2016 to minus 5 percent. In actual fact, by 2016 we succeeded in reducing direct greenhouse gas emissions from our own facilities and indirect emissions from purchased energy by 9 percent (energy requirement / sales). In 2017, we will adapt our climate protection strategy to the new corporate structure and establish the reduction goal for the years ahead.

Responsibility

To Customers and Suppliers

G+D has an effective, well-functioning compliance management system (CMS) in place for combating risks including antitrust viola- tions, bribery, and corruption. This was certified by an initial external audit carried out by the Banknote Ethics Initiative (BnEI) www.bnei.com in 2014, and confirmed again

in 2016. In addition, our CMS was assessed in line with Assurance Standard IDW PS 980 and is currently being adapted to the future corporate structure.

Our declaration of compliance principles con- solidates all of the Group’s guidelines and regulations and gives our employees and business partners an overview of the specific measures we take to ensure compliance with internal rules and legal requirements. We use prevention and staff awareness strategies to actively avoid compliance breaches occurring

in the first place. Employees take part in extensive e-learning programs on compliance- related topics. The participation rate is almost 100 percent across the Group.

International standards and legal require-ments also oblige G+D to check the integrity of its business partners, both before com- mencing a new business relationship and also at regular intervals during an existing partnership. Our business partners are required to undergo an extensive evaluation process and expressly commit to following proper business and information practices.

Supply Chain Sustainability

We apply the same high standards to our suppliers as we do to ourselves. Suppliers undergo a selection process that covers a range of criteria, including quality, environmental, and workplace safety standards at production sites, plus compliance and CSR aspects. We check that suppliers are complying with our requirements by carrying out regular audits, which also include CSR issues.

Many of our security technology products contain metals that are extracted from ore. The mining of these materials repeatedly raises human rights issues. Accordingly, we have introduced systematic reporting to ensure responsible sourcing of these minerals. The contents of materials supplied, such as those used in the production of SIM cards, are recorded and checked by means of a standardized process at G+D, thus creating the transparency required within our own supply chain. Our procedure complies with the requirements of the Dodd-Frank Act, a US federal law that includes provisions to regulate cooperation with raw materials companies in developing countries. In addition, in 2017 we will be preparing a G+D statement on addressing human trafficking and forced labor in our supply chain. This declaration will meet the requirements of the UK’s Modern Slavery Act, which stipulates that organizations must draw up an annual statement on slavery and human trafficking.

64.6metric tonsof CO2 per million euros of sales in 2016

68.0metric tonsof CO2 per million euros of sales in 2015

Direct CO2 Emissions and Emissions from Purchased Energy (Scope 1 and 2)


Our Responsibility

Transparent greenhouse gas reporting:

Our long-term aim is to continue reducing our ecological footprint.

Responsibility

To Society

The not-for-profit Giesecke & Devrient Foun- dation www.gi-de-stiftung.org is the vehicle for our corporate citizenship activities. Established in 2010, the Foundation supports projects devoted to education, culture, and intercultural exchange. Particular focuses include an international program that invites young people from all over the world to Germany, organized in association with the Goethe Institute. This program aims to promote intercultural skills and peaceful coexist- ence for the next generation. It was expanded in 2016 to include an alumni program. The Foundation also supports the Museum of the Printing Arts www.druckkunst-museum.de

in Leipzig, the city in which G+D was founded. Finally, our employees have the opportunity to take part in a volunteering program and get involved in projects selected by the Foundation.

23

G+D’s CSR Program


G+D’s CSR Program

Focus /Activity Progress / Outlook Status / Goal GC Principles1

CSRS

Materiality analysis

Focus on following action areas, based on online survey of selected internal and external stakeholders in 2014: resource-efficient and safe site operation; future-oriented HR policy; fair and safe business practices

Three key CSR action areas; review with regard to holding company and subgroup companies scheduled for 2017

Employee Awareness

G+D Award with “Best Sustainability Measure” category

Group-wide prize for innovation, technology, and sustainability measures; 2016 “Best Sustainability Measure” awarded for establishment of a heat recycling network at the Louisenthal site (production of banknote paper and foils), use of waste heat from production process for building climate control

12 / 2016; annual

7, 8, 9

Reporting

UN Global Compact progress report

Sixth report as per UN Global Compact requirements, covering progress in 2016; combined with G+D annual report

Ongoing

Participation in EcoVadis CSR assessment platform

Gold Standard rating in the annual evaluation (11 / 2016) of G+D’s activities and supporting documentation relating to the environment, working conditions, human rights, fair business practices, and a sustainable supply chain (improvement to 73 out of 100 possible points)

Ongoing, annual rating

Action Area: Employees Future-oriented HR policy

Diversity management Phased expansion of selected activities relating to age, gender, and cultural diversity

1, 2, 6

Internal Diversity Day as part of Diversity Charter program. Theme: Megatrends in the Workplace – Diversity is a Must.

09 / 2016 1, 2, 6

Measures relating to demographic change

Internal series of events on recruiting and retaining young talent, specialist staff, and managers for G+D

Ongoing 1, 6

Introduction of dual master’s study program Ongoing 1, 6

Training for specialist staff in transferring expertise to improve knowledge management

Ongoing 1, 6

Measures relating to gender / equal opportunities for women

Female quota defined for G+D Germany: 10% of managers in top tier below Management Board; 20% in second management tier

Mid-2017

1, 2, 6

Participation in events held by social research institute ISF Munich addressing “Women in the digital workplace of the future – scenarios for research and development”; mentoring program for female staff; career counseling for women under 30; continuation of gender-sensitive approach to assessing potential in talent management and recruiting

Ongoing

1, 2, 6

25


Measures relating to cultural diversity

Signatory of Diversity Charter (German business initiative to promote diversity in companies and institutions); integration of Charter content into training

Ongoing

1, 2, 6

Online training in virtual soft skills and virtual leadership – optimization of virtual global cooperation in mixed teams

Ongoing 1, 6

Global talent management Internal program for systematic identification and development of high-potential employees

01 / 2016: new round of global Top Talent program

1, 2, 6

Group Graduate Program International Group Graduate Program for five trainees 11 / 2016 to 05 / 2018 1, 2, 6

Leadership initiative

Series of training sessions and workshops for all managers in Germany to establish a Group-wide management philosophy and value-based leadership culture

Ongoing

1, 2, 6

Encouraging a healthy work /life / caregiving balance

Fifth “berufundfamilie” re-audit in accordance with follow-up procedure (highest audit level), with inclusion of the Leipzig printing site in the audit; confirmation that the operational measures adopted or updated are embedded in HR policy and are being rolled out in Leipzig

Certificate confirmed on October 31, 2016

6

Health management and promotion

GmbH: expansion of workplace medical services and occupational health scheme; extension of risk assessment to include psychological stress involving a pilot project with around 280 employees in Q4 2016, ergonomics advisers, continuing education program: ergonomics, back exercises, non-smokers (2016), inclusion of health management as an objective in the framework for the “berufundfamilie” audit

Certification of all major sites to OHSAS 18001; re-audit of the berufundfamilie certificate in October 2016

6

Reintegration management program

GmbH: program for reintegration management (after sick leave) in accordance with legal regulations; establishment of relevant process. Objective: development of preventative healthcare measures; training of reintegration team as Certified Disability Management Professionals (CDMP)

Ongoing since 2014

Workplace 2020

Modernization of office / working environment and consolidation of all satellite sites at the main Munich location. Further increase workplace flexibility, expand team structures, and embed this approach more strongly in corporate culture. Taking account of psychological stress when planning office space. Consider other ways of boosting employer attractiveness as part of Workplace 2020.

Ongoing from 2016

Action Area: Environment Resource-efficient and safe site operation

Sustainability management system for planning and implementing sustainability measures

Central standards combined with decentralized responsibility: practical implementation of activities and objectives to be handled by the subgroups, founded on centrally defined sustainability indicators in line with GRI standard (energy, CO2 emissions, water, effluents, waste, workplace accidents, work days lost, etc.); information gathered across Group using SoFi software tool

Centralized management of standards; implementation will be the responsibility of the subgroups in the future

7, 9

Group-wide certification to ISO 14001 and OHSAS 18001

Group-wide certified environmental and health and safety management system at all relevant production sites

Management systems to be decentralized: certification in subgroups and self-certification of holding company

7, 8, 9

ISO 50001 certification

Certified energy management system for paper mills in Louisenthal and Königstein and at the Leipzig printing site

Ongoing

7, 8, 9



Corporate carbon footprint (CCF)

Generate CCF 2016 for relevant production locations (Q2 2017). Greenhouse gas emissions reported in line with Greenhouse Gas Protocol. Reduction in emissions by 9% (between 2010 and 2016), thus meeting the revised reduction goal of 5% (energy requirement / sales) Product carbon footprint: product-related CO2 footprint for cards manufactured at four different sites

Annual; in 2017, adapt climate protection strategy to new corporate structure

7, 8

Conserving resources in production and site operation (selected examples)

Louisenthal (Germany) paper mill / banknote paper production: phased development of heat recycling network, using waste heat from the production process for building climate control, own hydroelectric system generates 11% of site’s electricity from hydropower Munich: taking sustainability into account during extensive upgrading work (e.g. switching to LED lighting; energy saving: approx. 68%) Dulles, Virginia (US): patenting of cell phone holder made of waste from the production of SIM card bodies

Ongoing

9

EU Energy Efficiency Directive

Implementation at all European locations and performance of energy audits at sites without ISO 50001 certification; Mobile Security sites: five energy audits completed in 2016

Ongoing

Environmentally friendly products

Development / supply of environmentally friendly products, e.g. card bodies made of renewable materials; SIM cards in various form factors that use less material; banknote paper using cotton comber noil as raw material, occurring as textile industry by-product – derived from organically grown cotton on customer request

Ongoing

9

Dialog with stakeholders on environment and climate protection / initiatives

Participation in various climate protection schemes, such as Carbon Disclosure Project (CDP), and other initiatives, e.g. member of the German Global Compact Network’s Peer Learning Group in conjunction with WWF/CDP; climate reporting partner of Deutsche Telekom; joined Munich climate pact in 2016; energy efficiency networks initiative; two trainees attended “energy scout” course offered by Chamber of Trade and Commerce

Ongoing

8

Informing employees and raising awareness

E-learning on occupational health and safety / fire safety for Munich site, easy-teach sustainability film; participation in Germany-wide Sustainability Action Days in 2016

2017: e-learning on environment and health and safety; internal Sustainability Action Days planned

10

Action Area: Compliance/anti-corruption Fair and safe business practices

Group-wide Code of Conduct

Code of Conduct for all employees and business partners; incorporates UN Global Compact, ILO core employment standards, UN Declaration of Human Rights, OHSAS 18001; compliance monitored by Corporate Auditing

Ongoing

1 – 10

Declaration of compliance principles

Consolidation of all existing guidelines and internal regulations for employees and business partners

Ongoing 1 – 10

Employee awareness /preventive measures

International roll-out of compliance training as refresher for all staff; focusing on conflicts of interest and gifts and invitations, plus antitrust law for all managers and selected employees; Preventive measures: regular information sharing with local compliance officers at subsidiaries and on-site compliance monitoring.

Ongoing

10

G+D’s CSR Program

27


Statement on the Modern Slavery Act

Statement on how G+D addresses human trafficking and forced labor in the supply chain in accordance with the requirements of this British law

To be prepared in 2017

1 – 6, 10

Review of compliance management system (CMS)

Further development of Group-wide risk assessment procedure to ensure risk-based activity monitoring

CMS audit scheduled for mid-2017

1 – 10

Banknote Ethics Initiative (BnEI)

G+D a founding member; accredited full member since November 2014 following audit by independent auditor; verified again in letter of confirmation in 2016

Ongoing

1 – 10

Business partner evaluation

Group-wide guideline on selecting and evaluating business partners; high level of compliance confirmed in CMS audit in line with Assurance Standard 980 of the German Institute of Public Auditors

Ongoing

1 – 6, 10

Sustainable Supply Chain

Supplier assessment via business partner evaluation

Results of G+D compliance management system audit in line with Assurance Standard 980 of the German Institute of Public Auditors show the majority of suppliers have been assessed as part of Group-wide business partner evaluation

Ongoing

1 – 10

Bill of material (BOM) check for G+D suppliers

Expansion of product environmental management system BOMcheck (online database) to record and check contents of materials supplied, including conflict minerals in accordance with Dodd-Frank Act; online training for relevant employees worldwide

Ongoing

1 – 10

Corporate Citizenship

Giesecke & Devrient Foundation

Particular focuses include Museum of the Printing Arts in Leipzig, an international development program for young people from Africa in partnership with the Goethe Institute, initiation of an alumni program, various other projects

Ongoing

Corporate volunteering program

Volunteering program (launched in 2012) involving social projects, such as excursions with refugees, construction work; participation in My Finance Coach project designed to teach schoolchildren how to manage money responsibly

Ongoing

1 See table “10 Principles of the UN Global Compact”

10 Principles of the UN Global Compact

Principle 01 Businesses should support and respect the protection of internationally proclaimed human rights.

Principle 02 Businesses should make sure that they are not complicit in human rights abuses.

Principle 03 Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining.

Principle 04 Businesses should uphold the elimination of all forms of forced and compulsory labor.

Principle 05 Businesses should uphold the effective abolition of child labor.

Principle 06 Businesses should uphold the elimination of discrimination in respect of employment and occupation.

Principle 07 Businesses should support a precautionary approach to environmental challenges.

Principle 08 Businesses should undertake initiatives to promote greater environmental responsibility.

Principle 09 Businesses should encourage the development and diffusion of environmentally friendly technologies.

Principle 10 Businesses should work against corruption in all its forms, including extortion and bribery.

Group Management Reportas of December 31, 2016

29 Group Profile30 Business Performance37 Opportunities and Risk Report, Including Risk Reporting on the Use of Financial Instruments43 Forecast

Giesecke+ DevrientAnnual Report 201628

1. Group Profile

Giesecke+Devrient (G+D) is a family-owned company with global operations, providing solutions to ensure reliable transactions and safeguard the authenticity of identities and values across four areas of business. G+D is an international leader in banknote production and processing (Banknote business unit). The company further offers end-to-end mobile security solutions – comprising hardware, software, and services – to banks, network operators, public transportation providers, and increasingly also other companies, with networked products and services in the fields of telecommunications and electronic payment as a particular specialty (Mobile Security business unit). Veridos, a joint venture between G+D and Bundes-druckerei, Berlin, supplies highly secure travel documents, ID systems, and healthcare cards, which can be used for conventional identification purposes as well as for authentication and protection in electronic business processes via the Internet (Veridos business unit). G+D also provides customers with IT security solutions and high-security IT systems (secunet business unit).

Corporate Functions has a steering role and delivers services for the entire Group.

Management Structure 2016

To further boost the success of our products in rapidly developing and growing markets and to allow a swift response to changing market requirements, the operating units will have greater independence and autonomy from 2017 onward. The existing Group structure will be transformed into a holding company with legally independent subgroups. In the future, our banknote activities will be brought together in Giesecke+Devrient Currency Technology GmbH and our mobile security business will be handled by Giesecke+Devrient Mobile Security GmbH. The subsidiaries outside Germany were restructured accordingly in fiscal 2016 and the parent company, G&D GmbH, will adopt the new structure in 2017. In addition to the typical Group management and steering functions, administrative functions will also be retained, making it possible to provide services to the subgroup parent companies and their subsidiaries.

Group Structure from 2017

Information on key aspects of our research and development activity can be found in section 2.1.2.

Banknote Mobile Security Veridos

– Banknote Solutions– Currency Management

Solutions

Corporate Functions

– Financial Institutions – Telecommunication Industries– Enterprise

Security / OEM

Operating Activities

Business Unit

Division

secunet

– Public– Business

Giesecke & Devrient GmbH

Giesecke+DevrientCurrency Technology GmbH

Giesecke+DevrientMobile Security GmbH

Veridos GmbH secunet AG

CT subsidiaries MS subsidiaries Veridos subsidiaries secunet subsidiaries

29

2. Business Performance

Global economic growth was weak in 2016. While many developed economies continued to perform well, momentum was lacking in the emerging markets, with economic conditions deteriorating in many regions. Economic activity in the eurozone was hit by geopolitical tensions, in particular the threat posed by international terrorism. Political changes within Europe, such as the UK’s vote to leave the EU, had no material impact on economic activity in 2016. In the countries of the Middle East and North Africa (MENA), economic performance varied widely due to the limited economic integration of these regions. Although there is huge pent-up demand in potential markets in Libya and Iraq, future economic development in these countries is threatened by political instability.

G+D delivers its products and solutions worldwide. As the markets served by G+D are chiefly growth markets characterized by strong technological innovation, G+D’s business grew at an above-average rate. Contract award practices, particularly in the case of major projects, resulted in tough competition combined with high price sensitivity on the part of customers, exposing G+D to intense cost pressure.

2.1. Group Business Performance

The key financial performance indicators at the Group level are net sales, earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation, and amortization (EBITDA), capital expenditure, average working capital intensity 1, free cash flow, and, as of this fiscal year, return on capital employed (ROCE) 2.

The program launched in 2014 to boost G+D’s competitiveness was successfully concluded in 2016. Production capacity has been aligned with the new market conditions, procurement optimized, and overheads reduced.

2.1.1. Results of Operations

Sales by Business Unit

EUR million 2016 2015 Change

Change (absolute)

Banknote 927.6 919.8 0.8% 7.8

Mobile Security 863.3 863.3 0.0% 0.0

Veridos 183.2 138.0 32.8% 45.2

secunet 114.9 89.8 28.0% 25.1

Total 2,089.0 2,010.9 3.9% 78.1

In fiscal 2016, G+D continued to build on the high sales volume of the previous year. Excluding exchange rate effects, sales grew by around EUR 104 million.

1 Ratio of 12-month average of working capital in reporting year to annual sales; working capital = customer receivables + inventories – liabilities – advances received

2 Ratio of EBIT to average capital employed (year-end value in each case); capital employed = intangible assets + property, plant and equipment + financial investments accounted for under the equity method + inventories + accounts receivable trade – accounts payable trade

Giesecke+ DevrientAnnual Report 201630 Group Management Report

Business Performance

The decline in sales in banknote printing following the closure of a printing line in Munich was offset by additional sales in banknote substrates, plant engineering, and automated systems for the cash cycle. The Mobile Security business unit was able to maintain the high level of sales seen in the previous year. This was achieved through double-digit growth in sales volumes, particularly in India and Indonesia, which partially countered the severe decline in market prices. While EMV migration in the US and the SIM insertion business in Asia remained below the previous year’s levels, sales of software and solutions, products for public transportation systems, and deliveries to public sector clients all increased. The Veridos business unit saw a significant improvement in sales compared with the previous year due to organic growth. The strong upswing in the ID card business was the decisive factor here. A renewed increase in demand for high-quality, reliable cyber security solutions was the major growth driver for secunet.

Consolidated Income Statement (IFRS)


Change (absolute)

Net sales 2,089.0 2,010.9 3.9% 78.1

Gross profit 589.2 537.9 9.5% 51.3

Gross margin (% of sales) 28.2% 26.7% 5.6% 1.5 pp

Selling, R&D, and general administrative expenses (467.0) (427.2) 9.3% (39.8)

Other operating income and expenses, net 1 6.3 3.5 80.0% 2.8

Operating profit (adjusted) 1 128.5 114.2 12.5% 14.3

Financial income / (expenses) (3.3) (12.6) – 73.8% 9.3

EBIT (adjusted) 1 125.2 101.6 23.2% 23.6

EBIT margin (adjusted) (% of sales) 6.0% 5.1% 17.6% 0.9 pp

Expenditure on EPC closure (6.0) 0.0 > 100% (6.0)

EBIT 119.2 101.6 17.3% 17.6

EBIT margin (% of sales) 5.7% 5.1% 11.8% 0.6 pp

Interest income 2.3 2.5 – 8.0% (0.2)

Interest expense (23.1) (24.3) – 4.9% 1.2

Earnings before income taxes (EBT) 98.4 79.8 23.3% 18.6

Income taxes (45.9) (25.3) 81.4% (20.6)

Net income 52.5 54.5 – 3.7% (2.0)

Reconciliation to EBITDA

EBIT (adjusted) 1 125.2 101.6 23.2% 23.6

plus depreciation and amortization 2 107.0 109.6 – 2.4% (2.6)

EBITDA (adjusted) 232.2 211.2 9.9% 21.0

EBITDA 226.2 211.2 7.1% 15.0

1 2016 figures adjusted to exclude expenditure of EUR 6.0 million on EPC closure for improved comparability2 Depreciation and amortization = depreciation and amortization of intangible assets and property, plant and equipment

+ impairment of investments in associated companies

At EUR 125.2 million (adjusted), EBIT exceeded expectations and the prior-year figure. Taking into account positive effects from changes to pension arrangements for German employees and gains from the sale of shares in the Trustonic joint venture in the previous year, operating income increased by EUR 44 million.

The improved gross margin was due to profitable sales growth at Veridos and secunet and to the successful implementation of cost efficiency measures.

At the same time, increasing structural costs had a negative impact on EBIT. Higher sales were accompanied by a 3.7% increase in selling expenses to EUR 206.6 million, while research and development costs rose by 6.5% to EUR 111.5 million. General administrative expenses increased by 20.9% to EUR 148.9 million. The increase compared with the previous year was primarily due to the following factors: The reversal of provisions and changes to pension rules resulted in a one-time gain in 2015, which impacted the income statement in terms of gross profit and also selling, R&D, and general administrative expenses. The introduction of the holding company structure in 2017 resulted in additional consulting costs in the reporting year. There were also special one-time expenses in 2016 owing to the modernization of the Munich site. In addition, organizational changes meant that cost elements from other functional areas were reclassified under general administrative expenses.

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Financial result showed a significant improvement compared with the previous year, at EUR –3.3 million. By switching the hedging strategy from static to dynamic hedging, G+D achieved significant savings in currency hedging costs. The euro exchange rate was also less volatile in the past fiscal year against most foreign currencies, especially the US dollar and the Chinese renminbi. Effects on earnings from currency hedging costs and exchange rate fluctuations were EUR – 4.1 million; in the previous year, the impact on earnings was EUR –12.4 million. While a gain of around EUR 4 million was made in 2015 from the sale of shares in the Trustonic joint venture, income rose by EUR 4.3 million in the reporting year when applying the equity method.

Until the end of the 2016 fiscal year, G+D held a 49% stake in EPC Electronic Payment Cards, Gesellschaft für Kartenmanagement mbH, located in Gmund am Tegernsee. Deutsche Sparkassen Verlag GmbH (DSV) was the lead partner in this joint venture, with a 51% stake. Virtually the business’s sole customer, DSV opted for a multi-supplier strategy in January 2017 and cancelled its existing orders with EPC, thereby rendering EPC unviable. To prevent EPC from becoming insolvent, G+D will take over DSV’s shares and close down business operations. G+D has made a provision of EUR 6.0 million in its financial statements to cover the associated expense.

Net interest income (EUR –20.8 million) includes interest of EUR 12.9 million on pension obligations (previous year: EUR 12.0 million). At EUR 10.2 million, interest expense for financial and other liabilities was below the previous year’s figure of EUR 12.3 million.

Expenses relating to taxes on income amounted to EUR 45.9 million in the reporting year. As in the previous year, this was largely due to special effects relating to deferred taxes, which are linked to the Group- internal sale of the company’s Munich location. While this had a significant positive effect on tax expense in the previous year, substantial deferred tax assets had to be derecognized in the reporting year following a binding statement from the tax authorities. This is the main reason for the substantial increase in tax expense in the reporting year compared with the previous year.

In the year under review, G+D once again achieved significantly positive net income, similar to that recorded in the previous year.

In line with positive EBIT growth, (adjusted) EBITDA rose from EUR 211.2 million in the previous year to EUR 232.2 million in the reporting year. Both earnings figures thus slightly exceeded expectations.

2.1.2. Research and Development

Research and Development

2016 2015 Change

Number of R&D employees FTE 1,181 1,181 0.0%

Percentage of total employees 10.5% 10.4% + 0.1 pp

Spending on R&D EUR million 143.5 136.6 5.1%

of which pure R&D expenditure EUR million 111.5 104.7 6.5%

R&D ratio % of sales 5.3% 5.2% + 0.1 pp

of which capitalizable costs EUR million 9.7 6.7 44.8%

Capitalization ratio 8.7% 6.4% + 2.3 pp

of which cost of goods sold EUR million 22.3 25.2 – 11.5%

Amortization of capitalized development costs EUR million 4.9 5.1 – 3.9%

Number of active patents 7,456 7,188 3.7%

New patent applications 171 165 3.6%

Research and development is crucial to G+D’s ongoing success as an innovative, customer-focused technology company. In the reporting year, total spending on research and development was slightly above the previous year’s level, at EUR 143.5 million. After deducting customer-specific development costs and capitalizable costs, pure R&D expenditure amounted to EUR 111.5 million, exceeding the figure for the previous year.



As a market leader in the Banknote segment, we aim to further expand our market presence. Our innova- tions allow us to offer customers attractive solutions extending beyond the provision of banknote processing machines. G+D is investing in comprehensive software and automation solutions as part of its digital agenda. These help to make our customers’ processes more flexible and efficient. Growth potential arises from the use of big data technologies in our domain, from new solutions resulting from the integration of deployed products (Industry 4.0), and also from the development of new products in response to changes in the banknote verification and sorting market. The design awards we have received for our products in recent years are clear proof of G+D’s ability to deliver projects that combine advanced functionality, cutting-edge industrial design, and attractive product costs.

In the Mobile Security business unit, R&D activities around the world continued to focus on developing products and solutions for telecommunications industries, financial institutions, and the OEM / enterprise sector. Products for consumer and M2M markets were developed in the field of subscription management, secure payment methods for Android-based mobile devices were integrated into the global Visa and Mastercard standards, and customer solutions based on embedded secure elements were introduced. In the SIM and smartcard area, we expanded our existing STARSIM ®, SkySIM ® (CX), and Convego ® product lines to include additional functions and new country- and customer-specific variants. The relocation of development activities to Spain and India as part of our cost-cutting program was successfully completed.

Veridos continues to drive forward the development of ID documents and system solutions. Recent examples include Fuse®ID Vision, a new personalization feature for windows on ID cards. In the software and operating systems field, connectivity of the Java platform has been enhanced through integration of the applet suite with the relevant certifications. In system solutions, the IMAGO platform was further developed to enable configuration with different databases and the integration of additional devices. Digitalization is also being expanded and advanced. A system for personalizing and checking visible digital seals has been developed, which will enhance the security of documents such as birth certificates.

Research and development activity at secunet is almost exclusively carried out on behalf of customers. Innovative efforts at secunet are focused on three strategic areas: promoting a culture of innovation; cooperating and partnering with customers, universities, and industry associations; and concentrating expertise via product managers who support development projects from the innovation management stage right through to creation of market-ready products.

The changes in the number of active patents and new patent applications are within the industry’s normal range of fluctuation.

2.1.3. Capital Expenditure

Capital Expenditure and Depreciation / Amortization


Change (absolute)

Group sales 2,089.0 2,010.9 3.9% 78.1

Capital expenditure 101.7 82.7 23.0% 19.0

Depreciation / amortization 105.5 104.8 0.7% 0.7

Investment ratio (% of fixed assets 1) 15.6% 13.3% + 2.3 pp

1 Fixed assets = property, plant and equipment + intangible assets

Compared with the previous year, investment increased significantly to EUR 101.7 million. Of this total, EUR 17.0 million was invested in intangible assets. In the Banknote and Mobile Security business units, investment activity predominantly focused on optimizing and upgrading production facilities, expanding the global network of personalization centers, and creating a worldwide ID service platform. Invest- ment in property, plant and equipment (including advance payments) stood at EUR 84.7 million overall. The investment ratio as a percentage of fixed assets was 15.6% across the Group and thus significantly above the previous year’s level of 13.3%. Overall, investment remained below the planned level for 2016.

There are no significant investment commitments for 2017.

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2.1.4. Assets and Liabilities

Balance Sheet Summary (IFRS)

EUR million

2016 2015

2016 % of

total assetsChange

(absolute)

Assets 2,109.9 2,111.5 (1.6)

Current assets 1,240.2 1,278.6 58.8% (38.4)

of which inventories 394.4 424.7 18.7% (30.3)

of which current receivables 460.6 411.3 21.8% 49.3

of which cash and cash equivalents 243.6 293.2 11.5% (49.6)

Non-current assets 869.7 832.9 41.2% 36.8

of which property, plant and equipment 495.9 486.2 23.5% 9.7

of which intangible assets 158.0 138.2 7.5% 19.8

of which other non-current assets 215.8 208.5 10.2% 7.3

Liabilities and Equity 2,109.9 2,111.5 (1.6)

Current liabilities 831.8 836.0 39.4% (4.2)

of which current financial liabilities 127.0 101.6 6.0% 25.4

of which current lease liabilities 2.6 2.4 0.1% 0.2

of which provisions 121.0 150.9 5.7% (29.9)

of which trade payables 419.8 424.0 19.9% (4.2)

Non-current liabilities 869.8 875.8 41.2% (6.0)

of which non-current financial liabilities 203.1 250.0 9.6% (46.9)

of which non-current lease liabilities 3.3 5.7 0.2% (2.4)

of which pensions and similar liabilities 586.8 514.1 27.8% 72.7

Equity 408.3 399.7 19.4% 8.6

Current assets decreased by EUR 38.4 million. Inventories were reduced slightly in the reporting year (EUR –30.3 million), while current receivables increased (EUR + 49.3 million). Cash and cash equivalents decreased by EUR 49.6 million to EUR 243.6 million, in particular due to scheduled repayments of financial debt and payments relating to restructuring measures. A detailed analysis is provided in section 2.1.5.

Non-current assets increased by EUR 36.8 million as of December 31, 2016. This was mainly due to first-time full consolidation of CI Tech Components AG. As part of restructuring the joint venture, G+D took over the majority of the shares in this module business as of April 1, 2016. In addition, capital expenditure was slightly lower than depreciation and amortization, meaning that the balance of the remaining intangible assets and property, plant and equipment was almost unchanged.

Current liabilities remained virtually unchanged compared with the prior year. The provisions established in the previous year for the cost reduction program were used almost in full. Meanwhile, short-term financing was drawn down from agreed credit lines at the end of the year.

Current and non-current financial liabilities (including leases) declined by a total of EUR 23.7 million, primarily due to scheduled repayments. This includes the addition of a new liability of EUR 7.6 million to MC Familiengesellschaft.

Provisions for pensions increased by EUR 72.7 million. Actuarial losses of EUR 58.2 million were offset against equity, resulting from the necessary reduction in the interest rate used for the valuation of pension provisions in the current fiscal year.

At 19.4%, the equity ratio remained slightly above that of the previous year (18.9%).

At 21.5%, average working capital intensity improved slightly compared with the previous year (21.9%), in line with expectations.

The ROCE of 12.2%, calculated using (adjusted) EBIT, was significantly above the prior-year figure of 9.8% and exceeded the planned target (11.1%).

No significant effects are expected from off-balance-sheet liabilities with the exception of the provision recorded for EPC. Please see note 31 of the consolidated financial statements in this regard.



2.1.5. Financial Position

Free cash flow was EUR – 17.2 million in the reporting year and thus fell short of expectations for 2016. In particular, severance payments associated with the cost reduction program led to a cash outflow of EUR 35.4 million. In addition, the drop in advance payments received had an impact on working capital of EUR 60.1 million.

Long-term loan and lease liabilities of EUR 52.6 million net were repaid at the Group level as planned. Short-term debt and borrowings increased by EUR 21.5 million compared with the prior year. Please refer to note 13 of the consolidated financial statements for information on approved but unused credit lines and on the capital structure. A dividend payment of EUR 6.5 million was made to shareholders in the reporting year.

Cash and cash equivalents fell by EUR 49.6 million to EUR 243.6 million in 2016.

Change in Cash and Cash Equivalents

EUR million

293.2

+ 119.2

+ 107.0

– 55.9

– 81.7

– 105.8– 31.7 – 0.7

243.6

Free cash flow EUR –17.2 million

Cash and cash equivalents Dec. 31, 2015

EBIT

Depreciation / amortization

Working capital

Tax, interest, other

Cash flow from investing activities

Cash flow from financing activities

Exchange rate effects

Cash and cash equivalents Dec. 31, 2016

The European Investment Bank agreed to provide G+D with a loan of EUR 80.0 million for research and development projects. This will be used in 2017.

2.1.6. Employees

Number of Employees

FTE 2016 2015 Change

Change (absolute)

Production 7,360 7,634 – 3.6% (274)

Sales 1,355 1,284 5.5% 71

Research and development 1,181 1,181 0.0% 0

Administration 1,404 1,280 9.7% 124

Total 11,300 11,379 – 0.7% (79)

Following the reduction in 2015, the number of employees at the Group level fell only moderately in 2016 and is slightly below target. On the one hand, headcount in Germany declined, but on the other, subsid-iaries in growth markets underwent targeted expansion. Worldwide, personnel expenses thus decreased from EUR 660.8 million (taking into account the positive effect from the EUR 26.4 million change in pension obligations in 2015) to EUR 643.6 million in the reporting year. In particular, expenses were reduced by over EUR 30 million at Giesecke & Devrient GmbH in Munich. Due to the optimized personnel structure, costs per employee fell by 1.9% worldwide compared with the previous year.

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2.1.7. Declaration on Management and Governance

In accordance with the German law on equal participation of women and men in leadership positions in the private and public sectors, the Supervisory Board set itself the target of ensuring that at least 30% of its members are women. This target has already been exceeded: women currently make up 41.7% of the Supervisory Board, with Astrid Meier, Verena von Mitschke-Collande, Gabi Dreo Rodosek, Claudia Scheck, and Monika Wächter all serving as members. By June 30, 2017, we envisage women making up 0% of the Management Board and occupying 10% of positions in the top tier of management below Board level and 20% in the second tier.

2.2. Overall Assessment of Economic Situation

After successfully implementing its cost reduction program in 2015, G+D was able to improve operating performance in the reporting year. Thanks to strong performance in the fourth quarter, the high level of sales seen in the prior year was exceeded, thereby surpassing targets. In addition, all operational business units made a positive contribution to Group earnings before interest and taxes, which also significantly exceeded targets.

Both the Banknote business unit and the Mobile Security business unit are making clear headway in providing solution-based offerings for G+D’s customers. The drop in sales in the Banknote Printing division was successfully offset by additional sales in the automation systems and substrates segments. The Mobile Security business unit generated growth, especially with products and services for public sector customers and the public transportation industry. Despite geopolitical uncertainty in the Middle East, Veridos successfully completed a number of major projects. Security solutions from secunet continued to provide a sustainable basis for growth and the company once again achieved record results.

The increase in EBIT compared with the previous year to EUR 119.2 million meant that EBITDA also improved.


Business PerformanceOpportunities and Risk Report

3. Opportunities and Risk Report Including Risk Reporting on the Use of Financial Instruments

As a global enterprise, G+D has to find the right balance between opportunity and risk when carrying out its diverse business activities. Failure to identify and manage risk satisfactorily could jeopardize individual business units or even threaten the Group’s existence. Effective risk management forms part of responsible and sustainable corporate governance. At G+D, the objective of risk management is to recognize risk as early as possible, properly assess it, and then counter it by taking appropriate action. This is intended to minimize any potential impact on the Group’s net assets, financial position, and profitability, to safeguard the ongoing existence of G+D as an independent business, to strengthen its market position, and to achieve real increases in enterprise value.

3.1. Risk Management System

The risk management system incorporates all the process and organizational guidelines needed to identify, analyze, assess, and manage the Group’s overall risk situation. This system is embedded into strategy, planning, and controlling mechanisms across the entire Group. While operating and financial risks are dealt with on an ongoing basis whenever necessary in the course of day-to-day business management and assessed during the quarterly performance reviews, strategic risks are subject to an annual review as part of the strategy process and therefore to separate reporting. Compliance risks are likewise managed via our own compliance organization and are also subject to separate reporting, including notification of Corporate Controlling in case of financial implications.

Corporate Controlling compiles a Group risk report on a quarterly basis, which provides information on the current status of risks. The risk report is provided to members of the Supervisory Board and Advisory Board as part of quarterly reporting. The Group accounting department incorporates all accounting practices and valuation methods into the Group’s standard accounting policy and updates this policy when new IFRS standards are published or existing ones amended. In order to evaluate all risks relevant to accounting (e.g. inventory valuation, credit default risks with regard to receivables, valuation of provisions), the Group accounting department has defined standard requirements for the Group. External experts are consulted to help assess special areas, such as pension obligations.

3.2. Compliance Management

The purpose of the compliance management system is to maintain customer confidence in G+D. At the same time, it safeguards the Group’s ongoing existence. The compliance management system is continually updated to satisfy new legal requirements and also to reflect G+D’s current risk profile. Following the establishment of a holding company structure, the compliance management system has been adjusted accordingly to continue meeting these objectives.

The Compliance Office reports to the Group’s Management Board on a quarterly basis about activities in the core compliance areas of prevention, detection, and response. The Management Board reports annually to the Supervisory Board on compliance management within the Group. Individual events are reported separately and directly to the Chairman of the Management Board, who takes appropriate measures in conjunction with the other Board members. External consultants are also used to examine and advise on compliance matters.

G+D is a co-founder of the Banknote Ethics Initiative (BnEI) and continued to be an accredited member of this organization in 2016. The Banknote Ethics Initiative was established at the Currency Conference in May 2013 with the aim of promoting ethical business practices. Its focus is on preventing corruption and on compliance with antitrust law in the banknote sector.

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On behalf of the Management Board, the Group auditing department (Corporate Auditing) conducts regular checks to assess the implementation and effectiveness of Group management and monitoring processes. The main aspects looked at are risk management, the internal control system, legal regulations, and internal corporate guidelines. The Group auditing department was certified by KPMG in accordance with the requirements of the Deutsches Institut für Interne Revision e.V. (The Institute of Internal Auditors) in 2011. In fiscal 2016, Corporate Auditing carried out a total of 15 audits. Findings are reported to the Management Board and the management of the audited entity. Corporate Auditing checks that measures arising from these investigations are implemented appropriately.

3.3. Risk Analysis and Assessment

G+D carries out integrated risk analysis, extending from contract initiation right through to the expiry of any warranty period. Where the relevant undertaking comes under the operational responsibility of a Group company and this company receives technical, logistical, or other specialist support or supplies from a different Group company, joint risk analysis must be performed for all Group companies involved.

G+D distinguishes between operating risks and financial risks. Operating risks are broken down into the following risk categories: own value-adding activities, sales-related risk, procurement / staff, and tax risk. A number of individual risks may be associated with any project or venture. These may be cumulative or mutually exclusive. The individual risks must be assessed separately and also aggregated in a manner appropriate to the project or venture in question to provide a useful indicator of overall risk. The risks identified (individual risks and overall risk) are evaluated using the gross and net methods. Gross risk is defined as the potential damage that might result if no measures or controls were in place to mitigate the risk. Net risk is the risk remaining when mitigating actions are taken into account. The probability of occurrence is multiplied by the net risk to obtain the risk value.

The probability of occurrence indicates the estimated likelihood of the identified risk occurring, which is classified as follows based on IFRS accounting standards:

Description Probability of occurrence

Expected to occur x > 80%

Probable 80% ≥ x > 50%

Not probable 50% ≥ x > 10%

Possible, but largely theoretical x ≤ 10%

The potential damage per risk category, as determined in the cumulative risk assessment, is divided into three levels. The damage is classified as low, moderate, or substantial depending on the degree of financial impact.

Risk

Risk value per risk category EUR million

Low < 10

Moderate 10 – 50

Substantial > 50


Opportunities and Risk Report

3.4. Operating Risks and Opportunities

All identified operating risks are regularly assessed by the risk owners in the subsidiaries. This involves an analysis of the probability of occurrence, the potential damage, and the effectiveness of the measures employed to mitigate the risk.

3.4.1. Operating Risks

Operating risks are risks that may occur anywhere along the value chain and can jeopardize the achievement of near-term corporate objectives. As of December 31, 2016, 44 overall operating risks had been reported to the Management Board and the Supervisory Board via the risk report.

The risks described have already been taken into consideration in these financial statements and in the forecast, in accordance with the Group’s accounting policy. If the risks for which no provisions have been made due to the low probability of occurrence do occur, this would have a negative impact on our net assets, financial position, and results of operations. If all of the risks were to occur together, serious damage would result. If the risks covered by provisions occur, there would also be a cash outflow.

The operating risk categories documented in the risk management system are as stated in the following table.

If the probability of occurrence is greater than 50%, the provision or impairment corresponds to 100% of the net risk value 1. As a result, the provisions in the risk categories may exceed the risk value.

Operating risk category Risk

Risk value EUR million

Provision EUR million

Own value-adding activities Low 9.2 11.7

Sales-related risk Moderate 28.6 29.1

Procurement / staff Low 1.6 2.1

Tax risk Low 7.0 4.2

Total 46.4 47.1

Own Value-Adding ActivitiesTo maintain our competitiveness, we need to develop new products, services, and solutions. This also entails establishing complete ecosystems and implementing the associated business models, which can change the liability situation. Developing the right technology at the right time and having the necessary organiza-tional structures in place is crucial. We seek to shape market developments through carefully targeted investment in research and development. If activities are started too soon, this can result in idle costs, while starting too late can lead to loss of market share. Changes in strategy can result in substantial restructuring costs. We counter this risk by reviewing divisional and Group strategy on an annual basis.

Targeted acquisitions, which tie up capital, are sometimes necessary to support corporate strategy and expand our portfolio of products and services. Implementing the associated business plan and necessary post-merger integration measures entails considerable risk. Failure to meet objectives may cause the value of assets to fall and thus impact results.

Any production stoppage or downtime would have serious consequences for our net assets, financial position, and results of operations. Additional capacity must therefore be maintained to safeguard continuous production. We aim to ensure optimum machine utilization and back-up capacity by means of production planning and management.

Machines that are outdated or no longer meet the latest technical standards could lead to a loss of production capacity, resulting in partial or complete failure to produce the planned quantities. Capital expenditure is managed centrally at G+D and closely monitored by the project controlling team so that countermeasures can be taken in the event of deviation from targets. Problems of this kind can result in project delays or late delivery of products to end customers. If G+D is late in delivering products, we could face contractual penalties for failing to comply with delivery deadlines.

1 Net risk value = gross risk value taking account of countermeasures, before provision

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Statutory requirements can also impact production, for instance if emissions limits are regulated more tightly. Environmental issues are becoming increasingly important for businesses. We seek to counter risks in this area by means of our environmental management system and our approach to corporate social responsibility (CSR). Details of the measures taken can be found in the Responsibility section of our CSR report, which forms part of this annual report.

Unrecognized defects or the delayed introduction of new products could result in higher costs for G+D and have an adverse impact both on demand for our products and on our reputation. To counter this, ongoing and efficient development of our quality management system is essential, with a corresponding focus on customer needs. In relation to product development, timely implementation of preventive measures is especially important in order to achieve the warranted product quality and avoid substantial additional costs during the subsequent commercialization phase. Our underlying approach is that “quality is everybody’s business.” Making this attitude a reality requires processes, organizational inter- faces, tasks, and responsibilities to be clearly defined and communicated. Each employee therefore needs to be fully aware of the contribution they can make within their role.

The replacement of existing products in a region may mean that spare parts inventories can no longer be used. We counter this risk by periodically revising our phase-out and sales planning. In addition, inventories are regularly subjected to impairment testing during the preparation of financial statements.

G+D is not completely immune to cyber security risks, whether in the form of economic or industrial espionage, or of cyber attacks by specific countries or competitors. These risks could lead to unintentional sharing of confidential information or intellectual property, product damage, supply difficulties, loss of production, or compromised (personal) data. We may also be faced with threats from individuals who gain unauthorized access to buildings or systems and misuse, steal, or damage information or assets. We have taken a range of technical and organizational precautions to minimize this risk. These include IT security measures, identity management, multi-level access control and entry systems, camera surveillance, deployment of a Group security service, and raising employee awareness through regular training sessions on compliance and security issues. If any of these measures fail, our business operations and provision of services could be exposed to the above-mentioned risks, which would have a negative impact on our reputation, business activities, financial and earnings situation, and cash flow. We have implemented a security and control system that enables us to identify and respond promptly to risk.

Sales-Related RiskMany of our target markets are subject to dynamic change. This applies in particular to our Mobile Security business unit. The markets relevant to G+D are defined by tough competition and constant price pressure. New competitors in emerging countries with more favorable cost structures might attempt to position themselves in our core markets. Government-owned competitors are increasingly crowding into the banknote printing market and can frequently afford to concern themselves less with commercial constraints. Existing value chains could be actively disrupted or broken. Suppliers may also extend their value chains vertically and thus become potential competitors.

In some markets, customer procedures for invitations to tender and awarding contracts have changed. In addition, putting agreements with customers into contractual form could lead to extended warranty periods or claims for damages in warranty cases.

Some Middle Eastern and South American countries are also currently affected by political uncertainty. Contracts with customers from these regions may be impacted by extreme developments that make it impossible for the parties to fulfill the contract due to force majeure or shortages. We are currently facing a specific risk situation in South America, although this did not yet impact results or assets in the reporting year.

We counter sales-related risk by continually monitoring economic and political developments in our key markets, aided by the strong regional focus of G+D’s sales organization. Production and capital expendi-ture are managed centrally, enabling a rapid response in the event of any economic slowdown. We also take particular care in drafting customer contracts to ensure that aspects such as liability issues in the event of extreme situations are clearly defined in advance. We seek to minimize competitive risk through con- tinual innovation and ongoing optimization of processes and costs.


Opportunities and Risk Report

Procurement / StaffSupply chain management is centralized at G+D. Any disruptions, such as delivery delays on the supplier side, may have adverse effects on the availability, quality, and cost of G+D products and therefore impact sales and earnings.

It is crucial to protect, license, and acquire intellectual property rights as part of our R&D activities. Third parties may accuse us of breaching their intellectual property rights. This could result in compensation payments for damages and a ban on using certain technologies. The Group’s patent department works with external law firms to register and monitor patents.

When selecting external partners, care must be taken to ensure that they abide by internal rules and applicable laws and regulations, as well as supplying our customers with high-quality products. When employment relationships end, legal disputes may arise, in which claims could be brought against G+D. If we are unable to manage our workforce effectively, it would have a negative impact on our net assets, financial position, and results of operations. To ensure success, our HR organization takes an active approach to personnel management around the globe. Internally, an integrated program to nurture talent is designed to foster staff loyalty.

Tax RiskG+D’s business activities are subject to the usual risks associated with international operations. These include the incompatibility of different tax regimes, possible tax obstacles that make business more difficult, and import/export regulations. Intercompany netting may be challenged by the tax authorities, which can entail lengthy negotiations and the need to produce extensive documentation. We seek to counter these risks by continually adapting our internal processes to changing requirements and taking advice from auditors, lawyers, and tax consultants in the countries concerned.

3.4.2. Operating Opportunities

Dynamic market conditions mean new business opportunities are opening up all the time. Maintaining an extensive vertical and horizontal portfolio of products and solutions allows the Group to diversify risk and take advantage of these market opportunities.

In our dynamic market environment, it may occasionally be the case that customers are no longer able to meet their payment obligations. If a customer has filed for bankruptcy, impairment adjustments need to be made to these receivables in the accounts. The 2016 financial statements include impaired customer receivables totaling EUR 11.6 million. If, contrary to expectations, it becomes possible for the customer to settle the outstanding receivables, the derecognition would be reversed. This would positively impact our net assets, financial position, and results of operations by the corresponding amount.

We see other, hard-to-quantify opportunities in the following areas:

Increased digital integration in industry and commerce is creating market opportunities for cyber security solutions provided by G+D. The public sector has already begun to protect itself against these latent threats. If this trend also gains in importance in the private sector, market opportunities could emerge that would exceed forecasts.

Digital transformation of society – an ongoing change process rooted in digital technologies – offers further growth opportunities. People’s data, identities, and communication channels all need to be protected from attack. G+D’s security solutions will support this digital evolution. In this relatively new market, short- term opportunities for solutions provided by G+D could emerge and our sales and earnings forecasts could increase.

In a dynamic market environment, G+D strikes a balance between effectively meeting the current needs of customers and investing in promising new products and solutions. If the vertical and horizontal expansion of our value-adding activities proves more rapid and extensive than currently anticipated and awareness of security issues in the digital world results in an even greater need for security technology than expected, we could see a faster rise in demand for new and improved products. This could have a positive impact on our net assets, financial position, and results of operations and allow an upward revision of existing forecasts.

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Finally, legal requirements could also lead to an increase in sales and earnings. Our forecasts could be revised upward if the use of a technology that we are helping to develop or that is contained in our products were to be made mandatory, for instance.

Provisions of EUR 47.1 million were made for the operating risks described in section 3.4.1. Should the probability of occurrence of these risks decline or the risk be eliminated entirely, or the potential loss be reduced further by appropriate countermeasures, this would have a positive impact on assets and earnings due to the corresponding reversal of provisions.

3.4.3. Financial Risks

G+D is subject to typical liquidity risk, counterparty credit risk, and market risks stemming from changes to exchange rates, interest rates, and share prices. On the procurement side, risks are associated with price rises for raw materials (particularly semiconductors and cotton). These risks can adversely impact our net assets, financial position, and results of operations and are primarily managed as part of the Group’s ongoing business and financing activities. Additionally, financial risks affecting the G+D Group and its operating subsidiaries are identified centrally on the basis of written guidelines, and their management is also largely handled centrally by Giesecke & Devrient GmbH. Financial risk forms part of the quarterly risk reports submitted to the Management Board and is also included in regular reporting to the Supervisory and Advisory Boards.

If necessary, derivative financial instruments are deployed in relation to foreign currency and interest rates to hedge underlying transactions. In accordance with risk management standards applying to international banks, all trading activity is subject to independent financial monitoring instigated by the Group’s treasury department.

In accordance with IAS 19, G+D is required to recognize actuarial gains and losses arising from pension obligations fully and immediately in equity. This leads to high volatility of equity in response to changes in capital market interest rates.

The financial risks described could have a negative impact on our assets, financial position, and results of operations.

For further details on financial risk, please see note 22 of the consolidated financial statements.

3.5. Overall Group Risk Situation

Our opinion is that the risks described above, given their probability of occurrence and impact, are not existential in nature, either individually or overall. Thanks to G+D’s strong market positioning, capacity for technological innovation, globally standardized processes, and committed employees, the Management Board is confident that the Group is well equipped to meet the challenges posed by these risks in 2017 and to leverage the opportunities that arise.


Opportunities and Risk ReportForecast

4. Forecast

With cumulative order intake on a par with sales in the reporting year, G+D began fiscal 2017 with a solid order backlog. The forward order book covers a period of 7.6 months and includes projects that will only begin to have an impact on sales in 2018.

Provided there are no significant changes in exchange rates in 2017, we are aiming to maintain the same high level of sales as seen in the reporting year.

Capacity adjustments in the Banknote Solutions division mean that banknote printing is now better aligned with market conditions. However, competition for public contracts remains strong, resulting in an ongoing high level of price sensitivity in the market. In the Currency Management Solutions division, the aim is to achieve a sustained improvement in the earnings situation. The cost structure in the compact segment will be optimized and research and development activities will focus even more rigorously on market requirements. Assuming the same strong sales in the Banknote business unit, earnings here are expected to remain at the level of 2016. The Mobile Security business unit aims to further increase its sales through its excellent position in the market. The planned improvement in earnings is to be achieved by maintaining a strong focus on solutions and by expanding the cyber security field. Veridos and secunet are set to fall slightly short of the exceptionally high level of sales seen the previous year. All business units are again expected to make a positive contribution to results.

In 2017, EBIT and EBITDA will be impacted by activities in the cyber security field and by the establishment of the Digital unit, which will focus on implementing digital business models. Nevertheless, Group earnings in 2017 are expected to remain at the same high level as in 2016.

Working capital intensity in 2017 is expected to fall slightly below the 2016 level.

After the low level of investment activity during the past few years, all business units anticipate a slight rise in capital expenditure, which is set to exceed depreciation and amortization in 2017. G+D is making targeted investments both in improving the efficiency of existing facilities and in growth areas such as solutions (ID service platform) in the Mobile Security business unit, as well as in tools and equipment in the cash management service sector of the Banknote business unit.

Operating cash flow is expected to improve in 2017, mainly due to the end of restructuring measures with a cash impact. This effect will be partially offset by planned higher cash outflows for capital expenditure. Free cash flow is expected to be firmly positive again in 2017.

Across all operational areas, G+D intends to make targeted additions to employee headcount in growth markets during 2017, meaning that a modest increase at the Group level is expected.

The ROCE is expected to be similar to that achieved in 2016.

Actual results may, of course, vary from expected performance.

43

45 Auditor’s Report46 Consolidated Income Statement47 Consolidated Statement of Comprehensive Income48 Consolidated Balance Sheet49 Consolidated Statement of Changes in Equity50 Consolidated Statement of Cash Flows52 Notes to Consolidated Financial Statements

Consolidated Financial StatementsIFRS December 31, 2016 and 2015

Giesecke+ DevrientAnnual Report 201644

Auditor’s Report

We have audited the consolidated financial statements prepared by Giesecke & Devrient Gesell- schaft mit beschränkter Haftung, comprising the consolidated balance sheet as of December 31, 2016, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and notes to the consolidated financial statements for the year then ended, together with the Group management report for the financial year from January 1 to December 31, 2016. The preparation of the consolidated financial statements and the Group management report in accordance with IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315 a (1) of the German Commercial Code [HGB] are the responsibility of the 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 Section 317 HGB and German generally accepted standards for the audit of financial statements promul-gated by the German Institute of Public Auditors [IDW]. 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 manage-ment 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 misstate-ments 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 overall presentation of the consolidated financial statements and 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 comply with IFRSs as adopted by the EU, the additional requirements of German commercial law pursuant to Section 315 a (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, complies with the German statutory requirements, and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.

Munich, March 30, 2017

KPMG AGWirtschaftsprüfungsgesellschaft

[original German version signed by:]

Huber ChristophWirtschaftsprüfer Wirtschaftsprüferin [German Public Auditor] [German Public Auditor]

45

Consolidated Income Statementfor the Years Ended December 31, 2016 and 2015

EUR million Note 2016 2015

Net sales 15 2,089.0 2,010.9

Cost of goods sold (1,499.8) (1,473.0)

Gross profit 589.2 537.9

Selling expenses (206.6) (199.3)

Research and development expenses (111.5) (104.7)

General and administrative expenses (148.9) (123.2)

Other operating income / (expenses), net 0.3 3.5

Operating profit 122.5 114.2

Share in earnings from equity investments 6 1.3 (3.0)

Other financial income / (expenses), net 17 (4.6) (9.6)

Earnings before interest and income taxes 119.2 101.6

Interest income 18 2.3 2.5

Interest expense 18 (23.1) (24.3)

Earnings before income taxes 98.4 79.8

Income taxes 19 (45.9) (25.3)

Net income 52.5 54.5

thereof apportioned to non-controlling interests 5.3 (2.3)

thereof apportioned to the shareholders of Giesecke & Devrient GmbH 47.2 56.8

52.5 54.5

The accompanying notes to the financial statements are an integral part of these statements.

Giesecke+ DevrientAnnual Report 201646 Consolidated Financial Statements

Consolidated Income Statement Consolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive Incomefor the Years Ended December 31, 2016 and 2015

EUR million 2016 2015

Net income 52.5 54.5

Other comprehensive income

Items that will never be reclassified to the income statement

Actuarial gains and losses (57.5) 38.8

Deferred taxes on actuarial gains and losses 17.7 (11.8)

(39.8) 27.0

Items that are or may be reclassified to the income statement

Currency effects from the translation of foreign operations 4.1 9.6

Effective part of fair value changes in cash flow hedges 0.2 0.2

Fair value changes in cash flow hedges which were recorded in the income statement – (0.2)

Share of income and expenses recognized directly in equity resulting from the use of the equity method of accounting (0.9) 1.9

Deferred taxes on fair value changes in cash flow hedges – (0.2)

3.4 11.3

Other comprehensive income, net of tax (36.4) 38.3

Total comprehensive income 16.1 92.8

thereof apportioned to non-controlling interests 5.1 (1.4)

thereof apportioned to the shareholders of Giesecke & Devrient GmbH 11.0 94.2

16.1 92.8


47

Consolidated Balance Sheetas of December 31, 2016 and 2015

EUR million Note Dec. 31, 2016 Dec. 31, 2015

Assets

Current assets

Cash and cash equivalents 243.6 293.2

Financial assets 2 74.3 85.4

Accounts receivable trade and other receivables, net 3 460.6 411.3

Inventories, net 4 394.4 424.7

Income taxes receivable 32.9 31.1

Other current assets 5 34.4 32.9

Total current assets 1,240.2 1,278.6

Non-current assets

Investments accounted for under the equity method 6 13.2 26.7

Financial assets 2 21.2 18.2

Accounts receivable trade and other receivables, net 3 8.3 6.1

Intangible assets 7 158.0 138.2

Property, plant and equipment 8 495.9 486.2

Deferred tax assets 19 165.2 152.9

Income taxes receivable 2.9 0.5

Other non-current assets 5.0 4.1

Total non-current assets 869.7 832.9

Total assets 2,109.9 2,111.5

Liabilities and Equity

Current liabilities

Accounts payable trade and other accounts payable 10 419.8 424.0

Provisions 11 121.0 150.9

Financial liabilities 13 127.0 101.6

Finance lease obligations 9 2.6 2.4

Accrual for income taxes and income taxes payable 38.7 35.5

Other current liabilities 12 122.7 121.6

Total current liabilities 831.8 836.0

Non-current liabilities

Accounts payable trade and other accounts payable 10 48.2 82.3

Provisions 11 10.9 12.0

Financial liabilities 13 203.1 250.0

Finance lease obligations 9 3.3 5.7

Pensions and related liabilities 14 586.8 514.1

Deferred tax liabilities 19 6.3 6.1

Other non-current liabilities 11.2 5.6

Total non-current liabilities 869.8 875.8

Equity

Capital stock 20 25.8 25.8

Additional paid-in capital 20 29.5 29.5

Retained earnings 20 349.6 344.6

Accumulated income and expenses recognized directly in equity 32.1 28.8

Treasury stock 20 (60.1) (60.1)

Non-controlling interests 31.4 31.1

Total equity 408.3 399.7

Total liabilities and equity 2,109.9 2,111.5



Consolidated Balance Sheet Consolidated Statement of Changes in Equity

Consolidated Statementof Changes in Equityfor the Years Ended December 31, 2016 and 2015

EUR million

Capital

stockAdditional

paid-in capitalRetained earnings

Accumulated income

and expenses recognized

directly in equity resulting

from currency translations

Accumulated income

and expenses resulting

from cash flow hedges

Treasury stock Subtotal

Non- controlling

interests Total

Balance as of January 1, 2015 25.8 29.5 252.8 18.0 (0.3) (60.1) 265.7 21.9 287.6

Net income – – 56.8 – – – 56.8 (2.3) 54.5

Other comprehensive income – – 26.3 11.3 (0.2) – 37.4 0.9 38.3

Total comprehensive income – – 83.1 11.3 (0.2) – 94.2 (1.4) 92.8

Sale of non-controlling interests (see Note 25) – – 8.7 – – – 8.7 9.8 18.5

Cash received from minority interests – – – – – – – 1.6 1.6

Dividends paid – – – – – – – (0.8) (0.8)

Balance as of December 31, 2015 25.8 29.5 344.6 29.3 (0.5) (60.1) 368.6 31.1 399.7

Net income – – 47.2 – – – 47.2 5.3 52.5

Other comprehensive income – – (39.5) 3.1 0.2 – (36.2) (0.2) (36.4)

Total comprehensive income – – 7.7 3.1 0.2 – 11.0 5.1 16.1

Sale of non-controlling interests (see Note 25) – – 3.8 – – – 3.8 (3.1) 0.7

Dividends paid – – (6.5) – – – (6.5) (1.7) (8.2)

Balance as of December 31, 2016 25.8 29.5 349.6 32.4 (0.3) (60.1) 376.9 31.4 408.3


49


Cash flows from operating activities

Earnings before interest and income taxes 119.2 101.6

Adjustments to reconcile earnings before interest and income taxes to cash provided by operations

Depreciation, amortization and impairment / recoveries 107.0 109.6

(Gain) / loss on sale of investments, net (0.7) (4.0)

(Gain) / loss on sale and disposal of intangible assets and property, plant and equipment 0.2 0.4

Undistributed earnings in associated companies and joint ventures excluding dividend payments (0.5) (0.4)

Dividends received from associated companies and joint ventures 1.3 2.6

Change in operating assets and liabilities

(Increase) / decrease in investments in trading securities 5.4 1.4

(Increase) / decrease in accounts receivable trade and other accounts receivable, net (43.8) (77.9)

(Increase) / decrease in prepaid expenses and other assets 0.4 5.4

(Increase) / decrease in inventories, net 32.3 (7.9)

Increase / (decrease) in accounts payable trade and other accounts payable (47.8) 153.3

Increase / (decrease) in provisions (30.9) 0.3

Increase / (decrease) in pensions and related liabilities (2.7) (15.4)

Increase / (decrease) in other liabilities (3.3) 24.1

Income taxes paid, net (40.3) (46.5)

Interest received 2.3 2.5

Interest paid (9.5) (12.4)

Net cash provided by operating activities 88.6 236.7

Cash flows from investing activities

(Increase) / decrease in short-term investments (1.9) 0.2

Additions to and prepayments on intangible assets (17.1) (14.6)

Additions to and prepayments on property, plant and equipment (84.2) (66.8)

Proceeds from investment grants, net 1.0 4.8

Capital increase in and founding of associated companies and joint ventures (3.3) –

Acquisitions, net of cash acquired 0.5 –

Proceeds from the sale / purchase of available-for-sale securities (1.6) (1.1)

Loans to associated companies (1.0) (2.8)

Proceeds from sale of investments – 6.3

Proceeds from sale of intangible assets – 0.5

Proceeds from sale of property, plant and equipment 1.8 1.1

Net cash used in investing activities (105.8) (72.4)

Free cash flow 1 (17.2) 164.3

Consolidated Statementof Cash Flowsfor the Years Ended December 31, 2016 and 2015

1 Free cash flow consists of net cash provided by operating activities less net cash used in investing activities


Consolidated Statement of Cash Flows


Cash flows from financing activities

Proceeds from issuance of long-term debt 6.8 3.8

Proceeds from issuance of long-term debt from the Giesecke & Devrient Foundation – 1.8

Proceeds from issuance of short-term debt from MC Familiengesellschaft mbH 7.6 –

Repayment of long-term debt (57.0) (69.8)

Repayment of short-term debt from MC Familiengesellschaft mbH – (8.2)

Payments on finance lease obligations (2.4) (2.2)

Net (decrease) / increase in short-term debt and borrowings 21.5 (0.5)

Dividends paid to shareholders (6.5) –

Cash received from non-controlling interests – 15.5

Dividends paid to non-controlling interests (1.7) (0.8)

Net cash used in financing activities (31.7) (60.4)

Effect of exchange rates on cash and cash equivalents (0.7) 2.9

Net increase / (decrease) in cash and cash equivalents (49.6) 106.8

Cash and cash equivalents at beginning of the year 293.2 186.4

Cash and cash equivalents at end of the year 243.6 293.2


51

Notes to Consolidated Financial Statementsfor the Years Ended December 31, 2016 and 2015

1 Summary of Significant Accounting Policies and Practices

A Description of Business

Giesecke & Devrient Gesellschaft mit beschränkter Haftung and subsidiaries (“G+D” or “Giesecke+Devrient”) is in the business of printing banknotes and securities, as well as the development and production of security paper and currency automation equipment. Giesecke+Devrient also develops and manufactures magnetic stripe cards and smartcards mainly for the telecommunications, banking, and health services industries. A further field of business includes security-related solutions for governments and public authorities, ranging from ID cards and travel documents to e-government solutions. New technologies comprise network solutions and secure mobile transaction solutions as well as a software system for mobile devices.

Giesecke+Devrient, headquartered in Prinzregentenstraße 159, 81677 Munich, Germany, is entered in the Commercial Register of the Munich District Court Dept. B under the number 4619. G+D has a strong international orientation with Germany being one of its major markets. Other key markets include the United States, Canada and China. As of December 31, 2016, G+D had subsidiaries in 32 countries and 11,300 employees worldwide, including 7,453 outside Germany.

The consolidated financial statements were approved by the Management Board on March 30, 2017.

B Basis of Presentation

The consolidated financial statements as of December 31, 2016 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

MC Familiengesellschaft mbH was founded in 2012. MC Familiengesellschaft mbH became the Group parent company and prepared statutory consolidated financial statements in accordance with IFRS as of December 31, 2016.

It is possible that some figures do not precisely add up to the totals due to rounding differences.

C Consolidated Group and Principles of Consolidation

Consolidated GroupAll material G+D subsidiaries, joint ventures and associates are included in the consolidated financial statements.

Affiliated companies are companies that are controlled by the Group. The Group controls a company if it is exposed to or has rights to variable returns from its involvement in the company and has the ability to affect the amount of these returns by using its power. Financial statements of subsidiaries are included from the time the Group obtains control and ceases when the Group loses control. Non-controlling interests are to be valued with the respective share of the net assets of the company acquired that can be identified at the date of acquisition. Changes in the ownership interest in a subsidiary that do not result in losing control, are to be accounted for as equity transactions.

Consolidated Financial StatementsNotes52 Giesecke+ Devrient

Annual Report 2016

Interests of the Group that are accounted for according to the equity method comprise interests in associated companies and joint ventures. Associated companies are companies in which the Group has significant influence, but which the Group does not control or jointly control in respect of financial and business policies. A joint venture is an arrangement whereby the Group has joint control of the arrange-ment and has rights to the net assets but does not have rights in assets and obligations for the liabilities of the arrangement.

The consolidated Group comprises 11 domestic and 54 foreign subsidiaries which are fully consolidated. Although Giesecke+Devrient has less than half of the voting rights in Veridos Matsoukis S.A. Security Printing, Athens (36%), management has determined that G+D controls this company. This assessment is on the basis that G+D owns the majority of the voting rights in Veridos GmbH, Berlin, which in turn holds the majority of the voting rights in Veridos Matsoukis S.A. Security Printing, Athens. Additionally, seven joint ventures and/or associated companies are accounted for under the equity method. Giesecke+Devrient holds 14.3% of the equity shares and voting rights in finally safe GmbH as well as 19.93% of the equity shares and voting rights in Fit Pay, Inc. The Group has classified its influence in finally safe GmbH and Fit Pay, Inc. as significant since Giesecke+Devrient has rights of co-determination in excess of its ownership percentage in material resolutions. The consolidated financial statements include all material companies which are presented in the schedule of shareholdings (see Note 37 “Shareholdings”).

Principles of ConsolidationThe financial statements of the companies included in the consolidated financial statements are prepared using uniform accounting policies in accordance with IFRS.

Income and expenses, receivables, payables and provisions, as well as intragroup profits between companies included in the consolidated financial statements are eliminated.

A subsidiary is deconsolidated from the date it is no longer controlled by G+D.

Investments in joint ventures and associates accounted for using the equity method are initially recognized at cost and adjusted accordingly in subsequent periods. Intragroup profits from transactions with these companies are eliminated in proportion to the acquirer’s interest.

Under IFRS, all business combinations are accounted for using the purchase method. The acquirer allocates the cost of a business combination by recognizing the acquiree’s identifiable assets, liabilities, and contingent liabilities that satisfy the recognition criteria at their fair value on the date control over the entity is obtained (acquisition date). The full amounts of identifiable assets and liabilities and contingent liabilities irrespective of the company’s ownership interest are recognized at their fair values. Any excess of the purchase price over the fair value of the identifiable assets, liabilities, and contingent liabilities less any minority interests is recognized as goodwill. Where the fair value exceeds the purchase price, the resulting amount is recorded in the income statement.

Non-controlling interests are measured at the fair value of the proportionate identifiable net assets. In a business combination achieved in stages, interests held at the time of transfer of control are revalued and the resulting gain or loss is recognized in profit or loss. An adjustment of conditional purchase price components that were reported as liability at the acquisition date is recognized in profit or loss for business combinations. Transaction costs are recognized as expenses at the time they are incurred.

After having gained control of a subsidiary, the difference between the purchase price and the proportion-ate share of equity for additional shares acquired is charged against retained earnings. Transactions which do not result in loss of control have no impact on the income statement and are recorded as equity transactions.

Remaining interests are measured at fair value at the time of loss of control. In the case of non-controlling interests, the reporting of negative balances is permitted, i.e. future losses are allocated in proportion to the participation without restriction.

53

D Use of Estimates

The preparation of the accompanying financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period.

Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements and those through which a considerable risk can arise or a material adjustment will be required within the fiscal year ending on December 31, 2016, is included in the following notes: – Note 1 J “Goodwill and Other Intangible Assets” – Note 1 N “Provisions” – Note 19 “Income Taxes” – Note 24 “Business Combinations”

E Foreign Currency Translation

Transactions in foreign currency are translated into euros using the exchange rate on the date of the transaction. At the balance sheet date, monetary assets and liabilities are remeasured using the closing rate. Non-monetary assets and liabilities denominated in foreign currency are translated using the historical exchange rate as of the date of the transaction.

The individual functional currency of each of the Group companies is the currency of the primary economic environment in which the entity operates. The assets and liabilities of foreign subsidiaries with functional currencies other than the euro are translated using period-end exchange rates, while the revenues and expenses are translated using average exchange rates during the period. Differences arising from the translation of assets and liabilities in comparison with the translation of the prior periods are included in cumulative translation adjustment and reported as a separate component of equity.

For significant currencies, the average and closing rates for the fiscal years ended December 31 are as follows:

1 euro equals X units of foreign currency Rates – December 31, 2016 Rates – December 31, 2015Average Closing Average Closing

US dollar – USD 1.1066 1.0541 1.1096 1.0887

Australian dollar – AUD 1.4886 1.4596 1.4765 1.4897

British pound – GBP 0.8189 0.8562 0.7260 0.7340

Canadian dollar – CAD 1.4664 1.4188 1.4176 1.5116

Chinese renminbi – RMB 7.3496 7.3202 6.9730 7.0608

Swedish krona – SEK 9.4673 9.5525 9.3545 9.1895

F Financial Instruments

A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assets include, in particular, cash and cash equivalents, accounts receivable trade, loans, other receivables, marketable securities, and derivative financial instruments.

For regular-way purchases and sales of all categories of financial assets, with the exception of derivative financial instruments, the date of initial recognition in the balance sheet or of derecognition is the settlement date, i.e. the date on which an asset is delivered to or by an entity. The trade date is determinant for derivative financial instruments.

Financial liabilities include accounts payable trade, liabilities to banks, finance lease obligations, and derivative financial liabilities.


Annual Report 2016

Financial assets and liabilities are generally measured at fair value on initial recognition. Financial assets, which are not valued at fair value through profit or loss, include the direct acquisition costs. The fair value is the estimate of the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (i.e. to estimate an exit price).

A financial asset is derecognized when the contractual rights to the cash flows relating to the financial asset expire, that is, when the asset is realized, forfeited or is no longer under the control of the company. Up to now, G+D has not exercised the right to record financial assets as financial assets measured at fair value through profit or loss at the time of initial recognition. The measurement category “held-to-maturity investments” is also not used. Interest income was not recorded on impaired financial assets.

Cash and Cash Equivalents / Short-term InvestmentsGiesecke+Devrient considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. These are valued at amortized cost.

Highly liquid commercial paper with an original maturity up to three months is also classified as cash and is measured at fair value.

Short-term investments with durations between three months and one year are classified as current financial assets.

Accounts Receivable Trade and Other Receivables, netAccounts receivable trade and other receivables, net are allocated to the category “loans and receivables”. They are measured at fair value at the time of initial recognition, which represents the acquisition costs at the date of acquisition. The valuation at subsequent balance sheet dates is at amortized cost. At the same time, credit risk impairments in the form of specific allowances for doubtful accounts are carried out. Specific defaults lead to derecognition of the receivables affected. In addition, lump-sum specific allowances are also recorded. The indication of a possible impairment begins when the agreed payment terms are exceeded, moreover when the start of insolvency proceedings or similar becomes known. Allowances on accounts receivable trade and other receivables are recorded in separate allowance accounts.

Income and expenses in connection with the recognition and reversal of specific allowances, lump-sum specific allowances, as well as direct derecognitions of receivables are recorded in selling expenses. Non- and low-interest-bearing non-current receivables are recorded at the present value of the expected future cash flows when the interest effect is material. For such amounts, the subsequent valuation is made using the effective interest method. Assets are classified as non-current when the remaining duration at the balance sheet date exceeds 12 months.

Marketable Securities and InvestmentsG+D’s marketable securities are classified as trading or available-for-sale securities and are stated at fair value as determined by the most recently traded price of each security at the balance sheet date. The trading securities contain shares in a closed and fully consolidated special fund, which invests in publicly traded equity and debt securities. The available-for-sale securities are shares in investment funds, which serve as insolvency insurance to cover the provision for pre-retirement part-time working arrangements. Highly liquid commercial paper with an original maturity of up to three months is classified as cash and is measured at fair value.

Unrealized gains and losses on trading securities are included in income on a current basis.

Unrealized gains and losses on available-for-sale securities are included in accumulated income and expenses recognized directly in equity. Impairments are recognized through profit and loss on other than temporary declines in value. An impairment is recorded on equity securities when there is a permanent or significant reduction in the fair value below the original acquisition costs. For debt securities, an impairment is recorded when there is a considerable decline in the creditworthiness of the debtor. If, in a subsequent period, the fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognized, the impairment loss shall be reversed in the income statement (for equity securities the reversal is recognized directly in equity).

Equity investments in other related companies are recognized at cost, since an active market price does not exist and their fair market value cannot be reliably determined.

55

Other Financial AssetsWith the exception of derivative financial instruments, other financial assets recognized as assets are allocated to the measurement category “loans and receivables”. The valuation is in accordance with the explanation provided for accounts receivable trade and other receivables, net. If there are indications of an impairment for financial assets which are valued at amortized cost, an impairment is carried out to the extent of the lowest possible realizable amount. Irrecoverable financial assets are derecognized. An impairment is reversed when the reasons for the impairment recorded no longer prevail.

Financial LiabilitiesWith the exception of derivative financial instruments, financial liabilities recorded as liabilities are allocated to the measurement category “financial liabilities measured at amortized cost”. The initial valuation of these financial liabilities is at fair value and in subsequent periods at amortized cost using the effective interest method. Transaction costs are deducted from the acquisition costs, in as much as they are directly attributable. Liabilities are classified as non-current when the remaining maturity as of the balance sheet date exceeds 12 months.

The valuation of accounts payable trade is in accordance with the procedures noted previously for financial liabilities.

A financial liability is derecognized when the underlying obligation relating to the liability is fulfilled, terminated or extinguished.

Giesecke+Devrient has not made use of the option to designate financial liabilities as financial liabilities measured at fair value through profit or loss at the time of initial recognition in the balance sheet.

Derivative Financial InstrumentsDerivative financial instruments are used to manage the foreign currency exposure incurred in the normal course of business in the form of forward exchange contracts.

Currency risks from contracts with a nominal volume exceeding USD 10.0 million are generally secured via forward exchange contracts within the scope of a micro hedge and presented as fair value hedges in the balance sheet. If the conditions for hedge accounting in accordance with IAS 39 are fulfilled, Giesecke+Devrient classifies and documents the hedge as a fair value hedge during the period. A fair value hedge is a hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecog-nized firm commitment. Documentation of the hedging relationship includes the objectives and strategy of the company’s risk management, the nature of the hedging activity, the risk covered by the hedge, a description of the hedge instrument and the hedged item, as well as a description of the method used in measuring its effectiveness. The hedge is expected to be highly effective in offsetting changes in fair value attributable to the hedged risk and is assessed on an ongoing basis throughout the financial period for which the hedge was designated. Changes in fair value of the derivatives, as well as changes in the market values of their corresponding hedged items, are recognized in net financial income. The fair values of the hedged items are recognized as current financial assets and current financial liabilities. If deriva-tive financial instruments no longer meet the criteria for hedge accounting, they are classified as held for trading.

USD cash flows are monthly forecasted on a rolling basis over a twelve month period. If the net exposure between USD cash inflows and outflows is above USD 15.0 million for more than three months, hedge accounting via a foreign currency forward contract with matched maturities is entered into. These are recorded as cash flow hedges in the financial statements. Forecasted cash flows are hedged by means of a cash flow hedge. The documentation for hedge accounting includes the goals and the strategy of risk management, the nature of the hedging activity, the hedged risk, the designation of the hedging instrument and the underlying transactions, as well as a description of the method to measure its effective-ness. In terms of achieving compensation of risks from fair value changes relating to the hedged risk, the hedged relationships are considered as highly effective. They are regularly reviewed to check whether they were highly effective for the reporting period for which they were designated. The portion of the changes in the fair value of derivatives which qualify as effective hedges is recognized in changes in income directly in equity. The ineffective portion is recognized in the income statement in financial result, net. The fair values of the underlying transactions are recorded as current financial assets and current financial liabilities in the balance sheet. The amounts recognized as changes in income directly in equity are reclassified from equity to the profit and loss statement in the period in which the hedged forecasted cash flows have an impact on the income statement. If the requirements for hedge accounting are no longer fulfilled, the derivative financial instruments are no longer treated as hedge accounting and are classified as held for trading.


Annual Report 2016

G+D does not otherwise apply hedge accounting in managing foreign currency exposure. These derivative financial instruments therefore qualify as “held-for-trading” and are recorded at fair value at the balance sheet date as either an asset or a liability. Changes in fair value are recognized in the income statement as financial income or expense. The fair market values of forward exchange contracts are calculated on the basis of the applicable spot market rates as well as the forward contract premium or discount compared to the contracted forward contract rate.

Giesecke+Devrient identifies derivative instruments embedded in host contracts and accounts for them separately according to the provisions of IAS 39 “Financial Instruments: Recognition and Measurement”. These derivatives consist solely of foreign currency derivatives embedded in certain firm sales and purchase contracts denominated in a currency that is neither the functional currency of G+D nor of the contractual counterparty and which is also not a currency in which transactions are commonly denominated in the jurisdiction in which the transaction is to occur.

The fair values of the external and embedded foreign currency derivatives are recorded as current financial assets and liabilities in the balance sheet.

In fiscal year 2011, derivative financial instruments were used for the purpose of hedging interest rate risks the first time. Effective January 1, 2012, G+D applies hedge accounting for derivative financial instruments for the purpose of hedging interest rate risks. Giesecke+Devrient applies hedge accounting in the form of a cash flow hedge for an interest rate swap and a cross currency swap to secure interest and currency exchange rate risks. A cash flow hedge secures expected future cash flows. Documentation of the hedge relationship includes the objectives and strategy of the company’s risk management, the nature of the hedging activity, the risk covered by the hedge, a description of the hedge instrument and the hedged item, as well as a description of the method used in measuring its effectiveness. With regard to the hedged risk, the hedging relationships are expected to be highly effective in offsetting risks arising from changes in the fair value and are regularly assessed to determine whether they have been highly effective throughout the financial reporting periods for which they were designated. Changes in the fair value of these derivatives that qualify as an effective hedge are recognized as other earnings with no effect in the profit and loss. The ineffective portion is recognized as financial or interest income (net) in the profit and loss. The fair values of the underlying transactions are recognized as current and non-current financial assets and as current and non-current other liabilities in the balance sheet. The amounts which were recognized in other comprehensive income are reclassified from equity to the profit and loss in the period in which the expected hedged cash flows influence the profit and loss. If derivative financial instruments no longer meet the criteria for hedge accounting, they are classified as held for trading. The market value of the hedge is calculated based on PAR FX-Forward rates at the balance sheet date within an effective interest rate model.

The relevant classes of financial instruments used by G+D include the measurement categories in accor-dance with IAS 39, cash and cash equivalents, short-term investments, receivables and payables from construction contracts, as well as finance lease obligations, financial guarantees and derivative financial instruments that are eligible for hedge accounting.

G Risk Management and Foreign Currency Exposure Policies

Risk management for the entire Group is coordinated centrally. Policies for risk management, foreign currency exposure, and documentation requirements are set forth in guidelines and procedures issued by the corporate treasury department. These guidelines are examined and updated on a regular basis. The approval of the guidelines is the responsibility of management.

Derivative financial instruments are used by G+D solely to reduce the risks inherent within its worldwide business. As such, Giesecke+Devrient does not hold or issue derivative financial instruments for speculative purposes.

Refer to Note 22 “Financial Risk” for additional related disclosures.

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H Inventories

Inventories are carried at cost. Cost is determined using the weighted average, FIFO (first-in first-out) or standard cost method. Finished goods and work-in-progress inventories include direct material, labor, and manufacturing overhead costs, which are based on the normal capacity of the production facilities. Items in inventory are written down at the balance sheet date if their net realizable value is lower than their carrying amount.

I Non-current Assets Held for Sale

Non-current assets are classified as held for sale if they are available for immediate sale in their present condition, subject only to terms that are usual and customary for sales of such assets and their sale is highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell.

J Goodwill and Other Intangible Assets

Intangible assets consist of purchased intangible assets, such as standard software, licenses, patents, water rights, know-how, goodwill, and internally developed intangible assets.

Intangible assets with definite useful lives are valued at cost and are amortized on a straight-line basis over their estimated economic useful lives.

Development costs are capitalized when the requirements of IAS 38, “Intangible Assets”, are fulfilled. Capitalized development costs recognized include production costs less accumulated depreciation and impairments. Production costs comprise direct material and personnel costs as well as directly attributable material and manufacturing overhead costs and production-related depreciation. Borrowing costs that are directly attributable to a qualifying asset are capitalized. Such costs are amortized on a straight-line basis over the estimated economic useful lives. Research costs are expensed in the period in which they are incurred.

The useful lives of intangible assets with definite useful lives are generally as follows:

Years

Development costs / Technology 3 – 10

Software, rights, customer base etc. 3 – 15

Goodwill is not amortized but rather tested at least annually for impairment. Reversals of impairments on goodwill are not permitted.

At least once a year, Giesecke+Devrient evaluates the recoverability of goodwill at the cash-generating unit (CGU) level or group of CGUs applying a one-step impairment test. Where the recoverable amount (value in use equal to the present value of future cash flows) of the CGU or group of CGUs, to which the goodwill was allocated, is less than the carrying amount, an impairment loss is recognized. If the impair-ment loss exceeds the goodwill of the CGU, the excess is allocated to the other assets (generally property, plant and equipment and intangible assets) of the CGU or group of CGUs pro rata on the basis of the carrying amount of each asset.

The most critical assumptions in the calculation of the fair value less costs to sell and the calculation of the value in use are based on include estimated growth rates, weighted average capital costs and tax rates. Such premises, as well as the underlying methodology, can materially influence the respective values and therefore impact the determination of a potential impairment of the goodwill. As far as property, plant and equipment, as well as intangible assets, are tested for impairment, the determination of the recoverable amount is based on estimates of the management.


Annual Report 2016

K Property, Plant and Equipment

Property, plant and equipment are valued at cost less accumulated depreciation. Depreciation of property, plant and equipment is calculated on the straight-line method over the estimated economic useful lives of the assets. Depreciation on an asset commences once it has been placed in service.

The cost of self-constructed property, plant and equipment comprises the direct cost of materials and direct manufacturing expenses, plus appropriate allocations of material and manufacturing overheads as well as production and output-related general and administrative costs. Borrowing costs that are directly attributable to a qualifying asset are capitalized.

The acquisition or manufacturing costs also include estimated dismantling and removal costs as well as costs relating to the restoration of the location to its original state.

Any investment allowances or grants received reduce the acquisition or manufacturing costs of the assets for which they were granted.

If an item of property, plant and equipment is comprised of several components with differing useful lives, the separate components are depreciated over the individual useful lives. Expenses for the day-to-day repair and maintenance of property, plant and equipment are normally charged against income.

Estimated economic useful lives of G+D’s property, plant and equipment are as follows:

Years

Buildings up to 50

Technical equipment and machinery 3 – 23

Other plant and office equipment 3 – 23

L Impairment of Intangible Assets and Property, Plant and Equipment

Impairment of other intangible assets and items of property, plant and equipment is identified by comparing the carrying amount with the recoverable amount (the higher of fair value less costs to sell and value in use). If no future cash flows generated independently of other assets can be allocated to the individual assets, recoverability is tested on the basis of the cash-generating unit to which the assets can be allocated. Impairment losses are reversed, with the exception of goodwill, if the reasons for recognizing the original impairment loss no longer apply.

M Leasing

When concluding an agreement, the Group determines whether such an agreement is or contains a lease.

Beneficial ownership of leased assets is attributed to the contracting party in the lease, to which substan-tially all risks and rewards incidental to ownership of the asset are transferred.

If substantially all the risks and rewards are attributable to the lessor (operating lease), the leased asset is recognized by the lessor. Measurement of the leased asset is then governed by the accounting policies applicable to that asset. During the term of the lease, the operating lease payments are recognized in the income statement by the lessor and the lessee.

If substantially all the risks and rewards incidental to ownership of the leased asset are transferred to the lessee (finance lease), the lessee must recognize the leased asset. At the commencement of the lease term, the leased asset is measured at fair value or the lower present value of the future lease payments and depreciated over the shorter of the estimated economic useful life and the lease term. The lessee recognizes a lease liability at the commencement of the lease term. In subsequent periods, the lease liability is reduced using the effective interest method and the carrying amount is adjusted accordingly.

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N Provisions

Pension Provisions and Similar ObligationsObligations for pensions and other postretirement benefits and related expenses and income are determined in accordance with actuarial measurements. These measurements are based on key assumptions, including discount rates, salary trends, pension trends, biometric probabilities and assumptions about the trend of health insurance benefits. The discount factors applied reflect the interest rates achieved at the balance sheet date for senior, fixed-interest bonds with commensurate maturities. As a result of a fluctuat-ing market and economic situation, the underlying assumptions may deviate from the actual development, which can have a significant impact on the obligations for pensions and other postretirement benefits upon termination of employment.

Pension provisions under defined benefit plans are measured in accordance with the projected unit credit method. Thereby, not only the pensions and acquired expectancies known about at the reporting date but also increase in compensation and pensions expected in the future are taken into account. Actuarial gains or losses and other re-measurements of the net obligation are determined at the reporting date and recorded through other comprehensive income (changes in equity not affecting profit or loss for the period).

In order to determine the discount rate for the measurement of the pension provisions and similar obligations, Giesecke+Devrient uses the Mercer Pension Discount Yield Curve Method. This is a method for determining the interest rate that conforms with IAS 19. The new method is based on a selection of AA-rated corporate bonds in accordance with Bloomberg analyses. Net interest expense, i.e. the interest portion of the allocation to the provision less the expected return on plan assets, is reported in interest expense. The amount payable in conjunction with defined contribution plans is reported as an expense.

When the benefits of a plan change or a plan is cut, the resulting change in the relevant past service performance or the gain or loss from the curtailment is immediately recognized in the income statement. The Group recognizes gains and losses from the settlement of a defined benefit pension plan at the time of settlement.

Pre-retirement Part-time Work AgreementsAn obligation under pre-retirement part-time work is recognized from the point in time at which the employee is entitled under an individual agreement to the premature termination of his employment. For pre-retirement part-time work agreements in conjunction with the block model, the continuously accruing settlement arrears and the obligation to pay top-up amounts are measured separately. Both obligations are recorded in installments applying actuarial principles from the start of the active phase until the end of the employment phase. In the passive phase, the present value of the future payments is provided. The net interest portion included in the pre-retirement part-time work expenses is reported as interest expense.

Product WarrantiesA provision for the expected warranty-related costs is established when the product is sold. Estimates for accrued warranty costs are primarily based on historical experience.

Provision for Restructuring CostsA provision for restructuring costs is recorded where a legal or constructive obligation exists. A constructive obligation for restructuring costs arises only when there is a detailed formal plan identifying key features of the plan and its implementation and a valid expectation on the part of those affected, either by starting to implement the plan or announcing its main features to those affected by it. A restructuring provision should include only the direct expenditures arising from the restructuring, which are those that are both necessarily entailed by the restructuring and not associated with the ongoing activities of G+D.

Provision for Onerous ContractsThe calculation of provisions for onerous contracts is to a significant extent based on estimates. Such estimates are mainly related to the status of the projects, the fulfillment of the services requested, changes regarding the volume of the projects, the update of budgeted costs as well as applied customized and runtime-specific discount rates.

Giesecke+Devrient records provisions for onerous contracts for contracts in which the unavoidable costs of meeting the obligations exceed the expected benefits. The unavoidable costs under a contract reflect the minimum net costs of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it. Before a separate provision for an onerous contract is established, any impairment loss that has occurred on assets dedicated to that contract is recognized.


Annual Report 2016

Other ProvisionsOther provisions are recognized where there are legal or constructive obligations to third parties on the basis of past transactions or events that will probably require an outflow of resources to settle, and this outflow can be reliably measured. They are carried at their expected settlement amount, taking into account all identifiable risks, and may not be offset against potential reimbursements, for example, via insurance claims. The settlement amount is calculated on the basis of the best estimate. Provisions are discounted where the effect of the time value of money is material.

Changes in estimates of the amount and timing of payments or changes in the discount rate applied in measuring provisions for decommissioning, restoration, and similar obligations are recognized in the same amount for the related asset. Where the decrease in the amount of a provision is greater than the carrying amount of the related asset, the excess is recognized immediately in profit or loss.

O Recognition of Revenue, Interest and Dividends

Revenue is generally recognized when a product is shipped and title is transferred to the customer or services are performed. If product sales require customer acceptance, revenues are recognized generally upon acceptance by the customer. For arrangements requiring installation of a product at the customer location, where installation is essential to the functionality of the product, revenue is recognized when the product is delivered and installed at the customer location.

In certain instances, G+D is the general contractor concerning the construction of paper mills, special facilities (e.g. production of security products), and personalization centers. The fulfillment of these types of contracts usually extends over a long period and can last up to several years until final completion. For construction contracts, the percentage-of-completion method is applied, provided that the revenue and expenses can be estimated reliably. The percentage of completion is generally determined using the output method (e.g. agreed milestones) or the cost-to-cost method. Profit recognized in the period is calculated by multiplying the contract revenues and costs by the percentage of completion less the results recognized in prior periods.

For long-term customer contracts in which the major components consist of the production, modification, or customizing of software, the percentage-of-completion method is also used for revenue recognition.

Giesecke+Devrient has contractual arrangements in which it performs multiple revenue-generating activities, mainly for cards, passports and ID documents. For arrangements involving multiple revenue- generating activities (e.g. the delivery of card bodies and personalization services) the immediate recognition of revenue is only possible under certain circumstances. In these cases, the revenue allocation is based upon the relative fair values of the individual components of the total arrangement. The amount allocable to the delivered elements is limited to the amount that is not contingent upon delivery of additional elements.

Interest is recognized using the effective interest method. Dividends are recognized when the shareholder’s right to receive payment is established.

P Grants

Where grants are received for certain assets, they are offset against the acquisition or manufacturing costs of the related assets and therefore reduce the acquisition costs. The grants / allowances are released to the income statement in installments in the form of a reduction in depreciation expense.

Other types of grants are recorded in the income statement in the period in which the entitlement arises.

Q Deferred Taxes

Deferred tax assets and liabilities are recognized for temporary differences between the carrying amounts in the consolidated balance sheet and the tax base, as well as for tax loss carryforwards that are expected to reduce tax expense in future periods.

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R Statement of Cash Flows

The statement of cash flows is prepared in accordance with IAS 7 and shows the cash inflows and outflows during the fiscal year classified by cash flows from operating activities, investing activities and financing activities. The cash flows from operating activities are presented using the indirect method, in which earnings are adjusted for non-cash transactions. Moreover, items attributable to cash flows from investing activities and financing activities are eliminated. Cash flows from interest received and interest paid, as well as dividends received, are allocated to cash flows from operating activities. Cash outflows for the acquisition of additional shares in affiliated companies under common control are classified as cash flows from financing activities.

The cash flow funds comprise the balance sheet line item “cash and cash equivalents”. Cash and cash equivalents include cash on hand and cash at banks, as well as cash from funds and investments with an original maturity of up to three months.

S Change in Accounting and Valuation Policies

IFRS 11 contains regulations for recording joint ventures and joint operations in the balance sheet and the income statement. Joint ventures are accounted for under the equity method. The recognition of joint operations, however, is comparable to the pro rata consolidation. By amending IFRS 11, the IASB regulates the accounting for acquisitions of interests in joint operations that constitute business operations in accordance with IFRS 3 “Business combinations”. In such cases, the acquirer shall apply the accounting principles of business combinations in accordance with IFRS 3. Moreover, in these cases, the disclosure requirements of IFRS 3 take effect as well. Applying these changes did not have a material impact on the consolidated financial statements of G+D.

The changes to IAS 1 relating to the disclosure initiative concern various matters regarding its disclosure. They clarify that note disclosures are only necessary if their content is material. This is also explicitly applicable if an IFRS demands a list of minimum disclosures. Furthermore, explanations regarding aggrega-tion and disaggregation of items in the balance sheet and the statement of comprehensive income are included. It also clarifies the recognition of shares of other comprehensive income in companies accounted for under the equity method. Consequently, this eliminates a sample structure of the notes to the financial statements in order to strengthen individual corporate relevance. Applying these changes did not have a material impact on the consolidated financial statements of G+D.

The amendments to IAS 16 and IAS 38 provide additional guidelines for determining an acceptable depreciation method. Thus, depreciation methods based on revenue are not valid for tangible assets and are only valid for intangible assets in exceptional cases (disputable assumption of inadequacy). Applying these changes did not have a material impact on the consolidated financial statements of G+D.

Changes to IAS 19 clarify the rules that deal with the assignment of employee contributions and contribu-tions from third parties to the service period if the contributions are linked to a period of service. Further-more, simplifications have been established where the contributions are independent of the years of service. Applying these changes did not have a material impact on the consolidated financial statements of G+D.

Changes were made to seven standards from 2010 to 2012 within the scope of the “Annual Improvement” Project. The adjustments in the wording of individual IFRS should result in clarification of the existing regulations. The changes also concern the notes to the financial statements. The standards affected are IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38. The changes to IFRS 2 and IFRS 3 are to be applied to transactions occurring on or after July 1, 2014 despite the application of regulations for fiscal years beginning on or after February 1, 2015. Applying these changes did not have a material impact on the consolidated financial statements of G+D.

Changes were made to four standards within the scope of the “Annual Improvement” Project. The adjustments in the wording of individual IFRS / IAS should result in clarification of the existing regulations. The standards affected are IFRS 5, IFRS 7, IAS 19 and IAS 34. Applying these changes did not have a material impact on the consolidated financial statements of G+D.

The IASB has published a number of further announcements. The recently implemented standards, as well as those yet to be implemented, have had no major impact on the consolidated financial statements of G+D.


Annual Report 2016

T New and Changed Accounting Pronouncements

In addition to the new standards and interpretations listed below which may have a significant influence on the consolidated financial statements, a series of further standards and interpretations were passed which are not expected to have a significant effect on the consolidated financial statements:

Endorsed by the EUIFRS 9 which was issued in July 2014 replaces the existing guidelines in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidelines on the classification and measurement of financial instruments, including a new model of expected credit losses to calculate the impairment of financial assets, as well as the new general accounting standards for hedge accounting. It also adopts guidance for the recognition and derecognition of financial instruments from IAS 39. These changes become effective for the first time in fiscal years which begin on or after January 1, 2018. The standard was endorsed by the European Union. G+D is currently examining the effects of its application on the consolidated financial statements.

IFRS 15 Revenue from Contracts with Customers provides a comprehensive framework for determining whether, to what extent and at which point in time sales revenue is recognized. It replaces existing revenue recognition guidelines including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. These changes become effective for the first time in fiscal years which begin on or after January 1, 2018. The standard was endorsed by the European Union. G+D is currently examining the effects of its application on the consolidated financial statements.

Endorsement by the EU still pendingIFRS 16 introduces a uniform accounting model whereby leases are to be recorded in the balance sheet of the lessee. A lessee records a right-of-use asset which represents the right to use the underlying asset as well as a lease liability for lease payments obligations. There are exceptions for short-term leases and leases relating to low-value assets. The accounting by the lessor is comparable to the current standard – that is to say that the lessor still continues to classify lease arrangements as finance or operating leases.

IFRS 16 replaces the existing guidance on leases including IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease.

The standard is – subject to an adoption in EU law – to be applied for the first time in the first reporting period of a fiscal year beginning on or after January 1, 2019. Early adoption is permitted for companies that apply IFRS 15 Revenues From Contracts with Customers at the time of initial application of IFRS 16 or before. G+D is currently examining the effects of its application on the consolidated financial statements.

The respective standards will be adopted when they become obligatory.

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2 Financial Assets

Financial assets are comprised of the following as of December 31, 2016 and 2015:

EUR million Dec. 31, 2016 Dec. 31, 2015

Current

Short-term investments (> 3 months and < 1 year) 1.2 0.1

Trading securities 61.8 67.2

Available-for-sale securities 9.3 7.7

Derivative financial instruments 1.6 6.0

Loans receivable from joint ventures 0.4 4.4

74.3 85.4

Non-current

Cash surrender value of reinsurance 20.6 17.9

Loans receivable from associated companies 0.6 0.3

21.2 18.2

Available-for-sale securities have been recorded at fair value in the amount of EUR 9.3 million as of December 31, 2016 and EUR 7.7 million as of December 31, 2015. The fair value represents the fair market value.

3 Accounts Receivable Trade and Other Accounts Receivable, net

Accounts receivable trade and other accounts receivable, net are comprised of the following as of December 31, 2016 and 2015:


Current

Accounts receivable trade 397.8 367.1

Accounts receivable from joint ventures and associated companies 6.1 6.2

Accounts receivable from related parties 0.5 0.2

Accounts receivable from MC Familiengesellschaft mbH 0.1 –

Other 18.4 19.4

Prepayments 49.3 27.4

472.2 420.3

Allowance for doubtful accounts (11.6) (9.0)

460.6 411.3

Non-current

Accounts receivable trade 5.8 2.8

Prepayments on property, plant and equipment 2.5 3.3

8.3 6.1

Aging structure of accounts receivable trade and other accounts receivable (excluding prepayments) as of December 31, 2016:

EUR million Not past due

Past due 1–30 days




Past due more than 360 days Total

Accounts receivable 302.2 51.4 35.8 20.7 10.1 8.5 428.7

Less allowance for doubtful accounts (0.1) – – (2.1) (3.4) (6.0) (11.6)

Accounts receivable, net 302.1 51.4 35.8 18.6 6.7 2.5 417.1


Annual Report 2016

Aging structure of accounts receivable trade and other accounts receivable (excluding prepayments) as of December 31, 2015:

EUR million Not past due





Past due more than 360 days Total

Accounts receivable 312.7 35.9 30.2 4.4 7.0 5.5 395.7

Less allowance for doubtful accounts (0.3) (1.2) (1.6) (0.9) (0.8) (4.2) (9.0)

Accounts receivable, net 312.4 34.7 28.6 3.5 6.2 1.3 386.7

The following table serves as a summary of the development of the specific allowances for doubtful accounts:


Opening balance 9.0 7.5

Changes in consolidation structure 0.1 –

Additions (through profit or loss) 5.7 5.0

Recoveries (through profit or loss) (1.7) (1.1)

Utilization (1.3) (2.8)

Currency effects (0.2) 0.4

11.6 9.0

The specific allowances for doubtful accounts relate to several customers that disclosed that due to their economic circumstances they would not be able to settle the outstanding balances.

The accounts receivable trade and other receivables which have neither been provided for nor are past due as of the balance sheet date amounted to EUR 302.1 million and EUR 312.4 million as of December 31, 2016 and 2015. G+D anticipates that the full amount of the accounts receivable which have neither been provided for nor are past due are collectable. There is no indication that the debtors will not be able to meet their payment obligations. This estimate is based on the payment history as well as extensive analysis relating to the customer default risk.

Allowances for doubtful accounts on accounts receivable from joint ventures, associated companies, related parties, as well as other receivables were not recorded.

G+D entered into a service concession arrangement regarding the construction and operation of a joint factory for the production of identification cards and passports (BOT model = Build-Operate-Transfer) with a foreign authority in 2015. In addition to the one year construction phase, it also provides for a ten year operational phase.

A common investment budget was established for the construction of the factory. The Group bears 60% of the budget and the contract partner 40%. The significant tasks of the Group are the initial planning of the factory, the provision of the necessary machinery, the establishment of the production, as well as the provision of cash (construction phase). The Group is responsible for the business operations for a period of 10 years (with a possibility of extension for another five years), whereas the contractual partners are entitled to the EBITDA of the factory in proportion to their investment share (60 / 40). The EBITDA is distributed on a yearly basis. The contract partner guaranteed a minimum order quantity of identification cards and passports for each year of the operational phase.

G+D is responsible for maintaining the operational readiness of the factory during the operational phase. The ownership of the factory is transferred to the grantor after the termination of the operational period.

The service concession arrangement is categorized as a financial asset model.

In 2015, G+D made a cash payment of EUR 2.7 million within the scope of the construction phase which was recorded as deferred charges in accounts receivable trade and other accounts receivable. As this cash payment has not been utilized in 2016, these remain unchanged within deferred charges.

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The construction phase has not been completed as of December 31, 2016. Therefore, G+D and its contrac-tual partner agreed upon an extension of the original 12 month construction phase in fiscal year 2016. In 2016, G+D continously rendered services for the construction of the card factory. For this purpose, accounts receivable and sales revenues were recorded in the amount of EUR 5.7 million. These accounts receivable were recorded as non-current accounts receivable trade since the revenues can only be recorded within the operational phase. In fiscal year 2016, G+D did not record any net income or expense as the sales revenues were equal to the corresponding expenses.

Additionally, the current down payments contain down payments made for machinery ordered in the amount of EUR 4.2 million.

4 Inventories, net

Inventories are comprised of the following as of December 31, 2016 and 2015:


Raw materials 118.7 131.4

Work in process 152.0 167.6

Finished goods 62.6 62.8

Merchandise 14.1 18.9

Spare parts, modules, sensors – Currency Management Solutions 47.0 44.0

394.4 424.7

In fiscal years 2016 and 2015, write-downs on inventory amounted to EUR 19.2 million and EUR 13.5 million, respectively.

The carrying value of inventory which serves as collateral on financial liabilities (see Note 13 “Financial Liabil- ities”) amounted to EUR 6.1 million and EUR 14.9 million as of December 31, 2016 and 2015, respectively.

5 Other Current Assets


Taxes receivable (other than income taxes) 20.0 19.6

Restricted cash 6.8 5.2

Other 7.6 8.1

34.4 32.9

6 Investments

Investments include the following:


Investments accounted for under the equity method 13.2 26.7

13.2 26.7

In the prior year, investments included a 50% share in CI Tech Components AG. A business unit of this company was transferred to CI Tech Sensors AG in fiscal year 2016 in which G+D initially also held an investment of 50%. In the course of an exchange of shares, G+D acquired an additional 25% in CI Tech Components AG by giving up 25% in CI Tech Sensors AG (see Note 24 “Business Combinations“). CI Tech Components AG therefore became a fully consolidated investment. As part of the investments accounted for under the equity method, only the 25% share in CI Tech Sensors AG is remaining as of December 31, 2016.


Annual Report 2016

The following investments (see Note 1 C “Consolidated Group and Principles of Consolidation“) are accounted for using the equity method of accounting:

Interest in the company

Name of the joint venture

Shenzhen G&D Currency Automation Systems Co. Ltd., China 50.00%

E-Kart Elektronik Kart Sistemleri Sanayi ve Ticaret Anonim Sirketi, Turkey 50.00%

EPC Electronic Payment Cards Gesellschaft für Kartenmanagement mbH, Germany 49.00%

CI Tech Sensors AG, Switzerland 25.00%

Name of the associated company

Emirates German Security Printing L.L.C., United Arab Emirates 29.40%

Fit Pay, Inc., United States of America 19.93%

finally safe GmbH, Germany 14.30%

Shenzhen G&D Currency Automation Systems Co. Ltd. sells and installs banknote processing systems.

E-Kart Elektronik Kart Sistemleri Sanayi ve Ticaret Anonim Sirketi manufactures and sells cards, card systems, and card-based solutions.

The main activity of EPC Electronic Payment Cards Gesellschaft für Kartenmanagement mbH is the production and sale of cards and card systems.

CI Tech Sensors AG develops, produces and markets compact sensors for the reliable authentication and feature recognition of bank notes worldwide.

Emirates German Security Printing L.L.C. merchandises and sells security devices in the United Arab Emirates and other states of the Arabian Peninsula.

Fit Pay, Inc. offers a new way of transacting payments using wearable devices. It relieves consumers from having to carry cash, credit cards or a smartphone. All personal data and card information are fully encrypted and not revealed at the point of sale where they could be matched. Fit Pay is a secure, contactless means of payment.

Finally safe GmbH is responsible for the development of technology, products and services in the field of internet early warning and air picture systems in connection with downstream systems as well as their successful market positioning.

The investment in Trustonic Ltd., Cambridge, Great Britain which was classified as a non-current asset held for sale as of December 31, 2014, was sold in 2015 at a selling price of EUR 6.3 million. The net gain on sale amounted to EUR 4.0 million and is presented within other financial income / (expenses), net. Due to the sale G+D received a prepayment on license payments from the buyer in the amount of EUR 2.7 million. Thereof, EUR 0.9 million and EUR 0.7 million were recorded in the income statement within other operating income / (expenses), net in 2016 and 2015.

67

Joint Ventures

The following table summarizes the financial information for material joint ventures as included in their own financial statements prepared in accordance with IFRS, adjusted for fair value adjustments at acquisition and differences in the Group accounting policies:

EUR million

Shenzhen G&D Currency Automation Systems Co. Ltd. CI Tech Sensors AG

2016 2015 2016 1 2015 2

Revenues 30.2 25.7 36.6 45.6

Profit from continuing operations 3.7 3.0 1.2 1.4

thereof depreciation and amortization (0.4) (0.4) (0.9) (1.3)

thereof interest income / (expense) (0.1) (0.1) (0.1) (0.3)

thereof income taxes (1.3) (1.1) (0.3) (0.3)

Other comprehensive income (0.4) 0.8 – 0.2

Total comprehensive income 3.3 3.8 1.2 1.6

Group’s share of total comprehensive income 1.7 1.9 0.3 0.8

Continuation of purchase price allocation (incl. CTA) – – (1.0) (1.0)

Elimination of intercompany profits (0.5) (0.6) – –

Group’s share of total comprehensive income 1.2 1.3 (0.7) (0.2)

Dividends received during the year (1.3) (2.1) – –

Current assets 19.1 22.9 18.4 15.2

thereof cash and cash equivalents 7.7 7.4 1.2 1.4

Non-current assets 4.2 4.6 2.0 24.0

Current liabilities (12.0) (17.0) (6.8) (14.3)

thereof current financial liabilities – – (0.4) (8.5)

Non-current liabilities – – (5.0) (8.2)

thereof non-current financial liabilities – – – –

Net assets 11.3 10.5 8.6 16.7

Group’s share of net assets 5.7 5.2 2.2 8.4

Elimination of intercompany profits (0.5) (1.0) – –

Assets from purchase price allocation (incl. CTA) – – 2.9 14.1

Carrying amount of interest in joint venture at year end 5.2 4.2 5.1 22.5

1 Total comprehensive income 2016 comprises three months (until March 31, 2016) of CI Tech Components AG including the Sensors business as well as nine months (from April 1, 2016) of CI Tech Sensors AG

2 The amounts for 2015 correspond to CI Tech Components AG in which G+D held 50% of the shares until March 31, 2016

Non-material Joint Ventures

The following table summarizes the financial information for the Group’s share in non-material joint ventures based on the amounts as reported in the Group’s financial statements:


Carrying amount of interest in non-material joint ventures – –

Share of

Loss from continuing operations (0.7) (1.0)

Total comprehensive income (0.7) (1.0)

Losses on shares in joint ventures amounting to EUR 0.7 million (prior year EUR 0.6 million) were not recorded in the Group’s financial statements as there is no obligation to assume these losses. The accumulated losses which were not recorded amount to EUR 1.3 million as of December 31, 2016 and EUR 0.6 million as of December 31, 2015.

An impairment in the amount of EUR 2.9 million was recorded on an investment in a joint venture in 2015 as positive cash flows for this company were no longer expected. In 2016, no such impairments were recorded.


Annual Report 2016

Non-material Associated Companies

The following table summarizes the financial information for the Group’s share in non-material joint ventures based on the amounts as reported in the Group’s financial statements:


Carrying amount of interest in non-material associated companies 2.9 –

Share of

Loss from continuing operations (0.7) –

Total comprehensive income (0.7) –

7 Intangible Assets

A summary of the activity for goodwill and other intangible assets is as follows:

EUR million

Customer base /

Rights

Development costs /

Technology Software Goodwill Total

Costs

January 1, 2015 37.1 59.0 147.6 38.7 282.4

Additions 2.6 6.7 7.3 4.4 21.0

Transfers – (0.1) 0.7 – 0.6

Disposals (0.1) (3.0) (2.0) – (5.1)

Foreign currency effects 0.4 0.1 (0.4) 0.6 0.7

December 31, 2015 40.0 62.7 153.2 43.7 299.6

January 1, 2016 40.0 62.7 153.2 43.7 299.6

Additions 0.8 9.7 6.4 0.1 17.0

Additions due to changes in consolidation structure 0.9 17.1 – 14.0 32.0

Disposals – – (9.4) – (9.4)

Foreign currency effects 0.3 (0.6) 0.4 (1.2) (1.1)

December 31, 2016 42.0 88.9 150.6 56.6 338.1

The additions in 2016 and 2015 comprise self-constructed intangible assets in the amount of EUR 10.3 million and EUR 6.7 million, respectively.

EUR million

Customer base /

Rights

Development costs /

Technology Software Goodwill Total

Accumulated amortization

January 1, 2015 33.9 34.5 69.2 – 137.6

Additions 2.0 5.1 19.0 – 26.1

Transfers – – 0.4 – 0.4

Impairment losses – 1.9 – – 1.9

Disposals (0.1) (2.7) (1.9) – (4.7)

Foreign currency effects 0.3 0.1 (0.3) – 0.1

December 31, 2015 36.1 38.9 86.4 – 161.4

January 1, 2016 36.1 38.9 86.4 – 161.4

Additions 0.9 4.9 21.1 – 26.9


Disposals – – (9.4) – (9.4)

Foreign currency effects 0.2 (0.4) 0.3 – 0.1

December 31, 2016 37.2 44.5 98.4 – 180.1

Carrying value

January 1, 2015 3.2 24.5 78.4 38.7 144.8

December 31, 2015 3.9 23.8 66.8 43.7 138.2

December 31, 2016 4.8 44.4 52.2 56.6 158.0

69

In 2016, G+D amended the accounting guidelines regarding capitalized development costs since the technical environment as well as the content of the projects changed significantly. This led to an increase in additions to capitalized development costs in the amount of EUR 3.7 million.

The amounts of amortization of intangible assets recorded in the functional areas of the income statement are as follows:


Cost of goods sold 6.4 7.9

Selling expenses 0.3 0.1

Research and development expenses 0.4 0.3

General and administrative expenses 19.8 17.8

26.9 26.1

In fiscal years 2016 and 2015, impairment losses in the amount of EUR 1.1 million and EUR 1.9 million were recorded on capitalized development costs. Impairment losses amounting to EUR 1.1 million and EUR 1.9 million were recorded in cost of goods sold. The impairment losses were recorded on capitalized development costs for which the recoverable amount based on the value in use was EUR 0.0 million due to expected negative business trends in the future.

The goodwill of a Canadian subsidiary in the amount of EUR 2.1 million (prior year EUR 2.0 million) was allocated to the “Banknote Printing” and “Paper” CGUs in the past. In connection with the reorganization of the “Banknote” business unit, these two CGUs were combined in the CGU “Banknote Solutions” in 2015. The goodwill from CI Tech Components AG in the amount of EUR 14.0 million was allocated to the CGU “Currency Management Solutions“. As the CGU “Currency Management Solutions” business is mainly processed in Euro, this goodwill is recorded in Euro. The goodwill from secunet AG in the amount of EUR 3.4 million (prior year EUR 3.4 million) was assigned to the “secunet” CGU. Sensitivity analyses are not required since the recoverability of these goodwills is not deemed to be critical.

The goodwill from Veridos Matsoukis S.A. Security Printing in the amount of EUR 2.1 million (prior year EUR 2.1 million) as well as the goodwill from Veridos GmbH in the amount of EUR 4.4 million (prior year EUR 4.4 million) were allocated to the “Veridos” CGU. Due to the reorganization of the divisional structure in the “Mobile Security” business unit, the goodwill from Giesecke & Devrient Nordic AB in the amount of EUR 30.6 million (prior year EUR 31.8 million) was assigned to the respective 3S businesses, namely the CGUs “Financial Institutions – 3S”, “Telecommunication Industries – 3S” and “Enterprise Security OEM – 3S” (formerly CGU “Server Software and Services”). Management steers the goodwills on the level of the new CGUs. The allocation of the goodwills was based on the present value of the planned revenues in the amount of EUR 7.4 million (prior year EUR 7.7 million) in the CGU “Financial Institutions – 3S”, EUR 21.2 million (prior year EUR 22.0 million) in the CGU “Telecommunication Industries – 3S” and EUR 2.0 million (prior year EUR 2.1 million) in the CGU “Enterprise Security OEM – 3S”.

In performing the annual impairment tests for goodwill, the recoverable amount of the CGU or group of CGUs is based on the value in use. The value in use is the present value of the future cash flows expected to be derived from the CGU or a group of CGUs. Since 2014, the cash flow projections are based upon G+D’s five-year plans. The cash flows for the CGU “Veridos” were determined using the planning assumptions of an average EBITDA margin of 5.6% during the planning period and a perpetual growth rate of 1.0%. The cash flows for the CGUs “Financial Institutions – 3S”, “Telecommunication Industries – 3S” and “Enterprise Security OEM – 3S” were determined using the planning premises of average EBITDA margins of 12.4%, 8.5% and 9.2% during the planning period and perpetual growth rates of 0.0%, respectively. The cash flows for the CGU “Currency Management Solutions” were determined using the planning premises of average EBITDA margin of 9.6% during the planning period and perpetual growth rate of 0.0%.

In discounting the cash flows of the “secunet” CGU, pre-tax interest rates of 11.5% and 9.8% were used in 2016 and 2015, respectively. For the CGUs “Banknote Solutions” and “Currency Management Solutions“, a pre-tax interest rate of 9.6% was applied in 2016 and 8.8% in 2015, respectively. In discounting the cash flows of the “Veridos” CGU, pre-tax interest rates of 10.2% and 9.9% were applied in 2016 and 2015, respectively. In discounting the cash flows of the “Financial Institutions – 3S” and “Enterprise Security OEM – 3S” CGUs, a pre-tax interest rate of 11.8% and 11.4% was used in 2016 and 2015, respectively. For the CGU “Telecommunication Industries – 3S” pre-tax interest rates of 12.1% in 2016 and 11.4% in 2015 were applied. Impairments on goodwill were not recorded in fiscal years 2016 and 2015.


Annual Report 2016

A sensitivity analysis was carried out for the goodwill in the CGU “Veridos”. An increase in the interest rate from 10.2% to 11.7% ceteris paribus as of December 31, 2016 would result in a first time impairment loss. A reduction in the cash flows for the terminal value ceteris paribus from EUR 12.0 million to EUR 9.7 million as of December 31, 2016 would result in an impairment loss.

A sensitivity analysis was carried out for the goodwill in the CGUs “Financial Institutions – 3S”, “Telecommu-nication Industries – 3S” and “Enterprise Security OEM – 3S”. An increase in the interest rate ceteris paribus from 11.8% to 25.5% as of December 31, 2016 for “Financial Institutions – 3S”, from 12.1% to 16.6% for “Telecommunication Industries – 3S” and from 11.8% to 33% for “Enterprise Security OEM – 3S” would result in a first-time impairment loss. A reduction in the cash flows for the terminal value ceteris paribus from EUR 3.7 million to EUR 0.5 million as of December 31, 2016 for “Financial Institutions – 3S”, from EUR 5.8 million to EUR 3.1 million for “Telecommunication Industries – 3S” and from EUR 2.6 million to EUR – 0.1 million for “Enterprise Security OEM – 3S” would result in an impairment loss.

No intangible assets serve as collateral for financial liabilities (see Note 13 “Financial Liabilities”) as of December 31, 2016 and 2015, respectively.

8 Property, Plant and Equipment

A summary of the activity for property, plant and equipment 1 is as follows:

EUR million

Land and

buildings 1

Technical equipment and

machinery 1

Other plant and office

equipment 1Construction

in process Total

Costs

January 1, 2015 428.0 695.4 212.4 9.9 1,345.7

Additions 4.8 16.3 16.3 20.1 57.5

Transfers 6.6 11.2 (3.7) (11.0) 3.1

Disposals (2.1) (15.4) (12.8) – (30.3)

Foreign currency effects 2.4 (4.0) 4.2 0.1 2.7

December 31, 2015 439.7 703.5 216.4 19.1 1,378.7

January 1, 2016 439.7 703.5 216.4 19.1 1,378.7

Additions 6.3 37.5 24.4 13.7 81.9

Transfers 7.3 8.6 4.3 (20.1) 0.1

Additions due to changes in consolidation structure – 0.4 3.6 – 4.0

Disposals (2.0) (32.7) (15.4) – (50.1)

Foreign currency effects 0.4 8.6 (0.3) 0.1 8.8

December 31, 2016 451.7 725.9 233.0 12.8 1,423.4

1 Including assets under finance leases (see Note 9 “Leasing”)

71

EUR million

Land and

buildings 1

Technical equipment and

machinery 1

Other plant and office

equipment 1Construction

in process Total

Accumulated depreciation

January 1, 2015 204.5 478.1 157.5 – 840.1

Additions 12.1 46.2 20.4 – 78.7

Transfers (0.3) 2.7 (2.4) – –

Disposals (1.6) (14.7) (12.6) – (28.9)

Foreign currency effects 1.2 (1.6) 3.0 – 2.6

December 31, 2015 215.9 510.7 165.9 – 892.5

January 1, 2016 215.9 510.7 165.9 – 892.5

Additions 11.1 46.3 21.2 – 78.6

Transfers 0.6 (0.6) – – –


Disposals (1.8) (31.8) (15.2) – (48.8)

Foreign currency effects (0.1) 5.1 (0.2) – 4.8

December 31, 2016 225.7 530.1 171.7 – 927.5

Carrying value

January 1, 2015 223.5 217.3 54.9 9.9 505.6

December 31, 2015 223.8 192.8 50.5 19.1 486.2

December 31, 2016 226.0 195.8 61.3 12.8 495.9

1 Including assets under finance leases (see Note 9 “Leasing”)

In fiscal year 2016, G+D conducted an external review of the remaining useful lives of the buildings at the Munich headquarters. This resulted in an increase in the expected useful lives. The effect of these changes on the actual and expected depreciation expense in the current and coming years is as follows:

EUR million 2016 2017 2018 2019 2020 thereafter

(Decrease) Increase in depreciation expense (1.2) (1.0) (1.0) (0.9) (0.6) 4.7

In fiscal years 2016 and 2015, Giesecke+Devrient recorded impairments amounting to EUR 0.3 million and EUR 0.0 million on property, plant and equipment in cost of goods sold as well as EUR 0.1 million and EUR 0.0 million in research and development. The impairments recorded by Giesecke+Devrient in 2016 comprised machinery no longer used in the production process due to a site closure. The reduction is based on a revised estimate of the recoverable amount of the machinery based on the fair value less costs to sell.

The carrying value of property, plant and equipment, which serves as collateral for financial liabilities (see Note 13 “Financial Liabilities”), amounted to EUR 31.3 million and EUR 86.6 million as of December 31, 2016 and 2015, respectively.

Commitments for the purchase of property, plant and equipment amounted to EUR 8.3 million and EUR 10.3 million as of December 31, 2016 and 2015, respectively.


Annual Report 2016

9 Leasing

Giesecke+Devrient has obligations under finance leases covering buildings and certain machinery and equipment that expire at various dates over the next three years.

As of December 31, 2016 and 2015, the carrying values of buildings, machinery and equipment recorded under finance leases were as follows:


Buildings 10.9 11.9

Machinery and equipment 0.1 1.8

11.0 13.7

Depreciation on assets held under finance leases is included in depreciation expense.

Furthermore, Giesecke+Devrient has several non-cancelable operating leases for buildings, manufacturing facilities, electronic data processing equipment, motor vehicles and other office equipment which expire over the next 12 years. Rental expenses for operating leases during 2016 and 2015 amounted to EUR 29.6 million and EUR 28.8 million, respectively.

Future minimum lease payments on non-cancelable operating leases and future minimum finance lease payments amount to:

EUR million Finance leases

Operating leases

Less than one year 2.8 23.4

Between one and five years 3.5 43.5

More than five years – 18.1

Total minimum lease payments 6.3 85.0

Less amount representing interest (at rates up to 7.8%) (0.4)

Present value of net minimum finance lease payments 5.9

The present value of net minimum finance lease liabilities is as follows:

EUR million Finance leases

Less than one year 2.6

Between one and five years 3.3

Present value of net minimum finance lease payments 5.9

The future minimum lease payments on non-cancelable operating leases include lease agreements with related parties in the amount of EUR 0.1 million.

10 Accounts Payable Trade and Other Accounts Payable


Current

Accounts payable trade due to third parties 251.1 236.4

Accounts payable due to associated companies and joint ventures 8.5 1.7

Accounts payable to shareholders – 0.1

Other similar liabilities 1.8 1.4

Deposits received / deferred income 158.4 184.4

419.8 424.0

Non-current

Deposits received / deferred income 48.2 82.3

48.2 82.3

73

11 Provisions

EUR million

WarrantiesPersonnel-

related costs

Licenses and patent

infringementsOnerous

contracts Restructuring Other Total

January 1, 2016 63.3 12.9 10.0 10.7 45.4 20.6 162.9

Additions 17.2 5.4 0.4 6.3 1.4 28.7 59.4

Additions due to changes in consolidation structure 0.2 – – – – – 0.2

Interest component – 0.2 – – – – 0.2

Utilization (4.9) (3.7) (0.3) (5.4) (36.9) (4.7) (55.9)

Release (17.9) – (2.5) (4.9) (2.3) (7.5) (35.1)

Foreign currency effects 0.1 – 0.1 0.1 – (0.1) 0.2

December 31, 2016 58.0 14.8 7.7 6.8 7.6 37.0 131.9

thereof current 58.0 9.4 7.7 6.8 7.6 31.5 121.0

thereof non-current – 5.4 – – – 5.5 10.9

Personnel-related provisions include provisions for pre-retirement part-time working arrangements and long-service awards. The interest component on pre-retirement part time working arrangements and the interest component on long-service awards are included in interest expenses.

Provisions for restructuring mainly consist of provisions relating to the “P100” project.

Other provisions include, in particular, provisions for the process of winding up a company (see Note 36 “Events after the Balance Sheet Date”), penalties, withholding tax obligations, electricity tax assessment, asset retirement obligations and litigation.

12 Other Current Liabilities


Payroll and social security taxes 93.5 94.4

Sales and other taxes 21.4 18.8

Other liabilities 7.8 8.4

122.7 121.6


Annual Report 2016

13 Financial Liabilities

Financial liabilities consist of the following as of December 31, 2016 and 2015:


Current

Short-term borrowings due to financial institutions 1 59.0 38.2

Short-term debt to MC Familiengesellschaft mbH 7.6 –

Short-term debt due to other third parties 6.0 2.0

Current portion of long-term debt due to financial institutions 49.4 51.8

Current portion of long-term debt due to Giesecke & Devrient Foundation 0.8 –

Accrued interest on debt to financial institutions 0.8 0.5


Total current portion of financial liabilities 127.0 101.6

Non-current

Unsecured notes payable to financial institutions, interest rates 1.05% to 3.50%, due through August 31, 2020 198.2 234.9

Unsecured notes payable to Giesecke & Devrient Foundation, interest rates 2.33% to 3.50%, due through December 31, 2020 20.7 20.7

Unsecured notes payable to other third parties, interest rates 0.21% to 2.65%, indefinte maturity date 2.3 0.3

Unsecured notes payable to other third parties, interest rate 0.18%, due through December 31, 2020 0.8 0.8

Mortgage notes payable to financial institutions, interest rates 1.55% to 3.15%, due through March 31, 2023 28.3 37.0

Secured notes payable to financial institutions, interest rate 4.96%, due through January 4, 2017 (early repayment in 2016) – 7.3


Total 253.3 301.8

Less current portion of non-current financial liabilities (50.2) (51.8)

Total non-current portion of financial liabilities 203.1 250.0

Total financial liabilities 330.1 351.6

1 Amount includes mortgage notes payable to financial institutions in the amount of EUR 2.1 million and EUR 2.6 million as well as through inventory secured notes payable to financial institutions in the amount of EUR 0.4 million and EUR 0.4 million as of December 31, 2016 and December 31, 2015

The aggregate maturities of financial liabilities for each of the following years are as follows:

EUR million

2017 127.0

2018 159.4

2019 10.1

2020 26.5

2021 2.1

thereafter 5.0

330.1

Lines of Credit

Giesecke+Devrient maintains global credit facilities in the amount of EUR 828.4 million (as of December 31, 2015: EUR 776.0 million). As of December 31, 2016, G+D used EUR 287.3 million (as of December 31, 2015: EUR 350.9 million) of these facilities for bank guarantee purposes, EUR 59.0 million (as of December 31, 2015: EUR 50.2 million) for credit orders and EUR 6.0 million for other third parties. Thus, EUR 476.1 million (as of December 31, 2015: EUR 374.9 million) in credit lines were not used as of the reporting date.

75

14 Pensions and Related Liabilities

Description of the Plans

Giesecke+Devrient maintains defined benefit pension plans for a considerable number of employees in Germany and at a few subsidiaries abroad. This defined benefit pension plans charge the Group with actuarial risks such as longevity risks, currency exchange risks and interest rate risks.

In addition to the number of years of service, the defined benefit pension plans are based on the current salary received or are dependent on the final salary. For most of the employees who had employment contracts from January 1, 2002 onwards with a German Group company, the pension plan is based on pension components whose benefits are adjusted each year by 1%. Furthermore, employees in German Group companies are granted the right to use particular salary components for future pension payments.

The measurement date for the calculation of the DBO for the principal pension plans and the other key postretirement benefits is December 31.

Payment obligations exist for defined contribution state pension plans in Germany and abroad.

Due to the continued low interest period and the changes in the legal and economic environment, the defined benefit pension plans in Germany were amended. The amendments became effective as of January 1, 2014. With these amendments, the benefit level of the present defined benefit pension plan was reduced. For new employees joining G+D after January 1, 2014, the existing defined contribution plan was terminated. For employees joining the company from January 1, 2014 on, an externally financed pension obligation is planned. An additional amendment to the defined benefit pension plan became effective as of January 1, 2016. The benefit level of the present defined benefit pension plan has been reduced. Moreover, claims that have already been earned by employees that are entitled to pensions according to the pension plan from 1996 have been frozen and future entitlements will be calculated in accordance with the pension plan from 2002. In fiscal year 2015, this had a one-time effect on consoli-dated net income. The curtailment resulting from the restructuring project also resulted in a one-time effect in the consolidated net income in fiscal year 2015.

Total Provisions for Pensions and Related Liabilities

The obligations under the Giesecke+Devrient pension plans and other postretirement benefit plans are comprised of the following:


Pension benefits 584.8 512.4

Other postretirement benefits 1.5 1.2

Other 0.5 0.5

Total accrual for pension and related liabilities 586.8 514.1


Annual Report 2016

Pensions and Other Postretirement Benefits

Details of the changes in the defined benefit obligation, the current value of plan assets and the other postretirement benefits are summarized in the following tables:

EUR million

Pension benefit plansOther postretirement

benefit plans

Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015

Change in defined benefit obligation

Defined benefit obligation at beginning of year 526.2 568.3 1.2 0.9

Foreign currency exchange rate differences 0.8 (0.6) – 0.1

Service cost 8.8 20.7 0.2 0.2

Interest cost 13.4 12.6 0.1 0.1

Past service cost – (26.4) – –

Curtailments – (9.8) – –

Plan amendments – (16.6) – –

Plan participants’ contributions 0.1 – – –

Additions / (disposals) due to changes in consolidation structure 12.7 1.4 – –

Actuarial (gains) / losses 57.5 (39.4) – –

due to demographic parameter changes 0.2 0.2 – –

due to financial parameter changes 58.2 (34.7) – –

due to experience adjustments (0.9) (4.9) – –

Benefits paid (11.8) (10.4) – (0.1)

Defined benefit obligation at end of year 607.7 526.2 1.5 1.2

Change in plan assets

Fair value of plan assets at beginning of year 13.8 13.8 – –

Foreign currency exchange rate differences 0.4 (0.5) – –

Actual return on plan assets (excluding expected interest income) 0.1 0.1 – –

Expected interest income 0.5 0.4 – –

Additions / (disposals) due to changes in consolidation structure 7.6 – – –

Employer contributions 1.0 0.4 – –

Plan participants’ contributions 0.1 – – –

Benefits paid (0.6) (0.4) – –

Fair value of plan assets at end of year 22.9 13.8 – –

Net amount recognized at end of year 584.8 512.4 1.5 1.2

Net Liability Recorded

The development of the net liability recorded in fiscal years ended December 31, 2016 and 2015 is as follows:

EUR million


benefit plans

Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015

Net liability at beginning of year 512.4 554.5 1.2 0.9

Service cost 8.8 20.7 0.2 0.2

Past service cost – (26.4) – –

Curtailments – (9.8) – –

Plan amendments – (16.6) – –

Interest expense / (income) 12.9 12.2 0.1 0.1

Additions / (disposals) due to changes in consolidation structure 5.1 1.4 – –

Actuarial (gains) / losses 57.5 (39.4) – –

due to demographic parameter changes 0.2 0.2 – –

due to financial parameter changes 58.2 (34.7) – –

due to experience adjustments (0.9) (4.9) – –

Actual return on plan assets (excluding expected interest income) (0.1) (0.1) – –

Benefits paid (excluding plan settlements) (11.2) (10.0) – (0.1)

Employer contributions (1.0) (0.4) – –

Foreign currency exchange rate differences 0.4 (0.1) – 0.1

Net liability at end of year 584.8 512.4 1.5 1.2

77

Plan Assets

The plan assets were invested in the following classes of assets:

Information as % of plan assets Dec. 31, 2016 Dec. 31, 2015

Cash surrender value of reinsurance 31.1 50.7

Equity securities 27.4 24.1

Debt instruments 24.0 10.3

Real estate funds 7.3 –

Money market funds 6.3 13.5

Other 3.9 1.4

100.0 100.0

The majority of the plan assets are invested in money market funds, equity securities and in the form of cash surrender value of reinsurance policies and shares in mutual funds for German companies. Furthermore, plan assets are invested in debt instruments and real estate funds. The management and reinvestment are controlled by defined investment policies which foresee investment in high quality and diversified investment classes.

Additions to plan assets in the amount of EUR 0.2 million (prior year EUR 0.4 million) are planned for fiscal year 2017. There are no minimum funding requirements.

Actuarial Assumptions

The discount rates and percentages for salary and pension increases assumed in the determination of the future pension obligations fluctuate in accordance with the economic situation in the countries in which pension plans exist. The weighted average assumptions for the calculation of the actuarial amounts are as follows:

%


benefit plans

Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015

Discount rate / expected return on plan assets 2.0 2.6 7.2 7.6

Rate of compensation increase 2.5 2.5 6.4 6.3

Rate of pension progression 1.5 1.5 – –

Mortality tables

Germany RT Heubeck 2005 G

RT Heubeck 2005 G

Canada

2014 CPM table with mortality improvement scale CPM-B

2014 CPM table with mortality improvement scale CPM-B

Switzerland BVG2015.GT

The rate for the expected long-term return on plan assets corresponds with the discount rate. The weighted average term for pension obligations amounts to 19.7 years (prior year 19.0 years) and 10.6 years for other benefit obligations (prior year 11.4 years).


Annual Report 2016

Sensitivity Analysis

The results of the sensitivity analyses for the significant actuarial assumptions for pension obligations as of December 31, 2016 and December 31, 2015 are as follows:

Change of Defined Benefit Obligation


Discount rate + 50 basis points (53.9) (51.1)

Discount rate – 50 basis points 61.3 59.1

Rate of pension progression + 25 basis points 14.2 13.8

Rate of pension progression – 25 basis points (14.3) (13.2)

Increase of 2 years in life expectancy 43.6 24.0

The assumptions for all sensitivity calculations were not performed jointly, but rather individually for each calculation assumption examined.

Contributions to Pension Plans

Contributions to state pension plans in the amount of EUR 25.6 million and EUR 26.2 million were recorded in 2016 and 2015, respectively. Payments amounting to EUR 0.4 million and EUR 0.2 million were made for the newly established company pension plans in 2016 and 2015, respectively.

15 Revenue

Revenue is comprised of the following categories:


Sales of goods 1,793.4 1,744.1

Rendering of services 278.4 253.1

Royalties 17.2 13.7

2,089.0 2,010.9

16 Income and Expenses Relating to Other Periods


Income relating to other periods 35.9 36.0

Expenses relating to other periods (6.1) (4.9)

29.8 31.1

Income relating to other periods consists primarily of releases of warranty provisions included in cost of goods sold. Expenses relating to other periods mainly comprise tax expenses for prior periods.

79

17 Other Financial Income, net


Gains / (losses) from trading securities, net (0.4) (0.5)

Foreign currency exchange gains / (losses), net (2.8) (10.0)

Gains / (losses) from derivative financial instruments, net (1.4) (3.1)

Other financial income / (expenses), net – 4.0

(4.6) (9.6)

The changes in net unrealized gains and losses on trading securities included in earnings during the fiscal years ending December 31, 2016 and 2015 were EUR – 0.3 million and EUR – 2.7 million, respectively.

Prior year other financial income includes the sale of shares in Trustonic Ltd., Cambridge, Great Britain (see Note 6 “Investments”).

18 Interest Income and Interest Expense


Interest income

Loans and receivables 0.1 0.3

Cash and cash equivalents / short-term investments 0.7 0.5

Trading securities 0.7 0.9

Taxes receivable 0.3 0.1

Interest derivatives 0.1 –

Receivables from associated companies and joint ventures 0.1 0.1

Other 0.3 0.6

2.3 2.5

Interest expense


Financial liabilities and finance lease obligations 6.3 8.0

Interest derivatives – (0.2)

Other provisions 0.2 –

Provisions for pensions 12.9 12.0

Taxes payable 0.1 –

Other 2.9 3.9

23.1 24.3

Interest income and expense relating to financial assets and financial liabilities that are not valued at fair value are as follows:


Interest income


Cash and cash equivalents / short-term investments 0.7 0.5

0.9 0.9

Interest expense


Financial liabilities measured at amortized cost 6.3 8.0

7.0 8.6


Annual Report 2016

19 Income Taxes

Income Tax Expense

Income tax expense for fiscal years 2016 and 2015 is comprised of:


Current income tax

Current year income tax expense (34.4) (40.2)

Income tax expense for prior periods (5.1) (2.9)

(39.5) (43.1)

Deferred income tax

Gross income from origination and reversal of temporary differences and tax loss carryforwards 3.4 3.4

Income tax expense from changes in tax rates and introduction of new taxes (0.9) (0.4)

Change in usability of tax loss carryforwards (8.9) 14.8

(6.4) 17.8

Income tax expense, net (45.9) (25.3)

For the fiscal year ended December 31, 2016, G+D was subject to German federal corporate tax at a base rate of 15% for the parent company plus a solidarity surcharge of 5.5% on federal corporate taxes payable. Hence, the statutory rate consisted of a federal corporate tax rate of 15.83% and trade tax of 15.68%, resulting in a combined tax rate of 31.51%.

Reconciliation Between the Expected and Actual Income Tax Expense

Following is a reconciliation of the expected income tax expense to the actual income tax expense which was recorded. The calculation of the expected income tax expense is based on the multiplication of income before income tax at the German corporate combined statutory rate of 31.51% and 31.70% in 2016 and 2015, respectively.


Expected income tax expense (31.0) (25.3)

Foreign taxation differential 4.1 (1.2)

Non-deductible expenses (4.8) (5.5)

Changes in tax rates (0.9) (0.4)

Tax-free income 1.3 2.8

Additions due to tax risks and tax payments (refunds) for prior years – (2.0)

Changes in tax loss carryforwards (8.9) 14.8

Withholding taxes (4.8) (8.0)

Other (0.9) (0.5)

Actual income tax expense (45.9) (25.3)

81

Deferred Tax Assets and Liabilities

The gross values of deferred tax assets and liabilities as of December 31, 2016 and 2015 are attributable to the following balance sheet line items:

EUR million

Assets Liabilities Net

Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015

Financial assets 0.2 0.3 (3.3) (3.4) (3.1) (3.1)

Accounts receivable trade and other receivables, net 0.8 1.1 (0.9) (0.4) (0.1) 0.7

Inventories, net 13.2 12.6 – – 13.2 12.6

Other assets 0.9 0.7 (0.3) (0.3) 0.6 0.4

Intangible assets 9.3 7.0 (10.2) (9.6) (0.9) (2.6)

Property, plant and equipment 2.5 16.5 (14.8) (15.7) (12.3) 0.8

Accounts payable trade and other accounts payable 0.9 1.9 (0.8) (0.9) 0.1 1.0

Provisions 23.3 20.8 (2.5) – 20.8 20.8

Financial liabilities 1.1 2.8 – – 1.1 2.8

Finance lease obligations 0.2 0.3 – – 0.2 0.3

Deposits received / deferred income 0.5 0.2 – (3.0) 0.5 (2.8)

Pensions and related liabilities 102.4 82.1 – (0.3) 102.4 81.8

Other liabilities 3.2 3.7 (1.8) – 1.4 3.7

Tax loss carryforwards 35.0 30.4 – – 35.0 30.4

Deferred tax assets / (liabilities), gross 193.5 180.4 (34.6) (33.6) 158.9 146.8

Set-off of tax (28.3) (27.5) 28.3 27.5 – –

Deferred tax assets / (liabilities), net 165.2 152.9 (6.3) (6.1) 158.9 146.8

The changes in deferred tax assets, net included in net income or other comprehensive income for fiscal years 2016 and 2015 are included in the following summary:


Deferred tax assets, net as of January 1 146.8 139.7

Changes affecting net income (6.4) 17.9

Changes not affecting net income

Additions due to changes in consolidation structure 0.6 –

Changes in net deferred tax assets recognized in other comprehensive income resulting from deferred tax assets on actuarial gains and losses 17.7 (11.8)

Changes in net deferred tax assets recognized in other comprehensive income resulting from deferred tax assets on cash flow hedges – (0.2)

Changes in net deferred tax assets recognized in other comprehensive income resulting from deferred tax assets on foreign currency translations 0.2 1.2

Deferred tax assets, net as of December 31 158.9 146.8

Deferred Tax Assets not Recorded in the Balance Sheet

The amount of deductible timing differences and tax loss carryforwards, for which deferred tax assets were not recorded, are as follows:

EUR million

2016 2015

Gross amount Tax effect Gross amount Tax effect

Deductible temporary differences 5.8 1.8 3.2 0.9

Unused tax losses 198.7 54.0 180.8 49.4

204.5 55.8 184.0 50.3

Unused tax loss carryforwards in the amount of EUR 0.5 million can be carried forward for a limited period in time. The remaining EUR 198.2 million are available indefinitely.

Furthermore, deferred tax assets in the amount of EUR 35.0 million and EUR 30.4 million on tax loss carryforwards in the amount of EUR 116.7 million and EUR 103.4 million were recorded as of December 31, 2016 and 2015, respectively.


Annual Report 2016

The determining factor in recognizing deferred tax assets is the probability of the reversal of the temporary differences which resulted in the recognition of the deferred tax assets and future taxable profit against which the unused tax losses can be utilized. This is dependent on future taxable profits arising in those periods in which taxable temporary differences reverse and tax losses carryforwards may be utilized. As of December 31, 2016, significant deferred tax assets were recorded on tax loss carryforwards by the following companies: Giesecke & Devrient GmbH, Munich, EUR 31.2 million and Giesecke & Devrient Nordic AB, Stockholm, EUR 2.9 million. Expected taxable profits based on the forecasts for the next five years are recognized by the respective companies. Based upon the level of historical taxable income and projections of future taxable income, G+D believes that it is not probable that the benefits of deductible timing differences and carryforward tax losses in the amount of EUR 204.5 million and EUR 184.0 million will be realized and therefore has not recognized deferred tax assets for these amounts in 2016 and 2015.

Income Tax on Dividends

As of December 31, 2016 and 2015, G+D recorded deferred tax liabilities on cumulative earnings in subsidiaries and investments that are intended for distribution. Furthermore, deferred taxes were recorded on the taxable temporary differences relating to investments in associated companies and joint ventures. As of December 31, 2016 and 2015, the amount of these obligations was EUR 0.1 million and EUR 0.1 million, respectively.

The temporary differences relating to investments in subsidiaries for which deferred tax liabilities were not recorded amounted to EUR 1.2 million and EUR 7.2 million as of December 31, 2016 and 2015, respectively.

20 Equity

As of December 31, 2016 and 2015, the nominal value of the treasury stock amounted to EUR 4.8 million, respectively.

Unappropriated reserves amounted to EUR 282.1 million and EUR 297.8 million as of December 31, 2016 and 2015, respectively.

With respect to capital management, the main objective of Giesecke+Devrient is to secure its continuation as well as generate shareholder value, i.e. in the form of dividend payments. As of December 31, 2016 and 2015, the equity ratio amounted to 19.4% and 18.9%, respectively. G+D is not subject to external minimum capital requirements.

83

21 Financial Instruments

The following table incorporates the carrying amounts and fair values of G+D’s financial instruments. The pure exit price is thereby understood as the fair value of a financial instrument. This is the price at which a transaction to sell an asset or to transfer a liability would take place under current market conditions.

The table does not contain information relating to fair values of financial assets or liabilities that are not valued at fair value if the carrying amount represents a reasonable approximation of the fair value.

EUR million

December 31, 2016 December 31, 2015

Carrying value Fair value Carrying value Fair value

Cash and cash equivalents 243.6 – 293.2 –

Short-term investments 1.2 – 0.1 –

Financial assets 1

Trading securities 61.8 61.8 67.2 67.2

Available-for-sale securities 9.3 9.3 7.7 7.7

Derivative financial assets 1.6 1.6 6.0 6.0

Loans receivable 1.0 – 4.7 –

Total 73.7 72.7 85.6 80.9

Accounts receivable trade and other receivables, net 2 417.1 – 386.7 –

Total financial assets 735.6 72.7 765.6 80.9

1 Amount does not include cash surrender value of reinsurance in the amount of EUR 20.6 million and EUR 17.9 million as of December 31, 2016 and 2015, respectively, as this is not included in the scope of IFRS 7

2 Amount does not include prepayments in the amount of EUR 51.8 million and EUR 30.7 million as of December 31, 2016 and 2015, respectively, as these are not included in the scope of IFRS 7

EUR million



Accounts payable trade and other accounts payable 1 261.4 – 239.6 –

Financial liabilities

Financial liabilities measured at amortized cost 323.7 327.4 341.7 347.2

Derivative financial liabilities 6.4 6.4 10.0 10.0

Total 330.1 333.8 351.7 357.2

Finance lease obligations 5.9 3.7 8.1 5.9

Total financial liabilities 597.4 337.5 599.4 363.1

1 Amount does not include deposits received in the amount of EUR 206.6 million and EUR 266.7 million as of December 31, 2016 and 2015, respectively, as these are not included in the scope of IFRS 7


Annual Report 2016

The carrying values represent cost or amortized cost. The carrying values of financial assets and financial liabilities summarized by the individual classes are as follows:

EUR million



Loans and receivables 418.1 – 391.4 –

Financial assets held for trading

Derivative financial assets 1.6 1.6 6.0 6.0

Trading securities 61.8 61.8 67.2 67.2

Total 63.4 63.4 73.2 73.2

Available-for-sale securities 9.3 9.3 7.7 7.7

Special classes

Cash and cash equivalents 243.6 – 293.2 –

Short-term investments 1.2 – 0.1 –

Financial assets 735.6 72.7 765.6 80.9

Financial liabilities measured at amortized cost

Financial liabilities 323.7 327.4 341.7 347.2

Accounts payable 261.4 – 239.6 –

Total 585.1 327.4 581.3 347.2

Financial liabilities held for trading 4.8 4.8 8.4 8.4

Derivative financial instruments included in hedge accounting 1.6 1.6 1.6 1.6

Special class

Finance lease obligations 5.9 3.7 8.1 5.9

Financial liabilities 597.4 337.5 599.4 363.1

The fair value of foreign currency forward contracts (including cross-currency-swap) and interest swaps is based on market comparisons since similar contracts are being traded on active markets. In 2016, there was no net change in the fair value. The fair value in the amount of EUR 3.0 million is recorded under non- current financial liabilities as of December 31, 2016. As of December 31, 2016 and 2015, derivative financial instruments are stated at fair value and recorded on the balance sheet under current financial assets in the amount of EUR 1.6 million and EUR 6.0 million, under current financial liabilities in the amount of EUR 3.4 million and EUR 9.1 million and under non-current financial liabilities in the amount of EUR 0.0 million and EUR 0.9 million, respectively. The call and put option for the 25% share in CI Tech Sensors AG were valued via discounted cash flows that are expected from the investment. The predicted annual growth rate and EBITDA margin as well as the risk adjusted discount rate are considered to be the material unobservable input factors.

In 2016, there was no net change in the fair value. The fair value in the amount of EUR 3.0 million is recorded under current financial liabilities as of December 31, 2016.

The nominal volume of foreign currency forward contracts entered into by Giesecke+Devrient as of December 31, 2016 amounted to:

million foreign currency units Purchase contracts

Sales contracts

US dollar 28.5 60.3

British pound 19.7 1.0

Canadian dollar 14.6 –

Swedish krona – 7.0

85

Financial Instruments not Valued at Fair Value

Cash, Short-term Investments, as well as the Current Portion of Accounts Receivable, Other Assets, Loans, Trade Accounts Payable and Other Accounts Payable, and Other Liabilities The carrying amounts of these financial instruments are considered to approximate fair value because of the relatively short period of time between origination and their expected realization.

Financial Instruments Valued at Fair Value

The fair values of non-derivative financial instruments for the individual classes are as follows:

Marketable Securities Debt and equity securities are carried at fair value, which is based on quoted market prices at the balance sheet date.

Investments If the fair value cannot be readily determined, investments are recorded at acquisition cost (“other related parties”). Investments in other related parties are generally recognized at the lower of their acquisition cost or recoverable amounts.

Non-current Financial Assets and Financial Liabilities as well as Finance Lease Obligations The fair value is determined based on the amortized cost using the effective interest method. Under this method, the expected future cash flows are discounted using the prevailing market rate as of the balance sheet date for similar maturities and contracts.

As of December 31, 2016 and 2015, there were no significant differences between the fair values and the carrying values of non-current financial assets.

Impairment losses and reversals of impairment losses during fiscal years 2016 and 2015 related solely to financial assets in the class “loans and receivables”.


Impairment losses (6.8) (6.0)

Reversals of impairment losses 3.0 2.2

(3.8) (3.8)

Net gains and losses from financial assets and liabilities by measurement category amounted to:


Loans and receivables (6.2) (2.7)

Financial assets and financial liabilities held for trading (6.5) (6.0)

Financial liabilities measured at amortized cost 0.6 1.1

(12.1) (7.6)

Net gains and losses on loans and receivables consist of results from impairments, reversals of impairments and foreign currency exchange effects.

Net gains and losses on financial assets and liabilities measured at fair value contain results from changes in fair market values and adjustments on settlement of these financial instruments.

Net gains and losses from financial liabilities measured at amortized cost contain foreign currency exchange effects.


Annual Report 2016

Derivative Financial Instruments within the Scope of Hedge Accounting Operating segments apply hedge accounting for specific material pending transactions in foreign currency. The company utilizes forward exchange contracts on pending transactions to manage the foreign currency exposure on future cash flows resulting from significant orders in foreign currency exceeding USD 10.0 million.

Fair Value Hedges Since fiscal year 2009, pending transactions are hedged by using forward exchange contracts that are classified as foreign currency fair value hedges for future sales. Changes in market value of such trans-actions are recognized in financial result. Changes in derivatives were also recognized in financial income /(expenses) resulting in valuation effects in the amount of EUR – 0.4 million and EUR – 11.5 million on hedging instruments and EUR 0.4 million and EUR 11.5 million on firm commitments in 2016 and 2015. The market value of the hedging instruments amounted to EUR – 1.3 million as of December 31, 2016.

Cash Flow Hedges On April 4, 2012, the subsidiary Giesecke & Devrient Malaysia SDN BHD received a variable interest loan in the amount of MYR 110.0 million. The residual value amounted to MYR 34.4 million as of December 31, 2015 and MYR 0.0 million as of December 31, 2016.

The calculations of the retrospective effectiveness indicated that the hedging transaction was no longer effective as of December 31, 2015. The effects in equity not affecting net income, arising from the hedging transaction as of January 1, 2015 in the amount of EUR 0.4 million were initially frozen and reversed on a pro rata temporis basis within the interest result over the remaining term of the underlying transaction until the end of fiscal year 2016. In 2016 and 2015, this resulted in income in the amount of EUR 0.0 million and EUR 0.2 million.

The foreign currency loan was repaid early in fiscal year 2016. The market value amounted to EUR 0.0 million as of December 31, 2016 and EUR 7.3 million as of December 31, 2015.

In April 2012, all assets and liabilities were transferred from MC Vermögensverwaltung GmbH & Co. KG to Giesecke & Devrient GmbH. In connection with the contribution, a variable interest loan in the amount of EUR 46.4 million and a related interest rate swap were assumed. Linear principal payments on the loan are made quarterly. The final installment is due on December 31, 2018. By means of an interest rate swap, the variable interest rate was swapped into a fixed interest rate of 3.15%. At the time of contribution, a hedge relationship was determined between the loan and the interest rate swap and recognized as a cash flow hedge. The cash flow hedge is effective. The market value of the interest rate swap amounted to EUR – 0.4 million and EUR – 0.8 million as of December 31, 2016 and December 31, 2015. The fair value was determined using the market comparison method.

Calculation of the Fair Values of Financial Instruments In the following table, financial instruments measured at fair value are allocated to levels in accordance with IFRS 7, “Financial Instruments: Disclosures”. Thereby, the fair value measurement of a financial instrument is allocated in its entirety to the level for which inputs are material to determine its fair value. On level 1, fair values are mainly determined by using quoted prices in active markets for identical financial assets or liabilities. The fair values on level 2 are determined via market comparison procedures based on observable quoted prices for similar financial assets or liabilities. Fair value measurements on level 3 are mainly based on unobservable market data. In 2015, Giesecke+Devrient determined fair values of financial instruments based on level 1 and level 2. The fair value measurement of level 3 was only used for the valuation of the call and put option relating to the shares in CI Tech Sensors AG in 2016. In 2016 and 2015, no material reclassifications between the levels were recorded.

87

Allocation of the fair value measurement of classes of financial assets and liabilities to levels in accordance with IFRS 13 as of December 31, 2016:

Classes of Financial Instruments

EUR million

Dec. 31, 2016

thereof fair value measurement at the end of the reporting period using

Level 1 Level 2 Level 3

Financial assets


Derivative financial instruments 1.6 – 1.6 –

Trading securities 61.8 61.8 – –

Available-for-sale securities 9.3 9.3 – –


Financial liabilities held for trading

Derivative financial instruments 6.4 – 3.4 3.0


Financial liabilities 327.4 – 327.4 –

Special class

Finance lease obligations 3.7 – 3.7 –

Allocation of the fair value measurement classes of financial assets and liabilities to levels in accordance with IFRS 13 as of December 31, 2015:

Classes of Financial Instruments

EUR million

Dec. 31, 2015

thereof fair value measurement at the end of the reporting period using

Level 1 Level 2 Level 3

Financial assets



Trading securities 67.2 67.2 – –

Available-for-sale securities 7.7 7.7 – –


Financial liabilities held for trading



Financial liabilities 347.2 – 347.2 –

Special class

Finance lease obligations 5.9 – 5.9 –

22 Financial Risk

Giesecke+Devrient is subject to typical liquidity risk, counterparty credit risk, and market risks stemming from changes in exchange rates, interest rates, and share prices. On the procurement side, these risks are associated with an increase in prices for raw materials (particularly semiconductors and cotton). These risks can adversely impact the net assets, financial position, and results of operations and are primarily managed as part of the Group’s ongoing business and financing activities. Additionally, financial risks affecting the G+D Group and its operating subsidiaries are identified centrally on the basis of written guidelines and their management is also largely handled by Giesecke & Devrient GmbH. Financial risk forms part of the monthly risk reports submitted to the Management Board and is also included in regular reporting to the Supervisory and Advisory Boards.

If necessary, derivative financial instruments are used in relation to foreign currency and interest rates to hedge underlying transactions. In accordance with risk management standards applying to international banks, all trading activity is subject to financial monitoring that is independent of the Group’s treasury department.


Annual Report 2016

Risk Measurement Methods

Risk positions (relating to foreign currency, interest rates, financial investment, and procurement) are monitored regularly using sensitivity analysis. The modified duration risk measure is used for interest rate risks associated with bond investments. This measure indicates the percentage by which the price of the bond changes if market interest rates move by one percentage point. The Value-at-Risk (VAR) measure is used for equity investments. Total risk comprises equity risk and specific risk. This measure indicates the maximum loss not exceeded for a specific equity position with a given probability of 95% and a holding period of 10 days.

Liquidity Risk

Liquidity risk is managed centrally by Giesecke & Devrient GmbH based on the annual planning for all Group companies. This is complemented by short-term liquidity planning for the main Group companies. Centralized cash management is based on a contractual agreement, which sees the main German and foreign Group companies participating in the cash pooling system.

In addition to the provision of sufficient cash, the agreement of predominantly long-term credit lines with blue chip banks assures appropriate liquidity to cover fluctuations in operating activities. These cash credit facilities were renegotiated by the parent company Giesecke & Devrient GmbH in 2013, resulting in an increase to EUR 180.0 million and a longer, standardized maturity until December 20, 2018. Group-wide cash credit lines thus increased to EUR 260.7 million. In addition, short and medium-term guaranteed credit lines of EUR 556.5 million are in place, based on bilateral agreements with the same banking circle. At the balance sheet date of December 31, 2016, credit line facilities approved in writing were available in the amount of EUR 817.2 million. At the preceding balance sheet date of December 31, 2015, credit line facilities approved in writing amounted to EUR 776.0 million. The credit line was utilized in the form of guaranteed credit and bank loan agreements of EUR 346.4 million (prior year EUR 399.1 million). In addition to that, there are credit line facilities with other third parties amounting to EUR 11.2 million as of Decem-ber 31, 2016 (prior year EUR 11.2 million). G+D utilized EUR 6.0 million (prior year EUR 2.0 million) of these lines.

In addition, securities with a carrying and market value of EUR 71.1 million (prior year EUR 74.9 million) were held within the G+D Group, most of them realizable within three months. Financial investments with a maturity of longer than three months totalled EUR 1.2 million (prior year EUR 0.1 million). The following tables show the G+D Group’s contractually agreed (undiscounted) interest payments and repayments on the original financial liabilities, as well as derivative financial instruments with a negative fair value:

Information on Liquidity Risk at December 31, 2016

EUR million

Carrying

value

Gross out-

flows

Up to 1 year 1–2 years 2–3 years 3– 4 years 4 –5 years More than 5 years

Repay-ment Interest

Repay-ment Interest

Repay-ment Interest

Repay-ment Interest

Repay-ment Interest

Repay-ment Interest

Original financial liabilities

Accounts payable trade, financial liabilities, and financial lease obligations 591.1 601.6 386.8 5.7 161.6 4.2 10.2 1.0 26.5 0.4 2.1 0.1 3.0 –

Derivative financial liabilities

Derivative financial instruments 6.4 6.4 3.4 – 3.0 – – – – – – – – –

Total 597.5 608.0 390.2 5.7 164.6 4.2 10.2 1.0 26.5 0.4 2.1 0.1 3.0 –

Information on Liquidity Risk at December 31, 2015

EUR million

Carrying

value

Gross out-

flows

Up to 1 year 1–2 years 2–3 years 3– 4 years 4 –5 years More than 5 years

Repay-ment Interest

Repay-ment Interest

Repay-ment Interest

Repay-ment Interest

Repay-ment Interest

Repay-ment Interest

Original financial liabilities

Accounts payable trade, financial liabilities, and financial lease obligations 589.4 606.9 334.5 8.0 53.5 4.8 159.6 3.3 10.2 0.8 26.5 0.4 5.1 0.2

Derivative financial liabilities

Derivative financial instruments 10.0 10.0 9.1 – 0.9 – – – – – – – – –

Total 599.4 616.9 343.6 8.0 54.4 4.8 159.6 3.3 10.2 0.8 26.5 0.4 5.1 0.2

89

All financial instruments held as of December 31, 2016 and December 31, 2015 for which payments were already contractually agreed have been included. Target figures for future new liabilities are not included. Amounts in foreign currencies were translated at the closing rate applicable on the reporting date. Variable interest payments from financial instruments were determined by applying the last fixed interest rates before December 31, 2016 or December 31, 2015, respectively. Financial liabilities that are repayable at any time are always assigned to the earliest time period.

Default Risk

Giesecke+Devrient protects itself against the risk of bad debts through an internal system of assessing customers with regard to their payment ability. Based on a rating process, customers are assigned the category A to C. Doubtful positions are strictly limited and agreed payment terms are closely monitored. Where customer creditworthiness is an issue, measures to secure payment, such as confirmed and unconfirmed letters of credit, are requested if possible to minimize credit risk. To fulfill reporting requirements in accordance with IFRS 7, the maximum credit risk with regard to loans and receivables to customers corresponds to the carrying value of these financial assets. With regard to financial guarantees, the maximum credit risk is the maximum amount that the Group would have to pay.

Market Risk

A Currency RiskDue to its international focus, Giesecke+Devrient has supply streams and cash flows in various currencies related to both import and export activities. Maintaining production locations worldwide is one response to foreign currency risk, as is netting imports and exports in the appropriate currency at Group level. Relevant currency risks and obligations (fixed contracts, orders) for the Group as a whole are identified centrally, aggregated, and netted as far as possible. The balance remaining from operations and financing activities within the Group as of the balance sheet date is fully covered on an ongoing basis using appropriate financial instruments, i.e. exclusively forward exchange contracts and swap transactions. In the main foreign currency, the US dollar, exports and imports virtually balance out over the year. Since fiscal year 2011, therefore, US dollar risk has been identified based on rolling 12-month cash flow planning. Hedging would only take place if defined net threshold amounts were exceeded. Deviations between the import and export side in the course of the year are offset by currency swaps. Contracts with a value greater than USD 10.0 million will continue to be hedged separately using forward exchange contracts and accounted for as fair value hedges.

The net assets associated with Group companies located outside the eurozone and translation risks relating to the sales and earnings of these companies are not hedged against exchange rate fluctuations.

At the balance sheet date of December 31, 2016 (2015), G+D was exposed to the following material net risks in foreign currencies (net exposure / value of financial derivatives greater than EUR 5.0 million):

Net Currency Exposure at December 31, 2016 (December 31, 2015)

Foreign currency risk in EUR million

BRL CAD GBP INR RMB USD

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Net exposure 19.5 11.9 (13.5) (1.7) (7.9) (14.2) 11.0 4.9 35.3 25.5 29.3 21.9

Firm commitment – – – – – – – – – – (23.9) (51.7)

Financial derivatives – 8.3 (10.3) (1.0) (21.8) (10.2) – 2.9 – 19.6 30.2 113.0

BRL = Brazilian real, CAD = Canadian dollar, GBP = British pound, INR = Indian rupee, RMB = Chinese renminbi, USD = US dollar

Intercompany receivables and payables in foreign currencies are included in the net risks. The effects of valuation as of the balance sheet date influence the consolidated income statement and are not eliminated.

Sensitivity analysis is used to determine the impact of hypothetical changes to the respective risk variables on income and total equity as of the balance sheet date. Only the main foreign currencies are considered.


Annual Report 2016

Assuming that the euro had risen or fallen by 10% against the specified foreign currencies as of Decem-ber 31, 2016 (2015), the effect on total equity and the income statement (without consideration of tax effects) is shown below. Differences arising from translating the financial statements into the reporting currency are not considered.

In the case of original financial instruments, effects exceeding EUR 2.0 million on total equity and the income statement only arise with two currencies.

Original Financial Instruments (Impact > EUR 2.0 million)

Impact in EUR million

Equity Profit / Loss

2016 2015 2016 2015

– 10% + 10% – 10% + 10% – 10% + 10% – 10% + 10%

USD (2.9) 2.9 (2.2) 2.2 (2.9) 2.9 (2.2) 2.2

RMB (3.5) 3.5 (2.6) 2.6 (3.5) 3.5 (2.6) 2.6

In the case of derivative financial instruments, effects exceeding EUR 2.0 million on total equity and the income statement likewise arise with the following currencies.

Derivative Financial Instruments (Impact > EUR 2.0 million)

Impact in EUR million

Equity Profit / Loss

2016 2015 2016 2015

– 10% + 10% – 10% + 10% – 10% + 10% – 10% + 10%

USD 2.7 (3.4) 10.3 (12.6) 2.7 (3.4) 10.3 (12.6)

RMB – – 1.8 (2.2) – – 1.8 (2.2)

GBP (2.0) 2.4 (0.9) 1.1 (2.0) 2.4 (0.9) 1.1

B Interest Rate RiskThe Group is primarily funded by way of bank loans and finance leases with interest rates that are fixed or variable until the end of the respective term. In contrast, most interest-rate-sensitive financial assets are subject to a variable interest rate. Cash and cash equivalents are excluded. Market interest rate changes therefore have an effect on Group earnings and equity.

At the balance sheet date of December 31, 2016 (2015), the values were as follows:

Interest Rate Risk: Financial Instruments

EUR million

Effective rate of interest Total amount Up to 1 year 1–2 years 2–5 years Over 5 years

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Fixed-interest financial instruments

Financial liabilities (current and non-current) and financial lease obligations 2.0 2.2 269.8 311.2 66.4 56.3 161.6 53.5 38.8 196.3 3.0 5.1

Variable-interest financial instruments

Financial liabilities 3.0 6.2 59.0 38.2 59.0 38.2 – – – – – –

Risks from interest rate changes are identified at regular intervals and included in risk reporting. Derivative financial instruments in the form of an interest rate swap have been used to manage interest rate risk for a variable interest long-term loan taken up in 2012.

In 2012, a variable interest rate loan and associated interest rate swap were contributed to Giesecke & Devrient Gesellschaft mit beschränkter Haftung which were transferred to the newly founded Giesecke & Devrient Grundstücksgesellschaft mbH & Co. KG on December 31, 2015. At the time of con-tribution, a hedged relationship was designated between the loan and the interest rate swap, which has since then been accounted for as a cash flow hedge.

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Sensitivity analysis of interest rate risk shows the effect of a change in market interest rates of 100 basis points (one percentage point) on the income statement (without consideration of tax effects) and on total equity. All other variables are assumed to be constant. Within the sensitivity analysis prescribed by IFRS 7, however, only the impact on net income and total equity is considered and not the impact on future cash flows. Deferred interest payments recognized as liabilities are therefore restated using the hypothetical market interest rate as of the balance sheet date.

The evaluation of the cash flow hedge accounting designated interest swap would result in an increase or a reduction in total equity of EUR 0.2 million as of December 31, 2016 (2015: EUR 0.3 million) respectively EUR – 0.2 million (2015: EUR – 0.3 million).

The cross-currency swap related to a long-term loan in Malaysian Ringgit (MYR) which was noted last year has been terminated in 2016 by early redemption of the loan.

The effect of a 100-basis-point change in market interest rates on net income and total equity as of December 31, 2016 (2015) is below EUR 1.0 million for financial assets and other financial liabilities, with the exception of bonds, and is therefore immaterial. For bonds, the following sensitivity analysis applies:

Modified Duration Bonds

2016 2015

Bond holdings in EUR million 24.3 33.7

Return in % 1.6 1.3

Duration in years 5.6 4.2

Modified duration in % 5.5 4.2

Potential loss / gain in EUR million (1.3) (1.4)

The modified duration table indicates the change in total income from bonds if the market interest rate falls or rises by one percentage point.

The effect of a one-percentage-point rise in the market interest rate on net income (without consideration of tax effects) and total equity as of December 31, 2016 is EUR – 1.3 million (prior year EUR – 1.4 million). A corresponding one-percentage-point decline in the market interest rate would have an equal but opposite impact on pre-tax earnings and total equity, assuming all other variables remained constant.

C Financial Investment RiskLiquid cash is invested in overnight and time deposits and commercial paper. Decisions regarding duration are based on liquidity planning, sometimes favoring short-term deposits with a maturity of less than three months (cash and cash equivalents) and sometimes deposits with a maturity of longer than three months (current financial assets). Investments are also made in equities and bonds through special funds. For all forms of investment, emphasis is placed on ensuring that the counterparty is robust and that the price risk is as low as possible.

As well as bank deposits, a significant amount is invested in a special fund with an established German investment management company in order to achieve higher returns. This investment is in a portfolio of blue chip bonds (government and corporate bonds) and equities (blue chip companies). This mix mini- mizes the related risk. Equities comprise a maximum of 40% of the total portfolio. The risk associated with this financial investment is stated monthly for equities using the value-at-risk (VAR) measure as provided by the investment management company responsible. As of December 31, 2016 (2015), the values were as follows:

Value-at-Risk: Equities

2016 2015

Equity holdings in EUR million 31.2 28.8

VAR in % 6.1 7.1

Potential loss / gain in EUR million (1.9) (2.0)


Annual Report 2016

VAR analysis is based on the assumption of a 10-day holding period, a 95% confidence interval and a past observation period of 52 weeks. Expected figures are used to calculate volatility and correlations. These are dynamically derived from the relevant equity/bond structure (interest rate structure).

In addition to the special fund, the Group holds securities, which are classified as available-for-sale securities. The carrying value as of December 31, 2016 was EUR 9.3 million (prior year EUR 7.7 million). The majority of these securities are holdings in investment funds which serve as insolvency insurance to cover the provision for pensions and pre-retirement part-time working arrangements. No sensitivity analysis was performed on these holdings due to the very minor fluctuations in their value. G+D has not identified any concentration of risk as defined in IFRS 7.34.

The information in this section is disclosed in accordance with IFRS 7 “Financial Instruments: Disclosures”.

23 Construction Contracts

The details relating to construction contracts in progress are as follows:


Costs incurred to date – 0.8

Recognized profits / (losses), net – 2.1

– 2.9

Progress billings – (2.9)

– –

Gross amount due from customers for contract work – –

Gross amount due to customers for contract work – –

– –

Future receivables from and liabilities due to construction contracts are included under other current assets and under other current liabilities.

Contract revenues recognized in fiscal years 2016 and 2015 amounted to EUR 0.0 million, respectively.

24 Business Combinations

G+D includes the results of operations of the acquired business starting from the date of acquisition for business combinations. The net assets acquired are recorded at fair value at the date of acquisition. The excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired is recorded as goodwill in the accompanying consolidated balance sheet.

Effective January 1, 2015, a significant portion of the government division was transferred into a joint venture with Bundesdruckerei. The partners combined their international business comprised of solutions for highly secure identification, for example, passports and government ID systems in this new joint venture named Veridos GmbH. G+D holds 60% of the shares of the joint venture. In this context, Bundes-druckerei acquired 33% of the shares of Veridos GmbH by contributing its foreign ID business operations (see Note 25 “Disclosures on material non-controlling interests”). G+D Group thereby acquired the entire foreign ID operations of Bundesdruckerei (represents a business as defined by IFRS 3) via Veridos GmbH on January 1, 2015 and controls this business through the subsidiary Veridos GmbH. As a result of this control, the Group has the possibility to continue expanding internationally in the government business unit. Thus, the Group primarily expects to gain access to the market. In return, non-controlling interests in the Veridos subgroup with a fair value of EUR 14.8 million were transferred. The following identifiable assets and liabilities were assumed:

EUR million

Order backlog 2.3

Cash and cash equivalents 9.4

Personnel provisions 1.3

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The acquired net assets amounted to EUR 10.4 million which resulted in goodwill in the amount of EUR 4.4 million. The goodwill recognized is expected to be fully deductible for tax purposes. Bundes- druckerei obtained a 33% share in the Veridos subgroup via this transaction. Further 7% were acquired from Giesecke & Devrient GmbH for cash (see Note 25 “Disclosures on material non-controlling interests”). The 40% non-controlling interests in foreign identification operations were recorded at the fair value which amounted to EUR 5.9 million as of January 1, 2015.

Since the foreign identification operations were fully integrated into the Veridos subgroup on January 1, 2015, and are not run as an independent company, disclosure of revenues or profit / loss in fiscal year 2015 is not determinable.

G+D held 50% of the shares in CI Tech Components AG until fiscal year 2016. The sensors business was transferred to CI Tech Sensors AG via a contribution in kind in 2016. Both G+D and the joint venture partner held half of the shares in that company.

There was an exchange of shares in which G+D received 25% of the shares in CI Tech Components AG in exchange for 25% of the shares in CI Tech Sensors AG. Thus, the share of equity of the G+D Group increased from 50% to 75%. On April 1, 2016 (time of acquisition), G+D assumed control over CI Tech Components AG.

CI Tech Components AG develops and sells machines for handling bank notes. The machines for handling bank notes are mainly utilized for automated cash registers, ticket vending machines and cash machines. Consequently, CI Tech Components AG is mainly a supplier of components for manufacturers of cash registers, ticket vending machines and cash machines. G+D obtained the strategic management of the module business and expects an increased market share as well as a decrease in costs due to economies of scale.

In connection with exchange of shares, the joint venture partners agreed on a call and put option for each of remaining 25% shares. The options can be exercised starting January 1, 2018. G+D has a purchase option (call option) and the joint venture partner has a right to sell the remaining 25% shares in CI Tech Compo-nents AG (inversely for 25% of the shares in CI Tech Sensors AG). For G+D, the joint venture partner’s put option represents an obligation to purchase equity instruments in the subsidiary in exchange for cash. According to the anticipated acquisition method, the present value of the preferential price was recorded as a financial liability and represents part of the consideration. Thus, G+D does not record a non-controlling interest in CI Tech Components AG.

The consideration transferred at the time of acquisition amounted to EUR 22.1 million and comprises the fair value of the existing 50% of the shares in CI Tech Components AG (EUR 11.0 million), the fair value of the assets surrendered in the amount of EUR 5.5 million (25% of the shares in CI Tech Sensors AG), the financial liability in the amount of the present value of the preferential price of the put option of the non-controlling shareholder (EUR 2.5 million) and, in connection with the transaction, the fair value of the short position received on the joint venture partner’s call option for the remaining 25% of CI Tech Sensors AG (EUR 3.0 million). There was no material gain or loss from the revaluation of the existing shares.

The identifiable assets acquired and liabilities assumed consist of:

EUR million

Property, plant and equipment 4.0

Intangible assets 18.0

Accounts receivable trade 1.2

Other current assets 2.7

Deferred tax assets 0.6

Provisions 5.5

Liabilities 12.9

The current assets contain cash and cash equivalents amounting to EUR 0.5 million.

On April 1, 2016, the difference between the fair value of the consideration in the amount of EUR 22.1 million and the fair value of the identifiable net assets of CI Tech Components AG amounting to EUR 8.1 million was recorded as goodwill in the amount of EUR 14.0 million. Essentially, the goodwill is attributable to the skills of the CI Tech Components AG staff and the expected synergies. The goodwill recorded is not expected to be deductible for tax purposes.


Annual Report 2016

Between the acquisition on April 1, 2016 and December 31, 2016, CI Tech Components AG contributed EUR 5.0 million in sales revenues and a net loss in the amount of EUR 3.0 million to the Group result. If the acquisition had occurred as of January 1, 2016, the group net income would have amounted to EUR 52.0 million and the group sales revenues would have amounted to EUR 2,090.6 million.

In a contract from February 20, 2017, G+D and the joint venture partner agreed to sell the remaining shares (51%) in EPC Electronic Payment Cards Gesellschaft für Kartenmanagement mbH to G+D. The G+D Group will own 100% of the shares upon fulfillment of certain closing conditions. The G+D Group will assume control over EPC Electronic Payment Cards Gesellschaft für Kartenmanagement mbH and fully consolidate the company in the course of the year 2017.

25 Disclosures on Material Non-controlling Interests

The disclosures on material non-controlling interests (NCI) are as follows:

EUR million

G&D LOMO, ZAO St. Petersburg

Veridos Matsoukis S.A. Security Printing

Athens

secunet Security Networks AG Essen,

including subsidiaries

Giesecke & Devrient Kabushiki Kaisha

Tokyo

Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015

Capital shares NCI 15.3% 15.3% 64.0% 64.0% 20.6% 20.6% 49.0% 49.0%

Voting rights NCI 15.3% 15.3% 64.0% 64.0% 20.6% 20.6% 49.0% 49.0%

Profit / (loss) attributable to NCI 0.3 0.1 0.1 0.3 1.9 1.3 0.7 0.7

Dividend paid to NCI (0.4) (0.2) – – (0.5) (0.4) (0.4) (0.2)

Share of equity relating to NCI 0.7 0.8 3.3 3.2 9.6 8.3 4.3 3.9

Assets 1 8.1 8.8 16.6 18.2 99.1 77.0 9.0 9.6

thereof cash and cash equivalents 1 3.8 4.5 1.0 1.7 50.2 38.0 5.3 6.7

Liabilities 1 2.9 3.4 11.4 13.2 52.1 36.8 2.2 3.6

Revenues 1 22.4 19.2 18.6 13.9 115.7 91.1 16.7 17.6

Other comprehensive income 1 (1.7) (0.5) – – (0.3) – 0.3 0.5

Comprehensive income 1 0.4 0.4 0.2 0.5 9.2 6.1 1.7 2.0

1 before elimination of group transactions; aggregated (not proportional)

EUR million

Giesecke & Devrient Malaysia SDN BHD

Kuala LumpurVeridos GmbH

Berlin 2Veridos FZE

Dubai

Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015

Capital shares NCI 20.0% 20.0% 40.0% 40.0% 40.0% 0.0%

Voting rights NCI 20.0% 20.0% 40.0% 40.0% 40.0% 0.0%

Profit / (loss) attributable to NCI 0.6 0.5 1.6 (4.2) (1.1) –

Dividend paid to NCI (0.4) – – – – –

Share of equity relating to NCI 9.3 9.1 8.3 8.7 (4.2) –

Assets 1 58.7 60.9 103.8 118.6 27.3 –

thereof cash and cash equivalents 1 0.8 2.1 3.2 0.6 0.2 –

Liabilities 1 10.0 13.1 75.1 93.2 27.5 –

Revenues 1 33.6 38.5 111.3 99.0 64.8 –

Other comprehensive income 1 – (0.3) (0.8) 1.8 – –

Comprehensive income 1 2.9 2.0 4.1 (8.8) (6.6) –

1 before elimination of group transactions; aggregated (not proportional)2 The non-controlling shareholders also hold shares in Veridos Canada Ltd., Veridos Brasil Comércio de Smart Cards e Soluções

para Identificação Segura e Autenticação Ltda., Veridos México S.A. de C.V., Veridos Matsoukis S.A. Security Printing, Veridos America Inc., Veridos FZE and Firdaus Al Aman for general Trading via Veridos GmbH

95

G+D sold 40% of the shares in Veridos GmbH to Bundesdruckerei GmbH on January 1, 2015 and thereby also Veridos GmbH shares in subsidiaries Veridos Matsoukis S.A. Security Printing, Veridos Canada Ltd., Veridos México S.A. de C.V. and Veridos Brasil Comércio de Smart Cards e Soluções para Identificação Segura e Autenticação Ltda. The transaction was executed in two steps: First, Bundesdruckerei contributed its foreign ID operations (fair value EUR 14.8 million) to Veridos GmbH. In exchange, they received 33% of the shares in the Veridos subgroup. In the second step, Giesecke & Devrient GmbH sold 7% of the shares for a cash contribution of EUR 4.5 million from which EUR 0.8 million was accrued as a down payment for Veridos FZE which was yet to be contributed to the Veridos subgroup. Therefore, the purchase price amounted to EUR 18.5 million. The book value of the net assets of the Veridos subgroup amounted to EUR 24.8 million at the time of sale (considering non-controlling interests in Veridos Matsoukis S.A. Security Printing). Consequently, G+D recorded an increase in non-controlling interests amounting to EUR 9.8 million as well as an increase in retained earnings amounting to EUR 8.7 million. On October 1, 2016, Veridos FZE was contributed into the Veridos subgroup. Due to the negative net assets of Veridos FZE, the non-controlling interests decreased by EUR 3.1 million and retained earnings increased by EUR 3.8 million.

26 Related Party Disclosures

Transactions with MC Familiengesellschaft mbH

Since 2012, MC Familiengesellschaft mbH is the Group parent company of Giesecke & Devrient Gesellschaft mit beschränkter Haftung.

In 2016, G+D received a loan from MC Familiengesellschaft mbH in the amount of EUR 7.6 million. The duration of the loan is until January 2017 and is due at maturity. The interest rate is 1.05%. As of December 31, 2016 and December 31, 2015, MC Familiengesellschaft invested EUR 0.1 million and EUR 0.0 million at G+D by means of the intercompany cash pool account. As of December 31, 2016 and December 31, 2015, no further material transactions involving receivables and liabilities or expenses and income with MC Familien - gesellschaft mbH existed.

Giesecke & Devrient Gesellschaft mit beschränkter Haftung entered into a service contract with MC Familien- gesellschaft mbH. G+D renders accounting / taxes, finance and IT-system services. The allocated fee is immaterial.

Transactions with Giesecke & Devrient Foundation

In fiscal year 2010, G+D established the Giesecke & Devrient Foundation. The grants amounted to EUR 0.3 million and EUR 0.3 million in fiscal years 2016 and 2015, respectively. In addition, the company holds a loan from the Giesecke & Devrient Foundation in the amount of EUR 20.7 million and EUR 20.7 million as of December 31, 2016 and December 31, 2015. Interest expense amounted to EUR 0.6 million and EUR 0.6 million in 2016 and 2015, respectively (see Note 13 “Financial Liabilities”).


Annual Report 2016

Transactions between Affiliated Companies and Joint Ventures, Associated Companies and Other Related Parties

Transactions were carried out between affiliated companies and joint ventures, associated companies and other related parties. The following summary presents these transactions from the viewpoint of the affiliated companies:

EUR million

Services rendered Services received

2016 2015 2016 2015

Joint ventures

Goods and services 19.4 19.4 12.6 13.3

Dividends 1.3 2.5 – –

Other financial transactions 0.2 0.2 0.3 0.5

20.9 22.1 12.9 13.8

Associated companies

Goods and services 0.2 – – –

0.2 – – –

Other related parties

Goods and services 0.1 0.1 0.3 0.3

Other financial transactions – – 0.6 0.6

0.1 0.1 0.9 0.9

21.2 22.2 13.8 14.7

Accounts receivable and accounts payable from joint ventures and associated companies are comprised of the following:


Joint ventures

Loans receivable from joint ventures 0.4 4.4

Accounts receivable from joint ventures 5.9 6.2

Accounts payable to joint ventures 8.5 1.6

Associated companies

Loans receivable from associated companies 0.6 0.3

Accounts receivable from associated companies 0.2 –

Accounts payable to associated companies – 0.1

As of December 31, 2016, there were no contractual commitments to related parties (prior year EUR 3.2 million).

None of the balances from joint ventures and associated companies are secured.

Refer to disclosure 31 “Commitments and Contingent Liabilities” for commitments and contingent liabilities from joint ventures.

97

Transactions with Members of Key Management Personnel

The members of key management personnel include the members of the Management Board of Giesecke & Devrient GmbH, the parent company MC Familiengesellschaft mbH as well as the members of the Supervisory Board and the Advisory Board since these bodies are responsible for planning, managing and monitoring the Group activities.

Compensation of Key Management PersonnelThe total compensation for active members of key management personnel amounted to EUR 7.8 million and EUR 7.9 million in 2016 and 2015, respectively.

In 2016 and 2015, the short term benefits amounted to EUR 5.6 million and EUR 6.0 million, respectively. Thereof, EUR 4.7 million (prior year EUR 5.2 million) are attributable to the members of the Management Board, EUR 0.4 million (prior year EUR 0.4 million) to the Supervisory Board, and EUR 0.5 million (prior year EUR 0.4 million) to the Advisory Board.

The past service cost for pensions for members of the Management Board (benefits after termination of employment contract) amounted to EUR 0.5 million and EUR 0.4 million in 2016 and 2015, respectively.

Furthermore, long term benefits for active members of the Management Board amounted to EUR 1.7 million (prior year EUR 1.5 million).

In the current year, as in the prior year, members of the management board obtained consent to receive 40% of their variable salary at the end of two additional years (deferral). The payment is based on the target achievement of average ROCE (return on capital employed) for fiscal years 2016 and 2015 and the two following years. The right to deferral only exists if employment persists or is terminated because of specific predetermined reasons. The related expense is included in other long term payments.

Some components of compensation will be paid in the following periods. The consolidated financial statements therefore include provisions for pensions for members of the Management Board amounting to EUR 2.6 million and EUR 6.2 million as of December 31, 2016 and 2015, respectively, as well as provisions or payables relating to compensation for members of the Management Board, the Supervisory Board, and the Advisory Board in the amount of EUR 4.1 million and EUR 4.3 million, respectively.

Total remuneration in accordance with commercial law corresponds to the mentioned short-term benefits.

Business Transactions with Members of Key Management Personnel or Other Related PartiesIn the course of ordinary business activities, Giesecke+Devrient receives services and consultancy services from companies and personnel with connections to the members of the Supervisory Board and Advisory Board or to the shareholder. Expenses to other related parties for consultancy services amounted to EUR 0.2 million and EUR 0.2 million in 2016 and 2015, respectively. The outstanding balances as of December 31, 2016 and December 31, 2015 amounted to less than EUR 0.1 million.

No prepayments or loans to members of the Management Board, the Supervisory Board or the Advisory Board were granted in fiscal years 2016 and 2015.

Former Key Management Personnel of Giesecke & Devrient GmbHCompensation to former members of the Management Board and their survivors amounted to EUR 1.8 million and EUR 1.1 million in 2016 and 2015, respectively.

Pension obligations to former members of the Management Board and their survivors amounted to EUR 20.3 million and EUR 16.2 million as of December 31, 2016 and 2015, respectively.


Annual Report 2016

27 Number of Employees

The average number of full-time equivalent employees (excluding trainees and employees on maternity leave):

2016 2015

Production 7,417 7,559

Sales 1,333 1,299

Research and development 1,173 1,165

Administration 1,384 1,301

11,307 11,324

28 Personnel Expenses


Wages and salaries 545.5 546.5

Social security contributions 88.1 88.7

Other personnel expenses 10.0 (0.8)

643.6 634.4

Other personnel expenses include past service costs in the amount of EUR 0.0 million and EUR 26.4 million (income) in 2016 and 2015, respectively.

29 Disclosure in Accordance with § 161 AktG

The consolidated financial statements include secunet AG, a publicly traded company. In accordance with § 161 AktG (German Stock Corporation Act), the management of secunet AG has filed the required declaration and made it permanently available to shareholders on their website (http://www.secunet.com).

30 Exemption from the Disclosure of the Annual Financial Statements and Management Report in Accordance with § 264 / § 264 b HGB

The following companies will exercise their right not to prepare annual financial statements as well as not to prepare management reports in accordance with the rules for corporate entities and certain registered partnerships as corporate entities (§ 264 section 3 HGB) or partnerships that do not have an individual person either directly or indirectly as a general partner (“Kapitalgesellschaft und Co.”) (§ 264 b HGB). They also exercise their right not to have them audited or to disclose them: – Giesecke+Devrient Mobile Security GmbH, Munich – Giesecke+Devrient Currency Technology GmbH, Munich – Papierfabrik Louisenthal GmbH, Gmund am Tegernsee – Giesecke & Devrient 3S GmbH, Munich – Giesecke & Devrient Secure Data Management GmbH, Neustadt b. Coburg – MC Holding GmbH & Co. KG, Tutzing – Giesecke & Devrient Grundstücksgesellschaft mbH & Co. KG, Grünwald

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31 Commitments and Contingent Liabilities

Legal Proceedings / Contingent LiabilitiesGiesecke+Devrient is involved in pending claims and legal proceedings arising in the ordinary course of business. Provisions have been made for estimated liabilities for certain items. G+D is of the opinion that the resolution of all such matters will not have a material impact on G+D’s net assets, results of operations and financial position.

Contingent liabilities in the amount of EUR 6.5 million as of December 31, 2016 (as of December 31, 2015: EUR 10.3 million) relating to tax risks outside Germany exist. As of December 31, 2016, additional contingent liabilities relating to legal disputes amounting to EUR 3.5 million exist. G+D is of the opinion that claims relating to these tax risks and legal disputes are improbable.

GuaranteesGiesecke+Devrient does not hold material amounts of financial assets which serve as collateral for liabilities or contingent liabilities. Moreover, G+D does not hold collateral which it would be permitted to sell or repledge in the event of default by the owner of the collateral.

G+D has issued guarantees for deposits received in the amount of EUR 80.5 million as of December 31, 2016 and EUR 125.6 million as of December 31, 2015.

Giesecke+Devrient guarantees indebtedness of a joint venture concerning contractual performance to third parties. These arrangements cover credit lines of the joint venture in the amount of up to EUR 10.0 million in 2016 and 2015, respectively. Amounts relating to interest charges are also guaranteed. In the event of default of the joint venture, G+D is required to repay the borrowings covered by these guarantees. The maximum exposure relating to these guarantees amounted to EUR 10.0 million as of December 31, 2016 and December 31, 2015, respectively.

There is an unlimited letter of comfort between Giesecke & Devrient GmbH and EPC Electronic Payment Cards Gesellschaft für Kartenmanagement mbH. G+D anticipates that the total claim will amount to EUR 6.0 million for which a provision has already been set up as of December 31, 2016.

CommitmentsAs of December 31, 2016, Giesecke+Devrient has material purchase commitments which mainly consist of short-term agreements that were entered into during the 2016 fiscal year for the purchase of supplies, inventories, property, plant and equipment, and services.

The aggregate amount of required payments for commitments as of December 31, 2016 is allocated to the respective years as follows:

EUR million

2017 161.9

2018 20.1

2019 3.8

2020 0.4

2021 2.8

thereafter 2.7

191.7

In December 2016, G+D made a commitment to purchase 16.29% of Solacia Inc., Seoul, Korea in the amount of EUR 6.0 million (KRW 7,656.0 million). This investment is expected to be accounted for under the equity method.


Annual Report 2016

32 Grants

Grants from fiscal authorities and from the Sächsische Aufbaubank are primarily received by G+D for non- current assets. The grants are given under the condition of maintaining the non-current assets for at least five years. In fiscal years 2016 and 2015, Giesecke+Devrient recorded grants in the amount of EUR 2.6 million and EUR 4.8 million which were offset against the acquisition and manufacturing costs.

Furthermore, in fiscal years 2016 and 2015 G+D received other miscellaneous grants for operational investments in the amount of EUR 1.3 million and EUR 1.4 million, which were recognized in other operating income. At present, there is reasonable assurance that the attached conditions will be fulfilled.

33 Risks

Refer to section 3 of the Group management report, “Risk and Compliance Management”, for the related disclosures.

34 Audit Fees in Accordance with § 314 Paragraph 1 Nr. 9 HGB

The audit fees for KPMG AG for the fiscal year ended 2016 amounted to EUR 4.8 million. The break down into categories is as follows: a) fees for audit services EUR 1.2 million, b) fees for audit-related services EUR 0.1 million, c) fees for tax-related services EUR 1.6 million and d) fees for all other services EUR 1.9 million.

35 Group to which the Company Belongs

MC Familiengesellschaft mbH is the parent company of the Giesecke+Devrient Group (see Note 26 “Related Party Disclosures”). As of December 31, 2016, consolidated financial statements and a group management report will be prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The consolidated financial statements of MC Familiengesellschaft mbH will published electronically in the German Federal Gazette.

36 Events after the Balance Sheet Date

Until the end of fiscal year 2016, G+D owned 49% of the shares in EPC Electronic Payment Cards Gesell- schaft für Kartenmanagement mbH, Gmund am Tegernsee. The strategic management of the joint venture was in the hands of Deutsche Sparkassen Verlag GmbH (DSV) which owned 51% of the shares. Being virtually the only customer in January 2017, DSV decided on a multi-customer strategy and cancelled the existing contracts with EPC. Thus, EPC loses its basis for business. In order to avoid insolvency, G+D will assume the shares of DSV and will enact the termination of operations. G+D recorded a provision for the expenses relating to the closure of the business in the amount of EUR 6.0 million in the annual financial statements.

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37 Shareholdings

Direct and Indirect Investments Held by Giesecke & Devrient GmbH in Affiliated Companies

Shareholding in %

Giesecke+Devrient Mobile Security GmbH, Munich 100.00

Giesecke+Devrient Currency Technology GmbH, Munich 100.00

MC Holding GmbH & Co. KG, Tutzing 100.00

Giesecke & Devrient Grundstücksgesellschaft mbH & Co. KG, Grünwald 1 100.00

Giesecke & Devrient Immobilien Verwaltungsgesellschaft mbH, Grünwald 100.00

Papierfabrik Louisenthal GmbH, Gmund am Tegernsee 100.00

Giesecke & Devrient 3S GmbH, Munich 100.00

Giesecke & Devrient Secure Data Management GmbH, Neustadt b. Coburg 100.00

Giesecke & Devrient International Finance S.A., Luxembourg 100.00

GyD Ibérica S.A., Barcelona 100.00

Giesecke & Devrient Currency Technology Iberia S.L., Barcelona 100.00

Giesecke & Devrient GB Ltd., Wembley / Middlesex 100.00

Giesecke & Devrient Currency Technology GB Ltd., Milton Keynes 100.00

Giesecke & Devrient Schweiz AG, Burgdorf 100.00

Giesecke & Devrient Slovakia, s.r.o., Nitra 100.00

Giesecke & Devrient Italia, S.R.L., Milan 100.00

Giesecke & Devrient Currency Technology Italia S.R.L., Rome 100.00

Giesecke & Devrient France S.A.S., Paris 100.00

Giesecke & Devrient Nordic AB, Stockholm 100.00

Giesecke & Devrient 3S Oy, Helsinki 100.00

Giesecke & Devrient Istanbul Ticaret ve Servis Ltd. Sirketi, Istanbul 100.00

Giesecke & Devrient Mobile Security Russia, OOO, Moscow 100.00

Giesecke & Devrient FZE, Dubai 100.00

Giesecke & Devrient Mobile Security FZCO, Dubai 100.00

Giesecke & Devrient Holding FZE, Dubai 100.00

Giesecke & Devrient Egypt Ltd. i.L., Cairo 100.00

Giesecke & Devrient (Southern Africa) (Pty) Ltd., Johannesburg 100.00

Giesecke & Devrient Mobile Security Southern Africa (Pty) Ltd., Johannesburg 100.00

Giesecke & Devrient Africa Ltd., Lagos 100.00

Giesecke & Devrient America, Inc., Dulles / Virginia 100.00

Giesecke & Devrient Mobile Security America, Inc., Dulles / Virginia 100.00

BA International, Inc., Ottawa / Ontario 100.00

Giesecke & Devrient Systems Canada, Inc., Toronto / Ontario 100.00

Giesecke y Devrient de México S.A. de C.V., Mexico City 100.00

Giesecke y Devrient Currency Technology de México, S.A. de C.V., Mexico City 100.00

G&D América do Sul Indústria e Comércio de Smart Cards Sociedade Anonima, São Paulo 100.00

Giesecke & Devrient Brasil Ltda., São Paulo 100.00

GyD Latinoamericana S.A., Buenos Aires 100.00

Giesecke & Devrient Australasia Pty. Ltd., Knoxfield / Victoria 100.00

Giesecke & Devrient Asia Pte. Ltd., Singapore 100.00

Giesecke & Devrient Asia Pacific Banking Systems (Shanghai) Co. Ltd., Shanghai 100.00

Giesecke & Devrient (China) Information Technologies Co., Ltd., Nanchang / Jiangxi 100.00

Giesecke & Devrient Asia Pacific Ltd., Hong Kong 100.00

Giesecke & Devrient India Private Limited, New Delhi 100.00

Giesecke & Devrient MS India Private Limited, New Delhi 100.00

Giesecke & Devrient Korea Co., Ltd., Seoul 100.00

PT Giesecke & Devrient Indonesia, Jakarta 100.00

PT Giesecke und Devrient Mobile Security Indonesia, Jakarta 100.00

Giesecke & Devrient Egypt Services LLC i.L., Cairo 99.00

G&D LOMO, ZAO, St. Petersburg 84.69

Giesecke & Devrient Malaysia SDN BHD, Kuala Lumpur 80.00

secunet Security Networks AG, Essen 79.43

secunet SwissIT AG, Solothurn 79.43

SECUNET s.r.o., Prague 79.43

secunet Inc., Austin (shell company) 2 79.43

CI Tech Components AG, Burgdorf 75.00

Veridos GmbH, Berlin 60.00

Veridos Canada Ltd., Toronto / Ontario 60.00


Annual Report 2016

Direct and Indirect Investments Held by Giesecke & Devrient GmbH in Affiliated Companies

Shareholding in %

Veridos America Inc., Wilmington / Delaware 60.00

Veridos FZE, Dubai 60.00

Firdaus Al Aman for general Trading, Baghdad 60.00

Veridos Brasil Comércio de Smart Cards e Soluções para Identificação Segura e Autenticação Ltda., São Paulo 60.00

Veridos México S.A. de C.V., Mexico City 60.00

Giesecke & Devrient Kabushiki Kaisha, Tokyo 51.00

Veridos Matsoukis S.A. Security Printing, Athens 36.00

1 The general partner is Giesecke & Devrient Immobilien Verwaltungsgesellschaft mbH, Grünwald2 Not consolidated due to immateriality

Investments Held by Giesecke & Devrient GmbH in Associated Companies and Joint Ventures

Shareholding in %

E-Kart Elektronik Kart Sistemleri Sanayi ve Ticaret Anonim Sirketi, Gebze 50.00

Shenzhen G&D Currency Automation Systems Co. Ltd., Shenzhen 50.00

EPC Electronic Payment Cards Gesellschaft für Kartenmanagement mbH, Gmund am Tegernsee 49.00

Emirates German Security Printing L.L.C., Abu Dhabi 29.40

CI Tech Sensors AG, Burgdorf 25.00

Fit Pay, Inc., San Francisco / California 19.93

finally safe GmbH, Essen 14.30

The affiliated company Huangshi G&D Wanda Security Card Co. Ltd., Huangshi / Hubei Province, was merged into Giesecke & Devrient (China) Information Technologies Co., Ltd., Nanchang / Jiangxi.

Munich, March 30, 2017

Giesecke & Devrient GmbHThe Management Board

[original German version signed by:]

Ralf Wintergerst Stefan Auerbach Hans Wolfgang Kunz Dr. Peter ZattlerChairman

103

Corporate Bodies

Supervisory Board

Prof. Klaus Josef Lutz(Chairman) Munich

Walter Bogner 1

(Deputy Chairman) Dachau

Achim BergHennef-Rott

Prof. Dr. Gabi Dreo RodosekHaar

Georg FahrenschonNeuried

Ralf Gerlach 1

Gilching

Peter Hanke 1

Pirna

Astrid Meier 1

Munich

Claudia Scheck 1

Königsmoos

Verena von Mitschke-CollandeTutzing

Monika Wächter 1

Gmund

Stefan WinnersMunich

1 Employee representatives

Advisory Board

Prof. Klaus Josef Lutz(Chairman) Munich

Verena von Mitschke-Collande(Deputy Chairman) Tutzing

Achim BergHennef-Rott

Georg FahrenschonNeuried

Prof. Dr. Gabi Dreo RodosekHaar

Stefan WinnersMunich

Management Board

Ralf Wintergerst(Chairman since November 1, 2016)

Dr. Walter Schlebusch(Chairman until October 31, 2016)

Stefan Auerbach

Hans Wolfgang Kunz

Dr. Peter Zattler

Corporate BodiesLegal Notice104 Giesecke+ Devrient

Annual Report 2016

Legal Notice

Published by

Giesecke & Devrient GmbHPrinzregentenstrasse 15981677 MunichGermanyP +49 89 41 19-0F +49 89 41 19-15 35www.gi-de.com

Project Management

Corporate CommunicationsP +49 89 41 19-11 66F +49 89 41 19-12 08

Concept, editorial, design

KMS TEAM GmbH, MunichWMP Finanzkommunikation GmbH, Frankfurt / Main

Photography

Alberto Venzago, ZurichThomas Dashuber, MunichAlamy Stock Photo Getty Images Stocksy United

Printing

Estermann Druck GmbH, Aurolzmünster

Print compensatedId-No. 1763374

www.druckmedien.at

The Annual Report of Giesecke & Devrient GmbH is printed on FSC®-certified paper. By choosing FSC® paper, we are supporting an environmentally and socially responsible approach to forest management.

This Annual Report is also available in German. Both versions can be found on the G+D website: www.gi-de.com

© Giesecke & Devrient GmbH, 2017. Printed in Austria. All rights reserved. No reproduction in any form without permission.

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